Avino Silver & Gold Mines - 20-F annual report

Avino Silver & Gold Mines Ltd., which we refer to as the "Company", was incorporated by Memorandum of Association under the laws of the Province of British Columbia on May 15, 1969, and on August 22, 1969, by virtue of an amalgamation with Ace Mining Company Ltd., became a public company whose common shares are registered under the United States Securities Exchange Act of 1934, as amended, and changed its name to Avino Mines & Resources Limited.  On April 12, 1995, the Company changed its corporate name to International Avino Mines Ltd. and affected a reverse stock split of one common share for every five common shares outstanding.  On August 29, 1997, the Company changed its corporate name to Avino Silver & Gold Mines Ltd. to better reflect the business of the Company of exploring for and mining silver and gold.  Our principal executive office is located at Suite 400, 455 Granville Street, Vancouver, British Columbia V6C 1T1, Canada.

In this annual report on Form 20-F, which we refer to as the "Annual Report", except as otherwise indicated or as the context otherwise requires, the "Company", "we" or "us" refers to Avino Silver & Gold Mines Ltd.

You should rely only on the information contained in this Annual Report. We have not authorized anyone to provide you with information that is different. The information in this Annual Report may only be accurate on the date of this Annual Report or on or as at any other date provided with respect to specific information.

Unless we otherwise indicate in this Annual Report, all references to "Canadian Dollars", "CDN$" or "$" are to the lawful currency of Canada and all references to "U.S. Dollars" or "US$" are to the lawful currency of the United States

The following discussion contains forward-looking statements within the meaning of the United States Private Securities Legislation Reform Act of 1995concerning the Company's plans for its mineral properties which may affect the future operating results and financial position.  Such statements are subject to risks and uncertainties that could cause our actual results and financial position to differ materially from those anticipated in the forward-looking statements.  These factors include, but are not limited to, the factors set forth in the sections entitled "Risk Factors" in Item 3.D., and "Operating and Financial Review and Prospects" in Item 5.  Statements concerning reserves and resources may also be deemed to constitute forward-looking statements to the extent that such statements reflect the conclusion that deposits may be economically exploitable.  Any statements that express or involve discussions with respect to predictions, expectations, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects", "does not expect", "is expected", "anticipates", "does not anticipate", "plans", "estimates", or "intends", or stating that certain actions, events or results "may", "could", "would", or "will" be taken, occur or be achieved) are not statements of historical fact and may be "forward-looking statements".

We advise United States investors that although the terms "measured resources" and "indicated resources" are recognized and required by Canadian regulations, the United States Securities and Exchange Commission, referred to as the "SEC", does not recognize them.  United States investors are cautioned not to assume that all or any part of our mineral resources in these categories will ever be converted into mineral reserves.

Not applicable.

Not applicable.

The selected historical financial information presented in the table below for each of the years ended January 31, 2007, 2006, 2005, 2004 and 2003, is derived from the audited financial statements of the Company. The audited financial statements and notes for each year in the three years ended January 31, 2007, 2006 and 2005 are included in this Annual Report.  The selected historical financial information for each year ended January 31, 2004 and 2003, presented in the table below are derived from financial statements of the Company that are not included in this Annual Report.  The selected financial information presented below should be read in conjunction with the Company's financial statements and the notes thereto (Item 17) and the Operating and Financial Review and Prospects (Item 5) included elsewhere in this Annual Report.

The selected financial data has been prepared in accordance with Canadian generally accepted accounting principles, which we refer to as "Canadian GAAP".  The financial statements included in Item 17 in this Annual Report are also prepared under Canadian GAAP.  Included within these financial statements in Note 20 is a reconciliation between Canadian GAAP and United States generally accepted accounting principals, referred to as "US GAAP", which differ, among other things, in respect to the recording of the investments in marketable securities, deferred exploration expenditures and recognition of future income tax benefits on renouncement of Canadian exploration expenditures to flow-through investors.

The following table sets forth the high and low exchange rate for the past six months.  As of July 25, 2007, the exchange rate was CDN$1.0423 for each US$1.

Not Applicable.

Not Applicable.

In addition to the other information presented in this Annual Report, the following should be considered carefully in evaluating the Company and its business.  This Annual Report contains forward-looking statements that involve risks and uncertainties.  The Company's actual results may differ materially from the results discussed in the forward-looking statements.  Factors that might cause such a difference include, but are not limited to, those discussed below and elsewhere in this Annual Report.

We will be required to raise additional capital to mine our properties.  The Company is currently in the exploration stage of its properties.  If the Company determines based on its most recent information that it is feasible to begin operations on its properties, the Company will be required to raise additional capital in order to develop and bring the properties into production.

We have incurred net losses since our inception and expect losses to continue.  We have not been profitable since our inception.  For the fiscal year ended January 31, 2007, we had a net loss of $3,648,539 and an accumulated deficit on January 31, 2007 of $20,758,186.  The Company has not generated revenues from operations since 1998 and does not expect to generate revenues from operations until one or more of its properties are placed in production.  There is no assurance that any of the Company's properties will be placed in production or that the Company's operations will be profitable in the future.

The mining industry is highly speculative and involves substantial risks.  Even when mining is conducted on properties known to contain significant quantities of ore deposits it is generally accepted in the mining industry that most exploration projects do not result in the discovery of mineable deposits of ore in a commercially economical manner.  There may be limited availability of water, which is essential to milling operations, and interruptions may be caused by adverse weather conditions.  Operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air quality standards, pollution and other environmental protection controls.  Mining activities are subject to substantial operating hazards, some of which are not insurable or may not be insured for economic reasons.

The commercial quantities of ore cannot be accurately predicted.  Whether an ore body will be commercially viable depends on a number of factors including the particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as mineral prices and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection.  The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in a mineral deposit being unprofitable.

There are no assurances that we can produce minerals on a commercially viable basis.  The Company's ability to generate revenue and profit is expected to occur through exploration of its existing properties as well as through acquisitions of interests in new properties.  Substantial expenditures will be incurred in an attempt to establish the economic feasibility of mining operations by identifying mineral deposits and establishing ore reserves through drilling and other techniques, developing metallurgical processes to extract metals from ore, designing facilities and planning mining operations.  The economic feasibility of a project depends on numerous factors, including the cost of mining and production facilities required to extract the desired minerals, the total mineral deposits that can be mined using a given facility, the proximity of the mineral deposits to a user of the minerals, and the market price of the minerals at the time of sale.  There is no assurance that existing or future exploration programs or acquisitions will result in the identification of deposits that can be mined profitably.

Mining operations and exploration activities are subject to various federal, provincial and local laws and regulations. Laws and regulation govern the development, mining, production, importing and exporting of minerals, taxes, labour standards, occupational health, waste disposal, protection of the environment, mine safety, toxic substances, and other matters.  In many cases, licenses and permits are required to conduct mining operations.  Amendments to current laws and regulations governing operations and activities of mining companies or more stringent implementation thereof could have a substantial adverse impact on the Company.  Applicable laws and regulations will require the Company to make certain capital and operating expenditures to initiate new operations.  Under certain circumstances, the Company may be required to close an operation once it is started until a particular problem is remedied or to undertake other remedial actions.

Market price is highly speculative.  The market price of metals is highly speculative and volatile. Instability in metal prices may affect the interest in mining properties and the development of and production of such properties.

Penny stock rules may make it more difficult to trade the Company's common shares.  The SEC has adopted regulations which generally define a "penny stock" to be any equity security that has a market price, as defined, less than US$5.00 per share or an exercise price of less than US$5.00 per share, subject to certain exceptions.  Our securities may be covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors such as institutions with assets in excess of US$5,000,000 or an individual with net worth in excess of US$1,000,000 or annual income exceeding US$200,000 or US$300,000 jointly with his or her spouse.  For transactions covered by this rule, the broker-dealers must make a special suitability determination for the purchase and receive the purchaser's written agreement of the transaction prior to the sale.  Consequently, the rule may affect the ability of broker-dealers to sell our securities and also affect the ability of our investors to sell their shares in the secondary market.

Title risks.  The validity and ownership of mining property holdings can be uncertain and may be contested.  Although the Company's properties in Canada are currently wholly owned by the Company, there are currently a number of pending and potential native title or traditional land owner claims in Canada.  Accordingly, there can be no assurance that the Company's properties in Canada will not be affected.

Competition for mineral land.  There is a limited supply of desirable mineral lands available for acquisition, claim staking or leasing in the areas where the Company contemplates expanding its operations and conducting exploration activities.  Many participants are engaged in the mining business, including large, established mining companies.  Accordingly, there can be no assurance that the Company will be able to compete successfully for new mining properties.

Competition for recruitment and retention of qualified personnel.  We compete with other exploration companies, many of which have greater financial resources than us or are further in their development, for the recruitment and retention of qualified employees and other personnel.  Competition for exploration resources at all levels is currently very intense, particularly affecting the availability of manpower, drill rigs and supplies.  If we require and are unsuccessful in acquiring additional personnel or other exploration resources, we will not be able to grow at the rate we desire or at all.

Uncertainty of exploration and development programs.  The Company's profitability is significantly affected by the costs and results of its exploration and development programs.  As mines have limited lives based on proven and probable mineral reserves, the Company actively seeks to expand its mineral reserves, primarily through exploration, development and strategic acquisitions.  Exploration for minerals is highly speculative in nature, involves many risks and is frequently unsuccessful.  Among the many uncertainties inherent in any gold and silver exploration and development program are the location of economic ore bodies, the development of appropriate metallurgical processes, the receipt of necessary governmental permits and the construction of mining and processing facilities.  Assuming the discovery of an economic deposit, depending on the type of mining operation involved, several years may elapse from the initial phases of drilling until commercial operations are commenced and, during such time, the economic feasibility of production may change.  Accordingly, the Company's exploration and development programs may not result in any new economically viable mining operations or yield new mineral reserves to expand current mineral reserves.

Licenses and permits.  The operations of the Company require licenses and permits from various governmental authorities.  The Company believes that it holds all necessary licenses and permits under applicable laws and regulations and believes that it is presently complying in all material respects with the terms of such licenses and permits.  However, such licenses and permits are subject to change in various circumstances. There can be no guarantee that the Company will be able to obtain or maintain all necessary licenses and permits as are required to explore and develop its properties, commence construction or operation of mining facilities and properties under exploration or development or to maintain continued operations that economically justify the cost.

We may be adversely affected by fluctuations in foreign exchange rates. We maintain our bank accounts mainly in Canadian and U.S. Dollars.  Any appreciation in the currency of Mexico or other countries where we may carryout exploration activities against the Canadian or U.S. Dollar will increase our costs of carrying out operations in such countries.  In addition, any decrease in the U.S. Dollar against the Canadian Dollar will result in a loss on our books to the extent we hold funds in U.S. Dollars.

Land Reclamation requirements.  Although variable depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize the long term effects of land disturbance. Reclamation may include requirements to control dispersion of potentially deleterious effluents and reasonably re-establish pre-disturbance land forms and vegetation.  In order to carry out reclamation obligations imposed on us in connection with our mineral exploration we must allocate financial resources that might otherwise be spent on further exploration programs.

