Edgar Filing: GLAMIS GOLD LTD

Form 6-K for the month of July, 2006

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

For the month of July, 2006

Commission File Number 001-11648

Glamis Gold Ltd.

(Translation of registrant’s name into English)

5190 Neil Rd., Suite 310, Reno, Nevada 89502

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.


Form 20-F o		Form 40-F þ

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.


Yes o		No þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	GLAMIS GOLD LTD. (Registrant)
Date: July 17, 2006	By:	/s/ Cheryl A. Sedestrom
		Cheryl A. Sedestrom
		Chief Financial Officer

BUSINESS ACQUISITION REPORT

1.		Identity of Company

1.1		Name and Address of Company

The Company’s full name is Glamis Gold Ltd. The Company’s principal business office is located at 5190 Neil Road, Suite 310, Reno, Nevada, U.S.A. 89502. The Company has a registered and records office at 1500 Royal Centre, 1055 West Georgia Street, Vancouver, B.C. V6E 4N7.

1.2

Executive Officer

An executive officer of the Company who is knowledgeable about the significant acquisition described herein and this report is:

Charles A. Jeannes, telephone (775) 827-4600, Ext. 3107.

2.		Details of Acquisition

2.1		Nature of Business Acquired

The Company acquired all of the issued and outstanding common shares of Western Silver Corporation (“Western”). The principal business of Western has been mining exploration and the initial development of mining properties. Through the acquisition the Company acquired all of Western’s principal mineral properties located in Mexico.

2.2

Date of Acquisition

The acquisition of Western Silver was completed on May 3, 2006.

2.3

Consideration

The Company issued 33,881,532 common shares as consideration for the acquisition of all of the issued and outstanding shares of Western and reserved 1,385,055 common shares for issuance upon the exercise of share purchase options that were issued to the holders of Western Copper share purchase options.

2.4

Effect on Financial Position

The Company has no plans for proposals for material changes in its business affairs or the affairs of Western which may have a significant affect on the results of operations and financial position of the Company.

2.5

Prior Valuations

There were no valuation opinions obtained by Western or the Company with respect to the acquisition of Western by the Company.

-2-

2.6

Parties to the Transaction

The acquisition was made through a plan of arrangement involving all of the shareholders of Western. At the time of the acquisition the Company held no securities of Western.

2.7

Date of Report

This report is dated July 14, 2006.

Financial Statements

Enclosed with this report are the following financial statements:

(a) audited financial statements of Western for the years ended September 30, 2005 and September 30, 2004 including the auditor’s report thereon;

(b) unaudited financial statements of Western for the three months and six months ended March 31, 2006 and the notes thereto; and

(i) pro-forma balance sheet as at March 31, 2006;

(ii) pro-forma income statements for the three months ended March 31, 2006 and the year ended December 31, 2005 that give effect to the acquisition as if it had occurred on January 1, 2005; and

(iii) a compilation report.

Western Silver Corporation

(an exploration stage company)

Consolidated Financial Statements
September 30, 2005, 2004, and 2003
(expressed in Canadian dollars)

Management’s Responsibility for Financial Reporting

The accompanying consolidated financial statements of the company have been prepared by management in accordance with accounting principles generally accepted in Canada which have been reconciled to accounting principles generally accepted in the United States as set out in note 13, and contain estimates based on management’s judgment. Management maintains an appropriate system of internal controls to provide reasonable assurance that transactions are authorized, assets safeguarded, and proper records maintained.

The Audit Committee of the Board of Directors has met with the company’s auditors to review the scope and results of the annual audit and to review the consolidated financial statements and related financial reporting matters prior to submitting the consolidated financial statements to the Board of Directors for approval.

The company’s auditors, PricewaterhouseCoopers LLP, are appointed by the shareholders to conduct an audit in accordance with Canadian and United States generally accepted auditing standards, and their report follows.


“R. Joseph Litnosky”		“F. Dale Corman”

R. Joseph Litnosky		F. Dale Corman
Vice President, Finance		Chief Executive Officer

December 22, 2005

PricewaterhouseCoopers LLP
Chartered Accountants
PricewaterhouseCoopers Place
250 Howe Street, Suite 700
Vancouver, British Columbia
Canada V6C 3S7
Telephone +1 604 806 7000
Facsimile +1 604 806 7806

AUDITORS’ REPORT

To the Shareholders of Western Silver Corporation

We have audited the consolidated balance sheets of Western Silver Corporation (an exploration stage company) as at September 30, 2005 and 2004 and the consolidated statements of loss and deficit, cash flows and shareholders’ equity for the years ended September 30, 2005, 2004 and 2003. These consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at September 30, 2005 and 2004 and the results of its operations and its cash flows for the years ended September 30, 2005, 2004 and 2003 in accordance with Canadian generally accepted accounting principles.

(signed) PricewaterhouseCoopers LLP

Chartered Accountants
Vancouver, B.C.
November 14, 2005

PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Western Silver Corporation

(an exploration stage company)
Consolidated Balance Sheets

(expressed in Canadian dollars)


As at September 30,	2005			2004
	$			$
Assets

Current assets
Cash and cash equivalents (note 9)		60,513,188			13,528,534
Accounts receivable and prepaid expense		1,093,748			693,521


		61,606,936			14,222,055

Long-term investment (note 3)		267,092			267,092

Property, plant and equipment — net of accumulated amortization of $17,313 (2004 — $4,537)		116,630			44,794

Mineral properties (note 4)		56,968,576			43,194,729


		118,959,234			57,728,670


Liabilities

Current liabilities
Accounts payable and accrued liabilities		2,924,940			1,509,410


Shareholders’ Equity

Capital stock (note 5)
Authorized
Unlimited common shares

Issued and outstanding
48,298,581 (2004 — 41,241,581) common shares		143,273,203			79,249,498

Value assigned to stock options and warrants (note 5)		5,805,078			3,853,483

Deficit		(33,043,987	)		(26,883,721	)


		116,034,294			56,219,260


		118,959,234			57,728,670

Nature of operations (note 1)

Contract commitments (note 7)

Subsequent event (note 14)

Approved by the Board of Directors


“Robert J. Gayton”	Director	“Klaus Zeitler”	Director

The accompanying notes are an integral part of these consolidated financial statements.

Western Silver Corporation

(an exploration stage company)
Consolidated Statements of Loss and Deficit

(expressed in Canadian dollars)


For the years ended September 30,	2005			2004			2003
	$			$			$
General exploration expenditures		881,289			49,872			20,005

Impairment of mineral properties (note 4)		1,849,259			4,020,565			329,503


		2,730,548			4,070,437			349,508


Administrative expenses
Accounting and legal		307,601			212,645			159,735
Capital taxes		—			—			9,551
Consulting		750,235			387,840			381,046
Filing and transfer fees		223,883			181,089			176,262
Foreign exchange		121,426			23,741			(26,569	)
Office and administration		1,309,045			469,502			252,645
Shareholder communications and travel		585,567			534,359			350,644
Stock-based compensation (note 5(e))		1,486,405			3,698,659			269,257


		4,784,162			5,507,835			1,572,571


Loss before interest income		(7,514,710	)		(9,578,272	)		(1,922,079	)


Interest income		1,354,444			244,988			82,098


Loss for the year		(6,160,266	)		(9,333,284	)		(1,839,981	)

Deficit — Beginning of year		(26,883,721	)		(17,550,437	)		(15,710,456	)


Deficit — End of year		(33,043,987	)		(26,883,721	)		(17,550,437	)


Basic and diluted loss per common share		(0.13	)		(0.24	)		(0.06	)


Weighted average number of common shares outstanding		46,569,864			39,192,449			33,087,922

The accompanying notes are an integral part of these consolidated financial statements.

Western Silver Corporation

(an exploration stage company)
Consolidated Statements of Cash Flows

(expressed in Canadian dollars)


For the years ended September 30,	2005			2004			2003
	$			$			$
Cash flows provided by (used in)

OPERATING ACTIVITIES
Loss for the year		(6,160,266	)		(9,333,284	)		(1,839,981	)

Items not affecting cash
Impairment of mineral properties		1,849,259			4,020,565			329,503
Amortization		12,776			3,674			541
Stock-based compensation		1,486,405			3,698,659			269,257

		3,348,440			7,722,898			599,301

Change in non-cash working capital		(112,196	)		(463,237	)		(98,795	)


		(2,924,022	)		(2,073,623	)		(1,339,475	)


FINANCING ACTIVITIES
Shares issued for cash – net of costs		63,323,646			20,071,050			7,603,438


INVESTING ACTIVITIES
Purchase of property, plant, and equipment		(84,612	)		(46,629	)		—
Mineral properties expenditures		(13,330,358	)		(7,166,302	)		(7,639,729	)
Exploration commitments		—			—			(348,821	)
Restricted cash and securities		—			—			348,821

		(13,414,970	)		(7,212,931	)		(7,639,729	)


Increase (decrease) in cash and cash equivalents		46,984,654			10,784,496			(1,375,766	)

Cash and cash equivalents — Beginning of year		13,528,534			2,744,038			4,119,804


Cash and cash equivalents — End of year		60,513,188			13,528,534			2,744,038

Supplemental cash flow information (note 9)

The accompanying notes are an integral part of these consolidated financial statements.

