15

is issued by an investment company registered under the Investment Company Act of 1940, (c) that is a put or call option issued by Options Clearing Corporation, (d) that has a price of five dollars (US) or more, or (e) whose issuer has net tangible assets in excess of $2,000,000(US), if the issuer has been in continuous operation for at least three years, or $5,000,000(US) if the issuer has been in continuous operation for less than three years, or average revenue of at least $6,000,000(US) for the last three years.

The Company'sCompany’s Common Shares are presently considered "penny stock"“penny stock” under these criteria. Therefore, the Common Shares are subject to Rules 15g-2 through 15g-9 (the "Penny“Penny Stock Rules"Rules”) under the Exchange Act. The "penny stock"“penny stock” trading rules impose duties and responsibilities upon broker-dealers and salespersons effecting purchase and sale transactions in the Company'sCompany’s shares, including determination of the purchaser'spurchaser’s investment suitability, delivery of certain information and disclosures to the purchaser, and receipt of a specific purchase agreement from the purchaser prior to effecting the purchase transaction.  Compliance with the "penny stock"“penny stock” trading rules affect or will affect the ability to resell the Company's Company’s

- 14 -

shares by a holder principally because of the additional duties and responsibilities imposed upon the broker-dealers and salespersons recommend ingrecommending and effecting sale and purchase transactions in such securities.  In addition, many broker-dealers will not effect transactions in penny stocks, except on an unsolicited basis, in order to avoid compliance with the "penny stock"“penny stock” trading rules.  Consequently, the "penny stock"“penny stock” trading rules may materially limit or restrict the number of potential purchasers of the Company'sCompany’s shares and the ability of a holder to resell our stock.

So long as the Common Shares are within the definition of "Penny Stock"“Penny Stock” as defined in Rule 3a51-1 of the Exchange Act, the Penny Stock Rules will continue to be applicable to the Common Shares. Unless and until the price per share of Common Shares is equal to or greater than $5.00(US), or an exemption from the rule is otherwise available, the Common Shares may be subject to substantial additional risk disclosures and document and information delivery requirements on the part of brokers and dealers effecting transactions in the Common Shares. Such additional risk disclosures and document and information delivery requirements on the part of such brokers and dealers may have an adverse effect on the market for and/or valuation of the Common Shares.

26.

Classification as a Passive Foreign Investment Company has adverse income tax consequences for United States shareholders.  The Company believes it is a Passive Foreign Investment Company ("PFIC"(“PFIC”), as that term is defined in Section 1297 of the Internal Revenue Code of 1986, as amended, and believes it will be a PFIC in the foreseeable future. Consequently, this classification will result in adverse tax consequences for U.S. holders of the Company'sCompany’s shares. For an explanation of these effects on taxation, see Item 10. Additional Information – United States Federal Income Tax Consequences. U.S. shareholders and prospective holders of the Company'sCompany’s shares are also encouraged to consult their own tax advisers.

27.

The Company and its principals and assets are located outside of the United States which makes it difficult to effect service of process or enforce within the United States any judgments obtained against the Company or its officers or directors.  Substantially all of the Company'sCompany’s assets are located outside of the United States and the Company does not currently maintain a permanent place of business within the United States.  In addition, most of the directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons'persons’ assets are located outside the United States.  As a result, it may be difficult for investors to effect service of process or enforce within the United States any judgments obtained against the Company or its officers or directors, including judgments predicated upon the civil liability provisions of the securiti essecurities laws of the UnitedUnit ed States or any state thereof.  In addition, there is uncertainty as to whether the courts of Canada, Mexico and other jurisdictions would recognize or enforce judgments of United States courts obtained against the Company or its directors and officers predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in Canada, Mexico or other jurisdictions against the Company or its directors and officers predicated upon the securities laws of the United States or any state thereof. Further, any payments as a result

16

of judgments obtained in Mexico should be in pesos and service of process in Mexico must be effectuated personally and not by mail.

ITEM 4.INFORMATION ON THE COMPANY

History and Development of the Company

The Company was originally incorporated under theCompany Act (British(British Columbia) on April 21, 1999 under the name "583882“583882 B.C. Ltd."”.  On June 28, 1999, the Company changed its name to "Mega“Mega Capital Investments Inc."”.  On April 22, 2003, the Company changed its name to "MAG“MAG Silver Corp."” to reflect its new business consequent upon the completion of its Qualifying Transaction.  Effective March 29, 2004, theCompany Act(British Columbia) was replaced by theBusiness Corporations Act (British(British Columbia). Our North American office and principal place of business is located at Suite 800, 409 Granville,328, 550 Burrard Street, Vancouver, British Columbia, Canada, V6C 1T22B5 (phone:  604-630-1399).

The Company is a "reporting"“reporting” company in the Provinces of British Columbia, Alberta and Ontario.

- 15 -

The Company'sCompany’s Common Shares were listed and posted for trading on the Exchange (TSX VN: MGA) on April 19, 2000.  Concurrent with the Company'sCompany’s name change to MAG Silver Corp. on April 22, 2003, the trading symbol was changed to "MAG"“MAG”.

The Company does not have an agent in the United States.

The Qualifying Transaction

On April 5, 2001, the Company entered into a letter of intent to acquire all of the issued and outstanding share capital of Advanced Disc Manufacturing Corporation ("ADMC"(“ADMC”), a private British Columbia start-up company engaged in the manufacture of injection moulded compact discs.  Effective May 2, 2001, a formal share exchange agreement was entered into among the Company, ADMC and the shareholders of ADMC in which the terms of the acquisition were set forth (the "ADMC Agreement"“ADMC Agreement”).  This proposed acquisition was intended to serve as the Company'sCompany’s Qualifying Transaction.  In contemplation of the closing of this transaction, the Company advanced ADMC a total of $268,758 to finance its operations.  On September 26, 2001, the Company issued a press release to announce that it would not be proceeding with its intended purchase of the share capital of ADMC as a result of certain breaches o fof the ADMC Agreement by the vendors of the ADMC shares.  Of the amounts advanced by the Company to ADMC, only $16,338 was returned.  As a result, the Company wrote off to expense the outstanding advances to ADMC in the amount of $252,420.

Subsequent to the termination of the ADMC Agreement, the Company was introduced to Dr. Peter Megaw who directedpresented to the Company to consider what appeared to be favourable opportunities involving the acquisition and exploration of silver properties in Mexico.  After reviewing these new opportunities, the Company felt the proposal represented a favourable business concept for the Company.  Management was of the opinion that the Company was well equipped to pursue the opportunities and therefore proceeded with the concept.

In August 2002, the Company entered into an arms'arms’ length agreement dated August 8, 2002 (the "Lagartos Agreement"“Lagartos Agreement”) with Ing. Porfirio Cesar Augusto Padilla Lara, Dr. Peter Megaw and Dr. Carl Kuehn (collectively, the "Vendors"“Vendors”) pursuant to which the Company agreed to acquire (the "Acquisition"“Acquisition”) 98% (later amended to include 99% registered ownership and beneficial ownership of the remaining 1%) of the issued and outstanding common shares of Lagartos.  Lagartos is a private company incorporated under the laws of the Mexican Republic in the mineral exploration business, as described below.  As consideration for the Acquisition, the Company agreed to pay the Vendors the sum of US$5,000, and to further pay the sum of US$50,000 for the reimbursement of funds advanced to secure the Juanicipio Option (described below under "The“The Juanicipio Property"Property”), plus applicable purchase and tr ansfertransfer costs. The AcquisitionAcq uisition of beneficial ownership of 100% of Lagartos was completed on January 15, 2003. The Company'sCompany’s Qualifying Transaction was completed on April 15, 2003, with a concurrent financing, which raised gross proceeds of $5,750,000.

17

As at December 31, 2003, $2,364,339hasJune 15, 2006, $7,564,740 has been advanced by the Company as an intercorporate loan to Lagartos, with no fixed terms of repayment, for the purposesacquisition costs of repaying the US$50,000 in respectmineral rights of the Juanicipio Option, making payments$937,331 and exploration expenditures of mining taxes totalling $62,560$6,019,373. The balance, $608,036, is made up of cash, receivables, and the balance for exploration expenditures.other operating and administration activities.

Business Overview

The Company is in the mineral exploration and development business. The Company is an exploration stage company and there is no assurance that a commercially viable mineral deposit exists on any of our properties. Further exploration will be required before a final evaluation as to the economic and legal feasibility of any of the Company'sCompany’s properties is determined. Even if the Company completes its exploration program and is successful in identifying a mineral deposit, it will have to spend substantial funds on further drilling and engineering studies before it will know if it has a commercially viable mineral deposit or reserve.

Carrying on Business in Mexico

The Company'sCompany’s property interests are located in Mexico.  A summary of the regulatory regime material to the business and affairs of the Company is provided below.

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Mining Regulation

The exploration and exploitation of minerals in Mexico may be carried out by Mexican citizens or Mexican companies incorporated under Mexican law by means of obtaining concessions (currently covering exploration and exploitation concessions.  Exploration concessionsexploitation).  Concessions are granted by the Mexican federal government for a period of sixfifty years from the date of their recording in the Public Registry of Mining and are not renewable.Mining.  The term of mining concessions previously issued by the Mexican federal government (for exploration and/or exploitation) was automatically extended by the enactment of the recent amendments to the Mexican mining law.  Holders of exploration concessions may, within the five years prior to the expiration of such exploration concessions, apply for one or more exploitation concessions covering all or parttheir renewal for the same period of the area covered by one exploration concession.time.  Failure to apply prior to the expiration of the term of the exploration concession will result in termination of the concession.  An exploitation concession has a term of 50 years, generally renewable for a further 50 years upon application within five years prior to the expiration of such concession .  Both exploration and exploitation concessionsConcessions are subject to annual work requirements and payment ofo f surface taxes which are assessed and levied on a semiannualsemi-annual basis.  Such concessions may be transferred or assigned by their holders, but such transfers or assignments must comply with the requirements established by the Mexican Mining Law and be registered before the Public Registry of Mining in order to be valid against third parties.

Mineral exploration and exploitation concessions may also be obtained by foreign citizens or foreign corporations, in this latter case, through the establishment of a branch or subsidiary in Mexico, and in the case of foreign citizens, provided that they comply with certain requirements set forth in the Foreign Investment Law.  Foreign citizens are required to apply for the corresponding authorization before the Ministry of Foreign Affairs and register their investment in the National Registry of Foreign Investment.  In the case of a branch of foreign corporations, in addition to registration in the National Registry of Foreign Investment, additional authorization from the Ministry of Economy is required in order to obtain subsequent registration in the corresponding local Public Registry of Commerce.

Mexican mining law does not require payment of finder'sfinder’s fees or royalties to the Government, except for a discovery premium in connection with national mineral reserves, concessions in marine zones and claims or allotments contracted directly from the Council of Mineral Resources.Mexican Geological Service.  None of the property interests held by Lagartos are under such fee regime.  However, holders of exploration and exploitation concessions are required to pay surface taxes which are assessed and levied on a semi-annual basis.

Foreign Investment Regulation

Foreign investment regulation in Mexico is basically governed by the Law of Foreign Investment and its Regulations.  Foreign investment of up to 100% in Mexican mining companies is freely permitted.  Foreign companies or companies with foreign investment in their capital stock must be registered with the National Registry of Foreign Investment which is maintained by the Ministry of Economy.

18

Environmental Regulation

Mexico has federal and state laws and regulations relating to the protection of the environment, including regulations concerning water pollution, air pollution, noise pollution and hazardous substances.  The principal environmental legislation in Mexico is theLey General del Equilibrio Ecológico y la Protección al Ambiente (the "General(the “General Law of Ecological Balance and Environmental Protection"Protection” or the "General Law"“General Law”), which provides for general environmental rules and policies, with specific requirements set forth in regulations on air pollution, hazardous substances, environmental impact and others (the "Environmental Regulations"“Environmental Regulations”).  Additionally, there are a series of "Mexican“Mexican Official Norms"Norms” that establish ecological and technical standards and requirements on various environmental related matters (the "Ecological Standards"“Ecological Standards”).

TheSecretaría de Medio Ambiente y Recursos Naturales (the "Ministry(the “Ministry of the Environment and Natural Resources"Resources” or "SEMARNAT"“SEMARNAT” for its initials in Spanish) is the federal agency in charge of monitoring compliance with and enforcing the General Law, the Environmental Regulations and the Ecological Standards (collectively the "Environmental Laws"“Environmental Laws”).  On enforcement matters the SEMARNAT acts mainly through theProcuraduría Federal de Protección al Ambiente (the "Federal(the “Federal Bureau of Environmental Protection"Protection” or "PROFEPA"“PROFEPA” for its initials in Spanish) and in certain cases through other governmental entities under its control.

Environmental Laws also regulate environmental protection in the mining industry in Mexico.  In order to comply with these laws, a series of permits, licences and authorizations must be obtained by a concession holder during the exploration and exploitation stages of a mining project.  Generally, these permits and authorizations are issued on a

- 17 -

timely basis after the completion of an application by a concession holder.  To the best of the Company'sCompany’s knowledge, all of the Company'sCompany’s property interests are currently in compliance with the Environmental Laws.

In the exploration stage, the cost of complying with such Environmental Laws is included in the exploration budget. Until such time as the Company conducts larger more invasive procedures, such as trenching or bulk sampling, there is only nominal cost associated with compliance with the Environmental Laws. The Company'sCompany’s programs are not yet sufficiently advanced to allow an estimate of the future cost of such environmental compliance.  

Currency

The official monetary unit of Mexico is the peso. The currency exchange rate freely floats and the country has no currency exchange restrictions.  Nevertheless, following the devaluation of the Mexican peso in December, 1994, uncertainties continue with respect to the financial situation of Mexico.  See Item 3. Key Information -– Risk Factors, specifically those risk factors dealing with currency fluctuation and inflation.

The following table presents a five-year history of the average annual exchange rates ofto convert one Canadian dollarsdollar into Mexican pesos, calculated by using the average of the exchange rates on the last day of each month during the given year.

Value Added Tax

In Mexico, VAT is charged on all goods and services at a rate of 15% percent.  Proprietors selling goods or services must collect VAT on behalf of the government.  Goods or services purchased incur a credit for VAT paid.  The resulting net VAT is then remitted to, or collected from the Government of Mexico through a formalized filing process.

19

The Juanicipio Property

Pursuant to an agreement dated July 18, 2002 as amended December 19, 2002 between Lagartos and Ing. Martin Bernardo Sutti Courtade I ("Sutti"(“Sutti”), of Zacatecas, Mexico (the "Juanicipio Agreement"“Juanicipio Agreement”), Sutti granted to Lagartos an option (the "Juanicipio Option"“Juanicipio Option”) to acquire a 100% interest in the Juanicipio Property.  Sutti subsequently assigned his interest to Minera Venus, S.A. de C.V.  In order to exercise the Juanicipio Option, Lagartos was originally required to:

(a)

drill a minimum of 3,500m of diamond core, reverse circulation or a combination of the two methods within 12 months following the date of ratification of the Juanicipio Agreement by all parties in the presence of a notary public (the "Ratification Date"“Ratification Date”), which was July 18, 2002 (which work was completed);

(b)

pay 1,000 pesos plus applicable taxes and pay the Mexican Treasury one payment of approximately 200,000 pesos (approximately $32,629) representing mining taxes owed for the first half of 2002 (which amount was paid);

(c)

make payments aggregating US$1,225,000 plus VAT on the following basis:

(i)

by July 18, 2006 (of which US$75,000 plus VAT on or before January 18, 2003 (which amount was paid);

(ii)

US$100,000 plus VAT on or before July 18, 2003;

(iii)

US$100,000 plus VAT on or before January 18, 2004;

(iv)

US$150,000 plus VAT on or before July 18, 2004;

(v)

US$150,000 plus VAT on or before January 18, 2005;

(vi)

US$200,000 plus VAT on or before July 18, 2005;

(vii)

US$200,000 plus VAT on or before January 18, 2006; and

(viii)

US$250,000 plus VAT on or before July 18, 2006 and during each semester subsequently until the Juanicipio Property commences production;

(d)

incur expenditures on the Juanicipio Property in the amount of at least US$2,500,000 on the following basis:

(i)

US$750,000 (including amounts incurred in subparagraph (a) above) by July 18, 2004;

(ii)

the cumulative amount of US$1,500,000 by July 18, 2005; and

(iii)

the cumulative amount of US $2,500,000 by July 18, 2006; and

(e)

pay aan NSR of 3.5% to 5.0% based on the following basis:prevailing silver prices.

(i)

3.5% for silver priced up to US $5.50/troy ounce;

(ii)

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3.75% for silver priced greater than US $5.50/troy ounce and up to US $6.50/troy ounce;

(iii)

4.0% for silver priced greater than US $6.50/troy ounce and up to US $7.50/troy ounce;

(iv)

4.25% for silver priced greater than US $7.50/troy ounce and up to US $10/troy ounce; and

(v)

5% for silver priced greater than US $10/troy ounce.

Royalties on other precious metals were to be paid at the same percentage rate then in effect for silver. Royalties on base metals recovered would be paid at half the then prevailing percentage rate for silver.

Minera Venus, S.A. de C.V., the optionor of the Juanicipio Property, iswas owned as to 99% by Lexington Capital Group Inc. and as to 1% by Jose Ruiz Lopez. Lexington Capital Group Inc. was owned as to 100%

20

by Strategic Investments Resources Ltd.  Pursuant to a stock purchase agreement dated May 29, 2003 between the Company and Strategic Investments Resources Ltd., on July 16, 2003, for consideration of US$250,000 and 200,000 common shares of the Company at a price of $0.90 per share for a deemed value of $180,000, the Company acquired 100% of the issued shares of Lexington Capital Group Inc., thereby acquiring 99% ownership of the Juanicipio Property (with the remaining 1% held by Jose Ruiz Lopez). TheAs a result of the acquisition of Lexington Capital Group Inc. by the Company, intendsthe Company did not have to terminateincur any of the originally required option payments and work commitments as described above to occur after such acquisition.  Subsequent to year end, the Company merged and amalgamated Minera Venus, S.A. de C.V. into Lagartos and terminated the Juanicipio Agreement, thereby eliminating its obligations (as described above) to make any further option payments, fulfill the above-described work commitments or pay any royalty.  As

Pursuant to a resultletter of intent dated March 17, 2005 and a formal agreement dated October 10, 2005 (the “LOI”) with Industrias Peñoles, S.A. de C.V. (“Peñoles”), the Company and Lagartos have granted to Peñoles or any of its subsidiaries an option to earn a 56% interest in the Juanicipio Property in Mexico in consideration for Peñoles: (a) conducting US$5,000,000 (minimum US$750,000) of exploration on the property over the next five years as follows: (i) US$750,000 in year 1; (ii) US$1,000,000 in year 2; (iii) US$1,250,000 in year 3; and (iv) US$2,000,000 in year 4; and (b) Peñoles purchasing US$500,000 of Common Shares of the acquisitionCompany within 30 business days after the LOI becomes effective at a price calculated based on the average closing price of Lexington bythe Company’s Common Shares for the 10 trading days prior to the purchase (which has been done); and (c) Peñoles purchasing US$500,000 of Common Sha res of the Company on May 29, 2003,within 30 business days after the Company will not have to incur anyfirst anniversary of the originally required option paymentsexecution of the LOI, taking into account the average closing price of the Company’s Common Shares for the 10 trading days prior to such purchase (which has been done).

