2007 annual report - knotia.ca · exciting projects in peru, where the company has the largest land...

2007 ANNuAL RePoRt

SouthweSteRN ReSouRCeS CoRP.

Table of Contents

Letters to Shareholders 1

Peru Gold-Silver Projects 3Copper Projects 9

ChinaBoka Project 13

Management’s Discussion and Analysis 15

Management’s Report on Internal Control over Financial Reporting 25

Report of Independent Registered Chartered Accountants 26

Consolidated Balance Sheets 28

Consolidated Statements of Loss and Deficit 29

Consolidated Statements of Comprehensive Loss 29

Consolidated Statements of Cashflows 30

Notes to Consolidated Financial Statements 31

SouthwesternResourcesCorp.|2007AnnualReport �

DearShareholdersandFriends

ThepastyearhasbeenanextremelydifficulttimeforallthosewithaninterestinSouthwestern,especiallyitsshareholdersand

employees.InJune,theBoardwasconfrontedwiththesuddenresignationofitsPresidentandCEOandthesubsequentdiscovery

bytheCompany’smanagementofdiscrepanciesinpreviouslyreportedassayresultsrelatingtoitsBokaProjectinChina.Tackling

theseissuesrequiredsignificanteffortbytheBoardandtheCompany’semployees.

AspecialcommitteeofindependentdirectorsofSouth-

western’sBoardwascreatedtoreviewallaspectsofthe

Company’sBokaProjectand,asaresult,allpreviously

releasedassayresultswerewithdrawn.Anindependent

consultingcompanypreparedanewNI43-101Techni-

calReport.WhiletheTechnicalReportconcludedthat

there is an inferred mineral resource based on com-

positeddrillholeassaydatafromareconstructedand

validatedassaydatabase,theresourceestimate issig-

nificantlylowerthanpreviouslyreported.Thereportdid

highlight,however,thatthereisupsidepotentialtothis

resource.TheCompanyanditsformerCEOhavebeennamedinclass-actionlawsuitsinBritishColumbia,OntarioandQuébec,and

theCompanyisvigorouslydefendingitselfagainstsuchclaims.Aswell,theCompanyhascommencedlegalactionintheSupreme

CourtofBritishColumbiaagainstitsformerCEO,andcertainaffiliatedcompanies,for,amongotherthings,fraud,breachoffidu-

ciary,statutoryandcontractualdutiesandinsidertrading.ItisalsopursuingasimilarlawsuitagainstitsformerGeneralManager

inChina.

TheSouthwesternBoard,togetherwithitsmanagementandemployees,iscommittedtorestoringconfidenceamongitsstakehold-

ersbystrivingtoachievethehighestpossiblestandardsoftransparencyandintegrity.Wearemovingforwardwithadvancingour

excitingprojectsinPeru,wheretheCompanyhasthelargestlandpositionofanyjuniorminingcompany.Also,wewillcontinueto

examinealloptionstoenhanceshareholdervaluerelatingtotheBokaProjectwhileatthesametimecontinuingtoexplorenew

andinterestingopportunitiesinPeruandChina.

MycolleaguesontheBoard,theCompany’sseniormanagement,andallSouthwesternemployeeshavededicatedthemselvesto

rebuildingSouthwestern’sreputationandcredibilityinthemarketplace.Wearewellawarethatthiswillnotbeeasybecauseof

whathastranspiredoverthepastyear.However,giventhequalityofallofourpeopleandexplorationprojects,Iamoptimistic

aboutSouthwestern’sfuture.TheBoardandmanagementhavebeenandcontinuetobeunitedinthegoalofdoingwhatisinthe

bestinterestsofSouthwesternanditsshareholders.

MyheartfeltthanksgotoallofSouthwestern’semployees.TheirdeterminationandloyaltytotheCompanyarecriticaltoitsgrowth

inthefuture.

David Black

ChairoftheBoard

“We are committed to restoring confidence among Southwestern’s stakeholders by striving to achieve the highest possible standards of transparency and integrity.”

Letters to Shareholders

SouthweStern reSourceS corp.

� SouthwesternResourcesCorp.|2007AnnualReport

DearShareholdersandFriends

As Interim President and CEO of Southwestern, no one is more

awarethanIofthedifficultiesandchallengesfacingtheCompany

at this time. In spiteof thesechallenges, I feeloptimisticabout

the futureof thisCompany.Myoptimism isbasedonanumber

of factors.Despiteallourdifficulties in2007, theCompanywas

stillabletoadvanceasignificantnumberofprojectsinPeru.This

ishighlightedbythedrillinganddrilltargetingperformedonthe

LiamProject,andthedrillingonthePacapausaandMillo-Azucar

projects.Aswell,Southwesterncontinuedtoaggressivelyexplore

otherareasinPeruand,infact,stakedover95,000hectaresofclaimsin2007.In2008,weanticipatethatalargenumberoftargets

willbedrilled.Ourdrillingplansincludenotonlyadditionaldrillingonadvancedprojects,butalsonewdrillingonprojectssuch

asCarmen,withintheLiamProject,CristodelosAndesandAlpacocha.WehaveahighlyregardedexplorationteaminPeruwith

manyyearsofexperienceinexploringthecountry.Becauseofthesepeopleandthehighqualityofourprojects,weanticipatean

excitingyearinPeru.

InadditiontoourprojectsinPeru,weexpectthattheBokaProjectinChinacanstillbringvaluetoourshareholders.Wewillcon-

tinuetoexploreallouroptionsregardingthisprojecttomaximizeshareholdervalue.Optionsweareconsideringincludeperform-

ingfurtherdrillingandexplorationworkrecommendedbytheSnowdenreportfiledinNovember2007,eitherbyourselvesorwith

apartner,ordivestingourselvesoftheprojectcompletelybysellingour90%interesttoaninterestedparty.Ourshareholderscan

restassuredthatwewilldoourbesttoextractvaluefromthisprojectgiventheunfortunatecircumstancessurroundingit.

Thereisanother,andprobablythemostimportant,reasonformysenseofoptimismforthefuture.Itistheloyaltyandsupport

thatIhavereceivedfromouremployeesandalargenumberofourshareholders.Iwishtothankalloftheshareholdersthathave

contactedmetogiveSouthwesterntheirsupportoverthispastyearduringaverydifficulttimeforthemandtheCompany.Your

loyaltyandsupportdidnotgounnoticed.ToalltheemployeeswhoareworkingtoputtheCompanyinapositiontosucceed,I

thankyouverymuchandlookforwardtocontinuingtobuildtheCompanytowardsthepositionitonceheldinthemarketplace.

Inconclusion,Southwesternispositionedtobouncebackfromthisdifficultperiodandhaveasuccessful2008.TheCompanyhas

ambitiousprogramsforthefuture.Weareencouragedbyourdiscussionswithotherexplorationandminingcompaniesinthat

theywillcontinuetodobusinesswithSouthwestern.Mostimportantly,wehaveatalentedteaminplacethatwillstrivetoactin

thebestinterestsofbothSouthwesternanditsshareholders.

Timo Jauristo

InterimPresidentandCEO,

VPCorporateDevelopmentandDirector

“In 2008, we anticipate drilling a large number of targets. We have a highly regarded exploration team in Peru.”

Letters to Shareholders

B O L I V I ABBBB OOOOO LLLL III VVVV II AAAA

C H I L ECC HC HC H IH I LI LL EL EEE

B R A Z I LBBB RB R LR AR AAA ZZZ IZ II LLLL

C O L O M B I A

E C U A D O R

Millo-Azucar

Liam

Pacapausa

am

M

AAlpacoochapacpCristo dde e looss Anndded s

Anttay

Lake Titicaca

kilometres

0 50 150

Tertiary volcanics

Southwestern (SWG) property

SWG / Newmont Regional area of interest

SWG / Newmont JV propertySWG JV property


Peru Gold-Silver ProjectsSouthwesternisoneofthelargestmineralproperty

landholdersinPeruwithover350,000hectaresof

claimscontrolledbySouthwesternanditsjointventure

partnersandmorethan225,000hectaresofclaimsowned

100%bySouthwestern.TheCompanycontinuestofocus

onaggressivegenerativeexplorationinsouth-centralPeru

foravarietyofdeposittypes.Ourexplorationteamis

experienced,hasextensiveknowledgeoftheregionandhas

aproventrackrecordofgeneratingsignificantprojectsand

makingdiscoveriesinPeru,sincetheCompanyfirstbegan

exploringin1992.

LiamProject


TheLiamProjectisa50/50jointventurebetweenSouthwesternandNewmontPeruLimitedandiscom-

prisedof282,292hectaresofclaims,locatedintheTertiaryVolcanicBeltofsouth-cen-

tralPeru,approximately170kilometresnorthwestofArequipaand580kilometressoutheastofLima.

SinceinceptionoftheJointVenturein2003,thepartnershaveidentifiedandevaluated38explorationprospectsintheproject

area,nineofwhichhavebeendrilledbyeitherNewmontorSouthwestern. Theprospectsandprojects includehigh-sulphida-

tionandlow-sulphidationveins, low-sulphidationdisseminated,carbonate-replacement,mesothermalvein,skarnandporphyry

hydrothermalsystems.ThemostadvancedandsignificantprojectsinLiamaretheCrespoandQueshcagold-silverandgoldhigh-

sulphidationsystems.

During2007,severalprojectsweredrilledbythepartners:Numa,AlujaandHuacullo.ThedrillingatNumaandAlujawerefirst-pass

drilltestsontheseprojects,whichwereinitiallyidentifiedbySouthwesternduringgenerativeexplorationin2006.Step-outdrill-

ingatHuacullofollowedupthesuccessfulresultsfromthe2006drilling.

Generative exploration was carried out in

2007inseveralareasofLiam,bybothSouth-

westernandNewmont,and resulted in sev-

eralnew,encouragingprospectsbeingidenti-

fied.Theseprospectswillbefurtherevaluated

in2008andatechnicalreviewoftheexten-

siveLiamdatabasewillbecompletedinearly

2008 to generate and prioritize additional

areasforexploration.

Duetosubstantialprogress

at Liam during 2007, an

updated NI 43-101 Tech-

nicalReportisplannedfor

completionin2008.

Cerro Crespo/Queshca Projects

Project work by Southwestern began at Crespo/Queshca in

2003.SouthwesternandNewmontcompleted88holes/13,735

metresofdrillingonthishigh-sulphidationgold-silverproject,

theresultsofwhichindicatethatCresporidgeismineralized

withgoldandsilverandiscomprisedofmassivesilica,vuggy

silicaandsilica-alunitealterationphases,cross-cutbyhydro-

thermal and magmatic breccias. The cross-cutting breccias

commonly carry high-grade silver (greater than 1,000 grams

pertonne).ApreliminaryanalysiscompletedbyNewmontsug-

geststhatamineralinventoryofgoldandsilverispresentand

potentiallyeconomic.

QueshcaislocatedapproximatelyonekilometrenorthofCerro

Crespoandiscomprisedofsixzonesofoutcroppinggold-silver

mineralizationwithhigh-gradegold(multiple-gramspertonne)

associatedwithstructuresandlateironoxidefracturefillings.

Drillinghasshownthesixzonestobepossibleremnantsofan

erodedlargerhigh-sulphidationsystem;thereisthepotentialto

discoveradditional,modest-sized,mineralizedbodies.

SouthwesternandNewmontaredeterminingthemostbenefi-

cialmannertoadvanceCerroCrespoandCerroQueshca.


SWG / Newmont JV property

SWG JV property

0 4010

kilometres

Cerro Crespo

Cerro Queshca

Huacullo

Aluja

Pacobamba

Carmen

NumaMillo-Azucar

LIAM PROJECT AREA

(MERIDIAN JV)N

Gold-Silver projects


Numa Project

Numaconsists of silver-lead-zinc replacementmineralization

within a 2,500-metre long zone of limestone with multiple,

near-verticalbrecciaandreplacementhorizonsupto50me-

tres wide. Work completed during 2007 included collecting

over1,400 rock-chip samples,geologicalmapping,geophysi-

calsurveyinganddrilling18holes(3,097metres).Resultsfrom

samplingovertheprincipalmineralizedzoneinclude273sam-

plescontainingover30gramspertonnesilverand53samples

containingover301gramspertonnesilver.Themineralization

atsurfaceisoxidizedandconsistsofstronglydevelopedlimo-

nite/goethiteandotheroxides.Thegeophysicalsurveyingsug-

geststhatthesubsurfacereplacementbodiescouldextendfor

considerabledepth(greaterthan150metresdepth).

Thirteenofthe18holes(NUM-001,NUM-002,andNUM-004

through NUM-014) were drilled at the principal mineralized

zonesandfiveotherholes(NUM-003andNUM-015through

NUM-018)weredrilledonthreeperipheral,skarnandcarbon-

ate-replacementtargets.Themoresignificantassayresultsare

shownbelow:

Theresultsfromthe13holesintheprin-

cipal carbonate-replacement mineralized

zoneareencouraging.Mappingandsam-

pling indicates that themineralization is

variablydistributedover2,500metresof

strike-length. Mineralizedthicknessesat

depthare similar towidths seen inout-

crop.Continuitybetweendrillholesisnot

clearduetowidedrill-spacing(upto500

metres)and“pinchandswell”geometries

ofthemineralizedzonesseenonsurface.

Numa remains an exciting exploration

project within the Liam Project. Addi-

tional work is needed to determine the

significance of the mineralization. Three

dimensionalmodelling,detailedstructural

mappingandinterpretationandgeophys-

ical surveying are being considered for

planningthenextphaseofdrillinginthe

principalmineralizedzone.

182800 mE

183600 mE

8418400 mN

8416800 mN

NW

SE

Cross Sectionm

E

00 mN

NW

SE

oss Section

��

NUM-004

NUM-005

NUM-006

NUM-012NUM-001

NUM-013

NUM-018

NUM-016

NUM-017

NUM-008

NUM-007

NUM-002

NUM-010NUM-011

NUM-009

N

Hole No.Interval Grade

From To Length Silver Lead Zinc (metres) (metres) (metres)1 (g/t)2 (%) (%)

nuM-001 7.10 40.60 33.50 167.33 0.74 1.72

49.55 57.10 7.55 83.64 0.16 0.88

nuM-002 86.00 139.15 53.15 78.14 1.07 2.12

nuM-004 0.00 69.25 69.25 50.54 0.43 1.94

including 31.20 52.00 20.80 114.88 0.57 3.74

nuM-005 4.00 16.55 12.55 96.03 0.33 0.35

including 9.20 14.95 5.75 180.13 0.51 0.57

nuM-006 27.00 31.40 4.40 87.76 0.08 0.08

nuM-013 3.75 6.60 2.85 16.78 0.40 1.00

68.00 79.30 11.30 150.19 0.86 1.86

1 Interval reported is down-hole core length as true widths are not known at this time.

2 Grams per tonne.

4000m

NW SE

3950m

3900m

3850m 0 10metres

40

33.5 m at 167.33 g/t Ag 0.74% Pb 1.72% Zn

NUM-001

7.5 m at 83.64 g/t Ag 0.16% Pb 0.88% Zn

more than 200100-20030-10010-30less than 10

Ag (ppm) DDH

> 150 ppm* Ag

Intrusive rocks

Limestone

Breccia* parts per million

peru projectS

Numa ProJeCT DriLL HoLe LoCaTioNS

Drill hole Num-001 cross section


Carmen Project

Carmenwasdiscoveredin2006andisamulti-phasehigh-sul-

phidationsystemwithanalteredfootprintof3.0x1.5kilome-

tres.Mineralizedsilicabodiesandhydrothermalbrecciabodies

contain from 0.40 to 0.96 grams per tonne gold. High-level

vapour-phase alteration is present in some areas, suggesting

preservationofpotentiallymineralizedzonesatdepth.Inad-

dition,youngervolcanicrockscoveralterationandmineraliza-

tiononsomemarginsandaddtothepotentialforadditional

coveredmineralizedbodies.Fieldworkanddrilltargetingwas

completedin2007andfirstphasedrillingisbeingprogrammed

for2008.

Alujaisastronglydevelopedhigh-sulphidationalterationsys-

temhostedwithinpervasivelyalunite-quartzalteredvolcanic

rocks.Thealterationareacovers2.0x1.5kilometresandcon-

sistsofvariablesilicatypes,includinglargeareasofupperlevel,

vapour-phase derived, granular silica which suggests preser-

vationofapossiblemineralized systematdepth.Over2,300

sampleshavebeencollectedfromoutcrop.Thehighestgrades

(foursampleswith4.0to54.0gramspertonnegold)arefrom

hydrothermalbrecciabodiesthatcross-cutthegranularsilica

zones,suggestingstrongmineralizationinthesubsurface.

During2007,Newmontcompleteda24kilometreaccessroad,

installedaprojectcamp,completedfieldwork(mapping,sam-

plingandgeophysics)anddrillednine,reversecirculationholes

(2,064metres)forafirst-passtestatAluja.Significantresults

areshownontheadjacenttable.

Results,althoughnotasexpected,doindicateanomaloussub-

surfacevaluesfromastronglyalteredareaof800x800metres.

Datareviewandadditionalfieldworkareplannedin2008to

decideiffurtherdrillingisjustifiedin2008.


From To Length Silver Gold(metres) (metres) (metres)1 (g/t) (g/t)

ALj-004 26.50 47.50 21.00 3.99 1.37

including 26.50 41.50 15.00 5.51 1.86

1 Interval reported is down-hole reverse circulation interval length as true widths are not known at this time.

aluja Project

Similarly,morefieldandinterpretiveworkisplannedtodevelop

additionaldrilltargetsinthegreaterNumaarea,asseveraloth-

eralterationzoneswereidentifiedin2007andhavenotbeen

drill-tested.Preliminaryworksuggeststhatstructuralblocksof

limestonehavebeendown-droppedintointrusiverocks,pos-

siblypreservingadditionalcarbonate-replacementsystems.




Huacullo Project

Huaculloisalow-sulphidationgold-silverveinsystemlocated

18 kilometres northwest of Crespo/Quescha. Multiple veins

outcropatHuaculloandarepresentoveratleast800metres

ofstrike-length.PreviousdrillingatHuacullobyNewmontin

2006resultedinseveralsignificantsilverandgoldintersections

whichwerehighlightedby: 2.30metresof91.50gramsper

tonne silver and 11.50 grams per tonne gold, including 1.05

metresof22.40gramspertonnegoldinHUA-008;1.65metres

of133.50gramspertonnesilverand1.35gramspertonnegold

in HUA-004; 0.45 metres of 144 grams per tonne silver and

3.20gramspertonnegoldinHUA-002;and0.90metresof109

gramspertonnesilverinHUA-006.

AdditionalfieldevaluationatHuacullowillcontinuetotestthe

sizepotentialofthehighergradeveinsandpossibleshootsas

wellastestforadditionalveins.

PacapausaProjectPacapausacomprises7,933hectaresofexplorationconcessionslocatedbetweentheSelenesilvermineofHochschildtothenorth

andthenewPallancatahigh-gradesilverveinprojectbeingadvancedtoproductionbytheHochschildandOroVegaJVtothe

south.

ThePacapausaProjectissubjecttoanoptionagreementwithMineraOroVega(“OroVega”),thePeruviansubsidiaryofInterna-

tionalMineralsCorporation.InAugust2007,OroVegaexercisedthefirstoptionoftheagreementtoacquire50%oftheproject,

havingfulfilled the requirementsof investingUS$1millionanddrillingover1,000metres (2,082metresweredrilled)onthe

project.

Fivetargetareashavebeendefinedontheproject,eachconsistingofepithermalsilverandgoldmineralizationwithinvein,stock-

workandbrecciazones.Surfacesamplinghasdefinedseveralareasofhigh-gradesilver.Elevendrillholestotalling2,082metres

werecompletedduringthefirstquarterof2007.AsreportedbyOroVega,highlightsoftheresultsinclude:10.8metresof212

gramspertonnesilverinholePACA-009;1.5metresof548gramspertonnesilverinholePACA-001;and4.8metresof100grams

pertonnesilverinPACA-005.


peru projectS


The6,025hectareMillo-AzucarProjectislocatedwithinthenorthwesternportionoftheLiamProjectarea.MeridianGoldInc.(now

awhollyownedsubsidiaryofYamanaGoldInc.)isearninga70%interestintheMillo-AzucarJointVenturebyfundingallcoststo

thecompletionofaprefeasibilitystudy.Fifteenholeswerecompletedin2007,nineofwhichweredrilledtofollowup2006drill-

Millo-AzucarProject

ingontwoareaswithintheEspañolaepithermalveinsystem.