Western Silver Corporation

(an exploration stage company)
Consolidated Statements of Shareholders’ Equity

(expressed in Canadian dollars)


								Value
	Common							assigned to
	shares							stock options			Total
	Number of				Cumulative			and			shareholders’
	shares		Amount		deficit			warrants			equity
			$		$			$			$
Balance — September 30, 2002		30,984,048		51,460,577		(15,710,456	)		—			35,750,121

Issue of shares
Private placements		415,616		1,384,000		—			—			1,384,000
Exercise of warrants		2,303,417		3,367,636		—			—			3,367,636
Exercise of stock options		1,481,000		2,851,802		—			—			2,851,802
Options granted to consultants		—		—		—			269,257			269,257
Loss for the year		—		—		(1,839,981	)		—			(1,839,981	)


Balance — September 30, 2003		35,184,081		59,064,015		(17,550,437	)		269,257			41,782,835

Issue of shares
Private placements		2,400,000		11,268,930		—			—			11,268,930
Exercise of warrants		2,190,000		5,477,200		—			—			5,477,200
Exercise of stock options		1,467,500		3,022,900		—			—			3,022,900
Stock options		—		—		—			3,698,659			3,698,659
Value assigned to warrants issued to agents as stock issuance fees		—		—		—			302,020			302,020
Transfer of value on exercise of stock options/warrants		—		416,453		—			(416,453	)		—
Loss for the year		—		—		(9,333,284	)		—			(9,333,284	)


Balance — September 30, 2004		41,241,581		79,249,498		(26,883,721	)		3,853,483			56,219,260

Issue of shares
Private placements		6,325,000		60,414,626		—			—			60,414,626
Exercise of warrants		120,000		693,600		—			—			693,600
Exercise of stock options		612,000		2,215,420		—			—			2,215,420
Stock options		—		—		—			2,651,654			2,651,654
Transfer of value on exercise of stock options/warrants		—		700,059		—			(700,059	)		—
Loss for the year		—		—		(6,160,266	)		—			(6,160,266	)


Balance — September 30, 2005		48,298,581		143,273,203		(33,043,987	)		5,805,078			116,034,294

The accompanying notes are an integral part of these consolidated financial statements.

1		Nature of operations

		Western Silver Corporation (the Company) is an exploration stage company that is incorporated under the British Columbia Business Corporations Act and is engaged directly, and through joint ventures and subsidiaries, in exploring the future development of mineral properties in Mexico and Canada. The recoverability of the amounts shown for mineral property assets is dependent upon the existence of economically recoverable reserves, securing and maintaining title and beneficial interest in the properties, and the ability of the Company to obtain the necessary financing to continue the exploration and future development of its mining properties, or realizing the carrying amount through a sale.

2		Significant accounting policies

		Principles of consolidation

		These consolidated financial statements include the accounts of Western Silver Corporation and its wholly owned subsidiaries, as listed below. All material intercompany transactions and balances have been eliminated.

Western Copper International Ltd. (BVI)
WCI (Peñasquito) Limited (BVI)
Minera Peñasquito, S.A. de C.V. (Mexico)
WCI (Nicolas) Limited (BVI)
Minera Western Copper, S.A. de C.V. (Mexico)
Minera Faja de Plata Limited, (BVI)
Minera Faja de Plata, S.A. de C.V. (Mexico)
WCI (Geronimo) Limited (BVI)
WCI Jeronimo Mexico, S.A. de C.V. (Mexico)
Carmacks Copper Ltd.

		Western Silver Corporation has mineral properties that it operates through interests in joint ventures where the Company shares joint control. These joint ventures are accounted for using the proportionate consolidation method.

		Use of estimates

		The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes. Significant areas where management’s judgement is applied include the calculation of net present value of mineral properties, the realization of future income tax benefits, and the assumptions used to calculate stock-based compensation and the value assigned to warrants. Actual results could differ from those reported by a material amount.

		Cash and cash equivalents

		Cash and cash equivalents comprise cash and short-term investments at banks with original maturities of three months or less from the date of acquisition.

		Long-term investments

		Long-term investments are categorized as available for sale and valued at cost unless there has been an other than temporary impairment in value, in which case they are written down to net realizable value.

		Property, plant, and equipment

		Plant, property and equipment are carried at cost less accumulated amortization. Amortization is provided on a straight-line basis over the estimated useful lives of the assets.

		Mineral properties

		The Company records its interest in mineral properties at cost. Exploration and development expenditures relating to properties that have indicated economically recoverable reserves or significant mineralization requiring additional exploration, as well as interest and costs to finance those expenditures, are deferred and will be amortized against future production following commencement of commercial production, or written off if the properties are sold, allowed to lapse, abandoned, or become impaired.

		Option payments are made at the discretion of the optionee and, accordingly, are accounted for on a cash basis.

		Management of the Company reviews the net carrying value of each mineral property when events or changes in circumstances indicate that the carrying amount may not be recoverable. Where information is available and conditions suggest impairment, estimated future net cash flows from each property are calculated using estimated future prices, reserves and resources, and operating, capital and reclamation costs on an undiscounted basis. If the net carrying value of the property exceeds the estimated future net cash flows, the property will be written down to the fair value as determined by using discounted cash flows.

		Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses whether carrying value can be recovered. This assessment may be estimated by using quantifiable evidence of a geological resource or reserve or the Company’s assessment of its ability to sell the property for an amount greater than the carrying value.

		Management’s estimates of mineral prices, recoverable proven and probable reserves and resources, and operating, capital and reclamation costs are subject to certain risks and uncertainties which may affect the assessment of recoverability of mineral property costs. Although management has made its best estimate of these factors, it is possible that changes could occur in the near term which could have a material adverse effect on the estimate of future net cash flows to be generated from the properties.

		The acquisition of title to mineral properties is a detailed and time-consuming process. The Company has taken steps, in accordance with industry standards, to verify title to mineral properties in which it has an interest. Although the Company has taken reasonable precautions to ensure that legal title to its properties is properly recorded in the name of the Company, there can be no assurance that such title will ultimately be secured.

		Loss per common share

		Loss per share is calculated based on the weighted average number of common shares issued and outstanding during the year. The effect of potential issuances of shares under options and warrants would be anti-dilutive, and therefore basic and diluted losses per share are the same.

		Translation of foreign currency

		The accounts of certain of the Company’s subsidiaries are translated into Canadian dollars using the temporal method of translating integrated operations. The temporal method is consistent with the method used by the Canadian operation to translate its foreign currency transactions.

		Monetary assets and liabilities are translated into Canadian dollars using year-end exchange rates. Non-monetary items are translated at rates prevailing at acquisition or transaction date. Expense items are translated into Canadian dollars at the rate of exchange in effect at the date of the related transaction. All exchange gains or losses arising on translation are included in results of operations for the year.

		Stock-based compensation

		Effective October 1, 2003, pursuant to the amendments to the CICA standard on accounting for stock-based compensation, the fair value of all stock options granted by the Company to employees, and non-employees, are treated as compensation costs. These costs are charged to the statement of loss, or are capitalized, over the vesting period of the stock options granted. The Company’s allocation of stock-based compensation is consistent with its treatment of other types of compensation. The value of stock-based compensation awards is determined by using the Black-Scholes option pricing model. The standard was adopted on a prospective basis in 2004.

		Prior to 2004, stock options granted to employees and directors were shown on a pro-forma basis only. The granting of stock options to non-employees was required to be accounted for using the fair value method.

		Income taxes

		The Company uses the liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are recognized for temporary differences between tax and accounting basis of assets and liabilities. Future income tax assets or liabilities are calculated using the tax rates anticipated to apply in the periods that the temporary differences are expected to reverse. Future income tax assets are recognized to the extent that they are considered more likely than not to be realized.

Long-term investment


	2005
	Number of		Net book
	shares		value		Market value
			$		$
Quaterra Resources Inc. Common shares		1,498,460		267,092		516,969


	2004
	Number of		Net book
	shares		value		Market value
			$		$
Quaterra Resources Inc. Common shares		1,498,460		267,092		644,338

The Company has officers and directors in common with Quaterra Resources Inc.

Mineral properties


			Costs		Disposition/					Costs		Disposition/
	Total costs to		incurred		write-offs			Total costs to		incurred		write-offs			Total costs to
	September 30,		during		during			September 30,		during		during,			September 30,
	2003		2004		2004			2004		2005		2005			2005
	$		$		$			$		$		$			$
Mexico

Faja de Plata
Peñasquito

Acquisition		13,872,012		241,966		—			14,113,978		592,100		—			14,706,078

Exploration		6,707,198		5,963,778		—			12,670,976		9,975,647		—			22,646,623
Feasibility studies		323,702		1,245,878		—			1,569,580		4,690,852		—			6,260,432

San Jeronimo		1,701,243		24,646		(1,725,889	)		—		—		—			—

Ramos		2,268,173		26,503		(2,294,676	)		—		—		—			—


		24,872,328		7,502,771		(4,020,565	)		28,354,534		15,258,599		—			43,613,133


El Salvador
Acquisition		1,889,672		—		—			1,889,672		—		—			1,889,672
Exploration

El Salvador		2,424,236		39					2,424,275		—		—			2,424,275

San Nicolas		4,312,095		198,730					4,510,825		181,922		—			4,692,747

Tamara		1,849,259		—					1,849,259		—		(1,849,259	)		—


		10,475,262		198,769		—			10,674,031		181,922		(1,849,259	)		9,006,694


Almoloya

Acquisition		25,443		57,283		—			82,726		53,431		—			136,157
Exploration		40,020		2,132		—			42,152		14,346		—			56,498


		65,463		59,415		—			124,878		67,777		—			192,655

Bacanora

Acquisition		3,555		7,104		—			10,659		6,432		—			17,091

Exploration		30,627		—		—			30,627		8,376		—			39,003


		34,182		7,104		—			41,286		14,808		—			56,094

Canada
Carmacks

Acquisition		4,000,000		—		—			4,000,000		100,000		—			4,100,000


		39,447,235		7,768,059		(4,020,565	)		43,194,729		15,623,106		(1,849,259	)		56,968,576

Faja de Plata

Peñasquito

Effective June 28, 2001, the Company’s interest in Peñasquito, through its subsidiary Minera Peñasquito, S.A. de C.V., reverted back to 100% following the termination of an option agreement with Mauricio Hochschild & Cia. Ltda. (Hochschild). During the term of the agreement, Hochschild, besides incurring exploration expenditures, made a US$500,000 land purchase payment, leaving two such payments to be made by the Company.

The Company negotiated a deferral of the remaining Peñasquito property payments, and US$621,000 was paid on July 3, 2002 and a further US$654,000 was paid on July 3, 2003. These payments represent the major portion of the total Peñasquito acquisition costs incurred during 2002 and 2003, respectively.

On November 11, 2005, the Company released an independent feasibility study relating to its wholly owned Peñasquito property. Refer to the Subsequent Event note (note 14) for more information.