At December 31, 2005, Peñoles had spent US$622,440 and work commitmentshad completed 5,747 metres of diamond drilling. Peñoles invested US$500,000 in MAG by subscribing for a total of 621,577 MAG shares at a price of C$0.967 on signing, and on February 27, 2006 invested a further US$500,000 in MAG by subscribing for a total of 245,716 MAG shares at a price of C$2.35, to occur after May 29, 2003, as described above.continue the contract into the second year. This second year includes a commitment for Peñoles to spend a minimum of US$1,000,000 on exploration on the Juanicipio Property. Drilling is expected to resume upon the issuance of revised drilling and surface access permits which are under negotiation.

The Don Fippi Property (Batopilas)

Pursuant to an arm'sarm’s length agreement (the "Don“Don Fippi Agreement"Agreement”) dated as of November 18, 2002 between the Company, Lagartos and Minera Bugambilias, S.A. de C.V. ("Bugambilias"(“Bugambilias”), Bugambilias granted to Lagartos an option (the "Don“Don Fippi Option"Option”) to acquire a 100% interest in the Don Fippi Property. In order to exercise the Don Fippi Option, Lagartos must:was originally required to:

(a)

pay to Bugambilias an aggregate of US$550,000 plus VAT (the "Don Fippi Payments") on the following basis:

(i)

US$50,000 plus VAT within five business days after the date the Don Fippi Agreement is accepted by the Exchange, which occurred on April 21, 2003 (the " DF Effective Date") (which amount has been paid);

(ii)

US$50,000 plus VAT on or before April 21, 2004 (which amount has been paid);

(iii)

US$100,000 plus VAT (the "Third DF Payment") on or before April 21, 2005, provided that if during the ten trading days prior to the date the Third DF Payment is due the average closing price of the Common Shares of the Company on the Exchange is more than US$0.50, the Third DF Payment is waived by Bugambilias and need not be made;

(iv)

US$150,000 plus VAT (the "Fourth DF Payment") on or before April 21, 2006, provided that if during the ten trading days prior to the date the Fourth DF Payment is due the average closing price of the Common Shares of the Company on the Exchange is more than US$0.50, the Fourth DF Payment is waived by Bugambilias and need not be made; and

(v)

US$200,000 plus VAT (the "Fifth DF Payment") on or before April 21, 2007 provided that if during the ten trading days prior to the date the Fifth DF Payment is due the average closing price of the Common Shares of the Company on the Exchange is more than(of which US$0.50, the Fifth DF Payment is waived by Bugambilias and need not be made;100,000 was paid);

(b)

incur expenditures on the Don Fippi Property in the amount of at least US$4,000,000 (the "Don Fippi Expenditures") on the following basis:

(i)

US$250,000 by April 21, 2004, of2008 (of which US$15,000 must be spent by December 31, 2002 (all of which has been spent)806,000 was expended);

(ii)

the cumulative amount of US$1,000,000 by April 21, 2005;

(iii)

the cumulative amount of US$2,000,000 by April 21, 2006;

(iv)

the cumulative amount of US$3,000,000 by April 21, 2007; and

(v)

the cumulative amount of US$4,000,000 by April 21, 2008;

(c)

allot and issue to Bugambilias an aggregate of up to 2,100,000 Common Shares of the Company, (the "Don Fippi Shares")being comprised of 100,000 shares outright (paid) plus 2,000,000 shares at a rate of one share for every US$1.00 in expenditure on the following basis:

21

(i)

100,000 Common Shares within five business daysPursuant to an amendment dated as of April 21, 2003 (which have been issued at $0.50 per share); and

(ii)

commencing December 21, 2003, one Common Share for each US dollar expended by Lagartos as described in paragraph (b) above, up to a maximum of 2,000,000 Common Shares.

Provided that Lagartos has expended a cumulative minimum of US$1,000,000 of20, 2005, the Don Fippi Agreement has been amended to delete the Don Fippi Payments due April 21, 2005, April 21, 2006 and April 21, 2007, to delete the Don Fippi Expenditures due to be incurred by April 21, 2005, Lagartos may elect to not incur any further Don Fippi Expenditures or make any further Don Fippi Payments or issue any further Don Fippi Shares under the Don Fippi Agreement and to enter into a joint venture with Bugambilias in respect of the Don Fippi Property in which Lagartos is immediately vested with a 50% interest and Bugambilias will hold a 50% interest and Bugambilias will be the initial operator of the Don Fippi Property under the joint venture. Lagartos and Bugambilias have agreed to enter into a joint venture agreement setting out the terms of such joint venture and including such other terms as are standard in the industry.

Provided that Lagartos has expended a cumulative minimum of US$2,000,000 of Don Fippi Expenditures by April 21, 2006, Lagartos may electApril 21, 2007 and April 21, 2008, and to notreduce the number of shares to be issued under (c) above to the issuance of a final 750,000 Common Shares (which shares have been issued). The effect of these amendments was the acquisition by the Company of a 100% interest in the Don Fippi

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Property and the elimination of the Company’s prior obligations to make further cash payments of US$450,000, incur any further work expenditures of approximately US$3,410,000 and issue 673,822 additional shares under the original Don Fippi Expenditures or make any further Don Fippi Payments or issue any further Don Fippi Shares under the Don Fippi Agreement and to enter into a joint venture with Bugambilias in respect of the Don Fippi Property in which Lagartos is immediately vested with a 60% interest and Bugambilias will hold a 40% interest and Lagartos will have the option to be the initial operator of the Don Fippi Property under the joint venture. Lagartos and Bugambilias have agreed to enter into a joint venture agreement setting out the terms of such joint venture and including such other terms as are standard in the industry. In the event that Lagartos elects to be the operator of the Don Fippi Property, but fails for a period of at least six months to advance any exploration or d evelopment of the Don Fippi Property, Bugambilias has the option to become the operator of the Don Fippi Property.Agreement.

Lagartos also agreed to pay to Bugambilias a 4.5% NSR.  In the event that a joint venture between the parties is entered into, this NSR may be re-negotiated.

Alternatively, the Don Fippi Option may be exercised at any time by Lagartos by paying such amount as is required to make the total payments to Bugambilias aggregate US$550,000, and by issuing to Bugambilias an aggregate of 2,100,000 Don Fippi Shares.

All properties acquired by Lagartos, Bugambilias or any of their affiliates within the borders of the Don Fippi Property will become part of the Don Fippi Property and be included under the Don Fippi Agreement.

Lagartos may terminate the Don Fippi Agreement at any time by providing Bugambilias with 60 days notice and failing to make any payment or incur any Don Fippi Expenditure when due, but must pay the applicable taxes for the following semester.

Lagartos has a right of first refusal in the event that Bugambilias wishes to dispose of its interest in the Don Fippi Agreement or NSR, except for transfers of interests in the NSR to Bugambilias'Bugambilias’ shareholders or heirs which are permitted without restriction.

Bugambilias has a right of first refusal in the event that Lagartos wishes to dispose of its interest in the Don Fippi Agreement.

The Guigui Property

Pursuant to an arm'sarm’s length agreement (the "Guigui Agreement"“Guigui Agreement”) dated as of November 18, 2002 between the Company, Lagartos and Minera Coralillo, S.A. de C.V. ("Coralillo"(“Coralillo”), Coralillo granted to Lagartos an option (the "Guigui Option"“Guigui Option”) to acquire a 100% interest in the Guigui Property.  In order to exercise the Guigui Option, Lagartos must:was originally required to:

(a)

pay to Coralillo an aggregate of US$550,000 plus VAT (the "Guigui Payments") on the following basis:

22

(i)

US$50,000 plus VAT within five business days after the date the Guigui Agreement is accepted by the Exchange, which occurred on April 21, 2003 (the "GG Effective Date") and which amount has been paid;

(ii)

US$50,000 plus VAT on or before June 20, 2004 (which has not been paid);

(iii)

US$100,000 plus VAT (the "Third Guigui Payment") on or before April 21, 2005, provided that if during the ten trading days prior to the date the Third Guigui Payment is due the average closing price of the Common Shares of the Company on the Exchange is more than US$0.50, the Third Guigui Payment is waived by Coralillo and need not be made;

(iv)

US$150,000 plus VAT (the "Fourth Guigui Payment") on or before April 21, 2006, provided that if during the ten trading days prior to the date the Fourth Guigui Payment is due the average closing price of the Common Shares of the Company on the Exchange is more than US$0.50, the Fourth Guigui Payment is waived by Coralillo and need not be made; and

(v)

US$200,000 plus VAT (the "Fifth Guigui Payment') on or before April 21, 2007 provided that if during the ten trading days prior to the date the Fifth Guigui Payment is due the average closing price of the Common Shares of the Company on the Exchange is more than(of which US$0.50, the Fifth Guigui Payment is waived by Coralillo and need not be made;100,000 was paid);

(b)

incur expenditures on the Guigui Property in the amount of at least US$2,500,000 (the "Guigui Expenditures") on the following basis:

(i)

US$100,000 by April 21, 2004 (which has been spent)2007 (of which US$905,000 was expended);

(ii)

the cumulative amount of US $750,000 by April 21, 2005;

(iii)

the cumulative amount of US $1,500,000 by April 21, 2006; and

(iv)

the cumulative amount of US $2,500,000 by April 21, 2007; and

(c)

allot and issue to Coralillo an aggregate of 2,100,000 Common Shares of the Company, (the "Guigui Shares")being comprised of 100,000 shares outright (paid) plus 2,000,000 shares at a rate of one share for every US$1.00 in expenditure on the following basis:property by Lagartos.

(i)

100,000Pursuant to an amendment dated as of April 20, 2005, the Guigui Shares within five business days ofAgreement has been amended to delete the GG Effective Date (which have been issued at $0.50 per share);Guigui Payments due April 21, 2005, April 21, 2006 and

(ii)

commencing December April 21, 2003, one Guigui Share for each US dollar expended by Lagartos as described in paragraph (b) above, up2007, to a maximum of 2,000,000 Guigui Shares.

Provided that Lagartos has expended a cumulative minimum of US$750,000 ofdelete the Guigui Expenditures due to be incurred by April 21, 2005, Lagartos may elect to not incur any further Guigui Expenditures or make any further Guigui Payments or issue any further Guigui Shares under the Guigui AgreementApril 21, 2006 and April 21, 2007, and to enter intoreduce the number of shares to be issued under (c) above to the issuance of a joint venture with Coralillofinal 750,000 Common Shares (which shares have been issued). The effect of these amendments was the acquisition by the Company of a 100% interest in respect of the Guigui Property in which Lagartos is immediately vested with a 50% interest and Coralillo will hold a 50% interest and Coralillo will be the initial operatorelimination of the Guigui PropertyCompany’s prior obligations to make further cash payments of US$450,000, incur further work expenditures of approximately US$1,840,000 and issue 604,003 additional shares under the joint venture. Lagartos and Coralillo have agreed to enter into a joint venture agreement setting out the terms of such joint venture and including such other terms as are standard in the industry.

Provided that Lagartos has expended a cumulative minimum of US$1,500,000 oforiginal Guigui Expenditures by April 21, 2006, Lagartos may elect to not incur any further Guigui Expenditures or make any further Guigui Payments or issue any further Guigui Shares under the Guigui Agreement and to enter into a joint venture with Coralillo in respect of the Guigui Property in which Lagartos is immediately vested with a 60% interest and Coralillo will hold a 40% interest and Lagartos will have the option to be the initial operator of the Guigui Property under the joint venture. Lagartos and Coralillo have agreed to enter into a joint venture agreement setting out the terms of such joint venture and including such other terms as are standard in the industry. In the event that Lagartos elects to be the operator of the Guigui Property, but fails

23

for a period of at least six months to advance any exploration or development of the Guigui Property, Coralillo has the option to become the operator of the Guigui Property.Agreement.

Lagartos also agreed to pay to Coralillo a 2.5% NSR.  In the event that a joint venture between the parties is entered into, this NSR may be re-negotiated.

Alternatively, the Guigui Option may be exercised at any time by Lagartos by paying such amount as is required to make the total Guigui Payments to Coralillo aggregate US$550,000, and by issuing to Coralillo an aggregate of 2,100,000 Guigui Shares of the Company.

All properties acquired by Lagartos, Coralillo or any of their affiliates within the borders of the Guigui Property will become part of the Guigui Property and be included under the Guigui Agreement.

Lagartos may terminate the Guigui Agreement at any time by providing Coralillo with 60 days notice and failing to make any payment or incur any Guigui Expenditures when due, but must pay the applicable taxes for the following semester.

Lagartos has a right of first refusal in the event that the optionor wishes to dispose of its interest in the Guigui Agreement or NSR, except for transfers of interests in the NSR to Coralillo'sCoralillo’s shareholders or heirs which are permitted without restriction.

- 20 -

Coralillo has a right of first refusal in the event that Lagartos wishes to dispose of its interest in the Guigui Agreement.

The Company is currently in the process of renegotiating the terms of the Guigui Agreement.

Recently Acquired Properties

Pursuant to an arm'sarm’s length agreement (the "Sierra“Sierra de Ramirez Agreement"Agreement”) dated as of December 14, 2003 among the Company, Lagartos and Minera Rio Tinto, S.A. de C.V. ("(“Rio Tinto"Tinto”), Rio Tinto granted to Lagartos an option (the "Sierra“Sierra de Ramirez Option"Option”) to acquire a 100% interest in an exploration concession covering 4,443 hectares located in the Sierra de Ramirez district in Durango, Mexico (the "Sierra“Sierra de Ramirez Property"Property”), subject to a maximum 3% net smelter returns royalty.  In order to exercise the Sierra de Ramirez Option, Lagartos must:

(a)

pay US$30,00055,000 to Rio Tinto and issue to Rio Tinto 20,000 Common Shares of the Company within five days after Exchange acceptance of the Sierra de Ramirez Agreement, which occurred on July 26, 2004 (the "RT“RT Effective Date")Date”, which acceptance has not yet been received;was changed to December 14, 2003 subsequent to year end), which was done;

(b)

make payments to Rio Tinto as follows:

(i)

US$50,000 12 months after the RT Effective Date;on or before December 14, 2004 (paid);

(ii)

an additional US$25,000 18 months after the RT Effective Date;on or before June 14, 2005 (paid);

(iii)

an additional US$100,000 24 months after the RT Effective Date;on or before December 14, 2005 (paid);

(iv)

an additional US$25,000 30 months after the RT Effective Date;on or before June 14, 2006 (paid);

(v)

an additional US$150,000 36 months after the RT Effective Date;on or before December 14, 2006;

(vi)

an additional US$25,000 42 months after the RT Effective Date;on or before June 14, 2007;

(vii)

an additional US$225,000 48 months after the RT Effective Date;on or before December 14, 2007;

(viii)

an additional US$25,000 54 months after the RT Effective Date; andon or before June 14, 2008;

(ix)

an additional US$850,000 60 months after the RT Effective Date,on or before December 14, 2008, of which up to US$500,000 may be paid in Common Shares of the Company; and

(c)

incur exploration expenditures on the property as follows:

(i)

US$50,000 within 12 months after the RT Effective Date;by July 26, 2005 (done);

(ii)

US$100,000 within 24 months after the RT Effective Date;by July 26, 2006;

(iii)

US$150,000 within 36 months after the RT Effective Date;by July 26, 2007;

24

(iv)

US$200,000 within 48 months after the RT Effective Date;by July 26, 2008; and

(v)

US$250,000 within 60 months after the RT Effective Date.by July 26, 2009.

Pursuant to an arm'sarm’s length agreement (the "Adargas Agreement"“Adargas Agreement”) dated as of February 26, 2004 among the Company, Lagartos and Cascabel, Cascabel granted to Lagartos an option (the "Adargas Option"“Adargas Option”) to acquire a 100% interest in the Adargas property (the "Adargas Property"“Adargas Property”), subject to a 2.5% net smelter returns royalty. In order to exercise the Adargas Option, Lagartos must:

(a)

pay US$25,000 plus VAT to Cascabel and issue to Cascabel 75,000 Common Shares of the Company within five days after Exchange acceptance of the Adargas Agreement, which occurred on July 26, 2004 (the "AD“AD Effective Date"Date”), which acceptance has not yet been received;was done;

(b)

make payments to Cascabel as follows:

- 21 -

(i)

US$75,000 12 months after the AD Effective Date;plus VAT on or before July 26, 2005 (Paid);

(ii)

an additional US$125,000 24 months after the AD Effective Date;plus VAT on or before July 26, 2006;

(iii)

an additional US$175,000 36 months after the AD Effective Date;plus VAT on or before July 26, 2007;

(iv)

an additional US$250,000 48 months after the AD Effective Date;plus VAT on or before July 26, 2008;

(v)

an additional US$350,000 60 months after the AD Effective Date;plus VAT on or before July 26, 2009; and

(c)

incur exploration expenditures on the Adargas Property as follows:

(i)

US$100,000 within 12 months after the AD Effective Date;by July 26, 2005 (done);

(ii)

an additional US$200,000 within 24 months after the AD Effective Date;by July 26, 2006;

(iii)

an additional US$200,000 within 36 months after the AD Effective Date;by July 26, 2007;

(iv)

an additional US$250,000 within 48 months after the AD Effective Date;by July 26, 2008; and

(v)

an additional US$250,000 within 60 months after the AD Effective Date.by July 26, 2009.

Pursuant to an arm'sarm’s length agreement (the "Cinco“Cinco de Mayo Agreement"Agreement”) dated as of April 5, 2004 among the Company, Lagartos and Cascabel, Cascabel granted to Lagartos an option (the "Cinco“Cinco de Mayo Option"Option”) to acquire a 100% interest in the Cinco de Mayo property (the "Cinco“Cinco de Mayo Property"Property”), subject to a 2.5% net smelter returns royalty.  In order to exercise the Cinco de Mayo Option, Lagartos must:

(a)

pay US$25,000 plus VAT to Cascabel and issue to Cascabel 75,000 Common Shares of the Company within five days after Exchange acceptance of the Cinco de Mayo Agreement which occurred on July 26, 2004 (the "CM“CM Effective Date"Date”), which acceptance has not yet been received;was done;

(b)

make payments to Cascabel as follows:

(i)

US$75,000 12 months after the CM Effective Date;plus VAT on or before July 26, 2005 (paid);

(ii)

an additional US$125,000 24 months after the CM Effective Date;plus VAT on or before July 26, 2006;

(iii)

an additional US$175,000 36 months after the CM Effective Date;plus VAT on or before July 26, 2007;

(iv)

an additional US$250,000 48 months after the CM Effective Date;plus VAT on or before July 26, 2008;

(v)

an additional US$350,000 60 months after the CM Effective Date;plus VAT on or before July 26, 2009; and

(c)

incur exploration expenditures on the Cinco de Mayo Property as follows:

(i)

US$100,000 within 12 months after the CM Effective Date;by July 26, 2005 (Done);

(ii)

an additional US$200,000 within 24 months after the CM Effective Date;by July 26, 2006;

(iii)

an additional US$200,000 within 36 months after the CM Effective Date;by July 26, 2007;

(iv)

an additional US$250,000 within 48 months after the CM Effective Date;by July 26, 2008; and

(v)

an additional US$250,000 within 60 months after the CM Effective Date.by July 26, 2009.

