MRB Metallica Resources,

A) History and Development of the Company

Metallica Resources Inc. (“Metallica” or the “Company”) is a gold and silver producer in Mexico, and is also pursuing exploration and development of various precious and base metal properties throughout the Americas.

The Company was incorporated in Canada under the provincial Business Corporations Act (Ontario) on June 23, 1977 under the name Temple Explorations Inc. On July 10, 1987, the Company reorganized and changed its name to Burgess Point Resources Inc. On January 14, 1994, the Company reorganized and changed its name to Metallica Resources Inc. Both Temple Explorations Inc. and Burgess Point Resources Inc. were in the business of oil and gas exploration. Following the change of the Company’s name to Metallica Resources Inc., the Company disposed of its oil and gas interests and has since been engaged in mineral exploration and development activities. On July 16, 2002, the Company was continued from the provincial Business Corporations Act (Ontario) to the federal Canada Business Corporations Act.  The Company became a gold and silver producer in May 2007 with the start-up of mining operations at its Cerro San Pedro mine in Mexico.  The Cerro San Pedro mine is owned by the Company’s wholly owned Mexican subsidiary, Minera San Xavier, S.A. de C.V. (“MSX”).    

The registered office of the Company is located at 36 Toronto Street, Suite 1000, Toronto, Ontario M5C 2C5, telephone: (888) 933-0313. The Company’s U.S. subsidiary, Metallica Management Inc., has agreements in place to provide management services to the Company and various subsidiaries at arm’s-length rates. Metallica Management Inc.’s offices are located at 12200 East Briarwood Avenue, Suite 165, Centennial, Colorado 80112, telephone: (303) 796-0229.

Principal Capital Expenditures/Divestitures Over Last Three Fiscal Years

In the past three fiscal years, the Company had five principal exploration/development projects that required capital expenditures totaling $58.5 million (Cerro San Pedro mine development project, Mexico - $52.1 million; Rio Figueroa exploration project, Chile - $3.7 million; El Morro exploration project, Chile - $0.3 million; Alaska Peninsula exploration project, USA - $1.9 million; Liberty Bell exploration project, USA - $0.4 million and other exploration projects in Chile - $0.1 million). The majority of capital expenditures made over the past three fiscal years on the Company’s El Morro project have been incurred by the Company’s joint venture partner, Xstrata Plc, pursuant to project earn-in requirements.  

The Company incurred approximately $42.5 million on direct project construction and other construction related costs at its Cerro San Pedro mine for the three years ended December 31, 2007.  Other Cerro San Pedro non-direct mine development and other deferred costs totaled $9.6 million for the three years ended December 31, 2007.  Mine development activities were limited in 2006 due to suspension of the explosives permit for most of the year.  The explosives permit suspension also created construction delays and increased non-direct construction related spending.  

Current and Planned Capital Expenditures/Divestitures

The Company anticipates that it will expend approximately $6.8 million on leach pad construction in 2008 at the Cerro San Pedro mine.  For further information about the Cerro San Pedro project, please see “D) Property, Plant and Equipment – The Cerro San Pedro Mine, Mexico”.

In regards to the El Morro project, Xstrata is currently revising the feasibility study that was delivered to the Company in January 2008, in order for it to comply with third party lending standards.  Upon receipt of the feasibility study amendments, the Company will be obligated to pay its 30% share of all ongoing project development costs.  The Company has an agreement with Xstrata whereby Xstrata will finance, at the Company’s election, 70% of the Company’s 30% share of project development costs at Xstrata’s cost of financing plus 100 basis points.  Xstrata will be repaid through 80% of the Company’s share of future project cash flow.  Xstrata has not yet submitted a proposed 2008 budget for the project.  For further information about the El Morrro project, please see “D) Property, Plant and Equipment – The El Morro Project, Chile.”

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The Company is pursuing joint venture options for its Rio Figueroa copper-gold project in Chile.    An option payment to the owners of the property of $0.8 million is due in September 2008.  For further information about the Rio Figueroa project, please see “D) Property, Plant and Equipment – The Rio Figueroa Project, Chile.”

The Company expects to spend approximately $2.0 million on its other exploration projects in 2008.  This estimate could materially change depending on the progress of the work programs on these projects and market conditions.

At December 31, 2007, the Company had $17.1 million of cash and cash equivalents, and working capital of $30.4 million.  The Company believes that its existing cash balances, along with the expected cash flow to be generated from the Cerro San Pedro mine will allow it to satisfy its ongoing general and administrative, exploration and project development expenditures, subject to a possible decision by Xstrata to proceed with construction at the El Morro project as discussed below.  

In the event that Xstrata elects to proceed with construction at the El Morro project, the Company may need additional financing in order to maintain its 30% interest in the project.  Management believes that the Company has the ability to obtain sufficient financing, if required, in the event of a decision by Xstrata to proceed with construction.  In addition to cash flow generated by the Cerro San Pedro mine, the Company currently also expects to receive $60 million from the exercise of 19.2 million warrants exercisable at Cdn$3.10 (closing TSX share price on March 13, 2008, Cdn$5.50) which expire on December 11, 2008.  Furthermore, the Company has no debt on its balance sheet.

Public Takeover Offers

During the current and previous fiscal year, the Company has not received any public takeover offers from third parties nor has the Company made any such takeover offers.

B) Business Overview

The Company became a gold and silver producer in 2007 with the start-up of mining operations at its Cerro San Pedro mine in Mexico.  The Cerro San Pedro mine is the Company’s sole source of revenue.  The Company is also pursuing exploration and development of various precious and base metal properties throughout the Americas, principally Mexico, Chile and the United States. Through its subsidiaries, the Company has held interests in mineral exploration projects in these countries during the past three years. The Company’s mineral development and exploration activities are currently focused on the El Morro copper-gold project in Chile, the Rio Figueroa copper-gold project in Chile, the Alaska Peninsula gold and copper-gold project in the United States, the Liberty Bell gold project in the United States and other preliminary stage copper-gold projects in Chile. See “D) Property, Plant and Equipment” for further information about these projects.

Electricity and diesel fuel represent a significant portion of our production costs.  An inability to procure sufficient energy at reasonable prices could adversely affect our profits, cash flow and growth opportunities. Our production costs are also affected by the prices of commodities we consume or use in our operations, such as lime, reagents and explosives.  The prices of such commodities are influenced by supply and demand trends affecting the mining industry in general and other factors outside our control and such prices are at times subject to volatile movements.

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A discussion of government regulation of mineral concessions in Mexico, which relates to the Company’s Cerro San Pedro mine, is presented below:

Mineral Concessions in Mexico . In accordance with the Mexican constitution, the subsoil and minerals found therein are the inalienable property of the nation. All mining activity requires a concession from the federal government. A new mining law liberalizing the mining industry was enacted and became effective on September 25, 1992, with amendments approved on April 26, 2005 that took effect January 1, 2006. The most important amendments include:
 

•

A single “unique” concession, eliminating the distinction between exploration and exploitation concessions as provided for in the September 2003 law.

•

The term of the “unique” concession is 50 years and is renewable if certain obligations are met. Previously, exploration concessions were granted for a six-year term, and exploitation concessions were granted for a 50-year term.

Information concerning environmental regulation in Mexico is included in “D) Property, Plant and Equipment – The Cerro San Pedro Project, Mexico – Environmental”.

The Company’s El Morro copper-gold project and Rio Figueroa copper-gold project are located in Chile. Information about governmental regulation, including environmental regulation, in Chile is included in “D) Property, Plant and Equipment – The El Morro Project, Chile – Mineral Property Summary” and “ – Environmental Permitting.”