Kennecott Exploration Company (Kennecott) retains an uncapped royalty on Peñasquito of 2%. Minera Catasillas also retains a 3% NSR royalty on 100 hectares centered on Peñasco, which the Company can buy out at any time for US$5 million. The Minera Catasillas royalty would include production from Peñasco but not from Chile Colorado.

ii)

San Jeronimo

The Company, through its subsidiary WCI Jeronimo Mexico, S.A. de C.V., signed a definitive agreement dated August 24, 2000 with Hochschild, whereby Hochschild could earn a 68% interest in San Jeronimo by making exploration expenditures totalling US$1.75 million over the next three years.

On July 10, 2001, Hochschild terminated its option to earn the 68% interest. As a result, the Company’s interest in San Jeronimo reverted back to 100% effective September 8, 2001.

Effective June 1, 2002, the Company and Apex Silver Mines Limited (Apex) entered into an agreement whereby Apex had an option to earn a 70% interest in the property by making US$45,000 in option payments to the Company, and making all underlying option and tax payments on the property through March 2005. The underlying option payments totalled US$1,180,000.

As at September 28, 2004, Apex terminated the agreement after drilling six core holes. As a result, the Company’s interest in San Jeronimo reverted back to 100% effective September 28, 2004. The Company wrote down the costs associated with the property during fiscal 2004.

Subsequent to September 30, 2005, the Company made a US$25,000 payment to acquire the core claims at San Jeronimo.

Kennecott retains an uncapped royalty on San Jeronimo of 2%.

iii)

Ramos

Minera Teck S.A. de C.V. (Minera Teck) and Minera Western Copper, S.A. de C.V. (Minera Western) formed a joint venture in fiscal 1999 with each having a 55% and 45% interest, respectively, by merging their respective land positions adjacent to the El Salvador joint venture area. During fiscal 2003, Minera Teck agreed to drop its interest in Ramos. Minera Western dropped a portion of Ramos, but retained the most promising portion of the property. After reviewing the results of a drilling program carried out in December 2004, the Company decided to write off the costs associated with the property in fiscal 2004.

El Salvador, San Nicolas and Tamara

The El Salvador, San Nicolas and Tamara properties are located in the state of Zacatecas, Mexico. The Company, through its subsidiary Minera Western, holds the properties as a joint venture with Minera Teck (a subsidiary of Teck Cominco Ltd.), pursuant to a July 1, 1997 agreement. The joint venture has no other significant assets. Minera Western’s proportionate share of the mineral properties is disclosed.

Under this agreement, Minera Western held a 45% interest and Minera Teck held a 55% interest in the joint venture, with each Company being responsible for its share of the exploration costs.

As a result of amendments to the agreement in 1999 and 2000, Minera Teck holds 65% of the shares of Minera Tama, a Mexican corporation formed to hold the properties, and Minera Western holds the remaining 35%. Within the El Salvador project, approximately one-third of the property, including the San Nicolas deposit area, is held 60% by Minera Tama (participating interest) and 40% by Teck Cominco Limited (Teck Cominco) through its acquisition of Sanluis Corporation, S.A. de C.V. (the Sanluis Interest) in the form of a carried interest. On completion of a positive feasibility study, Teck Cominco has the right to elect to convert the Sanluis Interest to a 15% carried interest or a 25% participating interest. The balance of the El Salvador project is held by Minera Tama.

Future funding will be on a Minera Teck 65% — Minera Western 35% basis. Minera Teck retains the right to elect to acquire an additional 10% participating interest by arranging 100% of the financing required to put San Nicolas into production. Depending on the options Minera Teck and Teck Cominco elect to exercise, Minera Western will retain an interest in San Nicolas ranging from 19% to 30%.

The San Nicolas massive sulphide deposit, along with the adjoining El Salvador and Tamara properties, has been on care and maintenance status since 2002. Costs incurred include tenure holding costs, limited drilling and acquisition of small parcels of land.

During 2005, the Company reevaluated its long-term plan for the El Salvador properties and concluded that the Tamara property does not contain economic mineral deposits. The Company does not expect there to be any future cash flow from the property. As a result, all costs associated with the Tamara property were written off.

Almoloya

The Company staked claims at the Almoloya silver prospect, about 45 kilometres northeast of Parral, state of Chihuahua, Mexico.

Pursuant to a letter agreement dated May 22, 2002, the Company and Anglo American Exploration (Canada) Ltd. (Anglo) agreed to combine certain properties held by each company into a single joint venture. During fiscal 2003, Anglo decided to abandon the project. The Company therefore controls all the property formerly included in the joint venture.

On July 28, 2005, the Company and Queenston Mining Inc. signed a letter of intent. Under the agreement Queenston Mining Inc. can earn a 60% interest in the property through staged exploration expenditures of US$1.5 million over a four year period, with minimum expenditures of US$200,000 in the first year. Queenston can earn an additional 15% interest by completing a feasibility study and making a production decision at which time the Company can either elect to contribute 25% of capital expenditures required to achieve production or convert its participating interest to a 15% net profits interest.

Bacanora

In fiscal 2003, the Company entered into an agreement to acquire 100% of the Bacanora property located in the state of Sonora. Further exploration is anticipated.

Carmacks Copper Project

In 1989, the Company acquired 50% of the Carmacks Copper Project, which consists of 232 unpatented mineral claims in the Whitehorse Mining district of the Yukon Territory, Canada. Under an arrangement dated September 30, 1996, the Company acquired the remaining 50% of the Carmacks Copper Project. At the time, the Company was in the process of obtaining the necessary permits to commence commercial production. This process was suspended when copper prices fell below the break-even point for the project and remained at levels for which the project was not economic. Accordingly, in the year ended September 30, 2001, the property was written down to its estimated realizable value of $4,000,000. Deferred acquisition and exploration costs and a deferred gain, totalling $7,902,556, were written off.

The previous owners of the property shall, at the Company’s election, retain either a 15% net profits royalty or a 3% net smelter royalty. The Company is required to make an advance royalty payment of $100,000 for any year in which the average daily copper price reported by the London Metal Exchange is US$1.10 per pound or greater. A payment of $100,000 was made by the Company on December 31, 2004.

The Company has signed a project agreement with the Yukon Government and has recommenced the permitting process. An updated project description has been accepted by the Yukon Government and the assessment process is in progress.

Capital stock

Authorized

Unlimited common shares without par value

Issued


	Number		Amount
	Of shares		$
Balance at September 30, 2002		30,984,048		51,460,577

Pursuant to a private placement at $3.33 per share		415,616		1,384,000
Pursuant to the exercise of warrants		2,303,417		3,367,636
Pursuant to the exercise of stock options		1,481,000		2,851,802


Balance at September 30, 2003		35,184,081		59,064,015

Pursuant to a private placement at $5.15 per share		2,400,000		11,268,930
Pursuant to the exercise of warrants		2,190,000		5,477,200
Pursuant to the exercise of stock options		1,467,500		3,022,900
Transfer of value on exercise of stock options and warrants		—		416,453


Balance at September 30, 2004		41,241,581		79,249,498

Pursuant to a financing at $10.25 per share		6,325,000		60,414,626
Pursuant to the exercise of warrants		120,000		693,600
Pursuant to the exercise of stock options		612,000		2,215,420
Transfer of value on exercise of stock options and warrants		—		700,059


Balance at September 30, 2005		48,298,581		143,273,203

The following summarizes the issuances of capital stock during the year ended September 30, 2005:

	•		The Company received $693,600 from the exercise of 120,000 warrants at an exercise price of $5.78 per warrant.

	•		The Company received $2,215,420 from the exercise of 612,000 stock options at exercise prices ranging from $1.00 to $9.54 per stock option.

	•		The Company received proceeds of $64,831,250, less issuance costs of $4,416,624 from the issuance of 6,325,000 shares through a financing at $10.25 per share.

The following summarizes the issuances of capital stock during the year ended September 30, 2004:

	•		The Company received $5,477,200 from the exercise of 2,190,000 warrants at exercise prices ranging from $1.00 to $5.78 per warrant.

	•		The Company received $3,022,900 from the exercise of 1,467,500 stock options at exercise prices ranging from $1.00 to $4.60 per stock option.

	•		The Company received $11,570,950 (net of cash offering costs of $789,050) from the issuance of 2,400,000 shares through a private placement at $5.15 per share. Warrants were issued as stock issuance fees and assigned a value of $302,020.

The following summarizes the issuances of capital stock during the year ended September 30, 2003:

	•		The Company received $3,367,636 from the exercise of 2,303,417 warrants at exercise prices ranging from $0.65 to $2.00 per warrant.

	•		The Company received $2,851,802 from the exercise of 1,481,000 stock options at exercise prices ranging from $1.00 to $3.28 per stock option.

	•		The Company received $1,384,000 from the issuance of 415,616 shares through a private placement at $3.33 per share.

Warrants

During the year ended September 30, 2004, 240,000 warrants were granted at an average value per warrant of $1.26. The fair value of warrants that were issued in 2004 was $302,020, which was charged against share capital.

A summary of the Company’s warrants outstanding at September 30, 2005, 2004 and 2003, and the changes for the years then ended, is presented below:


				Weighted					Weighted					Weighted
				average					average					average
	September 30,			exercise		September 30,			exercise		September 30,			exercise
	2005			price		2004			price		2003			price
				$					$					$
Balance outstanding — Beginning of year		120,000			5.78		2,070,000			2.31		4,350,340			1.80
Issued		—			—		240,000			5.78		23,077			0.80
Exercised		(120,000	)		5.78		(2,190,000	)		2.50		(2,303,417	)		1.43

Balance outstanding and exercisable — End of year		—			—		120,000			5.78		2,070,000			2.31

There are no warrants outstanding and exercisable as of September 30, 2005.

The value of warrants was based on the following assumptions:


	2004
Average risk-free interest rate		3.30	%
Expected dividend yield		—
Expected stock price volatility		70	%

Expected warrant life in years		1.00

Pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the warrants issued by the Company during the year.

Stock options

Effective April 4, 2005, the shareholders adopted a 10% rolling stock option plan (“Rolling Plan”). All previously existing plans and stock options were incorporated into the Rolling Plan. At any point in time, the Company may issue stock options for the purchase of up to 10% of issued capital. The exercise price of the stock options shall be not less than the market value of the common shares on the last trading day immediately preceding the date of grant. Stock options are fully vested and exercisable in full at the date of grant unless otherwise determined by the directors. The maximum stock option term is 10 years. As at September 30, 2005, the Company can issue an additional 1,868,858 stock options.