25

The Sierra de Ramirez Property, the Adargas Property and the Cinco de Mayo Property are collectively referred to as the "Recently“Recently Acquired Properties"Properties”.

Lagartos Property

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With the success at Juanicipio, MAG has over the past several years acquired over 135,000 hectares of new claims (the “Lagartos Property Package”) on the most promising of areas of the “Fresnillo Silver Trend” using the Fresnillo/Juanicipio model.

These land holdings are in several large blocks located to the South East and Northwest of the Fresnillo – Juanicipio Silver District.

Preliminary work involved regional mapping and an orientation NSAMT geophysical survey as a possible first pass reconnaissance tool. Consistently elevated gold values from MAG’s 2003 Juanicipio drilling have suggested that a larger scale zoning may be in place than had previously been considered for the Fresnillo/Juanicipio/Lagartos district. MAG subsequently examined surrounding areas for possible extensions to the system(s), both in outcrop and under cover.  Satellite image and structural analysis of the region indicated areas of strong alteration similar to that drilled at Juanicipio. This alteration is also coincident with a very prominent regional structure that hosts at least three, one billion-plus ounce silver deposits.

These new claims have all been acquired through staking and are subject only to annual filing fees under the Mexican Mining Act. MAG has a 100% interest in this substantial land package.

MAG also continued to enlarge its land position by claiming strategically located properties in 2005 as they became eligible for acquisition.  To that end MAG added an additional 12,534 hectares to its Lagartos SE land package east of the El Saucito discovery and West of the Zacatecas District.

MAG will continue to compete for ground through staking as claims in the region become open for acquisition.

MAG initiated a drill program in January of 2006 and expects to drill through to the end of the first half of 2006.

MAG will be launching throughout the large land holdings of Lagartos in 2006 similar exploration programs to those it has applied at Juanicipio and Lagartos NW.

Organizational Structure

The Company is the registered owner of 99% of the issued Class I shares of Lagartos. The remaining 1% of the issued Class I shares of Lagartos is held by Dave Pearce, a director of the Company, in trust for the Company. This results in the Company effectively having 100% beneficial ownership of Lagartos. The registered and records office of Lagartos is located at Paseo de Los Tamarindos 60, Bosques de Las Lomas, 05120 Mexico, D.F., Mexico.

The Company is also the owner of 100% of the issued shares of Lexington Capital Group Inc., a British Virgin Islands company, which holds a 99% interest in the claims underlying the Juanicipio Property.

The following is a list of each subsidiary of the Company and the jurisdiction of incorporation and the direct or indirect percentage ownership by the Company of each subsidiary:

*

The Company is On October 9, 2005 the registered ownerassets of 99% of the issued shares and the remaining 1% is registered to David Pearce,Lexington Capital Group Inc., previously a directorsubsidiary of the Company, who holds such interestwere merged with Lagartos, so that all indirect interests in trust for the Company.Juanicipio claim are held by one company, being Lagartos.

Property, Plants and Equipment

The Company'sCompany’s administrative offices are located in leased premises at Suite 800, 409 Granville328, 550 Burrard Street, Vancouver, British Columbia, Canada V6C 1T2.2B5. The Company has no significant plant or equipment for its operations.  Equipment used for exploration or drilling is rented or contracted as needed.

DESCRIPTION OF THE BUSINESS - JUANICIPIO

TheSome of the disclosure in this section is based on a November 19, 2002 report entitled "The“The Geology and Exploration Potential of the Juanicipio Property, Fresnillo District, Zacatecas, Mexico"Mexico” prepared by Clancy J. Wendt ("Wendt"(“Wendt”), P.G., of Pincock, Allen and Holt, of Lakewood, Colorado.

- 23 -

Property Description and Location

The Juanicipio Property (the "Juanicipio Property"“Juanicipio Property” or "Juanicipio"“Juanicipio”) is located in the Fresnillo District, Zacatecas, Mexico, approximately 6 kilometres (km.) west of the city of Fresnillo and the Fresnillo Mine of Industrias Peñoles, S.A., currently the world'sworld’s largest silver mine.

The Juanicipio Property covers approximately 7,679 hectares (18,967 acres) and is in the northeastern part of the Sierra Valdecañas, a 13 km. by 30 km. long mountain range that lies immediately west of Fresnillo.  

The property lies on the western edge of the Mexican Altiplano or "Mesa Central"“Mesa Central”.  The Altiplano is that portion of central northern Mexico lying north of the Trans-Mexico Volcanic Belt, between the Sierra Madre Oriental and Sierra Madre Occidental.  

Water is abundant at depth and water rights for mine development should be part of the mineral rights. Power is located a few miles from the main part of the property and is available.

Accessibility

Paved highways on the eastern, northern and western sides surround the Sierra Valdecañas, with a good-quality unpaved road linking the paved roads across the southern end of the range.  This southern road is in the process of being paved.  Despite the ruggedness of the central part of the Sierra Valdecañas, access to

26

the northeastern area, where the Juanicipio Property is located, is good.  A high quality dirt road runs about 1.5 km. up the Linares Canyon from the village of Presa Linares.  This provides access to the extreme northeastern corner of the Juanicipio Property.  A separate road proceeds from Fresnillo to the village of Valdecañas, and from there to a pass that allows access to Linares Canyon, some 4 km. south of the village of Presa Linares.  Despite this road access, principal access to the bulk of the area of maximum interest is by foot.  One major drill target should be accessible fromfr om existing roads; others will require road building up Linares Canyon.  The routes for these roads have already been approved by the Mexican environmental agency.

Ownership

The Juanicipio Property was originally titled to Juan Antonio Rosales of Zacatecas on August 9, 1999.  The Juanicipio Property was sold by Juan Antonio Rosales to Sutti. Pursuant to the Juanicipio Agreement, Sutti granted to Lagartos an option to acquire a 100% interest in the Juanicipio Property. Sutti then assigned his interest to Minera Venus, S.A. de C.V. As described above, the Company acquired ownership of Lexington Capital Group Inc., which in turn ownsowned 99% of Minera Venus, S.A. de C. V., resulting in the Company indirectly owning 99% of the Juanicipio Property, with the remaining 1% owned by Jose Ruiz Lopez.

History

The Juanicipio Property has seen sporadic, small-scale prospecting by unknown individuals over the last several hundred years, but has seen no production.  Previous work by Sunshine Mining and the Consejo de Recursos Minerales (the Mexican Geologic Survey) has produced geologic maps, geochemical data bases, alteration and geologic maps, geophysical maps, Landsat images, topographic and structure maps.

Geological Setting

District Geology

The Fresnillo District section consists of the lower Cretaceous rocks composed of calcareous graywacke with interbedded shales and limestones.  The limestones are unconformably overlain (perhaps in overthrust contact) by the Chilitos Fm., composed of marine andesitic volcaniclastic sediments, andesite tuffs and flows, and mafic intrusive bodies.  The section is capped by the Tertiary basal conglomerates and volcaniclastics and overlying rhyolite ash-flow tuffs.  Everything older than the Fresnillo Fm. is intruded by andesite dikes and a quartz-monzonite porphyry. The pre-Tertiary section has been folded, tilted (N55W, 30SW) and complexly thrusted.

- 24 -

Juanicipio Geology

The stratigraphy of the Juanicipio area is very similar to that of the adjacent Fresnillo District. The (apparently) oldest rocks seen to date at Juanicipio are fragments of graywacke seen on dumps in the Cerro Colorado area.  These appear similar to the upper Valdecañas Graywackes of the Proaño Group seen in the main portion of the Fresnillo District.

The next oldest rocks are thinly bedded calcareous shales (lower) and andesitic volcaniclastic rocks. These rocks are poorly resistant to weathering and crop out sparingly beneath materials sloughed off the bold outcrops of volcanic rocks along Linares Canyon and at Piedras.  The uppermost surface of the Chilitos is an irregular unconformity, locally marked by deep weathering and paleo-calcrete.  This surface is buried by Tertiary volcaniclastic paleo-alluvium, surface debris, and a variety of tuffs welded and unwelded.

Environmental Surveys

The only environmental surveys done on the Juanicipio Property are those required for drill permitting.  These surveys involve preparing inventories of floral and faunal species and assessments of the impact of road building for drilling.  Drilling permits were granted to Sunshine by SEMARNAT on the basis of these studies.  The permits have been regenerated in the name of Lagartos.

27

The only surface disturbances on the Juanicipio are small prospect pits from which there has been no production.  Reconnaissance coverage indicates that there are no inherited environmental liabilities from these disturbances.

Mineral Resources and Reserves

The Juanicipio Property remains at an early exploration stage.  No data has yet been generated from which to estimate resources and reserves.

Interpretation and Conclusions

The geology, structure, geochemistry and geophysics at Juanicipio are similar enough to other productive systems that can be readily applied to Juanicipio to generate high quality, potentially high-grade, drilling targets.  The results of the initial mapping, geochemistry and geophysics include the following favourable comparisons:

1.

Similar structural environment with both parallel structures and structures aligned with previously drilled mineralized structures.  

2.

A two-stage alteration history with early massive silicification cut by a later iron-oxide, pyrite, kaolinite and alunite stage.  

3.

A geochemical signature that is anomalous in minerals that indicate potential mineralization at depth.

4.

Strong NSAMT response for the major structures shows persistence to depth.

5.

The major geologic, geochemical and geophysical features coincide:  It is the late N50-70W structures that have the pyrite, kaolinite, and alunite alteration, geochemical anomalies, and NSAMT responses.

RecommendationsWork Program

Drill Targets

The following sixSix major target structures have been identified as warranting drillingand were drilled in a Phase I program, based upon their orientation, alteration history, geochemistry and geophysics: the Fe Oxide Pit Structure, Zonge Structure "A"“A”, Zonge Structure "B"“B”, Zonge Structure "C"“C”, South Target, and Zonge Structure "D"“D”. From this, several drill targets were delineated and MAG merely continued this work by funding a seven hole, 6146.16 metre drill program in 2003 and a two hole, 1448.41 metre program in 2004.

- 25 -

In 2004, MAG drilled two additional diamond drill holes on targets generated by the 2003 drilling results.  The previous seven diamond drill holes targeted major structures selected for their orientation, alteration history, geochemistry, geophysical anomalies and Fresnillo-style and grade of mineralization (up to 730 g/T Ag and 10.8 g/t Au was intersected in five of the seven holes).  The 2003 drilling results confirmed that Fresnillo style silver and gold rich mineralization continued into Juanicipio and indicated that the exploration techniques and exploration model being used was indeed correct.

The 2004 drilling was designed to test the intersection of two of the structures drilled in 2003 and made a third pass to test a major structure that was previously incompletely tested. Neither 2004 hole was designed to offset successful 2003 holes and the drilling intersected no more than trace mineralization.  

The 2004 drilling was accompanied by a detailed Short-Wave Infrared (SWIR) survey and a detailed structural analysis.  These studies revealed several new targets, and target refining possibilities.  

Plans are also underway to design a drill program for 2005 to follow up on the significant drill intercepts from the previous drill programs and to test several newly discovered structures.

In late 2004 MAG was approached by Peñoles who expressed a keen interest in the formation of a joint venture with the Company on the Juanicipio Property. MAG elected to pursue this proposal with Peñoles because of their strong interest and valuable understanding of the Fresnillo Silver Camp. Working closely with Peñoles would be a great boost to MAG and its property holdings in the district (see “Description of the Business – Lagartos”).

Recommended Work Program and Budget

Estimated depthsExploration over the past six years by Peñoles has focused on tracing the discovery of a series of new silver-rich veins to the topwest of the mine area. Peñoles has also been expanding production at the Fresnillo mine with the recent development of the high-grade mineralization,silver San Carlos vein system. Peñoles’ current exploration campaign resulted in the most attractive target type,recently announced “Saucito” silver-gold vein discovery lying near the eastern boundary of the Juanicipio Property. MAG’s 2003-2004 exploration drilling intersected several vein structures with significant silver and gold values lying along the projection of the Saucito vein group. The initial joint venture exploration effort will focus on linking MAG’s discoveries to the Saucito veins.

A formal agreement with Peñoles was signed and dated October 10, 2005.

Exploration work by Peñoles was initiated in August 2005 and as at December 31, 2005 Peñoles has been deemed to have completed its first year commitments and has committed to the second year terms of the agreement which include spending a minimum of US$1,000,000 on exploration work programs.

The principal features of the agreement are:  

1.

Peñoles can earn a 56% interest in Juanicipio upon completion of a US$5,000,000 exploration program on or before the end of year 4 of the agreement.

2.

During the first year, Peñoles shall incur an obligatory work commitment expenditure of US$750,000.  Year 1 expenditures must include a minimum of 3,000 metres of diamond drilling.

3.

A flexible and staged exploration program is included in the contract.  Exploration work will be supervised by a technical committee comprised of three representatives from Peñoles and two from MAG.  Peñoles and MAG are obliged to share their information in the district.  Part of the geological and exploration work will be conducted by MAG consultants and in-house personnel.   

4.

Exploration results from Juanicipio will be published as appropriate on an ongoing basis, with both companies to agree on the order of 500 to 600 meters (Note that miningcontent.

5.

Peñoles will subscribe for US$500,000 in MAG Common Shares, at these depths is undertaken routinelya market based price on signing (which has been done) and an additional US$500,000 in thisMAG Common Shares, at a market based price, if the contract continues into the second year (which has been done).

Late in 2005 Peñoles, as part of Mexico).  Given angle drilling,a seven hole exploration drill program on the total depthsJuanicipio joint venture, intersected a new high grade silver/gold epithermal vein in two holes. Discovery hole 16 on the Valdecañas Vein returned 6.35

- 26 -

metres (20.8ft) of these holes will average 750 m.  Testing the six proposed targets will require 4,500 m.1,798 grams per tonne silver (57.8oz), 2.91 grams per tonne gold, 3.43% lead and 5.51% zinc. This included 2.95 metres (9.6 ft) of drilling at an estimated cost of $1,184,500.  Once the regenerated drilling permits are in place, work can commence immediately.  The following Phase I exploration budget2,807 grams per tonne silver (90.3oz), 3.27 grams per tonne gold, 5.94% lead and 9.14% zinc. There is proposed:also a significant gold zone which returned 1.80 metres (5.9ft) averaging 9.24 grams per tonne gold, 1,222 grams per tonne silver (39.3oz), 2.16% lead and 3.15% zinc.

The CompanyPeñoles is proceeding with the proposedan exploration work program. To December 31, 2003,2005, Peñoles had spent US$622,440 and had completed 5,747 metres of diamond drilling.

To December 31, 2005, approximately $1,145,332 has$2,026,000 had been spent by the Company on the Juanicipio Property.

28

DESCRIPTION OF THE BUSINESS - DON FIPPI

TheSome of the disclosure in this section is based on a November 19, 2002 report entitled "The“The Geology and Exploration Potential of the Don Fippi Property, Batopilas District, Chihuahua, Mexico"Mexico” prepared for the Company by Wendt.

Property Description and Location

The Don Fippi Property comprises seven exploration claims covering approximately 3,511 ha. in the Batopilas Mining District in southwestern Chihuahua State of Mexico (the "Don“Don Fippi Property"Property” or "Don Fippi"“Don Fippi”).

Don Fippi lies in the topographically rugged central spine of the Sierra Madre. The Don Fippi project area is roughly centred on the town of Batopilas which lies at the bottom of the deep canyon of the Rio Batopilas at about 600 metersmetres elevation.  

Accessibility, Climate, Local Resources, Infrastructure and Physiography

There is a good quality 70 km. unpaved road connecting Batopilas to the paved highway that leads to Creel and thence to the cities of La Junta, Cuauhtemoc and Chihuahua 300 km. to the east.  The main road runs along the river and is in very good condition through the town of Batopilas.  Conditions deteriorate south of the town, but the road is passable south to Satevo and west to Camuchin.  A few spur roads run from the main road to the area above the Porfirio Diaz Tunnel.  Access to the balance of the area is by foot or horseback.  Underground access is extensive through the Santo Domingo, San Miguel, Peñasquito and Pastrana mines.  The Porfirio Diaz Tunnel is caved about 1.5 km. from the portal, leaving the back 2.5 km. accessible only through stopes leading from the Peñasquito Level. Locals note that the tunnel has caved in the same place before and that past rehabilitation effor tsefforts have taken only a few days.d ays.

Both water and power are available at the property.

Ownership

On October 24, 1997, title to the Don Fippi Property vested with Bugambilias.  The Internal Property were acquired by the holders thereof as older claims expired and were liberated under Mexican mining law.  On November 18, 2002, Bugambilias granted to Lagartos an option on the Don Fippi Property. In 2005 the Company acquired a 100% interest in the Don Fippi (Batopilas) subject to royalties payable to Bugambilias.

History

High-grade native silver outcrops in the Batopilas district were discovered around 1630 and production records begin in 1632.  The district contains between 65 and 300 mines and an estimated 200,000,000 to 300,000,000 ounces of silver have been produced from the district.

Geological Setting

Regional Geology

The Batopilas District lies in the heart of the Sierra Madre Occidental magmatic province.  Geologically, this province consists of two thick Tertiary volcanic sequences deposited on a basement of Mesozoic sediments,

- 27 -

metasediments, and intrusive rocks.  The two sequences are referred to as the lower volcanic complex and the upper volcanic complex.

29

BatopilasDistrict Geology

Batopilas District mineralization is hosted entirely within the lower volcanic complex which here consists of intermediate composition intrusive rocks, dominantly dacites and diorites, and extrusive rocks, dominantly andesite tuffs, flows and volcaniclastic sediments.  Rhyolite ash-flows of the upper volcanic supergroup form the prominent mesas that rim the canyon several hundreds to thousands of metersmetres above the vein system.