Litigation.  Cia Minera Mexicana de Avino, S.A. de C.V., referred to as "Cia Minera", a subsidiary of the Company, leases four core mineral claims in consideration for royalties.  The lessor is currently contesting the underlying royalty agreement, and has filed a legal action claiming royalties are owing from prior years in the approximate amount of $3,487,223 plus interest.  The Company has accrued $738,302 on account of the royalties owing.  Cia Minera has held the position that it has fully provided for the royalty liability in its accounts and continues to contest the action in court, however, negotiations are being held as both parties are working towards an amicable settlement.The outcome of this litigation is not determinable and may have a material adverse impact on the Company.  For further information regarding this litigation, please see Note 18 of the financial statements included with this Annual Report at Item 17.  The Company is not currently subject to any other litigation but it may become involved in disputes with other parties in the future which may result in litigation.  Any litigation could be costly and time consuming and could divert our management from our business operations.  In addition, if the Company is unable to resolve any litigation favorably, it may have a material adverse impact on the Company's financial performance, cash flow and results of operations.

Acquisitions.  The Company undertakes evaluations of opportunities to acquire additional gold and silver mining properties.  Any resultant acquisitions may be significant in size, may change the scale of the Company's business, and may expose the Company to new geographic, political, operating, financial and geological risks.  The Company's success in its acquisition activities depends on its ability to identify suitable acquisition candidates, acquire them on acceptable terms, and integrate their operations successfully.  Any acquisitions would be accompanied by risks, such as a significant decline in the price of gold or silver, the ore body proving to be below expectations, the difficulty of assimilating the operations and personnel of any acquired companies, the potential disruption of the Company's ongoing business, the inability of management to maximize the financial and strategic position of the Company through the successful integration of acquired assets and businesses, the maintenance of uniform standards, controls, procedures and policies, the impairment of relationships with customers and contractors as a result of any integration of new management personnel and the potential unknown liabilities associated with acquired mining properties.  In addition, the Company may need additional capital to finance an acquisition.  Historically, the Company has raised funds through equity financing and the exercise of options and warrants.  However, the market prices for natural resources are highly speculative and volatile.  Accordingly, instability in prices may affect interest in resource properties and the development of and production from such properties that may adversely affect the Company's ability to raise capital to acquire and explore resource properties. There can be no assurance that the Company would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions.

Conflict of interest.  Certain directors and officers of the Company are officers and/or directors of, or are associated with, other natural resource companies that acquire interests in mineral properties.  Such associations may give rise to conflicts of interest from time to time.  The directors are required by law, however, to act honestly and in good faith with a view to the best interests of the Company and its shareholders and to disclose any personal interest which they may have in any material transaction which is proposed to be entered into with the Company and to abstain from voting as a director for the approval of any such transaction.

Dependence on management.  We are dependent on the services of key executives including our President and Chief Executive Officer and other highly skilled and experienced executives and personnel focused on advancing our corporate objectives as well as the identification of new opportunities for growth and funding.  Due to our relatively small size, the loss of these persons or our inability to attract and retain additional highly skilled employees required for our activities may have a material adverse effect on our business and financial condition.

Uncertainty of continuing as a going concern.  The continuation of the Company depends upon its ability to attain profitable operations and generate cash flow from operations and/or to raise equity capital through the sale of its securities.  As a result, there is uncertainty about the Company's ability to continue as a going concern.  The Company's financial statements do not include the adjustments that would be necessary if the Company were unable to continue as a going concern.

Limited and volatile trading volume.  Although the Company's common shares are listed on the TSX Venture Exchange, referred to as the "TSX-V" and the Frankfurt Stock Exchange, referred to as the "FSE" and quoted in the United States on the OTC Bulletin Board, referred to as the "OTC BB", the volume of trading has been limited and volatile in the past and is likely to continue to be so in the future, reducing the liquidity of an investment in the Company's common shares and making it difficult for investors to readily sell their shares in the open market.  Without a liquid market for the Company's common shares, investors may be unable to sell their shares at favorable times and prices and may be required to hold their shares in declining markets or to sell them at unfavorable prices.

Volatility of share price.  In recent years, securities markets in Canada have experienced a high level of price volatility.  The market price of many resource companies, particularly those, like the Company, that are considered speculative exploration companies, have experienced wide fluctuations in price, resulting in substantial losses to investors who have sold their shares at a low price point.  These fluctuations are based only in part on the level of progress of exploration, and can reflect general economic and market trends, world events or investor sentiment, and may sometimes bear no apparent relation to any objective factors or criteria.  During the 2007 fiscal year, the Company's common share price fluctuated between a low of $1.50 and a high of $4.48.  Subsequent to the 2007 fiscal year and as of July 1, 2007, the Company's common share price has fluctuated between a low of $1.69 and a high of $2.75.  Significant fluctuations in the Company's common share price is likely to continue, and could potentially increase in the future.

Difficulty for United States investors to effect services of process against the Company.  The Company is incorporated under the laws of the Province of British Columbia, Canada.  Consequently, it will be difficult for United States investors to affect service of process in the United States upon the directors or officers of the Company, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under the United States Securities Exchange Act of 1934, as amended.  The majority of the Company's directors and officers are residents of Canada and all of the Company's assets are located outside of the United States.  A judgment of a United States court predicated solely upon such civil liabilities would probably be enforceable in Canada by a Canadian court if the United States court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter.  There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or the Company predicated solely upon such civil liabilities.

We describe our properties utilizing mining terminology such as "measured resources" and "indicated resources" that are required by Canadian regulations but are not recognized by the SEC.  United States investors are cautioned not to assume that any part of the mineral deposits in these categories will ever be converted into reserves.

The Company was incorporated by Memorandum of Association under the laws of the Province of British Columbia on May 15, 1969, and on August 22, 1969, by virtue of an amalgamation with Ace Mining Company Ltd., became a public company whose common shares are registered under the United States Securities Exchange Act of 1934, changing its name to Avino Mines & Resources Limited.  On April 12, 1995, the Company changed its corporate name to International Avino Mines Ltd. and affected a reverse stock split of one common share for every five common shares outstanding.  On August 29, 1997, the Company changed its corporate name to Avino Silver & Gold Mines Ltd., its current name, to better reflect the business of the Company of exploring for and mining silver and gold.

We are a natural resource company, primarily engaged in the acquisition, exploration and development of natural resource properties.  Our principal business activities have been the exploration of certain mineral properties located in Canada, specifically British Columbia and the Yukon Territory, and in Mexico.  Since fiscal 2001 we made aggregate principal capital expenditures of $605,879 on the properties in Canada.  These capital expenditures consist of $103,243 which was spent on the Eagle property, $184,834 on the Aumax property, $159,575 on the Olympic-Kelvin property, $54,739 and on the Bralorne property $103,488 on the Minto property.  The Avino Mine in Mexico is owned by Cia Minera of which the Company owns 88.25% of the issued and outstanding securities and is accounted for using the equity method in the financial statements.  Since the suspension of operations at the Avino Mine, $515,816 has been spent on the care and maintenance of the mine.

On July 17, 2006, the Company completed the acquisition of Cia Minera, a Mexican corporation, through the acquisition of an additional 39.25% interest in Cia Minera which combined with the Company's pre-existing 49% share of Cia Minera, brought the Company's ownership interest in Cia Minera to 88.25%.  The additional 39.25% interest in Cia Minera was obtained though the acquisition of 76.88% of the common shares of Promotora Avino S.A. De C.V., referred to as "Promotora", which in turn owns 49.75% of Cia Minera's common shares, and the direct acquisition of 1% of the common shares of Cia Minera.

The July 17, 2006 acquisition was accomplished by a share exchange by which the Company issued 3,164,702 shares as consideration, which we refer to as the "Payment Shares", for the purchase of the additional 39.25% interest in Cia Minera.  The Payment Shares were valued based on the  July 17, 2006 closing market price of the Company's shares on the TSX-V.

The Company has also acquired a further 1% interest in Cia Minera through the acquisition from an estate subject to approval and transfer of the shares to the Cmopany by the trustee for the estate.

The principal executive office of the Company is located at Suite 400, 455 Granville Street, Vancouver, British Columbia V6C 1T1, and its telephone number is 604-682-3701.

The Company is a Canadian-based resource firm focused on silver and gold exploration.  The Company has a long prior history of operation, beginning in 1968 with the development of the Avino Mine.  From 1974 to 2001, the Avino Mine produced silver, gold, copper and lead and provided hundreds of jobs for the Durango region before closing due to depressed metal prices.  Beginning in 2002, the Company re-directed its corporate strategy to focus almost entirely on silver and began acquiring silver properties in North America. The Company's most recent acquisitions, consisting of the Eagle property in Canada's Yukon Territory and the Aumax property in British Columbia, have produced positive assays for silver through drilling and sampling.  The Avino Mine and surrounding mineral leases continue to hold silver potential. These properties, along with other silver and gold projects, will remain the Company's principal focus for the foreseeable future.

Presently, the Company is an "exploration stage company", as all of the Company's properties are currently in the exploratory stage of development.  In order to determine if a commercially viable mineral deposit exists in any of the Company's properties, further geological work will need to be done and a final evaluation based upon the results obtained to conclude economic and legal feasibility.

On July 17, 2006, the Company completed the acquisition of Cia Minera, a Mexican corporation, through the acquisition of an additional 39.25% interest in Cia Minera which combined with the Company's pre-existing 49% share of Cia Minera, brought the Company's ownership interest in Cia Minera to 88.25%.  The additional 39.25% interest in Cia Minera was obtained though the acquisition of 76.88% of the common shares of Promotora, which in turn owns 49.75% of Cia Minera's common shares, and the direct acquisition of 1% of the common shares of Cia Minera.

The July 17, 2006 acquisition was accomplished by a share exchange by which the Company issued 3,164,702 Payment Shares, for the purchase of the additional 39.25% interest in Cia Minera.  The Payment Shares were valued based on the  July 17, 2006 closing market price of the Company's shares on the TSX-V.

The Company has also acquired a further 1% interest in Cia Minera through the acquisition from an estate subject to approval and transfer of the shares to the Cmopany by the trustee for the estate.

We have no other significant acquisitions or dispositions of property, other than as otherwise disclosed in this Annual Report.

The mining industry in which the Company is engaged is highly competitive.  Competitors include well-capitalized mining companies, independent mining companies and other companies having financial and other resources far greater than those of the Company.  The Company competes with other mining companies in connection with the acquisition of gold, silver and other precious metal properties.  In general, properties with a higher grade of recoverable mineral and/or which are more readily mined afford the owners a competitive advantage in that the cost of production of the final mineral product is lower.  In 2006, demand for silver exceeded supply and worldwide demand is expected to increase through 2007.  This, in part, has fueled the increases in silver prices over the same period.  Thus, a degree of competition exists between those engaged in the mining industry to acquire the most valuable properties.  As a result, the Company may eventually be unable to acquire attractive gold or silver mining properties.

