Taseko Mines Limited (TGB) 40-F 2010 FY Annual report (Canada)

CONSOLIDATED FINANCIAL STATEMENTS

FISCAL PERIODS ENDED
DECEMBER 31, 2010, 2009 and 2008

(Expressed in thousands of Canadian Dollars)

	KPMG LLP Chartered Accountants PO Box 10426  777 Dunsmuir Street Vancouver  BC  V7Y 1K3 Canada	Telephone     (604) 691-3000 Fax                (604) 691-3031 Internet          www.kpmg.ca

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Taseko Mines Limited

We have audited the accompanying consolidated balance sheets of Taseko Mines Limited (the “Company”) and subsidiaries as of December 31, 2010 and 2009 and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity and cash flows for the years ended December 31, 2010 and 2009 and the fifteen-month period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and subsidiaries as of December 31, 2010 and 2009 and their consolidated results of operations and their consolidated cash flows for the years ended December 31, 2010 and 2009 and the fifteen-month period ended December 31, 2008 in conformity with Canadian generally accepted accounting principles.

Canadian generally accepted accounting principles vary in certain significant respects from US generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in Note 23 to the consolidated financial statements.

As discussed in Note 3(a) to the consolidated financial statements, the Company has adopted CICA Handbook Section 3055,Interests in Joint Ventures.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 28, 2011 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

//s// KPMG LLP

Chartered Accountants

March 28, 2011
Vancouver, Canada

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.

	KPMG LLP Chartered Accountants PO Box 10426  777 Dunsmuir Street Vancouver  BC  V7Y 1K3 Canada	Telephone     (604) 691-3000 Fax                (604) 691-3031 Internet          www.kpmg.ca

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Taseko Mines Limited

We have audited Taseko Mines Limited (the “Company")’s internal control over financial reporting as of December 31, 2010 based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

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

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

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

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.

	Taseko Mines Limited Page 2

In our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Companyand subsidiariesas of December 31, 2010 and 2009 and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity and cash flows for the years ended December 31, 2010 and 2009 and the fifteen-month period ended December 31, 2008, and our report dated March 28, 2011expressed an unqualified opinion on thoseconsolidatedfinancial statements.

//s// KPMG LLP

Chartered Accountants

March 28, 2011
Vancouver, Canada

2

TASEKO MINES LIMITED

Consolidated Balance Sheets

(Expressed in thousands of Canadian Dollars)

		December 31		December 31
		2010		2009
ASSETS
Current assets
Cash and equivalents	$	211,793	$	35,082
Restricted cash (note 13)		–		3,153
Marketable securities and investments (note 7)		18,521		11,856
Accounts receivable		20,154		12,505
Inventory (note 5)		21,286		21,792
Prepaid expenses		534		2,112
Advances for equipment		–		1,119
Advances to Joint Venture (note 4)		1,764		–
Current portion of promissory note (note 16(a))		7,248		4,697
		281,300		92,316
Advances for equipment		1,726		2,122
Reclamation deposits (note 17)		23,266		29,421
Promissory note (note 16(a))		70,559		73,400
Mineral property interests, plant and equipment (note 10)		310,761		337,836
	$	687,612	$	535,095
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	22,983	$	14,821
Amounts due to a related party (note 11)		154		13
Current portion of long-term credit facility (note 14)		–		21,896
Current portion of long-term loan obligations (note 12)		10,315		5,782
Current portion of deferred revenue (note 16)		175		175
Current portion of royalty obligations (note 16)		7,248		11,208
Liability under derivative instruments (note 15)		225		18,935
Income taxes payable		24,528		370
Current portion of future income taxes (note 18)		1,008		1,979
		66,636		75,179
Income taxes (note 18)		2,500		32,299
Royalty obligations (note 16)		51,645		57,621
Deferred revenue (note 16)		481		656
Credit facility (note 14)		–		29,609
Loan obligations (note 12)		28,018		16,916
Site closure and reclamation obligation (note 17)		8,178		9,807
Future income taxes (note 18)		60,203		16,315
		217,661		238,402
Shareholders' equity
Share capital (note 20)		338,911		323,734
Tracking preferred shares (note 8)		26,642		26,642
Contributed surplus		28,128		20,318
Accumulated other comprehensive income		6,249		4,576
Retained earnings (deficit)		70,021		(78,577	)
		469,951		296,693
Commitments (note 21)
Subsequent event (notes 8 and 20(b))
	$	687,612	$	535,095

See accompanying notes to consolidated financial statements.

Approved by the Board of Directors

/s/ Ronald W. Thiessen	/s/ Russell E. Hallbauer
Ronald W. Thiessen	Russell E. Hallbauer
Director	Director

TASEKO MINES LIMITED

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Expressed in thousands of Canadian Dollars, except per share amounts)

		Year Ended			Year Ended			Fifteen Months Ended
		December 31, 2010			December 31, 2009			December 31, 2008
Revenue
Copper	$	265,804		$	180,115		$	209,784
Molybdenum		12,656			8,787			21,894
		278,460			188,902			231,678
Cost of sales		142,674			132,434			196,261
Depletion, depreciation and amortization		10,336			8,150			7,363
Operating profit		125,450			48,318			28,054
Expenses (income)
Accretion of reclamation obligation (note 17)		860			968			1,451
Asset retirement obligation change of estimates (note 17)		–			–			(6,917	)
Change in fair value of financial instruments		(319	)		–			886
Exploration		10,090			3,407			11,864
Foreign exchange loss (gain)		2,650			(8,800	)		4,032
Gain on convertible bond repurchase (note 19)		–			(1,630	)		–
General and administration		13,853			8,382			11,896
Interest accretion on convertible debt (note 19)		–			1,260			2,938
Interest and other income		(18,275	)		(7,402	)		(9,701	)
Interest expense		4,542			8,265			8,284
Gain on sale of marketable securities		(4,087	)		(188	)		(1,034	)
Loss on prepayment of credit facility (note 14)		834			–			–
Premium paid on the redemption of royalty obligation (note 16(b))		1,302			–			–
Realized (gain) loss on derivative instruments (note 15)		(3,575	)		11,330			–
Stock-based compensation (note 20(c))		10,409			5,696			6,442
		18,284			21,288			30,141
Earnings (loss) before other items		107,166			27,030			(2,087	)
Other items
Gain on contribution to the Joint Venture (note 4)		95,114			–			–
Unrealized loss on derivative instruments (note 15)		(6,898	)		(15,775	)		–
Earnings (loss) before income taxes		195,382			11,255			(2,087	)
Current income tax expense (recovery) (note 18)		4,106			669			(2,151	)
Future income tax expense (recovery) (note 18)		42,678			25			(3,446	)
Net earnings for the year	$	148,598		$	10,561		$	3,510
Other comprehensive income (loss)
Unrealized gain (loss) on available-for-sale reclamation deposit		(118	)		(1,040	)		1,859
Unrealized gain (loss) on available-for-sale marketable securities		6,117			14,263			(11,295	)
Reclassification of realized gain sale of marketable securities		(4,087	)		(188	)		(1,152	)
Tax effect		(239	)		(1,779	)		1,570
Other comprehensive income (loss)	$	1,673		$	11,256		$	(9,018	)
Total comprehensive income (loss)	$	150,271		$	21,817		$	(5,508	)
Earnings per share
Basic	$	0.80		$	0.06		$	0.02
Diluted	$	0.73		$	0.06		$	0.02
Weighted average number of common shares outstanding (expressed in thousands)
Basic		186,103			173,170			142,062
Diluted		203,006			180,835			156,928

See accompanying notes to consolidated financial statements.

TASEKO MINES LIMITED

Consolidated Statements of Shareholders' Equity

(Expressed in thousands of Canadian Dollars, except for per share and share amounts)

	Year ended				Year ended				Fifteen Months Ended
	December 31, 2010				December 31, 2009				December 31, 2008
Common shares	Number of shares				Number of shares				Number of shares
Balance at beginning of the year	182,924,664	$	323,734		153,187,116	$	285,690		130,580,538	$	205,040
Share purchase options at $1.00 per share	1,073,500		1,074		893,750		894		–		–
Share purchase options at $1.15 per share	1,286,667		1,480		66,333		76		–		–
Share purchase options at $1.71 per share	100,667		172		33,666		58		–		–
Share purchase options at $1.90 per share	–		–		7,000		13		–		–
Share purchase options at $2.07 per share	20,000		41		50,000		103		30,000		62
Share purchase options at $2.17 per share	31,000		67		–		–		–		–
Share purchase options at $2.18 per share	82,000		179		100,000		218		145,500		317
Share purchase options at $2.68 per share	–		–		–		–		7,500		20
Share purchase options at $3.07 per share	35,000		108		11,000		34		78,500		241
Share purchase options at $4.03 per share	60,000		242		–		–		–		–
Share purchase options at $4.09 per share	–		–		–		–		3,600		15
Share purchase options at $4.50 per share	67,000		302		–		–		5,000		23
Share purchase options at $4.77 per share	36,000		172		–		–		–		–
Fair value of stock options allocated to shares issued on exercise	–		2,599		–		2,108		–		514
Shares issued for the purchase of royalty interest (note 16(b))	1,556,355		7,813		–		–		1,000,000		5,220
Shares issued for donation	225,000		928		–		–		–		–
Shares issued for debt conversion (note 19)	–		–		–		–		2,612,971		21,318
Equity financings at $5.20 per share, net of issue costs (note 20(b))	–		–		–		–		9,637,792		46,945
Equity financings at $0.70 per share, net of issue costst (note 20(b))	–		–		–		–		9,085,715		5,975
Equity financings at $1.45 per share, net of issue costs (note 20(b))	–		–		19,490,084		26,817		–		–
Warrants exercised (note 20(b))	–		–		9,085,715		7,723		–		–
Balance at end of the year	187,497,853		338,911		182,924,664		323,734		153,187,116		285,690
Equity component of convertible debt
Balance at beginning of the year			–				3,832				13,655
Repurchase of convertible bond (note 19)			–				(3,832	)			–
Convertible debenture conversion adjustment (note 19)			–				–				(9,823	)
Balance at end of the year			–				–				3,832
Tracking preferred shares
Balance at beginning and end of the year			26,642				26,642				26,642
Contributed surplus
Balance at beginning of the year			20,318				14,561				8,633
Stock-based compensation (note 20(c))			10,409				5,696				6,442
Repurchase of convertible bond (note 19)			–				2,169				–
Fair value of stock options allocated to shares issued on exercise			(2,599	)			(2,108	)			(514	)
Balance at end of the year			28,128				20,318				14,561
Accumulated other comprehensive income (loss)
Balance at beginning of the year			4,576				(6,680	)			2,338
Unrealized gain (loss) on reclamation deposits			(118	)			(1,040	)			1,859
Unrealized gain (loss) on available-for-sale marketable securities			6,117				14,263				(11,295	)
Reclassification of realized gain on sale of marketable securities			(4,087	)			(188	)			(1,152	)
Tax effect			(239	)			(1,779	)			1,570
Balance at end of the year			6,249				4,576				(6,680	)
Retained earnings (deficit)
Balance at beginning of the year			(78,577	)			(89,138	)			(92,648	)
Net earnings for the year			148,598				10,561				3,510
Balance at end of the year			70,021				(78,577	)			(89,138	)
TOTAL SHAREHOLDERS' EQUITY		$	469,951			$	296,693			$	234,907

See accompanying notes to consolidated financial statements.