A summary of the Company’s stock options outstanding at September 30, 2005, 2004 and 2003, and the changes for the years then ended, is presented below:


				Weighted					Weighted					Weighted
				average					average					average
	September 30,			exercise		September 30,			exercise		September 30,			exercise
	2005			price		2004			price		2003			price
				$					$					$
Balance outstanding — Beginning of year		2,713,000			4.19		3,205,500			1.92		4,111,500			1.68
Granted		860,000			10.25		975,000			8.47		575,000			3.64
Exercised		(612,000	)		3.62		(1,467,500	)		2.06		(1,481,000	)		1.93


Balance outstanding — End of year		2,961,000			6.07		2,713,000			4.19		3,205,500			1.92

As at September 30, 2005, 2,387,667 of the 2,961,000 outstanding stock options were exercisable at a weighted average exercise price of $5.07. As at September 30, 2004, 2,415,500 of the 2,713,000 outstanding stock options were exercisable at a weighted average exercise price of $3.53. All stock options outstanding as at September 30, 2003 were exercisable.


	Options
	outstanding at
	September 30,		Weighted average		Average remaining
Exercise price	2005		exercise price		contractual life
$			$		(years)
1.00 – 1.50		917,500		1.27		1.42
2.00		300,000		2.00		0.35
3.28		38,500		3.28		2.19
6.00 – 7.30		280,000		6.70		3.29
9.54 – 10.25		1,425,000		9.97		4.18


		2,961,000		6.07		2.83

During the year ended September 30, 2005, 860,000 options were granted at an average value per option of $4.82. The fair value of options that vested during 2005 was $2,651,654. Of this amount $1,486,405 was charged to the statement of loss and $1,165,249 was allocated to mineral properties.

During the year ended September 30, 2004, 975,000 options were granted at an average value per option of $4.39. The fair value of options that vested in 2004 was $3,698,659. This amount was charged to the statement of loss.

During the year ended September 30, 2003, the fair value, as determined by the Black-Scholes option pricing model, of options granted to directors and employees that vested was $835,819. The total amount was disclosed as pro forma information only, and was not charged to the statement of loss. Had the fair value of the options been charged to the statement of loss, the pro forma net loss for the year would have been $2,675,800 and the basic and diluted loss per share would have been $0.08.

During the year ended September 30, 2003, the Company also granted options to non-employees. The fair value of these options was $269,257. This amount was charged to the statement loss.

The fair value of stock options granted was based on the following assumptions:


	2005			2004			2003
Average risk-free interest rate		3.27	%		3.28	%		3.70	%
Expected dividend yield		—			—			—
Expected stock price volatility		65	%		70	%		75	%
Expected option life in years		3.58			3.50			3.50

Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options granted and/or vested during the year.

Related party transactions

	a)		Included in accounts payable and accrued liabilities is $nil (2004 — $42,452) owing to companies/proprietorships controlled by directors and officers of the Company.

	b)		Included in accounts receivable is $nil (2004 — $4,751) owed by companies with common directors.

	c)		During the year ended September 30, 2005, the Company incurred:

	i)		$194,413 (2004 — $75,467; 2003 — $72,000) in charges for administrative services and rent from a Company controlled by a director

	ii)		Fees totalling $798,994 (2004 — $328,976; 2003 — $382,938) for financial, corporate, exploration and engineering consulting from directors and officers, and companies controlled by directors and officers of the Company.

During the year ended September 30, 2005, the Company charged rent to one of its directors in the amount of $1,748 (2004 — $nil).

All other related party transactions are disclosed elsewhere in these consolidated financial statements.

Related party transactions are measured at the exchange amount.

7		Contract commitments

		On May 4, 2005, the Company entered into an agreement to sublease office space. The agreement expires October 29, 2009. The total amount of payments remaining during the course of the agreement is $979,128, of which $239,787 is due during the 2006 fiscal year. The remaining $739,341 is due between October 1, 2006 and October 29, 2009.

8		Income taxes

		As at September 30, 2005, the Company has accumulated non-capital losses available for carry-forward of approximately $6,800,000, which will expire between 2006 and 2012. The Company also has available Canadian and foreign Exploration and Development Expenditures of approximately $9,000,000, which are available to reduce future taxable income. In addition, the Company’s Mexican subsidiaries have accumulated tax balances that may give rise to future tax benefits. No future tax benefit has been recognized in the accounts for these losses or accumulated tax balances.

The Company does not have any current or future income tax expense or recovery. This differs from the amounts obtained by applying statutory rates to the loss before provision for income taxes due to the following:


	2005			2004
Statutory tax rate		35.62	%		35.62	%


		$			$
Loss for the year		6,160,266			9,333,284


Recovery of income taxes based on statutory Canadian combined federal and provincial income tax rates		2,194,287			3,324,516
Non-deductible items		(534,279	)		(1,339,784	)
Difference between Canadian and foreign tax rates		(178,973	)		(16,669	)
Losses for which no income tax benefit has been recognized		(1,481,035	)		(1,968,063	)


		—			—

The significant components of the Company’s future tax assets are as follows:


	2005			2004
	$			$
Future income tax assets
Mineral property interests		1,425,340			1,683,199
Operating loss carry-forward		2,428,710			1,740,317
Other					15,040


Benefit from losses		3,895,649			3,438,556
Valuation allowance for future tax assets		(3,895,649	)		(3,438,556	)


		—			—

The realization of income tax benefits related to these future potential tax deductions is uncertain and cannot be viewed as more likely than not. Accordingly, no future income tax asset has been recognized for accounting purposes.

Supplemental cash flow information

Cash and cash equivalents


As at September 30,	2005		2004		2003
	$		$		$
Cash on hand held with banks		6,827,704		2,478,336		2,744,038
Short-term deposits		53,685,484		11,050,198		—


		60,513,188		13,528,534		2,744,038

Changes in non-cash working capital related to operating activities


For the years ended September 30,	2005			2004			2003
	$			$			$
Accounts receivable and prepaid expense		(400,227	)		(499,323	)		(143,538	)
Accounts payable and accrued liabilities		288,031			36,086			44,743

		(112,196	)		(463,237	)		(98,795	)

c) Non-cash financing and investing activities


For the years ended September 30,	2005	2004		2003
	$	$		$
Value assigned to warrants issued to agent as stock issuance costs	—	(302,020	)	—
Change in accounts payable relating to property, plant, and equipment	48,234	—		—
Change in accounts payable relating to mineral properties	1,127,499	601,757		(1,848,700	)
Stock-based compensation capitalized to mineral properties	1,165,249	—		—

10		Segmented information

		Industry information

		The Company operates in one reportable operating segment, being the acquisition, exploration and future development of resource properties.

		Geographic information

		Interest income in the years ended September 30, 2005, 2004 and 2003 was earned in Canada.

		The Company’s non-current assets by geographic location are as follows:


	2005		2004
	$		$
Canada		4,483,722		4,311,886
Mexico		52,868,576		39,194,729


		57,352,298		43,506,615

Financial instruments

	a)		Fair value

			The fair values of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities approximate carrying values because of the short-term nature of these instruments.

			The fair value of the Company’s long-term investment will fluctuate with market prices (note 3). The Company is exposed to a risk of loss if the market price of the investment permanently falls below cost.

	b)		Foreign exchange risk

			Foreign exchange risk is the risk arising from foreign currency fluctuations. The Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign currency exchange rates.

	c)		Credit risk exposure

			Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents. The Company deposits cash and cash equivalents with high credit quality financial institutions.

12		Shareholder rights plan

		On December 11, 2003, the board of directors of the Company adopted a shareholder rights plan (the Plan) which is designed to encourage the fair treatment of the Company’s shareholders in connection with any take-over offer and, in particular, any unsolicited take-over bid for the Company. The Plan was approved by the shareholders on March 4, 2004.

		Pursuant to the Plan, rights have been created and attached to the common shares of the Company. If a person (the Bidder) acquires 20% or more of the outstanding voting shares of the Company without complying with the Plan, each right, other than the rights held by the Bidder, will entitle the holder to purchase, for $100, common shares of the Company having a market value of $200.

13		Material differences between Canadian and United States generally accepted accounting principles (GAAP)

		The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in Canada (Canadian GAAP), which differ in certain material respects from those principles that the Company would have followed had its consolidated financial statements been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The major measurement differences between Canadian and U.S. GAAP are described below, and their effect on the consolidated financial statements is summarized as follows:

Consolidated Balance Sheets


As at September 30,	2005			2004			2003
	$			$			$
Long-term investment — under Canadian GAAP		267,092			267,092			267,092
Unrealized gain (e)		249,877			377,246			85,046


Long-term investment — under U.S. GAAP		516,969			644,338			352,138


Mineral properties — under Canadian GAAP		56,968,576			43,194,729			39,447,235
Cumulative exploration expenditures written off under U.S. GAAP (d)		(50,057,104	)		(36,283,257	)		(32,777,729	)


Mineral properties — under U.S. GAAP		6,911,472			6,911,472			6,669,506


Shareholders’ equity — under Canadian GAAP		116,034,294			56,219,260			41,782,835
Measurement differences
Deficit — under Canadian GAAP		33,043,987			26,883,721			17,550,437
Deficit — under U.S. GAAP		(83,101,091	)		(63,166,978	)		(50,328,166	)
Accumulated other comprehensive gain		249,877			377,246			85,046


Shareholders’ equity — under U.S. GAAP		66,227,067			20,313,249			9,090,152

Consolidated Statements of Loss and Deficit


For the years ended September 30,	2005			2004			2003
	$			$			$
Loss for the year — under Canadian GAAP		6,160,266			9,333,284			1,839,981
Exploration expenditures for the year (d)		15,623,106			7,526,093			4,549,783
Exploration costs written off during the year that would have been expensed in the year incurred		(1,849,259	)		(4,020,565	)		(329,503	)


Loss for the year — under U.S. GAAP		19,934,113			12,838,812			6,060,261
Unrealized (gain) loss on available-for-sale securities (e)		127,369			(292,200	)		(262,230	)


Comprehensive loss — under U.S. GAAP		20,061,482			12,546,612			5,798,031


Loss per common share before comprehensive income — under U.S. GAAP		0.43			0.32			0.18


Deficit — under U.S. GAAP — Beginning of year		63,166,978			50,328,166			44,267,905
Loss for the year — under U.S. GAAP		19,934,113			12,838,812			6,060,261


Deficit — under U.S. GAAP — End of year		83,101,091			63,166,978			50,328,166


Accumulated other comprehensive loss (gain)
Beginning of year — under U.S. GAAP		(377,246	)		(85,046	)		177,184
Other comprehensive (gain) loss		127,369			(292,200	)		(262,230	)


End of year — under U.S. GAAP		(249,877	)		(377,246	)		(85,046	)

The consolidated statements of loss and deficit include a subtotal before interest income. No similar subtotal would be presented under US GAAP.