Certain of our operations are conducted in British Columbia and the Yukon Territory.  The weather during the colder seasons in these areas can be extreme and can cause interruptions or delays in our operations.  As a result, the preferable time for activities in these regions is the spring and summer when costs are more reasonable and access to the properties is easier.  In the summer months, however, if the weather has been unusually hot and dry, access to the Company's properties may be limited as a result of access restrictions being imposed to monitor the risks of forest fires.

The current and anticipated future operations of the Company, including development activities and commencement of production on its properties, require permits from various federal, territorial and local governmental authorities and such operations are and will be governed by laws and regulations governing prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters.  Companies engaged in the development and operation of mines and related facilities generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits.  Such operations and exploration activities are also subject to substantial regulation under these laws by governmental agencies and may require that the Company obtain permits from various governmental agencies.  The Company believes it is in substantial compliance with all material laws and regulations which currently apply to its activities.  There can be no assurance, however, that all permits which the Company may require for construction of mining facilities and conduct of mining operations will be obtainable on reasonable terms or that such laws and regulations, or that new legislation or modifications to existing legislation, would not have an adverse effect on any exploration or mining project which the Company might undertake.

Mineral exploration and mining in Mexico is covered under the Mining Law as first published in June 1992, and amended in April 2005. Mining operations in Mexico are administered by the Ministry of Economy. Environmental regulations are covered under "Ley General del Equilibrio Encologio y la Protection al Ambiente" (General Law of Ecological Balance and Environmental Protection) and its regulations. Certain other environmental laws, including "Ley de Aguas Nacionales" (Law of National Waters) and "Ley Forestal" (Forestry Law) and their associated regulations may also cover certain operations. The kind of permits or authorizations required to conduct mining or mineral exploration operations in Mexico depend upon the type of operation. Common exploration activities do not require prior environmental authorization or licenses, but it is advisable to request a confirmation from the National Water Commission that planned operations will not affect the water table. It is also necessary to confirm that any planned operations will not be conducted in protected natural areas.

The Company has obtained all necessary permits and authorizations required for its current and anticipated exploration.  The Company has had no material costs related to compliance and/or permits in recent years, and anticipates no material costs in the next year.  Unfavorable amendments to current laws, regulations and permits governing operations and activities of resource exploration companies, or more stringent implementation thereof, could have a materially adverse impact on the Company and cause increases in capital expenditures which could result in a cessation of operations by the Company.

Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions.  Parties engaged in exploration and mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violation of applicable laws or regulations.

The enactment of new laws or amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in capital expenditures or production costs or reduction in levels of production at producing properties or require abandonment or delays in the development of new mining properties.

The Company's subsidiaries are the wholly-owned Oniva Silver and Gold Mines S.A., referred to as "Oniva", Promotora in which the Company has direct ownership of 76.88%, and Cia Minera in which the Company has a 50% direct ownership and an additional 49.75% of Cia Minera is held through Promotora.  The Company's total ownership of Cia Minera is 88.25%.  The Company has also acquired a further 1% interest in Cia Minera through the acquisition from an estate subject to approval and transfer of the shares to the Company by the trustee for the estate.

All of the above subsidiaries are incorporated under the laws of Mexico.

The Company is exploring five silver and gold projects in Canada and Mexico.  All of the Company's mineral property interests in Canada are wholly owned by the Company.  In Mexico, the Company has a 88.25% interest in Cia Minera, a Mexican company which is involved in the mining of commercial ores and resource exploration and development, including the operation of the Avino Mine.  Exploration in Canada has in recent years, has been limited to drill programs on our Olympic-Kelvin Property.

Ownership.  The Eagle property is wholly owned by the Company and was acquired in 2003 when it acquired its 100% interest in 14 quartz leases by issuing 200,000 common shares at a price of $0.50 per share for total consideration of $100,000. The property was written down to a nominal value of $1 in fiscal 2006 by a charge to operations of $103,242.

Property Description and Location.  This property is located in the Yukon Territory approximately eight kilometers west of Keno City.  The property covers approximately 516 hectares.  It is currently in its Phase I stage of exploration.  The property is accessed by road.  Whitehorse, the nearest major city, is approximately 380 kilometres to the south of the village of Mayo.  The village of Mayo is 60 kilometers to the southeast of Keno City.  The Eagle property lies on the south-east facing slope of Galena Hill where the elevations range from about 1350 to 1540 m.  Permafrost, while thin to non-existent in places, is reported to be found under accumulations of surface rubble left from glaciation.

History.  The Eagle property has produced positive assays for silver since exploration first occurred there in 1964.  The initial drill program, consisting of 29 holes, encountered assays as high as 6,900 grams per tonne of silver over 1.2 metres in hole #23 and 1,708 grams per tonne of silver over 2.1 metres in hole JB1.  Follow-up drilling in 1978, designed to expand on the discoveries of hole #23, encountered 18.7 metres of mineralization with values ranging from 11 to 132 grams per tonne of silver.  This discovery became known as the Eagle vein.  The Eagle property is part of the historic Keno Hill mining camp.  The Keno Hill mining camp has historically been one of Canada's most productive for silver, lead and zinc.  Between 1920 and 1988, the total reported production was 4,787,423 tonnes with recovered grades of 1.3 kilograms per tonne of silver, 5.6% lead and 3.1% zinc.  Subsequent exploration in the district has discovered additional mineral deposits which may become productive.

Proposed Work Program.  A study carried out in August of 2002 recommended geochemical and geophysical exploration to examine the continuity of the Eagle vein. Drilling and underground exploration would follow based on the success of the first work.  A budget of $160,000 has been proposed to carry out further work on the Eagle property.  Our management is presently considering this proposal.

Ownership.  The Aumax Property is wholly owned by the Company and was acquired in 2003 when it acquired a 100% interest in six unpatented mineral claims by issuing 200,000 common shares at a price of $0.50 per share and paying $4,000 in cash for total consideration of $104,000.

Property Description and Location.  The property is located in southern British Columbia approximately 16 kilometers southwest of the town of Lillooet.  The property can be accessed from Lillooet by a logging road.  The upper zone of the Aumax property can be accessed by hiking a further 1.5 km to the southwest.  The property covers approximately 975 hectares and is located between Cayoosh Creek and Phair Creek.  The showings were discovered in 1999.  The showings have economically interesting gold and silver values.

History.  Cayoosh Creek has a history of limited placer gold production starting in the 1860's.  Some of this production occurred immediately downstream of the property, near the mouth of Downtown Creek.

A limited exploration program of prospecting, rock and soil sampling and mechanized trenching was carried out in October of 1999.  Trenching on the Aumax showing was inconclusive.  Many highly anomalous quartz-carbonate boulders, up to 2.2 grams per tonne of gold and 305 grams per tonne of silver, were excavated but bedrock was not reached in critical areas.  Chip samples of veins exposed in the trenches were highly anomalous, generally in the hundreds of parts per billion gold, with one sample over one gram per tonne of gold over 0.5 metres.  Further prospecting and soil sampling of the southeast (upslope) of the Aumax showing was recommended.

Limited soil sampling and prospecting in 1999 on the Upper Zone returned extremely anomalous soil samples to 4,560 parts per billion gold.  A grid geochemical sampling and further prospecting in this area was recommended.

The Company has placed a deposit of $1,500 at January, 2007 (2006:$1,500), registered in the name of the Ministry of Finance of British Columbia, as security for estimated future reclamation costs.

Proposed Work Program.  Geological studies conducted late in 2002 concluded that the discoveries to date lie downslope of the mineral source.  A subsequent report in November 2004 recommended a Phase 1 program of more prospecting, geological mapping and additional soil sampling to determine the source of the mineralization.  Based on the results of this program, Phase 2 exploration would include trenching and possible diamond drilling but to date, no work program has been proposed.

Ownership.  The Olympic-Kelvin property is wholly owned by the Company and was acquired in 1987 when it acquired a 100% interest in 20 reverted Crown granted mineral claims, one located mineral claim and three fractions.  The property was written down entirely in fiscal 2002.

Property Description and Location.  The Olympic-Kelvin property totals approximately 662.5 hectares and is located on the south side of Carpenter Lake, five kilometers northeast of Goldbridge in the Lillooet Mining Division, British Columbia.

The Olympic-Kelvin property is easily accessible by the all-weather, publicly maintained, Grey Rock logging road which runs northeast from Goldbridge.  Access on the Olympic-Kelvin property is possible on a number of cat trails built by the Company and previous operators.

The Olympic-Kelvin property covers rocks of the Pioneer Formation and Bridge River Terrane.  These rocks are cut by northwest trending regional scale structures sub-parallel to the Ferguson and Cadwallader Structures.  The structures on the Olympic-Kelvin property are roughly the same distance from the Upper Cretaceous-Tertiary granitic Bendor Intrusions as the Bralorne/Pioneer mines.  These mines are the largest past producers in the Canadian Cordillera (4.1 million ounces).  The Bendor Intrusions are a postulated source for the gold mineralization at Bralorne, which is thought to be localized by a northwest to north flexure in the Cadwallader structure.  A similar flexure is present in the northwest trending structures on the Olympic-Kelvin property.  These structures on the property are mineralized with gold and silver and have received considerable past work, including at least four adits.

History.  The Company recommenced exploration on the Olympic-Kelvin property in January 2004, following up on work completed in 1988 that outlined two prospective areas for gold and silver, the Margarita Zone and the Enigma Zone.

In the Margarita Zone, hole OLY 88-4 returned 24 grams per tonne of gold over 0.85 metres within a much wider intersection of 8.2 grams per tonne of gold over 3.48 metres. The true width of this zone is estimated to be 1.47 metres. A large part of the zone is listwanite, indicating the potential for better grade mineralization immediately below this intersection.  Hole OLY 88-6 cut the same zone 75 metres to the northwest and returned 4.26 grams per tonne of gold over 1.34 metres within an eight metre section (5.6 m true width) of mainly listwanite.  The area of these intersections is approximately 50 metres off of the Gray Rock Road and could be accessed for mining purposes by an underground ramp from the road.

The Enigma Zone is a colour anomaly on the south shore of Carpenter Lake on Lot 6280, approximately 700 metres east, north-east of the Margarita Zone.  Trenching revealed a quartz stock work zone with areas of abundant stibnite. Sampling returned 1.7 grams per ton of gold over 21 metres within a 75 metre mineralized zone. This is a very wide zone for the Bridge River Camp and, if the zone has significant strike length, it could be amenable to open pit mining. Hole 04-0k-04 was drilled 154 metres under the Enigma Zone.  This hole returned highly anomalous gold values to 0.38 grams per tonne.  Detailed geological mapping and geochemical sampling has been recommended.

Drilling in January of 2005 was unsuccessful in intersecting the Margarita Zone.  One hole was drilled from the east to attempt to intersect the zone.  This hole was abandoned at 21.3 metres because of bad ground conditions.  No values of economic interest were returned from samples taken from the hole.