TASEKO MINES LIMITED

Consolidated Statements of Cash Flows

(Expressed in thousands of Canadian Dollars)

		Year Ended			Year Ended			Fifteen Months Ended
		December 31, 2010			December 31, 2009			December 31, 2008
Operating activities
Net earnings for the year	$	148,598		$	10,561		$	3,510
Items not involving cash
Accretion of reclamation obligation		860			968			1,451
Change in fair value of financial instruments		(319	)		–			886
Depreciation, depletion and amortization		10,336			8,150			7,363
Unrealized foreign exchange loss (gain)		(1,760	)		(8,839	)		6,334
Future income taxes		42,678			25			(3,446	)
Gain on contribution to the Joint Venture (note 4)		(95,114	)		–			–
Gain on convertible debt repurchase (note 19)		–			(1,630	)		–
Gain on sale of marketable securities		(4,087	)		(188	)		(1,034	)
Interest accretion on convertible debt		–			1,260			2,938
Interest accretion on long-term credit facility		213			512			–
Loss on prepayment of credit facility (note 14)		834			–			–
Non cash donation expense (note 22)		928			–			–
Premium paid on the redemption of royalty obligation (note 16(b))		1,302			–			–
Reclamation obligation change in estimate		–			–			(6,917	)
Site closure and reclamation expenditures (note 17)		(91	)		(1,590	)		(183	)
Stock-based compensation		10,409			5,696			6,442
Realized loss (gain) on derivative instruments (note 15)		(15,775	)		–			–
Unrealized loss (gain) on derivative instruments (note 15)		6,898			15,775			–
Changes in non-cash operating working capital
Accounts payable and accrued liabilities		8,162			(38,216	)		22,603
Accounts receivable		(7,649	)		(7,899	)		7,415
Accrued interest expense on royalty obligation		(3,425	)		(2,039	)		(1,060	)
Accrued interest income on promissory note		291			(1,029	)		(2,632	)
Amounts due to a related party		141			(1,759	)		2,579
Deferred revenue		(175	)		(175	)		(219	)
Income taxes payable		(5,641	)		(6,261	)		2,358
Inventory		(4,730	)		(1,452	)		(2,282	)
Advances to Joint Venture (note 4)		(1,764	)		–			–
Asset/liability under derivative instruments (note 15)		(2,502	)		3,160			–
Prepaid expenses		1,194			(1,784	)		741
Cash provided by (used for) operating activities		89,812			(26,754	)		46,847
Investing activities
Accrued interest income on reclamation deposits		(1,293	)		(1,919	)		(2,032	)
Funds released from reclamation deposits		–			3,900			5,000
Funds released from restricted cash		3,153			1,247			–
Advance payments for equipment		–			–			(6,381	)
Investment in derivative asset		(7,331	)		–			–
Investment in marketable securities		(16,678	)		(4,421	)		(254	)
Proceeds from contribution to the Joint Venture (note 4)		186,811			–			–
Proceeds from sale of marketable securities		16,449			9,966			3,360
Purchase of property, plant and equipment		(55,303	)		(17,019	)		(134,186	)
Reclamation deposits		–			(45	)		(109	)
Cash provided by (used for) investing activities		125,808			(8,291	)		(134,602	)
Financing activities
Capital lease payments		(3,320	)		(3,199	)		(1,061	)
Common shares issued for cash, net of issue costs		3,837			35,937			53,599
Principal repayment of loan obligations		(2,712	)		(345	)		–
Proceeds (repayment) of bank indebtedness		–			(5,737	)		5,737
Proceeds from loan obligations (note 12(b))		14,076			9,054			–
Proceeds from royalty obligation (note 16(b))		–			6,511			–
Proceeds (repayment) of long term credit facility (note 14)		(50,790	)		56,997			–
Re-purchase of convertible debt (note 19)		–			(33,678	)		(3,569	)
Cash provided by (used for) financing activities		(38,909	)		65,540			54,706
Increase (decrease) in cash and equivalents		176,711			30,495			(33,049	)
Cash and equivalents, beginning of year		35,082			4,587			37,636
Cash and equivalents, end of year	$	211,793		$	35,082		$	4,587

Supplemental cashflow information (note 22)

See accompanying notes to consolidated financial statements.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

1.	NATURE OF OPERATIONS AND BASIS OF PRESENTATION
	Taseko Mines Limited (the "Company") is engaged in mining and mine development. The Company operates the Gibraltar copper-molybdenum mine and holds the Prosperity gold-copper project, the Harmony gold project and the Aley niobium property.
	These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles.
	These consolidated financial statements include the accounts of the Company and its subsidiaries. Interests in joint ventures are accounted for using the proportionate consolidation method. Under this method, the Company includes in its accounts the Company's proportionate share of assets, liabilities, revenues, and expenses. These consolidated financial statements include the Company's 75% interest in the Gibraltar Joint Venture since its formation on March 31, 2010 (note 4).
	All material intercompany accounts and transactions have been eliminated.
2.	SIGNIFICANT ACCOUNTING POLICIES
	(a)Cash and equivalents
	Cash and equivalents consist of cash and highly liquid investments, having maturity dates of three months or less from the date of acquisition, that are readily convertible to known amounts of cash. At December 31, 2010, of the $211,793 cash and equivalents held by the Company, $142,154 (US$142,926) was held in United States dollar denominated cash and equivalents (December 31, 2009 – $30,719 (US$29,228)). Cash and equivalents excludes cash subject to restrictions (note 13).
	(b)Revenue recognition
	Revenue from the sales of metal in concentrate is recognized when persuasive evidence of a sales agreement exists, the title and risk of ownership is transferred to the customer, collection is reasonably assured, and the price is reasonably determinable. Revenue from the sales of metal may be subject to adjustment upon final settlement of shipment weights, assays and metal prices. Adjustments to revenue for metal prices are recorded monthly and other adjustments are recorded on final settlement. Cash received in advance of meeting these revenue recognition criteria is recorded as deferred revenue.
	Under the Company’s concentrate sales contracts, final copper and molybdenum prices are set based on a specified future quotational period and the average market metal price in that period. Typically, the quotational periods for copper are either one or four months after the date of arrival at the port of discharge, and three months after the month of shipment for molybdenum. Revenues are recorded under these contracts when title passes to the buyer and are based on the forward price for the expected settlement period. The contracts, in certain cases, provide for a provisional payment based upon provisional assays and quoted metal prices. The price adjustment features in the Company’s receivables are treated as embedded derivatives for accounting purposes and as such, are marked-to-market through earnings from the date of sale until the date of final pricing.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

(c) Inventory

Production inventory consists of metal in concentrate, copper cathode, ore-in-process and stockpiled ore. Production inventory is valued based on the lower of average production cost and net realizable value. Production costs include the cost of raw materials, stripping costs, direct labour, mine-site overhead expenses and depreciation.

Materials and supplies inventory is valued at the lower of average cost and net realizable value.

Previous write-downs to net realizable value are reversed when there is a subsequent increase in the value of the inventory.

(d) Financial Instruments

All financial instruments, including derivatives, are included on the Company’s balance sheet and measured either at fair value or amortized cost. Changes in fair value are recognized in the net earnings (loss) or accumulated other comprehensive income, depending on the classification of the related instruments.

All financial assets and liabilities are recognized when the entity becomes a party to the contract creating the asset or liability. All financial instruments are classified into one of the following categories: held-for-trading, held-to-maturity, loans and receivables, available-for-sale financial assets, or other financial liabilities. Initial and subsequent measurement and recognition of changes in the value of financial instruments depends on their initial classification:

• Held-to-maturity investments, loans and receivables, and other financial liabilities are initially measured at fair value and subsequently measured at amortized cost. Amortization of premiums or discounts and losses due to impairment are included in current period net earnings (loss).
  
  
• Available-for-sale financial assets are measured at fair value. Changes in fair value are included in other comprehensive income (loss) until the gain or loss is recognized in net earnings (loss) or if an impairment is determined to be other than temporary.
  
  
• Held-for-trading financial instruments are measured at fair value. All changes in fair value are included in net earnings (loss) in the period in which they arise.
  
  
• All derivative financial instruments are measured at fair value, even when they are part of a hedging relationship. Changes in fair value are included in net earnings (loss) in the period in which they arise, except for cash flow hedge transactions which qualify for hedge accounting treatment in which case gains and losses are recognized in other comprehensive income (loss).
  

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

The Company had classified its financial instruments as follows:

Financial Instrument	Classification	Measurement
Cash and equivalents	Held-for-Trading	Fair Value
Restricted cash	Held-for-Trading	Fair Value
Marketable securities and investments, except for derivative instruments	Available for Sale	Fair Value
Accounts receivable	Loans and Receivables	Amortized cost
Advances to Joint Venture	Loans and Receivables	Amortized cost
Reclamation deposits	Available for Sale	Fair Value
Promissory note	Loans and Receivables	Amortized cost
Accounts payable and accrued liabilities	Other Financial Liability	Amortized cost
Amounts due to a related party	Other Financial Liability	Amortized cost
Loan obligations	Other Financial Liability	Amortized cost
Credit facility	Other Financial Liability	Amortized cost
Royalty obligation	Other Financial Liability	Amortized cost
Derivative instruments	Held-for-Trading	Fair Value

(e) Plant and equipment

Plant and equipment are stated at cost less accumulated amortization. Mining and milling assets are amortized using the units of production method based on tons mined and milled, respectively. During 2008, the Company extended the life of its Gibraltar mine. Consequently, the useful life over which the Company’s mining and milling assets are depreciated has been extended to reflect their additional use from an extended mine life. Amortization for all other assets is calculated using the declining balance method at rates ranging from 10% to 50% per annum. Repairs and maintenance expenditures are charged to operations as incurred. Major improvements and replacements which extend the useful life of the asset are capitalized as incurred.

The costs of removing overburden material to access mineral reserve deposits, referred to as “stripping costs”, are accounted for as variable production costs to be included in the cost of inventory produced, unless the overburden removal activity can be shown to be a betterment of the mineral property, in which case these costs are capitalized. Betterment occurs when the overburden removal activity provides access to additional sources of mineral deposit reserves that will be produced in future periods which would not have otherwise been accessible in the absence of the pre-stripping activity. These deferred stripping costs are amortized using the units of production basis to cost of sales over the life of the mineral deposit reserves.

(f) Mineral property interests

The Company capitalizes mineral property acquisition costs on a property-by-property basis. Exploration expenditures and option payments incurred prior to the determination of the feasibility of mining operations are charged to operations as incurred. Exploration expenditures which increase production or extend the life of operations are capitalized.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

The Company capitalizes development expenditures which have (a) a probable future benefit which the Company can obtain, (b) result from a past transaction, and (c) occur on property controlled by the Company on mineralized ore bodies that have, or are determined to have as a result of these costs, economically mineable mineral reserves. Acquisition costs and development expenditures are amortized over the estimated life of the property, or written off to operations if the property is abandoned, allowed to lapse, or if there is little prospect of further work being carried out by the Company.

Mineral property acquisition costs include the cash consideration and the fair market value of common shares issued for mineral property interests pursuant to the terms of the relevant agreement. Payments relating to a property acquired under an option or joint venture agreement, where such payments are made at the sole discretion of the Company, are recorded in the accounts upon payment.

Costs incurred subsequent to the determination of the feasibility of the processing technology will be capitalized and amortized over the life of the related plant.

The amount presented for mineral property interests represents costs incurred to date less write-downs and accumulated amortization, and does not necessarily reflect present or future values.

(g) Site closure and reclamation costs

The Company recognizes any statutory, contractual or other legal obligation related to the retirement of tangible long-lived assets when such obligations are incurred, if a reasonable estimate of fair value can be made. These obligations are measured initially at fair value and the resulting costs are capitalized to the carrying value of the related asset. In subsequent periods, the liability is adjusted for the accretion of the discount and any changes in the amount or timing of the underlying future cash flows. The asset retirement cost is amortized to operations over the life of the asset. Changes resulting from revisions to the timing or the amount of the original estimate of undiscounted cash flows are recognized as an increase or a decrease in the carrying amount of the liability and the related asset retirement cost. In the event the required decrease in the asset retirement cost is in excess of the carrying value, the excess amount is recorded as a change in estimate in the net earnings (loss).

(h) Impairment of long-lived assets

Long-lived assets, including mineral property interests, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

(i) Share capital

The Company records proceeds from share issuances net of issue costs. Shares issued for consideration other than cash are valued at the quoted market price on the date of issue.

(j) Stock-based compensation

The Company has a share option plan which is described in note 20(c). The Company records all stock-based payments using the fair value method. Under the fair value method, stock-based payments are measured at the fair value of the consideration received or the fair value of the equity instruments issued or liabilities incurred, whichever is more reliably measurable, and are charged to operations over the vesting period. The offset is credited to contributed surplus.

Consideration received on the exercise of stock options is recorded as share capital and the related contributed surplus is transferred to share capital.

(k) Income taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are computed based on differences between the carrying amounts of assets and liabilities on the balance sheet and their corresponding tax values, generally using the substantively enacted or enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Future income tax assets also result from unused loss carry forwards, resource-related pools, and other deductions. Future income tax assets are recognized to the extent that they are considered more likely than not to be realized. The valuation of future income tax assets is adjusted, if necessary, by the use of a valuation allowance to reflect the estimated realizable amount.