Allnineholesintersectedgoldandsilvermineralization,with

significantgradesasoutlinedinthetablebelow.

ResultsfrombothphasesofdrillingatEspañolaareveryen-

couraging.Drillingtodatewasdesignedtotestseveraldistinct

veinsthatpartlyformtheEspañolaveinset.Recentfieldwork

byMeridiannowindicatesthattheEspañolaveinsystemex-

tendsforat least3.5kilometres instrike-lengthandat least

threeadditional, sub-parallelveinshavebeen identified.Me-

ridian isplanninga thirdphasedrillingprogramtocontinue

testingtheextentoftheveins,usingtheseresultsaswellas

thosefromthe2006drillingwhichwerehighlightedbya20.30

metreintersectionof317gramspertonnesilverand2.65grams

pertonnegold.Mapping,samplingandadditionaldrilltarget

generationonthenewlyidentifiedveinswillcontinuethrough

thefirstquarterof2008.

Meridianhasappliedfora“CategoryC”drillpermitwiththe

PeruvianGovernment,which,whenapproved,willenableMe-

ridiantoconstructmorethanthepresentlyapproved20drill

pads.Approval isexpectedinthesecondquarterofthisyear

andMeridianwillthenbeginathirdphaseofdrillingtotest

the greater strike-length of the Española vein set and other

associatednewlyidentifiedveins.


From To Length Gold Silver(metres) (metres) (metres)1 (g/t) (g/t)

ptt-0042 81.80 84.80 3.00 1.16 99.20

ptt-013 84.50 89.20 4.70 1.93 463.66

ptt-014 64.50 65.85 1.35 12.60 88.90

ptt-015 139.75 154.05 14.30 1.17 97.03

ptt-016 129.90 132.25 2.35 0.91 208.68

ptt-017 168.10 169.20 1.10 1.17 714.00

ptt-018 154.15 155.05 0.90 3.42 408.00

ptt-019 46.70 51.05 4.35 0.29 40.88

ptt-020 47.60 52.40 4.80 0.45 53.23

1 Interval reported is down-hole core length as true widths are not known at this time.

2 ptt-004 was originally drilled in 2006 to 80.30 metres and was deepened during the second drill phase.


B O L I V I A

C H I L E

B R A Z I L

C O L O M B I A

E C U A D O R

Southern Peru Porphyry Belt

Bambas-Tintaya Porphyry Belt

AlpacochaCristo de los Andes

Antay

C

A

Miillo-Azzucar

LLiiaam

Pacaapausaaap

Lake Titicaca

kilometres

0 50 150

Southwestern (SWG) property


SWG / Newmont JV propertySWG JV property


Peru Copper ProjectsSouthwesternhasanumberof100%ownedcopper

projects,includingitsAntay,AlpacochaandCristode

losAndesprojects,allintheBambas-TintayaPorphyry

BeltinsouthernPeru,someofwhichalsohostgoldand

molybdenummineralization.TheCompanyhasprepared

adatacompilation,basedonrecentgeologicalmapping,

rock-chipandsoilgeochemicalsampling,aswellas

inducedpolarizationgeophysicalsurveying,whichhas

highlightedanumberofimportantdrilltargets.The

Companyisinvestigatingseveralpossibilitiesforadvancing

theseprojectsandexpectssignificantdrillingtobe

completedin2008.

PeruProjects

�0 SouthwesternResourcesCorp.|2007AnnualReport

AntayProject

The 31,100 hectare Antay copper-mo-

lybdenum porphyry project is situated

within the Bambas-Tintaya Porphyry

BeltandisaccessiblebyroadfromCuz-

co,150kilometrestothenortheast.An-

tayis100%ownedbySouthwestern.

Sayta is a large porphyry system ex-

posed over 1.5 kilometres and consists

of multi-phase porphyritic intrusions,

sheeted and stock-work quartz vein

zones and hydrothermal breccia bod-

ies.Geochemicalresultsfrom35breccia

outcropsamplesaveraged1.19%copper

(upto7.81%),0.011%molybdenum(up

to0.057%)and0.013gramspertonne

gold(upto1.36gramspertonne).

TheCompanyplanstocommenceexplo-

rationearlyinthesecondquarter,with

drillinganticipatedin2008.

Sayta Porphyry

Ccora Sur Porphyry Cluster

Cu, Fe, Au Skarns

ANTAY

SayTa Copper GeoCHemISTry

copper projects

SouthwesternResourcesCorp.|2007AnnualReport ��

This project (formerly “Antilla Clus-

ter Project”) is a 100% Southwestern-

ownedskarnandporphyrycopper-gold

project, located within the Bambas-

Tintaya Porphyry Belt and consists of

23,300 hectares. Based on the results

of mapping, sampling and geophysical

surveying, three target areas are drill-

ready: Quihuiri, Alpacocha and Usillo.

Surfacerock-chipsamplinghasreturned

upto9%copper,0.033%molybdenum

and2.4gramsper tonnegold. Induced

polarization surveying indicates strong

chargeability anomalies extending to

over300metresatdepth.TheCompany

anticipatesfirstphasedrillingin2008.

AlpacochaProject

CristodelosAndesProject

This 6,400 hectare copper-gold por-

phyry project is also within the Bam-

bas-TintayaPorphyryBelt and is 100%

owned by Southwestern. The project

wasfirst identifiedby Southwestern in

1992-1993 and was subsequently ex-

ploredanddrilledbytwo jointventure

partners in 1994 and 1996. A total of

33shallowholesweredrilledonvarious

targetswithcoppervaluesrangingfrom

weaklyanomalousupto1%.However,a

CRISTO DE LOS ANDES TARGET AREA GEOLOGY

7840

00 m

7880

00 m

8426000 m

8422000 m

Quaternary

Intrusives

Volcanics

Limestones

Quartzites-Sandstones

0 1000

metres

500

Old Cristo de los Andesporphyry area

TARGET 2

TARGET 1

TARGET 3

peru projectS

�� SouthwesternResourcesCorp.|2007AnnualReport

Southwestern is continuing to aggres-

sivelyexplorePeruandtogeneratenew

projects in south-central and southern

Peru. Target types include porphyries,

skarns, high-sulphidation and low-sul-

phidationepithermalsystemsandveins,

mesothermalgoldandcopperveinsand

polymetallicveins.During2007,South-

westernstakedover95,000hectaresof

claims in theBambas-TintayaPorphyry

Beltofsouth-centralPeru,theSouthern

PeruPorphyryBeltandwithin theTer-

tiary Volcanic Belt of central Peru. At

least six new prospects staked in 2007

areplannedtobeadvancedwithaddi-

tionalfieldwork topossible drill-stage

in2008.

NewGenerativeExploration

reinterpretationofgeological andgeo-

physical databySouthwestern in2006

resulted in the identification of three

largechargeabilityanomalies,uptoone

kilometre in diameter, that have not

been drilled. Additional field work and

geophysical surveying by Southwestern

in 2007 confirmed and extended the

anomalieswithnew rock-chip samples,

someofwhichreturnedassaysover1%

copper. The Company anticipates first

phasedrillingin2008.

copper projects

SouthwesternResourcesCorp.|2007AnnualReport ��

Boka Project, China

TheBokaProjectislocatedinYunnanProvince,China.OnJuly19,2007,theCompanyissuedapressreleasewithdrawingallofits

previouslyreportedresultsfortheBokaProject,instructingthatsuchresultsshouldnotbereliedupon.InJuly2007,Southwestern

engagedSnowdenMining IndustryConsultants Inc. (“Snowden”) tocompilean independentlyverifiedgoldassaydatabase for

theBokaProject.SouthwesternthencommissionedSnowdentoprepareaNI43-101TechnicalReportbecauseofindicationsthat

previousMineralResourceestimatesfortheprojectmayhavebeensignificantlyoverestimatedduetomanualanddeliberatetam-

peringwithgoldassaydata.TheSnowdenreportpresentsanewInferredMineralResourceestimatefortheBokaPropertybased

onthevalidateddrillholedata.

Mineral Resource Estimate

TheMineralResourceestimateisbasedoncompositedandtopcutdrillholeassaydatafromthereconstructedandvalidatedas-

saydatabasefortheBokaProject.AditassaydatawasnottakenintoaccountorincludedintheMineralResourceestimate.The

MineralResourceestimateispresentedforarangeofgoldcut-offgradestofacilitatecomparisonswithpreviousestimatesforthis

deposit,whichhavebeenwithdrawnbytheCompany.ThetablebelowsummarizestheMineralResourceestimatefor0.01grams

pertonne,0.5gramspertonneand1.0gramspertonnegoldcut-offgrades,baseduponthetopcutdrillholedata1:

Category Zone Cut-off2 (g/t Au) Tonnage2 (t)Top Cut Grade

Grade (g/t Au) Contained Gold2 (oz)

Inferred Boka 1n and 1S 0.01 50,500,000 0.4 700,000



1 Mineral resources which are not Mineral reserves do not have demonstrated economic viability. the estimate of Mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues. there has been insufficient exploration to define these Inferred Mineral resources as an Indicated or Measured Mineral resource, as there are insufficient close-spaced drill hole data to adequately define grade and geological continuity for this structurally complex deposit. It is uncertain if further exploration will result in upgrading the Inferred Mineral resource to an Indicated or Measured Mineral resource category.

2 tonnes have been rounded to the nearest 100,000 tonnes and ounces to the nearest 1,000 ounces and this may have resulted in minor discrepancies. the most likely cut-off grade for this deposit is not known and will need to be confirmed by the appropriate economic studies. the 0.01 grams per tonne gold cut-off grade is presented solely for comparative purposes and not as a potentially economic extraction cut-off grade.

AtopcutanalysiswasconductedonthetwometrecompositedgolddataintheBoka1NandBoka1Szones.Topcuts(alsoknown

asgradecapping)areappliedtoreducetheinfluenceofextremevaluesoncontinuityanalysesandgradeestimation.Atopcut

of18.95gramspertonneand17.10gramspertonnewasusedfordrillholeassaydatainBoka1NandBoka1S,respectively.The

estimatedaveragegradeoftheBokadepositissensitivetoextremevalues.Removingjust0.2%ofthedataresultsinadecrease

ofapproximately13%intheaveragegradeoftheBoka1Npartofthedepositandapproximately10%intheaveragegradeofthe

Boka1Spartofthedeposit.Topcutsimpactontheestimatedmetalcontentofthedeposit.

Thetablebelowsummarizesanevaluationofanestimateusingdrillholedatathathavenotbeentopcut.Thistabulationisin-

cludedforcomparisonwiththeprevioustableandtodemonstratesensitivitytotopcuts.

Category Zone Cut-off1 (g/t Au) Tonnage1 (t)Uncut Grade

Grade (g/t Au) Contained Gold1 (oz)




1 tonnes have been rounded to the nearest 100,000 tonnes and ounces to the nearest 1,000 ounces and this may have resulted in minor discrepancies.

Potential Mineral Deposit

AsmallportionoftheBokaProjectisdefinedbysamplestakenfromhistoricalmineworkings,referredtoasadits.Thesamples

derivedfromdrillingrepresentthemineralizedsystem,whereasaditsamplingrepresentsahigh-gradesubsetofthatsystem.Adit

samplesareconcentratedinthesmall-scalehigh-gradezonesexploitedbyartisanalminersandmaynotfairlyrepresentmineraliza-

tioninsurroundinglowergradezones.Duetotheincompletenatureoftheoriginalassaycertificatesprovidedbythelaboratories,

chInA project

�� SouthwesternResourcesCorp.|2007AnnualReport

Snowdendidnotverifyameaningfulamountoftheassaydatapertainingtotheaditsamples.Accordingly,theaditsampleshave

beenexcludedforallpurposesfromtheMineralResourceestimatepresentedabove.

ThereisupsidepotentialintheMineralResourceestimatewiththeinclusionoftheareacurrentlydefinedbyaditsampling.The

inclusionofthisareawouldresultinanextensionoftheMineralResourceandcouldimprovetheestimatedgradesoftheareassur-

roundingtheadits.InordertoincludetheaditareasintheMineralResourceestimate,additionaldrillingandsamplingisrequired

toconfirmmineralization.

Assumptions and Methods

TheMineralResourceestimatewaspreparedbySnowdeninthefollowingsteps:

• InspectionoftheBokaProjectsite

• Databasecompilationanddatavalidation

• Datapreparation

• Geologicalinterpretationandgeologicalmodelling

• Creationofblockmodelsandassignmentofrockdensitytotheblocks

• Compositingofassayintervalstoacommonlength

• Exploratorydataanalysisofgoldassaygradeswithinmineralizeddomains

• Analysisofextremevaluesanddeterminationofappropriatetopcuts

• Variogramanalysisandmodelling

• Interpolationofgoldgradeintoblocksusingordinarykriging

• Validationofestimatedblockgoldgrades

• ConfidenceclassificationofestimateswithrespecttoCIM(2005)guidelines

• MineralResourcetabulation

Data Verification

InconductingtheMineralResourceestimate,Snowdenverified99%ofhistoricaldrillingassaydatafortheBokaProjectagainst

correspondingassaycertificates supplieddirectlyby respectiveanalytical laboratories. Snowdenverifiedaportionofgeologi-

calloggingdataagainstoriginalloggingdata.Snowdenalsoindependentlysampleddrillholecorewhileonsiteandsubmitted

samplesforindependentlaboratoryanalysis.

Snowdenwasnotabletoverifythemethodsofdrilling,sampling,andsamplesecurityandcustodyforthemajorityofthedata

usedintheMineralResourceestimateasSnowdenwasnotpresentduringthesehistoricaloperations.

Recommended Future Work

SnowdenbelievesthatthereisupsidepotentialtotheMineralResourceattheBokadeposit.Snowdennotesthatthereareindica-

tionsofmineralizationatdepthbeneaththeBoka1NandBoka1Szones,andatdepthintherelativelysparselydrilledareabetween

thetwozones.Therecommendedworkprogramincludes:(a)additionalinfilldrillingthatachievesaneffective25metredrillhole

spacingtoimprovetheunderstandingofthestructuralcontrolsonmineralizationandgeologicalconfidencelevel;and(b)investi-

gatingtheoptionofopeninguponeormoreoftheaditstofacilitatetargetedundergrounddrillingto:(i)defineandquantifythe

potentiallyhighergrademineralizationcontainedintheaditsamplingareas;and(ii)improvethestructuralmodelandtocollect

bulksamplesforanalysistoimproveconfidenceintheMineralResourceestimate.

TheCompanyisreviewingallofitsoptionstomaximizeandenhanceshareholdervalueinrespectoftheBokaProject.Suchoptions

includeconductingfurtherexplorationanddevelopmentwork,jointventures,option/royaltyarrangements,divestituresandother

valueenhancinginitiatives.

Boka project

SouthwesternResourcesCorp.|2007AnnualReport 15

SouthweStern reSourceS corp. An exploration Stage company

General

ThisManagement’sDiscussionandAnalysis(“MD&A”)ofSouthwest-

ern Resources Corp. (the “Company” or “Southwestern”) provides

an analysis of Southwestern’s financial results for the year ended

December 31, 2007 compared to theprevious year and shouldbe

readinconjunctionwiththeCompany’sDecember31,2007audited

consolidated financial statements and related notes which have

beenpreparedinaccordancewithCanadiangenerallyacceptedac-

countingprinciples.Informationwithrespecttogenerallyaccepted

accountingprinciplesintheUnitedStatesisprovidedinNote17to

theauditedconsolidatedfinancialstatements.ThisMD&Ahastaken

intoaccount informationavailableuptoand includingMarch17,

2008.Alldollaramounts in thisMD&Aareexpressed inCanadian

dollarsunlessotherwisestated.

Southwesternisanexplorationstagemineralexplorationcompany

engaged in the identification,acquisition,evaluationandexplora-

tionofmineralproperties,especiallywiththepotentialtohostgold,

silverandbasemetals,andiscurrentlyactiveinPeruandChina.The

CompanyisareportingissuerinBritishColumbia,Alberta,Manitoba,

andOntarioandtradesontheTorontoStockExchange(“TSX”)under

thesymbolSWG.

The Company conducts its exploration independently as well as

through joint venture agreements. Themajorityof theCompany’s

jointventureagreementsarestructuredinsuchawayastoallowan

interestedpartytoearnaninterest inaprojectbymakingcertain

expendituresontheCompany’spropertiesoveraperiodoftime.The

Companyisalsoinvolvedinexplorationthroughoptionorearn-in

agreements whereby it provides 100% of the funding in order to

earnacontrollinginterestinaprojectownedbyathirdparty.

OnJuly4,2007,TimoJauristowasappointedInterimPresidentand

ChiefExecutiveOfficer(“CEO”)followingJohnPaterson’sresignation

asPresident,CEOandDirectoroftheCompanyonJune19,2007.

On July19,2007, theCompanydisclosed that its special commit-

tee of independent directors, formed to review all aspects of the

Boka Project, had determined that there were deficiencies in the

Company’scontrolproceduresattheBokaProjectwhichresultedin

errors inpreviouslyreportedassayresults.Furthermore,thereview

indicatedthattheintegrityofcertainstoreddrillcoresampleshad

beencompromised.Asaconsequence,theCompanywithdrewallof

itspreviouslyannouncedresultsfortheBokaProjectandinitiateda

detailedreview.Asaresultofthisreview,anewNI43-101Techni-

cal Report (the “Technical Report”) for the Boka Project was filed

onSEDARonNovember9,2007andincludedacompletedInferred

MineralResourceestimatebasedoncompositeddrillholeassaydata

fromthereconstructedandvalidatedassaydatabasefortheproject.

TheTechnicalReportindicatedthatthereisupsidepotentialtothe

Boka Project and that the exploration concessions and mining li-

cencesthatmakeuptheBokaProjectwereingoodstanding.

AsatDecember31,2007theBokaProjectwasrecordedatacarrying

valueof$10million.TheCompanyconsideredthecarryingvalueof

theBokaProjectasatDecember31,2007inaccordancewithCana-

diangenerallyacceptedaccountingprinciplesanddeterminedthat

animpairmenthadoccurred,resultinginawrite-downof$33.8mil-

liontoavaluewhichmanagementconsiderstobeareasonablees-

timateofthefairvalueoftheprojectatthistime.Thisestimatewas

basedonfurtherindepthanalysisoftheTechnicalReportreceived

inNovember2007anddiscussionswithvarious independent third

parties.TheCompanycanprovidenoassurancethatthecontinued

assessmentofandfurtherworkontheBokaProjectwillnotresultin

anotherimpairmentchargeinthefuture.Thefutureprospectsofthe

BokaProjectarecontingentanduncertain.TheCompanyisreview-

ingallofitsoptionstomaximizeandenhanceshareholdervaluein

respectoftheBokaProject.Theseoptionsincludefurtherexplora-

tionanddevelopmentwork,jointventures,option/royaltyarrange-

ments,divestituresandothervalueenhancinginitiatives.

TheCompanyandJohnPatersonhavebeennamed in threeclass-

actionlawsuitsinBritishColumbia,OntarioandQuébecwherethe

plaintiffsallegethattheCompanyandPatersonnegligentlyorreck-

lesslymisrepresentedthequantityofgoldindrillsamplestakenfrom

theBokaProject.TheCompanyisvigorouslydefendingitselfagainst

suchclaims.TheconsolidatedfinancialstatementsasatDecember

31,2007donotincludeanyprovisionforliabilitythatmaybeneces-

saryshouldtheCompanybeunsuccessfulindefendingsuchclaims

astheamountofthepotentialliabilityisnotdeterminableasofthe

Forward-Looking Statements

AllstatementsmadeinthisMD&A,otherthanstatementsofhistoricalfact,areforward-lookingstatements.Thewords“anticipate”,“believe”,“estimate”,“expect”,“intend”,“may”,“plan”,“will”,“would”,“should”,“guidance”,“potential”,“continue”,“project”,“forecast”,“confident”,“prospects”,andsimilarexpressionstypicallyareusedtoidentifyforward-lookingstatements.