The Company has placed a deposit of $1,500 at January, 2007 (2006:$1,500), registered in the name of the Ministry of Finance of British Columbia, as security for estimated future reclamation costs.

No drilling on the Olympic Property was completed in 2006.

Proposed Work Program. No further work is proposed at this time.

Ownership.  The Minto Property is wholly owned by the Company and was acquired in early 1985 when it acquired its 100% interest in eight Crown granted mineral claims, eight reverted Crown granted mineral claims and one located mineral claim.  In fiscal 2002, the property was written down to a nominal value of $1.

Property Description and Location.  The Minto Property is situated about ten kilometers east of Goldbridge in the Bridge River gold district of British Columbia and adjoins the Olympic-Kelvin Property.   The property covers approximately 204 hectares.  The Minto property is situated in the Bralorne gold camp, about 160 kilometers, by air, north of Vancouver.  The claims occupy the lake bed and north flank of Carpenter Lake.  Access from Goldbridge is made via an all-weather gravel road which skirts the north shore of Carpenter Lake.

Gold Bridge itself can be reached from Vancouver via Hope and Lillooet, a distance of 445 kilometers, or via Pemberton using the four-wheel-drive Hurley Pass route, a distance of 225 km.

The terrain is rugged, typical of the eastern margin of the Coast Range Mountains.  The claim group ranges in elevation from 650 meters on Carpenter Lake to a maximum of 1020 meters.

The climate of the Bridge River District is transitional between humid coastal belt and more arid interior plateau.  Annual precipitation is modest with a significant proportion falling as snow in the winter.  Summers tend to be warm to hot depending on the altitude, and winters are moderately cold.

History.  The claim group has been explored intermittently for over sixty years and several gold-bearing structures are known on the property.  Production from the Minto mine between 1934 and 1940 amounted to 88,900 tons of ore returning 17,558 ounces of gold and 50,582 ounces of silver.  During 1985, geological, geochemical, and geophysical (VLF-EM) surveys were conducted and trenches were excavated in anomalous areas.  In-fill soil geochemistry and further trenching were undertaken in 1987.

A mechanized trenching program was carried out on the Minto Property in June, 2005 to test the Minto North and Jumper Zones.    Seven trenches were excavated, sampled, mapped and reclaimed, usually in a one day period.  Chip samples from all the trenches returned values from anomalous to economic levels in gold.

In December 2006, the Company announced the results of the 2006 drilling program on the Minto Property.  The four diamond core holes were drilled to explore down dip extensions of gold bearing structures originally discovered in trench 827 on the Minto North Zone.

Holes MO-06-01 and 02 were drilled from a site approximately 10 metres west of trench 827.  Hole MO-06-03 was drilled from a site approximately 2 metres north and 7 metres east of MO-06-01 and 02.  Hole MO-06-04 was drilled from the same set-up.

The gold bearing structures consist of sets of parallel narrow (1-2 mm) fractures containing quartz, carbonate, grey sulphide veinlets.  Assay samples from the four holes drilled conveyed from 1.04 grams per ten to 45.4 grams per ton.

Proposed Work Program.  One hole has been drilled to a depth of approximately 1,647 feet and the assay results are still pending.  No further work program has been proposed.

Ownership.  The Company owns 88.25% of the issued and outstanding securities of Cia Minera, a company incorporated under the laws of Mexico.  Cia Minera owns the Avino Mine.  The Company acquired its 49% interest in Cia Minera in 1968 and the additional interest of 39.25% in July 2006.  The Company continues to consider its options with relation to the remaining equity interest.

Cia Minera leases four core mineral claims in consideration for royalties.  The lessor is currently contesting the underlying royalty agreement and has filed a legal action claiming for royalties owing in the amount of approximately $3,531,731.  Cia Minera has accrued $755,140 and has paid an additional $244,000 into trust on account of the royalties owing for past mineral production. The Company has been in discussions with the lessor to settle the accrued liability based on the fact that the mine has not operated since shut down in 2001 and it may not re-open if a settlement is not reached. The Company is also in discussions with the remaining royalty holders.

Property Description and Location.  The Avino Mine is located approximately 74 kilometers to the northeast of the city of Durango and covers approximately 4,364 hectares.  The mine is accessible via road.  The Avino Mine had been an open pit operation until March 1993, at which time Cia Minera commenced underground operations.  Mineralized rock is broken by ripping, drilling and blasting and is trucked to the concentrator, approximately 415 meters from the pit, where it is processed. The Avino Mine was an underground operation at the time of closure.

History.  On July 17, 2006, the Company completed the acquisition of an additional 39.25% equity interest on Cia Minera in consideration of the issuance of an aggregate of 3,164,702 common shares of the Company.  As a result of this transaction, the Company increased its ownership in Cia Minera to 88.25% of total issued shares.  There was no change in the effective control of the Company as a result of this transaction. The Company has also acquired a further 1% interest in Cia Minera through the acquisition from an estate subject to approval and transfer of the shares to the Cmopany by the trustee for the estate.

The Avino Mine operated from 1974 to 2001, producing about 497 tons of silver, three tons of gold, and 11,000 tons of copper until the suspension of mining operations in November 2001.  Since that time, the mine plant and equipment have been on care and maintenance and the Company has spent $515,816 on the care and maintenance of the mine.

The Avino Mine and mill were historically serviced by a heavy equipment repair shop, a mechanical and electrical shop, an assay office, a metallurgical laboratory, a warehouse and other auxiliary facilities.  Electric power can be supplied by the government-owned Federal Electricity Commission, referred to as the "FEC" which presently is capable of supplying up to 2500 HP to the Avino Mine and mill.  As the mill is expanded, additional power must be obtained from the FEC.  In order to obtain the additional electric power, it has been necessary for the FEC in 1983 to construct a new power line approximately 12 miles in length which is capable of supplying an additional 2750 HP, sufficient for the maximum proposed increase in mill capacity.

Water for use at the mill is primarily obtained from: (i) wells; (ii) old underground workings; and (iii) earth dams.  In prior years, the water supply has been insufficient to increase the capacity of the mill. In 1989, Cia Minera constructed a dam in hope of storing water for use in the dry season.  The dam has a capacity of 1,000,000 cubic meters.  Cia Minera had entered into an agreement with the Federal Government of Mexico for the repair and improvement of a government dam located approximately five and one-half kilometers from the mine.  The contract provides that the Government and Cia Minera will each contribute 50% of the cost of repairing the dam and raising the height by six meters and to construct a new spillway.  The work was substantially completed during 1989, and Cia Minera installed a pipeline system allowing water to flow from the Government dam to the mill.  The contract provides that Cia Minera will share the use of the Government dam with local farmers.  The local farmers have priority for the use of a specific volume of the water and the balance is available for use by the mine.  The water can be transmitted to the mine by means of five kilometers of pipe which has been installed by Cia Minera. In early 1996, Cia Minera also drilled a well 400 meters in depth on a property owned by Cia Minera, ten kilometers from the mill site.  A pipeline has been constructed, and Cia Minera has sufficient water for its own needs.  Further, from 1995 to 1998, Mexico experienced a drought.  While the drought adversely affected operations in late 1995 until April 1996, Cia Minera believes that the new well will adequately meet its water requirements. In addition, Cia Minera utilizes water conservation practices, such as recirculation of water and capturing rain water in earth dams.

In April 2006, Wardrop Engineering Inc., which we refer to as "Wardrop", completed the study on "Tailings Retreatment Process Options for the Avino Tailings Project in Durango, Mexico", referred to as the "Wardrop Report".  The Wardrop Report concluded the oxide tailing is amenable to cyanidation with agglomerated heap leach as the method of choice followed by Merril Crowe precipitation of the silver and gold.  The sulphide tailing would require sampling and further metallurgical test work before a proper assessment can be made.

The preliminary evaluation of the oxide tailings suggested the capital cost for a 500,000 ton per year, 4 year operation is US$16,200,000 and the cost to operate per ton of tailings is US$8.64.  Capital Costs for a plant twice the size and half the life was US$22,700,000.  The internal rate of return and the net present value favoured the 4 year operation.

The capital cost estimate includes a 25% contingency and it is based on new equipment.  A reduction in capital cost can be accomplished with good used equipment.

The disclosure of the implied values is preliminary in nature and includes inferred mineral resources that are considered to be too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary assessment will be realized.

The heap leach process design in the study was based on a column test performed at Process Research Associates Limited from a composite of samples from the lower and middle bench. These samples were collected and documented in the October 2005 report entitled "A Tailings Resource" by Minestart Management Inc. for whom the qualified person was Bryan Slim, MBA, P. Eng. Recovery of silver and gold from the column test was 73% and 78.9% respectively after 81 days.

Mr. Rick Alexander P. Eng., an independent qualified person as defined by applicable Canadian rules has prepared the capital cost estimate and co-coordinated Wardrop's work on the Avino Tailings Project.

In December 2006, the Company announced results of the first 6 diamond core drill holes exploring the Avino silver, gold and copper deposit at its wholly owned property 80 km northeast of Durango, Mexico.

The Company operated the mine from 1976 to 2001 when closure was caused by low silver, gold and copper prices and the local smelter closing for toll processing.  The 2006 drill program was designed to test for continuity down dip below the existing workings of the three principal areas of mineralization (San Luis, Elena-Tolosa, and Chirumbo). The Avino vein system strikes principally east west over 1.2 km and dips south at 60 - 70˚.

The initial hole CH-06-03 intersected the Avino vein system 180 m below the original Chirumbo workings.  The hole intersected both the main Vein/Breccia zone and the footwall breccias as follows:

CH-06-03 Azimuth 340˚ Dip - 50˚ length 453.75 m

Avino Vein 182.8 – 194.8 m, (12 m), 32.61 g/t Ag, 0.29% Cu

Footwall Breccia 204.8 m – 216.8 m, (12 m), 52.41 g/t Ag, 0.31% Cu

(Down Hole Lengths)  True widths are not known.

The four holes ET-06-01, 02, 03, 04 explored the down dip and down plunge, extension of the main ore shoot (Elena-Tolosa) on which most underground mining has occurred in the past.  Holes ET-06-01 and ET-06-02 intersected the Avino Vein System approximately 40 m below Level 11 ½ (the last level in production when the mine closed in November 2001).  Holes ET-06-03 and ET-06-04 intersected the ore-zone approximately 180 m below Level 11 ½.  Results from the four holes were as follows:

(All lengths are down hole) True widths are not known.

•           ET-06-01                      AZ 340                      Dip – 50                      Length 431.2 m

•           ET-06-02                      AZ 340                      Dip – 50                      Length 416.70 m

•           ET-06-03                      AZ 340                      Dip – 50                      Length 421.15 m

•           ET-06-04                      AZ 340                      Dip – 50                      Length 444.05 m

Hole SL-06-01 was drilled below the San Luis workings at the western end of the Avino Vein System.  Details were as follows:

•           SL-06-01 Azimuth 000 Dip - 90˚, Length 219.2 m

Drill core from the holes was assayed by Inspectorate Labs at their facilities in Durango Mexico and Sparks Nevada U.S.A.  The assay methods were gold (Au) fire assay with AA finish, silver (Ag) fire assay with gravimetric finish and copper (Cu) by 30 element ICP package.  Sampling procedures, chain of custody etc. are compliant with NI 43-101.