Mineralization and Alteration

Batopilas District Silver Mineralization

Mineralization in the silver zone dominantly occurs in the Pastrana Dacite, but some occurs in the Tahonas Granodiorite and Dolores Microdiorite.  Pre-mineral quartz-porphyry and post-intra-mineral basalt dikes in veins are mineralized and locally altered to serpentinite.  Mineralization throughout the silver zone overwhelmingly consists of crystallized native silver in calcite gangue.  The silver ores were high grade: ranging from the Batopilas Mining Company'sCompany’s 1880-1913 average direct-smelting grade of 8,000 g/T (257 oz/T) to extremely high-grade pods carrying up to 75% Ag.  The Batopilas Mining Company also produced a significant tonnage of "milling ore"“milling ore” grading 265 g/T (8.5 oz/T).  Oreshoots typically are 15 - 80 m. long, 0.5 - 4.6 m. wide (1 m. average) and up to 350 m. down plunge.  Shoots are connected by up to 90 m. of barren calcite veinlets, often only .1-.3 mm. wide.

Exploration

Exploration by Bugambilias

Bugambilias began its exploration with a comprehensive literature search and data acquisition phase.  The resulting data have been compiled, digitized and registered to a common UTM grid and elevation model.

Much of the historic data was incorporated into a mapping project conducted by Cascabel for the Mexican Mineral Resources Council (COREMI) in 2000.  

Very little in the way of geochemistry and geophysics have been done in the past and much of the future work will be to complete these efforts to define targets for future work.

Environmental Surveys

Old workings and prospect pits dot the surface of the Don Fippi Property.  Most dumps, and all tailings were originally deposited on the banks of the Rio Batopilas, and 80 years of flooding have long since carried them away.

No environmental surveys have been done in the district by Bugambilias.

Mineral Resource and Mineral Reserves

The Don Fippi Property remains at an early exploration stage.  No data has yet been generated from which to estimate resources and reserves.

Exploration Program and Techniques

In general, the proposed exploration program has the principal goal of determining whether new geologic information and modern remote sensing techniques can locate blind high-grade native silver pods.  The old system of blind mining should not be necessary, although some of the mentioned targets could be tested by direct mining regardless of the geophysical results.  

A two-stage pre-drilling exploration program should be undertaken:was undertaken in 2004 and 2005:  Phase I should beginbegan with continued acquisition and compilation of available data for the district.  This should include carefulincluded detailed structural analysis.  This should be was

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followed by detailed surface and underground geologic mapping and structural analysis.  The field priorities are:were established as follows:

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(a)

accurately locate as many old workings as possible with GPS and underground surveying for integration into a district-scale GIS database;

(b)

complete detailed surface mapping of the area above the Roncesvalles Fault to get a better idea of its offset;

(c)

map and sample the quartz-pyrite breccia pipes and evaluate the gold potential;

(d)

map the surface expression of the New Nevada breccia pipe and its possible analogs to the east; and

(e)

visit the Pastrana Camuchin and Descubridora areas to determine the level of interest and priorities for acquisition and work in those areas.

The surface work should bewas complemented by underground mapping and sampling.  Some areas in the district required and will require some minor mine rehabilitation and mucking out of minor caved areas to ensure access.  The Porforio Diaz Tunnel ("PDT"(“PDT”) should be cleaned up andwas re-opened back to the Roncesvalles Fault zone to re-establish flow-through ventilation and allow the mine to "breathe" before underground work commences.  This will be especially important because much subsequent exploration will be underground from“breathe” during the mapping and sampling program in and along the main PDT by either drilling or direct heading.level. Examination of the upper levels along the Roncesvalles is planned for 2006.

Work Program

Because of the necessity of developing an effective set of exploration techniques for this large and topographically challenging district, MAG in 2004 selected a limited area in the central part of the district for initial exploration based on a combination of favorable geology, surface and underground access.  The area lies in a largely unexplored area across a major fault (the “Roncesvalles Fault”) and near a heavily mined area with excellent underground access via the 2.4 km long PDT.  The area is also accessible via one of the district’s few surface roads.

The Roncesvalles Fault was considered to have been a barrier to mineralizing fluids (several major veins were mined to it and stopped) despite the fact that numerous shallow Spanish colonial era workings occur beyond the structure.  In 2003 and 2004, MAG reopened and rehabilitated the PDT, performed extensive underground mapping and sampling and used the PDT for underground geophysical studies.  A simultaneous surface based mapping, sampling and NSAMT geophysical program was also executed and used as the basis for a district and detailed structural analysis of the area.  

The combined results have indicated several zones within the “focus area” where structures are favorably oriented and strong NSAMT anomalies coincide with the most favorable structures.  Preliminary drilling targets were indicated by these studies, and drilling permits were obtained.  Detailed NSAMT work was completed in early 2005 to refine these anomalies prior to drilling.  

A ten-hole 2500 metre drill program was initiated in the fall of 2005 to test preliminary drill targets and help refine the exploration methods MAG is developing to explore its land holdings at Batopilas.

MAG announced in January that significant high-grade silver mineralization had been intersected in initial drilling at its 100% owned Batopilas Silver Project in Chihuahua State, Mexico. Hole 02 intersected the Don Juan with 1.70 metres (5.6 feet) of 2,358 grams per tonne silver (75.8 ounces per ton). The intersection is also described as part of a 3.0 metre (9.8 feet) zone locally rich in the silver bearing mineral acanthite (argentite).

A second intercept, with visible native silver, was intersected approximately 22 metres (72 feet) deeper and assayed 132 grams per tonne silver (4.2 ounces) over 1.70 metres (5.6 feet).  This is a 3.0 metre wide breccia zone with visible native silver and lead and zinc sulphides. The richest native-silver bearing 0.20 metre of this intercept ran 721 grams per tonne silver (23 ounces).

Three holes were drilled in the vicinity of Hole 02. All four intercepts define a vein exhibiting a distinct geochemical signature containing Silver along with anomalous arsenic, molybdenum, cobalt, nickel, lead and zinc.

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Although the high grade intercept was not repeated, the new vein remains open along strike in both directions and at depth.

This occurrence will be further evaluated during Phase Two drilling expected to start in the fall of 2006. The Don Juan zone is broadly coincident with the western limit of a well defined NSAMT geophysical anomaly and provides direct evidence to support using this same approach in other areas.

San Martin Nuevo Drilling

Two holes, 03 and 04, were designed to test the area around the San Martin Nuevo workings. These showed multiple intercepts of the signature Batopilas chemistry of arsenic, molybdenum, lead and zinc; however, the best intercepts encountered in this area were around 1.0 metre zones in the 11 to 40 gram per tonne Ag range. It is encouraging to recognize the signature geochemistry within a structural zone; however, more detailed work will be required in this area to investigate the extent of these mineralized zones.

Pastrana Drilling

The last five holes, 08 through 012, focused on the Pastrana Vein in order to evaluate the difficultyextensions of rehabilitation should be done oncethis historic past producing vein. Over 20 million ounces of silver were produced from the PDT is reopened.

Recommendations

A Phase I work program should result in definition and refinement of major exploration targetsPastrana Vein in the district.  mid to late 1700’s. Drilling intersected the structural zone and associated calcite in each hole along a 100 metre strike length, but there was no obvious visible silver or silver-sulphides. Sampling is continuing and assays are pending from Holes BA06-08 through BA06-12.

These should thenare the first surface holes ever drilled in the district and according to old reports, this style of high-grade acanthite-rich mineralization was found above the native silver rich ore shoots that yielded the bulk of Batopilas’ historic silver production of over 250 million ounces. The exploration program is targeting a combination of structural studies and electrical geophysical anomalies in areas previously not mined. The Company is continuing to drill at Batopilas and further results can be tested with orientation geophysical surveys, followedexpected by more intensive geophysical investigationthe end of the best anomalies developed byfirst quarter of 2006.

Future Plans

MAG commenced Phase One of its Batopilas drilling program in mid November, 2005 and completed the orientation work.  Followinglast hole on April 2, 2006. The rig will be demobilized for the summer rainy season and is expected to return in the fall.  An airborne electromagnetic and magnetic program in conjunction with a proposed budget for a Phase I exploration program:regional geochemical silt sampling program is expected to be carried out prior to the fall drill program.

The Company has commenced this proposed work program. To December 31, 2003,2005, approximately $335,793$1,240,889 has been spent on the Don Fippi Property.

DESCRIPTION OF THE BUSINESS - GUIGUI

TheSome of the disclosure in this section is based on a November 19, 2002 report entitled "The“The Geology and Exploration Potential of the Guigui Silver, Lead, Zinc Project, Santa Eulalia District, Chihuahua, Mexico"Mexico” prepared for the Company by Wendt.

Property Description and Location

The Guigui Property comprises four exploration and three exploitation claims, as defined by the Mexican mining law, covering approximately 4,553 ha. of land between and south of the East and West Camps of Santa Eulalia Mining District in central Chihuahua State of Mexico (the "Guigui Property"“Guigui Property” or "Guigui"“Guigui”).

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It is located 23 kilometers east of Chihuahua City and three kilometers by improved dirt road.  The district occupies the approximate center of the north-northwest elongate, fault-bounded Sierra Santa Eulalia (also called Sierra Santo Domingo) whose peaks rise up to 700 m. above the surrounding plains. Water and power are available locally and are near the property boundary.

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The Santa Eulalia District is divided into two portions called the West and East Camps, based on a combination of geography, production, and style of mineralization.  The West Camp lies on the western flank of the range and the East Camp lies on the eastern fringe of the range.  The 2.5 km. wide intervening zone is known as the Middle Camp.  The Middle Camp has numerous mineralized showings and small mines, but has not been systematically explored.  The Guigui Property covers the entire area south of the East and West Camps and a significant portion of the southeastern Middle Camp.

Accessibility, Climate, Local Resources, Infrastructure and Physiography

Mexican Highway 15, connecting Chihuahua City to Mexico City, runs along the west side of the range, within about 4 km. of the western side of the Guigui Property.  A two-lane paved road cuts off Highway 15 and leads to the town of Santa Eulalia (also known as Aquiles Serdan).  Good quality paved and hard surfaced roads lead north and east from Santa Eulalia to the Buena Tierra, Potosi, and San Antonio Mines, or south into Guigui, which is crossed by a series of well-maintained ranch roads.

Ownership

Cascabel initially filed for the Guigui claims in 1992 and all such claims were subsequently transferred to Coralillo in 2000.  On November 18, 2002, Coralillo granted to Lagartos an option in respect of the Guigui Property. In 2005 the Company acquired a 100% interest in the Don Fippi (Batopilas) subject to royalties payable to Coralillo.

History

There appears to have been little work done in the Guigui area prior to 1986, except for minor prospecting by unknown individuals.  

Work completed between 1991 and 2002 included:

• ●

  detailed geologic mapping of the Guigui Property, with emphasis on mapping volcanic stratigraphy, structures cutting the volcanics and alteration.  Geochemical samples were taken of all structures and mineralized outcrops.  This was accomplished via Landsat image analysis, 1:40,000 black and white air-photo analysis, and 1:10,000 scale geologic outcrop mapping.

• ●

  geophysical surveys to locate the intrusive centre and to determine the thickness of the volcanic cover.  The surveys included: gravimetrics, ground magnetics, CSAMT (Controlled Source Audio Magneto Tellurics) and NSAMT (Natural Source Audio Magneto Tellurics).

• ●

  defining and permitting of drilling targets based on geology, geochemistry and geophysics.  SEMARNAT (Secretaria de Medio Ambiente and Recursos Naturales which is the Secretary of the Environment and Natural Resources) approved 44 drilling sites, with permission for an initial 12-hole program in 1998.  These permits have been renewed annually and remain in effect.

Geological Setting

Geologic work that has been performed on the property consists of detailed geology mapping, geochemical sampling of outcrops, structures, and mineralized areas, geophysical surveys, and permitting of drill targets.

The Santa Eulalia District contains continuous, zoned mineralization and alteration concentrated on the east and west flanks of a southerly-plunging anticline.  Mineralization occurs in the same stratigraphic interval in close temporal and spatial relationship to distinctive felsite sills and dikes.   

Exploration efforts to test the mineralized zones have included reconnaissance and detailed geologic and alteration mapping, geochemical sampling, and Gravity, Magnetics and Audio Magneto Tellurics (CSAMT and NSAMT) surveys.

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These geologic and geophysical results were the basis for permitting a 6-12 hole-drilling program in 1998.  However, a significant additional area (>400 hectares in the Guigui 2, 3 and 4 claims) has been recently added to the claim package and it is recommended to advance the newly acquired ground to the same level of knowledge prior to

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drilling.  This should include detailed geologic outcrop mapping with particular attention paid to the areas between Guigui and known mineralization and the approximately 1 km long portion of the San Antonio Graben that lies within Guigui 2.  This mapping should be accompanied by geochemical sampling of all mineralized and altered outcrops.  Additional NSAMT and/or CSAMT geophysical lines should be run over targets identified by the above geologic mapping and consideration should be given to geophysically refining the previously identified targets within Guigui prior to drilling.  

Environmental Surveys

The only environmental surveys done on the Guigui Property to date are those required for drill permitting.  These include inventories of floral and faunal species and an assessment of the impact of road building for drilling.

The only surface disturbances in the claim are small prospect pits from which there has been no production and three old fluorite workings.  There are no inherited environmental liabilities from these disturbances.

Drilling

No drilling hashad been done within Guigui proper.proper prior to 2003.  However, the 12 initial targets permitted for Advanced Projects remain to be drilled.  The permits are in the name of Cascabel and have been renewed annually since 1998.

RecommendationsWork Program

ExistingA six hole, 4,500 metre program was initiated in 2003 and continued into 2004.  In four holes, a range of intrusions, breccias, and visually distinctive alteration were intersected under the volcanic capping in the central Guigui Drill Targetsarea, but no significant mineralization was encountered. The presence of intrusive rocks is however, considered to be significant and will require further follow-up.

SixSignificantly, two holes drilled 1,200 metres south and along the major targets have been identifiedgraben structure that hosts the San Antonio Mine to the east of the district, cut 30-100 metres of manganoan-calcite cemented breccia in turn cut by narrow sulphide veinlets. Hole 5 returned a narrow intercept that assayed 3.5 ounces per ton of silver and permitted5.60% lead and 4.3 % zinc over 0.40 metres.  More significantly, Hole 6 returned with an 8.3 metre intercept of 4.2 ounces per ton silver. Most telling is that these intersections were within a 30 to 100 metre wide zone of manganoan-calcite (alteration) brecciation containing abundant veinlets and stringers of silver, lead and zinc minerals. The presence of base metal and silver mineralization within a broad alteration halo, not unlike the upper reaches of the East Camp deposits, is considered to be a most important development.

MAG carried out a three hole (07, 08, 09) drill program along the San Antonio Graben in the eastern portion of Guigui in 2005.  The first two holes were designed to follow up on positive results from 2004 drilling (holes 05 and 06) in the West Fault of the graben.  Hole 07 cut the highest grade silver mineralization intersected to date within Guigui or 1.40 metres of 242 grams per tonne Silver (7.8 ounces).  The best values were associated with members of a felsite dike swarm that cores mineralization in Grupo Mexico’s San Antonio Mine approximately 1800 metres farther to the north along the same structure.  

The results from Hole 08 indicate that the dikes cut in holes 06 and 07 are sourced farther to the west within the Guigui Property.  property.  MAG also drilled a single hole into the upper zones of the East Fault of the graben (hole 09) and cut four narrow felsite dikes with anomalous silver values.   This was a very shallow test of this target and the results are considered encouraging for subsequent drilling in this area.

We continue to cut strong indications of silver and base metal mineralization in the same structures and intrusions and within a broad alteration halo, not unlike the upper reaches of the East Camp deposits. This important development leads management to contend that these intersections demonstrate that mineralization similar to the rich deposits of the San Antonio Mine, just 1200 metres to the north of our drill area and East Camp can be traced to the south and onto MAG’s Guigui property.

The overallnext drill phase is expected to begin once an airborne electromagnetic and magnetic program is based on projectioncompleted and integrated into Guiguithe data base in late 2006.

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It is important to note that Grupo Mexico, the largest Mexican mining company, restarted mining operations at the San Antonio Mine in mid 2005.

MAG now controls all of the mineralization vectors fromground to the known mining areas,immediate south and between the AMT data,East and alteration distribution.  The CSAMT data indicate that the topsWest Camps of the conductors are not more than 350 m. deep, but they should be drilled toSanta Eulalia Mining District, making it a depth of 450 - 500 m.  Further, if the CSAMT data do not reflect the depth to the tops of the conceptual targets (or if they are altogether misleading), either hole 1 or 2 should be drilled to a 800 - 1000 m. depth to determine if intrusive rocks with associated skarn existsignificant player in any future developments in this geologically indicated target area.  The hole locations are based on a combination of geology, CSAMT/AMT, magnetics, gravity.  The targets lie greater than 300 m. below the surface and are controlled by high angle features, which, combined with topography, means angle holes are required to test the targets effectively.  Many appear to reflect multiple parallel structures so the exploration program was designed so that the holes will cut several of these structures, lengthening the drill hole depth.   Sections for each hole have been generated.  Total of the exploration drilling needed to test the known targets is4,250 meters.historically silver rich district.

Recommended Work Program and Budget

Following the above considerations, it is recommended that the first exploration phase focus on mapping, sampling and geophysics in the Guigui 2, 3 and 4 claims and adjoining portions of Guigui.  Drilling the best targets in the combined areas should follow this.  The following Phase I exploration budget is proposed:

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The Company has commenced the mapping portion of this program. To December 31, 2003,2005, approximately $558,456$1,265,194 has been spent on the Guigui Property.

DESCRIPTION OF THE BUSINESS - ADARGAS

The Adargas District is an under-explored 850 hectare Au, Ag, Pb, Zn, Cu Carbonate Replacement Deposit (CRD) target that lies at the intersection of two exceptionally productive regional ore deposit trends.  Adargas mineralization consists of a series of irregular dike-contact replacement chimneys that plunge generally north and widen with depth.  Historic data indicate that pre-1924 production from Adargas was roughly 350,000 T of oxide ores grading 9-27 g/T (.25-.9 oz/T) Au, 1000 g/T (34 oz/T) Ag, and 24-36% Pb.  High zinc grades are also present, but zinc was not recovered from the oxide ores.  High gold grades were encountered throughout the mine, with the highest in the deeper oxidized parts of the mine.  

Adargas closely resembles the famous Naica deposit, which lies 120m to the NNW along one of the major regional trends.  Naica was “rediscovered” in the mid-1950’s by following dike contact mineralization to depth changing it from an obscure occurrence to one of Mexico’s major Pb-Ag-Zn mines. The exploration concept for Adargas is virtually identical. This is accomplished by working outwards from the old mine area and moving towards showings of similar mineralization that occur for several kilometers along strike.

The surface geology of the district can be generally described as a four km long, E-W-trending, northerly-convex arcuate anticline of Cretaceous limestone and shale. This stratigraphy is cut by E-W and N-S structures that host widespread silicification and distinctive rhyolite dikes that are closely related to replacement mineralization.  A Phase II programrhyolite flow dome complex occupies the center of the anticline. The main Adargas Dike trends roughly NS and has a large central bulge around which pervasive silicification and replacement mineralization are focused. The dike is also known to carry anomalous gold.  The Ridge Dikes trend NW and occupy axial structures running the length of the anticline.  Mineralization occurs sporadically along these dikes as well, but has never been systematically explored.