(l) Functional currency and foreign currency translations

The Company’s functional currency is the Canadian dollar as it is the currency of the primary economic environment in which the Company operates. While the Company receives its metal sales revenues in United States dollars, the majority of the Company’s supplies, labour, and services are denominated in Canadian dollars. All of the business operations of the Company are located in Canada.

Foreign currency monetary assets and liabilities are translated into Canadian dollars at the exchange rate in effect at the balance sheet date. Non-monetary assets, liabilities, revenues and expenses are translated into Canadian dollars at the rate of exchange prevailing on the respective dates of the transactions. Foreign exchange gains and losses are included in net earnings (loss).

(m) Earnings (loss) per common share

Basic earnings (loss) per common share is based on the weighted average number of common shares outstanding during the period.

Diluted earnings (loss) per share is calculated using the treasury stock method, whereby all “in-the-money” options, warrants and equivalents are assumed to have been exercised at the beginning of the period and the proceeds from the exercise are assumed to have been used to purchase common shares at the average market price during the year. Dilution for convertible bonds and debentures is calculated on an if-converted basis.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

(n) Use of estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting year. Significant areas requiring the use of management estimates relate to the impairment of mineral property interests, plant and equipment, reclamation liability, income taxes, valuation allowances for future income tax assets, rates for depletion, depreciation and amortization, assumptions used in computing stock-based compensation, receivables from sales of concentrate and valuation of concentrate inventory, the determination of mineral reserves and mine life and the estimation of the fair value of derivative liabilities. Actual results could differ from these estimates.

(o) Segment disclosures

The Company operates in a single reportable operating segment, the exploration, development and operation of mineral property interests, within the geographic area of British Columbia, Canada.

3. CHANGES IN ACCOUNTING POLICIES

(a)            New Accounting Standards Adopted:

As a result of the Company’s joint venture over the Gibraltar mine (note 4) on March 31, 2010, the Company has adopted the following standard on a prospective basis.

CICA 3055 – "Interests in Joint Ventures"

The Company's interests in jointly controlled assets are accounted for using proportionate consolidation. The Company combines its share of the joint venture’s individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Company's financial statements. The Company recognizes the portion of gains or losses on the sale of assets by the Company to the joint venture that is attributable to the other venturers. The Company does not recognize its share of profits or losses from the joint venture that result from the Company's purchase of assets from the joint venture until it resells the assets to an independent party. However, a loss on the transaction is recognized immediately if the loss provides evidence of a reduction in the net realizable value of current assets, or an impairment loss.

(b)           New Accounting Standards Not Yet Adopted:

(i) International Financial Reporting Standards ("IFRS")

The Accounting Standards Board ("AcSB") has announced its decision to replace Canadian generally accepted accounting principles ("Canadian GAAP") with IFRS for all Canadian publicly-listed companies. The AcSB announced that the changeover date will commence for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date for the Company to changeover to IFRS will be January 1, 2010. Therefore, the IFRS adoption will require the restatement for comparative purposes of amounts reported by the Company for the year ending December 31, 2010. The Company has already established a formal project plan, allocated internal resources and engaged expert consultants, monitored by a steering committee to manage the transition from Canadian GAAP to IFRS reporting.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

(ii) Business Combinations, Consolidated Financial Statements, and Non-Controlling Interests

The AcSB issued CICA Sections 1582,Business Combinations, 1601,Consolidated Financial Statements, and 1602,Non-Controlling Interests, which superseded current Sections 1581,Business Combinations, and 1600,Consolidated Financial Statements. These new Sections replace existing guidance on business combinations and consolidated financial statements to harmonize Canadian accounting for business combinations with IFRS. These Sections will be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011. Earlier adoption is permitted. If an entity applies these Sections before January 1, 2011, it is required to disclose that fact and apply each of the new sections concurrently.

The Company did not elect to early adopt this standard and will adopt IFRS 3Business Combinationsin accordance with IFRS effective January 1, 2011.

4. GIBRALTAR JOINT VENTURE

On March 31, 2010 (the "Effective Date"), the Company entered into a Joint Venture Formation Agreement (the "JVFA") with Cariboo Copper Corp. ("Cariboo") to establish an unincorporated joint venture, the Gibraltar Joint Venture (the "Joint Venture"), over the Gibraltar mine. The Company and Cariboo (the "Venturers") hold a 75% and a 25% beneficial interest in the Joint Venture, respectively.

Under the JVFA, the Company contributed certain assets and liabilities of the Gibraltar mine with a deemed fair value of $747,245 to the Joint Venture on the Effective Date. Cariboo paid the Company $186,811 to acquire a 25% interest in the Joint Venture. The Company continues to be the operator of the Gibraltar mine under a Joint Venture Operating Agreement.

The assets and liabilities contributed by the Company to the Joint Venture were mineral property interests, plant and equipment, inventory, prepaid expenses, reclamation deposits, capital lease obligations, and site closure and reclamation obligations.

As part of the JVFA, the Company and Cariboo have votes equal to their interest in the Joint Venture. However, certain key strategic, operating, investing and financing policies of the Joint Venture require unanimous approval from the Venturers such that neither of the Venturers is in a position to exercise unilateral control over the Joint Venture.

The total gain on the Company's contribution to the Joint Venture was $389,528, of which $95,114 (net of purchase price allocation adjustments) was recognized based on the 25% investment by Cariboo. The remaining 75% of the gain related to the Company's interest in the Joint Venture has been eliminated upon consolidation.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

The Company’s 75% interest in the assets and liabilities of the Joint Venture as at December 31, 2010 are as follows:

		December 31, 2010
Assets
Current assets	$	97,713
Advances for equipment		1,188
Reclamation deposits		22,977
Mineral property interests, plant and equipment, net		301,219
Liabilities
Current liabilities	$	29,538
Long-term liabilities		28,019
Site closure & reclamation obligation		8,178

Included within the Company’s statement of operations and comprehensive income (loss) for the year ended December 31, 2010 is the Company's 75% interest in the operations of the Joint Venture since inception on March 31, 2010. This 75% interest is summarized as follows:

		Year ended
		December 31, 2010
Revenues	$	194,370
Operating expenses		97,461
Depreciation and depletion		7,092
Other expenses		4,867
Other comprehensive loss		39
Total comprehensive income	$	84,911

Included within the cash flows of the Company for the year ended December 31, 2010, is the Company's 75% interest in the cash flows of the Joint Venture. This 75% interest is summarized as follows:

		Year ended
		December 31, 2010
Operating activities	$	93,103
Investing activities		(44,496	)
Financing activities		8,270

During the period, the Company advanced to the Joint Venture $7,055 to fund operations of the Gibraltar mine. These amounts were not recovered from the Venturers as part of the routine monthly cash calls. The Company is currently reporting a receivable at December 31, 2010, of $1,764 (25%) from the Joint Venture in its consolidated financial results.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

5. INVENTORY

		December 31		December 31
		2010		2009
Metal in concentrate - copper	$	7,515	$	5,830
Ore in-process		1,514		1,897
Copper cathode		982		178
Metal in concentrate - molybdenum		53		70
Materials and supplies		11,222		13,817
	$	21,286	$	21,792

The amount of inventory recognized as an expense for the years ended December 31, 2010 and 2009 is represented by the amount of cost of sales before reversals of inventory write-downs. There have been no write-downs of inventory during the years ended December 31, 2010 and 2009.

6. CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS

(a) Capital Management Objectives

The Company's primary objective when managing capital is to ensure that the Company is able to continue its operations and that it has sufficient ability to satisfy its capital obligations and ongoing operational expenses, as well as to have sufficient liquidity available to fund suitable business opportunities as they arise.

The Company considers the components of shareholders' equity, as well as its cash and equivalents, credit facilities, and long-term loans obligations as capital. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue equity, sell assets, or return capital to shareholders as well as issue or repay debt.

In order to facilitate the management of its capital requirements, the Company prepares annual operating budgets that are approved by the Board of Directors. Management also actively monitors its financial covenants to ensure compliance.

The Company’s investment policy is to invest its cash in highly liquid short-term interest-bearing investments, having maturity dates of three months or less from the date of acquisition and that are readily convertible to known amounts of cash.

There were no changes to the Company's approach to capital management during the year ended December 31, 2010.

(b) Carrying Amounts and Fair Values of Financial Instruments

The fair value of a financial instrument is the price at which a party would accept the rights and/or obligations of the financial instrument from an independent third party. Given the varying influencing factors, the reported fair values are only indicators of the prices that may actually be realized for these financial instruments.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

• Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
• Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
• Level 3 – Inputs that are not based on observable market data.

The fair value of accounts receivable, advances for equipment, advances to Joint Venture, accounts payable and accrued liabilities and income taxes payable approximate carrying values due to the short-term nature of these items.

The fair values of the tracking preferred shares are not readily determinable with sufficient reliability due to the lack of availability of appropriate market information. It is not practicable to determine the fair value of advances from related parties because of the related party nature of such amounts and the absence of a secondary market for such instruments. The fair value of the promissory note is not readily determinable with sufficient reliability due to the uncertainty around the maturities and the future cash flows associated with the promissory note.

Aside from the financial instruments mentioned above, the following table illustrates the classification of the Company’s financial instruments recorded at fair value within the fair value hierarchy as at December 31, 2010 and 2009:

		Financial assets at fair value
		Level 1		Level 2		Level 3		December 31,2010
Cash and equivalents	$	211,793	$	–	$	–	$	211,793
Restricted cash (note 13)		–		–		–		–
Warrants held in other public company (note 7)		–		599		–		599
Held-for-trading		211,793		599		–		212,392
Marketable securities and investments (note 7)		17,922		–		–		17,922
Reclamation deposits		23,266		–		–		23,266
Available-for-sale financial assets		41,188		–		–		41,188
Total financial assets at fair value	$	252,981	$	599	$	–	$	253,580

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

	Financial liabilities at fair value
		Level 1		Level 2		Level 3		December 31,2010
Liability under derivative financial instruments (note 15)	$	–	$	225	$	–	$	225

		Financial assets at fair value
		Level 1		Level 2		Level 3		December 31,2009
Cash and equivalents	$	35,082	$	–	$	–	$	35,082
Restricted cash (note 13)		3,153		–		–		3,153
Held for trading		38,235		–		–		38,235
Marketable securities and investments (note 7)		11,856		–		–		11,856
Reclamation deposits		29,421		–		–		29,421
Available for sale financial assets		41,277		–		–		41,277
Total financial assets at fair value	$	79,512	$	–	$	–	$	79,512

	Financial liabilities at fair value
		Level 1		Level 2		Level 3		December 31,2009
Liability under derivative financial instruments (note 15)	$	–	$	18,935	$	–	$	18,935

(c)	Financial Instrument Risk Exposure and Risk Management
	The Company is exposed in varying degrees of financial instrument related risks. The Board approves and monitors the risk management processes, including treasury policies, counterparty limits, controlling and reporting structures. The types of risk exposure and the way in which such exposure is managed are provided as follows:
(i)	Credit Risk
	Credit risk is the risk of potential loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk from its receivables and marketable securities and investments. In general, the Company manages its credit exposure by transacting only with reputable counterparties. The Company monitors the financial condition of its customers and counterparties to contracts.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

(ii)	Liquidity Risk
	Liquidity risk is the risk that the company will not be able to meet its financial obligations as they become due. The company manages liquidity risk by holding sufficient cash and cash equivalents and scheduling long-term obligations in the future based on estimated cash inflows.
	During the year, the Company entered into long-term equipment loans for $14,076 (note 12(b)). The Company also entered into a $12,923 5-year capital lease agreement for mobile equipment.
	The following are the principal contractual maturities of financial liabilities:

		Contractual								Over 3
As at December 31, 2010		Obligations		2011		2012		2013		years
Accounts payable and accrued liabilities	$	22,983	$	22,983	$	–	$	–	$	–
Amounts due to a related party (note 11)		154		154		–		–		–
Long-term equipment loan (note 12(b))		18,020		4,961		6,828		3,672		2,559
Total liabilities	$	41,157	$	28,098	$	6,828	$	3,672	$	2,559

		Contractual								Over 3
As at December 31, 2009		Obligations		2010		2011		2012		years
Accounts payable and accrued liabilities	$	14,821	$	14,821	$	–	$	–	$	–
Amounts due to a related party		13		13		–		–		–
Long-term credit facility (note 14)		52,550		21,896		26,275		4,379		–
Long-term equipment loan (note 12(b))		10,112		2,701		2,701		4,710		–
Total liabilities	$	77,496	$	39,431	$	28,976	$	9,089	$	–

(iii)	Market Risk
	The significant market risk exposures to which the Company is exposed are commodity price risk, foreign exchange risk, and interest rate risk.
	(a)	Commodity Price Risk
		During the year, the Company entered into producer put option contracts with Credit Suisse AG (“Credit Suisse”) and Goldman Sachs (“Goldman”) for a portion of its targeted copper production to June 2011 from its Gibraltar mine (note 15).
		A 10% strengthening or weakening of copper and molybdenum prices during the periods ended December 31, 2010, December 31, 2009 and December 31, 2008 would have affected net earnings by the amounts shown below. This analysis assumes that all other variables remain constant.