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C) Organizational Structure

The following chart illustrates the inter-corporate relationships among the Company and its subsidiaries.

D) Property, Plant and Equipment

Mineral Reserves and Resources

The Company is federally incorporated in Canada. The mineral reserves and resources described in this Form 20-F are estimates and have been prepared in compliance with National Instrument 43-101 of the Canadian Securities Administrators. The definitions of proven and probable reserves used in National Instrument 43-101 differ from the definitions in SEC Industry Guide 7. In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource“ and “inferred mineral resource” are defined in and required to be disclosed by National Instrument 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in reports and registration statements filed with the SEC. Accordingly, information contained in this Form 20-F containing descriptions of the Company’s mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.

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The Cerro San Pedro Project, Mexico

Project Location

The Company’s Cerro San Pedro gold and silver mine is located approximately 20 kilometers (12 miles) east-northeast of the city of San Luis Potosi. The city of San Luis Potosi is located within the State of San Luis Potosi, Mexico. The Cerro San Pedro mine is owned by the Company’s wholly owned subsidiary, Minera San Xavier, S.A. de C.V. (“MSX”). See Figure 1 for the project location map.

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Project History

Construction of the Company’s 100%-owned Cerro San Pedro gold and silver, heap-leach, open-pit mine began in 2004, and was expected to take approximately nine months to complete.  The Company encountered delays with the construction schedule in 2004, 2005 and 2006 resulting from various legal challenges involving surface rights access, the explosives permit and other permits and licenses.  Most of these challenges were resolved by 2006, which enabled the Company to complete construction of the mine and commence commercial production on May 1, 2007.  Gold and silver production from commencement of commercial production through March 13, 2008 totaled 39,098 ounces of gold and 567,891 ounces of silver.  

The mineral reserve estimate for the Cerro San Pedro mine was most recently updated in March 2007 using a gold price of $475 per ounce and a silver price of $8.00 per ounce.  As of March 2007, the mineral reserve estimate contained 86 million tonnes of ore grading 0.55 grams per tonne gold and 22.5 grams per tonne silver.  The stripping ratio is estimated to be 1.26:1.  Contained metal as of March 2007 was estimated at 1.5 million ounces of gold and 62.1 million ounces of silver.  The ultimate pit limits in the current mineral resource estimate were expanded primarily to the north and northwest when compared to the earlier mineral reserve estimates.  The March 2007 mineral reserve estimate is discussed in further detail below.  A technical report prepared in accordance with National Instrument 43-101 has been filed for the March 2007 mineral reserve estimate.  The mineral reserve estimate was prepared by William L. Rose of WLR Consulting. Mr. Rose is a qualified person, as that term is defined in National Instrument 43-101, and is independent of the Company within the meaning of that Instrument.  Remaining mineral reserves are estimated to be 1.4 million ounces of gold and 56.1 million ounces of silver, after deduction for production through December 31, 2007.

In June 2007 the Company terminated its mining contract with Washington Group Latin America Inc. (“WGLA”), for cause, at the Cerro San Pedro mine.  WGLA maintains that the contract was terminated for convenience and that they were not paid for all amounts owed under the agreement, including early contract termination fees, and has filed an arbitration claim against the Company for $16.8 million plus value added taxes.  The Company has filed a counterclaim against WGLA for $2.5 million.  The arbitration proceedings are scheduled to take place in Denver, Colorado in November of 2008; however, the outcome of the arbitration proceedings cannot be determined at the present time.  

Mineral Property Summary

The mineral rights at the Cerro San Pedro project consist of 49 mineral concessions, covering an area of 3,222 hectares. The details of the mineral concessions and related groupings comprising the Cerro San Pedro project are summarized in Table A.

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All of the mineral concessions have been acquired primarily through purchase agreements and to a lesser extent through staking. The unique mineral concessions begin to expire in December 2036 through February 2055, subject to the timely filing of periodic reports and payment of taxes to Direccion General de Minas (“Federal Mining Bureau”). These concessions may be extended for an additional 50-year period. The Company does not anticipate that extensions to the mineral concessions will be required. All of the mineral concessions are held by the Company without any encumbrances except for the following:

•

The mineral concessions optioned from Antonio Alvarez Ruiz (#31 and #32) are subject to a note agreement with an outstanding balance of $675,000 as of March 13, 2008.  The note does not bear interest and is payable in annual installments of $75,000 from March 2008 through March 2016.

Although the Company has investigated title to its mineral concessions at the Cerro San Pedro project, there is no guarantee that title to such concessions will not be challenged.

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Environmental

Environmental Permitting Requirements

Mexican environmental regulations addressing permitting and operation of mines have been subject to significant changes in recent years with new standards and policies continuing to be developed. The General Law on Ecological Equilibrium and Protection of the Environment requires certain types of projects, including mining operations, to complete a Manifestacion de Impacto Ambiental [Manifest of Environmental Impact] (“MIA”), if the project has the potential to cause an ecological imbalance or to exceed limits and conditions in applicable environmental regulations.

A major objective of the MIA process is to demonstrate that the project impacts will be in compliance with principal environmental regulations for prevention of water and air pollution, noise limits, hazardous waste use and transport, and the project will be in compliance with the Normas Oficiales Mexicanas [Official Mexican Standards].

Environmental and Other Permit Status

The Company was issued an Environmental Authorization with respect to its MIA for the Cerro San Pedro project by the Mexican federal agency, Secretaria de Medio Ambiente y Recursos Naturales [Secretary of Environment and Natural Resources] (“SEMARNAT”) in February 1999. The Environmental Authorization lists various conditions which the Company is required to observe with respect to its operations at the Cerro San Pedro project. Most of these items are normal business activities associated with operating a mine. The Environmental Authorization is the primary federal permit required for the approval of the proposed mine.

In August 2004, the Company received notification that a Mexican Federal Court rendered a judgment in favor of a group opposing the Cerro San Pedro project who was seeking nullification of the Company’s Environmental Authorization. The legal action brought by the contesting group claimed that the Environmental Authorization issued by SEMARNAT violated various environmental laws and standards, and a local land use plan.  The judgment was appealed by SEMARNAT. A Federal Court subsequently ruled on the appeal and directed an Administrative and Fiscal Court to nullify the Environmental Authorization.  SEMARNAT and the Company appealed the nullification ruling.  In December 2005, a Federal Court ruled in favor of the Company and instructed the Administrative and Fiscal Court to revoke its nullification ruling.  In addition, the Federal Court instructed the Administrative and Fiscal Court to direct SEMARNAT to issue a new Environmental Authorization to the Company and nullify the 1999 Environmental Authorization.  In April 2006, SEMARNAT issued the Company a new Environmental Authorization that complied with the requirements of the Federal Court order.  A group opposing the project filed a lawsuit against SEMARNAT alleging that SEMARNAT did not comply with the Federal Court order when it issued the new Environmental Authorization.  In September 2007, a court of appeals upheld the earlier Federal Court ruling that the Environmental Authorization granted by SEMARNAT to the Company in April 2006 was valid.

The Environmental Authorization granted in April 2006 is valid for a twelve-year period through April 2018.  The Company may be required to apply for an extension within 60 days of the April 2018 Environmental Authorization expiration date in order to extend the Environmental Authorization term to adequately cover the proposed mining and reclamation period.  The Environmental Authorization lists over 90 conditions that the Company is required to satisfy, most of which relate to the reclamation phase of the project and includes the establishment of reclamation funding requirements for the project.  The reclamation funding requirements are discussed below under permitting compliance.    