Forward-lookingstatementsarebasedonthethen-currentexpectations,beliefs,assumptions,estimatesandforecastsabouttheCompany’sbusinessandtheindustryandmarketsinwhichitoperates.Thesestatementsarenotguaranteesoffutureperformanceandinvolverisks,uncertaintiesandassumptionswhicharedifficulttopredict.Therefore,actualoutcomesandresultsmaydiffermateriallyfromwhatisexpressedorimpliedbytheseforward-lookingstatementsduetoanumberoffactors,includ-ingbutnotlimitedtotheCompany’saccesstoadditionalcapitaltofundfutureactivities,thelossofmineralpropertiesortheinabilitytoobtainmininglicences,theinherentlyriskynatureoftheCompany’sactivitiesanditslackofexperienceinbringinganexplorationpropertyintoproduction,itsabilitytorepatriateanyearnings,foreignexchangefluctuations,thepoliticalstabilityandeconomicuncertaintyofthoseareasinwhichtheCompanycarriesonoperationsandthelackofinfrastructureinthoseareas,titlerisks,therisksanduncertaintiesassociatedwithjointventuresandtheCompany’srelianceonthirdparties,statutoryandregulatorycompliance,theadequacyandavailabilityofinsurancecoverage,theCompany’sdependenceuponemployeesandconsultantsandfluctuationsinmineralpricesandotherrisksdetailedintheCompany’sfilingswiththeCanadianSecuritiesAdministrators.Referenceshouldbemadetothesectionentitled“RiskFactors”containedintheAnnualInformationFormoftheCompanydatedMarch17,2008foradetaileddescriptionoftherisksanduncertaintiesrelatingtothebusinessoftheCompany.Theserisks,aswellasothers,couldcauseactualresultsandeventstovarysignificantly.TheCompanyexpresslydisclaimsanyintentorobligationtoupdatetheseforward-lookingstatements,unlesstheCompanyspecificallystatesotherwise.

Management’s Discussion and AnalysisDecember 31, 2007 and 2006

16 SouthwesternResourcesCorp.|2007AnnualReport


dateofthesefinancialstatements

InAugust2007, theCompanyannounced that ithadcommenced

legalactionintheSupremeCourtofBritishColumbiaagainstJohn

Paterson,andcertainaffiliatedcompanies,for,amongotherthings,

fraud,breachoffiduciary,statutoryandcontractualdutiesandin-

sidertrading.TheCompanyisseekingtorecoverdamagesandlosses

causedtotheCompany.

Asa resultof theerrors inpreviously reportedassayresults relat-

ing to theBokaProject, includingdefending itself in the lawsuits

broughtagainst it,aswellascommencing legalactionagainst its

formerCEO,theCompanyhasincurredlegalandconsultingexpens-

estotallingapproximately$2.1millionduringtheyear.

TheCompanyspentapproximately$12.0milliononexplorationdur-

ingtheyear(excludingZincoreexpendituresontheAccha-Yanque

property),ofwhich$8.2million(onacashbasis)relatedtodrilling,

prefeasibilityandassociatedcostsattheBokaProject,and$2.4mil-

lionrelatedtotheLiamProjectinPeru.

CHINA

BOKA PROJECT

Subsequenttothediscoverythattherewereerrorsinpreviouslyre-

portedassayresultsrelatingtoBokaasnotedabove,theCompany

commissionedanindependentconsultanttoprepareanewNI43-

101TechnicalReport.ThereportwasreleasedinNovember2007.

Theinferredmineralresourceestimatewasbasedoncompositedand

topcutdrillholeassaydatafromthereconstructedandvalidated

assaydatabasefortheBokaProject.Aditassaydatawasnottaken

into accountor included in theMineralResource estimate.Based

ontopcutdrillholedata,gradesandvolumevariedfrom700,000

ouncesofcontainedgoldat0.4gramspertonneto337,000ounces

ofcontainedgoldat1.9gramspertonne.(SeeTechnicalReportfiled

onSEDARonNovember9,2007.)TheTechnicalReportalsoindicated

thattheremaybeupsidepotentialintheMineralResourceestimate

with the inclusionof theareacurrentlydefinedbyadit sampling.

TheinclusionofthisareawouldresultinanextensionoftheMineral

Resourceandcouldimprovetheestimatedgradesoftheareassur-

roundingtheadits.InordertoincludetheaditareasintheMineral

Resource estimate, additional drilling and sampling is required to

confirmmineralization.

TheTechnicalReportalsoindicatedthattheconsultantsbelievethat

there isupsidepotential to theMineralResourceat theBokade-

posit.Theconsultantsnotethatthereareindicationsofmineraliza-

tionatdepthbeneaththeBoka1NandBoka1Szones,andatdepth

in the relatively sparsely drilled area between the two zones. The

recommended work program includes: (a) additional infill drilling

thatachievesaneffective25metredrillholespacingtoimprovethe

understandingofthestructuralcontrolsonmineralizationandgeo-

logicalconfidencelevel;and(b)investigatingtheoptionofopening

uponeormoreoftheaditstofacilitatetargetedundergrounddrill-

ingto:(i)defineandquantifythepotentiallyhighergrademiner-

alizationcontainedintheaditsamplingareas;and(ii)improvethe

structuralmodelandtocollectbulksamplesforanalysistoimprove

confidenceintheMineralResourceestimate.

During2007,theCompanyincurredexpenditurestotalling$7.9mil-

lionontheProject.Themajorityofthesecostswereincurredduring

thefirsthalfoftheyearprimarilyrelatingtothepreparationofa

prefeasibilitystudy.

PERU

LIAM GOLD-SILVER PROJECT

TheLiamProjectisa50/50jointventurebetweenSouthwesternand

NewmontPeru Limited (“Newmont”) and is comprisedof 282,292

hectaresofclaimslocatedintheTertiaryVolcanicBeltofsouth-cen-

tralPeru,approximately170kilometresnorthwestofArequipa.Since

inceptionofthejointventurein2003,thepartnershaveidentified

andevaluated38explorationprospectsintheprojectarea,nineof

whichhavebeendrilledbyeitherNewmontorSouthwestern.The

prospectsandprojectsincludehigh-sulphidationandlow-sulphida-

tion vein, low-sulphidation disseminated, carbonate-replacement,

mesothermal vein, skarn and porphyry hydrothermal systems. The

mostadvancedandsignificantprojectsinLiamaretheCrespoand

Queshcagold-silverandgoldhigh-sulphidationsystems.

During2007,fourprojectsweredrilledbythepartners:Numa,Aluja,

Pacobamba and Huacullo. The drilling at Numa, Aluja and Paco-

bambawerefirst-passdrilltestsontheseprojects,whichwerefirst

identifiedbySouthwesternduringgenerativeexploration in2006.

ThedrillingatHuacullowassecond-phasestep-outholesfollowing

uponthesuccessfulresultsfromthe2006drilling.

Generativeexplorationwascarriedout in2007 inseveralareasof

Liam,bybothSouthwesternandNewmont,andresultedinseveral

new,encouragingprospectsbeingidentified.Theseprospectswillbe

furtherevaluated in2008andatechnicalreviewoftheextensive

Liamdatabasewillbecompletedinthefirsthalfof2008togenerate

andprioritizeadditionalareasforexploration.

DuetosubstantialprogressatLiamduring2007,anupdatedNI43-

101documentisplannedforcompletionin2008.

Descriptionsofthenumerousgoldandsilverzonesincludedinthe

LiamProject,andtheirrespectivestagesofevaluation,arepresented

below.

Cerro Crespo/QueshcaSince 2003 both Southwestern and Newmont have completed 88

holes/13,735metresofdrillingonthishigh-sulphidationgold-silver

project, theresultsofwhich indicatethatCresporidge is strongly

mineralizedwithgoldandsilverandiscomprisedofmassivesilica,

vuggysilicaandsilica-alunitealterationphases,cross-cutbyhydro-

thermalandmagmaticbreccias.Thecross-cuttingbrecciascommon-

lycarryhigh-gradesilver (greater than1,000gramsper tonne).A

preliminaryanalysiscompletedbyNewmontsuggeststhatamineral

inventoryofgoldandsilverispresentandpotentiallyeconomic.

QueshcaislocatedapproximatelyonekilometrenorthofCerroCre-

spoandiscomprisedofsixzonesofoutcroppinggold-silverminer-



alizationwithhigh-gradegold (multiple-gramsper tonne) associ-

atedwithstructuresandlateironoxidefracturefillings.Drillinghas

shown the six zones to be possible remnants of an eroded larger

high-sulphidationsystem.Potentialtodiscoveradditional,modest-

sized,mineralizedbodiesispresent.

Southwestern and Newmont are determining the most beneficial

mannertoadvanceCerroCrespoandCerroQueshca intothenext

stage.

NumaNumaconsistsofsilver-lead-zincreplacementmineralizationwithin

a2,500-metre-longzoneof limestonewithmultiple,near-vertical

brecciaandreplacementhorizonsupto50metreswide.Workcom-

pletedduring2007includedcollectingover1,400rock-chipsamples,

geologicalmapping,geophysicalsurveyinganddrilling18coreholes

(3,097metres).Resultsfromsamplingovertheprincipalmineralized

zoneinclude273samplescontainingover30gramspertonnesilver

and53samplescontainingover301gramspertonnesilver.Thegeo-

physicalsurveyingsuggeststhatthesubsurfacereplacementbodies

extendforconsiderabledepth(greaterthan150metresdepth).

Thirteen of the 18 holes were drilled at the principal mineralized

zoneandfiveotherholesweredrilledonthreeperipheral,skarnand

carbonate-replacementtargets.Theresultsfromthe13holesinthe

principalcarbonate-replacementmineralizedzoneareencouraging.

Mapping and sampling indicate that themineralization is distrib-

utedover twokilometresof strike-length.Mineralized thicknesses

atdeptharesimilartowidthsseeninoutcrop.Continuitybetween

drillholesisnotclearduetowidedrill-spacing(upto500metres)

and“pinchandswell”geometriesofthemineralizedzonesseenon

surface. Numa remains an exciting exploration project within the

Liam Project. Additional work is needed to determine the signifi-

canceofthemineralization.Threedimensionalmodelling,detailed

structuralmappingandinterpretationandgeophysicalsurveyingare

beingconsideredforplanningthenextphaseofdrillingintheprin-

cipalmineralizedzone.Similarly,morefieldandinterpretiveworkis

plannedtodevelopadditionaldrilltargetsinthegreaterNumaarea,

as severalotheralterationzones identified in2007havenotbeen

drill-tested.

AlujaAluja is a strongly developed high-sulphidation alteration system

hostedwithinpervasivelyalunite-quartzalteredvolcanicrocks.The

alterationareacovers2.0x1.5kilometresandconsistsofvariable

silicatypes, includinglargeareasofupper level,vapour-phasede-

rived,granularsilicawhichsuggestspreservationofapossiblemin-

eralized systematdepth.Over2,300 sampleshavebeen collected

from outcrop. The highest grades (four samples with 4.0 to 54.0

gramsper tonnegold) are fromhydrothermal breccia bodies that

cross-cutthegranularsilicazones,suggestingstrongmineralization

inthesubsurface.

During2007,Newmontcompleteda24kilometreaccess road, in-

stalledaprojectcamp,completedfieldwork(mapping,samplingand

geophysics)anddrillednine,reversecirculationholes(2,064metres)

for a first-pass test. Aluja results were not as positive as expect-

ed;however,theydoindicateanomaloussubsurfacevaluesfroma

strongly alteredareaof800x800metres.Data reviewandaddi-

tionalfieldworkareplannedtodecideiffurtherdrillingisjustified

in2008.

HuaculloHuacullo is a low-sulphidation gold-silver vein system located 18

kilometresnorthwestofCrespo/Queshca.Multipleveinsoutcropat

Huaculloandarepresentoveratleast800metresofstrike-length.

Resultsfromthefive-hole(922metres)seconddrillphaseatHuacul-

lowerenotaspositiveasexpected.

PreviousdrillingatHuacullobyNewmontin2006resultedinseveral

significantsilverandgoldintersectionswhichwerehighlightedby:

2.30 metres of 91.50 grams per tonne silver and 11.50 grams per

tonne gold, including 1.05 metres of 22.40 grams per tonne gold

inHUA-008;1.65metresof133.50gramspertonnesilverand1.35

gramspertonnegoldinHUA-004;0.45metresof144.00gramsper

tonnesilverand3.20gramspertonnegold inHUA-002;and0.90

metresof109.00gramspertonnesilverinHUA-006.

AdditionalfieldevaluationatHuacullowillcontinuetotestthesize

potentialofthehighergradeveinsandpossibleshootsaswellasto

testforadditionalveins.

PACAPAuSA PROJECT

Pacapausacomprises7,933hectaresofexplorationconcessionslo-

catedbetweentheSelenesilverminetothenorthandthenewPal-

lancatahigh-gradesilverveinprojectbeingadvancedtoproduction

tothesouth.

At the beginning of 2007, the project was subject to an option

agreement with Minera Oro Vega (“Oro Vega”), the Peruvian sub-

sidiaryof InternationalMineralsCorporation. InAugust2007,Oro

VeganotifiedSouthwesternthattheywouldexercisethefirstoption

oftheagreementtoacquire50%oftheproject,afterfulfillingthe

requirementsofinvestingUS$1millionanddrillingover1,000me-

tres(2,082metresweredrilled)ontheproject.OroVegahasassigned

their contractual position in the agreement to Minera Suyamarca

S.A.C. (”Suyamarca”). A new company is being incorporated by

SouthwesternandSuyamarca,withSuyamarcaasoperator,tohold

andfurtherexploretheproperty.

Fivetargetareashavebeendefinedontheprojecteachconsistingof

epithermalsilverandgoldmineralizationwithinvein,stockworkand

breccia zones. Surface samplinghasdefined several areasofhigh-

gradesilver.Elevendrillholestotalling2,082metreswerecompleted

duringthefirstquarterof2007.AsreportedbyOroVega,highlightsof

theresultsinclude:10.8metresof212gramspertonnesilverinhole

PACA-009;1.5metresof548gramspertonnesilverinholePACA-

001;and4.8metresof100gramspertonnesilverinPACA-005.

MILLO-AzuCAR PROJECT

TheMillo-AzucarProject iscomprisedofbothahighsulphidation

alterationsystemandseverallow-sulphidationveinsystems,located

20kilometrestothenorthwestoftheCrespoandQueshcaprojects

oftheLiamProject.Millo-Azucar isaJointVenturewithMeridian



GoldInc.(nowawhollyownedsubsidiaryofYamanaGoldInc.),wherebyMeridianisearninga70%interestintheprojectbyfunding

all explorationcosts through to thecompletionofaprefeasibility

study.

Meridianrecentlycompleteda15hole(3,814metres)second-phase

drillprogramontheprojectatboththeMillohigh-sulphidationzone

(sixholes)andatthelow-sulphidationEspañolaveinset(nineholes).

DrillassayresultshavebeenreceivedandnoneoftheholesatMillo

(MIL-001throughMIL-006)returnedsignificantresults.Resultsfor

thenineholesatEspañolawerehighlightedbya4.7metreintersec-

tiongrading463gramspertonnesilverand1.93gramspertonne

goldanda14.3metreintersectiongrading97gramspertonnesilver

and1.17gramspertonnegold.

Previousdrillingof12holesbyMeridianin2006atEspañola(report-

edFebruary1,2007)washighlightedbya20.3metre intersection

grading317gramspertonnesilverand2.65gramspertonnegoldin

holePTT-004,a17.1metreintersectiongrading162gramspertonne

silverand1.80gramspertonnegoldinholePTT-005anda0.7metre

intersectiongrading814gramspertonnesilverand27.10gramsper

tonnegoldinholePTT-007.

ResultsfrombothphasesofdrillingatEspañolaareveryencourag-

ing.DrillingtodateatEspañolaiswithinanareaof700x300metres

andwasdesignedtotestseveraldistinctveinsthatpartlyformthe

Española vein set. New field work by Meridian indicates that the

Españolavein systemextends forat least3.5kilometres in strike-

length and at least three additional, sub-parallel veins have been

identified.Mapping,samplingandadditionaldrilltargetgeneration

onthenewlyidentifiedveinswillcontinuethroughthefirstquarter

of2008.

Meridianhasapplied foradrillpermitwith thePeruvianGovern-

ment,which,whenapproved,willenableMeridiantoconstructmore

thanthepresentlyapproved20drillpads.Approval isexpected in

thesecondquarterofthisyearandMeridianwillthenbeginathird

phaseof drilling to test thegreater strike-lengthof the Española

veinsetandotherassociated,newlyidentifiedveins.

ANTAy PROJECT

The31,100hectareAntaycopper-molybdenumporphyryproject is

situatedwithintheBambas-TintayaPorphyryBeltandisaccessible

byroadfromCuzco,150kilometrestothenortheast.Antayisnow

100%ownedbySouthwesternasitspreviouspartnerAngloAmeri-

canExplorationPeruS.A. terminated itsoptionagreementdue to

unsuccessfuleffortstosecureacommunityaccessagreementtothe

Saytaporphyry.SincetheterminationSouthwesternhasbeensuc-

cessfulinobtainingacommunityaccessagreement.

Saytaisalarge,significantporphyrysystemexposedforover1.5ki-

lometresandconsistsofmulti-phaseporphyriticintrusions,sheeted

and stock-work quartz vein zones andhydrothermal breccia bod-

ies.Geochemicalresultsfrom35brecciaoutcropsamplesaveraged

1.19%copper (upto7.81%),0.011%molybdenum(upto0.057%)

and0.013gramspertonnegold(upto1.36gramspertonne).

NEw GENERATIVE ExPLORATION

Southwestern is continuing to aggressively explore Peru and to

generate new projects in south-central and southern Peru. Target

typesincludeporphyries,skarns,high-sulphidationandlow-sulphi-

dation epithermal systems and veins, mesothermal gold and cop-

perveinsandpolymetallicveins.During2007,Southwesternstaked

over100,000hectaresofclaimsintheBambas-TintayaPorphyryBelt

ofsouth-centralPeru,theSouthernPeruPorphyryBeltandwithin

theTertiaryVolcanicBeltofcentralPeru.Atleastsixnewprospects

stakedin2007arebeingplannedforadvancementwithadditional

fieldworktopossibledrill-stagein2008.

Change in Accounting for the Investment in Zincore Metals Inc.

InApril2007,theCompanysold500,000commonsharesofZincore

MetalsInc.(“Zincore”)forgrossproceedsof$350,000.Thissalere-

ducedtheCompany’sinterestinZincorefrom50.4%to49.7%.Asa

resultofthereductionoftheCompany’sinterestandresultingloss

ofcontrol,theassetsandliabilitiesofZincorewerenolongercon-

solidatedintheCompany’sbalancesheeteffectiveApril1,2007.The

exclusionoftheassetsandliabilitiesofZincorefromtheCompany’s

consolidation and the investment carrying value at December 31,

2007aredetailedasfollows:

(in thousands) As at December 31, 2007

Cash $ 15,378Exploration advanCEs and othEr rECEivablEs 171othEr assEts 75propErty, plant and EquipmEnt 146minEral propErtiEs 5,774

21,544aCCounts payablE and aCCruEd ChargEs (662)non-Controlling intErEst (10,360)invEstmEnt as at april 1, 2007 10,522salE of sharEs (136)Equity in loss (april 1, 2007 to dECEmbEr 31, 2007)

(1,116)

stoCk-basEd CompEnsation 298gain on dilution 290

invEstmEnt as at dECEmbEr 31, 2007 $ 9,858

Results of Operations

Theconsolidatednet loss for theyearsendedDecember31,2007,

2006and2005was$49.0millionor$1.09losspershare,$1.5mil-

lionor$0.03losspershareand$9.5millionor$0.22losspershare,

respectively.

Thesignificantincreaseinnetlossin2007incomparisontoprevi-

ousyearswasprimarilydueto thewrite-downof theBokaProj-

ectof$33.8million, significantlyhigher foreignexchange losses,

higher exploration expenditures of a reconnaissance nature, and

significantly lowergainsonshares issuedbyaffiliatedcompanies.