To date in 2007, the Company has drilled 42 holes on the Avino Property totaling 8,643 metres.  Significant intersections are as follows:

Sample lengths of the NQ drill core were diamond sawed into halves by mine staff and shipped to Inspectorate Labs in Durango, Mexico, for preparation into pulps and rejects. Pulps were analyzed at Inspectorate Labs in Sparks, Nevada. Gold and silver were analyzed by fire assay using Aqua Regia Leach and AA finish. Other elements are reported from a 29 element I.C.P. package.

Sample lengths of the NQ drill core were diamond sawed into halves by mine staff and shipped to Inspectorate Labs in Durango, Mexico, for preparation into pulps and rejects.  Pulps were analyzed at Inspectorate Labs in Sparks, Nevada.  Gold and silver were analyzed by fire assay using Aqua Regia Leach and AA finish.  Other elements are reported from a 29 element I.C.P. package.

The Company is now focusing on drilling the San Gonzalo vein system in order to establish a drill indicated resource for San Gonzalo.  The Company has also recently completed building a new drill core storage facility which will store in excess of 40,000 metres of core.

Subsequent to the year end, the Company announced the results of a seven hole diamond drill program on the San Gonzalo gold, silver, lead, zinc structure situated 2 km northeast of its former producing Avino mine (1976 – 2001).

The San Gonzalo structure strikes northwest/southeast and dips very steeply (85-90°) towards the southwest.  The principal intersections are:

Hole SG-07-08 missed the ore shoot and encountered only low gold and silver values. For holes SG-07-09, 10 and 11 only gold results have been received to date. We will release results when silver and base metal assays are received.

The Company also announced significant intersections from holes SG-07-12 and SG-07-13 as follows:

SG-07-12 (Dip 53 total length 175.45 m)

Down hole intersection length 165.65 -- 169.45 m (3.80 m) 9.5 g/t gold, 655 g/t silver, 574 ppm copper, 2,872 ppm lead, 2503 ppm zinc.

In September 2006, the Company commissioned an independent plant audit by Herb Osborne and Associates, a widely recognized expert in process plant evaluations, to conduct a full review of the plant, including the condition of all equipment, the capacity of each circuit, and the efficiency of plant.  The report was an order of magnitude cost estimate for the processing plant and is not NI 43-101 compliant as it does not include underground development work.

The Avino process plant was built initially in the 1970’s refurbished and capacity increased in 1993.  Most of the infrastructure is in place for an ongoing 1000 TPD operation.  Some of the buildings will require cleanup and repair and refurbishment.  The plant was fully permitted but remains in temporary closure.  Permits will have to be brought current.

At the time of shutdown in 2001 with low commodity prices the mill was operating at an average rate of 1130 TPD.  The concentration ratio (weight) ranged from 2.5 to 3.5% i.e. producing 25-30 TPD of concentrate at a 20-25 g/t Au, 2-4 Kg/t Ag and 22-24% Cu.  Prior to shut down the average cost per ton milled was approximately US $16/ton and about US $7/ton for freight treatment and refining charges from the smelter.   A new mining value cut off grade was determined to be around US $30/ton.  This followed a review of the historical production and financial figures.

The report concluded that the process plant can be brought back into operation in as little as three months contingent upon the availability of operators and mechanics for about US $1 million for an operating life of 5 to 10 years.  A more realistic schedule would be nine months to accommodate the time required to ready the mine for continuous production.  The operating life of 5 to 10 years refers to the operating life of the processing plant after the capital expenditures and not the operating life of the mine. The Company has not completed a feasibility study and this should not be perceived as a projection.

The report also concluded that the existing tailings pond is near capacity and that there is adequate space with reasonable gradients adjacent to the existing tailings to construct a new tailings area as well as space for a future heap leach operation on previously disturbed ground.  Order of magnitude cost estimate for this tailings facility is based on a starter dam and monitoring devices necessary for a ten year life is a little over US $2 million.

Total capital expenditure to achieve a 10 year operating plan is therefore estimated to be around US $3 million and a reasonable valuation of the property as an operating entity is US $40 million.  The valuation of US $40 million by Herb Osborne and Associates is the construction value for a new 1,000 TPD plant with new equipment and is not a value of the property as an operating entity.

The Company is also considering dewatering the main trackless decline ramp in 2007.  This will allow access for development of underground workings and drilling to bring the ore blocks into NI 43-101 compliance.

In December 2006, the Company contracted Peter E. Walcott and Associates to carry out a 80 km line deep penetrating IP Survey at its Avino property in Mexico.  IP Geophysics will help identify drill targets for the upcoming year.

The survey explored several areas of Avino’s extensive holdings in the district.  Of particular interest was the Gap Zone between the former producing mine (1976 – 2001) and the Cerro San Jose area.  In addition the area west of the former producing mine will be explored at depth.

Proposed Work Program.  We are currently completing a preliminary feasibility study for the recovery and processing of the oxide mine tailings deposited between 1974 and 1993.  The Wardrop Report recommends perimeter test work on tailings and advance to pre-feasibility study.  We are proposing to drill approximately 20 holes at San Gonzalo to a depth of approximately 2,400 meters at a cost of approximately US$0.6 million and a further 11 holes on the Main ET Vein to a depth of approximately 3,700 meters at a cost of approximately US$0.5 million.

On November 26, 1991, the Company acquired a 100% interest in a property consisting of 154 Crown granted mineral claims, five reverted Crown granted claims, four located mineral claims and two placer leases.  These interests are collectively referred to as the "Bralorne Property".    Pursuant to an option and joint venture agreement with Bralorne dated July 21, 1993 and amended on July 12, 1994, referred to as the "JV Agreement", Bralorne acquired the right to acquire a 50% interest in the Bralorne Property.  We then entered into a further agreement with Bralorne Gold Mines Ltd., referred to as "Bralorne", dated July 21, 1995 under which the original JV Agreement was amended.  Under the terms of the amended agreement, Bralorne acquired its 50% interest in the Bralorne Property.  The Bralorne Property was then operated as a joint venture between the Company and Bralorne.

Effective June 20, 2002, the Company transferred its interest in the Bralorne Property to Bralorne for a nominal amount of $1 and the assumption by Bralorne of the full amount of the principal of US$2,000,000 and interest payable under the mortgage bonds originally issued for a loan obtained by the Company and Bralorne in 1995, the proceeds of which were to be used for further development of the Bralorne Property.  As a result of the disposition of the Bralorne Property, the Company recognized a loss of $40,097 and removed certain assets and liabilities from proportionate consolidation in 2003.

This discussion and analysis of the operating results and the financial position of the Company for the years ended January 31, 2007, 2006 and 2005 should be read in conjunction with the financial statements and the related notes attached hereto (item17).

Our financial statements are prepared in accordance with Canadian GAAP which has several notable differences from US GAAP.  Canadian GAAP permits the deferral of acquisition and exploration costs, subject to periodic adjustments for impairment, whereas US GAAP requires that such costs be expensed in the period incurred.  Canadian GAAP also requires that investments available for sale be recorded at the lower of cost and market with long-term investments in marketable securities being written down to market when impairment is considered other than temporary, in which case the written down value becomes the new cost base.  US GAAP requires investments available for sale to be recorded at market and unrealized holding gains or losses to be charged to comprehensive income or loss. See. Note 20 to the financial statements which sets out a reconciliation between Canadian and US GAAP.

General and administrative expenses totaled $4,014,734 for the year ended January 31, 2007 compared with $1,416,797 for the year ended January 31, 2006, an increase of $2,597,937. The largest individual expense increase for the period is due to the recognition of stock based compensation for options to employees.  The amount charged to operations in the fiscal 2007 year was $2,860,603 compared to $725,125 in fiscal 2006, a difference of $2,135,478.  The stock-based compensation is not a cash expense.  It is the fair value attributed to the stock options granted in a particular period to employees and directors of the Company based on the Black-Scholes pricing model.  In fiscal 2007, there were a higher number of options granted compared to the previous year, thus resulting in a higher stock-based compensation.  Once the fair value of the stock options is determined, the amount is charged to operations over the vesting period along with a corresponding value applied to contributed surplus.

The balance of the increase in operation and administrative costs for fiscal 2007 over fiscal 2006 is due to increases in amortization of $1,697, general exploration of $106,899, management fees of $27,000, office and miscellaneous costs of $26,484, regulatory and compliance fees of $12,726, salaries and benefits of $14,284, shareholder and investor relations of $267,476 and travel and entertainment of $19,457. The only reduction in operating and administrative expenses in fiscal 2007 was to professional fees for $13,564.  The higher general exploration costs, management fees, office and miscellaneous costs, salaries and benefits and travel and entertainment expenses in fiscal 2007 are due to the same reasons discussed above for the three month period comparison.  Regulatory and compliance fees were higher in fiscal 2007 due to the filing fees associated with the $10 million private placement.  In regards to significantly higher shareholder and investor relations costs in fiscal 2007, part of the reason was increased promotional and advertising efforts and investor relations service agreements that did not exist in fiscal 2006.  Another reason is that some investor relations service providers received more stock options in fiscal 2007 than fiscal 2006 as per terms of their agreements.  As described above for stock-based compensation on options granted to employees and directors, the value of these options are determined in the same manner but instead are charged to shareholder and investor relations as the options become vested.  Within the $464,806 in shareholder and investor relations expenses in fiscal 2007, $195,600 is for stock based compensation which is not paid in cash.  In comparison, in fiscal 2006 the shareholder and investor relations expense included an amount of $103,981 that was due to stock based compensation, a difference of $91,619.

Loss for the year ended January 31, 2007 was $3,648,539 compared with a loss of $2,369,724 for the year ended January 31, 2006, an increase of $1,278,815.  This increase was due to larger operating and administrative expenses discussed above.  One factor that reduced the overall loss in fiscal 2007 was an increase of $384,158 in interest income over fiscal 2006 which partially offset the increase in operating and administrative expenses.  Other changes were an increase of $30,464 in foreign exchange losses in fiscal 2007 over fiscal 2006, and the year ended January 31, 2006 had several other expense items that were either not incurred or were much less in fiscal 2007.  These were the write-downs of marketable securities and mineral properties and a significantly higher equity loss in Cia Minera that were noted earlier in the fourth quarter loss comparison.

Operating and administrative expenses totaled $1,416,788 for the year ended January 31, 2006 compared with $506,010 for the year ended January 31, 2005, an increase of $910,778.  In 2006 there was stock options granted to employees, directors and consultants of the Company which resulted in a stock-based compensation expense of $829,106 charged to operations compared to $ 81,540 in the 2005 fiscal year.  When stock-based compensation is removed from both periods, the increase in operating and administrative expenses for fiscal 2006 becomes $163,212.  This increase was primarily a result of an increase of $106,012 in professional fees, office and miscellaneous costs of $23,455, salary and benefit of $4,219, shareholder and investor relations of $34,305 and $13,269 in travel and entertainment.  There was a decrease in regulatory in compliance fees of $17,773.