The Company’s mining operations require the use of explosives.  Mexican law requires all companies that use explosives to obtain a federal explosives permit on an annual basis.  In addition to the annual federal explosives permit, the Company is also required to obtain a state explosives permit on a quarterly basis.   In the event that federal or state authorities determine that the Company is not in compliance with these permits, or if the federal or state renewals are not renewed in a timely manner, the Company’s operations could be negatively affected.

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The Company is required to renew its municipal construction and operating licenses on an annual basis. The Company does not anticipate any problems with renewing its municipal construction and operating licenses when they expire in August 2008.

The Company has been granted a local Land Use License.  This license has numerous conditions and recommendations for which the Company has agreed to fulfill.  The most significant of these include 1) stabilization of the Cerro San Pedro Apostle Church, 2) formation of a technical committee to oversee an environmental audit of the project with respect to the conditions and recommendations in the Land Use License and 3) preferential hiring treatment for residents from the local and surrounding communities.  The technical committee audit is in addition to the Procurador Federal de Proteccion Ambiental [Federal Attorney for Environmental Protection] (“PROFEPA”) (the Mexican environmental enforcement agency) audit discussed below under Environmental Permitting Compliance.   

The Company’s local Land Use License requires that it structurally stabilize the Cerro San Pedro Apostle Church and install blast monitoring equipment near the church. The work will be financed through a trust fund managed by an independent technical committee and other interested parties. The Company has deposited approximately $235,000 in a bank trust account as a deposit towards the estimated cost of the stabilization program. A federal governmental agency is reviewing various proposed stabilization work plans.  Once the governmental agency has approved a stabilization plan, the Company will commence work on the program.  

The Company must also comply with conditions in other permits and licenses that have been issued by various regulatory and governmental authorities.  Although the Company believes that it is currently in compliance with its existing permits, and although its permits have been renewed by governmental and regulatory authorities in the past, there are no assurances that the applicable governmental and regulatory authorities will renew the permits as they expire, or that pending or future permit applications will be granted. In the event that the required permits are not granted or renewed in a timely manner, or in the event that governmental and regulatory authorities determine that the Company is not in compliance with its existing permits, the Company ’s operations could be negatively affected.

Environmental Permitting Compliance

The Environmental Authorization includes certain conditions that must be met and ongoing compliance that must be performed in order to maintain the permit in good standing. The most significant conditions relate to the reclamation activities that must be performed at the end of the mine life.  In March 2008, PROFEPA conducted a complete review of the Cerro San Pedro mine and issued a report that the Company was in substantial compliance with the terms of the Environmental Authorization.

The closure and reclamation plan for the Cerro San Pedro mine has been developed by the Company with the assistance of independent consultants with the specific objective of leaving the land in a useful, safe and stable configuration capable of supporting native plant life, providing wildlife habitat, maintaining watershed functions, and supporting limited livestock grazing. SEMARNAT has agreed to allow the Company to fund its estimated $4.3 million reclamation obligation during mining operations; however, negotiations with SEMARNAT to determine the interim funding requirements have not yet been finalized.  The schedule for completing the closure activities is controlled by the requirements contained in the Environmental Authorization; specifically that site reclamation is required to be completed within four years of final processing.  

Surface and Water Rights Acquisition

In order to build and operate the Cerro San Pedro mine, surface rights agreements were required to be in place for all land to be disturbed by, or immediately adjacent to, the proposed mine operation. The Company began acquiring surface rights in 1996 from titled landowners, “possessionary rights” holders at Cerro de San Pedro, and from the two local ejidos (Cuesta de Campa and Palma de la Cruz). An ejido is an association of individuals who communally own and manage the rural lands surrounding their village. The Company has obtained surface occupation lease agreements with the two ejidos and the possessionary rights holders, that own property in the Cerro San Pedro mine area. A total of 470 hectares are under lease agreements with annual aggregate lease payments of approximately $52,000. The leases grant the Company temporary occupancy for a period of 15 years (through January 2011), and may be extended by the Company for an additional 15 years, adjusted for the percentage increase in the Mexican minimum wage from February 1997 through February 2011. The increase is expected to approximate the rate of inflation in Mexico.

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The Company holds a Temporary Occupancy and Right of Way Authorization from the Federal Mining Bureau for ejido Cerro de San Pedro land and ejido Palma de la Cruz land. This authorization provides the Company with federally mandated surface rights access over the life of the mine. The Company therefore has two levels of protection with respect to surface rights access to ejido Cerro de San Pedro land; a 15-year lease agreement with the possessionary rights holders, and a Temporary Occupancy and Right of Way Authorization issued by the Federal Mining Bureau.  The Company also has two levels of protection with respect to surface rights access to ejido Palma de la Cruz land; a 15-year lease agreement with ejido Palma de la Cruz, and a Temporary Occupancy and Right of Way Authorization issued by the Federal Mining Bureau.  The Company has a 15-year surface rights lease agreement with ejido Cuesta de Campa, which controls surface rights access to approximately 20% of the leach pad area.   

The Company has been informed of a lawsuit filed against the Federal Mining Bureau and the Secretary of the Economy seeking nullification of the Company’s Temporary Occupancy and Right of Way Authorization for ejido Cerro de San Pedro land and ejido Palma de la Cruz land. In the event of an adverse ruling from this lawsuit, the Company’s surface rights access will revert to the 15-year lease agreements that were entered into with ejido Cerro de San Pedro and ejido Palma de la Cruz, the validity of which has been upheld in the courts.  

Water rights are federally owned in Mexico and administered by an agency of the federal government; the Comision Nacional de Agua (“CNA”). CNA granted water concessions to private parties throughout the defined San Luis Potosi Hydrologic Basin (“Basin”). As no new water rights are being issued in the Basin, new users of water must purchase rights from private parties who received the water concessions from the CNA. The Cerro San Pedro mine is forecast to use a maximum of approximately one million cubic meters of water per year. The Company has acquired titles for pumping rights for 1,010,234 cubic meters per year, which generally must be renewed with CNA at various intervals during mine operations. The Company has also acquired an additional 360,000 cubic meters of water rights for which it is awaiting receipt of title from CNA. This brings the total to 1,370,234 cubic meters, which is in excess of the estimated mine requirements. Approximately $1.3 million has been spent to date on the acquisition of water rights.

The 1.4 million cubic meters of water rights that are owned or leased by the Company have been acquired from various wells throughout the Basin. All of these water rights have been, or will be, transferred to a well at La Zapatilla. The La Zapatilla well was constructed by the Company and has a total pumping capacity of approximately two million cubic meters of water per year. The La Zapatilla well is located 1.5 kilometers west of the proposed leach pad, which is where most of the mine’s water consumption will take place.

Access; Infrastructure

Access to the mine area is by paved roads from the city of San Luis Potosi, a distance of approximately 20 kilometers. The city of San Luis Potosi has a population of approximately one million and has an adequate airport with frequent flights to Mexico City, Monterrey, Houston, Dallas and other cities.

Electricity for the mine is provided through a 115 kilovolt power line that runs to a location near the processing facilities.  In addition, the Company has acquired a diesel generator as a backup power system for the process facilities.

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Glamis Feasibility Study (November 2000)

In November 2000, Glamis Gold Ltd. issued an updated feasibility study for the project entitled “Cerro San Pedro Project Feasibility Study” (“Glamis Feasibility Study”). The Glamis Feasibility Study provided for the elimination of the crushing plant from the process flow sheet resulting in the use of run-of-mine  (”ROM”) leaching to extract gold and silver from the mined ore. Under ROM leaching, the mined ore is transported and deposited on the heap leach pads without being processed through a crushing circuit. Metal recoveries from ore processed under a ROM scenario are generally lower than if the ore is crushed; however, a ROM scenario will also result in lower operating and capital costs.