		December		December		December
		31, 2010		31, 2009		31, 2008
Net Earnings before income taxes	$	27,514	$	16,180	$	23,168

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

(b)	Foreign Exchange Risk
	The Company had no foreign currency hedges in place during the year.
	The Company's financial assets held in US dollars (stated in Canadian dollars) were:

Carrying value		December 31, 2010		December 31, 2009
Cash and equivalents	$	142,154	$	30,719
Restricted cash		–		3,153
Accounts receivable		16,811		10,802
Total financial assets	$	158,965	$	44,674

The Company's financial liabilities held in US dollars (stated in Canadian dollars) were:

Carrying value		December 31, 2010		December 31, 2009
Accounts payable and accrued liabilities	$	1,200	$	705
Derivative liability (note 15 )		225		18,935
Long-term credit facility (note 14)		-		51,505
Total financial liabilities	$	1,425	$	71,145

The following exchange rates applied during the years ended December 31, 2010 and December 31, 2009:

	Annual Average rate		Year end spot rate
	December 31,	December 31,	December 31,	December 31,
	2010	2009	2010	2009
CAD vs. USD	1.0301	1.1420	0.9946	1.0510

All of the Company’s revenues are denominated in US dollars. A 10% weakening or strengthening of the Canadian dollar against the US dollar during the periods presented below would have affected net earnings by the amounts shown below. This analysis assumes that all other variables remain constant.

		December		December		December
		31, 2010		31, 2009		31, 2008
Net earnings before income taxes	$	29,385	$	13,276	$	12,613

(c)	Interest Rate Risk
	The long-term equipment loans (note 12(b)) carry fixed interest rates ranging between 5.35% and 8.63% per annum and as such are not subject to fluctuations in interest rates.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

The exposure of the Company's financial assets to interest rate risk as at December 31, 2010 is as follows:

				Weighted
			Weighted	average period
			average	for which the
			effective interest	interest rate is
		Total	rate (percent)	fixed (years)
Financial assets subject to floating interest rates	$	211,793	0.70	N/A
Financial assets subject to fixed interest rates		101,073	5.91	5.85
Equity investments		18,521	N/A	N/A
Accounts receivables		20,154	N/A	N/A
Total financial assets	$	351,541

The exposure of the Company's financial assets to interest rate risk as at December 31, 2009 is as follows:

				Weighted
			Weighted	average period
			average effective	for which the
			interest rate	interest rate is
		Total	(percent)	fixed (years)
Financial assets subject to floating interest rates	$	35,082	0.32	N/A
Financial assets subject to fixed interest rates		107,518	6.22	6.44
Equity investments		11,856	N/A	N/A
Trade and other receivables		12,505	N/A	N/A
Total financial assets	$	166,961

The exposure of the Company's financial liabilities to interest rate risk at December 31, 2010 is as follows:

				Weighted
				average
			Weighted	period for	Weighted
			average	which the	average
			effective	interest rate	period until
			interest rate	is fixed	maturity
		Total	(percent)	(years)	(years)
Financial liabilities subject to floating interest rates	$	–	N/A	N/A	N/A
Financial liabilities subject to fixed interest rates		18,020	7.50	2.37	2.37
Derivative liability		225	N/A	N/A	N/A
Other liabilities		23,136	N/A	N/A	N/A
Total financial liabilities	$	41,381

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

The exposure of the Company's financial liabilities to interest rate risk at December 31, 2009 is as follows:

				Weighted
				average
			Weighted	period for	Weighted
			average	which the	average
			effective	interest rate	period until
			interest rate	is fixed	maturity
		Total	(percent)	(years)	(years)
Financial liabilities subject to floating interest rates	$	51,505	6.92	N/A	2.09
Financial liabilities subject to fixed interest rates		15,221	7.49	2.62	2.62
Derivative liability		18,935	N/A	N/A	N/A
Other liabilities		14,834	N/A	N/A	N/A
Total financial liabilities	$	100,495

A 10% increase or decrease of the LIBOR rate for the periods ended December 31, 2010, December 31, 2009 and December 31, 2008 would have affected net earnings by the amounts shown below. This analysis assumes that all other variables, in particular foreign exchange rates, remain constant.

		December 31,		December 31,		December 31,
		2010		2009		2008
Net earnings before income taxes	$	89	$	86	$	142

7. MARKETABLE SECURITIES AND INVESTMENTS

		As at December 31, 2010
				Unrealized
Available-for-sale investments		Cost		gain		Fair value
Continental Minerals Corporation – common shares	$	5,657	$	5,995	$	11,652
Investment in other public companies		5,405		865		6,270
		11,062		6,860		17,922
Held for trading investments
Warrants held in other public company		280		319		599
	$	11,342	$	7,179	$	18,521

		As at December 31, 2009
				Unrealized
		Cost		gain		Fair value
Continental Minerals Corporation – common shares	$	7,026	$	4,830	$	11,856

At December 31, 2010, The Company held 4,481,526 (December 31, 2009 – 5,566,126) common shares of Continental Minerals Corporation ("Continental") representing less than 3% of the Continental common shares. During the year, the Company sold 1,084,600 shares of Continental for total proceeds of $2,400 with a net realized capital gain of $1,031.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

The Company invests from time-to-time in public companies that may provide long term strategic opportunities. At December 31, 2010, the Company held investments in four public companies with the Company’s ownership all being less than 2.9 %.

8. TRACKING PREFERRED SHARES

In October 2001, the Company and its subsidiary Gibraltar Mines Ltd. ("Gibraltar") completed the acquisition of the Harmony Gold Property (“Harmony”) and related assets from Continental, for 12,483,916 series "A" non-voting tracking preferred shares of Gibraltar and $2,230 cash. The tracking preferred shares were recorded at $26,642, being their then fair value, and are designed to track and capture the value of Harmony and will be redeemed for common shares of the Company upon a realization event, such as a sale of Harmony to a third party or commercial production at Harmony or, at the option of Gibraltar, if a realization event has not occurred by 2011. Accordingly, the tracking preferred shares have been classified within shareholders’ equity on the consolidated balance sheet.

The initial paid-up amount for the Gibraltar tracking preferred shares is $62,770, subject to reduction prior to redemption for certain stated events. The amount will be reduced to the extent that the actual net proceeds of disposition of Harmony is less than $62,770, or to the extent that the fair market value of Gibraltar's interest in a mine at Harmony is determined to be less than $62,770. The paid-up amount (as adjusted) will be increased in the event Gibraltar receives consideration by way of granting an option to a third party which forfeits such option and also, in the event of any reduction of the paid-up amount (as adjusted), such amount will be credited to the account should the proceeds of disposition exceed the reduced paid-up amount (as adjusted) by an amount greater than the reduction. In no event will the paid-up amount (as adjusted) exceed $62,770 nor be less than $20,000. Net proceeds of disposition shall mean the fair value of all consideration received by Gibraltar as a consequence of a sale of Harmony, net of Gibraltar's reasonable costs of disposition, costs incurred by Gibraltar after the effective date in connection with Harmony, and a reasonable reserve for Gibraltar's taxes arising in consequence of the sale or other disposition of Harmony.

On the occurrence of a realization event (as mentioned above), Gibraltar must redeem the Gibraltar tracking preferred shares by distributing that number of the Company’s common shares equal to the paid-up amount (as adjusted) divided by a deemed price per common share, which will vary dependent on the timing of such realization event. The tracking preferred shares are redeemable at specified prices per common share of the Company starting at $3.39 and escalating by $0.25 per year, currently at $5.64 (as of December 31, 2010).

If a realization event does not occur on or before October 16, 2011, Gibraltar has the right to redeem the tracking preferred shares for the Company’s common shares at a deemed price equal to the greater of the then average 20 day trading price of the common shares of the Company and $10.00. The Company’s common shares to be issued to Continental upon a realization event will in turn be distributed pro-rata, after adjustment for any taxes, to the holders of redeemable preferred shares of Continental that were issued to Continental shareholders at the time of the transaction.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

If the unrelated third party’s acquisition of Continental (the “Acquisition”) announced September 17, 2010 proceeds, it is planned, subject to ongoing negotiations with Continental, that the redemption of the tracking preferred shares for the Company’s common shares be accelerated to occur just before closing of the Acquisition.

On December 20, 2010, Continental announced that it had signed a formal “Arrangement Agreement” to implement the proposed acquisition plan announced in September, through a process which will be subject to the terms and conditions of the Arrangement Agreement. Completion of the Arrangement Agreement is targeted for the end of the first quarter of 2011. The tracking preferred shares will be exchanged for the Company’s common shares on the ratio of 0.5028 per Company’s common share to a Continental preferred share, and the Company’s common shares will not be subject to any hold periods by Continental.

9. MINERAL PROPERTY INTERESTS

		December 31		December 31
		2010		2009
Gibraltar Copper Mine	$	13,752	$	16,766
Prosperity Gold-Copper Property		1		1
Harmony Gold Property		1		1
Aley Niobium Property		8,343		8,343
Oakmont Royalty Interest		5,640		7,520
	$	27,737	$	32,631

(a) Gibraltar Copper Mine

In July 1999, the Company acquired a 100% interest in the Gibraltar copper mine mineral property, located near Williams Lake, British Columbia, Canada from Boliden Westmin (Canada) Limited ("BWCL") for $3,325. The acquisition of the Gibraltar mine included plant and equipment and supplies inventory of the Gibraltar mine, and $8,000 of funds for future reclamation. The Gibraltar mine final reclamation and closure plan is updated every five years. The most recent reclamation plan and closure report was approved by the British Columbia Ministry of Energy and Mines in 2004.

The Gibraltar mine obtained government permitting and re-started the operation in early October 2004 following several years on care and maintenance as a result of low metal prices. Commercial production started on January 1, 2005 and has continued to the present. Construction of the Phase 1 mill expansion was completed in February 2008. The ramp up to the rated processing capacity of 46,000 tons per day (“tpd”) has been ongoing since the completion of construction. The construction schedule of a Phase 2 expansion program, designed to increase concentrator from 46,000 tpd to 55,000 tpd, was completed in 2010, as well as installation of the in-pit crusher and conveyor.

On March 31, 2010, the Company entered into a Joint Venture agreement with Cariboo Copper Corporation to establish an unincorporated joint venture, under which the Company continues in its capacity as operator of the Gibraltar mine, under the terms of the Joint Venture Operating Agreement (note 4).

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

(b) Prosperity Gold-Copper Property

The Company owns 100% of the Prosperity gold-copper property, consisting of 196 mineral claims covering the mineral rights for approximately 85 square km in the Clinton Mining Division in south central British Columbia, Canada.

Taseko received the environmental assessment certificate from the British Columbia Provincial Ministry of Environment on January 14, 2010. Following hearings from March to May 2010 under the federal process, the Panel submitted their findings and the Federal Minister of Environment announced in November 2010 that the Prosperity mine project, as proposed, could not be granted Federal authorizations to proceed. The Company submitted a revised project description to the Federal Government in February 2011.

(c) Harmony Gold Property

The Company acquired a 100% interest in the Harmony gold property in fiscal 2002. The Company has undertaken property maintenance and environmental monitoring activities at Harmony since acquiring the project.

(d) Aley Niobium Property

In June 2007, the Company completed the acquisition of all the issued and outstanding shares in the capital of a private company with a project in north-eastern British Columbia, Canada (“the Transaction”), for a total cash consideration to the acquired company’s shareholders of $1,500 as well as a share settlement to the value of $2,970 (consisting of 894,730 common shares).