Higherlegalfeesandlowerinterestincomewaspartiallyoffsetby

a reduction in stock-based compensation when compared to the

previousyear.



EffectiveJanuary1,2007,theCompanychangeditspracticeofre-

portingstock-basedcompensationonaseparatelineintheConsoli-

datedStatementsofLossandDeficittoamethodofallocatingthe

expenseto(i)salariesandbenefitstoemployees,(ii)consultingfees

and(iii)generalexplorationfor individuals involvedinexploration

work.Theallocationfortheyearsended2007,2006and2005were

asfollows:

(in thousands) 2007 2006 2005

offiCE salariEs $ 997 $ 1,663 $ 1,212Consulting fEEs 1,218 2,399 3,505gEnEral Exploration 2,366 793 718ZinCorE 336 433 –total $ 4,917 $ 5,288 $ 5,435

FortheyearendedDecember31,2007,thestock-basedcompensa-

tionvaluewasdeterminedusing theBlack-Scholesoptionpricing

model. A weighted-average grant-date fair value of $1.07 (2006

–$5.82;2005–$4.15)foreachoptiongrantwasestimatedusing

thefollowingweighted-averageassumptions:nodividendsaretobe

paid;volatilityof66%(2006–54%;2005–58%);riskfreeinterest

rateof3.9%(2006–4.0%;2005–3.5%);andexpectedlifeof3.5

years(2006–3.5years;2005–3.5years).

ThefairvaluecomputedusingtheBlack-Scholesmodel isonlyan

estimate of the potential value of the individual options and the

Companyisnotrequiredtomakepaymentsforsuchtransactions.

Overallgeneralandadministrativeexpensesincreasedto$9.8mil-

lionin2007comparedwith$9.5millionin2006and$8.6millionin

2005.Theincreasewasmainlyduetohigherlegalfeesasaresultof

thelegalissuesconfrontingtheCompanydiscussedunder“General”

aboveandincreasedsalaryexpensesduetoretentionbonusesgiven

toemployeesasaresultoftheissuessurroundingtheBokaProject.

Theseincreasesinexpenditureswerepartiallyoffsetbyadecreasein

stock-basedcompensationcomparedtoprioryears.Allotherexpen-

dituresremainedfairlycomparabletoprioryears.

Foreignexchangegainsandlossesresultprimarilyfromthetransla-

tionofUSdollardenominatedmonetaryassetstoCanadiandollars.

TheCompanymaintains sufficientUSdollar reserves to fund for-

eignexplorationexpendituresovertheshortterm.Foreignexchange

losswassignificantlyhigher in2007whencomparedto2006and

2005duetotheseverestrengtheningoftheCanadiandollarin2007

whereitreachedandsurpassedparwithitsUScounterpart.

Generalexplorationexpenserelatestoexpendituresofagenerative

naturealongwithsomeofthecostsofmaintainingtheCompany’s

foreign exploration offices. General exploration expense has been

increasingoverthepastthreeyearsduetoincreasedgeneralrecon-

naissanceworkbeingconductedinPeruandChinatogeneratenew

projects,higherstock-basedcompensationforstockoptionsgranted

to employees performing exploration activities, and in 2007 the

costsofoperatingtheCompany’sexplorationofficesincreaseddue

toretentionbonusesgrantedtoallemployees.

During2007,expenditurestotalling$36.0millionwerewrittenoff

relatingtotheBokaProject inChina($33.8million),YunnanGold

ProjectinChina($860,000)andvariousnon-coreprojectsinChina

(includingtheIncoJointVenture)andPeru.Thecostsrelatingtothe

YunnanGoldProjectwerewrittenoffasaresultofthejointven-

turepartnerontheproject(NewmontOverseasExplorationLimited)

terminatingthejointventurebasedontheevaluationoftheproject

areatodate.During2006,atotalof$593,000inexpenditureswere

writtenoff,ofwhich$538,000 related to theMinaspataProperty

inPeru.In2005,$698,000waswrittenoffrelatingtotheSichuan

ProjectinChinaandvariousnon-coreprojectsinPeru.

Interest and other income is comprised of interest revenue and

managementfeeschargedtoaffiliatedcompaniesandwaslowerin

2007,whencomparedto2006,duetolowercashbalances.In2006,

itwashigherthanin2005duetohigherinterestrevenueasaresult

ofalargertreasury.

Dilutiongainsof$866,000 (2006–$6,845,000;2005–$414,000)

wererecordedmainlyasaresultofequityfinancingscompletedby

ZincoreandSuperiorDiamondsInc.(“Superior”)duringtheseyears.

The largegain in2006representsagainondilutionasaresultof

Zincore’sinitialpublicoffering.Gainsorlossesonsharesissuedby

affiliatedcompaniesarisewhentheownershipinterestoftheCom-

panyinasignificantlyinfluencedorcontrolledcompanyisdiluted

asaresultofshareissuancesoftheinvesteecompany.TheCompany

doesnotreceiveanycashproceeds(norisitrequiredtomakeany

payments)forsuchtransactions.

During2007,theCompanyrecordedagainof$3,346,000onthesale

ofitsinvestmentinLakeShoreGoldCorp.(“LakeShore”).TheCom-

panysoldtwomillionsharesofLakeShoreforproceedsof$4.9mil-

lion.Aswell,theCompanysold500,000commonsharesofZincore

forgrossproceedsof$350,000andrecordedagainof$212,000.In

2006, theCompanysoldallof itscommonsharesofJinshanGold

MinesInc.(“Jinshan”)andFNXMiningCo.(“FNX”)andrecordedgains

of $1,142,000 and $1,939,000, respectively. A gain of $1,018,000

wasrecordedin2005forthepartialsaleofFNXshares.

During2007,theCompanyrecordedalossof$1,203,000(2006–a

gainof$68,000;2005–alossof$218,000)asitsequityintheoper-

ationsofaffiliatedcompanies.Thecurrentyearlossrelatesprimarily

totheequityinoperationsofZincore($1,116,000).Thegainin2006

relatesonlytotheCompany’sshareofgainsrecordedbySuperior

whereastheCompany’sshareofgainsandlossesofAuroraPlatinum

Corp.(“Aurora”)werealsoincludedin2005.Equityinoperationsof

affiliatedcompaniesrepresentstheCompany’sshareofthenetgains

orlossesforthereportingperiodinasignificantlyinfluencedcom-

pany.DuetotheCompanyandSuperiornolongerhavingadirector

andpresidentincommonasatJuly1,2007,theCompanynolonger

accountsforitsinvestmentinSuperiorusingtheequitymethodasit

hasdeterminedthatitnolongerhassignificantinfluence.

Non-controllinginterestof$434,000representstheminorityshare

ofnetlossesofZincoreforthethreemonthsendedMarch31,2007.

Non-controllinginterestof$432,000representstheminorityshare

of net losses of Zincore for the two months ended December 31,

2006.



Annual Financial Information

The following selected consolidated financial data has been pre-

pared inaccordancewithCanadiangenerallyacceptedaccounting

principles and should be read in conjunction with the Company’s

auditedconsolidatedfinancialstatements.Alldollaramountsarein

Canadiandollars.

(All numbers are in thousands except per share amounts)

Years Ended December 31

2007 2006 2005

finanCial rEsults:

intErEst and othEr inComE 1,721 2,333 1,346nEt loss (48,988) (1,450) (9,540)loss pEr sharE* (1.09) (0.03) (0.22)

finanCial position:

Working Capital 18,497 61,591 62,024minEral propErtiEs 22,029 50,555 34,879total assEts 58,507 119,926 108,174non-Controlling intErEst – 10,627 –sharE Capital 175,769 179,239 178,923ContributEd surplus 28,638 23,590 20,115aCCumulatEd othEr ComprEhEnsivE inComE

958 – –

dEfiCit (148,435) (95,703) (93,340)numbEr of Common sharEs issuEd and outstanding 44,923 45,854 45,934

* Loss per share is calculated based on the weighted-average number of shares outstanding.

Summary of Quarterly Financial Information (unaudited)

(All numbers are in thousands except per share amounts) Fiscal Quarter Ended

4th Quarter Dec 31, 2007

3rd Quarter Sep 30, 2007

2nd Quarter Jun 30, 2007

1st Quarter Mar 31, 2007

intErEst and othEr inComE 288 368 429 636nEt loss (38,421) (5,514) (3,990) (1,063)loss pEr sharE* – basiC and dilutEd (0.86) (0.12) (0.09) (0.02)

Fiscal Quarter Ended

4th Quarter Dec 31, 2006

3rd Quarter Sep 30, 2006

2nd Quarter Jun 30, 2006

1st Quarter Mar 31, 2006

intErEst and othEr inComE 677 537 607 512nEt inComE (loss) 6,424 (1,369) (2,830) (3,675)Earnings (loss) pEr sharE* – basiC and dilutEd 0.14 (0.03) (0.06) (0.08)

* Loss per share is calculated based on the weighted-average number of shares outstanding.

Ananalysisofthequarterlyresultsoverthelasteightquartersshows

asignificantvariationbetweenthequarters.Thedifference inthe

secondquarterswasprimarilytheresultoftheequityintheopera-

tionsofZincore.Themaindifference inthefirstquarterswasdue

toagainonthesaleofaninvestmentrecordedinMarch2007.The

variationbetweenthe fourthquarters ismainlydueto thewrite-

downoftheBokaProjectandothermineralpropertiesin2007,and

alargegainondilutionoftheCompany’sinvestmentinZincorein

2006.Inthethirdquarter,thevariationwasprimarilyduetolarger

mineralpropertywrite-offs,foreignexchangelossesandlegalfees.

Financial Condition, Liquidity and Capital Resources

Southwesternisnotincommercialproductiononanyofitsmineral

properties,andaccordingly, itdoesnotgeneratecashfromopera-

tions.TheCompanyfinancesitsactivitiesbyraisingcapitalthrough

theequitymarkets.CurrentlytheCompanyhasnolong-termdebt

andworkingcapitalasatDecember31,2007was$18.5million(2006

–$61.6millionincluding$17.3millionfromZincore.)

The Company expended $11.7 million on net operating activities

duringtheyearendedDecember31,2007comparedwith$5.9mil-

lionin2006and$5.2millionin2005.Theincreasein2007relates

mainlytosignificantlegalandconsultingfees,reconnaissancecosts

andforeignexchangelossesaswellashighersalariesandconsulting

feesduetoretentionpayments.

TheCompanyexpendedanetof$18.9milliononinvestingactivities

during2007comparedwith$15.3millionin2006and$9.5millionin

2005.During2007,theCompanyexpended$13.7milliononmineral

properties in Peru and China, including $8.2 million on the Boka

Projectand$2.4millionontheLiamProjectTheCompanyreceived

proceedsof$11.0millionfromthematurityofashort-terminvest-

mentandthesaleofLakeShoreandZincorecommonshares.The

Companyalsohadadecreaseincashof$15.4millionduetothede-

consolidationofZincorewhichledtothecommencementofequity

accountingforitsinvestment.During2006,theCompanyexpended

$16.1milliononmineralpropertyandrelateddeferredcostsinPeru

andChina.Themajorityoftheseexpenditureswereincurredonthe

prefeasibilityanddrillingprogramat theBokaProject inChina.A

totalof$5.8millionwasexpendedonacquisitionofshort-termin-

vestmentswhichhaveatermtomaturityofsixmonthsandafurther

$583,000 on capital and other assets. The Company also received

proceedsofapproximately$7.2millionfromthesaleofJinshanand

FNXshares.During2005,theCompanyexpended$14.9millionon

mineralpropertyandrelateddeferredcostsinPeruandChina.Ato-

talof$1.9millionwasexpendedonacquisitionofsharesinSuperior

($400,000)andLakeShore($1.5million)andafurther$200,000on

capitalassets.TheCompanyalsoreceivedproceedsofapproximately

$3.0millionfromthesaleofFNXshares.

Thecarryingvalueofmineralpropertiesdecreasedby$28.5million

asaresultofexplorationexpendituresof$13.3millionwhichwere

offsetby$36.0millioninmineralpropertywrite-offsanda$5.8mil-

lionreductionduetothedeconsolidationofZincore.

InAugust2006,theCompanyreceivedregulatoryapprovalofitsnor-

malcourseissuerbidpursuanttowhichtheCompanycouldacquire

uptotwomillionofitsowncommonsharesuntilAugust28,2007.

During2007,theCompanypurchased930,600ofitsowncommon

sharesforcoststotalling$7.2millionpursuanttoitsnormalcourse

issuerbid.Duringthesameperiod,allofthesecommonshares,as

well as 41,200 common sharespurchased in2006,were cancelled



and resulted in a loss of $3.7 million being recorded as a charge

todeficit.During2006theCompanypurchased366,900sharesfor

totalconsiderationof$3,342,000.Ofthesharespurchased,325,700

werecancelled,resultinginalossof$1,735,000ofwhich$912,500

flowedtotheConsolidatedStatementsofLossandDeficitandthe

differencerecordedincontributedsurplus.TheCompanyalsocan-

celled80,000commonshares ithadacquiredpursuant to itspre-

viousnormalcourse issuerbidandrecordeda lossof$466,944 in

March2006.

Due to the adoption of new accounting standards (see “Critical

AccountingPoliciesandEstimates”)effective January1,2007, the

Companynowmeasuresassetsclassifiedasavailable-for-saleatfair

valueand includes resultingunrealizedgainsand lossesonanew

ConsolidatedStatementofComprehensiveLoss.Atotalof$865,000

wasrecordedasunrealizedlossesonavailable-for-saleinvestments

in2007.Theaccumulatedothercomprehensivelossof$958,000re-

portedontheConsolidatedBalanceSheetsincludesanadjustment

forcumulativeunrealizedgainsonavailable-for-saleinvestmentsat

January1,2007of$3.4million,whichisreducedbyarealizedpor-

tionof$1.6millionrelatingtothesaleofLakeShorecommonshares

andanunrealizedlossof$865,000asnotedabove.

AsatDecember31,2007theCompany’ssignificantlyinfluencedand

otherinvestmentshadacarryingvalueof$14.7million(2006–$4.4

million)andamarketvalueof$19.9million(2006–$9.0million).

ThemarketvalueoftheCompany’sinterestinZincoreatDecember

31,2006was$34millionbutwasnotincludedinthenumbersabove

asitwasconsolidatedatthetime.Zincore’smarketvalueisincluded

inthenumbersrelatingto2007.

InFebruary2008, theCompany sold4,089,378commonsharesof

Superiorforgrossproceedsof$1,231,194.Asaresultofthistransac-

tiontheCompany’sinterestinSuperiorwasreducedto6.5%from

12.9%.

The Company has commitments totalling $1,035,504 over three

years(2008–$376,547;2009–$376,547;2010–$282,410)pertain-

ingtoleaseholdobligationsofSouthwestern.Aswell,theCompany

hasemployeeretentionpaymentobligationsof$670,667 in2008.

With respect toother contractualobligations, therearenomate-

rialchangesduringthecurrentperiodthatareoutsidetheordinary

courseoftheCompany’sbusiness.

Inmanagement’sview,theCompanyhassufficientworkingcapital

intheneartermtofundplannedexplorationworkandongoingop-

eratingexpenditures.TheCompany isdependentonequitycapital

tofundexplorationanddevelopmentofitsmineralpropertiesover

thelongerterm.Actualfundingrequirementsmayvaryfromthose

plannedduetoanumberoffactors,includingthetimingandprog-

ressofexplorationactivitiesandongoinglitigationtheCompanyis

involvedin.Managementmayseekjointventurepartners,whereap-

propriate,inordertominimizethedependenceonequitycapital.

Outstanding Share Capital

AsatMarch17,2008therewere44,923,000commonsharesissued

andoutstandingand3,617,000stockoptionsoutstanding,noneof

whicharecurrentlyexercisable.Thestockoptionsoutstandinghave

anexercisepriceof$0.65and25%vestsafterJune11,2008,25%

afterDecember11,2008,and50%afterDecember11,2009.

Critical Accounting Policies and Estimates

Mineral properties and related exploration anddevelopment costs

arerecordedatcostonaproperty-by-propertybasis.Costsincurred

forgeneralexplorationthatarenotprojectspecificordonotresult

intheacquisitionofmineralpropertiesarechargedtooperations.

Management periodically reviews the underlying value of mineral

propertiesand recordsaprovision to reduce thecosts incurred to

net realizable amounts as appropriate. If an impairment is deter-

minedtoexist,themineralpropertywillbewrittendowntoitsnet

realizable value. The recoverability of the amounts capitalized for

mineralpropertyinterestsisdependentuponthedelineationofeco-

nomicallyrecoverableorereserves,theCompany’sabilitytoobtain

thenecessaryfinancingtocompletetheirdevelopmentandrealize

profitableproductionorproceedsfromthedispositionthereof.Itis

reasonablypossiblethatchangescouldoccurintheneartermthat

could adversely affect management’s estimates and may result in

futurewrite-downsofcapitalizedmineralpropertycarryingvalues.

EffectiveasofJanuary1,2007theCompanyhasadoptedCanadian

InstituteofCharteredAccountants(CICA)HandbookSection3855,

FinancialInstruments–RecognitionandMeasurement,CICAHand-

bookSection3861,Financial Instruments–DisclosureandPresen-

tation,CICAHandbookSection1530,ComprehensiveIncome,CICA

HandbookSection3865,Hedges,andCICAHandbookSection3251,

Equity.Theseaccountingpolicychangeswereadoptedonaprospec-

tivebasiswithnorestatementofpriorperiodfinancialstatements.

In accordance with CICA Handbook Section 3855, the Company

now classifies all financial instruments as either held-to-maturity,

available-for-sale,held-for-trading,loansandreceivables,orother

financialliabilities.Financialassetsheld-to-maturity,loansandre-

ceivablesandfinancialliabilitiesotherthanthoseheld-for-trading,

aremeasuredatamortizedcost.Available-for-saleinstrumentsare

measuredatfairvaluewithunrealizedgainsandlossesrecognized

inothercomprehensiveincome.Instrumentsclassifiedasheld-for-

tradingaremeasuredatfairvaluewithunrealizedgainsandlosses

recognizedontheConsolidatedStatementsofLossandDeficit.In-

vestmentsincorporationsinwhichtheCompanyexercisessignificant

influenceareaccountedforusingtheequitymethod,wherebythe

investmentisinitiallyrecordedatcostandisadjustedtorecognize

theCompany’sshareofearningsorlossesandreducedbydividends

anddistributionsreceived.

Uponadoptionofthisnewstandard,theCompanyhasdesignatedits

cashandcashequivalentsasheld-for-trading,whicharemeasuredat

fairvalue.Explorationadvancesandotherreceivablesareclassified

asloansandreceivables,whicharemeasuredatamortizedcost.Ac-

countspayableandaccruedchargesareclassifiedasotherliabilities,

whicharemeasuredatamortizedcost.TheCompanyhasclassified

itsinvestmentsinpubliccompanies(otherthanthosethattheCom-

panyhassignificantinfluencein)asavailable-for-saleandtherefore

carries themat fairmarketvalue,with theunrealizedgainor loss



recordedinshareholders’equityasacomponentofothercompre-

hensiveincome.Theseamountswillbereclassifiedfromshareholders’

equitytonetincomewhentheinvestmentissold.Previously,invest-

mentsinthesepubliccompanieswerecarriedatcost,lessprovisions

forotherthantemporarydeclinesinvalue.Thischangeinaccount-

ingpolicyresults ina$3,428,000increase inthecarryingvalueof

investmentsinpubliccompaniesasatJanuary1,2007,representing

thecumulativeunrealizedgainatthattime(seeNote10F).

Comprehensive income is the change in shareholders’ equity dur-

ingaperiodfromtransactionsandothereventsandcircumstances

fromnon-ownersources. InaccordancewithCICAHandbookSec-

tion1530,theCompanynowreportsaConsolidatedStatementof

ComprehensiveLossandanewcategory,accumulatedothercom-

prehensiveincome,intheshareholders’equitysectionoftheCon-

solidatedBalanceSheets.Thecomponentsofthisnewcategoryin-

cludes unrealized gains and losses on financial assets classified as

available-for-sale.

CICAHandbookSection3870Stock-BasedCompensationandOther

Stock-Based Payments establishes standards for the recognition,

measurementanddisclosureofstock-basedcompensationandoth-

erstock-basedpaymentsmadeinexchangeforgoodsandservices.