In September 2003, Washington Group Limited prepared a Development Plan for the Cerro San Pedro project. The Development Plan updated the cost estimates used in the Glamis Feasibility Study and re-examined the project economics using contract mining.  The mineral reserve estimate used in the Development Plan has been updated periodically to reflect more current metal prices and costs.  The mineral reserve estimate was most recently updated by WLR Consulting in March 2007.  

WLR Technical Report (March 2007)

The following is a summary of information contained in the WLR Technical Report (“2007 Technical Report”) dated March 2007.  

Background

The computer-based geological deposit model from the Glamis Feasibility Study has not been revised or amended for the 2007 Technical Report, other than for updating the topographic surface.  In addition, the metallurgical recoveries have not been revised or updated since the Glamis Feasibility Study.  The only revisions made to an earlier Technical Report issued by WLR Consulting in May 2006, were for higher metal prices; changes to contract mining, ore processing and general and administrative costs; and pre-production stripping incurred during the fourth quarter of 2006.  Mineral Reserves from the 2007 Technical Report were recalculated using higher prices of $475 per ounce gold and $8.00 per ounce silver, which approximated the three-year historical average prices for gold and silver when the report was prepared. The March 2007 Technical Report mineral reserve and resource estimates referred to below have been estimated in accordance with definitions adopted by the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”).  The mineral reserve and mineral resource estimates were prepared by William L. Rose of WLR Consulting, Inc., a qualified person who is independent as that term is defined in Canadian Securities Administrators National Instrument 43-101.  

Areas of study and primary sources of geologic and mining information contained in the 2007 Technical Report are summarized in Table B.

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Mineral Resources

The mineral resource estimate used the results of 36 reverse circulation holes from exploration prior to MSX and 219 drill holes completed by MSX, 125 of which were reverse circulation and 94 were core holes. The deposit has been drilled overall on a 50-meter by 50-meter grid with a closer spacing in some areas. In addition, a total of 2,153 channel samples representing about 4,600 meters were collected from numerous accessible underground workings.

The mineral resource was evaluated using various estimation methods. The restricted kriging (“RK”) method was determined to be the best at characterizing the grade distribution and was therefore used to calculate the mineral resource.

The mineral resource is stated to reflect only those portions of mineralization that could become economically extractable under realistically assumed and justifiable technical and economic conditions.   The 2007 Technical Report calculated a pit shell using an $800 per ounce gold price and a $12.31 per ounce silver price and the same technical constraints that were applied to the mineral reserves.  This pit shell does not reflect an economic pit design.  It merely identifies material, which under current processing technology and a reasonable gold price, could become economic.  The Cerro San Pedro mineral resources are as follows:

¹    Cautionary note to U.S. investors concerning estimates of measured and indicated mineral resources:  We advise U.S investors that while these terms are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them.  U.S. investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into mineral reserves.

²    Cautionary note to U.S. investors concerning estimates of inferred mineral resources:  We advise U.S. investors that while this term is recognized and required by National Instrument 43-101 under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.  “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility.  It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category.  Under Canadian rules, estimates of inferred mineral resources may not form the basis of a feasibility or other economic study.  U.S. investors are cautioned not to assume that any part or all of an inferred mineral resource exists or is economically or legally mineable.  

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Mineral Reserves

Pit limit evaluations of the Cerro San Pedro deposit employed the Lerchs-Grossmann algorithm to determine the extent of economic open pit mining based on run-of-mine (“ROM”) ore.  Process recoveries and operating costs used in these pit limit evaluations are summarized in Table E.

Other economic and overall slope angle parameters are summarized in Table F.  The economic parameters were estimated by the Company.  
 

Total mineral reserves at prices of $475 per ounce gold and $8.00 per ounce silver are estimated at 85.8 million tonnes of ore grading 0.55 grams per tonne gold and 22.5 grams per tonne silver. Waste stripping is estimated at 108.3 million tonnes, resulting in a strip ratio of 1.26 tonnes of waste per tonne of ore. The total waste and ore tonnage for the designed ultimate pit is 194.1 million tonnes.

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Table G shows the breakdown of the mineral reserves by classification. These reserve estimates include both proven and probable material, which correspond to measured and indicated resources within the designed economic (ultimate) pit limits shown in Table C. All inferred material was treated as waste.

¹

Mineral reserves calculated using a $475 per ounce gold price and $8.00 per ounce silver price.

²

Mineral reserves have been calculated in accordance with Canadian Securities Administrators National Instrument 43-101, as required by Canadian Securities regulatory authorities.  For United States reporting purposes, Industry Guide 7 (under the Securities Exchange Act of 1934, as interpreted by the Staff of the Securities and Exchange Commission), applies different standards in order to classify mineralization as a mineral reserve.  The Cerro San Pedro project mineral reserves are classified as such under both Canadian and U.S. regulatory authorities.   

The Cerro San Pedro ore deposit is characterized by large tonnages and low grades.  Mineral reserve estimates are, consequently, sensitive to both metal prices and operating costs.  

Project Operations

The Cerro San Pedro mine is an open pit mine producing ROM ore that is heap leached with the recovery of precious metals using a Merrill-Crowe processing facility to produce gold/silver doré on site.  Ore is being hauled directly from the pit to the leach pad via a 2 kilometer haul road where the ore is being stacked in 10 meter vertical lifts.  A dilute cyanide solution is applied to the surface of the heap using a drip irrigation system.  Gold and silver is removed from the ore by the cyanide solution producing a gold/silver enriched solution or “pregnant solution.”  The pregnant solution is transported via a pipeline to the Merrill-Crowe processing plant.  Precious metals are recovered from the pregnant solution using a typical zinc precipitation process.

A general layout of the Cerro San Pedro mine facilities is presented in Figure 2.

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The leach pad area was expanded in 2006 and has the capacity for 100 million tonnes of ore.  As of March 13, 2008, approximately 8.0 million tonnes of ore had been placed on the leach pad, containing estimated recoverable gold and silver ounces of 52,055 and 1,110,688, respectively.  The ore tonnes placed on the leach pad to date are predominately limestones, which are found at the top of the deposit and have the lowest recovery rates of all the Cerro San Pedro ore types.  Average life of mine recoveries for all ore types are estimated to be 59% for gold and 34% for silver. The recovery period is currently estimated to be five months for gold and six months for silver.  

The Cerro San Pedro mine is currently mining at full mine plan production rates of 63,000 tonnes per day.  The processing plant is operating at designed throughput levels of 1,000 cubic meters per hour.  With January and February production reaching 12,282 ounces of gold and 157,039 ounces of silver, the Company expects to achieve planned production levels for 2008 of 80,000 ounces of gold and 1.35 million ounces of silver.  Total precious metal production over the ten-year mine life is currently projected to be 893,000 ounces of gold and 21.2 million ounces of silver. Gold and silver production from commencement of commercial production on May 1, 2007 through March 13, 2008 totaled 39,098 ounces of gold and 567,891 ounces of silver.  

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The Company intends to analyze the potential for crushing ore at the mine in order to increase gold and silver recoveries.  Capital expenditures in 2008 for expansion of the leach pad area are expected to total $6.8 million.  