In the above Transaction, the Company also purchased the residual net smelter royalties (“NSR”) from Teck Cominco Metals Limited (“Teck”) for a total cash consideration to Teck of $300 and the issuance of units with a value of $835 (consisting of 240,000 common shares and 120,000 warrants).

During the year, the Company completed an exploration program which comprised geological mapping and diamond drilling and is continuing to assess the potential development of the project.

(e) Purchase of Oakmont Ventures Ltd.

On May 2, 2008, the Company completed the acquisition of all the issued and outstanding shares in the capital of a private company, Oakmont Ventures Ltd. (“Oakmont”), whose sole asset is the 30% net profits interest in certain claims that are part of the Gibraltar mine property located adjacent to the Gibraltar east pit. The acquisition was completed through the issuance of 1,000,000 common shares of the Company at the value of $5,220. The acquisition was accounted for under the purchase method.

The Oakmont mineral property interests now form part of the Joint Venture (note 4).

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

10. MINERAL PROPERTY INTERESTS, PLANT AND EQUIPMENT

	December 31, 2010
		Cost		Accumulated amortization		Net book value
Buildings and equipment	$	2,872	$	1,695	$	1,177
Mine equipment		127,056		12,421		114,635
Plant and equipment		97,776		7,649		90,127
Vehicles		3,079		1,640		1,439
Computer equipment		2,543		2,445		98
Social assets		301		–		301
Deferred pre-stripping costs		39,401		6,650		32,751
Construction in progress		15,254		–		15,254
Assets under capital lease		26,589		706		25,883
Asset retirement costs		163		–		163
	$	315,034	$	33,206	$	281,828
Other equipment and leasehold improvements		1,720		524		1,196
Total mineral property interests (note 9)						27,737
Mineral property interest, plant and equipment					$	310,761

	December 31, 2009
		Cost		Accumulated amortization		Net book value
Buildings and equipment	$	3,646	$	2,807	$	839
Mine equipment		90,632		11,265		79,367
Plant and equipment		104,000		6,824		97,176
Vehicles		2,744		1,593		1,151
Computer equipment		3,390		3,130		260
Social assets		402		–		402
Deferred pre-stripping costs		52,535		5,307		47,228
Construction in progress		60,616		–		60,616
Assets under capital lease		18,222		333		17,889
Asset retirement costs		62		–		62
	$	336,248	$	31,259	$	304,989
Other equipment and leasehold improvements		423		207		216
Total mineral property interests (note 9)						32,631
Mineral property interest, plant and equipment					$	337,836

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

11. RELATED PARTY TRANSACTIONS AND BALANCES

Transactions		Twelve months ended December 31
		2010		2009		2008
Joint Venture – Management fee income (note 11(b))	$	648	$	-	$	-
Hunter Dickinson Services Inc. (note 11(a)) – Services rendered to the Company and reimbursement of third party expenses	$	2,958	$	2,709	$	8,934

Due to (from) related parties:		December 31, 2010			December 31, 2009
Joint Venture (Note 4)	$	(1,764	)		-
Hunter Dickinson Services Inc	$	154		$	13

(a) Hunter Dickinson Services Inc. ("HDSI")

HDSI is a private company which until recently was owned equally by eight public companies, one of which was Taseko. During the first quarter, the Company sold its interest in HDSI for nominal value. HDSI has certain directors in common with the Company and provides geological, corporate development, administrative and management services to, and incurs third party costs on behalf of the Company and its subsidiaries. On July 2, 2010, the HDSI services agreement was modified and services are now provided based on annually set hourly rates. Transactions with HDSI are reflected in the Company's statement of operations and comprehensive income (loss) and are measured at the exchange amount based on the agreement.

(b) Management Fee

Under the terms of the Joint Venture Operating Agreement, the Joint Venture pays a management fee to the Company for services rendered by the Company to the Joint Venture as operator of the Gibraltar mine. During the year ended December 31, 2010, the Company earned management fees of $648 net in relation to the Joint Venture.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

12. LOAN OBLIGATIONS

Future obligations under capital leases and equipment loans are as follows:

As at December 31, 2010		Capital Lease			Equipment			Total Loan
		Obligations (a)			Loans (b)			Obligations
2011	$	6,452		$	5,942		$	12,394
2012		6,144			7,449			13,593
2013		4,941			3,916			8,857
2014		2,983			2,611			5,594
2015		2,361			–			2,361
Total payments		22,881			19,918			42,799
Less: interest portion		(2,568	)		(1,898	)		(4,466	)
Present value of obligations		20,313			18,020			38,333
Current portion		(5,354	)		(4,961	)		(10,315	)
Non-current portion	$	14,959		$	13,059		$	28,018

As at December 31, 2009		Capital Lease			Equipments			Total Loan
		Obligations (a)			Loans (b)			Obligations
2010	$	4,543		$	2,701		$	7,244
2011		4,266			2,701			6,967
2012		4,215			4,710			8,925
Thereafter until 2013		2,612			–			2,612
Total payments		15,636			10,112			25,748
Less: interest portion		(1,648	)		(1,402	)		(3,050	)
Present value of obligations		13,988			8,710			22,698
Current portion		(3,750	)		(2,032	)		(5,782	)
Non-current portion	$	10,238		$	6,678		$	16,916

(a)           Capital Lease Obligations

Included in mineral property interests, plant and equipment are mining equipment that the Company acquired pursuant to capital lease agreements.

Capital lease obligations as detailed above are secured by plant and equipment and are repayable in monthly installments with fixed interest rates. The capital lease obligations bear fixed interest rates ranging from 5.93% to 8.80% per annum.

(b)           Equipment Loans

The Company has entered into various equipment loan agreements ranging from three to five years. These loans are secured by the underlying equipment at the Gibraltar mine. The loans are repayable in monthly installments and bear fixed interest rates ranging from 5.349% to 8.63% .

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

13. RESTRICTED CASH

During 2009, the Company had pledged $3,153 (US$3,000) as cash collateral in favour of Credit Suisse to obtain a waiver on a certain clause in the term facility agreement with Credit Suisse. During the first quarter of 2010, these funds were released from restriction due to the prepayment of the term facility (note 14).

14. CREDIT FACILITY

In February 2009, the Company entered into and drew upon a US$30,000 36-month term facility agreement (the "Facility") with Credit Suisse. In September 2009, the Company and Credit Suisse, as Facility Agent, and Investec Bank plc ("Investec") amended the Facility to increase the existing Facility by an additional US$20,000 and the Company drew an additional US$20,000. Under the amended facility agreement, the US$50,000 Facility was repayable commencing April 2010 and every second month thereafter in equal installments until February 2012. The Facility bore interest at LIBOR plus 5 percent.

During the year, the Company repaid the Facility. A loss of $834 was recorded in the Company's net earnings (loss) as a result of the early pre-payment of the Facility.

15. DERIVATIVE FINANCIAL INSTRUMENTS

Consistent with the Company's strategy to manage its operating margins effectively in volatile copper markets, the Company entered into the following producer put option contracts.

The Company purchased a series of put options for 15,600 metric tonnes of copper for the period January to June, 2011 at a strike price of US $3.00 per pound, with a premium per option ranging between $0.1994 and $0.2114.

		Strike Price		Premium per	Purchased metric
Contract Period		US$/lb		Contract US$	tonnes (mt) of copper
January to June 2011	$	3.00	$	5,275	12,000
January to June 2011	$	3.00	$	1,678	3,600

The strike price sets the gross minimum price that the Company seeks to realise for its copper production. These put options are only exercised if the spot price declines below the set put strike price. The Company participates in the full upside price increases and is protected from price decreases.

For accounting purposes, the Company determined that these contracts are derivative financial instruments that should be measured at fair value at each reporting date with all changes in fair value included in the net earnings (loss) in the period in which they arise. During the year ended December 31, 2010, the Company recorded a mark-to-market net gain of $3,575 (2009 - $11,330 loss) on contracts that settled during the year. The Company recorded an unrealized loss of $6,898 (2009 - $15,775) on the mark-to-market of outstanding contracts at fiscal year-end.

The fair value of contracts and amount payable to settle the derivative liability at December 31, 2010 is as follows:

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

		Strike Price	Notional Quantity			Fair Value
Option		US$/lb	mt of copper	Due Date		(Liability)/Asset US$
Call option1	$	3.95	2,250	Dec 31, 2010	$	(662	)
Put option	$	3.00	15,600	Jun 30, 2011	$	436
Total Fair Value of Contracts (in US)					$	(226	)
Total Fair Value of Contracts (in CAD)					$	(225	)

(1) Amount payable for December 2010 settlement of call option, which settled in January, 2011.

16. ROYALTY OBLIGATIONS

		December 31, 2010		December 31, 2009
Royalty Agreement – Red Mile No. 2 LP	$	58,893	$	62,318
Gibraltar Royalty LP		–		6,511
Total royalty obligations	$	58,893	$	68,829

(a) Royalty Agreement – Red Mile No. 2 LP (promissory note and royalty obligation)

In September 2004, the Company entered into agreements with an unrelated investment partnership, Red Mile Resources No. 2 Limited Partnership ("Red Mile"). Gibraltar sold to Red Mile a royalty for $67,357 cash. These funds were invested in a promissory note with a trust company and the Company pledged the promissory note along with interest earned and to be earned thereon for a total of $70,200 to secure its royalty obligations under the agreements.

At December 31, 2010, the promissory note amounted to $77,807 (2009 – $78,097).

Pursuant to the agreements, the Company received an aggregate of $10,500 in fees and interest for services performed in relation to the Red Mile transaction, of which $5,250 was received in each of September and December of 2004, and included in interest and other income. The amount of $5,250 received in September 2004 included $1,750 for indemnifying an affiliate of Red Mile from any claims relating to a breach by Gibraltar under the royalty agreement. The funds received in respect of the indemnification are presented as deferred revenue, and are recognized over the expected remaining life of the royalty agreement, with $656 (2009 – $831) remaining as deferred as at December 31, 2010, of which $175 (2009 – $175) is classified as current.

Annual royalties are payable by Gibraltar to Red Mile at rates ranging from $0.01 per pound to $0.14 per pound of copper produced during the period from the commencement of commercial production (as defined in the agreement) to the latter of (i) December 2014 and (ii) five years after the end of commercial production from the mine. For the year ended December 31, 2010, Gibraltar owes a royalty to Red Mile in the amount of $7,248 (2009 – $4,697) at an average rate of $0.08007 (2009 – $0.0686) per pound of copper produced. Gibraltar is entitled to have released to it funds held under the promissory note and interest thereon to fund its royalty obligations to the extent of its royalty payment obligations.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

The Company has a pre-emptive option to effectively purchase ("call") the royalty interest by acquiring the Red Mile partnership units in consideration of a payment which is (i) approximately equal to the funds received by the Company less royalty payments to date, or (ii) fair value, whichever is lower. Under certain circumstances, the investors in Red Mile also have a right to sell ("put") their Red Mile partnership units to the Company at fair value; however, such right is subject to the Company's pre-emptive right to exercise the "call" in advance of any "put" being exercised and completed.

The Company has granted to Red Mile a net profits interest ("NPI"), which survives any "put" or "call" of the Red Mile units. The NPI is applicable for the years 2011 to 2014 and is 2% if the price of copper averages US$2.50 to US$2.74 per pound, 3% if the price of copper averages US$2.75 to US$2.99 per pound and 4% if the price of copper averages US$3.00 per pound or greater for any year during that period. The US-dollar pricing amounts specified above are based upon an exchange rate of US$0.75 for Cdn$1.00, and shall be adjusted from time to time by any variation of such exchange rates. No NPI is payable until the Company reaches a pre-determined aggregate level of revenues less defined operating costs and expenditures. No NPI was payable at December 31, 2010 and 2009.

In accordance with AcG15, the Company has determined that the royalty agreement created certain variable interest entities for which the Company holds a variable interest. However, as the Company is not the primary beneficiary under the agreement, it is not required to consolidate any of such entities.

(b) Gibraltar Royalty LP

During 2009, the Company entered into an agreement with an unrelated investment partnership, Gibraltar Royalty Limited Partnership ("GRLP") whereby Gibraltar sold to GRLP a production royalty for $6,511 cash.