Professional fees were extraordinarily high in year ended January 31, 2006 due to legal fees associated with completing SEC form 20-F filing requirements for each year dating back to 2001.  As well there were legal fees associated with the Company being listed on the Frankfurt Stock Exchange.  Share holder investor relations expense was higher due to the increased amount of distribution of shareholder information.  Travel costs were higher due to efforts associated with Cia Minera in Mexico and trips to Europe to attend trade shows and meet with potential investors.

The loss for the year ended January 31, 2006 was $2,369,724 compared with a loss of $814,710 for the year ended January 31, 2005, an increase of $1,555,014. Higher operating and administrative expenses in YTD-2006 as discussed above accounted for $910,778 of the increase. In addition, there were write-downs of $217,000 in marketable securities and $103,242 on the Eagle property.  Because of less costs concerning the feasibility study in regards to the proposed acquisition of the remaining 51% interest in Cia Minera, due diligence costs went from $391,899 in fiscal 2005 to $355,921 in fiscal 2006, a decrease of $35,978.   Due diligence charged to operations during the year ended January 31, 2006 is comprised of $133,915 for geological and metallurgical services, $26,054 in professional fees and $195,952 for advances to Cia de Minera on account of its operations compared to $128,419 for geological and metallurgical services, $22,964 in professional fees and $240,516 for advances to Cia de Minera on account of its operations during the year ended January 31, 2005.  Interest income increased from $41,999 in fiscal 2005 to $46,073 in fiscal 2006 as approximately $525,000 more cash was held in guaranteed investment certificates at January 31, 2006 compared to 2005. The difference is also attributed to slightly higher interest rates.

During the year ended January 31, 2007 the Company incurred expenditures that increased its mineral property carrying value on their British Columbian properties by $51,751 and $10,225,805 on their Mexican properties.  At this time the Company has no operating revenues but did earn interest income of $430,231 in fiscal 2007 compared to $46,073 in fiscal 2006.

At January 31, 2007, the Company had working capital of $9,780,917 and cash and cash equivalents of $11,045,106.  During the fiscal 2007 year, the Company raised gross proceeds of $10,000,000 through a private placement of 5,000,000 shares at a price of $2.00 per share. The Company also raised proceeds of $585,866 from the exercising of 456,700 stock options and $3,125 from the exercising of 1,250 warrants.  The Company is continuing its exploration programs in Mexico and British Columbia and the estimated drilling costs for the following year is $1,250,000 and $70,000 respectively.  The Company has sufficient cash on hand at this time to finance their planned exploration work on its mineral properties and maintain administrative operations through January 31, 2008.

The Company is in the exploration stage until such time that the Avino mine is opened again. The investment in and expenditures on the mineral property comprise most of the Company’s assets along with a lesser asset amount in regards to the Avino mine facilities and equipment. The recoverability of amounts shown for its mineral property interest and related deferred costs and the Company’s ability to continue as a going concern is dependent upon the continued support from its directors, the discovery of economically recoverable reserves and the ability of the Company to obtain the financing necessary to complete development and achieve profitable operations in the future. The outcome of these matters cannot be predicted at this time.

Mineral exploration and development is capital extensive, and in order to re-commence operations at Cia Minera, the Company may be required to raise new equity capital in the future. There is no assurance that the Company will be successful in raising additional new equity capital.

The Company feels it has sufficient working capital to meet its current obligations and operating expenses. The Company has sufficient cash on hand at this time to finance planned exploration work on its mineral properties and maintain administrative operations. Mineral development is capital intensive, and in order to re-commence operations at Cia Minera, the Company may be required to raise new equity capital in the future. There is no assurance that the Company will be successful in raising new equity capital.

As the Company is a mineral exploration company with no research and development, the information required by this section is not applicable.

As the Company is a mineral exploration company with no currently producing properties, the information required by this section is not applicable.

The Company does not have any off-balance sheet arrangements.

Certain statements in this Annual Report, including those appearing under this Item 5, constitute "forward-looking statements" within the meaning of the United StatesPrivate Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended.  Additionally, forward-looking statements may be made orally or in press releases, conferences, reports, on our website or otherwise, in the future, by us or on our behalf.  Such statements are generally identifiable by the terminology used such as "plans", "expects", "estimates", "budgets", "intends", "anticipates", "believes", "projects", "indicates", "targets", "objective", "could", "may", or other similar words.

The forward-looking statements are subject to known and unknown risks and uncertainties and other factors that may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements.  Such factors include, among others: market prices for metals; the results of exploration and development drilling and related activities; economic conditions in the countries and provinces in which we carry on business, especially economic slowdown; actions by governmental authorities including increases in taxes, changes in environmental and other regulations, and renegotiations of contracts; political uncertainty, including actions by insurgent groups or other conflict; the negotiation and closing of material contracts; and the other factors discussed in Item 3 Key Information – "Risk Factors", and in other documents that we file with the SEC.  The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon other factors; our course of action would depend upon our assessment of the future considering all information then available.  In that regard, any statements as to future production levels; capital expenditures; the allocation of capital expenditures to exploration and development activities; sources of funding of our capital program; drilling; expenditures and allowances relating to environmental matters; dates by which certain areas will be developed or will come on-stream; expected finding and development costs; future production rates; ultimate recoverability of reserves; dates by which transactions are expected to close; cash flows; uses of cash flows; collectability of receivables; availability of trade credit; expected operating costs; expenditures and allowances relating to environmental matters; debt levels; and changes in any of the foregoing are forward-looking statements, and there can be no assurances that the expectations conveyed by such forward-looking statements will, in fact, be realized.

Although we believe that the expectations conveyed by the forward-looking statements are reasonable based on information available to us on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity, achievements or financial condition.

Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results, which may not occur as anticipated.  Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described above, as well as others not now anticipated.  The foregoing statements are not exclusive and further information concerning us, including factors that could materially affect our financial results, may emerge from time to time.  We do not intend to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

The following is a list of the Company's directors and senior management as at July 18, 2007.  The directors were re-elected by the Company's shareholders on July 17, 2007 and are elected for a term of one year, which term expires at the election of the directors at the next annual meeting of shareholders.

Beginning in the third quarter of the 2007 fiscal year, the independent directors of the Company have been compensated $750 per quarter by the Company in their capacities as directors.  The Chairman of each committee is also paid $250 per quarter.  During the year ended January 31, 2006, the Company paid an aggregate of $87,000 to Intermark Capital Corp., a private company controlled by David Wolfin, president and director of the Company for management advisory services.  The Company paid an aggregate of $53,837 to ABC Drilling Services Inc., a private company whose common directors include Louis Wolfin and David Wolfin for drilling services, referred to as "ABC Drilling".  The Company paid an aggregate of $84,279 to National Media Associates Inc., referred to as "National Media", a business significantly influenced by Michael Baybak, a director of the Company for investor relations services.  Incentive stock have been granted to non-executive directors and other insiders of the Company and are outstanding to purchase an aggregate of 180,000 common shares at a price of $1.20 per share exercisable on or before October 21, 2008, of which 138,200 have been exercised, 180,000 shares of the Company  at a price of $1.35 per share exercisable on or before April 5, 2010 and September 26, 2010, of which 7,500 have been exercised and 380,000 shares of the Company at a price of $3.99 per share exercisable on or before April 26, 2011, none of which have been exercised.

The following table sets forth particulars concerning the compensation paid or accrued for services rendered to the Company in all capacities during each of the last three financial years of the Company to its Chief Executive Officer, Chief Financial Officer and to the other executive officers of the Company who received a combined salary and bonus in excess of $150,000 (the “Named Executive Officers” during the financial year ended January 31, 2006).

During the most recent fiscal year, stock options have been granted to the Named Executive Officers as follows:

The Company currently maintains a formal stock option plan, referred to as the "Plan", under which stock options have been granted and may be granted to purchase a number equal to 10% of the Company's issued capital from time to time.  To date, stock options to purchase a total of up to 1,451,300 shares have been granted and remain outstanding under the Plan, leaving options for 607,173 available for issuance.

There are no employment contracts between the Company and its executive officers and the Company has no compensatory plan or arrangement with respect to its executive officers in the event of the resignation, retirement or any other termination of the executive officers' employment with the Company or in the event of a change of control of the Company or in the event of a change in the executive officers' responsibilities following a change in control, where in respect of the executive officers the value of such compensation exceeds $100,000.

The board of directors is currently comprised of five directors.  The size and experience of the board is important for providing the Company with effective governance in the mining industry.  The board's mandate and responsibilities can be effectively and efficiently administered at its current size.  The chairman of the board is not a member of management.  The board has functioned, and is of the view that it can continue to function, independently of management as required.  At the Annual General Meeting, held on July 17, 2007, the shareholders elected Messrs. Andrews, Baybak, Robertson, Wolfin and Wolfin as directors.

The board has considered the relationship of each director to the Company and currently considers three of the five directors to be "unrelated" (Messrs. Andrews, Baybak and Robertson).  "Unrelated director" means a director who is independent of management and free from any interest and any business or other relationship which could reasonably be perceived to materially interfere with the director's ability to act with a view to the best interest of the Company, other than interests and relationships arising solely from shareholdings.

Two of the directors (Messrs. Wolfin and Wolfin) are related family members.

Procedures are in place to allow the board to function independently.  At the present time the board has experienced directors that have made a significant contribution to the Company's success, and are satisfied that it is not constrained in its access to information, in its deliberations or in its ability to satisfy the mandate established by law to supervise the business and affairs of the Company.  Committees meet independent of management and other directors.

The role of the board is to oversee the conduct of the Company's business, including the supervision of management, and determining the Company's strategy.  Management is responsible for the Company's day to day operations, including proposing its strategic direction and presenting budgets and business plans to the board of directors for consideration and approval.  The strategic plan takes into account, among other things, the opportunities and risks of the Company's business.  Management provides the board with periodic assessments as to those risks and the implementation of the Company's systems to manage those risks.  The board reviews the personnel needs of the Company from time to time, having particular regard to succession issues relating to senior management.  Management is responsible for the training and development of personnel.  The board assesses how effectively the Company communicates with shareholders, but has not adopted a formal communications policy.  Through the audit committee, and in conjunction with its auditors, the board assesses the adequacy of the Company's internal control and management information systems.  The board looks to management to keep it informed of all significant developments relating to or effecting the Company's operations.  Major financings, acquisitions, dispositions and investments are subject to board approval.  A formal mandate for the board of directors and the chief executive officer has not been considered necessary since the relative allocation of responsibility is well understood by both management and the board.  The board meets as required.  The board and committees may take action at these meetings or at a meeting by conference call or by written consent.