MAG acquired its option to earn an interest in the Adargas property from Cascabel, who worked the property under contract from 1991 to 1998.  Over $250,000 was spent in surface and underground mapping, geophysics and drilling.  One of two diamond drill holes recorded 0.30 m of Zn-Pb-Ag bearing massive sulfides at the intersection of a strong CSAMT anomaly. This anomaly was also interpreted to be the inferred 200 m down-plunge projection of the principal Adargas Dike-contact chimney orebody.  With the industry downturn, interest in the property faded and it was subsequently abandoned. Cascabel reacquired the property in 2002 and MAG has unrestricted use of all existing core and data.   

MAG drilled four diamond core holes in 2004, centered proximal to the known 0.30 m sulfide intercept.  All four holes intersected dikes, garnet-epidote skarn and variable amounts of sulfide mineralization.  The best hole returned 1.20 m of massive galena and sphalerite grading 300 ppb Au, 55 ppm Ag, 9.0% Pb and 5.8% Zn.

Subsequent borehole geophysics has identified a promising off-hole response indicative of a conductive source probably located below hole two and consistent with the geological model for Adargas. This target will buildmost likely be drill tested early in the next exploration program.

Although these results are not overly promising in terms of grade they nonetheless do support the exploration model.  MAG has elected to pursue possible joint venture opportunities and feels that the deeper targets, modeled on treating the surface mineralization as leakages from a larger system trapped beneath a relatively impermeable unit, remain untested and attractive.

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MAG’s 2005 work was limited to two orientation lines of NSAMT geophysics to follow up on a 2004 down-hole geophysical survey that indicated a strong conductor beneath MAG’s first hole.  Preliminary analysis of the combined NSAMT and down-hole results indicates that drillable targets are present.  No additional work or permitting is required to test these targets.

A decision to drill is pending the integration of the results and the priority status of the targets.

To December 31, 2005, approximately $307,779 has been spent on the Adargas Property.

DESCRIPTION OF THE BUSINESS - CINCO DE MAYO

Cinco de Mayo is a 2,500 hectare Carbonate Replacement Deposit (CRD) prospect located in north-central Chihuahua, Mexico.  The acquisition of this property evolved from a review of data collected during 15 years of systematic exploration and a study of the geologic characteristics of the CRDs prospects in Chihuahua by Dr. Peter Megaw and Cascabel. This compilation revealed key features that set the important CRD systems like Santa Eulalia, Naica, Bismark, and San Pedro Corralitos apart from the numerous small CRD showings and Mississippi Valley Deposits that occur elsewhere in the region.  Cinco de Mayo lies directly along the same major deep crustal break that underlies these important CRD/skarn systems and shares many of the key features of the distal parts of Santa Eulalia, indicating that the potential for finding a large CRD system is excellent.  

The Sierra Cinco de Mayo is an elongate limestone ridge, about 1 km wide and 4.5 km long flanked by broad alluvium mantled valleys. PEMEX data and outcrop reconnaissance indicate that the alluvial cover is very thin and that a very thick section of favorable carbonate host rocks lies immediately beneath the cover. The ridge is cut by NE-SW and NW-SE structures that host both mineralization and metal-bearing jasperoid alteration.  Little is known of the historic mining at Cinco de Mayo, but there are two old mines on the property that probably produced small amounts of high-grade silver and base metal ores.  The jasperoids were the focus of a systematic mapping and sampling program for a competitor in 1998. This program revealed a number of geochemical “hot-spots” along certain structural corridors leading towards the adjacent covered areas that are in turn underlain by highly favorable host rocks.

Exploration work done during Phase I.in the covered areas will be largely “blind” and will necessitate using geochemical and geophysical techniques to trace mineralization beneath this thin cover.  The Phase Imineralization is known to contain magnetic pyrrhotite, indicating that airborne or ground magnetics may be useful.  NSAMT geophysics may also be useful in delineating deeper structure and various soil-geochemical prospecting tools will be employed to locate mineralization centers.  Drill targets can be developed quickly for drilling in 6-8 months.

MAG began preliminary regional geologic mapping and sampling at Cinco de Mayo in mid-2004.  Unfortunately, unusually heavy summer and fall rains deluged the region, washing out dams and cutting road access to the property.  

The work program continued in early 2005 with MAG executing an orientation biogeochemical survey that revealed strong linear zinc and copper anomalies along trend from strongly anomalous structures exposed in limited outcrop.  These results were encouraging enough to justify a 30 line-kilometer NSAMT geophysical survey testing historically exploited mineralization, geological features identified in nearby outcrop and through cover utilizing a biogeochemical survey.  Additional biogeochemical sampling, both expanding on the strongest anomalies revealed by the orientation survey and coincident with each NSAMT detector point, accompanied the NSAMT survey.   Results were pending at year end.  

MAG also claimed approximately 2,500 hectares of open ground to the north of its original land package under option along a major regional fault zone revealed through detailed satellite image analysis.

A drill program is contemplated once the pending NSAMT data and a proposed airborne electromagnetic and magnetic survey has been integrated into the data base and drilling could begin in late 2006.

To December 31, 2005, approximately $135,787 has been spent on the Cinco de Mayo Property.

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DESCRIPTION OF THE BUSINESS - LAGARTOS

Consistently elevated gold values from MAG’s 2003 Juanicipio drilling have suggested that a larger scale zoning may be in place than had previously been considered for the Fresnillo/Juanicipio/Lagartos district. MAG subsequently examined surrounding areas for possible extensions to the system(s), both in outcrop and under cover.  Satellite image and structural analysis of the region indicated areas of strong alteration similar to that drilled at Juanicipio. This alteration is also coincident with a very prominent regional structure that hosts at least three, one billion-plus ounce silver deposits.  In response, MAG acquired over 125,000 hectares of new claims, the “Lagartos Property Package”, on the most promising of areas using the Fresnillo/Juanicipio model. Preliminary work involved regional mapping and an orientation NSAMT geophysical survey as a possible first pass reconnaissance tool.

In 2004, the areas with the strongest alteration and NSAMT responses were mapped in detail and sampled. In addition, detailed NSAMT, SWIR (Short-Wave Infrared) surveying and an in-depth structural analysis were carried out.   The most promising area was identified about 35 km from Juanicipio (Lagartos NW) and two holes were drilled through covered terrain and targeted on the combined results of geophysics and geology. The best hole intersected 65 metres of strong advanced argillic alteration followed by 700 metres of strong silicification with abundant pyrite.  The drilling also significantly encountered several narrow mineralized structures, the best of which ran 1.3 g/T Au over nearly 1.5 metres.     

The results strongly indicate that we are within a high-level portion of a major epithermal system (i.e. Fresnillo) only 30 kilometres along the structural trend from the Fresnillo silver district. Anomalous values of Gold (up to 1.3 g/t), Silver, Mercury, Antimony, and Arsenic are found throughout the holes and add to the significance that an epithermal system is in place.

Having confirmed that MAG has located a “buried” epithermal system (at Cerro Cacalote) within highly prospective terrain, our next step will directbe to quickly identify areas and/or vectors to where we can best concentrate our exploration efforts. We will accomplish this through ongoing and planned programs of geochemistry (bio-geochemistry) and geophysics.

At Cerro Cacalote, within the Lagartos NW land package, detailed biogeochemistry sampling carried out in 2005 has outlined three distinct silver, lead, zinc and copper biogeochemical anomalies. These are in the order of four to eight kilometres long and are coincident with similar structural vein controls of the adjoining Fresnillo silver mine district. The anomalies fall exactly on the targeted structures identified from the high resolution satellite images and geological mapping.  Given the position and intensity of the multi-element anomalies and their location on trend with the world’s largest silver mine, these areas are immediate drill targets.

Ground magnetics will be used to facilitate the drill program.

MAG initiated a drill program in January of 2006 and expects to drill through to the end of the first quarter.

MAG also continued to enlarge its land position by claiming strategically located properties in 2005 as they became eligible for acquisition.  To that end MAG added an additional 12,534 hectares to its Lagartos SE land package east of the El Saucito discovery and west of the Zacatecas District.

MAG will be launching throughout the large land holdings of Lagartos in 2006 similar exploration for Phase II.programs to those it has applied at Juanicipio and Lagartos NW.

TestingTo December 31, 2005, approximately $399,192 has been spent on the six proposed targets will require 4,250 m.Lagartos Property.

DESCRIPTION OF THE BUSINESS - SIERRA RAMIREZ

The Sierra Ramirez District lies in eastern Durango State, approximately 80 km west of drilling atthe famous Providencia-Concepcion del Oro, Zacatecas District.  Sierra Ramirez is a typical Mexican Carbonate Replacement Deposit (CRD) target that produced an estimated cost750,000 - 1,000,000 tons of $850,000.  Drilling can commence immediately within Guigui.  Minor permit expansion and refiling will be necessary for Guigui 2, 3, and 4.  The following general drilling budget is proposed for Phase II:

Note:(1)very high grade (1000-3000 g/T Ag) Ag-Pb-Zn

 In order to incur all

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ores from Spanish Colonial times until the mid 1960s.  Until recently the land status was high fractionated.  MAG has acquired over 80% of the expenditures recommendeddistrict under option from Minera Rio Tinto of Chihuahua, Mexico.  Significant geotechnical work was conducted by a major company in Phase II, the Company1990s, but they abandoned the property during the downturn in the mineral industry and prior to drilling.  

The Sierra Ramirez is a 7 by 15 km E-W oriented anticlinal fold composed of Jurassic Zuloaga Limestone cut by at least 2 rhyolitic plugs. Mineralization consists of Ag-Pb-Zn replacement veins in the western part of the area and mantos hosted in distinct carbonate strata in the central and eastern portions.  Small amounts of skarn are known to exist proximal to the rhyolite areas. Exploration of the district will haveinvolve the unraveling of the overall controls and metal zoning to raisebest define the most favorable areas for further financing.exploration.  

To that end MAG executed district-scale mapping and sampling in 2004, with a focus on determining the size of the mineralized zone(s) and confirming existing concepts of district metal zoning.  The resulting district-scale metal ratio zoning patterns revealed three principal mineralization centers. On a positive note, two of them were found to extend well outside the limits of MAG’s original 4,443 hectare land position.  MAG subsequently filed claim to an additional 11,167 hectares of land, including a vacated claim internal to their original holding, bringing our holdings in the district to over 15,500 hectares.  

Heavy summer and fall rains hampered access to the property until December 2004, but detailed mapping and sampling of the two principal mineralization centers controlled by MAG resumed in 2005.

MAG expanded on its 2003-2004 reconnaissance geologic work with focused mapping and sampling in the three principal mineralization centers located by previous work.  This resulted in the recognition that acquisition of additional land is desirable before higher profile exploration work can begin.  This acquisition was underway by year’s end.

To December 31, 2005, approximately $88,536 has been spent on the Sierra Ramirez Property.

NONE OF THE EXPLORATION CONCESSIONS IN WHICH THE COMPANY HOLDS AN INTEREST ARE KNOWN TO CONTAIN COMMERCIAL QUANTITIES OF MINERALS OR PRECIOUS GEMS. ALL EXPLORATION PROGRAMS PROPOSED FOR ANY EXPLORATION CONCESSIONS IN WHICH THE COMPANY HAS AN INTEREST ARE EXPLORATORY IN NATURE.

Management reviews the carrying value, for accounting purposes, of mineral rights and deferred exploration costs as described in Item 5. Operating and Financial Review and Prospects.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

The Company'sCompany’s main objective is to acquire mineral properties, finance their exploration and, if warranted, develop and bring them into commercial production either directly or by way of joint venture or option agreements or through a combination of the foregoing.  The Company is aiming to develop its exploration concessions to a stage where they could be exploited at a profit.  At that stage, its operations would to some extent be dependent upon the world market price of any minerals mined.

The Company had total deferred exploration costs and mineral rights of $2,057,542$10,321,579 at December 31, 2005, compared to $7,310,714 at December 31, 2004, $3,372,220 at December 31, 2003, compared to $78,750$116,552 at December 31, 2002 and $Nil at December 31, 2001.  During Fiscal 2001 and most of 2002, the Company focused on the identification and completion of a Qualifying Transaction in industries other than mineral exploration and development (See Item 4. Information on the Company).  In August 2002, the Company entered into an agreement to acquire interests in exploration concessions and an operating subsidiary in Mexico.  During 2003, the Company commenced the

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exploration of its exploration concessions in Mexico.  This commencement of business in Mexico resulted in the Company incurring the deferred exploration costs described above.  The recoverability of the deferred exploration costs and mineral rights is dependent upon the existence of economically recoverable reserves, securing and maintaining title and bene ficialbeneficial interest in the properties, the ability to obtain the necessary financing to meet its obligations

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under various option agreements and the completion of the development of its properties, future profitable production, or alternatively, upon its ability to dispose of its interests on an advantageous basis.  As a result, there is substantial doubt about the ability of the Company to continue as a going concern.  

Future write-downs of properties are dependent on many factors, including general and specific assessments of mineral resources, the likelihood of increasing or decreasing the resources, land costs, estimates of future mineral prices, potential extraction methods and costs, the likelihood of positive or negative changes to the environment, taxation, labour and capital costs.  We cannot assess the monetary impact of these factors at the current stage of our properties.  The dollar amounts shown as exploration concession interests are direct costs of maintaining and exploring properties.  These amounts do not necessarily reflect present or future values.

Additional financing will be required for further exploration and development of our properties.  Although we have been successful in the past in raising funds, there is no assurance that we will be able to raise the necessary funds to meet our funding obligations.

The Company has not been required to make any material expenditure for environmental compliance to date.  The operations of the Company may in the future be affected from time to time in varying degrees by changes in the environmental regulations.  Both the likelihood of new regulations and their overall affect upon the Company vary greatly and are not predictable.  See Item 3. Key Information - Risk Factors.

Operating Results

The discussion and analysis in this section compares the operating results of the year ended December 31, 20032005 to the year ended December 31, 2002,2004, and the year ended December 31, 20022004 to the year ended December 31, 20012003 and should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto provided at Item 17. Financial Statements.  At the present time, the Company'sCompany’s expenditures consist of primarily exploration costs, professional fees, listing and sustaining fees, and general and administrative expenditures. The Company presently has no production from its interests in exploration concessions and has no significant revenue items.

Year Ended December 31, 20032005 Compared to the Year Ended December 31, 20022004

Interest income for the year ended December 31, 20032005 amounted to $77,468$80,432 as compared to $905$66,999 in 2002.2004. Cash on hand during 20022005 on average was lowhigher that in 2004 and as a result, interest income was likewise low.  also higher in 2005.

During 2005 the first quarterCompany again focused its exploration efforts in Mexico. The Company conducted exploration programs in seven projects for $1,429,307 in 2005, while $1,976,622 was spent on the same seven projects in 2004. Additional work was also completed and paid for by joint venture partner Peñoles on the Company’s Juanicipio project (see Financial Statement Note 6(a) Mineral Rights and Deferred Exploration Costs). Exploration concession acquisition costs of $1,581,558 were incurred in 2005 as compared to $1,961,872 in 2004. Of the acquisition costs incurred in 2005, $12,713 was incurred by the issuance of 13,382 shares at a price of $0.95 per share, $1,215,000 was incurred by the issuance of 1,500,000 shares at a price of $0.81 per share, $91,397 was incurred by the issuance of 119,660 shares at a price of $0.764 per share and $8,712 was incurred by the issuance of 12,446 shares at a price of $0.70 per share and $9,467 was incurred by shares allotted but not issued in 2004 that were issued in 2005 (9,191 shares at a price of $1.03 per share). The balance was paid in cash.

Expenses for the year ended December 31, 2005 totalled $1,891,270 compared to $800,896 in 2004.  The single largest variance year on year was a non-cash charge in 2005 of $611,353 for Stock Compensation Expense relating to the issuance of 1,240,000 incentive stock options.  In 2004 there were no incentive stock options issued and this expense was Nil.  Accounting and legal fees in 2005 amounted to $294,964 versus $198,330 in 2004.  During 2005 professional fees were higher than in 2004 as the Company was negotiating and preparing for the Peñoles joint venture transaction in Mexico as well as for other property option related contracts and settlements.  

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Telephone and Office expense increased to $252,257 in 2005 from $190,910 in 2004 as the Company conducted more business in 2005. Management and Consulting fees increased substantially in 2005 to $415,117 versus $173,444 in 2004.  The increase came as a result of the Company hiring a full-time President and a VP Corporate Development.  In 2005 the Company’s President was paid $149,900 in compensation (2004 - $93,870).  Arm’s length individuals were also paid for services related to legal contract completions, project management, corporate administration and geological services.

In 2005 Travel expenses totalled $169,993 (2004 - $52,839). Travel expenses related to visiting the Company’s properties and business contacts in Mexico, to the attendance of trade shows, and general broker and financier meetings.  Filing Fees paid to the Exchange and the British Columbia Securities Commission in 2005 were $42,254 (2004 - $41,163) while Shareholder Relations expense was $109,803 (2004 – $81,277).  The Company’s VP Corporate Development handled Shareholder Relations duties “in house” during 2005.  Other items related to general and administrative categories totalled an aggregate credit amount of $4,471, including a foreign currency exchange gain of $29,506. In 2004 these other expense items totalled $62,933 including a foreign currency exchange loss of $48,349.

Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003

Interest income for the year ended December 31, 2004 amounted to $66,999 as compared to $77,468 in 2003.  Cash on hand during 2004 on average was lower than in 2003 and as a result, interest income was also lower in 2004.  

During 2004 the Company continued to focus its acquisition and exploration efforts in Mexico.  The Company conducted exploration programs on seven projects for $1,976,622 in 2004, while $2,019,740 was spent on four properties in 2003.  Exploration concession acquisition costs of $1,961,872 were incurred in 2004 as compared to $1,235,928 in 2003.  Of the acquisition costs incurred in 2004, $880,467 was incurred by the issuance of 628,905 shares at a price of $1.40 per share, $300,000 was incurred by the issuance of 150,000 shares at a price of $2.00 per share, $88,812 was incurred by the issuance of 80,738 shares at a price of $1.10 per share, and $309,473 was incurred by the issuance of 499,150 shares at a price of $0.62 per share, while the balance was paid in cash.

Expenses for the year ended December 31, 2004 totalled $800,896, compared to $915,007 in 2003.  The Company was very active in both 2003 and 2004 and the amount of exploration expense in each year was similar.  Accounting and legal fees in 2004 amounted to $198,330 versus $250,954 in 2003.  During 2003 these professional fees were higher than in 2004 as the Company was actively pursuing the completion of a Qualifying Transaction and a financing by way of a public offering in Canada.  The acquisitionCompany also completed the 100% acquisitions of Minera Los Lagartos, S.A. de CV and Lexington Capital Group Inc.  The Lagartos acquisition was completed on January 15, 2003 and commencing on this date, the Company has consolidated Lagartos' financial position and results of operations in its financial statements.2003.  The main assets held in Lagartos are its interests in the Juanicipio, Don Fippi and Guigui properties located in Mexico.  ExpensesThe Lexington acquisition was completed on July 16, 2003.  Lexington’s sole asset is its indirect interest in the Juanicipio I claim.  The Company has consolidated the financial position and results of operations in its financial statements for both Lagartos and Lexington since their acquisition in 2003.  