Annual royalties were payable by Gibraltar to GRLP at rates ranging from $0.003 per pound to $0.004 per pound of copper produced during the period from September 1, 2009 to December 31, 2030 (the "Royalty Period"). For the twelve months ended December 31, 2010, Gibraltar paid $65 to GRLP. The royalty payments were recognized as an expense during the period.

The Company classified the principal balance of royalty obligation as a current financial liability to be settled in a future period. The Company had a pre-emptive option to repurchase ("call") the royalty obligation by acquiring the GRLP partnership units during the period from March 1, 2010 to December 31, 2012 in consideration of a payment equal to the funds received by the Company plus a 20% premium payable in the Company's shares or cash. GRLP also had a right to sell ("put") its GRLP partnership units to the Company at fair value during the period from April 1, 2012 to December 31, 2012. However, this "put" right was subject to the Company's pre-emptive right to exercise the "call" in advance of any "put" being exercised and completed.

On March 24, 2010, the Company exercised its "call" option through the issuance of 1,556,355 shares of the Company. The 1,556,355 shares were recorded at $7,813 in the Company's accounts to settle the carrying value of royalty obligation in the amount of $6,511. A premium of $1,302 was recorded in the Company's statement of operations as a result of the exercise of the call option. Consequently, at December 31, 2010, no amounts were owed to GRLP (December 31, 2009 – $6,511).

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

17. RECLAMATION OBLIGATION AND RECLAMATION DEPOSITS

The continuity of the provision for site closure and reclamation costs related to the Gibraltar mine is as follows:

Balance, September 30, 2007	$	17,441
Changes during fiscal, 2008:
Reclamation incurred		(183	)
Accretion expense		1,451
Additional site closure and reclamation obligation recognized		366
Reduction in the present value of reclamation obligation due to a revision in mine life		(8,709	)
Balance, December 31, 2008	$	10,366
Changes during fiscal 2009:
Reclamation incurred		(1,590	)
Accretion expense		968
Additional site closure and reclamation obligation recognized		63
Balance, December 31, 2009	$	9,807
Changes during fiscal 2010:
Reclamation incurred		(91	)
Accretion expense		860
Additional site closure and reclamation obligation recognized		195
Less: JV 25% portion of the March 31/10 total reclamation obligation		(2,593	)
Balance, December 31, 2010	$	8,178

During the 15 months ended December 31, 2008, the value of the underlying site closure and reclamation obligation was revised to reflect an increase in the life of the Gibraltar mine. This change resulted in a revision to the timing of undiscounted cash flows associated with the carrying amount of the liability and a reduction in the present value of the site closure and reclamation obligation.

The impact of these changes in estimates were:

• an increase to asset retirement costs included in mineral property interests, plant and equipment and corresponding increase to reclamation obligation as at December 31, 2008 of $366
• a decrease as at December 31, 2008 of $1,426 in asset retirement costs included in mineral property interests, plant and equipment
• a decrease as at December 31, 2008 of $8,709 in the present value of the reclamation obligation due to an extension in the mine life
• a gain for the 15 months ended December 31, 2008 of $6,917

The new estimated total amount of the reclamation costs, adjusted for estimated inflation at 2.5% per year, in 2032 dollars, as at December 31, 2010 was $91,000 (2009 – $90,300) and is expected to be spent over a period of approximately three years beginning in 2032. The credit-adjusted risk free rates at which the estimated future cash flows have been discounted are 7.1% to 10%, which results in the net present value of the obligation for the Company as at December 31, 2010 of $8,178 (2009 – $9,807). The accretion for the year ended December 31, 2010 of $860 (2009 –$968) is charged to the statement of operations.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

As required by regulatory authorities, at December 31, 2010, the Company had reclamation deposits totaling $23,266 (2009 – $29,421) comprised of $22,977 (2009 – $29,132) for the Gibraltar mine, $75 (2009 – $75) for the Prosperity project,$175 (2009 – $175) for the Harmony project and $39 (2009 – $39) for the Aley project. These deposits are invested in government bonds and treasury bills and bear interest at rates ranging from 1.5% to 4.7% per annum. In addition, the Company has issued an irrevocable standby letter of credit for $10,000 in favour of the Province of British Columbia for the Gibraltar mine.

18. TAX AND INTEREST RECOVERIES

Income tax expense (recovery) differs from the amount which would result from applying the statutory Canadian income tax rates (2010 – 28.5%, 2009 – 30.0%, 2008 – 31.4%) for the following reasons:

		2010			2009			2008
Earnings (loss) before income taxes	$	195,382		$	11,255		$	(2,087	)
Expected tax expense based on statutory rates		55,684			3,376			(657	)
Permanent differences		(20,387	)		1,141			6,790
Mineral tax		14,293			981			606
Future tax rate differences		(3,637	)		(3,674	)		1,215
Recognition of previously unrecognized tax assets		–			–			(13,613	)
Other		831			(1,130	)		62
Tax expense (recovery) for the year	$	46,784		$	694		$	(5,597	)
Presented as:
Current income tax expense (recovery)	$	4,106		$	669		$	(2,151	)
Future income tax expense (recovery)		42,678			25			(3,446	)
	$	46,784		$	694		$	(5,597	)

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

As at December 31, 2010 and December 31, 2009, the estimated tax effect of the significant components within the Company’s future tax assets were as follows:

		2010			2009
Loss carry forwards	$	89		$	8,985
Royalty obligation		12,911			16,343
BC mining taxes		–			1,952
Copper hedge and other tax pools		651			6,210
Future income tax assets		13,651			33,490
Partnership deferral		–			(5,820	)
Reclamation obligation		(3,760	)		(4,800	)
Plant and equipment		(46,662	)		(20,323	)
BC Mining taxes		(9,531	)		–
Mineral properties and deferred stripping		(13,973	)		(19,436	)
Unrealized foreign exchange gain		(43	)		(751	)
Unrealized gain recorded in comprehensive income		(893	)		(654	)
Net future income tax liability	$	(61,211	)	$	(18,294	)
Current portion – future income tax liability	$	(1,008	)	$	(1,979	)
Long term future income tax liability		(60,203	)		(16,315	)
Net future income tax liability	$	(61,211	)	$	(18,294	)

At December 31, 2010 the Company’s tax attributes included capital losses totaling $Nil (2009 –$3,525) which are available indefinitely to offset future taxable capital gains, and resource tax pools totaling approximately $2,910 (2009 – $2,022) which are available indefinitely to offset future taxable income. The Company also has non-capital losses of $319 (2009 – $40,981) to offset future taxable income which expire in 2028 and 2029 respectively.

The Company has accrued a long-term tax provision of $2,500 (2009 – $32,299) related to various tax pools.

During the year ended December 31, 2010, provisions for certain long term income tax liabilities and associated interest relating to historical tax estimates for the 2004 fiscal year for one of the Company’s subsidiaries were reversed. Management believes the probability of these provisions being paid would be unlikely. Consequently, the Company recognized a reversal of income tax in the amount of $22,523 (2009 – $nil) and interest in the amount of $8,098 (2009 – $nil).

19. CONVERTIBLE DEBT

(a) Convertible Bonds

On August 29, 2006 the Company issued US$30,000 of five-year convertible bonds due in 2011 (the "Bonds") to qualified institutional buyers (the “Bondholders”). The Bonds were convertible into the Company’s common shares. The Bonds constituted direct, unsubordinated, unsecured, general and unconditional obligations of the Company. The Bonds were issued at 100% and, if not converted, could be redeemed at maturity at 101%. The Bonds carried coupon interest rates of 7.125% per annum. The Bonds also had a “put” right in August 2009 to be redeemed at 100.6% .

During 2009, the Company repurchased US$20,000 of the Bonds from its Bondholders for the purpose of cancellation. The remaining Bondholders exercised the “put” right on the remaining US$10,000 in August 2009. The Company allocated the consideration paid on the extinguishment of the bonds to the liability and equity elements of the security based on their relative fair values at the date of the transaction. A gain of $1,630 which was attributed to the liability portion was recorded in the Company’s statement of operations as a result of the convertible bond redemptions. A gain of $2,169 which was attributed to the equity portion was recorded in contributed surplus as a result of the convertible bond redemptions.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

(b) Convertible Debenture

On July 21, 1999, in connection with the acquisition of the Gibraltar mine, the Company issued a $17,000 interest-free debenture (the “Debenture”) to NVI Mining Ltd. (“NVI”), formerly Boliden Westmin (Canada) Limited. The Debenture was due on July 21, 2009 and was convertible into common shares of the Company over a 10-year period commencing at a price of $3.14 per share in year one and escalating by $0.25 per share per year thereafter. NVI had the right to convert, in part or in whole from time to time, the Debenture into fully paid common shares of the Company from year one to year ten.

On April 2, 2008, NVI issued a notice to the Company to convert the principal amount of the Debenture of $17,000 at an effective conversion rate of $5.14 per common share, which would have resulted in 3,307,393 common shares of the Company being issued to NVI. The Company issued 2,612,971 common shares to NVI and a cash payment of $3,569 in lieu of issuing the remaining 694,422 common shares as full and final settlement to NVI. The 2,612,971 shares were recorded at $21,318 in the Company’s accounts to settle the carrying value of the liability and equity portion of the Debenture as at April 2, 2008.

20. SHARE CAPITAL

(a) Authorized

Authorized share capital of the Company consists of an unlimited number of common shares without par value.

(b) Equity Issued

Fiscal year ending December 31, 2010

During the year, the Company obtained a receipt in respect of the final short-form base shelf prospectus from regulatory authorities. The shelf registration will, subject to securities regulatory requirements, allow the Company to make offerings of common shares, warrants, subscription receipts, debt securities, or any combination of such securities up to an aggregate offering price of $300,000 during the 25-month period that the final short-form base shelf prospectus, including any amendments thereto, remains effective.

The Company also entered into an At the Market Issuance Agreement, with a third party, under which the Company may, at its discretion, from time to time sell up to a maximum of 18.6 million of its common shares through "at-the-market" ("ATM") issuance. The third party will act as sales agent for any sales made under the ATM. The common shares will be sold at market prices prevailing at the time of a sale. The Company is not required to sell any of the reserved shares at any time during the term of the ATM, which extends until November 1, 2012, and there are no fees for having established the arrangement. The ATM Issuance Agreement does not prohibit the Company from conducting other financings.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

Subsequent to year-end the Company issued 1 million common shares under the ATM agreement for gross proceeds of approximately $6,104.

Fiscal year ending December 31, 2009

In 2009, the Company completed a “bought deal” for 15,862,069 common shares at a price of $1.45 per common share, resulting in aggregate gross proceeds to the Company of $23,000.

The Company also completed a private placement financing of 3,628,015 shares at $1.45 per common share for gross proceeds of $5,261.

The Company incurred $1,444 in financing fees related to the issuance, for net proceeds of $26,817.

During 2009, 9,085,715 warrants issued in December 2008 were exercised for total proceeds of $7,723.

Fiscal period ending December 31, 2008

In December 2008, the Company completed a private placement financing of 8,571,429 units with each unit consisting of one common share and one warrant, at the issue price of $0.70 per unit for gross proceeds of $6,000. Each warrant entitled the holder to purchase one common share of the Company (a "Warrant Share") for a period of 24 months at the exercise price of $0.85 per Warrant Share in the first 12 months and $0.95 per Warrant Share in the second 12 months, subject to an acceleration of the expiry date to 30 days in the event the Company's common shares trade at a price of $1.50 or higher for a period of 10 trading days.