The audit committee assists the board in its oversight of the Company's financial statements and other related public disclosures, the Company's compliance with legal and regulatory requirements relating to financial reporting, the external auditors, qualifications and independence and the performance of the internal audit function and the external auditors.  The committee has direct communications channels with the Company's auditors. The committee reviews the Company's financial statements and related management's discussion and analysis of financial and operating results.  The committee can retain legal, accounting or other advisors.

The audit committee currently consists of three directors (Messrs. David Wolfin, Lloyd Andrews and Gary Robertson).  Two of the members are unrelated and all of whom are financially literate, and have accounting or related financial expertise. "Financially literate" means the ability to read and understand a balance sheet, an income statement, and a cash flow statement.  "Accounting or related financial expertise" means the ability to analyze and interpret a full set of financial statements, including the notes attached thereto, in accordance with Canadian GAAP.

The board has adopted a charter for the audit committee which is reviewed annually and sets out the role and oversight responsibilities of the audit committee with respect to:

The compensation committee consists of two unrelated directors (Messrs. Robertson and Andrews) and one related director (Mr. D. Wolfin).  It is intended that the compensation committee will eventually be comprised of solely unrelated directors.

The corporate governance committee assists the board in establishing the Company’s corporate governance policies and practices generally, identifying individuals qualified to become members of the board, reviewing the composition and functioning of the board and its committees and making recommendations to the board of directors as appropriate.  When considering nominees to the board the committee’s mandate requires that it consider the current composition of the board and give consideration to candidates having experience in the industry, life experience and background.  The committee is also responsible for the Company’s corporate governance guidelines.  The committee may retain legal or other advisors.

The corporate governance committee currently consists of three directors (Messrs. Lloyd Andrews, Gary Robertson and Louis Wolfin).  Messrs. Andrews and Robertson are unrelated directors.  It is intended that this committee will eventually be comprised solely of unrelated and independent directors.

The Company has one employee located in Mexico.

The following table sets forth the share ownership of the directors and officers of the Company as of July 10, 2007.

The following information, as of July 10, 2007, reflects outstanding options held by the Named Executive Officers:

As far as it is known to the Company, it is not directly or indirectly owned or controlled by any other corporation or by the Canadian Government, or any foreign government, or by any other natural or legal person.

As of July 11, 2007 the Company knew of no person who owned more than five (5%) percent of the outstanding shares of each class of the Company's voting securities.

There is an amount due from a related party of $64,933 (2006 - $83,000) from ABC Drilling.  The amount due is non-interest bearing, unsecured and has no stated terms of repayment.  The Company had also paid an exploration advance of $39,000 in a prior period of which the entire amount has been applied to drilling services performed during the current period.

Amounts due to related parties consist of $105 (2006 - $16,710) due to a private company controlled by a Director of the Company, $7,500 (2006 - $Nil) due to a directors and $133,919 (2006 - $161,563) due to Oniva.

Not Applicable.

The following financial statements of the Company are attached to this Annual Report:

The Company has never paid any dividends and does not intend to in the near future.

None.

The common shares of the Company are listed on the TSX-V under the symbol "ASM", on the FSE under the symbol "GV6" and quoted in the United States on the OTC BB, under the symbol "ASGMF".

As of July 6, 2007, there were 706 holders of record in the United States holding 68.88% of the Company's outstanding common shares representing approximately 23.43% of the total shareholders.  The Company's common shares are issued in registered form and the percentage of shares reported to be held by record holders in the United States is taken from the records of the Pacific Corporate Trust Company in the City of Vancouver, the registrar and transfer agent for the common shares.

The following sets forth the high and low prices expressed in Canadian Dollars on the TSX-V for the Company's common shares for the past five years, for each quarter for the last two fiscal years, and for the last six months.

Not Applicable.

The common shares of the Company are listed on the TSX-V under the symbol "ASM", on the FSE under the symbol "GV6" and quoted in the United States on the OTC BB, under the symbol "ASGMF".

Not Applicable.

Not Applicable.

Not Applicable.

Not Applicable.

All issued and outstanding common shares are fully paid and non-assessable.  Each holder of record of common shares is entitled to one vote for each common share so held on all matters requiring a vote of shareholders, including the election of directors.  The holders of common shares will be entitled to dividends on a pro-rata basis, if and when as declared by the board of directors.  There are no preferences, conversion rights, preemptive rights, subscription rights, or restrictions or transfers attached to the common shares.  In the event of liquidation, dissolution, or winding up of the Company, the holders of common shares are entitled to participate in the assets of the Company available for distribution after satisfaction of the claims of creditors.

The directors shall manage or supervise the management of the affairs and business of the Company and shall have authority to exercise all such powers of the Company as are not, by the British Columbia Business Corporations Actor by the Memorandum or the Articles, required to be exercised by the Company in a general meeting.

Directors will serve as such until the next annual meeting.  In general, a director who is, in any way, directly or indirectly interested in an existing or proposed contract or transaction with the Company whereby a duty or interest might be created to conflict with his duty or interest as a director, shall declare the nature and extent of his interest in such contract or transaction or the conflict or potential conflict with his duty and interest as a director.  Such director shall not vote in respect of any such contract or transaction with the Company in which he is interested and if he shall do so, his vote shall note be counted, but he shall be counted in the quorum present at the meeting at which such vote is taken.  However, notwithstanding the foregoing, directors shall have the right to vote on determining the remuneration of the directors.

The directors may from time to time on behalf of the Company:  (a) borrow money in such manner and amount from such sources and upon such terms and conditions as they think fit; (b) issue bonds, debentures and other debt obligations; and (c) mortgage, charge or give other security on the whole or any part of the property and assets of the Company.

The directors of the Company must be persons of the full age of 18 years. There is no minimum share ownership to be a Director.  No person shall be a Director of the Company who is not capable of managing their own affairs; is an undischarged bankrupt; convicted of an offense in connection with the promotion, formation or management of a corporation or involved in fraud within the last five years; or a person that has had a registration in any capacity under the British Columbia Securities Act or the British Columbia Mortgage Brokers Act canceled within the last five years.

An annual general meeting shall be held once in every calendar year at such time and place as may be determined by the directors.  A quorum at an annual general meeting and special meeting shall be two shareholders or one or more proxy holders representing two shareholders, or one shareholder and a proxy holder representing another shareholder.  There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote the common shares, other than as provided in the Investment Canada Act, referred to as the "Investment Act", discussed below under "Item 10. Additional Information, D. Exchange Controls."

In accordance with British Columbia law, directors shall be elected by an "ordinary resolution" which means: (a) a resolution passed by the shareholders of the Company at a general meeting by a simple majority of the votes cast in person or by proxy; or (b) a resolution that has been submitted to the shareholders of the Company who would have been entitled to vote on it in person or by proxy at a general meeting of the Company and that has been consented to in writing by such shareholders of the Company holding shares carrying not less than the requisite majority of the votes entitled to be cast on it.

Under British Columbia law certain items such as an amendment to the Company's articles or entering into a merger requires approval by a special resolution which means: (a) a resolution passed by a majority of not less than the requisite majority of the votes cast by the shareholders of the Company who, being entitled to do so, vote in person or by proxy at a general meeting of the company; or (b) a resolution consented to in writing by every shareholder of the Company who would have been entitled to vote in person or by proxy at a general meeting of the Company, and a resolution so consented to is deemed to be a special resolution passed at a general meeting of the Company.

The Company entered into a share exchange agreement dated for reference the 9^th day of June, 2004 with Pedro Sanchez Mejorada, Fernando Ysita Del Hoyo, Francisco Ysita del Hoyo, Bernardo Ysita del Hoyo, Carlos Ysita del Hoyo, Manuel Ysita del Hoyo, Eduardo Ysita del Hoyo, Mercedes Ysita del Hoyo, Cia Minera and Promotora in connection with the acquisition of the remaining 51% interest in Cia Minera.  The consideration to be paid by the Company for the 51% interest consists of four million common shares of the Company.  This agreement was subject to a number of conditions including a satisfactory due diligence review and final regulatory approval. The TSX-V approved the agreement on October 18, 2005 and the acquisition of an additional 39.25% interest in Cia Minera was completed on July 17, 2006 for consideration of 3,164,702 common shares of the Company.  The Company now owns 88.25% of the total issued shares of Cia Minera and continues to consider its options with relation to the balance of the interest.

The Company entered into a cost sharing agreement dated October 1, 1997, and amended November 1, 2003 to reimburse Oniva International for a variable percentage of its overhead expenses, to reimburse 100% of its out-of-pocket expenses incurred on behalf of the company, and to pay a percentage fee based on the total overhead and corporate expenses.  The agreement may be terminated with one-month notice by either party.

The Company entered into a 12 month Investor Relations Agreement with Investor Relations Group Inc., formerly called Investors Relations Services Group John Mullen & Partners, referred to as "IRS", to provide investor relations services in Europe. In consideration for the services rendered, the Company has agreed to pay IRS fees of $2,000 per month plus expenses.  The agreement with IRS expires on October 5, 2007, and the Company’s commitment under the agreement as at January 31, 2007 totaled $16,000.

The Company has a contractual minimum drilling commitment for the exploration of its mineral properties in Durango, Mexico.  As at January 31, 2007 the Company is committed to drilling services at an estimated cost of $416,022, which is denominated in U.S. dollars (US$352,800).  Management has determined that the Company’s exploration in fiscal 2008 will likely exceed the minimum commitment, and thus the minimum drilling cost will be paid in fiscal 2008.

Please refer to note 19 of the financial statements included elsewhere in this Annual Report (Item 17) for further disclosure regarding material commitments.

Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of the Issuer’s securities, except as discussed in“10.E. Taxation” below.

There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of “control” of the Company by a “non-Canadian”. The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the Company. “Non-Canadian” generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.

The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of common shares in the capital of the Company by a United States resident, and who holds common shares solely as capital property, referred to as a "U.S. Holder".  This summary is based on the current provisions of the Income Tax Act (Canada), referred to as the "Tax Act", the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of Revenue Canada, Customs, Excise and Taxation, and the current provisions of the Canada-United States Income Tax Convention, 1980, as amended, referred to as the "Treaty".  Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including without limitation, any United States) tax law or treaty.  It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although no assurance can be given in these respects.

Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder's common shares.  The statutory rate of withholding tax is 25% of the gross amount of the dividend paid.  The Treaty reduces the statutory rate with respect to dividends paid to a U.S. Holder for the purposes of the Treaty.  Where applicable, the general rate of withholding tax under the Treaty is 15% of the gross amount of the dividend, but if the U.S. Holder is a company that owns at least 10% of the voting stock of the Company and beneficially owns the dividend, the rate of withholding tax is 5% for dividends paid or credited after 1996 to such corporate U.S. Holder.  The Company is required to withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of Canada for the account of the U. S. Holder.

Pursuant to the Tax Act, a U.S. Holder will not be subject to Canadian capital gains tax on any capital gain realized on an actual or deemed disposition of a common share, including a deemed disposition on death, provided that the U.S. Holder did not hold the common share as capital property used in carrying on a business in Canada, and that neither the U.S. Holder nor persons with whom the U.S. Holder did not deal at arms length (alone or together) owned or had the right or an option to acquire 25% or more of the issued shares of any class of the Company at any time in the five years immediately preceding the disposition.