For US GAAP purposes, stock-based compensation on the consolidated statements of loss and deficit would be allocated in the following manner:


For the years ended September 30,	2005		2004		2003
	$		$		$
Consulting		10,597		70,133		212,985
General and administration		1,465,211		2,647,814		—
General exploration expenditures		—		908,927		—
Shareholder communication and travel		10,597		71,785		56,272


Total stock-based compensation		1,486,405		3,698,659		269,257

Consolidated Statements of Cash Flows


For the years ended September 30,	2005			2004			2003
	$			$			$
Cash provided by (used in) operating activities, under Canadian GAAP		(2,924,022	)		(2,073,623	)		(1,339,475	)
Adjustment for mineral properties and deferred exploration		(13,330,358	)		(6,924,336	)		(6,398,483	)

Cash provided by (used in) operating activities, under US GAAP		(16,254,380	)		(8,997,959	)		(7,737,958	)


For the years ended September 30,	2005			2004			2003
	$			$			$
Cash provided by (used in) investing activities, under Canadian GAAP		(13,414,970	)		(7,212,931	)		(7,639,729	)
Adjustment for mineral properties and deferred exploration		13,330,358			6,924,336			6,398,483

Cash provided by (used in) investing activities, under US GAAP		(84,612	)		(288,595	)		(1,241,246	)

			The consolidated statements of cash flows include a subtotal before changes in non-cash working capital items under operating activities. No such subtotal would be presented under US GAAP.

	d)		Mineral property exploration expenditures

			Mineral property exploration expenditures are accounted for in accordance with Canadian GAAP as disclosed in note 2.

			For U.S. GAAP purposes, the amounts shown for mineral properties represent acquisition costs, less recoveries, incurred to date and do not necessarily reflect present or future values. The Company capitalizes all acquisition costs on a property-by-property basis. Mineral property acquisition costs include the cash consideration and the fair value of common shares and warrants issued for mineral property interests, pursuant to the terms of the relevant agreement. Mineral properties are written off if the property is sold, allowed to lapse or abandoned, or when impairment in value has been determined to have occurred. Mineral property sales proceeds or option payments received for exploration rights are treated as cost recoveries. Mineral property exploration expenditures, periodic option payments relating to mineral properties for which commercial feasibility has not yet been established, and administrative expenditures are expensed as incurred.

			Mineral property acquisition costs and development expenditures incurred subsequent to the determination of the feasibility of mining operations are deferred until the property to which they relate is placed into production, sold, allowed to lapse or abandoned, or when impairment in value has been determined to have occurred.

			The accumulated costs of properties that are developed to the stage of commercial production will be amortized to operations by unit-of-production depletion.

	e)		Available-for-sale securities

			Under U.S. GAAP, securities that are available-for-sale are recorded at fair value and unrealized gains or losses are excluded from earnings and recorded in Other Comprehensive Income.

	f)		Recent accounting developments

			In December 2004, the FASB issued FAS No. 123 (revised 2004) (“FAS 123R”), “Share-Based Payment”, which is a revision of FAS No. 123, “Accounting for Stock-based Compensation”. FAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values and does not allow the previously permitted pro forma disclosure as an alternative to financial statement recognition. Liability classified awards are remeasured to fair value at each balance sheet date until the award is settled. FAS 123R supersedes Accounting Principles Board (“APB”) Opinion No. 25 “Accounting for Stock Issued to Employees”, and related interpretations and amends FAS No. 95 “Statement of Cash Flows”. FAS 123R is scheduled to be effective beginning fiscal 2006 for the Company. On August 31, 2005, the FASB issued FSP FAS 123R-1 to defer the requirement that a freestanding financial instrument originally subject to FAS 123R becomes subject to the recognition and measurement requirements of other applicable generally accepted accounting principles when the rights conveyed by the instrument to the holder are no longer dependent on the holder being an employee of the entity. On October 18, 2005, the FASB issued FSP FAS 123R-2 to provide further guidance on the application of grant date as defined in FAS 123R. The Company is currently assessing the impact of FAS 123R and related FSPs on its consolidated financial statements.

			In December 2004, the FASB issued FAS No. 153 “Exchanges of Non-monetary Assets”, which amends APB Opinion No. 20, “Accounting for Non-monetary Transactions” to require that all non-monetary exchanges be accounted for at fair value except for exchanges of non-monetary assets that do not have commercial substance. An exchange is considered to have commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. FAS 153 is effective for non-monetary asset exchanges occurring in periods beginning after June 15, 2005.

			In May 2005, the FASB issued FAS No. 154 “Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FAS Statement No. 3”. FAS 154 requires an entity to account for the adoption of a new accounting policy by applying the new principle to prior accounting periods as if the principle had always been adopted, or “retrospective application”. Under existing GAAP, a new principle is not applied to prior periods; rather, the cumulative effect of the change is recognized in earnings in the period of the change. FAS 154 also carries forward without change the guidance from Opinion No. 20 for reporting the correction of an error in previously issued financial statements and the accounting for changes in estimate. The provisions of FAS 154 will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

14		Subsequent event

		On November 11, 2005, the Company announced that an independent feasibility study has concluded that the Peñasco and Chile Colorado deposits contained within its wholly owned Peñasquito property in Central Mexico can be developed economically.

Western Silver Corporation
(a development stage company)

Consolidated Financial Statements
March 31, 2006
(Unaudited)

Western Silver Corporation

Consolidated Balance Sheets (unaudited)

(expressed in Canadian dollars)


	March 31,			September 30,
	2006			2005
	$			$
Assets

Current assets
Cash and cash equivalents		49,085,553			60,513,188
Accounts receivable and prepaid expense		1,320,881			1,093,748

		50,406,434			61,606,936

Long-term investment		267,092			267,092

Property and equipment — net of accumulated amortization of $32,450 (September 30, 2005 — $17,313)		124,872			116,630

Mineral properties (note 2)		70,003,894			56,968,576


		120,802,292			118,959,234


Liabilities

Current liabilities
Accounts payable and accrued liabilities		4,041,449			2,924,940


Shareholders’ Equity

Capital stock (note 3)		146,887,367			143,273,203

Contributed Surplus (note 3)		5,863,332			5,805,078

Deficit		(35,989,856	)		(33,043,987	)


		116,760,843			116,034,294


		120,802,292			118,959,234

Basis of preparation (note 1)

Plan of arrangement — Glamis Gold Ltd. (note 9)

Approved by the Board of Directors


“Robert J. Gayton”	Director	“Klaus Zeitler”	Director

The accompanying notes are an integral part of these consolidated financial statements.

Western Silver Corporation

Consolidated Statements of Loss and Deficit (unaudited)

(expressed in Canadian dollars)


	Three Months Ended March 31,						Six Months Ended March 31,
	2006			2005			2006			2005
	$			$			$			$
General exploration expenditures		230,673			234,320			469,357			319,487


Administrative expenses
Accounting and legal		399,423			101,484			482,254			166,255
Consulting		342,503			482,382			412,080			750,917
Filing and transfer fees		66,862			134,989			133,800			160,961
Foreign exchange		97,371			11,938			78,957			44,991
Office and administration		979,852			313,934			1,871,357			639,332
Promotion and travel		143,948			292,905			348,186			407,975


		2,029,959			1,337,632			3,326,634			2,170,431


Loss before interest income		(2,260,632	)		(1,571,952	)		(3,795,991	)		(2,489,918	)


Interest income		431,092			435,215			850,122			540,425


Loss for the period		(1,829,540	)		(1,136,737	)		(2,945,869	)		(1,949,493	)

Deficit — Beginning of period		(34,160,316	)		(27,696,477	)		(33,043,987	)		(26,883,721	)


Deficit — End of period		(35,989,856	)		(28,833,214	)		(35,989,856	)		(28,833,214	)


Basic and diluted loss per common share		(0.04	)		(0.02	)		(0.06	)		(0.04	)


Weighted average number of common shares outstanding		48,669,378			47,989,602			48,583,634			44,945,363

The accompanying notes are an integral part of these consolidated financial statements.

Western Silver Corporation

Consolidated Statements of Cash Flows (unaudited)

(expressed in Canadian dollars)


	Three Months Ended March 31,						Six Months Ended March 31,
	2006			2005			2006			2005
	$			$			$			$
Cash flows provided by (used in)

OPERATING ACTIVITIES
Loss for the period		(1,829,540	)		(1,136,737	)		(2,945,869	)		(1,949,493	)

Items not affecting cash
Depreciation		7,835			2,638			15,138			5,104
Stock-based compensation		266,944			263,968			533,888			630,592

		274,779			266,606			549,026			635,696

Change in non-cash working capital items
Accounts receivable and prepaid expense		(259,784	)		8,161			(227,133	)		327,995
Accounts payable and accrued liabilities		(31,116	)		(47,234	)		168,819			509,359

		(290,900	)		(39,073	)		(58,314	)		837,354

		(1,845,661	)		(909,204	)		(2,455,157	)		(476,443	)


FINANCING ACTIVITIES
Shares issued for cash — net of issue costs		1,987,188			191,969			2,635,908			62,856,912


INVESTING ACTIVITIES
Mineral property expenditures		(6,855,741	)		(2,246,988	)		(11,544,518	)		(5,217,236	)
Property and equipment additions		(23,380	)		(5,123	)		(23,380	)		(5,123	)
Decrease in accounts payable relating to property and equipment		—			—			(40,488	)		—

		(6,879,121	)		(2,252,111	)		(11,608,386	)		(5,222,359	)


Increase (decrease) in cash and cash equivalents		(6,737,594	)		(2,969,346	)		(11,427,635	)		57,158,110

Cash and cash equivalents — Beginning of period		55,823,147			73,655,990			60,513,188			13,528,534


Cash and cash equivalents — End of period		49,085,553			70,686,644			49,085,553			70,686,644


Supplemental cash flow information

Stock based compensation capitalized to mineral properties		251,311			—			502,622			—

The accompanying notes are an integral part of these consolidated financial statements.