(c) Share purchase option plan

The Company has a share purchase option compensation plan (the “Plan”) approved by the shareholders that allows it to grant options, subject to regulatory terms and approval, to its directors, employees, officers and consultants. The Plan is based on a maximum number of eligible shares equaling a rolling percentage of up to 10% of the Company’s outstanding common shares, calculated from time to time. Pursuant to the Plan, if outstanding options are exercised, or expire, and/or the number of issued and outstanding common shares of the Company increases, the options available to grant under the Plan increase proportionately. The exercise price of each option is set by the Board of Directors at the time of grant and cannot be less than the market price (less permissible discounts) on the Toronto Stock Exchange. Options may have a term of up to ten years and typically terminate 30 days following the termination of the optionee’s employment, except in the case of retirement or death. Vesting of options is at the discretion of the Board at the time the options are granted. The continuity of share purchase options is as follows:

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

The following table summarizes information about share purchase options outstanding at December 31, 2010:

	2010				2009				2008
	Number			Average	Number			Average	Number			Average
	of shares			Price	of shares			Price	of shares			Price
Opening balance	10,384,635			1.40	7,817,718			1.33	5,707,334		$	2.60
Granted during the year	3,708,500			4.63	3,983,500			1.50	8,472,050			2.19
Exercised during the year	(2,791,834	)		1.37	(1,161,749	)		1.20	(270,100	)		2.48
Expired/cancelled during year	(187,500	)		1.62	(254,834	)		2.14	(6,091,566	)		3.67
Closing balance	11,113,801		$	2.47	10,384,635		$	1.40	7,817,718		$	1.33
Average contractual remaining life (years)				2.68				3.17				3.47
Range of exercise prices	$1.00 – $5.39				$1.00 - $4.50				$1.00 - $5.45

	Options outstanding				Options exercisable
	Number	Weighted		Weighted	Number		Weighted
	outstanding at	average		average	exercisable at		average
Range of exercise	December 31	remaining		exercise	December 31		exercise
prices	2010	contractual life		price	2010		price
$1.00 to $1.15	5,205,634	2.61 years	$	1.06	4,480,636	$	1.04
$1.71 to $2.18	1,732,167	2.82 years	$	1.79	1,186,333	$	1.82
$2.63 to $3.07	205,000	0.97 years	$	2.98	205,000	$	2.98
$4.03 to $4.49	2,090,000	3.98 years	$	4.34	756,665	$	4.41
$4.50 to $5.39	1,881,000	2.82 years	$	4.78	832,999	$	4.74
	11,113,801	2.90 years	$	2.47	7,461,633	$	1.97

The following table summarizes information about share purchase options outstanding at December 31, 2009:

	Options outstanding				Options exercisable
	Number	Weighted		Weighted	Number		Weighted
	outstanding at	average		average	exercisable at		average
Range of exercise	December 31	remaining		exercise	December 31		exercise
prices	2009	contractual life		price	2009		price
$1.00 to $1.15	7,711,801	3.11 years	$	1.06	5,937,535	$	1.08
$1.71 to $2.18	1,979,834	3.68 years	$	2.17	874,169	$	1.91
$2.63 to $3.07	240,000	1.71 years	$	3.00	240,000	$	3.00
$4.03 to $4.09	225,000	3.53 years	$	4.11	125,000	$	4.08
$4.50	228,000	1.74 years	$	4.50	228,000	$	4.50
	10,384,635	3.17 years	$	1.39	7,404,704	$	1.40

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

The fair value of the options that vested during the year is $10,409. The following are the weighted average assumptions used to estimate the fair value of options during the periods ended:

	2010	2009	2008
Risk-free interest rate	2.37%	1.9%	2.4%
Expected life	4.37 years	3.17 years	3.52 years
Volatility	78%	74%	65%
Expected dividends	nil	nil	nil

d) Share purchase warrants

The continuity of share purchase warrants during the year ended December 31, 2009 is as follows:

			Outstanding				Outstanding
		Exercise	December 31,				December 31
Expiry dates		price	2008	Issued	Exercised	Expired	2009
December 17, 2010	$	0.85	9,085,715	–	9,085,715	–	–

The continuity of share purchase warrants during the period ended December 31, 2008 is as follows:

			Outstanding				Outstanding
		Exercise	September 30				December 31
Expiry dates		price	2007	Issued	Exercised	Expired	2008
December 17, 2010	$	0.85	–	9,085,715	–	–	9,085,715
February 22, 2008	$	3.48	120,000	–	–	120,000	–

e) Earnings per share

The following table sets forth the computation of diluted earnings per share:

		2010		2009			2008
Earnings available to common shareholders	$	148,598	$	10,561		$	3,510
Effect of assumed conversions:
Royalty payments to GRLP (note 16(b))		65		130			–
Tax effect on interest on convertible bonds		–		(45	)		–
Earnings available to common shareholders including assumed conversions:		148,663		10,646			3,510
Basic weighted-average number of shares outstanding (in 000’s)		186,103		173,170			142,062
Effect of dilutive securities (in 000’s):
Stock options		10,626		3,244			5,142
Warrants		–		–			7,060
Potential shares issued in settlement of GRLP Royalty		–		1,757			–
Tracking preferred shares		6,277		2,664			2,664
Diluted weighted-average number of shares outstanding (in 000’s)		203,006		180,835			156,928
Earnings per share
Basic	$	0.80	$	0.06		$	0.02
Diluted	$	0.73	$	0.06		$	0.02

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

The following table lists the stock options and shares issuable under convertible debentures excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive for the periods presented (in thousands):

	2010	2009	2008
Stock options	488	7,141	2,626
Shares issuable under convertible bonds	–	–	8,956

21. COMMITMENTS

(a)           Treatment and refining agreement

The Company has an agreement with MRI Trading AG, a Swiss-based metal trading company, for the treatment and refining of certain copper concentrate from the Gibraltar mine. Under the terms of the agreement, the Company has secured long-term and fixed rates for processing copper concentrate until December 31, 2014. The Company has the right to price payable copper within the concentrate based on a quotational period, declared prior to, and covering each ensuing calendar year.

(b)           Off-Take Agreement

As part of the JVFA, the Company entered into an off-take agreement with Cariboo for the treatment and refining of certain of copper concentrate from the Gibraltar mine. Under the terms of the off-take agreement, the Company has secured long-term and fixed rates for processing copper concentrate. The Company has the right to price payable copper within the concentrate based on a quotational period, declared prior to, and covering each ensuing calendar year

(c)            Franco-Nevada Gold Stream Transaction

In May 2010, the Company entered into a gold production stream transaction with Franco-Nevada Corporation ("Franco-Nevada") under which Franco-Nevada purchased a gold stream covering 22% of the life-of-mine gold to be produced by the Company from its proposed Prosperity gold and copper mine. Commencing with the construction of the Prosperity mine, the Company is to receive from Franco-Nevada funding in staged deposits totaling US$350,000 (the "Deposit"). Upon delivery of gold to Franco-Nevada once the Prosperity mine is in production, fixed price payments are to be made to the Company equal to the lesser of US$400 per ounce and the spot price at the time of sale (subject to certain adjustments).

Under the terms of the agreements with Franco-Nevada, the unpaid amount of the Deposit will remain refundable until it is reduced to nil. The Deposit will be reduced by an amount equal to the difference between the spot price of gold and the US$400 per ounce fixed price, multiplied by the total ounces of gold delivered to Franco-Nevada. If, at the end of the initial 40–year term of the arrangement, the Deposit has not been reduced to nil, the Company is to refund the outstanding portion of the Deposit to Franco-Nevada.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

22. SUPPLEMENTARY CASH FLOW DISCLOSURES

In addition to the non-cash operating, financing and investing activities primarily disclosed, the Company's non-cash operating, financing and investing activities were as follows:

		December 31		December 31		December 31
		2010		2009		2008
Acquisition of assets under capital lease	$	12,923	$	765	$	17,484
Conversion of convertible debenture (note 14(b))		–		–		21,318
Decrease in asset retirement costs included in mineral properties, plant and equipment (note 15)		–		–		1,426
Shares and units issued for the purchase of mineral property interests (note 9 (e) & (f))		–		–		5,220
Shares issued for finders fee		–		–		360
Shares issued for the purchase of royalty interest (note 16(b))		7,813		–		–
Shares issued for donation		928		–		–
Fair value of stock options transferred to share capital from contributed surplus on exercise of options		2,599		2,108		514
Supplemental cash flow information
Cash paid during the year for
Interest	$	2,696	$	4,461	$	2,844
Taxes	$	1,911	$	98	$	315

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

23. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Taseko prepares its consolidated financial statements in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), which principles differ in certain respects from those applicable in the United States (“US GAAP”) and from practices prescribed by the United States Securities and Exchange Commission (“SEC”). Had the Company followed US GAAP, certain items on the consolidated statements of operations and comprehensive income (loss) and balance sheets would have been reported as follows:

		Year ended			Year ended
		December			December			15 months ended
		31			31			December 31
Consolidated Statements of Operations and Comprehensive Income (Loss)		2010			2009			2008
Earnings for the period under Canadian GAAP	$	148,598		$	10,561		$	3,510
Adjustments under US GAAP
Interest accretion on convertible debt (a)		–			(898	)		2,938
Amortization of deferred financing costs (a)		–			(312	)		(580	)
Foreign exchange gain (loss) on convertible debt (a)		–			2,977			(363	)
Reduction of gain on convertible bond repurchase (a)		–			(3,707	)		–
Adjustment to gain recognized on Joint Venture (b)		285,342			–			–
Adjustment to future income taxes related to gain (b)		(71,336	)		–			–
Additional depreciation and depletion (b)		(6,006	)		–			–
Tax effect of additional depreciation (b)		1,502			–			–
Earnings for the period under US GAAP	$	358,100		$	8,621		$	5,505
Other comprehensive income (loss) under Canadian and US GAAP – no differences	$	1,673		$	11,256		$	(9,018	)
Total comprehensive income (loss) under US GAAP	$	359,773		$	19,877		$	(3,513	)
Earnings per share
Earnings per share for the period under US GAAP	$	1.92		$	0.05		$	0.04
Diluted earnings per share for the period under US GAAP	$	1.76		$	0.05		$	0.04
Weighted average number of common shares outstanding (in thousands)
Basic		186,103			173,170			142,062
Diluted		203,006			180,835			156,928

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

		As at		As at
		December 31		December 31
Consolidated Balance Sheets		2010		2009
Total assets under Canadian GAAP	$	687,612	$	535,095
Adjustments under US GAAP
Fair value adjustment to mineral property interests, plant and equipment, net of depreciation (b)		279,336		–
Total assets under US GAAP	$	966,948	$	535,095
Total liabilities under Canadian GAAP	$	217,661	$	238,402
Adjustments under US GAAP
Additional future income tax liabilities recognized (b)		69,834		–
Total liabilities under US GAAP	$	287,495	$	238,402
Total shareholders' equity under Canadian GAAP	$	469,951	$	296,693
Adjustments under US GAAP
Fair value adjustment to mineral property interests, plant and equipment, net of depreciation and income taxes.		209,502		–
Total shareholders' equity under US GAAP	$	679,453	$	296,693

There are no material differences between Canadian GAAP and US GAAP to total operating, investing or financing cash flows in the consolidated statements of cash flows.

(a)          Convertible debt

Pursuant to Canadian GAAP, the convertible instruments disclosed in note 19 of the consolidated financial statements required the bifurcation of its equity and debt components whereas under US GAAP, there was no requirement to bifurcate the instrument. Therefore, under US GAAP, all of the value was attributed to the debt component.

Under Canadian GAAP, the accretion of the residual carrying value of the convertible instrument to the face value of the convertible instrument over the life of the instrument was charged to operations. Under US GAAP, no such accretion was required.

Under US GAAP, effective on January 1, 2009 (“Effective Date”), a convertible instrument’s underlying unit (“conversion feature”) is not considered to be indexed to the Company’s own shares if it is denominated in a currency other than the Company’s functional currency. If the conversion feature is considered not to be indexed to the Company’s shares, it must be separated from the host contract and accounted for as a derivative instrument under the new guidance.

Since the US$30,000 Convertible Bond’s (the “Bonds”) (note 19(a)) conversion share price was stated in US dollars and the Company’s functional currency is the Canadian dollar, the Company separated and accounted for the conversion feature as a separate derivative instrument to comply with the new guidance.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

As a result, the Company has determined the value of the derivative liability related to the conversion feature and the revised value of the debt under US GAAP as at the Effective Date. The guidance requires retrospective application without restatement. Therefore, a cumulative adjustment has been recorded to opening deficit to reflect the impact of the adoption of this guidance on prior period earnings. The amounts recognized in the consolidated balance sheet under US GAAP are determined based on the amounts that would have been recognized if the guidance had been applied from August 29, 2006, the original issuance date of the Bonds (“Issuance Date”).

Accordingly, the following cumulative adjustments were recorded as at the Effective Date for US GAAP purposes:

• the fair value of the conversion feature in the amount of $21 was bifurcated from the Bonds and reflected as a derivative liability;
• a net $1,649 decrease to the Bonds to reflect the reduced carrying value of the Bonds under US GAAP; and
• a cumulative adjustment to reduce opening deficit by $1,628.