Telephone and Office expense increased to $190,910 in 2004 from $94,185 in 2003.  The Company operated and occupied full time office premises, with administrative services, for the whole year ended December 31, 2003 totalled $915,007, compared to $123,536 in 2002.  The Company was not very active in2004 for the first halftime.  Management and Consulting fees totalled $173,444 in 2004 (2003 - $183,912), of 2002.  Increased activity levels combined withwhich $93,870 was paid to the filing of the Company's Qualifying TransactionCompany’s President (2003 - $97,325).  The balance was paid to arm’s length individuals for services related to legal contract completions, project management, corporate administration and Prospectus in April 2003 caused the Company to incur higher costs in 2003.  In particular, accounting, legal and filing fees were much higher than in prior periods.  Significantgeological services.

Other significant expense items in 20032004 were Accounting and AuditTravel – $52,839 (2003 - $142,437 (2002 - $24,849); Legal - $108,517 (2002 - $58,849); Travel - $130,732 (2002 - nil)$130,732); Filing Fees paid to the Exchange and the British Columbia Securities Commission - $54,924 (2002$41,163 (2003 - $29,166)$54,924); Management and Consulting fees - $259,220 (2002 - nil) and Shareholder Relations - $61,359 (2002 - nil)$81,277 (2003 – $61,359).  Other items related to general and administrative categories totalled an aggregate amount of $157,818 (2002$62,933 (2003 - $10,672)$63,633).  Of the $259,220 incurred for Management and Consulting fees during 2003, $97,325 was paid to the Company's President.  His duties include the management of corporate affairs, legal matters, property acquisitions, fundraising and financing, shareholder relations, and administrative and filing responsibilities.  A further $1,362 was paid to a director for consulting services.  The balance of $160,533 was paid to arm's length consultants for services related to legal contract completions, project management, corporate administration and geological services. The legal fees incurred during the year related primarily to the completion of the Company's Qualifying Transaction and Prospectus and the travelTravel expenses primarily related to visiting the Company'sCompany’s properties in Mexico.

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The commencement ofand business activitiescontacts in Mexico, during 2003 resulted in the Company incurring resource property expenditures for acquisitions and exploration programs.  Exploration expenditures for 2003 totalled $2,019,740 as compared to $37,802 in 2002.  Exploration concession acquisition costs of $1,235,928 were incurred in 2003 as compared to $78,750 in 2002.  Of the acquisition costs incurred in 2003, $530,000 was incurred by the issuance of 700,000 shares at a price of $0.50 per share and 200,000 shares at the price of $0.90 per share, while the balance was paid in cash.  During most of 2002, the Company was not actively exploring any mineral property.  

On July 16, 2003, the Company acquired 100% of the issued and outstanding shares of Lexington Capital Group Inc. whose main asset is its indirect interest in the Juanicipio 1 claim that encompasses the Juanicipio Property.  Under the terms of the acquisition agreement, MAG paid the vendor US $250,000 and issued 200,000 shares of its common stock at a price of $0.90 per share.  By making this acquisition, the Company is now in a position to eliminate the future option payment and work commitments relating to the Juanicipio Property.  (See Item 4. Information on the Company - Descriptionattendance of the Business – The Juanicipio Property).trade shows, and general broker and financier meetings.

Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001Lagartos

Interest income earned for the year has been reduced to $905 (2001 – $8,810) due to a substantial reduction in cash for most of the fiscal year.

Accounting fees were higher than in the prior year as a result of the Company's reporting issuer status as a result of its initial public offering and its preparation for the completion of a Qualifying Transaction and  public offering in 2003.  Likewise, higher filing and transfer agent fees of $29,166 (2001 – $7,925) also relate to the Qualifying Transaction and public offering.  Filing fees of $6,486 were paid in 2002 to the Exchange regarding the Lagartos transaction.  Finance and due diligence fees in the amount of $17,113 were paid to Raymond James Ltd. which had agreed to act as Agent for the Offering.  A further $936 was paid to the Exchange as a private placement filing fee.

Legal fees in the amount of $58,849 (2001 – $16,100) have been incurred during the year, $6,014 of which was unpaid and owing at year-end.  The increased legal activity relates primarily to the Lagartos transaction and the Qualifying Transaction and public offering that was completed in 2003.

The Company has now concluded its involvement with its proposed investment in ADMC and has written off the remaining balance of $3,662 (2001 – $248,758) after receiving $16,338 in proceeds from the disposition of the ADMC assets.  The Company had originally estimated receiving $20,000 from the ADMC assets and this amount was reflected in the financial statements for the year ended December 31, 2001.

During the year ended December 31, 2002 the Company incurred a loss of $122,631 ($0.08 per share) compared to the 2001 loss of $279,639 ($0.19 per share).  As discussed above, the most significant influence on the 2001 loss was attributable to the write off of $248,758 in operational advances to ADMC.

Expenditures for resource property interests in the year 2002 totalled $116,252 as compared to $Nil for 2001 and related principally to an initial option payment in the amount of US$50,000 (CDN$78,750) funded by the Company on behalf of Lagartos in connection with the Juanicipio Property.  The Company also advanced Lagartos $113,139 in working capital in 2002.

Liquidity and Capital Resources

Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002

Cash and cash equivalents at December 31, 2003 amounted to $4,795,822, as compared to $167,276 at December 31, 2002.  The increase from December 31, 2002 is primarily the result of the issuance in April 2003 of 11,500,000 units of the Company for gross proceeds of $5,750,000 and the subsequent exercise of share purchase warrants.  Cash expenditures during the year ended December 31, 2003 resulted primarily from ongoing general and administrative expenses and costs related to the Qualifying Transaction and

36

Prospectus offering completed in April 2003, the acquisition of Lagartos, and exploration concession acquisition and exploration expenditures.

Accounts payable and accrued liabilities relating to legal fees, finance fees, agency fees and exploration concession expenditures totalled $208,108 at December 31, 2003.

On April 15, 2003, concurrent with the completion of its Qualifying Transaction, the Company raised gross proceeds of $5,750,000 from its public offering of 11,500,000 units at a price of $0.50 per unit.  Each unit consists of one common share and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one share at a price of $0.75 per share for a period of two years from closing.  The Agents for the offering, Raymond James Ltd. and Pacific International Securities Inc., were granted warrants to purchase up to 1,150,000 shares of the Company at a price of $0.50 exercisable for a period of two years from the date of closing.  Commissions on the offering were paid to the Agents consisting of 10,000 shares and $460,000.  Corporate finance fees, legal fees and disbursements related to the offering totalled $175,234.  Net proceeds to the Company from this financ ing were $5,109,766.  Subsequent to the completion of this financing the Company has sufficient free working capital to meet present requirements and execute its business plan.  However, there is no assurance that additional funding will be available to the Company and the Company may again become dependent upon the efforts and resources of its directors and officers for future working capital.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Cash at December 31, 2002 amounted to $167,276, an increase of approximately $76,300 over the prior year's balance of $90,904.  Cash had been depleted during 2002 in part due to ongoing general and administrative expenses.  Cash increased as a result of two private placements that occurred in September and December of 2002.

Deferred financing fees at December 31, 2002 relate to amounts paid to Raymond James Ltd. pursuant to its agreement to act as Agent for the Company's public offering in April 2003.  A pre-payment in the amount of $7,500 was made towards Raymond James Ltd.'s internal costs and legal costs.  Management encourages the reader to refer to the description of its business above for information relating to transactions by the Company in relation to Lagartos.

The Company paid $78,750 (US$50,000) in connection with its acquisition of Lagartos during the fiscal year ending December 31, 2002.  Subsequent to the year-end, the Company paid the remaining $7,500 (US$5,000) owing to acquire a 99% registered and 100% beneficial interest in Lagartos.  During the year ended December 31, 2003, the Company made $65,635 (US$47,509) in payments to the government of Mexico toward mining taxes owed in respect of properties held under option by Lagartos.  Further, as at December 31, 2002 the Company has paid fees totalling $37,802 to mining consultants and geologists to prepare technical reports on the Mexican mineral properties.  These technical reports provide a detailed review and analysis of the properties in question prepared by a recognized "Qualified Person" in a form compliant with Canadian Securities Administrator's National Policy 43-101 and the requirements of the British Columbia Securities Commission.  The primary purpose for reports of this nature is to utilize the skills and experience of a Qualified Person to provide comfort and certification that the properties in question are fairly and accurately disclosed and represented in the public domain by an issuer based on a formalized and stringent set of technical requirements.  The Qualified Person is also required to provide an opinion as to whether or not further work is recommended to be carried out on the property.  The technical reports prepared for the Company were filed with the Exchange and the British Columbia Securities Commission in relation to the Company's April 2003 Qualifying Transaction and public offering in Canada.

Current liabilities of the Company at December 31, 2002 consisted of amounts owing for legal services, consulting services, transfer agent fees and some office expenses.  The largest amount owing was for legal services provided during the period from October to the end of December in the aggregate amount of $22,124.

The Company issued 2,400,000 special warrants in consideration for cash of $375,000 during the year ended December 31, 2002, which give the holders the right to convert them into common shares and common share purchase warrants for no additional consideration. Each common share purchase warrant is

37

exercisable into one common share of the Company at exercise prices between $0.20 and $0.40 expiring between September 2004 and December 2004.

Option payments, exploration expenditures, taxes and maintenance expenditures for the Company's Juanicipio Property are estimated at $1,202,872 (after the acquisition of Lexington Capital Group Inc. in July 2003 eliminated the requirement to make option payments to Minera Venus, S.A. de C.V.) to the end of 2004.  Option payments, exploration expenditures, taxes and maintenance expenditures for the Company's Don Fippi Property are estimated at $661,000 to the end of 2004.  Option payments, exploration expenditures, taxes and maintenance expenditures for the Company's Guigui Property are estimated at up to $467,674 to the end of 2004.  General and administrative expenditures to April 2004 are estimated at $275,000 and to the end of 2004 are estimated at $482,000.  These estimated expenditures to the end of 2004 total $2,813,546.  After the April 15, 2003 public offering, and accounting for outstandi ng costs and the working capital deficiency at the time of closing, a balance of unallocated working capital amounting to $2,127,909 remains to partially satisfy the Company's ongoing financial commitments.  The Company estimates that its existing working capital is sufficient to satisfy the Company's cash requirements until the end of 2005.

The Company has no plans for further financings or offerings at the present time.  In the event that the Company requires additional working capital and/or to fully execute its business plan, it intends to issue equity to raise those funds.  Should the Company require additional financing, and should it fail to raise those funds, the Company might then fail to meet its ongoing option payment, tax and exploration expenditure commitments, resulting in jeopardy to the Company's tenure and title to or interests in its properties.  In the event the Company should face such a situation, the Company would seek to option its exploration concessions to third parties on favourable terms, or liquidate its assets in an orderly fashion.

Research and Development, Patents and Licenses

This section is not applicable to the Company.

Trend Information

Other than the obligations under the Company's property option agreements set out in Item 4. Information on the Company – Business Overview and Item 5. Operating and Financial Review and Prospects – Tabular Disclosure of Contractual Obligations, there are no identifiable trends, demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, the Company's liquidity either increasing or decreasing at present or in the foreseeable future.  The Company will require sufficient capital in the future to meet its acquisition payments and other obligations under property option agreements for those properties it considers worthy to incur continued holding and exploration costs upon.  The need to make such payments is a "Trend" as it is unlikely that all such obligations will be eliminated from the Company's future business activities.  The Company intends to utilize cash on hand in order to meet its obligations under property option agreements until at least December 31, 2004. It is unlikely that the Company will generate sufficient operating cash flow to meet these ongoing obligations in the foreseeable future. Accordingly, subsequent to December 31, 2004, the Company may need to raise additional capital by issuance of equity.  At this time the Company has no plan or intention to issue any debt in order to raise capital for future requirements.

At the time of filing there is a noted favourable trend with regard to the market for metal commodities and related companies, however, it is the opinion of the Company that its own liquidity will be most affected by the results of its exploration activities.  The discovery of an economic mineral deposit on one of its exploration concessions may have a favourable effect on the Company's liquidity, and conversely, the failure to find one may have a negative effect.

Off-Balance Sheet Arrangements

This section is not applicable to the Company.

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Tabular Disclosure of Contractual Obligations

                                                Payments due by period

* A description of the written agreements pursuant to which these obligations arise is contained in Item 4. Information on the Company – Business Overview.

Lagartos

Lagartos was incorporated in September 2001 and commenced operations in June 2002 when negotiations commenced leading to the Juanicipio Agreement.  Lagartos then entered into the Don Fippi Agreement and the

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Guigui Agreement.  The results of operations of Lagartos are consolidated into the financial statements of the Company commencing January 15, 2003.

Critical Accounting Policies

The Company'sCompany’s accounting policies are set out in Note 2 of the accompanying Consolidated Financial Statements.  There are two policies that, due to the nature of the mining business, are more significant to the financial results of the Company.  These policies relate to the capitalizing of mineral exploration expenditures and the use of estimates.

Under Canadian GAAP, the Company deferreddefers all costs relating to the acquisition and exploration of its exploration concessions.  Any revenues received from exploration of these concessions are credited against the costs of the concession.  When commercial production commences on any of the Company'sCompany’s properties, any previously capitalized costs would be charged to operations using a unit-of-production method. The Company regularly reviews deferred exploration costs to assess their recoverability and when the carrying value of an exploration concession exceeds the estimated net recoverable amount, provision is made for impairment in value.  

The issuance of CICA Handbook Section 1581,Business Combinations, ("CICA 1581"), and CICA Handbook Section 3062,Goodwill and Other Intangible Assets, ("CICA 3062"), resulted in an apparent conflict between previously issued accounting standards found in CICA Handbook Section 3061, Property, Plant and Equipment ("CICA 3061"), and EIC-126, Accounting by Mining Enterprises for Exploration Costs ("EIC-126").

Appendix 31 to CICA 1581 describes a mineral use right as an example of a contract-based intangible that is subject to amortization over its estimated useful life as recommended by CICA 3062.  CICA 3061, however, states that mining properties represented by capitalized costs of acquired mineral rights and the costs associated with exploration for and development of mineral reserves may be considered as items of property, plant and equipment.  Furthermore, EIC-126 concluded that a mining enterprise that has not commenced operations or objectively established mineral reserves is not precluded from considering exploration costs to have the characteristics of property, plant and equipment.

The Company has determined that, under Canadian GAAP, it is appropriate to consider the costs associated with acquiring the rights to explore a mining property as items of property, plant and equipment.  Under

39

this interpretation, the Company has concluded that it is appropriate to capitalize all such costs until commercial production commences or until the property is abandoned as described above.  A view that is different from this interpretation is that the costs associated with acquiring the rights to explore a mining property are considered intangible assets and would be amortized over its estimated useful life.  Additional guidance may be provided in the future that would require accounting for these costs in a manner different from the Company's current method of accounting.  If the Company had considered the costs associated with acquiring the rights to explore a mining property an intangible asset and amortized them over the expected period in which exploration would be performed, Mineral Rights would have been $601,000 lower at December 31, 2003 (2002 - $Nil) and Amortization expenses would have been $6 01,000 higher for the year ended December 31, 2003 (2002 - $Nil; 2001 - $Nil; period from April 21, 1999 to December 31, 2003 - $601,000).

Management reviews the carrying value, for accounting purposes, of mineral rights and deferred exploration costs on at least a quarterly basis for evidence of impairment.  This review is generally made with reference to the project economics, including the timing of the exploration work, work programs proposed, exploration results achieved by the Company and others in the related area of interest and any changes in the status of the property.  When the results of this review indicate that a condition of impairment exists, the Company estimates the net recoverable amount of the deferred exploration costs and related mining rights by reference to the potential for success of further exploration activity and the likely proceeds to be received from a sale or assignment of rights.  When the carrying values of mineral rights or deferred exploration costs are estimated to exceed their net recoverable amounts, a pr ovisionprovision is made for the declinede cline in the value.

When assessing for evidence of impairment, the Company also refers to the other factors relevant for companies in the extractive industries.  These factors include unfavourable changes in the property (including disputes as to title), inability to access the site, environmental restrictions on exploration or development and political instability in the region in which the property is located.  Furthermore, the Company concludes an event of impairment has occurred when any of the following conditions exist:

a.

the Company'sCompany’s work program on a property has significantly changed such that previously-identified resource targets or work programs are no longer being pursued;

b.

exploration results are not promising and no more work is being planned in the foreseeable future; or

c.

remaining lease terms are insufficient to conduct necessary exploration work.

The existence of uncertainties during the exploration stage and the lack of definitive empirical evidence with respect to the feasibility of successful commercial development of any exploration property does create measurement uncertainty concerning the calculation of the amount of impairment.  The Company relies on its own or independent estimates of further geological prospects of a particular property and also considers the likely proceeds from a sale or assignment of the rights.  The latter will often be indicated by offers that the Company or others have received for exploration rights in the same or similar geological area.  In many cases, the identified condition of impairment will result in a determination that no further exploration activity be performed and the amount of the writedown is the entire carrying value of the interest.

Under U.S. GAAP, the Company expensedexpenses all costs relating to the exploration of its exploration concessions prior to the establishment of proven and probable reserves.  After that point, these costs are capitalized as exploration costs.  When commercial production commences on any of the Company'sCompany’s properties, any previously capitalized costs would be charged to operations using a unit-of-production method.  Furthermore, under recent SEC guidance,effective in 2004, the costs of acquisition of exploration concession rights are considered intangibleto have the characteristics of tangible assets and should be amortized over their useful life, whichas specified in the case of a mineral right on a property without proven and probable reserves is the lesser of the period to expiry of the right and the estimated period required to developEITF 04-2: “Whether Mineral Rights are Tangible or further explore the mineral assets.Intangible Assets.” As a result, under U.S. GAAP, the Company is amortizingcapitalizing the cost of the exploration concession rights acquir ed in the Lagartos transaction on a straight line basis over a period of 15 to 31 months.

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Under US GAAP, the Financial Accounting Standards Board has recently concluded that mineral rights have the characteristics of tangible assets.  The effect of any transitional rules to implement this guidance is unknown at this time but may require revisions to the Company's accounting policies in the future.

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The Company'sCompany’s financial statements are based on the selection and application of significant accounting policies, some of which require management to make estimates and assumptions.  Estimates are based on historical experience and on our future expectations that are believed to be reasonable; the combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results are likely to differ from our current estimates and those differences may be material.  