Western Silver Corporation

Consolidated Statements of Shareholders’ Equity (unaudited)

(expressed in Canadian dollars)


	Common shares
								Contributed			Shareholders’
	Number of		Amount		Deficit			surplus			equity
	shares		$		$			$			$
Balance — September 30, 2004		41,241,581		79,249,498		(26,883,721	)		3,853,483			56,219,260

Issue of shares
Private placements		6,325,000		60,414,626		—			—			60,414,626
Exercise of warrants		120,000		693,600		—			—			693,600
Exercise of stock options		612,000		2,215,420		—			—			2,215,420
Stock-based compensation		—		—		—			2,651,654			2,651,654
Transfer of value on exercise of stock options and warrants		—		700,059		—			(700,059	)		—
Loss for the year		—		—		(6,160,266	)		—			(6,160,266	)


Balance — September 30, 2005		48,298,581		143,273,203		(33,043,987	)		5,805,078			116,034,294

Exercise of stock options		617,332		2,635,908		—			—			2,635,908
Stock-based compensation		—		—		—			1,036,510			1,036,510
Transfer of value on exercise of stock options		—		978,256		—			(978,256	)		—
Loss for the period		—		—		(2,945,869	)		—			(2,945,869	)


Balance — March 31, 2006		48,915,913		146,887,367		(35,989,856	)		5,863,332			116,760,843

Western Silver Corporation

Notes to the Consolidated Financial Statements (unaudited)

(expressed in Canadian dollars)

Basis of preparation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles for the preparation of interim statements. Accordingly, these interim statements do not contain all the information required for annual financial statements and should be read in conjunction with the most recent annual consolidated financial statements of Western Silver Corporation (the Company). These consolidated financial statements follow the same accounting policies and methods of application as the most recent annual consolidated financial statements of the Company with the exception of the adoption of Accounting Guideline 15 “Consolidation of Variable Interest Entities”(note 5).

Mineral properties


			Costs		Disposition/					Costs
	Total costs to		incurred		write-offs			Total costs to		incurred		Total costs to
	September 30,		during		during			September 30,		during		March 31,
	2004		2005		2005			2005		the period		2006
	$		$		$			$		$		$
Mexico
Faja de Plata
Peñasquito
Acquisition		14,113,978		592,100		—			14,706,078		3,088,365		17,794,443
Exploration		12,670,976		9,975,647		—			22,646,623		2,652,389		25,299,012
Feasibility studies		1,569,580		4,690,852		—			6,260,432		680,189		6,940,621
Development		—		—		—			—		6,426,033		6,426,033


		28,354,534		15,258,599		—			43,613,133		12,846,976		56,460,109


El Salvador
Acquisition		1,889,672		—		—			1,889,672		—		1,889,672
Exploration
El Salvador		2,424,275		—		—			2,424,275		—		2,424,275
San Nicolas		4,510,825		181,922		—			4,692,747		56,190		4,748,937
Tamara		1,849,259		—		1,849,259	)		—		—		—


		10,674,031		181,922		(1,849,259	)		9,006,694		56,190		9,062,884


Almoloya
Acquisition		82,726		53,431		—			136,157		30,859		167,016
Exploration		42,152		14,346		—			56,498		—		56,498


		124,878		67,777		—			192,655		30,859		223,514


Bacanora
Acquisition		10,659		6,432		—			17,091		—		17,091
Exploration		30,627		8,376		—			39,003		1,293		40,296


		41,286		14,808		—			56,094		1,293		57,387


Canada
Carmacks
Acquisition		4,000,000		100,000		—			4,100,000		100,000		4,200,000


		43,194,729		15,623,106		(1,849,259	)		56,968,576		13,035,318		70,003,894

The accompanying notes are an integral part of these consolidated financial statements.

Western Silver Corporation

Notes to the Consolidated Financial Statements (unaudited)

(expressed in Canadian dollars)

3		Capital stock

		Authorized — Unlimited common shares without par value

		Issued


	Number
	of shares		Amount
			$
Balance at September 30, 2004		41,241,581		79,249,498

Pursuant to a financing at $10.25 per share		6,325,000		60,414,626
Pursuant to the exercise of warrants		120,000		693,600
Pursuant to the exercise of stock options		612,000		2,215,420
Transfer of value on exercise of stock options and warrants		—		700,059


Balance at September 30, 2005		48,298,581		143,273,203

Pursuant to the exercise of stock options		617,332		2,635,908
Transfer of value on exercise of stock options		—		978,256


Balance at March 31, 2006		48,915,913		146,887,367

		During the six months ended March 31, 2006, the Company received $2,635,908 from the exercise of 617,332 stock options at exercise prices ranging from $1.00 to $10.25.

4		Stock options

		Effective April 4, 2005, the shareholders adopted a 10% rolling stock option plan (rolling plan). All previously existing plans and stock options were incorporated into the rolling plan. At any point in time, the Company may issue stock options for the purchase of up to 10% of issued capital. The exercise price of the stock options shall be equal to, or less, than the market value of the Company’s common shares on the last trading day immediately preceding the date of grant. Stock options vest over a two year period from the date of grant unless otherwise determined by the directors. The maximum stock option term is 10 years. As at March 31, 2006, the Company can issue an additional 2,547,923 stock options.

The accompanying notes are an integral part of these consolidated financial statements.

Western Silver Corporation

Notes to the Consolidated Financial Statements (unaudited)

(expressed in Canadian dollars)

A summary of the Company’s stock options outstanding at March 31, 2006 and September 30, 2005 and the changes for the periods then ended, is presented below:


				Weighted					Weighted
	Six months			average					average
	ended			exercise		Year ended			exercise
	March 31,			price		September 30,			price
	2006			$		2005			$
Balance outstanding — Beginning of period		2,961,000			6.07		2,713,000			4.19

Granted		—			—		860,000			10.25

Exercised		(617,332	)		4.27		(612,000	)		3.62


Balance outstanding — End of period		2,343,668			6.54		2,961,000			6.07

Stock options outstanding at March 31, 2006 are as follows:


	Options		Weighted
Exercise	outstanding at		average		Average remaining
price	March 31,		exercise price		contractual life
$	2006		$		(years)
1.00 – 1.50		782,000		1.32		0.91
2.00		75,000		2.00		0.56
3.28		8,500		3.28		1.69
6.00 – 6.80		183,600		6.63		2.79
9.54 – 10.25		1,294,568		9.98		3.69


		2,343,668		6.54		2.59

		Of the total stock options granted and outstanding, 1,770,335 were vested at March 31, 2006. The exercise price of vested stock options ranges from $1.00 — $10.25.

		The fair value of all stock options granted by the Company to employees, and non-employees, is treated as compensation costs in accordance with CICA Handbook section 3870 Stock-based Compensation. These costs are charged to the statement of loss, or are capitalized, over the stock option vesting period. The Company’s allocation of stock-based compensation is consistent with its treatment of other types of compensation. The value of stock-based compensation awards is determined by using the Black-Scholes option pricing model.

The accompanying notes are an integral part of these consolidated financial statements.

Western Silver Corporation

Notes to the Consolidated Financial Statements (unaudited)

(expressed in Canadian dollars)

The valuation of stock options is determined at the time of grant. The most recent stock option grant occurred in August 2005. The valuation of those stock options was based on the following assumptions:


Average risk-free interest rate	3.27	%
Expected dividend yield	—
Expected stock price volatility	65	%
Expected option term, in years	3.58

		Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the company’s stock options granted and/or vested during the year.

5		Change in accounting policy

		Effective October 1, 2005, the Company adopted the new Accounting Guideline 15 (AcG-15) “Consolidation of Variable Interest Entities”. The new standard establishes when a company should consolidate a variable interest entity in its financial statements. AcG-15 provides the definition of a variable interest entity and requires a variable interest entity to be consolidated if a company is at risk of absorbing a majority of the variable interest entity’s expected losses, or is entitled to receive a majority of the variable interest entity’s residual returns, or both. The adoption of this guideline had no impact on the Company’s financial results.

6		Contract commitments

		The Company subleases office space. The agreement expires October 29, 2009. The total amount of payments remaining during the course of the agreement is $938,037, of which $261,778 is due during in the next 12 months. The remaining $676,259 is due between April 1, 2007 and October 29, 2009.

7		Segmented information

		The Company operates in one reportable operating segment — the acquisition, exploration and development of resource properties.

		Interest income is earned in Canada.

		The Company’s mineral properties are located in Canada and Mexico. The geographic breakdown of mineral properties is shown in note 2.

		All other non-current assets are held in Canada.

The accompanying notes are an integral part of these consolidated financial statements.

Western Silver Corporation

Notes to the Consolidated Financial Statements (unaudited)

(expressed in Canadian dollars)

8		Legal matters

		Western has been advised that a writ was filed in October 2005 in the British Columbia Supreme Court against the Company and Major Drilling Group International Inc. (Major). The writ was filed by one of the Company’s consultants with respect to an accident that occurred during the Company’s exploration program in 2003. Under its contract with Major, Western believes that it would be fully indemnified by Major if any damages were awarded against the Company. No damage amount has been set out and the writ has not been served on the Company.