The El Morro Project, Chile

The El Morro copper-gold project is a feasibility stage exploration project located in the Third Region of northern Chile.  In January 2008, Xstrata Copper, a business unit of Xstrata Plc (collectively “Xstrata”), submitted a feasibility study for the El Morro copper-gold project.  In early February 2008, the Company and its advisors met with Xstrata representatives to review the study.  The feasibility study was not accepted by the Company as it did not meet the requirements of the exploration agreement with Xstrata, one of which was that the feasibility study would comply with third party lending requirements. Xstrata is currently revising the study to meet this requirement.  The Company anticipates that these revisions and the related National Instrument 43-101 technical report will be completed in April 2008.      

Certain technical information set out below concerning the El Morro Project is derived from a  National Instrument 43-101 technical report dated December 26, 2006 authored by Mark A. Petersen, Vice President of Exploration for Metallica Resources, and Mr. Raúl R. Roco, Manager of Mines Geology for Xstrata Copper.  Mr. Petersen and Mr. Roco are “Qualified Persons” as defined under National Instrument 43-101.

Project Location

The El Morro project is located approximately 650 kilometers north of Santiago and some 80 kilometers east of the city of Vallenar. The project comprises approximately 70,145 hectares of mining exploration and exploitation concessions located in the Municipality of Alto del Carmen, Huasco Province, Third Region of Atacama in northern Chile (Figure 3). Known mineral resources within the El Morro project include the La Fortuna deposit and the namesake El Morro deposit, which are located approximately 5 kilometers apart from each other.  

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Project Ownership

In August 2005, pursuant to an exploration agreement (the “El Morro Agreement”) between Falconbridge Limited (formerly Noranda Inc.) and the Company, Falconbridge completed the requirements necessary to earn a 70% ownership interest in the El Morro project.  In 2006, Falconbridge was acquired by the global diversified mining group, Xstrata Plc.  Xstrata Copper is the operator of the El Morro project and is one of the commodity business units within Xstrata Plc.  Xstrata Plc and Xstrata Copper are collectively referred to in this document as Xstrata.  Xstrata hold a 70% interest in the El Morro project and the Company holds the remaining 30% interest.

Ownership History

The El Morro deposit area, located five kilometers west-northwest of the La Fortuna deposit area, was acquired by Metallica by claim staking in 1997. The La Fortuna and El Morro deposit areas are referred to collectively as the El Morro project.

BHP Chile S.A. (“BHP”) began work on the La Fortuna deposit area in the early 1990s and completed early stage exploration work on the La Fortuna and El Negro copper-gold targets as well as the Cantarito gold target.

In December 1996, the Company entered into an option agreement to acquire from BHP a 50% interest in mineral exploitation concessions owned by BHP in the La Fortuna area, referred to herein as the “BHP Option”.  The option agreement required the Company to invest $1.3 million in exploration and development expenditures over a three-year period. In September 1999, the parties amended the agreement to allow the Company to acquire a 100% interest in the La Fortuna area exploitation concessions by making aggregate payments to BHP totaling $1.7 million over a four-year period. The Company exercised the option in July 2003. The Company also acquired additional mining concessions by claim staking land adjoining the BHP concessions in 1997 and 1999.

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In 1998, the Company entered into an option agreement to acquire a 100% interest in mineral exploitation concessions in the La Fortuna area owned by Mr. Rene Martin Jure, referred to herein as the “Martin Option”.  The Martin option was exercised in 2001 as a result of the Company and Falconbridge making aggregate payments to Martin totaling $1.5 million.

In September 1999, the Company entered into the El Morro Agreement with Falconbridge to conduct exploration work on the El Morro project. In February 2000, the agreement was amended such that Falconbridge could earn a 70% interest in the project by making aggregate exploration and property acquisition expenditures of $10 million, which included the BHP, Martin and Cayo option payments, over a five-year period beginning September 1999, and by making a final cash payment to the Company of $10 million by September 14, 2005. In August 2005, Falconbridge completed the last of the requirements to earn a 70% interest in the El Morro project when it made the $10 million cash payment to the Company.

In 2000 and 2001, Falconbridge Limited entered into three separate option agreements to acquire a 100% interest in mineral exploitation concessions in the La Fortuna area owned by the Cayo family, referred to herein as the “Cayo Options”.  The Cayo Options were exercised in 2001 by making aggregate payments to the Cayo family totaling $85,000.

In 2006, Falconbridge was acquired by Xstrata Plc, a global diversified mining group, listed on the London and Swiss Stock Exchanges, with its headquarters in Zug, Switzerland.

Mineral Property Summary

Mineral rights in Chile are granted in the form of mining concessions.  The right over the concession, which is independent from the ownership right to the surface land, is transferable and may be subject to mortgage. The mining concession entitles its holder to exploit any and all mineral resources contained within its boundaries.

Mining concessions in Chile are of two types:

1.

an exploration concession, whereby the holder is legally entitled to explore for mineral substances in a certain area for a period of two years, at the expiration of which the concession may be extended for an additional two-year period if the area covered by the concession is reduced by half and provided the applicable annual tax is paid,

2.

an exploitation concession, whereby the holder is legally entitled to exploit mineral substances contained therein for an indefinite period of time subject to payment of the annual tax.

The El Morro project area currently consists of 70,145 hectares which includes 201 exploration concessions and 219 exploitation concessions.  Xstrata, as project operator, is responsible for the protection and maintenance of all mining concessions at the project.

Surface rights for the El Morro property are owned by the Los Huasco Altinos Community (“Los Huasco Altinos”), a grazing and livestock cooperative.  In 2005, Falconbridge was granted a 30-year legal mining easement for 10,190 hectares that is intended to secure access to the future mine pit and mine facilities.

Xstrata entered into a 30-year legal mining easement with a land owner in 2006 that secures surface rights access to the projected location for an access road from the North Pan-American Highway to the project location, and the expected location of the power line and processing facilities for the project.

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Encumbrances, Liens and Royalties

At the El Morro project, 2,216 hectares of mining concessions are held through five purchase option agreements, two of which were executed by the Company and three of which were executed as a group by Falconbridge. Since September 1999, all payments pursuant to the purchase option agreements have been made by Falconbridge or Xstrata pursuant to the earn-in requirement under the El Morro Agreement. The option agreements are summarized below.

1) Minera Metallica Limitada and BHP Chile S.A. Purchase Option Agreement – BHP Option

In July 2003 the Company and Falconbridge exercised an option to acquire certain mining exploitation concessions from BHP for $1.7 million. The underlying concessions are referred to as the BHP concessions and have a combined area of 1,849 hectares. BHP retained a 2% NSR royalty on any mining that occurs on the BHP mining concessions. In December 2004, the Company and Falconbridge acquired the 2% NSR royalty from BHP for $2.0 million. The Company acquired a 30% interest in the royalty for $0.6 million and Falconbridge acquired a 70% interest in the royalty for $1.4 million.

2) Minera Metallica Limitada and Rene Martin Jure Purchase Option Agreement - Martin Option

In December 2001 the Company and Falconbridge exercised an option to acquire certain mining exploitation concessions from Rene Martin Jure, on behalf of Legal Mining Companies Cantarito Uno de la Sierra Juntas de Cantarito de la Estancia Huasco Alto and Tronquito uno de la Sierra Portezuelo de Cantarito de la Estancia Huasco Alto (“Martin”), for $1.5 million. The underlying exploitation concessions are referred to as the Cantarito and Tronquito mining properties and have a combined area of approximately 305 hectares. Martin has retained a 2% NSR royalty on any mining that occurs on the Cantarito and Tronquito mining concessions.