Compensation expense is determined using the Black-Scholes op-

tionpricingmodelbasedonestimatedfairvaluesofallstock-based

awardsatthedateofgrantandisexpensedtooperationsovereach

award’svestingperiod.

TheBlack-Scholesoptionpricingmodelutilizessubjectiveassump-

tionssuchasexpectedpricevolatilityandexpectedlifeoftheop-

tion.Changesintheseinputassumptionscansignificantlyaffectthe

fairvalueestimate.

Off-Balance Sheet Arrangements

TheCompanydoesnotutilizeoff-balancesheettransactions.

Related Party Transactions

During the years ended December 31, 2007, 2006 and 2005, the

Companypaidremunerationforservicesrenderedtodirectorsand

tocompaniescontrolledbyofficerswhoarealsodirectors.TheCom-

panyalso receivedmanagementfees,whichare recordedasother

incomefromSuperior,LakeShoreandZincore.Thesearecompanies

whicharerelatedbywayofdirectorsincommonand/orbywayof

amanagementservicesagreement.Detailsofthesepaymentsareas

follows:

2007 2006 2005

rEmunEration paid to offiCErs / dirECtors $ 936 $ 756 $ 515

managEmEnt fEEs rECEivEd $ 259 $ 72 $ 117

Therewasalsoanamountof$39,752(2006–$5,669)duetoSouth-

westernfromtheabovementionedcompaniesatDecember31,2007.

Allrelatedpartytransactionsaremeasuredattheexchangeamount

whichistheconsiderationagreedtobetweentheparties.

Fourth Quarter

TheCompanyrecordedaconsolidatednetlossforthefourthquarter

of2007totalling$38.4millionor$0.86persharecomparedwitha

netearningsof$6.4millionor$0.14pershareforthesameperiod

in2006.Thelossin2007wasmainlyduetothewrite-downofthe

Boka Project, higher legal fees, retention bonuses for consultants

andemployees,foreignexchangelossesandlowerinterest income

whencomparedtothesameperiodin2006.Thegainin2006was

theresultofagainof$1.1millionand$0.6milliononthedisposi-

tionofFNXandJinshansharesrespectivelyandagainondilutionof

$6.4millionontheissuanceofsharesbyaffiliatedcompanies,the

majorityofwhichrelatestoZincore.Thesegainswerepartiallyoffset

byhigherconsultingfeesandgeneralexplorationexpenditures.

Financial Instruments and Other Instruments

TheCompany’sfinancialinstrumentsconsistofcashandcashequiv-

alents, exploration advances andother receivables, short-term in-

vestments,investments,accountspayableandaccruedcharges.Un-

lessotherwisenoted,itismanagement’sopinionthattheCompany

isnotexposedtosignificantinterest,currencyorcreditriskarising

fromthesefinancialinstruments.

Future Changes in Accounting Policies

In June 2007, the CICA issued changes to Section 1400, General

Standards of Financial Statement Presentation. Section 1400 has

beenamendedtoincluderequirementstoassessanddiscloseanen-

tity’sabilitytocontinueasagoingconcern.Managementshallmake

anassessmentofanentity’sabilitytocontinueasagoingconcern.

Whenmanagementisaware,inmakingitsassessment,ofmaterial

uncertaintiesrelatedtoeventsorconditionsthatmaycastsignifi-

cantdoubtupontheentity’sabilitytocontinueasagoingconcern,

those uncertainties shall be disclosed. When financial statements

arenotpreparedonagoingconcernbasis, that fact shallbedis-

closed,togetherwiththebasisonwhichthefinancialstatementsare

preparedandthereasonwhytheentityisnotregardedasagoing

concern.Section1400iseffectiveforinterimandannualfinancial

statementsrelatingtofiscalyearsbeginningonorafterJanuary1,

2008.Earlieradoptionisencouraged.Theadoptionofthisstandard

willhavenoimpactontheCompany’soperatingresultsorfinancial

positionandmanagementiscurrentlyintheprocessofevaluating

the impactthattheseadditionaldisclosurestandardswillhaveon

theCompany’sfinancialstatements.

InDecember2006,theCICAissuedSection1535,CapitalDisclosures.

Themainfeaturesofthenewsectionareasfollows:

• Requirements for an entity to disclose qualitative information

aboutitsobjectives,policiesandprocessesformanagingcapital;

• Arequirementforanentitytodisclosequantitativedataabout

whatitregardsascapital;and

• Arequirementforanentitytodisclosewhetherithascomplied

withanyexternallyimposedcapitalrequirementsand,ifnot,the

consequencesofsuchnon-compliance.



Section1535iseffectiveforinterimandannualfinancialstatements

relatingtofiscalyearsbeginningonorafterOctober1,2007.The

adoptionofthisstandardwillhavenoimpactontheCompany’sop-

eratingresultsorfinancialpositionandmanagementiscurrentlyin

theprocessofevaluatingtheimpactthattheseadditionaldisclosure

standardswillhaveontheCompany’sfinancialstatements.

InDecember2006,theCICAissuedHandbookSection3862,Financial

Instruments–DisclosuresandSection3863,Financial Instruments

–Presentation. Section3862modifies thedisclosure requirements

ofSection3861,FinancialInstruments–DisclosuresandPresenta-

tionandrequiresentitiestoprovidedisclosuresintheirconsolidated

financialstatementsthatenableuserstoevaluatethesignificanceof

financialinstrumentsontheentity’sconsolidatedfinancialposition

andperformance,andthenatureandextentofrisksarisingfromfi-

nancialinstrumentsandnon-financialderivatives.Section3863car-

riesforwardunchangedthepresentationrequirementsforfinancial

instrumentsSection3861.Sections3862and3863applytointerim

andannualconsolidatedfinancialstatementsrelatingtofiscalyears

beginningonorafterOctober1,2007.

Corporate Governance

TheCompany’sBoardofDirectorsfollowsrecommendedcorporate

governanceguidelinesforpubliccompaniestoensuretransparency

andaccountabilitytoshareholders.

ThecurrentBoardofDirectorsiscomprisedoffourindividuals,three

ofwhomareneitherofficersnoremployeesoftheCompanyandare

unrelatedinthattheyareindependentofmanagement.TheAudit

Committeeiscomprisedofthreedirectorswhoareindependentof

management.TwoofthethreeAuditCommitteemembersarepro-

fessionalaccountants.

TheAuditCommitteefulfillsitsroleofensuringtheintegrityofthe

reportedinformationthroughitsreviewoftheinterimandaudited

annualfinancialstatementspriortotheirsubmissiontotheBoardof

Directorsforapproval.TheAuditCommitteemeetswithmanagement

quarterlytoreviewthefinancialstatementsincludingtheMD&Aand

todiscussotherfinancial,operatingandinternalcontrolmatters.The

Companyalsohasthepracticeofengagingitsexternalauditorsto

performquarterlyreviewsofitsinterimfinancialstatements.

Controls and Procedures

AsrequiredbyMultilateral Instrument52-109,management isre-

sponsibleforthedesign,establishmentandmaintenanceofdisclo-

surecontrolsandproceduresoverthepublicdisclosureoffinancial

andnon-financialinformationregardingtheCompany,andinternal

controloverfinancialreportingtoprovidereasonableassurancere-

garding the integrity of the Company’s financial information and

reliabilityofitsfinancialreporting.Managementmaintainsappro-

priate information systems, procedures and controls to ensure in-

tegrityofthefinancialstatementsandmaintainsappropriateinfor-

mationsystems,proceduresandcontrolstoensurethatinformation

usedinternallyanddisclosedexternallyiscompleteandreliable.The

CompanyhasaDisclosureandStockTradingPolicyandaDisclosure

Committeeinplacetomitigaterisksassociatedwiththedisclosure

ofinaccurateorincompleteinformation.TheCompanyhasalsoun-

dertakenthetaskofevaluatingtheeffectivenessofinternalcontrol

overfinancial reporting anddisclosure controls andprocedures in

ordertocomplywithcertificationrequirementsofSections404and

302oftheSarbanes-OxleyAct.

TheCompany’smanagement,withtheparticipationandunderthe

supervisionofitsChiefExecutiveOfficer(“CEO”)andChiefFinancial

Officer(“CFO”),havedesignedthedisclosurecontrolsandprocedures

toprovidereasonableassurancethatmaterial informationrelating

to the Company, including its consolidated subsidiaries, is made

knowntothemonatimelybasis,andhavedesignedinternalcontrol

overfinancial reportingtoprovidereasonableassuranceregarding

thereliabilityoftheCompany’sfinancialreporting.

AnevaluationoftheeffectivenessoftheCompany’sdisclosurecon-

trolsandprocedureswasconductedasofDecember31,2007.Based

upon the results of that evaluation, the Company’s CEO and CFO

haveconcludedthatasoftheendoftheperiodcoveredbythisre-

port,theCompany’sdisclosurecontrolsandprocedureswereeffec-

tiveinprovidingreasonableassurancethatthematerialinformation

relatingtotheCompanywasmadeknowntothemonatimelybasis

andwasprocessedanddisclosedwithintheappropriatereportsand

timeperiods.TheCompany’smanagementbelievesthatanydisclo-

surecontrolsandproceduresorinternalcontrolsandprocedures,no

matterhowwellconceivedandoperated,canprovideonlyreason-

able,notabsolute,assurancethattheobjectivesofthecontrolsys-

temaremet.Duetotheinherentlimitationsinallcontrolsystems,

theycannotprovideabsoluteassurancethatallcontrol issuesand

instancesoffraud,ifany,withintheCompanyhavebeenprevented

or detected. Accordingly, because of the inherent limitations in a

costeffectivecontrol system,misstatementsduetoerroror fraud

mayoccurandnotbedetected.

TherehasbeennochangeintheCompany’sinternalcontroloverfi-

nancialreportingduringtheyearendedDecember31,2007thathas

materiallyaffected,or isreasonably likelytomateriallyaffect,the

Company’s internal control over financial reporting. Management

hasassessedtheeffectivenessof its internalcontroloverfinancial

reportingasofDecember31,2007usingcriteriaestablishedinIn-

ternalControl–IntegratedFrameworkissuedbytheCommitteeof

SponsoringOrganizationsoftheTreadwayCommission.

TheCompany’smanagementhasconcludedthattheCompany’sin-

ternalcontroloverfinancialreportingasatDecember31,2007was

effectiveasofsuchdate.Thecurrentyearfinancialstatementsalso

includesanattestationreportoftheCompany’sindependentregis-

teredcharteredaccountantsregardinginternalcontroloverfinancial

reporting.

OnJuly19,2007,theCompanyannouncedithaddeterminedthat

thereweredeficiencies in itscontrolprocedures for itsBokaProj-

ect.Seediscussionunder“General”.TheCompanyhasenhancedhow

certain procedures are affected by implementing additional safe-

guardsincludingthoserelatingtodatacompilationprocedures.The

Companyiscontinuingtomonitorandreviewtheexecutionofits

controlsandprocedures.



Risks and Uncertainties

TheCompanyisanexplorationstagemineralexplorationcompany

engaged in the identification,acquisition,evaluationandexplora-

tion of mineral properties. The continued assessment of the Boka

Projectcouldresultinafurtherwrite-down,terminationofexplora-

tionanddevelopmentworkorlossoftheCompany’sinterestinits

BokaProject.Ifanyoftheforegoingweretooccur,thiswouldhave

amaterialadverseeffectontheCompany’sbusiness,financialcondi-

tionandresultsofoperations.

TheCompanyisnamedasadefendantinseveralclassactionlawsuits

filedbycertainshareholdersoftheCompany.TheCompanycannot

assurethatitwillsucceedindefendinganyclaims,thatjudgments

willnotbeenteredagainstitwithrespecttoanylitigationorthat

reservestheCompanymaysetasidewillbeadequatetocoverany

suchjudgments.Ifanyoftheseactionsorproceedingsagainstthe

Companyissuccessful,theCompanymaybesubjecttosignificant

damagesawards.TheCompanyisincurringsignificantlegalexpenses

defendingtheselawsuits.Additionally,thedefenceoftheseclaims

coulddiverttheattentionoftheCompany’smanagementandother

personnelforsignificantperiodsoftime.

AsaresultoftheCompanywithdrawingallitspreviouslyannounced

resultsfortheBokaProject,theCompanyhasbeenthesubjectof

continuingnegativepublicity.Thisnegativepublicitymayhavean

effectonthetermsunderwhichsomejointventurepartnerswillbe

willingtodobusinesswiththeCompanyandcouldaffecttheCom-

pany’s financial performance or financial condition. The Company

alsobelievesthatmanyofitsemployeesareoperatingunderstress-

ful conditions, which weaken morale and could lead to increased

employeeturnover.Continuingnegativepublicitycouldhaveama-

terialadverseeffectontheCompany’sbusiness,themarketpriceof

itspubliclytradedshares,anditsabilitytoraisecapital.

ThespecificsoftheCompany’sotherrisksaredetailedindisclosures

with the heading “Risk Factors” in the Company’s periodic filings

withsecuritiesregulators.

Outlook

TheCompany’s business philosophyhas been to focus exploration

efforts on areaswithworld class potential, and to leverageman-

agement’sknowledgeandtechnicalexpertisethroughjointventure

agreementswithmajorminingcompanies.Southwesternhasbeen

successful indevelopinghighlyprospectiveexplorationprojects in

emergingcountries.TheCompanywillcontinuetofocusthemajor-

ityofitsexplorationactivitiesinPeruandtoseekopportunitiesto

formadditionaljointventuresinordertoreduceshareholderrisk.

In 2008, the Company will explore all opportunities to enhance

shareholdervaluerelatingtotheBokaProject,aswellasexploring

fornewopportunitiesinChina.InPeru,theCompanyanditspart-

nersareplanningasignificantamountofdrillingonanumberof

propertiessuchasNuma,PacapausaandMillo-Azucaraswellasdo-

ingfurtherstudyonthelessadvancedpropertiesintheCompany’s

portfoliotoevaluatethebestcourseofactiontoadvancethem.

TheCompanywillworktoresolveitslegalissueswhileatthesame

timefocusingonitscorebusinessstrengthofexploration.

Additional Information

Additional information isprovided in theCompany’sauditedcon-

solidatedfinancialstatementsfortheyearendedDecember31,2007

andtheCompany’sAnnualInformationFormandInformationCircu-

lar.ThesedocumentsareavailableonSEDARatwww.sedar.com.



Managementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting.Internalcontroloverfinancial

reportingisaprocessdesignedby,orunderthesupervisionof,thePresidentandChiefExecutiveOfficer,theVice-PresidentandChiefFinancial

OfficerandeffectedbytheBoardofDirectors,managementandotherpersonneltoprovidereasonableassuranceregardingthereliabilityof

financialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprin-

ciples.Itincludesthosepoliciesandproceduresthat:

(a)Pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassets

oftheCompany;

(b)Providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewith

generallyacceptedaccountingprinciples,andthatreceiptsandexpendituresoftheCompanyaremadeonlyinaccordancewithauthoriza-

tionsofmanagementandthedirectorsoftheCompany;and

(c)Providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionoftheCompany’s

assetsthatcouldhaveamaterialeffectonthefinancialstatements.

Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofany

evaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,or

thatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.

ManagementhasassessedtheeffectivenessofourinternalcontroloverfinancialreportingasofDecember31,2007usingcriteriaestablished

inInternalControl–IntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.

TheCompany’smanagementhasconcludedthattheCompany’sinternalcontrolsoverfinancialreportingasatDecember31,2007waseffec-

tiveasofsuchdate.

Management’s Report on Internal Control over Financial Reporting

TIMo JauRIsTo

InterimPresidentandCEO,

VPCorporateDevelopmentandDirector

GIovannI susIn

VPFinanceandChiefFinancialOfficer

March17,2008



TOThEBOARDOFDIRECTORSAnDShAREhOlDERSOFSOuThwESTERnRESOuRCESCORP.

wehaveauditedtheinternalcontroloverfinancialreportingofSouthwesternResourcesCorp.andsubsidiaries(the“Company”)asofDe-

cember31,2007,basedonthecriteriaestablishedinInternalControl–IntegratedFrameworkissuedbytheCommitteeofSponsoringOrga-

nizationsoftheTreadwayCommission.TheCompany’smanagementisresponsibleformaintainingeffectiveinternalcontroloverfinancial

reportingandforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedintheaccompanyingManagement’s

ReportonInternalControloverFinancialReporting.OurresponsibilityistoexpressanopinionontheCompany’sinternalcontroloverfinancial

reportingbasedonouraudit.

weconductedourauditinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(unitedStates).Thosestandards

requirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethereffectiveinternalcontroloverfinancialreporting

wasmaintainedinallmaterialrespects.Ourauditincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessing

theriskthatamaterialweaknessexists,testingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessed

risk,andperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.webelievethatourauditprovidesareasonable

basisforouropinion.

Acompany’sinternalcontroloverfinancialreportingisaprocessdesignedby,orunderthesupervisionof,thecompany’sprincipalexecutive

andprincipalfinancialofficers,orpersonsperformingsimilarfunctions,andeffectedbythecompany’sboardofdirectors,management,and

otherpersonneltoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsfor

externalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreportingincludes

thosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetrans-

actionsanddispositionsoftheassetsofthecompany;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermit

preparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthe

companyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(3)providereasonable

assuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’sassetsthatcouldhavea

materialeffectonthefinancialstatements.

Becauseoftheinherentlimitationsofinternalcontroloverfinancialreporting,includingthepossibilityofcollusionorimpropermanagement

overrideofcontrols,materialmisstatementsduetoerrororfraudmaynotbepreventedordetectedonatimelybasis.Also,projectionsofany

evaluationoftheeffectivenessoftheinternalcontroloverfinancialreportingtofutureperiodsaresubjecttotheriskthatthecontrolsmay

becomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.

Inouropinion,theCompanymaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofDecember31,2007,

basedonthecriteriaestablishedinInternalControl–IntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsofthe

TreadwayCommission.

wehavealsoaudited,inaccordancewithCanadiangenerallyacceptedauditingstandardsandthestandardsofthePublicCompanyAccount-

ingOversightBoard(unitedStates),theconsolidatedfinancialstatementsasofandfortheyearendedDecember31,2007oftheCompany

andourreportdatedMarch17,2008expressedanunqualifiedopiniononthosefinancialstatementsandincludedaseparatereporttitled

CommentsbyIndependentRegisteredCharteredAccountantsonCanada-unitedStatesofAmericaReportingDifferencesreferringtochanges

inaccountingprinciplesandconditionsandeventsthatraisesubstantialdoubtontheCompany’sabilitytocontinueasagoingconcern.

IndependenT ReGIsTeRed ChaRTeRed aCCounTanTs

Vancouver,Canada

March17,2008

Report of Independent Registered Chartered accountants



TOThEBOARDOFDIRECTORSAnDShAREhOlDERSOFSOuThwESTERnRESOuRCESCORP.

wehaveauditedtheaccompanyingconsolidatedbalancesheetsofSouthwesternResourcesCorp.andsubsidiaries (the“Company”)asat

December31,2007and2006,andtherelatedconsolidatedstatementsoflossanddeficit,comprehensiveloss,andcashflowsforeachofthe

threeyearsintheperiodendedDecember31,2007.ThesefinancialstatementsaretheresponsibilityoftheCompany’smanagement.Ourre-

sponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudits.

withrespecttotheconsolidatedfinancialstatementsfortheyearendedDecember31,2007,weconductedourauditinaccordancewith

CanadiangenerallyacceptedauditingstandardsandthestandardsofthePublicCompanyAccountingOversightBoard(unitedStates).with

respecttotheconsolidatedfinancialstatementsfortheyearsendedDecember31,2006and2005,weconductedourauditsinaccordancewith

Canadiangenerallyacceptedauditingstandards.Thesestandardsrequirethatweplanandperformtheaudittoobtainreasonableassurance

aboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis,evidencesupporting

theamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantesti-

matesmadebymanagement,aswellasevaluatingtheoverallfinancialstatementpresentation.webelievethatourauditsprovideareason-

ablebasisforouropinion.