The Company believes that it is a passive foreign investment company, referred to as a "PFIC" for United States federal income tax purposes with respect to a United States Investor.  The Company will be a PFIC with respect to a United States Investor if, for any taxable year in which such United States Investor held the Company's shares, either (i) at least 75 % of the gross income of the Company for the taxable year is passive income, or (ii) at least 50% of the Company's assets are attributable to assets that produce or are held for the production of passive income.  In each case, the Company must take into account a pro-rata share of the income and the assets of any company in which the Company owns, directly or indirectly, 25% or more of the stock by value (the "look-through" rules).  Passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived from the active conduct of a trade or business and not derived from a related person), annuities and gains from assets that produce passive income.  As a publicly traded corporation, the Company would apply the 50% asset test based on the value of the Company's assets.

Because the Company believes it qualifies as a PFIC, unless a United States Investor who owns shares in the Company (i) elects (a section 1295 election) to have the Company treated as a "qualified electing fund", referred to as a "QEF" (described below), or (ii) marks the stock to market (described below), the following rules apply:

A shareholder that makes a section 1295 election will be currently taxable on his or her pro-rata share of the Company's ordinary earnings and net capital gain (at ordinary income and capital gain rates, respectively) for each taxable year of the Company, regardless of whether or not distributions were received. The shareholder's basis in his or her shares will be increased to reflect taxed but undistributed income.  Distributions of income that had previously been taxed will result in a corresponding reduction of basis in the shares and will not be taxed again as a distribution to the shareholder.

A shareholder may make a section 1295 election with respect to a PFIC for any taxable year of the shareholder (shareholder's election year).  A section 1295 election is effective for the shareholder's election year and all subsequent taxable years of the shareholder.  Procedures exist for both retroactive elections and filing of protective statements.  Once a section 1295 election is made it remains in effect, although not applicable, during those years that the Company is not a PFIC.  Therefore, if the Company re-qualifies as a PFIC, the section 1295 election previously made is still valid and the shareholder is required to satisfy the requirements of that election.  Once a shareholder makes a section 1295 election, the shareholder may revoke the election only with the consent of the Commissioner.

If the shareholder makes the section 1295 election for the first tax year of the Company as a PFIC that is included in the shareholder's holding period, the PFIC qualifies as a pedigreed QEF with respect to the shareholder.  If a QEF is an unpedigreed QEF with respect to the shareholder, the shareholder is subject to both the non-QEF and QEF regimes.  Certain elections are available which enable shareholders to convert an unpedigreed QEF into a pedigreed QEF thereby avoiding such dual application.

A shareholder making the section 1295 election must make the election on or before the due date, as extended, for filing the shareholder's income tax return for the first taxable year to which the election will apply.  A shareholder must make a section 1295 election by completing Form 8621, attaching said Form to its federal income tax return, and reflecting in the Form the information provided in the PFIC Annual Information Statement, or if the shareholder calculated the financial information, a statement to that effect.  The PFIC Annual Information Statement must include the shareholder's pro-rata shares of the ordinary earnings and net capital gain of the PFIC for the PFIC's taxable year or information that will enable the shareholder to calculate its pro-rata shares.  In addition, the PFIC Annual Information Statement must contain information about distributions to shareholders and a statement that the PFIC will permit the shareholder to inspect and copy its permanent books of account, records, and other documents of the PFIC necessary to determine that the ordinary earnings and net capital gain of the PFIC have been calculated according to federal income tax accounting principles.  A shareholder may also obtain the books, records and other documents of the foreign corporation necessary for the shareholder to determine the correct earnings and profits and net capital gain of the PFIC according to federal income tax principles and calculate the shareholder's pro-rata shares of the PFIC's ordinary earnings and net capital gain.  In that case, the PFIC must include a statement in its PFIC Annual Information Statement that it has permitted the shareholder to examine the PFIC's books of account, records, and other documents necessary for the shareholder to calculate the amounts of ordinary earnings and net capital gain.  A shareholder that makes a Section 1295 election with respect to a PFIC held directly or indirectly for each taxable year to which the Section 1295 election applies must comply with the foregoing submissions.

Because the Company's stock is "marketable" under section 1296(e), a United States Investor may elect to mark the stock to market each year.  In general, a PFIC shareholder who elects under section 1296 to mark the marketable stock of a PFIC includes in income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the shareholder's adjusted basis in such stock.  A shareholder is also generally allowed a deduction for the excess, if any, of the adjusted basis of the PFIC stock over the fair market value as of the close of the taxable year.  Deductions under this rule, however, are allowable only to the extent of any net mark to market gains with respect to the stock included by the shareholder for prior taxable years.  While the interest charge regime under the PFIC rules generally does not apply to distributions from and dispositions of stock of a PFIC where the United States Investor has marked to market, coordination rules for limited application will apply in the case of a United States Investor that marks to market PFIC stock later than the beginning of the shareholder's holding period for the PFIC stock.

Special rules apply with respect to the calculation of the amount of the foreign tax credit with respect to excess distributions by a PFIC or inclusions under a QEF.

Sections 951 through 964 and Section 1248 of the Internal Revenue Code, referred to as the "Code", relate to controlled foreign corporations, referred to as "CFCs".  A foreign corporation that qualifies as a CFC will not be treated as a PFIC with respect to a shareholder during the portion of the shareholder's holding period after December 31, 1997, during which the shareholder is a 10% United States shareholder and the corporation is a CFC.  The PFIC provisions continue to apply in the case of a PFIC that is also a CFC with respect to shareholders that are less than 10% United States shareholders.

The 10% United States shareholders of a CFC are subject to current United States tax on their pro-rata shares of certain income of the CFC and their pro-rata shares of the CFC's earnings invested in certain United States property.  The effect is that the CFC provisions may impute some portion of such a corporation's undistributed income to certain shareholders on a current basis and convert into dividend income some portion of gains on dispositions of stock, which would otherwise qualify for capital gains treatment.

The Company does not believe that it will be a CFC.  It is possible that the Company could become a CFC in the future.  Even if the Company were classified as a CFC in a future year, however, the CFC rules referred to above would apply only with respect to 10% shareholders.

A corporation will be classified as a personal holding company, or a "PHC", if at any time during the last half of a tax year (i) five or fewer individuals (without regard to their citizenship or residence) directly or indirectly or by attribution own more than 50% in value of the corporation's stock and (ii) at least 60% of its ordinary gross income, as specially adjusted, consists of personal holding company income (defined generally to include dividends, interest, royalties, rents and certain other types of passive income).  A PHC is subject to a United States federal income tax of 39.6% on its undistributed personal holding company income (generally limited, in the case of a foreign corporation, to United States source income).

A corporation will be classified as a foreign personal holding company, or an "FPHC", and not a PHC if at any time during a tax year (i) five or fewer individual United States citizens or residents directly or indirectly or by attribution own more than 50% of the total combined voting power or value of the corporation's stock and (ii) at least 60% of its gross income consists of foreign personal holding company income (defined generally to include dividends, interest, royalties, rents and certain other types of passive income).  Each United States shareholder in a FPHC is required to include in gross income, as a dividend, an allocable share of the FPHC's undistributed foreign personal holding company income (generally the taxable income of the FPHC, as specially adjusted).

A corporation will be classified as a foreign investment company, or an "FIC", if for any taxable year it: (i) is registered under the Investment Company Act of 1940, as amended, as a management company or share investment trust or is engaged primarily in the business of investing or trading in securities or commodities (or any interest therein); and (ii) 50% or more of the value or the total combined voting power of all the corporation's stock is owned directly or indirectly (including stock owned through the application of attribution rules) by United States persons.  In general, unless an FIC elects to distribute 90% or more of its taxable income (determined under United States tax principles as specially adjusted) to its shareholders, gain on the sale or exchange of FIC stock is treated as ordinary income (rather than capital gain) to the extent of such shareholder's ratable share of the corporation's earnings and profits for the period during which such stock was held.

The Company believes that it is not and will not be a PHC, FPHC or FIC.  However, no assurance can be given as to the Company's future status.

Dividends are generally subject to the information reporting requirements of the Code.  Dividends may be subject to backup withholding at the rate of 31% unless the holder provides a taxpayer identification number on a properly completed Form W-9 or otherwise establishes an exemption.

The amount of any backup withholding will not constitute additional tax and will be allowed as a credit against the United States Investor's federal income tax liability.

Under a number of circumstances, a United States Investor acquiring shares of the Company may be required to file an information return.  In particular, any United States Investor who becomes the owner, directly or indirectly, of 10% or more of the shares of the Company will be required to file such a return.  Other filing requirements may apply and United States Investors should consult their own tax advisors concerning these requirements.

Not Applicable.

The Company files annual reports and furnishes other information with the SEC.  You may read and copy any document that we file at the SEC's Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 or by accessing the Commission's website (http://www.sec.gov).  The Company also files its annual reports and other information with the Canadian Securities Administrators via SEDAR (www.sedar.com).

Copies of the Company's material contracts are kept in the Company's administrative headquarters.

None.

Not Applicable.

None.

None.

The board of directors determined that Mr. Gary Robertson is qualified as an Audit Committee Financial Expert.  Mr. Robertson is independent as determined by the National Association of Securities Dealers listing standards.

The Company has not currently adopted a code of ethics but is evaluating its internal procedures to determine the necessity of same.  In the event that it is determined a code of ethics is necessary, an appropriate code will be implemented.

The independent auditor for the last fiscal year was Manning Elliot LLP.  For the fiscal years ending January 31, 2006 and 2005 the independent auditor was Vellmer & Chang, Chartered Accountants (formerly Hoogendoorn Vellmer, Chartered Accountants).

The aggregate fees billed by Manning Elliot LLP for professional services rendered for the audit of the Company's annual financial statements for the fiscal year ended January 31, 2007 was $101,800.  The aggregate fees billed by Vellmer & Chang for professional services rendered for the audit of the Company's annual financial statements for the fiscal year ended January 31, 2006 was $40,780.

There were no audit-related fees for the fiscal years ended January 31, 2007 and 2006.

The aggregate tax fees billed by the Company's independent auditors for the 2007 fiscal year was $2,180, which is related to the preparation of the corporate tax return for the 2006 fiscal year.  The aggregate tax fees billed by the Company's independent auditors for the 2006 fiscal year was $1,315, which is related to the preparation of the corporate tax return for the 2005 fiscal year.

There were no aggregate fees billed for any other professional services rendered by the Company's independent auditors for the year ended January 31, 2007.  The aggregate fees billed by the Company's independent auditors for advisory and review services relating to the Company's annual report on Form 20-F was $3,600 for the year ended January 31, 2006.

The audit committee approved 100% of the fees paid to the principal accountant for audit-related, tax and other fees in the fiscal year 2006.  The audit committee pre-approves all non-audit services to be performed by the auditor in accordance with the audit committee Charter.  There were no hours expended on the principal accountant's engagement to audit the Company's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.

See Item 17.