3) Falconbridge Chile Limitada and Santiago del Carmen Cayo Salinas, Luis Alberto Cayo Salinas and Johnny Cayo Salinas Purchase Option Agreements – Cayo Options

During 2001 and 2002, Falconbridge exercised three option agreements with the shareholders of Santa Julia Uno de la Sierra Fortuna, to acquire certain mining exploitation concessions held by Santa Julia Uno de la Sierra Fortuna for $85,000. The underlying concessions are referred to as the Santa Julia concessions and have a combined area of 61 hectares. Payments of $133,333 are due to each of the three shareholders of Santa Julia Uno de la Sierra Fortuna within two years of commencement of mining on the Santa Julia concessions.

Environmental Permitting

The National Environmental Committee (CONAMA) and Regional Environmental Committees (COREMAs) are the regulatory agencies responsible for environmental compliance in Chile. Environmental permit applications for both exploration and mine development projects are assessed through the Environmental Impact Evaluation System (SEIA) managed by CONAMA. The level of assessment required for a project can be either an Environmental Impact Assessment (EIA) or an Environmental Impact Declaration (DIA).

An EIA in Chile is broadly comparable to an EIA issued under international guidelines. It is typically required for a more advanced project if the project is expected to produce certain specified environmental impacts. A DIA, on the other hand, is a document that establishes that a project will comply with current norms and environmental standards via a description of the project and its surrounding environment and is typically required for a less advanced project.

The El Morro project will require an EIA prior to commencement of project construction and development.  It typically takes up to a year to receive an EIA after the application is submitted to CONAMA.  The EIA, if approved, typically contains various environmental conditions that must be met during the life of the mine.  The El Morro project will also require various site specific licenses and permits after the EIA has been granted.    

Water rights are a sensitive issue in arid regions of Chile.  Xstrata has not yet acquired the water rights that will be required for the project.  Various options are being investigated that include the purchase or lease of water rights, or the construction of a desalination facility.     

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Geology

The El Morro project is located along the Eocene-Oligocene porphyry copper belt of northern Chile, host to some of Chile’s most prolific mining districts. Major mines along the belt include Collahuasi, Quebrada Blanca, Chuquicamata, La Escondida, El Salvador and Potrerillos. The El Morro project is located along a southern extension of the belt and represents one of the newest porphyry copper occurrences under development in Chile today. Mineral resources within the El Morro project area have so far been defined in the La Fortuna and the namesake El Morro areas.

La Fortuna is a classic copper-gold porphyry deposit. Mineralization occurs within and around a vertical cylinder-shaped igneous intrusive body (“porphyry stock”) of granodioritic to dioritic composition that has been emplaced at a major fault intersection within a sequence of older volcanic and sedimentary rocks. Copper-gold mineralization occurs within a well-developed system of cross-cutting veins (“stockwork”) containing pyrite, magnetite and variable amounts of copper-bearing sulfide minerals that include chalcopyrite, bornite, and chalcocite. Molybdenum content at La Fortuna is negligible. The deposit consists of an upper oxidized zone of barren to weak “leached” copper-gold mineralization, an intermediate zone secondarily enriched copper sulfides (“supergene blanket”) and associated gold mineralization, and a deep zone of primary “hypogene” copper-gold sulfides. Potentially economic portions of the La Fortuna mineral resource occur entirely within the secondary supergene and primary hypogene sulfide zones.

The El Morro deposit consists of disseminated and stockwork copper-gold sulfide mineralization hosted entirely within a sequence of volcanoclastic sedimentary rocks. Although a porphyry intrusive source to the mineralization is strongly suspected, drilling to date has so far not identified one. The deposit consists of an upper oxidized and barren leached cap, an intermediate supergene enrichment blanket of secondary chalcocite and pyrite, and a lower zone of primary pyrite-chalcopyrite mineralization.  

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Exploration

Initial exploration work on the El Morro project has principally involved a combination of geological mapping, geochemical sampling and geophysical surveys aimed at defining targets for follow-up exploratory drilling. Later drilling programs have focused on testing the outer limits of the La Fortuna deposit and elevating the resource classification to measured and indicated status.  Exploration drilling at El Morro has included programs conducted by BHP in 1993 and 1994, by the Company 1999, by Falconbridge from 2000 to 2005, and by Falconbridge – Xstrata in 2006. These programs are summarized below in Table H.

La Fortuna Area

Copper porphyry exploration in the La Fortuna area began in 1993 when BHP conducted a geophysical surveys and reconnaissance drilling program that encountered geochemically anomalous but sub-economic copper and gold mineralization.  During the spring of 1999, Metallica initiated a four-hole drilling program totaling 908 meters at La Fortuna that encountered sub-economic metal values. In early 2000, Falconbridge returned to the area and drilled four core holes totaling 1,160 meters.  In November 2000 and continuing into early 2001, Falconbridge initiated a major drilling campaign in the La Fortuna area that resulted in the completion of 21 core holes totaling 9,385 meters, confirming the discovery and partially delineating the limits of copper-gold mineralization within and around the La Fortuna porphyry stock. In 2002, twenty-one additional core holes totaling 9,786 meters were completed to further delineate the limits of the deposit. One hole, DDHF-39, intercepted 970 meters averaging 0.65% copper and 0.53 grams per tonne gold over its entire vertical length, providing further evidence of the robust character of the La Fortuna mineralizing system.

In 2005 Falconbridge resumed drilling at La Fortuna in order to improve the definition of higher-grade portions of secondary copper enrichment zone and the underlying primary sulfide zone. Twenty-three infill holes totaling 9,932 meters were completed, increasing the drill hole density within the upper 450 meters of the deposit to an average drill hole spacing of approximately 100 meters.

Falconbridge and Xstrata completed a 72-hole, 27,102 meter drilling program in mid-2006 that approximately doubled the density of drill hole information in the La Fortuna deposit over the previous year. As it is currently defined, the La Fortuna mineral resource measures approximately 1,000 by 650 meters in surface area and approximately 700 to 750 meters in vertical depth. Deep exploration drilling has intercepted significant copper-gold mineralization to a depth of 970 meters, more than 200 meters below the bottom of currently defined mineral resources.

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In September 2006, Xstrata reported an updated mineral resource estimate for the La Fortuna deposit, summarized in Table I below. Golder Associates, acting as an independent third party for Xstrata, was responsible for the development of the 3D geological model of the La Fortuna deposit used for the 2006 mineral resource estimate. Golder has also reviewed the grade estimation procedures and resource classification criteria applied by Xstrata, and confirmed that the geostatistical grade estimation was carried out to a suitable standard and that the resource model is appropriate for the estimation of Mineral Resources.

In December 2006, Xstrata completed a 9-hole 6,208 meter drilling program to provide additional confirmation of the continuity of high grade copper-gold mineralization in the core of the La Fortuna porphyry stock, improve delineation of deep inferred resources and test the extent of secondary supergene copper mineralization along the northern limits of the La Fortuna resource. The results of this drilling program are being incorporated into an updated resource estimate that will be part of the feasibility study for the project that is expected to be completed in April 2008.  The La Fortuna deposit remains open at depth.

Drill core sample preparation, analysis and security procedures for the project since 1999 have been done according to accepted industry methods and standards, with all work beginning in 2002 following rigorous quality assurance and control (QA/QC) procedures conforming to Six Sigma process control protocols established by Falconbridge, and which continue to be maintained by Xstrata. Sample analyses have been done by independent assay laboratories, all of which are located in Chile. Laboratories contracted to do this work include Bondar Clegg from 1999 through 2002, ACME Analytical Laboratories in 2005, and ACTLABS CHILE S.A. from 2006 to the present. Independent check assays have been performed by ALS Chemex Laboratories in Canada from 2000 through 2006. All drill core analyses performed since 2000 have included the use of internal blanks and Gannet, Canmet and Rocklab certified standards. The analytical methods used are geochemical analysis for copper and fire assay with atomic absorption finish for gold. ACTLABS CHILE is certified by ISO 9001:2000 standards.