Inouropinion,theseconsolidatedfinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionofSouthwesternResources

Corp.andsubsidiariesasatDecember31,2007and2006,andtheresultsoftheiroperationsandtheircashflowsforeachofthethreeyearsin

theperiodendedDecember31,2007inaccordancewithCanadiangenerallyacceptedaccountingprinciples.

wehavealsoaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(unitedStates),theCompany’s

internalcontroloverfinancialreportingasofDecember31,2007,basedonthecriteriaestablishedinInternalControl–IntegratedFramework

issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommissionandourreportdatedMarch17,2008expressedanunquali-

fiedopinionontheCompany’sinternalcontroloverfinancialreporting.


Vancouver,Canada

March17,2008

COMMEnTSBYInDEPEnDEnTREGISTEREDChARTEREDACCOunTAnTSOnCAnADA-unITEDSTATESOFAMERICAREPORTInGDIFFEREnCES

ThestandardsofthePublicCompanyAccountingOversightBoard(unitedStates)requiretheadditionofanexplanatoryparagraph(following

theopinionparagraph)whentherearechangesinaccountingprinciplesthathaveamaterialeffectonthecomparabilityoftheCompany’s

financialstatements,suchasthechangesdescribedinnote2totheconsolidatedfinancialstatements.ThestandardsofthePublicCompany

AccountingOversightBoard(unitedStates)alsorequiretheadditionofanexplanatoryparagraphwhenthefinancialstatementsareaffected

byconditionsandeventsthatraisesubstantialdoubtontheCompany’sabilitytocontinueasagoingconcern,suchasthosedescribedinnote

1totheconsolidatedfinancialstatements.AlthoughweconductedourauditinaccordancewithbothCanadiangenerallyacceptedauditing

standardsandthestandardsofthePublicCompanyAccountingOversightBoard(unitedStates),ourreporttotheBoardofDirectorsand

ShareholdersdatedMarch17,2008isexpressedinaccordancewithCanadianreportingstandardswhichdonotrequireareferencetosuch

changesinaccountingprinciplesorpermitareferencetosuchconditionsandeventsintheauditors’reportwhenthesemattersareproperly

accountedforandadequatelydisclosedinthefinancialstatements.


Vancouver,Canada

March17,2008

Report of Independent Registered Chartered accountants



As at December 31 2007 2006

Assets

Current

CAsh And CAsh equivAlents (note 4) $ 19,680 $ 57,688 short-term investment (note 5) – 5,784 PrePAids, AdvAnCes And other reCeivAbles 394 292

20,074 63,764 other Assets – 75 exPlorAtion AdvAnCes And other reCeivAbles 780 160 ProPerty, PlAnt And equiPment (note 6) 913 968 minerAl ProPerties (note 7) 22,029 50,555 investments (note 8A) 14,711 4,404

$ 58,507 $ 119,926 liAbilities

Current

ACCounts PAyAble $ 40 $ 80 ACCrued ChArges 1,537 2,093

1,577 2,173 non-Controlling interest (note 16) – 10,627 nAture And ContinuAnCe of oPerAtions And ContingenCies (note 1)

Commitments (note 15)

shAreholders’ equity

shAre CAPitAl (note 10b)

Authorized

unlimited

issued

44,923,000 shAres (2006 – 45,854,000) 175,769 179,239 Contributed surPlus (note 10e) 28,638 23,590 ACCumulAted other ComPrehensive inCome (note 10f) 958 – defiCit (148,435) (95,703)

56,930 107,126

$ 58,507 $ 119,926

See accompanying notes to consolidated financial statements

appRoved BY The BoaRd

TIMo JauRIsTo davId BlaCk

Consolidated Balance sheetsExpressed in thousands of Canadian dollars, except per share amounts



For the years ended December 31

Cumulative from Inception

to December 31 2007 2007 2006 2005

exPenses

generAl And AdministrAtive (note 13) $ 67,135 $ 9,810 $ 9,453 $ 8,558 generAl exPlorAtion 27,432 6,674 3,828 2,886 minerAl ProPerty Costs written off (note 7b, C) 73,937 35,961 593 698 foreign exChAnge loss 661 1,878 287 566 AmortizAtion 942 51 51 37 loss before undernoted items (170,107) (54,374) (14,212) (12,745)interest And other inCome 19,143 1,721 2,333 1,346 gAin on shAres issued by AffiliAted ComPAnies (note 8b) 13,308 866 6,845 414 gAin on sAle of investments (note 8A) 7,805 3,558 3,081 1,018 (loss) gAin on disPosition of ProPerty, PlAnt, And equiPment (97) 10 3 5 write–down of investments (4,596) – – – gAin on disPosition of minerAl ProPerties 640 – – 640 equity in oPerAtions of AffiliAted ComPAnies (note 8b) (8,007) (1,203) 68 (218)net loss before non–Controlling interest (141,911) (49,422) (1,882) (9,540)non–Controlling interest (note 16) 866 434 432 – net loss for the yeAr (141,045) (48,988) (1,450) (9,540)defiCit At beginning of yeAr – (95,703) (93,340) (83,800)loss on rePurChAse And CAnCellAtion of own shAres (note 10b) (7,390) (3,744) (913) –

defiCit At end of yeAr $ (148,435) $ (148,435) $ (95,703) $ (93,340)

loss Per shAre – bAsiC And diluted $ (1.09) $ (0.03) $ (0.22)

weighted–AverAge number of shAres outstAnding 45,144 46,070 43,633



to December 31 2007 2007 2006 2005

net loss for the Period $ (141,045) $ (48,988) $ (1,450) $ (9,540)other ComPrehensive loss:

reAlized gAin on AvAilAble–for–sAle investments (note 10f) (1,605) (1,605) – – unreAlized loss on AvAilAble–for–sAle investments (note 10f) (865) (865) – –

ComPrehensive loss for the Period $ (143,515) $ (51,458) $ (1,450) $ (9,540)


Consolidated statements of loss and deficitExpressed in thousands of Canadian dollars, except per share amounts

Consolidated statements of Comprehensive lossExpressed in thousands of Canadian dollars, except per share amounts



For the years ended December 31


to December 31 2007 2007 2006 2005

oPerAting ACtivities

net loss for the yeAr $ (141,045) $ (48,988) $ (1,450) $ (9,540)items not involving CAsh

AmortizAtion 942 51 51 37 minerAl ProPerty Costs written off 73,937 35,961 593 698 gAin on shAres issued by AffiliAted ComPAnies (13,308) (866) (6,845) (414) gAin on sAle of investments (7,830) (3,558) (3,081) (1,018) loss (gAin) on disPosition of ProPerty, PlAnt And equiPment 97 (10) (3) (5) write-down of investments 4,596 – – – non-Controlling interest (866) (434) (432) – gAin on disPosition of minerAl ProPerties (640) – – (640) equity in oPerAtions of AffiliAted ComPAnies 8,007 1,203 (68) 218 stoCk-bAsed ComPensAtion (note 10d) 29,230 4,917 5,288 5,435

(46,880) (11,724) (5,947) (5,229)ChAnge in non-CAsh oPerAting working CAPitAl items

(inCreAse) deCreAse in PrePAids, AdvAnCes And other reCeivAbles (792) (231) (169) 62 inCreAse in ACCounts PAyAble And ACCrued ChArges 640 95 166 13

CAsh used in oPerAting ACtivities (47,032) (11,860) (5,950) (5,154)

investing ACtivities

disPosition (ACquisition) of short-term investments – 5,784 (5,784) – ACquisition of investments (11,898) (517) – (1,915)ProCeeds on disPosition of investments 15,538 5,209 7,239 2,970 deCreAse in CAsh due to ChAnge in ACCounting for investment in AffiliAted ComPAnies (18,734) (15,378) – – minerAl ProPerty exPenditures (113,679) (13,701) (16,128) (14,898)ProCeeds on disPosition of minerAl ProPerty 4,539 – – 4,539 Additions to other Assets (75) – (75) – Additions to ProPerty, PlAnt And equiPment (4,282) (331) (508) (203)

CAsh used in investing ACtivities (128,591) (18,934) (15,256) (9,507)

finAnCing ACtivities

shAres issued 183,974 – 1,147 30,129 shAres PurChAsed (24,770) (7,214) (3,342) (778)shAres resold 8,694 – – – ProCeeds on shAres issued by subsidiAry 27,605 – 17,280 – note reCeivAble (200) – – –

CAsh Provided by (used in) finAnCing ACtivities 195,303 (7,214) 15,085 29,351

inCreAse (deCreAse) in CAsh And CAsh equivAlents during the yeAr 19,680 (38,008) (6,121) 14,690

CAsh And CAsh equivAlents beginning of yeAr – 57,688 63,809 49,119

CAsh And CAsh equivAlents end of yeAr $ 19,680 $ 19,680 $ 57,688 $ 63,809

CAsh And CAsh equivAlents Consist of:

CAsh $ 6,381 $ 54,842 $ 60,963 short-term investments 13,299 2,846 2,846

$ 19,680 $ 57,688 $ 63,809 suPPlementAl CAshflow informAtion (note 14)


Consolidated statements of CashflowsExpressed in thousands of Canadian dollars, except per share amounts



1. naTuRe and ConTInuanCe oF opeRaTIons and ConTInGenCIes

SouthwesternResourcesCorp.(“Southwestern”orthe“Company”)isanexplorationstagejuniorminingcompanyengagedintheidentification,

acquisition,evaluation,explorationanddevelopmentofmineralproperties,especiallythosewiththepotentialtohostgold,silverandbase

metals,primarilyinChinaandPeru.Operationsareconductedeitherdirectlyorthroughagreementswiththirdparties.TheCompanyhasnot

determinedwhetherthesepropertiescontainmineralreserveswhichareeconomicallyrecoverable.Therecoverabilityofamountscapitalizedas

mineralpropertiesisdependentuponthediscoveryofeconomicallyrecoverablereserves,andtheabilityoftheCompanytoobtainnecessary

financingtocompletethedevelopmentandattainmentoffutureprofitableproductionfromthepropertiesorproceedsfromdisposition.

OnJuly19,2007,theCompanydisclosedthatitsspecialcommitteeofindependentdirectors(the“Committee”)haddeterminedthatthere

weredeficienciesintheCompany’scontrolproceduresattheBokaProjectwhichresultedinerrorsinpreviouslyreportedassayresults.Fur-

thermore,thereviewindicatedthattheintegrityofcertainstoreddrillcoresampleshadbeencompromised.Asaconsequence,theCompany

withdrewallofitspreviouslyannouncedresultsfortheBokaProjectandhasinitiatedadetailedreview.AnewTechnicalReportfortheproject

wasfiledonSEDARonnovember9,2007andincludedacompletedInferredMineralResourceestimatebasedoncompositeddrillholeassay

datafromthereconstructedandvalidatedassaydatabasefortheproject.TheReportalsoindicatedthattheexplorationconcessionsandmin-

inglicencesthatmakeuptheBokaProjectwereingoodstanding.

AsatDecember31,2007,theBokaProjectisrecordedatacarryingvalueof$10.0million.TheCompanyconsideredthecarryingvalueofthe

BokaProjectasatDecember31,2007inaccordancewithCanadiangenerallyacceptedaccountingprinciplesanddeterminedthatanimpair-

menthadoccurred,resultinginawrite-downof$33.8milliontoitscurrentcarryingvaluetoreflectmanagement’scurrentestimateofitsfair

valueasatthedateofthesefinancialstatements.TheCompanycanprovidenoassurancethatthecontinuedassessmentofandfurtherwork

ontheBokaProjectwillnotresultinanadditionalimpairmentchargeinthefuture.ThefutureprospectsoftheBokaProjectarecontingent

anduncertain.

TheCompanyandJohnPatersonhavebeennamedinthreeclass-actionlawsuitsinBritishColumbia,OntarioandQuebecwheretheplaintiffs

allegethattheCompanyandPatersonnegligentlyorrecklesslymisrepresentedthequantityofgoldinitsdrillsamplestakenfromtheBoka

Project.TheCompanyintendstovigorouslydefenditselfagainstsuchclaims.TheconsolidatedfinancialstatementsasatDecember31,2007

donotincludeanyprovisionforliabilitythatmaybenecessaryshouldtheCompanybeunsuccessfulindefendingsuchclaimsastheamount

ofthepotentialliabilityisnotdeterminableasofthedateofthesefinancialstatements.

InAugust2007,theCompanyannouncedthatithadcommencedlegalactionintheSupremeCourtofBritishColumbiaagainstJohnPaterson,

andcertainaffiliatedcompanies,for,amongotherthings,fraud,breachoffiduciary,statutoryandcontractualdutiesandinsidertrading.The

CompanyisseekingtorecoveralldamagesandlossescausedtotheCompany.

TheCompany’scontinuingoperationsaredependentupon itsability toeither secureadditionalequitycapitalorgeneratecashflowfrom

operationsinthefuture,whichisnotassured.Theseconsolidatedfinancialstatementsdonotincludeanyadjustmentsrelatingtotherecover-

abilityandclassificationofrecordedassetsandliabilitiesthatmightbenecessary,shouldtheCompanybeunabletosecureadditionalequity

capitalorgeneratecashfromoperationsinthefuture.

2. ChanGe In aCCounTInG polICIes

EffectiveasofJanuary1,2007theCompanyhasadoptedCanadianInstituteofCharteredAccountants(CICA)handbookSection3855,Finan-

cialInstruments–RecognitionandMeasurement,CICAhandbookSection3861,FinancialInstruments–DisclosureandPresentation,CICA

handbookSection1530,ComprehensiveIncome,CICAhandbookSection3865,hedges,andCICAhandbookSection3251,Equity.Theseac-

countingpolicychangeswereadoptedonaprospectivebasiswithnorestatementofpriorperiodfinancialstatements.

InaccordancewithCICAhandbookSection3855,theCompanynowclassifiesallfinancialinstrumentsaseitherheld-to-maturity,available-

for-sale,held-for-trading,loansandreceivables,orotherfinancialliabilities.Financialassetsheld-to-maturity,loansandreceivablesandfi-

nancialliabilitiesotherthanthoseheld-for-trading,aremeasuredatamortizedcost.Available-for-saleinstrumentsaremeasuredatfairvalue

withunrealizedgainsandlossesrecognizedinothercomprehensiveincome.Instrumentsclassifiedasheld-for-tradingaremeasuredatfair

valuewithunrealizedgainsandlossesrecognizedontheStatementsoflossandDeficit.InvestmentsincorporationsinwhichtheCompany

exercisessignificantinfluenceareaccountedforusingtheequitymethod,wherebytheinvestmentisinitiallyrecordedatcostandisadjusted

torecognizetheCompany’sshareofearningsorlossesandreducedbydividendsanddistributionsreceived.

uponadoptionofthisnewstandard,theCompanyhasdesignateditscashandcashequivalentsasheld-for-trading,whicharemeasuredat

fairvalue.Explorationadvancesandotherreceivablesareclassifiedasloansandreceivables,whicharemeasuredatamortizedcost.Accounts

notes to Consolidated Financial statementsDecember 31, 2007 and 2006

(All tabular amounts are in thousands of Canadian dollars)



payableandaccruedchargesareclassifiedasotherliabilities,whicharemeasuredatamortizedcost.TheCompanyhasclassifieditsinvestments

inpubliccompanies(otherthanthosethattheCompanyhassignificantinfluencein)asavailable-for-saleandthereforecarriesthematfair

marketvalue,withtheunrealizedgainorlossrecordedinshareholders’equityasacomponentofothercomprehensiveincome.Theseamounts

willbereclassifiedfromshareholders’equitytonetincomewhentheinvestmentissold.Previously,investmentsinthesepubliccompanieswere

carriedatcost,lessprovisionsforotherthantemporarydeclinesinvalue.Thischangeinaccountingpolicyresultsina$3,428,000increase

inthecarryingvalueofinvestmentsinpubliccompaniesasatJanuary1,2007,representingthecumulativeunrealizedgainatthattime(see

note10F).

Comprehensiveincomeisthechangeinshareholders’equityduringaperiodfromtransactionsandothereventsandcircumstancesfromnon-

ownersources.InaccordancewithCICAhandbookSection1530,theCompanynowreportsaConsolidatedStatementsofComprehensiveloss

andanewcategory,accumulatedothercomprehensiveincome,intheshareholders’equitysectionoftheConsolidatedBalanceSheets.The

componentsofthisnewcategorywillincludeunrealizedgainsandlossesonfinancialassetsclassifiedasavailable-for-sale.Thecomponents

ofaccumulatedothercomprehensiveincomefortheyearendedDecember31,2007aredisclosedinnote10F.

3. sIGnIFICanT aCCounTInG polICIes

A) BASISOFPRESEnTATIOn

TheconsolidatedfinancialstatementsarepreparedbaseduponCanadiangenerallyacceptedaccountingprinciples.Informationwithrespect

togenerallyacceptedaccountingprinciplesintheunitedStatesisprovidedinnote17.

ThefinancialstatementsofentitieswhicharecontrolledbytheCompanythroughvotingequityinterests,referredtoassubsidiaries,arecon-

solidated.Entitieswhicharejointlycontrolled,referredtoasjointventures,areproportionatelyconsolidated.VariableInterestEntities(“VIEs”),

whichinclude,butarenotlimitedto,specialpurposeentities,trusts,partnershipsandotherlegalstructures,asdefinedbytheAccounting

StandardsBoardinAccountingGuideline(“AcG”)15,“ConsolidationofVariableInterestEntities”(“AcG15”),areentitiesinwhichequityin-

vestorsdonothavethecharacteristicsofa“controllingfinancialinterest”orthereisnotsufficientequityatriskfortheentitytofinanceits

activitieswithoutadditionalsubordinatedfinancialsupport.VIEsaresubjecttoconsolidationbytheprimarybeneficiarywhowillabsorbthe

majorityoftheentities’expectedlossesand/orexpectedresidualreturns.TheCompanyhasdeterminedthatitdoesnothaveanyVIEswhich

requiretobeconsolidated.Allintercompanybalancesandtransactionshavebeeneliminateduponconsolidation.

B) MEASuREMEnTunCERTAInTY

ThepreparationoffinancialstatementsinconformitywithCanadiangenerallyacceptedaccountingprinciplesrequiresmanagementtomake

estimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentassetsandliabilitiesatthe

dateofthefinancialstatementsandthereportedamountsofrevenuesandexpensesduringthereportingperiods.Significantestimateswhere

management’sjudgmentisappliedincludeassetvaluations,incometaxes,contingentliabilitiesandstock-basedcompensation.Actualresults

maydifferfromthoseestimates.

C) FInAnCIAlInSTRuMEnTS

TheCompanyclassifiesitsfinancialinstrumentsintooneofthefollowingcategories:held-for-trading(assetsandliabilities),available-for-sale

(assets),loansandreceivables,held-to-maturity(assets)andotherfinancialliabilities.Allfinancialinstrumentsaremeasuredatfairvalueon

initialrecognition.

D) CAShAnDCAShEQuIVAlEnTS

Cashandcashequivalents includes those short-termmoneymarket instrumentswhich,onacquisition,havea termtomaturityof three

monthsorless.

E) ShORT-TERMInVESTMEnTS

Short-terminvestmentsincludethoseshort-termmoneymarketinstrumentswhich,onacquisition,haveatermtomaturityof90daysbut

lessthanoneyear.

F) MInERAlPROPERTIES

Mineralpropertiesandrelatedexplorationanddevelopmentcostsarerecordedatcostonaproperty-by-propertybasis.Costsincurredforgen-

eralexplorationthatarenotprojectspecificordonotresultintheacquisitionofmineralpropertiesarechargedtooperations.Management

periodicallyreviewstheunderlyingvalueofmineralpropertiesandrecordsaprovisiontoreducethecostsincurredtonetrealizableamounts

asappropriate.Ifanimpairmentisdeterminedtoexist,themineralpropertywillbewrittendowntoitsnetrealizablevalue.Therecoverability



oftheamountscapitalizedformineralpropertyinterestsisdependentuponthedelineationofeconomicallyrecoverableorereservesandthe

Company’sabilitytoobtainthenecessaryfinancingtocompletetheirdevelopmentandrealizeprofitableproductionorproceedsfromthe

dispositionthereof.Itisreasonablypossiblethatchangescouldoccurintheneartermthatcouldadverselyaffectmanagement’sestimates

andmayresultinfuturewrite-downsofcapitalizedmineralpropertyinterestcarryingvalues.