Recent Accounting Pronouncements

In April 2003, SFAS No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging Activities, was issued.  In general, this statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contract, and for hedging activities under SFAS No. 133.  This statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003.  The adoption of SFAS No. 149 is not expected to have a material impact on the Company's consolidated financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities.  SFAS No. 150 requires certain financial instruments that were accounted for as equity under previous guidance to now be accounted for as liability.  SFAS No. 150 applies to mandatorily redeemable stock and certain financial instruments that require or may require settlement by transferring cash or other assets.  SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.  The Company has not issued any financial instruments that fall under the scope of SFAS No. 150 and does not expect that the adoption of this statement will have a material impact on the Company's financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an interpretation of ARB 51". The primary objectives of this interpretation are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities") and how to determine when and which business enterprise (the "primary beneficiary") should consolidate the variable interest entity. This new model for consolidation applies to an entity in which either (i) the equity investors (if any) do not have a controlling financial interest; or (ii) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that the primary beneficiary, as well as all other enterprises with a significant variable interest in a variable interest entity, make additional disclosures. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN 46-R are as follows: (i) Special-purpose entities ("SPEs") created prior to February 1, 2003. The Company must apply either the provisions of FIN 46 or early adopt the provisions of FIN 46-R at the end of the first interim or annual reporting period ending after December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003. The Company is required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. (iii) All entities, regardless of whether an SPE, that were created subsequent to January 31, 2003. The provisions of FIN 46 were applicable for variable interests in entities obtained after January 31, 2003. The adoption of the provisions applicable to SPEs and all other variable interests obtained after January 31, 2003 did not have a material impact on the Company's consolidated financial position, consolidated results of operations, or liquidity.

The Emerging Issues Task Force ("EITF") formed a committee ("Committee") to evaluate certain mining industry accounting issues, including issues arising from the application of SFAS No. 141, "Business Combinations" ("SFAS No. 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.

41

142") that included whether mineral interests conveyed by leases represent tangible or intangible assets and the amortization of such assets. In March 2004, the EITF reached a consensus in EITF Issue No. 04-2 "Whether Mineral Rights Are Tangible or Intangible Assets" ("EITF No. 04-2"), subject to ratification by the Financial Accounting Standards Board ("FASB"), that mineral interests conveyed by leases should be considered tangible assets. On March 31, 2004, the FASB ratified the consensus of the EITF that mineral interests conveyed by leases should be considered tangible assets subject to the finalization of a FASB Staff Position ("FSP") in this regard. On April 30, 2004, the FASB issued a FSP amending SFAS No. 141 and SFAS No. 142 to provide that certain mineral use rights are considered tangible assets and that mineral use rights should be accounted for based on their substance. The FSP is effect ive for the first reporting period beginning after April 29, 2004, with early adoption permitted.  The Company will cease amortizing exploration stage mineral interests prior to the commencement of production when we adopt this EITF.

Differences between Canadian and United States Generally Accepted Accounting Principles

During the year ended December 31, 2005, net loss under Canadian GAAP was $1,810,838 compared to a net loss of $2,757,486 under US GAAP.  The difference relates principally to the expensing of exploration costs of $1,429,307 under US GAAP which are capitalized as part of deferred exploration costs under Canadian GAAP, net of the impact of the use of the fair value method to record stock compensation expense for employees and directors under Canadian GAAP.

During the year ended December 31, 2004, net loss under Canadian GAAP was $733,897 compared to a net loss of $2,710,519 under US GAAP.  The difference relates principally to the expensing of exploration costs of $1,976,622 under US GAAP which are capitalized as part of deferred exploration costs under Canadian GAAP.

During the year ended December 31, 2003, net loss under Canadian GAAP was $837,539 compared to a net loss of $4,058,279 under US GAAP.  The difference relates to the expensing of exploration costs of $2,019,740 under US GAAP which are capitalized as part of resource property interests under Canadian GAAP, the recording of amortization expense of $601,000 related to exploration concession rights acquired from Lagartos and the recording of compensation of $600,000 relating to shares held in escrow for which the conditions of their release have been satisfied during the period.

During the year ended December 31, 2002, net loss under Canadian GAAP was $122,631 compared to a net loss of $160,433 under US GAAP. The difference relates to the expensing of exploration costs of $37,802 under US GAAP.

There were no differences in the Company'sCompany’s financial statements between Canadian GAAP and US GAAP for the year ended December 31, 2001.

Under Canadian GAAP, exploration costs are capitalized until such time as management determines that the value of the interests in resource properties are impaired or commercial production of the mineral resource properties commences. Under US GAAP, exploration costs are not capitalized until a feasibility study has been completed indicating the presence of economically mineable reserves.

Under US GAAP, costs of acquiring mineral property rights are considered intangible assets and are amortized over their estimated useful life which in the Company's case is the estimated period required to develop or further explore the mineral assets.

Under US GAAP, the satisfaction of conditions for the release of escrow shares is compensatory in nature.  Under Canadian GAAP, the Company'sCompany’s shares issued with escrow restrictions are recorded at their issue price and are not revalued upon their release from escrow.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R,Share-Based Payment, which revised SFAS No. 123,Accounting for Stock-Based Compensation.  SFAS No. 123R will supersede APB Opinion 25,Accounting for Stock Issued to Employees.  SFAS No. 123R requires measurement and recording to the financial statements of the costs of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, recognized over the period during which an employee is required to provide services in exchange for such award.  Additionally, SFAS No. 123R requires the benefits of tax deductions different from recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature.  SFAS No. 123R will become effective for all registrants as of the first fiscal year beginning after June 15, 2005. Therefore, the required effective date is January 1, 2006.

In December 2004, the FASB issued SFAS 153,Exchanges of Non-Monetary Assets - An Amendment of APB Opinion No. 29.  The guidance in APB No. 29,Accounting for Non-Monetary Transactions, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged.  The guidance in that Opinion, however, included certain exceptions to that principle.  This Statement amends APB No. 29 to eliminate the exception for exchanges of similar productive assets and replaces it with a general exception

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for exchanges of non-monetary assets that do not have commercial substance.  A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  This Statement will be effective for fiscal periods beginning after June 15, 2005.  Earlier application is permitted for non-monetary asset exchanges incurred during fiscal years beginning after the date this Statement is issued.  The Company believes this Statement will have no impact on the financial statements of the Company once adopted.

In March 2005, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 107,Share-Based Payment, which provides guidance on the interaction between SFAS No. 123R and certain SEC rules and regulations, as well as on the valuation of share-based payments. SAB No. 107 provides interpretive guidance related to valuation methods (including assumptions such as expected volatility and expected term), first time adoption of SFAS No. 123R in an interim period, the classification of compensation expense and disclosures subsequent to adoption of SFAS No. 123R.  We are currently evaluating the impact of SAB No. 107 on our consolidated financial statements.

In March 2005, the FASB ratified Emerging Issues Task Force Issue No. 04-6,Accounting for Stripping Costs Incurred during Production in the Mining Industry, (“EITF 04-6”) which addresses the accounting for stripping costs incurred during the production phase of a mine and refers to these costs as variable production costs that should be included as a component of inventory to be recognized inCosts Applicable to Sales in the same period as the revenue from the sale of inventory.  As a result, capitalization of stripping costs is appropriate only to the extent product inventory exists at the end of a reporting period and the carrying value is less than the net realizable value. Adoption of EITF 04-6 will have no impact on the consolidated financial statements of the Company once adopted.

In March 2005, the FASB issued Interpretation 47 (“FIN 47”),Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB No. 143.  FIN 47 clarifies that the term “conditional asset retirement obligation” as used in SFAS No. 143 refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity.  The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. FIN 47 requires a liability to be recognized for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 was effective for fiscal years ending after December 15, 2005.  The adoption of FIN 47 did not have a material impact on our con solidated financial position, results of operations or cash flows.

In May 2005, the FASB issued SFAS Statement No. 154,Accounting Changes and Error Corrections (“SFAS 154”).  SFAS 154 is a replacement of Accounting Principles Board Opinion No. 20 (“APB 20”) and FASB Statement No. 3.  SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error.  SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 and we will adopt this standard on January 1, 2006.  We do not expect that the adoption of SFAS 154 will have a material impact on our consolidated results of operations, financial condition and cash flows.

In June 2005, the FASB issued Staff Position Paper (“FSP”) 115-1,The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments, superseding EITF 03-1.  FSP 115-1 will replace the accounting guidance on the determination of whether an investment is other-than-temporarily impaired as set forth in EITF 03-1 with references to existing other-than-temporary impairment guidance.  FSP 115-1 is effective for reporting periods beginning after December 15, 2005.  Adoption of FSP 115-1 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

On July 14, 2005, the FASB issued an exposure draft of a proposed Interpretation,Accounting for Uncertain Tax Positions - an Interpretation of FASB Statement No. 109.  The proposed interpretation would require companies to recognize the best estimate of an uncertain tax position only if it is probable of being sustained on audit by the taxation authorities.  Subsequently, the tax benefit would be derecognized (by either recording a tax liability or decreasing a tax asset) when the probable threshold is no longer met and it is more likely than not that the tax position will not be sustained.  The proposed Interpretation would be effective for years ending after December 15, 2005 and treated as a change in accounting policy.  It would require companies to assess all uncertain tax positions and only those meeting the probable threshold at the transition date would continue to be recognized.  The difference between the amount previously recognized and the amount recognized after applying the proposed Interpretation

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would be recorded as the cumulative-effect adjustment in the 2005 statement of earnings (restatement is not permitted).  The comment period ended September 12, 2005.  The Company does not expect the proposed Interpretation to have a material impact on its results.

In October 2005, the FASB issued FASB Staff Position FAS 123(R)-2,Practical Accommodation to the Application of Grant Date as Defined in FAS 123(R)(“FSP 123(R)-2”).  FSP 123(R)-2 provides guidance on the application of grant date as defined in SFAS No. 123(R).  In accordance with this standard a grant date of an award exists if (a) the award is a unilateral grant and (b) the key terms and conditions of the award are expected to be communicated to an individual recipient within a relatively short time period from the date of approval. We will adopt this standard when we adopt SFAS No. 123(R), and do not anticipate that the implementation of this Statement will have a significant impact on our results of operations.

Liquidity and Capital Resources

Year Ended December 31, 2005 Compared to the Year Ended December 31, 2004

Cash and cash equivalents December 31, 2005 amounted to $7,560,193 as compared to $1,866,360 at December 31, 2004. Cash expenditures during the year ended December 31, 2005 related primarily to exploration on the Company’s projects in Mexico ($1,429,307: 2004 - $1,976,622), cash acquisition costs ($253,736: 2004 - $373,653), general and administrative expenses ($1,891,270: 2004 - $800,896) and networking capital expenditures ($733,884: 2004 – $369,623)). General and administrative expenses were higher in 2005 due to a non-cash charge. Funds received during the year were primarily from the issue of equity related to warrant exercises ($1,046,566: 2004 - $480,562), stock option exercises ($22,750: 2004 - $50,800),  interest income ($80,432: 2004 - $66,999) and the net proceeds from private placements of common shares ($6,771,672: 2004 - $Nil). Accounts payable and accrued liabilities relating to general corporate expenses and explorat ion expenditures totalled $393,621 at December 31, 2005 (2004 - $61,837). The Company was actively drilling in Mexico near the end of December 2005, resulting in higher payables at December 31, 2005 versus 2004.

The Company and its subsidiary Lagartos entered into a formal agreement (the “Agreement”) dated October 10, 2005 with Industrias Peñoles, S.A. de C.V. (“Peñoles”) whereby Peñoles or any of its subsidiaries have acquired an option to earn a 56% interest in the Juanicipio Property in Mexico in consideration for Peñoles: (a) conducting US$5,000,000 (minimum US$750,000) of exploration on the property over the next five years as follows: (i) US$750,000 in year 1 (completed); (ii) US$1,000,000 in year 2 (committed as of February 2006); (iii) US$1,250,000 in year 3; and (iv) US$2,000,000 in year 4; and (b) Peñoles purchasing US$500,000 of Common Shares of the Company within 30 business days after the signing of the initial letter of intent (the “LOI”) becomes effective at a price calculated based on the average closing price of the Company’s Common Shares for the 10 trading days prior to the pur chase (which has been done); and (c) Peñoles purchasing US$500,000 of Common Shares of the Company within 30 business days after the first anniversary of the execution of the LOI, taking into account the average closing price of the Company’s Common Shares for the 10 trading days prior to such purchase (completed February 2006).  This agreement with Peñoles both provides the Company with additional working capital and funds further exploration and development of the Juanicipio property.

To the end of the 2005 year Peñoles had completed seven diamond drill holes for a total of about 5,747 metres of drilling and spent approximately US$622,440 in work on the Juanicipio property. In early 2006 the Company announced that a new, high grade silver/gold vein had been intersected in two holes at Juanicipio. On May 9, 2006, the Company announced that Peñoles was commencing further drilling on the project.

The Company has sufficient free working capital to meet present requirements and execute its business plan.  The Company expects it will need to raise additional funding by way of the issuance of equity in the next twelve to eighteen months.  However, there is no assurance that additional funding will be available to the Company and the Company may again become dependent upon the efforts and resources of its directors and officers for future working capital.

Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003

Cash and cash equivalents at December 31, 2004 amounted to $1,866,360 as compared to $4,795,822 at December 31, 2003.  Cash expenditures during the year ended December 31, 2004 related primarily to exploration on the

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Company projects in Mexico ($1,976,622; 2003 - $2,052,897), cash acquisition costs ($373,653; 2003 – $202,132), general and administrative expenses ($800,896; 2003 – $915,007) and networking capital expenditures ($369,623; 2003 - $183,164). Funds received during the year were primarily from the issue of equity related to warrant exercises ($480,562; 2003 - $3,068,996), stock option exercises ($50,800; 2003 - $26,000) and interest income ($66,999; 2003 – $77,468).  Accounts payable and accrued liabilities relating to legal fees, finance fees, agency fees and exploration expenditures totalled $61,837 at December 31, 2004 (2003 - $208,018).

During 2003 the Company took steps to acquire 100% of Lexington Capital Group Inc.  Lexington’s sole asset is its indirect interest in the Juanicipio I claim.  In 2003 the Company also acquired 100% of Minera Los Lagartos, S.A. de CV.  The main assets held in Lagartos are its interests in the Juanicipio, Don Fippi and Guigui properties located in Mexico.  As a result of these acquisitions in 2003, the Company effectively acquired 100% of the Juanicipio property and therefore extinguished all of the originally required option payments and work commitments to occur after such acquisition.  (See Item 4. Information on the Company – Description of the Business – The Juanicipio Property)

Research and Development, Patents and Licenses

This section is not applicable to the Company.

Trend Information

Other than the obligations under the Company’s property option agreements set out in Item 4. Information on the Company – Business Overview and Item 5. Operating and Financial Review and Prospects – Tabular Disclosure of Contractual Obligations, there are no identifiable trends, demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, the Company’s liquidity either increasing or decreasing at present or in the foreseeable future.  The Company will require sufficient capital in the future to meet its acquisition payments and other obligations under property option agreements for those properties it considers worthy to incur continued holding and exploration costs upon.  The need to make such payments is a “Trend” as it is unlikely that all such obligations will be eliminated from the Company’s future business activities.  The Company intends to u tilize cash on hand in order to meet its obligations under property option agreements until at least December 31, 2006. It is unlikely that the Company will generate sufficient operating cash flow to meet these ongoing obligations in the foreseeable future. Accordingly, subsequent to December 31, 2006, the Company may need to raise additional capital by issuance of equity.  At this time the Company has no plan or intention to issue any debt in order to raise capital for future requirements.

At the time of filing there is a noted favourable trend with regard to the market for metal commodities and related companies, however, it is the opinion of the Company that its own liquidity will be most affected by the results of its exploration activities.  The discovery of an economic mineral deposit on one of its exploration concessions may have a favourable effect on the Company’s liquidity, and conversely, the failure to find one may have a negative effect.

Off-Balance Sheet Arrangements

The Company does not utilize off-balance sheet arrangements.

Tabular Disclosure of Contractual Obligations

Payments due by period

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* A description of the written agreements pursuant to which these obligations arise is contained in Item 4. Information on the Company – Business Overview.

ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and Senior Management

The following table sets forth all of our current directors and executive officers, with each position and office held by them.  Each director'sdirector’s term of office expires at the next annual general meeting of shareholders.shareholders of the Company.

All of our directors and senior management own, as a group, 1,663,3003,236,659 shares or 6.8%8.74% of all of the outstanding shares as at May 31, 2004.

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The business background and principal occupations of our officers, directors, and senior management for the preceding five years are as follows:

George S. YoungDaniel T. MacInnis (Age 52)54)

Mr. YoungMacInnis is currently the Company'sCompany’s President and Chief Executive Officer.CEO. Mr. YoungMacInnis is an attorneya registered professional geoscientist (P.Geo.) with almost thirty years of global experience in the exploration industry.  Working within the Noranda/Hemlo and engineer by profession, formerly practicing lawBattle Mountain Gold organizations, he held a number of senior management positions in Saudi Arabia, Ireland, Canada and the United States. This included Director of Exploration for North and Central America for Battle Mountain Gold. Most recently he was Vice President of Exploration for Sargold Resources Corporation in Italy. Mr. MacInnis has extensive global experience in property acquisitions and joint venture negotiations and exploration. A number of significant mineral discoveries have been made under the guidance of Mr. MacInnis. Discoveries include gold and base metal deposits in the US, Canada, Ireland and Mexico. Mr. MacInnis is a graduate of Saint Francis Xavier University with a BSc. in Geology.

Peter K. Megaw (Age 53)

Dr. Megaw was added to the firmboard of Pruitt Gushee & Bachtelldirectors in Salt Lake City, Utah.  He also holds a B.Sc.January 2006. His initial involvement in Metallurgical Engineering and a J.D. degree fromMexican geology was through his MS research at the University of UtahTexas at Austin, and beganlater his careerPh.D. work at Kennecott Copper Corporation involvedthe University of Arizona. The latter was an in-depth exploration-focused geological/geochemical study of the Santa Eulalia Ag-Pb-Zn District, Chihuahua and Carbonate Replacement Deposits (CRDs) in general. Peter has become a well-known individual in the constructionMexican mining industry. He has given seminars on the legal, logistical, and start-upgeological realities of a new copper smeltermining exploration in Mexico to over 25 major and later as general counseljunior companies over the last 15 years. Peter’s primary exploration foci are CRDs, Vein Deposits and Porphyry Copper Deposits. He specializes in management of major mining corporationsproperty evaluation and utilities.  Previous positions include the President, CEO and Director of Oro Belle Resources Corporation and General Counselacquisition for Bond International Gold, Inc. Mr. Young is also currently a director of Bell Coast Capital Corp., an exploration companyclients through collaboration with propertieshis associates in Mongolia, is a director andCascabel.  Dr. Megaw has been president of Palladon Ventures Ltd., an exploration company with propertiesIMDEX/Cascabel and co-founder of Cascabel since their inception in Southern Argentina and is a dir ector and officer of Fellows Energy Limited.1988.