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El Morro Area

From 1997 through 1998, the Company began exploring the El Morro area, which subsequently became the project’s namesake. In early 1999, the Company drilled seven widely spaced reverse circulation holes totaling 1,547 meters to test a coincident geochemical and geophysical anomaly. One hole, RDM-2, intercepted 192 meters averaging 0.64% copper, 0.22 g/t gold and 148 ppm molybdenum from 76 to 268 meters. In April 1999, the Company followed up these results with a 500-meter deep core hole, DDHM-1, which was drilled to twin the mineralized intercept encountered in hole RDM-2 and explore for additional mineralization at depth. The copper and gold assays for DDHM-1 confirmed the results of reverse circulation hole RDM-2, and encountered additional anomalous copper-gold mineralization to the bottom of the hole.

In early 2000, Falconbridge drilled 11 core holes totaling 2,949 meters in the El Morro area. Although Falconbridge’s drilling did not intercept the grades or widths of the Company’s discovery hole RDM-2, the drilling did intercept persistent secondary copper mineralization grading in the range of 0.20% to 0.50% copper over widths ranging from 75 to 200 meters. Perhaps more significantly, Falconbridge reported that drilling had so far not intersected any mineralized porphyry intrusive rocks, but only mineralized volcanoclastic sedimentary rocks, which it considered to be a good indication for the presence of a buried mineralized porphyry in the area.

In 2002 Falconbridge drilled 3 additional reverse circulation holes totaling 1,094 meters in the El Morro area.  At the end of 2002, a total of 12 core holes totaling 3,449 meters and 10 reverse circulation holes totaling 2,641 meters had been drilled in the El Morro area.

In January 2004, Falconbridge presented the Company with an inferred mineral resource estimate for the El Morro deposit, calculated in accordance with CIM Definitions on Mineral Resources and Mineral Reserves. The results of this mineral resource estimate are summarized in Table J.

The El Morro deposit inferred mineral resource estimate is based on 22 diamond and reverse circulation drill holes totaling 6,090 meters that have been drilled on approximately 200-meter centers over an area measuring approximately 1.2 kilometers by 1.2 kilometers in plan, and to a vertical depth of approximately 525 meters.  The El Morro deposit is not fully delineated and remains open to the west, northwest and east, and possibly at depth.

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All drill core samples for the inferred resource estimate were assayed by ALS Chemex (Chile) S.A., an independent laboratory located in Coquimbo, Chile. Gannet certified standards were used to ensure assay quality. The analytical method was assay analysis for the copper and fire assay with an atomic absorption finish for the gold values. Falconbridge’s Drill Core Sampling and Analysis Protocols, developed through Falconbridge’s Six Sigma process, were employed to ensure quality assurance and quality control. Geoanalitica, another independent laboratory located in Coquimbo, Chile analyzed selected bulk rejects and pulps as part of the quality assurance program.

Cantarito, El Negro and Other Target Areas

Approximately 12,900 meters in 58 holes have been drilled to date to test other exploration target areas at the El Morro project. These targets include Cantarito, El Negro as well as other areas. Although some of this drilling has encountered encouraging mineralization that may merit further exploration in the future, drilling to date in these areas has so far failed to confirm sufficient continuity of mineralization to define a mineral resource.

2008 Work Program

Xstrata is currently revising the feasibility study for the El Morro project in order for it to comply with third party lending standards.  Upon receipt of the amended feasibility study, which is expected in April 2008, the Company will be obligated to pay its 30% share of all ongoing project development costs.  The Company has an agreement with Xstrata whereby Xstrata will finance, at the Company’s election, 70% of the Company’s 30% share of project development costs at Xstrata’s cost of financing plus 100 basis points.  Xstrata will be repaid through 80% of the Company’s share of future project cash flow.  Xstrata has not yet submitted a proposed 2008 budget for the project.

The Company is also working with Xstrata to finalize a shareholder agreement for the El Morro project.  

Rio Figueroa Project, Chile

The Rio Figueroa exploration project is located approximately 80 kilometers southeast of Copiapó, Chile, and occurs within the Eocene-Oligocene porphyry belt that is host to some of Chile’s most prolific copper mining districts (Figure 4). The project property position totals 74 square kilometers and centers on a cluster of porphyry intrusive centers that host geochemically significant levels of copper and gold mineralization. The Rio Figueroa project property currently consists of 25 square kilometers of mineral exploitation concessions held under a purchase option agreement and 49 square kilometers of exploration concessions that are 100% owned by the Company. Property access via the Refugio mine road and the potential for future infrastructure is considered excellent. Local elevations are moderate for the Chilean Andes, ranging from 3,000 to 4,200 meters.  Rio Figueroa is characterized as an early stage exploration project with no mineral resources having yet been defined.

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Option Agreements

In September 2004, the Company entered into an option agreement with Sociedad Contractual Minera Los Potrillos (“Potrillos Option”) to purchase a 100% interest in mineral exploitation concessions of a copper-gold exploration project referred to as the Rio Figueroa project. The Potrillos Option agreement provides for the Company to make annual option payments totaling $3.5 million over a five-year period, and to incur exploration expenditures over a three-year period totaling $1.5 million beginning September 2004 (Table K). The Potrillos Option also provides for a 1.5% NSR royalty against any future production from the Potrillos property, and a 2% NSR royalty against any future production from three exploitation concessions owned by Chilean state mining company Empresa Nacional de Mineria (ENAMI) and included under the Potrillos Option agreement. ENAMI also administers the Potrillos Option on behalf of the underlying owners.

As of December 31, 2007, the Company had made option payments totaling $0.9 million and had incurred in excess of $1.5 million in qualifying exploration expenditures, the minimum required under the Potrillos Option agreement.

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Environmental Permitting

The National Environmental Committee (CONAMA) and Regional Environmental Committees (COREMAs) are the regulatory agencies responsible for environmental compliance in Chile. Environmental permit applications for both exploration and mine development projects are assessed through the Environmental Impact Evaluation System (SEIA) managed by CONAMA. The level of assessment required for a project can be either an Environmental Impact Assessment (EIA) or an Environmental Impact Declaration (DIA).

An EIA in Chile is broadly comparable to an EIA issued under international guidelines. It is typically required for a more advanced project if the project is expected to produce certain specified environmental impacts. A DIA, on the other hand, is a document that establishes that a project will comply with current norms and environmental standards via a description of the project and its surrounding environment and is typically required for a less advanced project. Approval of an EIA or a DIA is provided through a favorable Environmental Qualification Resolution (“RCA”) issued by CONAMA.  The current DIA for the Rio Figueroa project is valid for exploration activities through November 2008.  

Exploration

The Rio Figueroa property was first identified through a regional reconnaissance program by the Company to explore for analogs to the El Morro copper–gold project. A systematic evaluation of the property through geological mapping, geochemical sampling and geophysical surveys was completed in 2004 to identify those areas with the greatest potential for discovery of an economic copper-gold and/or epithermal gold deposit. Based on the results from this work, 40 reverse circulation rotary holes were drilled in early 2005 totaling 7,475 meters in four different porphyry and epithermal targets. The drilling focused on the Quebrada Contrabando porphyry cluster, targeting the Cerro Matta, Quebrada Gold, Rodriguez and Cerro Isla target areas. The best results to date have been returned from the Cerro Matta area.  At the end of 2005 a total of 15 reverse circulation holes totaling 4,834 meters had been drilled in the Cerro Matta area. Ten of the 15 holes at Cerro Matta intercepted anomalous copper-gold mineralization ( > 0.10% copper and/or > 0.10 g/t gold over intervals in excess of 100 meters).