G) JOInTVEnTuRES

TheCompanyholdsasignificantportionofitsinterestsinmineralpropertiesthroughjointventureagreements.CurrentlytheCompanydoes

notconductitsoperatingactivitiesthroughthesejointventurearrangements.

h) PROPERTY,PlAnTAnDEQuIPMEnT

Property,plantandequipmentisrecordedatcost.Amortizationiscomputedusingthedeclining-balancemethodbasedonannualratesasfollows:

Officeandotherequipment 20%Computerequipment 30%leaseholdimprovements straight-lineover6yearsVehicles 30%

I) ASSETRETIREMEnTOBlIGATIOn

TheCompanyfollowstheCICAhandbookSection3110,AssetRetirementObligationswhichestablishesstandardsfortherecognition,mea-

surementanddisclosureofliabilitiesforassetretirementobligationsandtheassociatedassetretirementcosts.Thestandardsapplytolegal

obligationsassociatedwiththeretirementoflong-livedtangibleassetsthatarisefromtheacquisition,construction,developmentornormal

operationofsuchassets.Thestandardsrequirethataliabilityforanassetretirementobligationberecognizedintheperiodinwhichitis

incurredandwhenareasonableestimateofthefairvalueoftheliabilitycanbemade.Furthermore,acorrespondingassetretirementcost

shouldberecognizedbyincreasingthecarryingamountoftherelatedlong-livedasset.Theassetretirementcostissubsequentlyallocatedina

rationalandsystematicmethodovertheunderlyingasset’susefullife.Theinitialfairvalueoftheliabilityisaccreted,bychargestooperations,

toitsestimatednormalfuturevalue.Managementhasdeterminedthatithasnoassetretirementobligationsatthistime.

J) FuTuREInCOMETAxES

TheCompanyaccountsforincometaxesusingtheassetandliabilitymethod.underthismethod,futureincometaxesarerecordedforthetem-

porarydifferencesbetweenthefinancialreportingbasisandtaxbasisoftheCompany’sassetsandliabilities.Thesefuturetaxesaremeasuredby

theprovisionsofcurrentlysubstantivelyenactedtaxlaws.ManagementbelievesthatitisnotsufficientlylikelythattheCompanywillgenerate

sufficienttaxableincometoallowtherealizationoffuturetaxassetsandthereforetheCompanyhasfullyprovidedfortheseassets.

k) FOREIGnCuRREnCYTRAnSlATIOn

AllforeigncurrenciesaretranslatedintoCanadiandollarsusingweighted-averageratesfortheyearforitemsincludedintheConsolidated

StatementsoflossandDeficit,therateineffectatthebalancesheetdateformonetaryassetsandliabilities,andhistoricalratesforother

assetsincludedintheConsolidatedBalanceSheets.Translationgainsorlossesareincludedinthedeterminationofincome.

l) STOCkOPTIOnS

Thefairvalueofallstock-basedawardsisestimatedusingtheBlack-Scholesmodelatthedateofgrantandisexpensedtooperationsover

eachaward’svestingperiod.

M) lOSSPERShARE

Basiclosspershareiscomputedbydividingnetloss(thenumerator)bytheweighted-averagenumberofoutstandingcommonsharesforthe

period(thedenominator).Incomputingdilutedlosspershare,anadjustmentismadeforthedilutiveeffectoftheexerciseofstockoptions

andwarrantsusingthetreasurystockmethod.Inallperiodspresented,fullydilutedlosspershareisnotpresented,asitisanti-dilutive.

n) COMPARATIVEFIGuRES

Asdescribedbelow,certainoftheprioryear’sfigureshavebeenreclassifiedtoconformtothecurrentyearpresentation.

TheCompanypreviouslypresentedstock-basedcompensationexpenseasaseparatelineitemwithintheexpensessectionoftheStatementsof

lossandDeficit.FortheyearendedDecember31,2007theCompanynowpresentsstockbasedcompensationexpensewithinthesamefinan-

cialstatementlineitemsasthecashcompensationpaid(note10D)andhasreclassifiedtheprioryearfigurestoconformtothispresentation.



O) RECEnTACCOunTInGPROnOunCEMEnTS

InJune2007,theCICAissuedchangestoSection1400,GeneralStandardsofFinancialStatementPresentation.Section1400hasbeenamend-

edtoincluderequirementstoassessanddiscloseanentity’sabilitytocontinueasagoingconcern.Managementshallmakeanassessment

ofanentity’sabilitytocontinueasagoingconcern.whenmanagementisaware,inmakingitsassessment,ofmaterialuncertaintiesrelated

toeventsorconditionsthatmaycastsignificantdoubtupontheentity’sabilitytocontinueasagoingconcern,thoseuncertaintiesshallbe

disclosed.whenfinancialstatementsarenotpreparedonagoingconcernbasis,thatfactshallbedisclosed,togetherwiththebasisonwhich

thefinancialstatementsarepreparedandthereasonwhytheentityisnotregardedasagoingconcern.Section1400iseffectiveforinterim

andannualfinancialstatementsrelatingtofiscalyearsbeginningonorafterJanuary1,2008.Earlieradoptionisencouraged.Theadoptionof

thisstandardwillhavenoimpactontheCompany’soperatingresultsorfinancialpositionandmanagementexpectsthattherewillnotbea

materialimpactontheCompany’sfinancialstatementdisclosure.

InDecember2006,theCICAissuedSection1535,CapitalDisclosures.ThemainfeaturesofthenewSectionareasfollows:

• Requirementsforanentitytodisclosequalitativeinformationaboutitsobjectives,policiesandprocessesformanagingcapital;

• Arequirementforanentitytodisclosequantitativedataaboutwhatitregardsascapital;and

• Arequirementforanentitytodisclosewhetherithascompliedwithanyexternallyimposedcapitalrequirementsand,ifnot,theconse-

quencesofsuchnon-compliance.

Section1535iseffectiveforinterimandannualfinancialstatementsrelatingtofiscalyearsbeginningonorafterOctober1,2007.Theadop-

tionofthisstandardwillhavenoimpactontheCompany’soperatingresultsorfinancialpositionandmanagementiscurrentlyintheprocess

ofevaluatingtheimpactthattheseadditionaldisclosurestandardswillhaveontheCompany’sfinancialstatements.

InDecember2006, theCICA issuedhandbookSection3862, Financial Instruments–DisclosuresandSection3863, Financial Instruments

–Presentation.Section3862modifiesthedisclosurerequirementsofSection3861,FinancialInstruments–DisclosuresandPresentationand

requiresentitiestoprovidedisclosuresintheirconsolidatedfinancialstatementsthatenableuserstoevaluatethesignificanceoffinancial

instrumentsontheentity’sconsolidatedfinancialpositionandperformance,andthenatureandextentofrisksarisingfromfinancialinstru-

mentsandnon-financialderivatives. Section3863carries forwardunchanged thepresentation requirements forfinancial instrumentsof

Section3861.Sections3862and3863applytointerimandannualconsolidatedfinancialstatementsrelatingtofiscalyearsbeginningonor

afterOctober1,2007.

4. Cash and Cash eQuIvalenTs

Cashandcashequivalentsof$19.7million(2006–$57.7million)consistofmoneymarketinstrumentswithcreditratingswhichexposethe

Companytominimalcreditrisk.

5. shoRT-TeRM InvesTMenT

AsatDecember31,2007,theCompanyhadnoshort-terminvestments.AsatDecember31,2006,theCompanyhadashort-terminvestment

atacostofuS$4,963,322(CDn$5,783,759),maturingonMarch27,2007,andyieldinganinterestrateof5.20%.

6. pRopeRTY, planT and eQuIpMenTAs at December 31, 2007

Cost Accumulated Amortization

Net Book Value

offiCe And other equiPment $ 1,013 $ 675 $ 338ComPuter equiPment 1,094 793 301vehiCles 803 529 274

$ 2,910 $ 1,997 $ 913

As at December 31, 2006

Cost Accumulated Amortization

Net Book Value

offiCe And other equiPment $ 931 $ 616 $ 315ComPuter equiPment 945 714 231vehiCles 962 540 422

$ 2,838 $ 1,870 $ 968

Amortizationrelatingtoexplorationrelatedassetshasbeenallocatedtomineralpropertiesintheamountof$198,973(2006–$201,979).



7. MIneRal pRopeRTIes

A)December 31, 2007 December 31, 2006

ChinA

bokA $ 10,000 $ 35,967yunnAn gold – 857other – 586

totAl ChinA 10,000 37,410

Peru

liAm 7,533 5,138ACChA-yAnque – 3,108bAmbAs west – 738bAmbAs CoPPer 1,224 974AntAy 708 960PACAPAusA 272 262other 2,292 1,965

totAl Peru 12,029 13,145

totAl $ 22,029 $ 50,555

B) FortheyearendedDecember31,2007,thesignificantexpenditureswereasfollows:

Boka Liam Accha-Yanque Other Total

bAlAnCe, beginning of yeAr $ 35,967 $ 5,138 $ 3,108 $ 6,342 $ 50,555ProPerty ACquisition And mAintenAnCe 276 221 1 229 727AnAlytiCAl 350 45 55 50 500geoPhysiCs – 55 – 99 154geology 3,654 1,168 666 206 5,694drilling 3,154 837 981 307 5,279reseArCh 44 36 15 15 110ProjeCt AdministrAtion 384 33 132 196 745ProPerty Costs written off (33,829) – – (2,132) (35,961)deConsolidAtion of zinCore – – (4,958) (816) (5,774)

bAlAnCe, end of yeAr $ 10,000 $ 7,533 $ – $ 4,496 $ 22,029

FortheyearendedDecember31,2006,thesignificantexpenditureswereasfollows:

Boka Liam Accha-Yanque Other Total

bAlAnCe, beginning of yeAr $ 25,596 $ 3,194 $ 1,256 $ 4,833 $ 34,879ProPerty ACquisition And mAintenAnCe 17 361 200 534 1,112AnAlytiCAl 346 56 94 135 631geoPhysiCs 21 33 – 46 100geology 3,718 1,341 1,152 1,524 7,735drilling 5,820 111 279 28 6,238reseArCh 26 15 46 22 109ProjeCt AdministrAtion 423 27 81 4 535ProPerty Costs written off – – – (593) (593)Cost reCovery – – – (191) (191)

bAlAnCe, end of yeAr $ 35,967 $ 5,138 $ 3,108 $ 6,342 $ 50,555

C) TheCompanyconductsitsexplorationindependentlyaswellasthroughjointventureagreementswiththirdpartieswherebyathirdparty

earnsaninterestintheCompany’spropertybyfulfillingtermsasoutlinedintheagreement.Themajorityofjointventureagreementsare

structuredinsuchawayastoallowaninterestedpartytoearnaninterestinaprojectbymakingcertainexpendituresontheCompany’s

propertiesoveraperiodoftime.TheCompanyisalsoinvolvedinexplorationthroughoptionorearn-inagreementswherebyitprovides100%

ofthefundinginordertoearnacontrollinginterestinaprojectownedbyathirdparty.

ChIna

Seenote1fordescriptionofBokaProject.



peRu

TheliamProjectisanoptionagreementwithnewmontPerulimited(“newmont”).underthetermsoftheliamRegionalVentureAgreement,

bothnewmontandSouthwesterneachhavea50%workinginterestandwilleachcontribute50%oftheexplorationfunding.newmontcan

earna70%interestinthoseportionsoftheprojectthatitadvancestoabankablefeasibilitystudybyfunding100%ofthecoststoplace

thosedepositsintocommercialproduction.

ThePacapausaProjectissubjecttoanoptionagreementwithMineraOroVegaS.A.C.(“OroVega”),thePeruviansubsidiaryofInternational

MineralsCorporation,underwhichOroVegacanearna70%interest intheprojectbymeetingcertainworkcommitments,completinga

feasibilitystudy,andfinancingtheprojectintoproduction.OroVegahasfulfilledtherequirementstoexercisethefirstoptionandOroVega

andSouthwesternformedanew50/50companytoholdtheproperty.OroVegahastheoptiontoearnupto70%interestintheprojectby

meetingadditionalworkcommitments.

TheAntayProjectis100%ownedbySouthwesternsincetheoptionagreementwithAngloAmericanExplorationPeruS.A.(“Anglo”)waster-

minatedinJuly2007,duetounsuccessfuleffortstosecureacommunityaccessagreementtotheSaytaporphyryprospect,whichissituated

inthenorthernsectionoftheproject.AftertheterminationoftheagreementwithAnglo,Southwesternhasbeensuccessfulinitsdiscussions

withthelocalcommunityandaccesshassubsequentlybeengranted.

MInERAlPROPERTYwRITE-OFFS

DuringtheyearendedDecember31,2007,expenditurestotalling$36.0millionwerewrittenoffrelatingtotheBokaProjectinChina($33.8

million)asexplainedinnote1,theYunnanGoldProjectinChina($860,000)andvariousnon-coreprojectsinPeruandChina.Thecostsrelating

totheYunnanGoldProjectwerewrittenoffasaresultofthejointventurepartnerontheproject(newmontOverseasExplorationlimited)

terminatingthejointventurebasedontheevaluationoftheprojectareatodate.

DuringtheyearendedDecember31,2006,expenditurestotalling$593,000werewrittenoff,ofwhich$538,000relatedtotheMinaspata

propertyinPeru,andtheremainingamountrelatingtovariousnon-coreprojects.

8. InvesTMenTsA)

December 31, 2007

Ownership % Carrying Value Quoted Market Value

zinCore metAls inC. – signifiCAntly influenCed AffiliAte 48.2 $ 9,858 $ 15,049other investments – 4,853 4,853

$ 14,711 $ 19,902

December 31, 2006

Ownership % Carrying Value Quoted Market Value

suPerior diAmonds inC. – signifiCAntly influenCed AffiliAte 14.8 $ 1,919 $ 3,082other investments – 2,485 5,913

$ 4,404 $ 8,995

InApril2007,theCompanysold500,000commonsharesofZincoreMetalsInc.(“Zincore”)forgrossproceedsof$350,000andrecordedagainof

$212,000.ThissalecausedtheCompany’sinterestinZincoretobereducedfrom50.4%to49.7%.AsaresultofthereductionoftheCompany’s

interestandresultinglossofcontrol,theassetsandliabilitiesofZincorewerenolongerconsolidatedintheCompany’sbalancesheeteffective

April1,2007.TheassetsandliabilitiesofZincoreexcludedfromconsolidationandtheinvestmentcarryingvalueasatDecember31,2007are

detailedasfollows:

CAsh $ 15,378exPlorAtion AdvAnCes And other reCeivAbles 171other Assets 75ProPerty, PlAnt And equiPment 146minerAl ProPerties 5,774

21,544ACCounts PAyAble And ACCrued ChArges (662)non-Controlling interest (10,360)investment As At APril 1, 2007 10,522sAle of shAres (136)equity in loss (APril 1, 2007 to deCember 31, 2007) (1,116)stoCk-bAsed ComPensAtion 298gAin on dilution 290

investment As At deCember 31, 2007 $ 9,858



DuringtheyearendedDecember31,2007,theCompanysoldallofitscommonsharesoflakeShoreGoldCorp.(“lakeShore”)andrecordeda

gainof$3,346,000.Aswell,duringthesameperiodtheCompanypurchased1,361,000commonsharesofSuperiorDiamondsInc.(“Superior”)

atacostof$517,000.DuetotheCompanyandSuperiornolongerhavingadirectorandpresidentincommonasatJuly1,2007,theCompany

nolongeraccountsforitsinvestmentinSuperiorusingtheequitymethodasithasdeterminedthatitnolongerhassignificantinfluence.The

CompanynowclassifiesitsinvestmentinSuperiorasavailable-for-saleandrecordsthechangesinmarketpriceincomprehensiveloss.

InFebruary2008,theCompanysold4,089,378commonsharesofSuperiorforgrossproceedsof$1,231,194.Asaresultofthistransactionthe

Company’sinterestinSuperiorwasreducedto6.5%from12.9%.

OnMarch31,2006,anagreementwasreachedbetweentheCompanyandSuperiorDiamondsInc.(“Superior”)toconverta$200,000long-

termnotereceivablefromSuperiorinto444,444commonsharesofSuperioratapriceof$0.45pershare.

DuringtheyearendedDecember31,2006,theCompanysoldallofits1,017,222commonsharesofJinshanGoldMinesInc.andrecordedagain

of$1,142,000.Alsoduring2006theCompanysoldallofitsremainingsharesofFnxMiningCo.(“Fnx”)totalling419,509(2005–224,626)

commonsharesandrecordedagainof$1,939,000(2005–$1,018,000).

B) Detailsofgainsonsharesissuedby,andequityinoperationsof,affiliatedcompaniesfortheyearsended2007,2006and2005areasfollows:

For the Year Ended December 31, 2007 For the Year Ended December 31, 2006 For the Year Ended December 31, 2005

Gain on shares issued by affiliated

companies (i)

Equity in operations of affiliated

companies (ii)


companies (i)


companies (ii)


companies (i)


companies (ii)

zinCore metAls inC. $ 290 $ (1,116) $ 6,436 $ – $ – $ –suPerior diAmonds inC. 576 (87) 409 68 414 (191)AurorA PlAtinum CorP. – – – – – (27)

$ 866 $ (1,203) $ 6,845 $ 68 $ 414 $ (218)

(i) Gains on shares issued by affiliated companies arise when the ownership interest of the company in a significantly influenced or controlled entity is diluted as a result of share issuances of the investee company. the company does not receive any cash proceeds (nor is required to make any payments) from these transactions.

(ii) equity in operations of affiliated companies represents the company’s share of the net earnings or losses for the reporting period in a significantly influenced company.

9. InCoMe TaXes

TheprovisionforincometaxesreporteddiffersfromtheamountscomputedbyapplyingthecumulativeCanadianfederalandprovincialincome

taxratestothelossbeforetaxprovisionduetothefollowing:

2007 2006 2005

CAnAdiAn stAtutory federAl inCome tAx rAte 34% 34% 35%reCovery of inCome tAxes ComPuted At stAtutory rAtes $ 16,715 $ 527 $ 3,339effeCt of lower tAx rAtes of foreign jurisdiCtions (2,167) (1,025) (1,587)effeCt of differenCe between Current rAte And rAte APPlied to meAsure future tAx Assets (3,500) – –non-deduCtible exPenses (1,385) (1,770) (1,894)non-tAxAble Portion of CAPitAl trAnsACtions 303 1,753 108ChAnge in vAluAtion AllowAnCe (9,966) 515 34

inCome tAx Provision $ – $ – $ –

TheapproximatetaxeffectofeachtypeoftemporarydifferencethatgivesrisetotheCompany’sfutureincometaxassetsareasfollows:

2007 2006

oPerAting loss CArry forwArds $ 4,990 $ 5,854tAx vAlue of Assets in exCess of CArrying vAlue 10,935 2,439

15,925 8,293less: vAluAtion AllowAnCe (15,925) (8,293)

net future inCome tAx liAbility $ – $ –



AtDecember31,2007theCompanyhadthefollowinglosscarryforwardsavailablefortaxpurposes:

Country Amount Expiry

CAnAdA $ 16,298 2008 - 2027Peru $ 282 2008 - 2011mAuritius $ 478 none

10. shaRe CapITal

A) AuThORIZED:unlIMITEDCOMMOnShARESwIThOuTPARVAluE.

B) ISSuEDAnDOuTSTAnDInG:

For the year ended December 31, 2007

Number of Shares Issued (000’s)

Amount

Treasury Shares (000’s)

Amount

Number of Shares Outstanding (000’s)

Amount

beginning of yeAr 45,895 $ 179,571 41 $ 332 45,854 $ 179,239shAres PurChAsed – – 931 7,214 (931) (7,214)CAnCelled shAres (972) (3,802) (972) (7,546) – 3,744

end of yeAr 44,923 $ 175,769 – $ – 44,923 $ 175,769

For the year ended December 31, 2006

Number of Shares Issued (000’s)

Amount

Treasury Shares (000’s)

Amount

Number of Shares Outstanding (000’s)

Amount

beginning of yeAr 46,014 $ 179,701 80 $ 778 45,934 $ 178,923oPtions exerCised 228 899 – – 228 899PrivAte PlACement 58 556 – – 58 556shAres PurChAsed – – 366 3,342 (366) (3,342)CAnCelled shAres (405) (1,585) (405) (3,788) – 2,203

end of yeAr 45,895 $ 179,571 41 $ 332 45,854 $ 179,239

DuringtheyearendedDecember31,2007,theCompanypurchased930,600ofitsowncommonsharesforcoststotalling$7,214,000pursuant

toitsnormalcourseissuerbid.Duringthesameperiod,930,600ofthesecommonshares,aswellas41,200commonsharespurchasedin2006,

werecancelledandresultedinalossof$3,744,000beingrecordedasachargetodeficit.