9		Plan of arrangement — Glamis Gold Ltd.

		On February 24, 2006, Western Silver Corporation (Western Silver) and Glamis Gold Ltd. (Glamis) announced a plan of arrangement (the Agreement), whereby Glamis will acquire all the outstanding shares of Western Silver. Pursuant to the Agreement, each Western Silver shareholder will receive 0.688 of a Glamis common share and a share in Western Copper Corporation (Western Copper) for each issued Western Silver share. As part of the agreement, Western Silver will transfer to Western Copper cash and cash equivalents of approximately $38.76 million, its interest in Carmacks Copper and the Almoloya projects, and office equipment relating to Western Silver’s corporate office. The transaction is expected to close in May 2006.

The accompanying notes are an integral part of these consolidated financial statements.

Pro Forma Consolidated Financial Statements
(Expressed in millions of United States dollars)

GLAMIS GOLD LTD.

Three months ended March 31, 2006
Year ended December 31, 2005

(Unaudited)



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

COMPILATION REPORT ON PRO FORMA FINANCIAL STATEMENTS

The Board of Directors
Glamis Gold Ltd.

We have read the accompanying unaudited pro forma consolidated balance sheet of Glamis Gold Ltd. (the “Company”) as at March 31, 2006 and unaudited pro forma consolidated statements of operations for the three months ended March 31, 2006 and for the year ended December 31, 2005, and have performed the following procedures:

Compared the figures in the columns in the pro forma consolidated balance sheet and pro forma consolidated statement of operations captioned “Glamis Gold Ltd.” and “Glamis Gold Ltd. Three months ended March 31, 2006”, respectively, to the unaudited consolidated financial statements as at March 31, 2006 and for the three months then ended, and the figures in the column in the pro forma consolidated statement of operations captioned “Glamis Gold Ltd. year ended December 31, 2005” to the audited consolidated financial statements of the Company as at December 31, 2005 and for the year then ended, and found them to be in agreement.

2.	(a)	Compared the figures in the column in the pro forma consolidated balance sheet captioned “Western Silver Corporation” to the unaudited consolidated financial statements of Western Silver Corporation as at March 31, 2006 converted to U.S. dollars based on the Canadian/U.S. dollar exchange rate at March 31, 2006 of 1.1680, and found them to be in agreement.

	(b)	Compared the figures in the column in the pro forma consolidated statement of operations captioned “Western Silver Corporation Three months ended March 31, 2006” to the unaudited interim consolidated financial statements for the three months ended March 31, 2006 converted to U.S. dollars based on the Canadian/U.S. dollar average exchange rate for the three months ended March 31, 2006 of 1.1545, and found them to be in agreement.

	(c)	Compared the figures in the column in the pro forma consolidated statement of operations captioned “Western Silver Corporation Twelve months ended December 31, 2005” to the column captioned “Twelve months ended December 31, 2005 — U.S. dollars” in note 5 to the pro forma consolidated financial statements, and found them to be in agreement.

	(d)	Compared, in note 5 to the pro forma consolidated financial statements, the figures in the columns captioned “Year ended September 30, 2005” to the audited consolidated financial statements of Western Silver Corporation as at September 30, 2005 and for the year then ended, “Three months ended December 31, 2005” to the unaudited consolidated financial statements of Western Silver Corporation as at December 31, 2005 and for the three months then ended and “Three months ended December 31, 2004” to the unaudited consolidated financial statements of Western Silver Corporation as at December 31, 2004 and for the three months then ended, respectively, and found them to be in agreement.

	(e)	Recalculated, in note 5 to the pro forma consolidated financial statements, the aggregate of the amounts in the columns captioned “Year ended September 30, 2005” and “Three months ended December 31, 2005” less the amounts in the column captioned “Three months ended December 31, 2004”, adjusted to reflect the translation of Canadian dollars into U.S. dollars at the rate as disclosed, and found the amounts in the column captioned “Twelve months ended December 31, 2005 — U.S. dollars”, to be arithmetically correct.

KPMG LLP, a Canadian limited liability partnership is the Canadian member firm of KPMG International, a Swiss cooperative.

Glamis Gold Ltd.
Page 2

Made enquiries of certain officials of the Company who have responsibility for financial and accounting matters about:

	(a)		The basis for determination of the pro forma adjustments; and

	(b)		Whether the pro forma consolidated financial statements comply as to form in all material respects with the published requirements of Canadian securities legislation.

	The officials:

	(i)		described to us the basis for determination of the pro forma adjustments, and

	(ii)		stated that the pro forma consolidated financial statements comply as to form in all material respects with the published requirements of Canadian securities legislation.

4.		Read the notes to the pro forma consolidated financial statements, and found them to be consistent with the basis described to us for determination of the pro forma adjustments.

5.		Recalculated the application of the pro forma adjustments to the aggregate of the amounts in the columns captioned “Glamis Gold Ltd.” and “Western Silver Corporation” as at March 31, 2006 and for the three months then ended, and for the year ended December 31, 2005, and found the amounts in the column captioned “Pro forma Consolidated” to be arithmetically correct.

A pro forma financial statement is based on management assumptions and adjustments which are inherently subjective. The foregoing procedures are substantially less than either an audit or a review, the objective of which is the expression of assurance with respect to management’s assumptions, the pro forma adjustments, and the application of the adjustments to the historical financial information. Accordingly, we express no such assurance. The foregoing procedures would not necessarily reveal matters of significance to the pro forma financial statements, and we therefore make no representation about the sufficiency of the procedures for the purposes of a reader of such statements.

KPMG LLP (signed)

Chartered Accountants

Vancouver, Canada

July 12, 2006

COMMENTS FOR UNITED STATES READERS ON DIFFERENCES BETWEEN CANADIAN AND UNITED STATES REPORTING STANDARDS

The above report, provided solely pursuant to Canadian requirements, is expressed in accordance with standards of reporting generally accepted in Canada. To report in conformity with United States standards on the reasonableness of the pro forma adjustments and their application to the pro forma financial statements requires an examination or review substantially greater in scope than the review we have conducted. Consequently, we are unable to express any opinion in accordance with standards of reporting generally accepted in the United States with respect to the compilation of the accompanying unaudited pro forma financial information.

KPMG LLP (signed)

Chartered Accountants

Vancouver, Canada

July 12, 2006

GLAMIS GOLD LTD.

Pro Forma Consolidated Balance Sheet
(Unaudited)
(Expressed in millions of United States dollars)

March 31, 2006


			Western Silver			Pro Forma				Pro Forma
	Glamis Gold Ltd.		Corporation			Adjustments				Consolidated

						(note 2)
Assets
Current assets:
Cash and cash equivalents	$	50.8	$	42.0		$	0.4		^a	$	35.6
							(31.7	)	^b
							(10.7	)	^b
							(15.2	)	^c
Inventory		32.9		—			—				32.9
Accounts and interest receivable and prepaid expenses		5.2		1.1			(1.1	)	^b		5.2

		88.9		43.1			(58.3	)			73.7

Mineral property, plant and equipment		629.8		60.0			(60.0	)	^c		2,066.5
							1,436.7		^c

Other assets		25.4		0.2			(0.2	)	^b		25.4


	$	744.1	$	103.3		$	1,318.2			$	2,165.6


Liabilities and Shareholders’ Equity

Current liabilities:
Accounts payable and accrued liabilities	$	23.5	$	3.3		$	(3.3	)	^b	$	23.5
Site closure and reclamation costs, current		1.1		—			—				1.1
Current portion, long-term debt		7.5		—			—				7.5
Taxes payable		1.4		—			—				1.4

		33.5		3.3			(3.3	)			33.5

Site closure and reclamation costs		13.7		—			—				13.7

Long-term debt		72.5		—			—				72.5

Future income taxes		99.8		—			397.6		^b		497.4

		219.5		3.3			394.3				617.1

Shareholders’ equity:
Share capital (note 3)		495.9		125.8			0.4		^a		1490.7
							994.8		^c
							(126.2	)	^d
Contributed surplus		13.6		5.0			29.1		^c		42.7
							(5.0	)	^d
Retained earnings (deficit)		15.1		(30.8	)		30.8		^d		15.1

		524.6		100.0			923.9				1,548.5


	$	744.1	$	103.3		$	1,318.2			$	2,165.6

See accompanying notes to pro forma consolidated financial statements.

GLAMIS GOLD LTD.

Pro Forma Consolidated Statement of Operations
(Unaudited)
(Expressed in millions of United States dollars, except per share amounts)


				Western Silver
				Corporation							Pro Forma
	Glamis Gold Ltd.			Three months							Consolidated
	Three months			ended							Three months
	ended March 31,			March 31,			Pro Forma				ended March 31,
	2006			2006			Adjustments				2006

							(note 2)
Revenue	$	81.4		$	—		$	—			$	81.4
Cost of sales		29.9			—			—				29.9

		51.5			—			—				51.5

Expenses:
Depreciation and depletion		19.6			—			—				19.6
Exploration		4.7			0.2			—				4.9
General and administrative		2.4			1.5			—				3.9
Stock-based compensation		2.3			0.2			0.2		^f		2.7
Other		0.3			—			—				0.3

		29.3			1.9			0.2				31.4


Earnings (loss) from operations		22.2			(1.9	)		(0.2	)			20.1

Interest expense		(1.3	)		—			—				(1.3	)
Interest and other income		1.1			0.4			(0.4	)	^g		1.1


Earnings before income taxes		22.0			(1.5	)		(0.6	)			19.9

Provision for income taxes:
Current		1.8			—			—				1.8
Future		3.3			—			—				3.3

		5.1			—			—				5.1


Net earnings	$	16.9		$	(1.5	)	$	(0.6	)		$	14.8


Earnings per share (note 4):
Basic	$	0.13									$	0.09
Diluted		0.13										0.09

See accompanying notes to pro forma consolidated financial statements.

GLAMIS GOLD LTD.