During July and August 2006, a three-hole core drilling program totaling 1,339 meters was completed in the Cerro Matta area. All three holes encountered significant copper-gold mineralization, with the best hole, MRD-2, intercepting 108 meters averaging 0.40% copper and 0.96 g/t gold from 314 to 422 meters within a broader interval averaging 0.42% copper and 0.55 g/t gold over 294 meters from 314 to 608 meters. Drill hole MDH-2 bottomed in copper sulfide mineralization at 608 meters, indicating the Cerro Matta porphyry system remains open at depth.

In 2007, the Company conducted a 3,268-meter six-hole drilling program at the Cerro Matta area to follow-up on copper-gold mineralization intercepted in 2006.  The best results were from hole MDH-8 which intercepted 430 meters from near surface to 450 meters averaging 0.28% copper and 0.25 g/t gold.    

As of December 31, 2007, the Company has capitalized exploration and other expenditures totaling $4.2 million on the Rio Figueroa project.  

2008 Work Program

The Company intends to pursue a joint venture partner to conduct additional exploration work on the project in 2008.     

Alaska Peninsula Project, USA

The Alaska Peninsula project is characterized as an early stage grass roots exploration project. In September 2005, the Company entered into an option agreement with Full Metal Minerals Ltd. (“FMM”) to earn a 65% interest in precious and base metal exploration properties located in Southwest Alaska and the Aleutian Islands.  The Company may increase its interest in individual properties to 70% by completing a pre-feasibility study, and it may further increase its interest in individual properties to 80% by completing a feasibility study.

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The properties comprise mineral rights to a land area in excess of 2,000 square miles (1.4 million acres) and are held 100% by FMM through exclusive option agreements with two native regional corporations, Bristol Bay Native Corporation and The Aleut Corporation.  Surface rights are owned by these two native regional corporations, or by native village corporations. The properties cover a 150 mile section of the Alaskan Peninsula hosting numerous porphyry copper-gold-molybdenum and epithermal gold-silver prospects that have seen limited exploration in the past. Historic production within the property area includes the Apollo-Sitka mines on Unga Island, which were Alaska’s first lode gold mines. More recent activity has included regional reconnaissance programs for copper porphyries during the 1970s and epithermal gold systems during the late 1980s and early 1990s. All of the prospects within the project area are located at or near tidewater, and access to the region is excellent with regular commercial air and marine service from Anchorage and Seattle.

The Company’s total exploration commitment for the project is $4.5 million, plus $0.3 million for option payments to FMM over a five-year period beginning September 2005.  As of December 31, 2007, the Company has incurred qualifying exploration expenditures of approximately $1.7 million and has made option payments to FMM totaling $0.2 million.  The Company has an expenditure commitment on the project for 2008 of approximately $0.4 million.

Exploration activities to date on the property include geological mapping, geochemical sampling and ground magnetics surveys on various target areas identified on the property.  One of the target areas, Bee Creek, included drilling of two reconnaissance core holes in 2006 totaling 641 meters. The best results were from core hole BC06-08 which intercepted 34 meters averaging 0.26% copper, 0.09 g/t gold and 41 ppm molybdenum.  

Hardrock exploration activities are permitted through the State of Alaska Department of Natural Resources Alaska Placer Mining Application (“APMA”).  The Company has submitted 2008 APMA’s for the Bee Creek, Kawisgag and Mallard Duck Bay prospect areas at the Alaska Peninsula project.  Approval of these permits is currently pending.  

In February 2007, the Company was notified that a native village corporation located within The Aleut Regional Corporation had decided not to allow surface rights access for mineral exploration activities on its land.  At December 31, 2006, capitalized costs attributable to this prospect area totaling $0.4 million were written off.  Negotiations to secure access to the contested land are ongoing.  As of December 31, 2007, the Company has capitalized exploration and other expenditures totaling $1.5 million on the Alaska Peninsula project.    

2008 Work Program

In 2008 the Company plans to conduct additional exploration mapping, sampling and geophysical work at the Bee Creek and Kawisgag porphyry prospects to identify areas for possible reconnaissance drill testing in 2009.  Approximately $0.5 million has been budgeted for these activities in 2008.

Liberty Bell Project, Alaska

In July 2007, the Company entered into an exploration agreement with the right to acquire a 100% interest the Liberty Bell gold exploration project in central Alaska.  The agreement provides for the Company to make aggregate advance royalty payments totaling $0.3 million beginning in March 2008, incur exploration expenditures totaling $2.0 million, and deliver a feasibility study by December 31, 2011.  If a feasibility study is not delivered by that time, the agreement may be extended up to four more years by incurring additional advance royalty payments totaling $0.9 million and exploration expenditures totaling $5.5 million from 2012 through 2015. Aggregate holding fees of up to $2.5 million, which will be indexed for inflation, are required to be paid from 2021 through 2026 until commencement of commercial production. The owner retains a sliding scale net smelter return royalty of 0.5% to 4.0% from future production, based on the market price of gold.  

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In January 2008, the Company entered into a 50-year mining lease agreement with the owners of certain Alaskan mining concessions located within the Company’s Liberty Bell project area of interest.  The mining lease agreement provides for an initial payment of $30,000, which was paid in January 2008, a minimum work commitment of $25,000 per year through December 31, 2012, and minimum royalty payments as follows:

In the event that the Company delivers a feasibility study on the property prior to September 1, 2017, the minimum annual royalty payment for all subsequent periods through the end of the lease term will be $100,000 per year.    

The lessor retained a sliding scale net smelter return (“NSR”) royalty from all minerals produced and sold from the claims that ranges from 0.5% at gold prices of $300 or less, to 5.0% at gold prices of $1,000 or more.  Minimum royalty payments are applied to reduce future amounts owed under the NSR royalty.  The Company has an option to convert the sliding scale NSR royalty to a fixed 4% NSR royalty for a payment of $1.0 million within two years of commencement of commercial production.  

The Liberty Bell Gold Project is located 70 air miles southwest of Fairbanks, Alaska and fifteen miles north of the community of Healy, Alaska, in the Bonnifield Mining District, Nenana Recording District, Alaska.  The property consists of 185, 40 and 160 acre State of Alaska mining claims.  Infrastructure for the property is considered excellent with access by a State of Alaska maintained seasonal gravel road.  A 230 kilovolt/40 kilowatt electrical transmission line crosses the property.  

Hardrock exploration activities are permitted through the Department of Natural Resources Alaska Placer Mining Application (“APMA”).  In 2007, the Company obtained a Multi-Year Miscellaneous Land Use Permit for Hardrock Exploration on the property from the State of Alaska, Department of Natural Resources, Division of Mining, Land and Water.  The permit is valid from 2007 through 2009.

Exploration activities on the Liberty Bell project in 2007 included a property wide reconnaissance evaluation to confirm previously identified prospective geology and potential for economic gold mineralization, and an update of the exploration model for the area.  As of December 31, 2007, the Company has capitalized exploration and other expenditures totaling $0.4 million on the Liberty Bell project.    

2008 Work Program

The Company currently intends to drill a minimum of 3,000 meters at the Liberty Bell project in 2008 to test target areas identified during the 2007 field season, at total cost of approximately $1.5 million.

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