Mr. YoungDr. Megaw will devote approximately 85%10% of his time towards the Company'sCompany’s affairs. He has not entered into a non-competition or non-disclosure agreement with the Company.

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David G.S. Pearce (Age 48)50)

Since 1982, Mr. Pearce has been President of Mega Capital Corp., an investment holding company with real estate and equity holdings in the United States and Canada. Mr. Pearce co-founded, jointly with Robert C. Thornton, Mega Entertainment Corp., a subsidiary of Mega Capital Corp., which had video retail operations in 29 locations and was sold to Rogers Cable in June1994.June 1994. Mr. Pearce has also been President of Palmer Beach Properties Inc. since January1990,January 1990, which is an investment company with real estate, retail and equity holdings in Canada. Since June1995,June 1995, Mr. Pearce has been President of both Function Gate Hardware Ltd., which owns and operates a home hardware store in Whistler, British Columbia, and Function Gate Holdings Ltd., a real estate development company operating in Whistler, British Columbia.

Mr. Pearce has been a director of Kruger Capital Corp., a public company listed on the Exchange and involved in ownership and financing of commercial real estate since December 1992.

Mr. Pearce devotes approximately 10% of his time towards the Company'sCompany’s affairs. He has not entered into a non-competition or non-disclosure agreement with the Company.

Eric H. Carlson (Age 45)47)

Mr. Carlson has over 17 years of real estate investment, development, and management experience. Mr. Carlson has been President and Chief Executive Officer of Anthem Properties Corp. ("Anthem"(“Anthem”) since July 1994.  Anthem is an investment group that specializes in the acquisition and management of Class B retail, multi-family residential and

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office properties in high growth markets in Canada and the United States.  Mr. Carlson has also been President and a director of Kruger Capital Corp. since December 1992.  Mr. Carlson is a Chartered Accountant and holds a Bachelor of Commerce degree from the University of British Columbia.

Mr. Carlson devotes approximately 10% of his time towards the Company'sCompany’s affairs. He has not entered into a non-competition or non-disclosure agreement with the Company.

R. Michael Jones (Age 40)42)

Mr. Jones graduated from the University of Toronto in 1985 with a Bachelor of Applied Sciences Degree in Geological Engineering. He is a professional engineer licensed in Ontario, Canada. He has worked in the mining industry since 1985 and is currently the President of Platinum Group Metals Ltd. His experience includes exploration and mining development and production in public companies since 1985.

Mr. Jones devotes approximately 20% of his time towards the Company'sCompany’s affairs. He has not entered into a non-competition or non-disclosure agreement with the Company.

Gordon K. Neal (Age 51)

Mr. Neal was the founder of Neal McInerney Investor Relations, which grew to be the second largest Investor Relations firm in Canada with international offices serving a Financial Post 500 and Forbes 100 client base. During his time as President of this firm he marketed more than $4 billion of debt and equity to institutional investors in Canada, the United States and Europe. Mr. Neal has been a consultant to TVX Gold, Glamis Gold, Santa Elina Gold and Hillsborough Resources.

Frank R. Hallam (Age 43)45)

Mr. Hallam is a former auditor with Coopers and Lybrand (now PricewaterhouseCoopers). He has extensive experience at the senior management level with several publicly-listed resource companies.  Mr. Hallam is the former President, CEO and director of New Millennium Metals Corp. In addition to serving as Chief Financial Officer and director of the Company, Mr. Hallam serves as the Chief Financial Officer and director of Platinum Group Metals Ltd. and of Derek Resources Corporation.

Mr. Hallam devotes approximately 20% of his time towards the Company'sCompany’s affairs. He has not entered into a non-competition or non-disclosure agreement with the Company.

Compensation

The directors of the Company do not receive any cash compensation for services rendered in their capacity as directors of the Company.  Certain information about payments to particular officers and directors is set out in the following table:

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Notes:Notes:

⁽¹⁾

"SAR"“SAR” or "stock“stock appreciation right"right” means a right granted by the Company or any of its subsidiaries as compensation for employment services rendered,or office to receive a payment of cash or an issue or transfer of securities based wholly or in part on changes in the trading price of publicly traded securities of the Company.  No SARs have been issued by the Company.

⁽²⁾

"LTIP"“LTIP” or "long“long term incentive plan"plan” means any plan that provides compensation intended to serve as incentive formotivate performance to occur over a period longergreater than one financial year, but does not include option or stock appreciation right plans or plans for compensation through restricted shares or restricted share units.units that are subject to restrictions on resale.

⁽³⁾

These OptionsDaniel MacInnis became the President and Chief Executive Officer of the Company on February 1, 2005.

(4)

Of these options, 250,000 are exercisable at a price of $0.20$1.06 each until February 1, 2010 and 110,000 are exercisable at a price of $1.00 each until December 1, 2010.

 (5)

These options are exercisable at a price of $1.06 each until January 12, 2010.

 (6)

These options are exercisable at a price of $1.06 each until January 24, 2010.

 (7)

Of these options, 75,000 are exercisable at a price of $0.50 each until April 19, 2005.15, 2008 and 50,000 are exercisable at a price of $0.70 each until May 12, 2008.

⁽⁴⁾ (8)

Of these options, 175,000 are exercisable at a price of $0.50 each until April 15, 2008 and 50,000 are exercisable at a price of $0.70 each until May 12, 2008.

⁽⁵⁾ (9)

Of theseThese options 75,000 are exercisable at a price of $0.50 each until April 15, 2008 and 50,000 are exercisable at a price of $0.70 each until May 12, 2008.

George (10)

Mr. Young was appointed the Company’s President and CEO on April 15, 2003 and resigned such offices on February 1, 2005. He resigned as a director on January 1, 2006.

Dan MacInnis currently receives US$6,000$10,900 per month for services rendered in his capacity as the President of the Company.

Peter Megaw also receives fees from IMDEX, a company controlled by him, for consulting services he provides to MAG. During the year ended December 31, 2005, MAG paid IMDEX $185,236. Dr. Megaw also controls Cascabel,

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which received fees of $538,886 during the year ended December 31, 2005 as property payments from MAG and for consulting services provided to MAG.

Pension Plans

We do not provide pension, retirement or similar benefits for directors, senior management or employees.

Board Practices

The current directors were elected to their positions at the annual meeting of shareholders held on June 11, 2004.13, 2006.  Each of the directors continues to serve until the next meeting of shareholders to be held in 2005

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unless his office is vacated earlier in accordance with the Articles of the Company or the provisions of theBusiness Corporations Act(British Columbia).  Our directors are appointed annually at the annual general meeting of shareholders.  Our officers are electedappointed by the board and serve at the board'sboard’s pleasure. We have not entered into service contracts with any of our directors.  directors other than Daniel MacInnis.

Effective January 25, 2005, the Company entered into an employment agreement (the “Employment Agreement”) with Daniel MacInnis, the President, Chief Executive Officer and a director of the Company, pursuant to which Mr. MacInnis receives stock options and is paid a base salary of $10,900 per month to manage the day-to-day operations of the Company for an indefinite term. The Company may terminate the Employment Agreement on notice without cause upon payment of two months’ salary and provision of benefits for the earlier of two months or until Mr. MacInnis obtains comparable benefits from another source. Mr. MacInnis may terminate the Employment Agreement at any time by providing 90 days’ written notice to the Company.

We have not formed a compensation committee.  

The Audit Committee, comprised of David Pearce, Eric Carlson and R. Michael Jones, meets once per quarter. The audit committee also meets periodically with management and the independent auditors to review financial reporting and control matters. It is responsible for reviewing with the independent auditor all financial statements of the Company to be submitted to an annual general meeting of our shareholders, prior to their consideration by the Board of Directors. The following is the text of the current Charter for the Audit Committee as adopted by the Board on March 28, 2006.  Such Charter may be amended by the Board in the future in light of evolving corporate governance standards.

Overall Purpose / Objectives

The Audit Committee will assist the board of directors (the “Board”) in fulfilling its responsibilities. The Audit Committee will review the financial reporting process, the system of internal control and management of financial risks, the audit process, and the Company’s process for monitoring compliance with laws and regulations and its own code of business conduct. In performing its duties, the committee will maintain effective working relationships with the Board of Directors, management, and the external auditors and monitor the independence of those auditors. To perform his or her role effectively, each committee member will obtain an understanding of the responsibilities of committee membership as well as the Company’s business, operations and risks.

Authority

The Board authorizes the audit committee, within the scope of its responsibilities, to seek any information it requires from any employee and from external parties, to obtain outside legal or professional advice and to ensure the attendance of Company officers at meetings as appropriate.

Organization

Membership

The Audit Committee will be comprised of at least three members, a majority of which are not officers or employees of the Company, at least one of whom will have accounting or related financial management expertise.

The chairman of the Audit Committee will be nominated by the committee from time to time.

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A quorum for any meeting will be two members.

The secretary of the Audit Committee will be the Secretary of the Company, or other such person as may be nominated by the Chairman of, and approved by, the Audit Committee.

Attendance at Meetings

The Audit Committee may invite such other persons (e.g. the President or Chief Financial Officer) to its meetings, as it deems appropriate.

Meetings shall be held not less than four times a year. Special meetings shall be convened as required. External auditors may convene a meeting of the Audit Committee if they consider that it is necessary.

The proceedings of all meetings will be minuted.

Roles and Responsibilities

The Audit Committee will:

- Gain an understanding of whether internal control recommendations made by external auditors have been implemented by management.

- Gain an understanding of the current areas of greatest financial risk and whether management is managing these effectively.

- Review significant accounting and reporting issues, including recent professional and regulatory pronouncements, and understand their impact on the financial statements.

- Review any legal matters which could significantly impact the financial statements as reported on by the Company’s counsel and meet with outside independent counsel whenever deemed appropriate.

- Review the annual and quarterly financial statements, including Management’s Discussion and Analysis with respect thereto, and all annual and interim earnings press releases, prior to public dissemination, including any certification, report, opinion or review rendered by the external auditors and determine whether they are complete and consistent with the information known to committee members; determine that the auditors are satisfied that the financial statements have been prepared in accordance with generally accepted accounting principles.

- Pay particular attention to complex and/or unusual transactions such as those involving derivative instruments and consider the adequacy of disclosure thereof.

- Focus on judgmental areas, for example those involving valuation of assets and liabilities and other commitments and contingencies.

- Review audit issues related to the Company’s material associated and affiliated companies that may have a significant impact on the Company’s equity investment.

- Meet with management and the external auditors to review the annual financial statements and the results of the audit.

- Evaluate the fairness of the interim financial statements and related disclosures including the associated Management’s Discussion and Analysis, and obtain explanations from management on whether:

(a)

actual financial results for the interim period varied significantly from budgeted or projected results;

(b)

generally accepted accounting principles have been consistently applied;

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(c)

there are any actual or proposed changes in accounting or financial reporting practices; or

(d)

there are any significant or unusual events or transactions which require disclosure and, if so, consider the adequacy of that disclosure.

- Review the external auditors’ proposed audit scope and approach and ensure no unjustifiable restriction or limitations have been placed on the scope.

- Review the performance of the external auditors and approve in advance provision of services other than auditing. Consider the independence of the external auditors, including reviewing the range of services provided in the context of all consulting services bought by the company. The Board authorizes the Chairman of the Audit Committee to approve any non-audit or additional audit work which the Chairman deems as necessary and to notify the other members of the Audit Committee of such non-audit or additional work.

- Make recommendations to the Board regarding the reappointment of the external auditors and the compensation to be paid to the external auditor.

- Review any significant disagreement among management and the external auditors in connection with the preparation of the financial statements.

- Review and approve the Company’s hiring policies regarding partners, employers and former partners and employees of the present and former external auditors of the Company.

- Establish a procedure for:

(a)

the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters; and

(b)

the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls, or auditing matters.

- Meet separately with the external auditors to discuss any matters that the committee or auditors believe should be discussed privately in the absence of management.

- Endeavour to cause the receipt and discussion on a timely basis of any significant findings and recommendations made by the external auditors.

- Ensure that the Board is aware of matters which may significantly impact the financial condition or affairs of the business.

- Perform other functions as requested by the full Board.

- If necessary, institute special investigations and, if appropriate, hire special counsel or experts to assist, and set the compensation to be paid to such special counsel or other experts.

- Review and recommend updates to the charter; receive approval of changes from the Board.

- With regard to the Company’s internal control procedures, the Audit Committee is responsible to:

(c)

review the appropriateness and effectiveness of the Company’s policies and business practices which impact on the financial integrity of the Company, including those related to internal auditing, insurance, accounting, information services and systems and financial controls, management reporting and risk management; and

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(d)

review compliance under the Company’s business conduct and ethics policies and to periodically review these policies and recommend to the Board changes which the Audit Committee may deem appropriate; and

(e)

review any unresolved issues between management and the external auditors that could affect the financial reporting or internal controls of the Company; and

(f)

periodically review the Company’s financial and auditing procedures and the extent to which recommendations made by the internal audit staff or by the external auditors have been implemented.

Employees

As of May 31, 2004,2006, we had a total of onethree (3) full-time and sixone (1) part-time employees/contract employees/consultants located in the Vancouver office. None of the employees are unionized.

Share Ownership

Notes:

(1)

As of May 31, 2004,2006, including options described in the table below as well as warrants to purchase 10,000 Common Shares at the price of $0.40 by December 20, 2004 for George S. Young; warrants to purchase 17,000 Common Shares at the price of $0.40 by December 20, 2004 and warrants to purchase 35,000 Common Shares at the price of $0.75 by April 15, 2005 for David G. S. Pearce; warrants to purchase 145,000 Common Shares at the price of $0.20 by September 9, 2004 and warrants to purchase 13,500 Common Shares at the price of $0.75 until April 15, 2005 for Eric H. Carlson; and warrants to purchase 20,000 common shares of the Company at the price of $0.20 by September 9, 2004 for R. Michael Jones.below.

Stock Options

At the Company'sCompany’s annual general meeting held on March 31, 2003, shareholders adopted the Company'sCompany’s 2003 Stock Option Plan (the "Stock“Stock Option Plan"Plan”).  The effective date of the Stock Option Plan is February 24, 2003, being the date the Board approved the Stock Option Plan, and it will terminate February 24, 2013. The following is a summary of the Stock Option Plan.

The maximum number of Common Shares to be reserved for issuance under the Stock Option Plan will not exceed 10% of the number of Common Shares of the Company issued and outstanding on the applicable date of grant. The Stock Option Plan will be administered by a stock option committee (the "Committee"“Committee”) of the Company'sCompany’s Board consisting of not less than two of its members. The Stock Option Plan provides that options may be granted to any employee, officer, director or consultant of the Company or a subsidiary of the Company. The options issued pursuant to the Stock Option Plan will be exercisable at a price not less than the market value of the Company'sCompany’s Common Shares at the time the option is granted. Options under the Stock Option Plan will be granted for a term not

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to exceed five years from the date of their grant, provided that if the Company is then a "Tier 1"“Tier 1” company listed on the TSX Venture Exchange, the term of

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the option will be not more than 10 years. Options granted under the Stock Option Plan will be subject to such vesting schedule as the Committee may determine.  In the event that an option is to be terminated prior to expiry of its term due to certain corporate events, all options then outstanding shall become immediately exercisable for 10 days after notice thereof, notwithstanding the original vesting schedule. Options will also be non-assignable and non-transferable, provided that they will be exercisable by an optionee'soptionee’s legal heirs, personal representatives or guardians for up to six months following the death or termination of an optionee due to disability, or up to six months following the death of an employee if the employee dies within 6 months of termination due to disability.  All such options will continue to vest in accordance with their original vesting schedule.

The following options of the Company are presently outstanding:

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ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

The following table sets forth, as at May 31, 2004,2006, certain information with respect to the beneficial ownership of our common shares by each shareholder known by us to be the beneficial owner of more than 5% of our outstanding common shares including the executive officers and directors as a group.directors. Unless otherwise indicated by footnote, we believe that the beneficial owners of the common shares listed below, based on information furnished by such owners, have sole investment and voting power with respect to such common shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the United States Securities and Exchange Commission and generally includes voting or investment power with respect to securities. The shareholders below have identical voting rights to the other shareholders.

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United States Shareholders

As of May 31, 20042006 we had 1825 registered shareholders with addresses in the United States representing 10.49%8.91% of the then issued and outstanding shares. In addition, residents of the United States may beneficially own common shares registered in the names of non-residents of the United States.States.

Related Party Transactions

None of our directors or senior officers, and no associates or affiliates of any of them is or has been materially indebted to us or our subsidiaries at any time. None of our experts or counsel was employed on a contingent basis or owns any shares, which is material to such person.

George Young received 250,000 common shares of the Company and R. Michael Jones received 50,000 common shares of the Company as finders fees in connection with the Company'sCompany’s acquisition of Lagartos, which shares arewere also held in escrow under an agreement dated April 8, 2003. These shares arewere released from escrow as to 10% on April 21, 2003 and 15% each six months thereafter so that all such shares will bewere released by April 21, 2006.  The Company priced these shares at $0.50 per share.

Included in accounts payable at

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Pursuant to an office lease agreement between the Company and Anthem Works Ltd. (“Anthem”), a company of which Eric Carlson is an officer and director, during the year ended December 31, 2003 is $2,582 (December 31, 2002 - $Nil; December 31, 2001 - $Nil) payable in respect of management2005, the Company accrued or paid $62,333 to Anthem.

Pursuant to an office services agreement between the Company and expense reimbursement provided to Platinum Group Metals Ltd. (“PTM”), a public company of which R. Michael Jones is an officer, director, employee and shareholder, and Frank Hallam is a director.

George Young is owed $2,000 bydirector, during the year ended December 31, 2005, the Company accrued or paid PTM $133,329 and included in accounts payable at December 31, 2003 for travel expenses.2005 is Nil payable in respect of management services and expense reimbursement provided to PTM.

For the year ended December 31, 2003, George Young,2005, Dan MacInnis, the Company'sCompany’s President, received $97,325$149,900 in compensation for legal and management services, R. Michael Jones received $1,362$5,000 for consulting services, and Frank Hallam received $1,600$5,000 for consulting services.

During the year ended December 31, 2003, the Company borrowed $150,000 on a short-term loan from a shareholder of the Company, which loan has been fully repaid, as well as $12,500 related to interest.  The shareholder who made the loan was Brazfin Investments Ltd. of 520 Southborough Dr., West Vancouver, British Columbia, Canada V7S 1M1.  At the time the loan was made, Brazfin Investments Ltd. owned 500,000 shares of the Company as well as 400,000 share purchase warrants exercisable at $0.20 per share until September 9, 2004 and 50,000 share purchase warrants exercisable at $0.40 per share until December 20, 2004.

Interests of Experts and Counsel

Not Applicable.