Pro Forma Consolidated Statement of Operations
(Unaudited)
(Expressed in millions of United States dollars, except per share amounts)


				Western Silver
				Corporation							Pro Forma
	Glamis Gold Ltd.			Twelve months							Consolidated
	Year ended			ended							Year ended
	December 31,			December 31,			Pro Forma				December 31,
	2005			2005			Adjustments				2005

				(note 5)			(note 2)
Revenue	$	202.6		$	—		$	—			$	202.6
Cost of Production		87.7			—			—				87.7

		114.9			—			—				114.9

Expenses:
Depreciation and depletion		51.1			—			—				51.1
Exploration		9.5			0.8			11.6		^e		21.9
General and administrative		13.0			3.2			—				16.2
Stock-based compensation		3.9			1.2			1.2		^f		6.3
Other		2.1			1.5			—				3.6

		79.6			6.7			12.8				99.1


Earnings (loss) from operations		35.3			(6.7	)		(12.8	)			15.8

Interest expense		(0.4	)		—			—				(0.4	)
Interest and other income		2.2			1.3			(1.3	)	^g		2.2


Earnings before income taxes		37.1			(5.4	)		(14.1	)			17.6

Provision for income taxes:
Current		4.3			—			—				4.3
Future		5.7			—			—				5.7

		10.0			—			—				10.0


Net earnings	$	27.1		$	(5.4	)	$	(14.1	)		$	7.6


Earnings per share (note 4):
Basic	$	0.21									$	0.05
Diluted		0.20										0.05

See accompanying notes to pro forma consolidated financial statements.

GLAMIS GOLD LTD.

Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
(Expressed in United States dollars)

Three months ended March 31, 2006
Year ended December 31, 2005

1.		Plan of arrangement and basis of presentation:

		The accompanying pro forma consolidated financial statements have been compiled for purposes of inclusion in a Business Acquisition Report of Glamis Gold Ltd. (“Glamis”). These pro forma consolidated financial statements give effect to the acquisition by Glamis of all the issued and outstanding shares of Western Silver Corporation (“Western Silver”) under a plan of arrangement approved by the shareholders of Western Silver on May 3, 2006. Under the terms of the plan of arrangement, Western Silver created a new wholly-owned subsidiary company (“Western Copper“), and transferred to Western Copper cash in the amount of approximately CDN$37.0 million and all of Western Silver’s right, title and interest in and to specified exploration properties and assets located in Canada and Mexico. Pursuant to the plan of arrangement Western Silver shareholders exchanged each of their Western Silver shares held for 0.688 of a Glamis share and one common share of Western Copper. In addition, each Western Silver share purchase optionholder received a Glamis option right exercisable into 0.688 of a Glamis share at an adjusted exercise price and a Western Copper share purchase option.

		These pro forma consolidated financial statements have been prepared by management of Glamis in accordance with Canadian generally accepted accounting principles (“GAAP”) to give effect to the transaction pursuant to the plan of arrangement described above. For accounting purposes, the transaction has been recorded as an acquisition of the assets of Western Silver by Glamis and the net assets acquired have been recorded at their estimated fair value.

		These pro forma consolidated financial statements include:

	(a)		a pro forma consolidated balance sheet as at March 31, 2006, which has been prepared from the March 31, 2006 unaudited consolidated balance sheet of Glamis and the March 31, 2006 unaudited consolidated balance sheet of Western Silver, converted to U.S. dollars at the March 31, 2006 Canadian/U.S. dollar exchange rate of 1.1680, and gives effect to the acquisition by Glamis of the Western Silver assets and liabilities and the assumptions as described in note 2, as if these transactions occurred on March 31, 2006.

	(b)		pro forma consolidated statements of operations for the three months ended March 31, 2006 and the year ended December 31, 2005 prepared from the unaudited consolidated statement of operations of Glamis for the three months ended March 31, 2006 and the audited consolidated statement of operations of Glamis for the year ended December 31, 2005 and from the unaudited consolidated statements of operations of Western Silver for the three months ended March 31, 2006 and for the twelve months ended December 31, 2005 prepared as described in note 5, as if the transactions had occurred on January 1, 2005.

	These pro forma consolidated financial statements are not necessarily indicative of the financial position of Glamis as at the time of closing of the transaction referred to above, nor of the future operating results of Glamis as a result of the transactions.

GLAMIS GOLD LTD.

Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
(Expressed in United States dollars)

Three months ended March 31, 2006
Year ended December 31, 2005

1.		Plan of arrangement and basis of presentation (continued):

		The pro forma consolidated financial statements should be read in conjunction with the unaudited consolidated financial statements of Glamis for the three months ended March 31, 2006, the audited consolidated financial statements of Glamis as at and for the year ended December 31, 2005, the audited consolidated financial statements of Western Silver for the year ended September 30, 2005 and unaudited interim consolidated financial statements of Western Silver for the three months ended March 31, 2006 and the three months ended December 31, 2005 and 2004, all of which have been prepared in accordance with Canadian GAAP.

2.		Pro forma assumptions:

		The pro forma consolidated balance sheet gives effect to the following transactions and assumptions as if they had occurred on March 31, 2006:

	(a)		The proceeds of $0.4 received on exercise of options by Western Silver option holders prior to the acquisition of the Western Silver shares by Glamis.

	(b)		The transfer of approximately CDN$37.0 million cash (U.S.$31.7 million) to Western Copper and the incurrence of costs related to the transaction by Western Silver of $10.7 million. In addition, any remaining net working capital and other assets of Western Silver at the date of closing of the transactions was transferred to Western Copper. Accordingly, it is assumed that the remaining accounts receivable and prepaid expenses of $1.1 million, other assets of $0.2 million and accounts payable and accrued liabilities of $3.3 million of Western Silver are not acquired/assumed by Glamis in the March 31, 2006 pro forma consolidated balance sheet.

	(c)		The total assumed purchase price of $1,039.1 million is determined as follows:


Western Silver shares outstanding at May 3, 2006		49,246,413
Exchange ratio		0.688


Glamis shares to be issued		33,881,532
Market price	$	29.36


Fair value of Glamis shares issued	$	994,761,780


Western Silver options outstanding at May 3, 2006		2,013,161
Exchange ratio		0.688


Glamis option rights to be issued		1,385,055
Fair value of Glamis option right ⁽¹⁾	$	21.07


	$	29,183,109


Estimated transaction expenses paid by Glamis	$	15,200,000


Estimated purchase price	$	1,039,144,889

GLAMIS GOLD LTD.

Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
(Expressed in United States dollars)

Three months ended March 31, 2006
Year ended December 31, 2005

Pro forma assumptions (continued):

(c)

Continued:

	⁽¹⁾		The fair value of a Glamis option right has been estimated based on the market price of a Glamis share of $29.36, an average exercise price of CDN$9.37 (U.S.$8.43) and assuming an expected life of the option of 0.5 years, expected stock price volatility of 46%, expected dividend yield of nil and a risk free rate of return of 3.87%.

	The assets acquired and liabilities assumed are to be recorded at their estimated fair values, which are based on preliminary management estimates and are subject to final valuation adjustments.

	The preliminary allocation of the purchase price is as follows:


	(millions)
Mineral property, plant and equipment	$	1,436.7
Future income taxes		(397.6	)


	$	1,039.1

	(d)		The elimination of the existing share capital, contributed surplus and deficit of Western Silver.

	The pro forma consolidated statement of operations for the three months ended March 31, 2006 and for the year ended December 31, 2005 gives effect to the following adjustments and assumptions as if the transactions described above had occurred on January 1, 2005:

	(e)		An increase in exploration expense by Western Silver of $11.6 million for the year ended December 31, 2005 to conform with Glamis’ accounting policy of expensing exploration expenditures on properties not advanced enough to identify their development potential. A feasibility study was completed by Western Silver in November, 2005 on its Pënasquito property at which time, under Glamis’ accounting policy, further development costs would be capitalized. Accordingly, no adjustment is required in the pro forma consolidated statement of operations for the three months ended March 31, 2006.

	(f)		An increase in stock-based compensation of $0.2 million for the three months ended March 31, 2006 and $1.2 million for the year ended December 31, 2005 deferred by Western Silver to properties in the exploration stage which would be expensed under Glamis’ accounting policies.

	(g)		The reduction of interest income of Western Silver to nil for the three months ended March 31, 2006 and for the year ended December 31, 2005 as Glamis is not acquiring any cash under the transactions.

GLAMIS GOLD LTD.

Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
(Expressed in United States dollars)

Three months ended March 31, 2006
Year ended December 31, 2005

3.		Share capital:

		After giving effect to the pro forma assumptions in note 2, the issued and fully paid share capital of Glamis is as follows:


	Number
	of shares		Amount

			(millions)
Balance, March 31, 2006		132,063,109	$	495.9
Proposed acquisition of Western Silver by way of common shares (note 2(b))		33,881,532		994.8


Pro forma balance, March 31, 2006		165,944,641	$	1,490.7

4.		Earnings per share:

		The calculation of pro forma earnings per share in the pro forma consolidated statement of operations for the three months ended March 31, 2006 and the year ended December 31, 2005 is based on the weighted average number of common shares of Glamis for the three months ended March 31, 2006 and for the year ended December 31, 2005, respectively plus the additional 33,881,532 Glamis shares that would have been outstanding for the three months ended March 31, 2006 and the year ended December 31, 2005 as if the transactions described in note 1 occurred on January 1, 2005.

5.		Western Silver pro forma statement of operations:

		The Western Silver pro forma statement of operations for the twelve months ended December 31, 2005 has been prepared by adding the statement of operations for the three months ended December 31, 2005 to the results for the year ended September 30, 2005 and deducting the interim results for the three months ended December 31, 2004, and then converting the results to U.S. dollars based on the average Canadian/U.S. dollar exchange rate for the year ended December 31, 2005 of 1.2114, as follows:


													Twelve months
										Twelve months			ended
	Year ended			Three months ended						ended			December 31,
	September 30,			December 31,			December 31,			December 31,			2005
(millions)	2005			2005			2004			2005			- U.S. dollars

Expenses:
General exploration	CDN$	0.9		CDN$	0.2		CDN$	0.1		CDN$	1.0		$	0.8
General and administrative		3.3			1.0			0.4			3.9			3.2
Stock-based compensation		1.5			0.3			0.4			1.4			1.2
Impairment of mineral properties		1.8			—			—			1.8			1.5

		7.5			1.5			0.9			8.1			6.7


Loss from operations		(7.5	)		(1.5	)		(0.9	)		(8.1	)		(6.7	)

Interest and other income		1.3			0.4			0.1			1.6			1.3


Loss for the period	CDN$	(6.2	)	CDN$	(1.1	)	CDN$	(0.8	)	CDN$	(6.5	)	$	(5.4	)