During the year ended December 31, 2009, all of the Bonds were repurchased or redeemed. Under Canadian GAAP, the Company allocated the consideration paid on the extinguishment of the Bonds to the liability and equity elements of the security based on their relative fair values at the date of the transaction. A gain of $1,630 which was attributed to the liability portion was recorded in the Company’s statement of operations in 2009 as a result of the convertible bond redemptions. A gain of $2,169 which was attributed to the equity portion was recorded in contributed surplus in 2009 as a result of the convertible bond redemptions.

For US GAAP purposes in 2009, the Company reversed $3,707 of the total gain on settlement of the Bonds and the derivative liability related to the conversion feature. In addition, the Company recognized a foreign exchange gain of $2,977 on the repurchase of the Bonds under US GAAP.

In 2009, accretion expense of $1,260 (2008 – $2,938) and interest expense of $1,490 (2008 -$nil) was recorded under Canadian GAAP has been reversed for US GAAP purposes. This reversal was offset by the additional $3,648 (2008 -$nil) in accretion expense recognized during the year under US GAAP resulting in a net adjustment to interest accretion on convertible debt of $898 (2008 -$2,938).

Under US GAAP, deferred financing costs are separately disclosed as an asset, whereas under Canadian GAAP, effective October 1, 2006, such costs are netted against the associated debt. Accordingly, amortization of deferred financing costs of $312 in 2009 was recorded for the year under US GAAP (2008 – $580).

(b)            Gibraltar Joint Venture

During the year, the Company entered into a joint venture over the Gibraltar mine as disclosed in note 4 to the consolidated financial statements. Under US GAAP, the disposition of the controlling financial interest in the group of assets that comprises the net assets contributed to the joint venture are accounted for as a disposition at fair value in accordance with ASU 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification. Under this guidance, the Company’s gain on disposition of its controlling financial interest is calculated as the difference between the fair value of the consideration received, including the fair value of the retained non-controlling 75% interest in the Gibraltar Joint Venture, and the carrying value of the net interest deemed to have been disposed on March 31, 2010. Accordingly, under US GAAP the full gain of $380,456 has been recognized on contribution to the Joint Venture resulting in a net increase of $285,342 to the gain recognized under Canadian GAAP of $95,114. The Company has recorded additional income taxes of $71,336 under US GAAP relating to the additional gain recognized under US GAAP. The allocation of the fair value resulted in an adjustment to the Company’s 75% interest in mineral property interests, plant and equipment of $285,342 as at March 31, 2010.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

Summarized information in respect of the Company’s 75% interest in the Joint Venture that has been proportionately consolidated by the Company is included in note 4 to the consolidated financial statements as at December 31, 2010 and year then ended, except that:

(i)	the carrying value of the mineral property interest and total assets is increased by $279,336;
(ii)	additional depreciation and depletion under US GAAP relating to the Company’s 75% interest in the Joint Venture’s mineral property interests, plant and equipment for the year ended December 31, 2010 is $6,006 offset by $1,502 in income tax recovery; and
(iii)	included in the Company’s statement of operations under US GAAP for the year ended December 31, 2010 are the Company’s 75% interest in the Joint Venture’s gross profit, net income and total comprehensive income of $85,312, $80,445 and $80,406 respectively.

There are no material differences between Canadian GAAP and US GAAP in respect of the Company’s 75% interest in the Joint Venture’s cash flows from operating activities, investing activities and financing activities.

(c)            Current assets

Balance Sheets

For Canadian GAAP purposes, the Company combines all accounts receivables on the consolidated balance sheets. The form and content of financial statements as presented in Regulation S-X, Rule 5-02 requires segregation of current assets based on their nature and materiality. The information with respect to receivables as required by US GAAP at December 31, 2010 and December 31, 2009 is as follows:

		December 31, 2010		December 31, 2009
Trade receivables	$	17,519	$	10,802
GST/HST receivables		2,305		1,377
Other receivables		330		326
Total accounts receivable	$	20,154	$	12,505

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

Statements of Cash Flows

Cash flows from receivables are included in aggregate in the consolidated statement of cash flows as a component of changes in operating working capital. The detailed cash flows are as follows:

		2010			2009			2008
Decrease (increase) in trade receivables	$	(6,716	)	$	(10,802	)	$	6,909
Decrease (increase) in GST/HST receivable		(928	)		(218	)		2,207
Decrease (increase) in other receivables		(5	)		3,121			(1,701	)
Total decrease (increase) in accounts receivable	$	(7,649	)	$	(7,899	)	$	7,415

(d)          Current Liabilities

Balance Sheets

For Canadian GAAP purposes, the Company combines accounts payable and accrued liabilities on the consolidated balance sheets. The form and content of financial statements as presented in Regulation S-X, Rule 5-02 requires segregation of payables and other current liabilities based on their nature and materiality. The information with respect to current payables and accrued current liabilities as required by US GAAP at December 31, 2010 and December 31, 2009 is as follows:

		December 31, 2010		December 31, 2009
Trade payables	$	10,151	$	5,008
Accrued liabilities		9,869		7,685
Payroll liabilities		2,819		2,034
Other payables		144		94
Total accounts payable and accrued liabilities	$	22,983	$	14,821

Statements of Cash Flows

Cash flows from accounts payables and accrued liabilities are included in aggregate in the consolidated statement of cash flows as a component of changes in operating working capital. The detailed cash flows are as follows:

		2010		2009			2008
Increase (decrease) in concentrate payable	$	-	$	(18,260	)	$	18,260
Increase (decrease) in trade payables		5,142		(10,420	)		2,973
Increase (decrease) in accrued liabilities		2,184		(8,328	)		(931	)
Increase (decrease) in payroll liabilities		785		(1,262	)		2,264
Increase (decrease) in other payables		51		54			37
Total increase (decrease) in accounts payable and accrued liabilities	$	8,162	$	(38,216	)	$	22,603

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

(e)          Shareholders’ Equity

Regulation S-X, Rule 5-02 requires various details related to common shares be disclosed on the face of the balance sheet. This includes the title of issue and number of shares authorized, the par value of authorized shares, and the number of shares issued or outstanding. For Canadian GAAP purposes, the title of issue and number of shares authorized are disclosed in note 20 of the consolidated financial statements for the year ended December 31, 2010. The number of shares outstanding is reported in the consolidated statement of shareholders’ equity.

(f)          Significant Risks and Uncertainties

US GAAP requires the disclosure of concentrations of labour subject to collective bargaining agreements (“CBA”). All hourly employees at the Gibraltar Mine are members of the National Automobile, Aerospace, Transportation and General Workers Union of Canada (CAW-Canada), Local 3018 who are covered by a CBA and account for 77% of Gibraltar employees. On June 1, 2007, a new five-year collective agreement was ratified, replacing the previous three-year deal which expired May 31, 2008. In total, 73 % of Taseko’s employees are subject to the CBA.

(g)          Accounting for Uncertain Tax Positions and Reconciliations of Unrecognized Tax Benefits:

FASB ASC topic 740, Income Taxes (ASC 740) prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation requires that the Company recognize the impact of a tax position in the financial statements if the position is more likely than not of being sustained on audit, based on the technical merits of the position. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. In accordance with the provisions of ASC 740, any cumulative effect resulting from the change in accounting principle is to be recorded as an adjustment to the opening balance of deficit.

The Company has evaluated all uncertain tax positions and has determined that the unrecognized tax benefits at December 31, 2010 were $2,500 (2009 — $32,299). These unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate. The Company recognizes potential interest and penalties related to income tax matters as part of income taxes payable. As at December 31, 2010, the Company has accrued $7,540 (2009 — $8,137) for interest and penalties. Tax years ranging from 2006 to 2010 remain subject to examination in Canada.

Reconciliation of unrecognized tax benefit

		Year ended			Year ended
		December 31, 2010			December 31, 2009
Unrecognized tax benefits, opening balance	$	32,299		$	30,685
Reclassifications within tax provision:
Gross increases (decreases) — tax positions in prior period		158			(167	)
Gross increases — tax positions in current period		264			1,781
Amounts derecognized during period		(30,221	)		—
Unrecognized tax benefits, ending balance	$	2,500		$	32,299

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

(h) Share Purchase Option Plan

The Company has a share purchase option compensation plan (the “Plan”) as described in note 20(c) to the consolidated financial statements for the year ended December 31, 2010.

Additional disclosures in respect of the aggregate intrinsic value of options required under US GAAP are as follows:

		December 31,		December 31,		December 31,
Aggregate intrinsic value as at		2010		2009		2008
Closing balance of options outstanding at period end	$	30,326	$	31,774	$	—
Options exercisable at period end	$	24,085	$	17,818	$	—

The weighted average remaining contractual term of options exercisable at December 31, 2010 is 2.67 years (2009 – 2.71 years, 2008 – 2.88 years).

The weighted average grant date fair value of options granted during the year was $4.63 per option (2009 -$0.75, 2008 -$1.11) . The total intrinsic value of options exercised during the year was $10,442 (2009 -$2,438, 2008 - $670).

i) Unrecognized Stock Compensation

As of December 31, 2010, there was $2,013 of unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements. The cost is expected to be recognized over a weighted average period of approximately 1.04 years.

ii) Stock Option Modification

On December 10, 2008, the Company granted 5,460,050 options to its employees, management, and service providers with an exercise price of $1.00, vesting over 3 years from the grant date and expiring over 3 to 5 years from the grant date. On December 11, 2008, the Company issued letters to directors, employees, and service providers requesting the cancellation of 5,902,500 stock options effective December 19, 2008. The options were cancelled to make room in the stock option plan for the annual grant for the directors of the Company.

The issuance and subsequent cancellation of stock options in December 2008 was treated as a modification for accounting purposes under both Canadian and US GAAP. This treatment resulted in the recognition of only the incremental fair value of the new grant over the fair value of the existing options at the date of cancellation in the amount of $462 during the year ended December 31, 2008. Further, the remaining grant-date fair value relating to the cancelled options in the amount of $893 continued to be recognized over the original vesting period during the year ended December 31, 2009.

(i)          Recently Adopted US GAAP Accounting Pronouncements

(i)          Measuring Fair Value of Liabilities

In August 2009, FASB issued a new standard related to measuring fair values of liabilities, which is effective prospectively in the Company’s 2010 fiscal year. The new standard requires that the fair value of liabilities be measured under the assumption that the liability is transferred to a market participant. It provides further clarification that the fair value measurement of a liability should assume transfer to a market participant as of the measurement date without settlement with the counterparty. Therefore, the fair value of the liability shall reflect non-performance risk, including but not limited to a reporting entity’s own credit risk.

TASEKO MINES LIMITED

Notes to the Consolidated Financial Statements

For the years ended December 31, 2010 and 2009, and fifteen months ended December 31, 2008.

(Expressed in thousands of Canadian dollars, except per ounce figures, unless stated otherwise)

The adoption of the new standard did not have a material effect on the Company’s consolidated results of operations, cash flows or financial position.

(ii)          Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities

In December 2008, FASB issued guidance for the purpose of improving the transparency of transfers of financial assets and an enterprise’s involvement with variable interest entities (“VIEs”), including qualifying special-purpose entities (“QSPEs”). The impact on the Company’s financial reporting requirements is limited to the new VIE disclosures.

These statements eliminate the concept of a qualifying special-purpose entity, establish new criteria for the consolidation of VIEs, and create more stringent conditions for the treatment of transfers of financial assets. The statements are significant for entities that have interests in potential VIEs or engage in transfers of financial assets.

Additional disclosure requirements are intended to assist financial statement users in understanding the significant judgments and assumptions made in determining whether a company must consolidate and/or disclose information about its involvement with a VIE.

The statements are effective for the Company’s 2010 fiscal year, and for subsequent interim and annual reporting periods. The adoption of the new standard did not have a material effect on the Company’s consolidated results of operations, cash flows or financial position since the Company has determined that it is not the primary beneficiary of certain variable interest entities in which the Company holds a variable interest. Therefore, it is not required to consolidate any of such entities.

(j)          Future US GAAP Accounting Policy Changes

The Company has not identified any changes in US GAAP that may have a significant impact on the Company’s future financial statements. With the transition to reporting under IFRS in 2011, new US GAAP pronouncements effective from 2011 onwards will not impact the 2011 financial statements for which the Company will prepare IFRS based financial statements.