OnAugust29,2006theCompanyreceivedregulatoryapprovaltoimplementanormalCourseIssuerBidpursuanttowhichtheCompanycan

acquireuptotwomillionofitsowncommonshares.TheCompanypurchased366,900ofitsowncommonsharesatacostof$3,342,000during

theyearendedDecember31,2006ofwhich325,700werecancelledin2006.Thecancellationofthesesharesresultedinalossof$1,735,627

ofwhich$912,500wasrecordedasachargetodeficitandtheremaining$823,127incontributedsurplus.

InMarch2006,theCompanycancelled80,000commonsharesithadacquiredpursuanttoitspreviousnormalcourseissuerbidin2005.The

cancellationofthesesharesresultedinalossof$466,944whichwasrecordedincontributedsurplus.

InJune2006,aspartoftheAntayPropertyagreement,AngloAmericanExplorationBVpurchased58,414commonsharesofSouthwesternat

$9.52pershareforgrossproceedsof$556,101.

Asaresultofstockoptionsexercised,therewasatransferof$309,240fromcontributedsurplustosharecapitalduringtheyearendedDe-

cember31,2006.

C) STOCkOPTIOnS

undertheCompany’sstockoptionplantherewere3,617,000optionsoutstanding,ofwhichnonewereexercisableatDecember31,2007.The

stockoptionsoutstandinghaveanexcercisepriceof$0.65ofwhich25%vestsafterJune11,2008,25%afterDecember11,2008,and50%

afterDecember11,2009.Theoptionsmaybeexercisableforaperiodofuptofiveyearsandtheexercisepricecannotbelessthantheclosing

priceontheTorontoStockExchangeonthetradingdayimmediatelyprecedingthegrantoftheoption.TheBoardofDirectorsdeterminesthe

timeduringwhichanyoptionmayvest.



2007 2006

Number of Options (000’s)

Weighted–Average Exercise Price

Number of Options (000’s)

Weighted-Average Exercise Price

outstAnding At beginning of yeAr 4,088 $ 13.19 3,659 $ 12.46grAnted 4,863 $ 2.52 755 $ 13.54exerCised – $ – (228) $ 2.59CAnCelled (5,334) $ 11.96 (98) $ 13.49outstAnding At end of yeAr 3,617 $ 0.65 4,088 $ 13.19exerCisAble At end of yeAr – $ – 3,893 $ 13.11

ThefollowingtablesummarizesinformationaboutstockoptionsoutstandingatDecember31,2007:

Exercise PriceNumber of Options

Outstanding (000’s)

Weighted-Average Remaining Years of

Contractual LifeWeighted-Average

Exercise PriceNumber of Options Exercisable (000’s)

Weighted-Average Exercise Price

$ 0.65 3,617 4.95 $ 0.65 – $ –

Thestockoptionsoutstandinghaveanexercisepriceof$0.65and25%vestsafterJune11,2008,25%afterDecember11,2008,and50%after

December11,2009.

D) STOCk-BASEDCOMPEnSATIOn

AsaresultofstockoptionsvestingandtheamortizationofpreviousgrantsduringtheyearendedDecember31,2007,theCompanyrecognized

stock-basedcompensationexpenseandincludedthisamountincontributedsurplusasfollows:

2007 2006 2005

offiCe sAlAries $ 997 $ 1,663 $ 1,212Consulting fees 1,218 2,399 3,505generAl exPlorAtion 2,366 793 718zinCore 336 433 –

totAl $ 4,917 $ 5,288 $ 5,435

FortheyearendedDecember31,2007,thestock-basedcompensationvaluewasdeterminedusingtheBlack-Scholesoptionpricingmodel.

Aweighted-averagegrant-datefairvalueof$1.07(2006–$5.82;2005–$4.15)foreachoptiongrantwasestimatedusingthefollowing

weighted-averageassumptions:nodividendsaretobepaid;volatilityof66%(2006–54%;2005–58%);riskfreeinterestrateof3.9%(2006

–4.0%;2005–3.5%);andexpectedlifeof3.5years(2006–3.5years;2005–3.5years).

ThefairvaluecomputedusingtheBlack-ScholesmodelisonlyanestimateofthepotentialvalueoftheindividualoptionsandtheCompany

isnotrequiredtomakepaymentsforsuchtransactions.

TheBlack-Scholesoptionpricingmodelutilizessubjectiveassumptionssuchasexpectedpricevolatilityandexpectedlifeoftheoption.Dis-

crepanciesintheseinputassumptionscansignificantlyaffectthefairvalueestimate.

E) COnTRIBuTEDSuRPluSYear Ended

December 31, 2007Year Ended

December 31, 2006

bAlAnCe, beginning of yeAr $ 23,590 $ 20,115

stoCk-bAsed ComPensAtion 4,917 4,855

CAnCelled shAres – (1,290)

stoCk oPtions exerCised – (309)

stoCk oPtions grAnted by subsidiAry 169 219non-Controlling interest Portion of stoCk-bAsed ComPensAtion (336) –stoCk-bAsed ComPensAtion of signifiCAntly influenCed AffiliAte 298 –

bAlAnCe, end of yeAr $ 28,638 $ 23,590



F) ACCuMulATEDOThERCOMPREhEnSIVEInCOME

Year Ended December 31, 2007

bAlAnCe At deCember 31, 2006 $ –Adjustment for CumulAtive unreAlized gAins on AvAilAble-for-sAle investments At trAnsition dAte on jAnuAry 1, 2007 3,428reAlized gAin on sAle of AvAilAble-for-sAle investment (1,605) unreAlized loss on AvAilAble-for-sAle investments (865)

bAlAnCe At deCember 31, 2007 $ 958

11. RelaTed paRTY TRansaCTIons

DuringtheyearsendedDecember31,2007,2006and2005,theCompanypaidremunerationtodirectorsandtocompaniescontrolledbyof-

ficerswhoarealsodirectors.TheCompanyalsoreceivedmanagementfees,whicharerecordedasotherincomefromSuperior,lakeShoreand

Zincore.Thesearecompanieswhicharerelatedbywayofdirectorsincommonand/orbywayofamanagementservicesagreement.Details

ofthesepaymentsareasfollows:

2007 2006 2005

remunerAtion PAid to offiCers / direCtors $ 936 $ 756 $ 515mAnAgement fees reCeived $ 259 $ 72 $ 117

Therewasalsoanamountof$39,752(2006–$5,669)duetoSouthwesternfromtheabovementionedcompaniesatDecember31,2007.All

relatedpartytransactionsaremeasuredattheexchangeamountwhichistheconsiderationagreedtobetweentheparties.

12. seGMenTed InFoRMaTIon

IndustryInformation

TheCompanyoperatesinonereportableoperatingsegment,beingtheacquisitionandexplorationofmineralproperties.

GeographicInformation

TheCompany’sonlysourcesofrevenuein2007,2006and2005arosefrominterestearnedoncorporatecashreservesandfromanoteissued

toSuperior,andmanagementfees.TheCompanyhasnon-currentassetsinthefollowinggeographiclocations:

2007 2006

Peru $ 12,418 $ 13,719ChinA 10,856 37,750CAnAdA 15,159 4,693

$ 38,433 $ 56,162

13. GeneRal and adMInIsTRaTIve

2007 2006 2005

Consulting $ 2,761 $ 4,275 $ 4,851shAreholder informAtion 566 560 347offiCe 1,055 900 697legAl And ACCounting 2,628 545 281trAvel 353 324 261sAlAries And benefits 2,447 2,849 2,121

totAl $ 9,810 $ 9,453 $ 8,558



14. suppleMenTal CashFloW InFoRMaTIon

2007 2006 2005

other CAsh items:

tAxes PAid $ 17 $ 28 $ 31interest reCeived $ 1,605 $ 2,189 $ 1,201

15. CoMMITMenTs

TheCompanyhascommitmentstotalling$1,035,504overthreeyears(2008–$376,547;2009–$376,547;2010–$282,410)pertainingto

leaseholdobligations.Aswell,theCompanyhasemployeeretentionbonusobligationsof$670,667in2008.withrespecttoothercontractual

obligations,therearenomaterialchangesduringthecurrentperiodthatareoutsidetheordinarycourseoftheCompany’sbusiness.

16. non-ConTRollInG InTeResT

AtDecember31,2007and2006,theCompany’snon-controllinginterestinZincorewascomprisedofthefollowing:

December 31, 2007 December 31, 2006

bAlAnCe, beginning of the yeAr $ 10,627 $ –CreAtion of non-Controlling interest due to sAle of shAres by subsidiAry – 10,844shAre of stoCk oPtions grAnted 167 215shAre of net loss of zinCore for yeAr (434) (432)loss of Controlling interest (10,360) –

bAlAnCe, end of the yeAr $ – $ 10,627

17. dIFFeRenCes BeTWeen CanadIan and unITed sTaTes GeneRallY aCCepTed aCCounTInG pRInCIples (“Gaap”)

TheconsolidatedfinancialstatementshavebeenpreparedinaccordancewithCanadiangenerallyacceptedaccountingprinciples(“Canadian

GAAP”),whichdiffersincertainrespectsfromthoseapplicableintheunitedStatesandfrompracticesprescribedbytheunitedStatesSecuri-

tiesandExchangeCommission(“uSGAAP”).

ConsolidatedBalanceSheets

ThesignificantmeasurementdifferencesbetweenCanadianGAAPanduSGAAPwithrespecttotheCompany’sConsolidatedBalanceSheets

asatDecember31,2007and2006areasfollows:

2007 2006

totAl Assets under CAnAdiAn gAAP $ 58,507 $ 119,926 deCreAse in minerAl ProPerty Costs (A) (22,029) (50,555) CumulAtive Adjustment to equity investments (b) (7,427) (5,181) unreAlized gAins on AvAilAble-for-sAle seCurities (C) 1,496 3,428

totAl Assets under us gAAP $ 30,547 $ 67,618

totAl liAbilities And non-Controlling interest under CAnAdiAn gAAP $ 1,577 $ 12,800 non-Controlling interest (b) – (1,932)totAl liAbilities And non-Controlling interest under us gAAP 1,577 10,868

shAreholders’ equity under CAnAdiAn gAAP 56,930 107,126 CumulAtive minerAl ProPerty Adjustment (A) (27,803) (50,555) CumulAtive Adjustment to non-Controlling interest (A) 2,866 1,932 CumulAtive Adjustment to equity in loss of AffiliAted ComPAnies (b) (4,519) (5,181) CumulAtive ComPrehensive inCome (e) 1,496 3,428 totAl shAreholders’ equity under us gAAP 28,970 56,750

totAl liAbilities And shAreholders’ equity under us gAAP $ 30,547 $ 67,618



ConsolidatedStatementsofLoss

ThesignificantmeasurementdifferencesbetweenCanadianGAAPanduSGAAPwithrespecttotheCompany’sConsolidatedStatementsof

lossfortheperiodfrominceptiontoDecember31,2007andfortheyearsendedDecember31,2007,2006and2005areasfollows:

Cumulative from inception to

December 31 Years ended

December 31

2007 2007 2006 2005

net loss under CAnAdiAn gAAP $ (141,045) $ (48,988) $ (1,450) $ (9,540) minerAl ProPerty exPlorAtion exPense (A) (27,803) 22,752 (15,676) (11,292) Adjustment to equity in loss of AffiliAted ComPAnies (b) (4,519) 662 (298) (593) eliminAtion of dilution gAin (C) (13,308) (866) (6,845) (414) stoCk bAsed ComPensAtion (d) 12,726 – – 4,659 non-Controlling interest (A) 1,758 934 339 –

net loss under us gAAP $ (172,191) $ (25,506) $ (23,930) $ (17,180)

net loss Per shAre under us gAAP $ (0.56) $ (0.52) $ (0.39)

ConsolidatedStatementsofComprehensiveLoss

TheConsolidatedStatementsofComprehensivelosspresentedunderu.S.GAAPfortheperiodfrominceptiontoDecember31,2007andfor

theyearsendedDecember31,2007,2006and2005isasfollows:


December 31 Years ended

December 31

2007 2007 2006 2005

net loss under us gAAP $ (172,191) $ (25,506) $ (23,930) $ (17,180)other ComPrehensive inCome (loss):

net re-ClAssifiCAtion Adjustment for reAlized gAins on AvAilAble-for-sAle investments (1,605) (1,605) – – unreAlized gAin (loss) during the Period on AvAilAble-for-sAle investments 4,059 631 (4,194) 6,725

2,454 (974) (4,194) 6,725

ComPrehensive loss under us gAAP $ (169,737) $ (26,480) $ (28,124) $ (10,455)

net ComPrehensive loss Per shAre under us gAAP $ (0.59) $ (0.61) $ (0.24)

ConsolidatedStatementsofCashflows

ThesignificantmeasurementdifferencesbetweenCanadianGAAPandu.S.GAAPwithrespecttotheCompany’sConsolidatedStatementsof

CashflowsfortheperiodfrominceptiontoDecember31,2007andfortheyearsendedDecember31,2007,2006and2005areasfollows:


December 31Years ended

December 31

2007 2007 2006 2005

oPerAting ACtivities

oPerAting ACtivities under CAnAdiAn gAAP $ (47,032) $ (11,860) $ (5,950) $ (5,154) exPlorAtion (A) (109,140) (13,701) (16,128) (10,359) oPerAting ACtivities under us gAAP (156,172) (25,561) (22,078) (15,513)investing ACtivities

investing ACtivities under CAnAdiAn gAAP (128,591) (18,934) (15,256) (9,507) exPlorAtion (A) 109,140 13,701 16,128 10,359 investing ACtivities under us gAAP $ (19,451) $ (5,233) $ 872 $ 852

A) ExPlORATIOnExPEnDITuRES

underCanadianGAAP,theCompanycapitalizesexplorationexpendituresrelatedtothesearchforacommerciallymineablebodyofore.under

uSGAAP,explorationexpenditurescanonlybedeferredsubsequenttotheestablishmentofminingreserves.



B) ACCOunTInGFORSIGnIFICAnTlYInFluEnCEDAFFIlIATES

Theinvestmentsinnote8categorizedas“significantlyinfluencedaffiliates”areaccountedforundertheequitymethodforwhichthereis

nomaterialdifferenceunderCanadiananduSGAAP,exceptthattheunderlyingresultsofoperationsareadjustedtoconformwithuSGAAP

priortothecalculationoftheCompany’sshareofequityincome(loss).Thesignificantconformingadjustmenttotheaffiliates’resultsrelates

totheaccountingformineralpropertyexpenditures.

C) ACCOunTInGFORSAlESOFShARESBYAnEQuITYInVESTMEnTORSuBSIDIARY

TheCompanyaccountsfordilutiongainsandlossesfromthesaleofsharesbyitsequityinvestmentsorsubsidiariesasincomestatement

itemsforCanadianGAAPpurposes.underuSGAAP,dilutiongainsorlossesthatarisefromacompanyintheexplorationstagearetreatedas

achargetoequity.

D) ACCOunTInGFORSTOCk-BASEDCOMPEnSATIOn

OnJanuary1,2006,theCompanyadoptedStatementofFinancialStandards(SFAS)no.123R,“Share-BasedPayment”.Thisstatementrequires

theCompanytorecognizethecostofemployeeservicesreceivedinexchangefortheCompany’sequityinstruments.underSFASno.123Rthe

Companyisrequiredtorecordcompensationexpenseoveranaward’svestingperiodbasedontheaward’sfairvalueatthedateofgrant.The

CompanyhaselectedtoadoptSFASno.123Ronamodifiedprospectivebasis;accordinglythefinancialstatementsfortheperiodspriorto

January1,2006willnotincludecompensationcostcalculatedunderthefairvaluemethod.TheadoptionofSFASno.123Rhassubstantially

eliminateddifferencesbetweenCanadianGAAPanduSGAAPandthereforefortheyearsendedDecember31,2007and2006theCompany

wasnotrequiredtorecordadjustmentstorecordstock-basedcompensationunderuSGAAP.

PriortoJanuary1,2006,theCompanyappliedAccountingPrinciplesBoardOpinion25,“AccountingforStockIssuedtoEmployees”,andthere-

forerecordedtheintrinsicvalueofstock-basedcompensationasexpenseandappliedthedisclosureprovisionsofSFASno.123,“Accounting

forStock-BasedCompensation”.

E) unREAlIZEDGAInSOnAVAIlABlE-FOR-SAlE-SECuRITIES

PriortoJanuary1,2007,theCompany’sinvestmentscategorizedas“other”innote8werecarriedatthelowerofcostandestimatedrealiz-

ablevalueunderCanadianGAAP.underuSGAAPtheseinvestmentswouldbecategorizedasavailableforsalesecuritiescarriedatthequoted

marketvaluewithunrealizedgainsandlossestemporarilyrecordedinaseparatecomponentofshareholders’equityuntiltheinvestmentis

sold,abandonedorimpaired.

EffectiveJanuary1,2007,thisdifferenceinaccountingtreatmenthasbeeneliminatedduetotheCompany’sadoptionofthenewaccounting

standardspertainingtofinancialinstruments,however,theadjustmentrelatedtounrealizedgainsonavailable-for-saleinvestmentsisagain

of$631,000underuSGAAPcomparedwithalossof$865,000forCanadianGAAP.ThisdifferenceisduetotheCompany’scarryingvalueof

itsinvestmentinSuperiorDiamondsbeinglowerunderuSGAAPthanforCanadianGAAPandthisresultedinanincreaseintheadjustment

requiredtorecordtheCompany’sinvestmentinSuperiorDiamondsatfairvalueonDecember31,2007

F) IMPACTOFRECEnTunITEDSTATESACCOunTInGPROnOunCEMEnTS

(i) In September 2006, the FASB issued SFAS no. 157, “Fair Value Measurements” (“SFAS no. 157”) which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS no. 157 is effective for financial statements issued for fiscal years beginning after november 15, 2007, and interim periods within those fiscal years, and is applicable to the company beginning in the first quarter of 2008. earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year or an interim period within that fiscal year. prospective application is required for the company. the company is currently evaluating the impact of SFAS no. 157.

(ii) SFAS no. 159, “the Fair Value option for Financial Assets and Financial Liabilities” included an amendment of SFAS no. 115. this Statement permits entities to choose to measure many financial instruments and certain other items at fair value. this Statement applies to all entities, including not-for-profit organizations. Most of the provisions of this Statement apply only to entities that elect the fair value option. SFAS no. 159 is effective for fiscal years beginning after november 15, 2007. Management is analyzing the requirements of this new standard and believes that its adoption will not have any significant impact on the company’s financial statements.

(iii) In november 2007, the FASB issued SFAS no. 141r, “Business combinations” (“SFAS no. 141r”). SFAS no. 141r establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. SFAS no. 141r also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS no. 141r is effective for fiscal year beginning on or after December 15, 2008. Management is currently evaluating the requirements of SFAS no. 141r and has not yet determined the impact on its financial statements.

(iv) In november 2007, the FASB issued SFAS no. 160, “noncontrolling Interests in consolidated Financial Statements” (“SFAS no. 160”), an amendment of ArB no. 51. SFAS no. 160 will change the accounting and reporting for minority interests, which will be reclassified as non-controlling interests and classified as a component of equity. SFAS no. 160 is effective for fiscal years beginning on or after December 15, 2008. SFAS no. 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS no. 160 will be applied prospectively. Management is currently evaluating the requirements of SFAS no. 160 and has not yet determined the impact on its financial statements.



18. ConsolIdaTed sChedule oF shaRe CapITal sInCe InCepTIon

From Inception to December 31, 2007Common Shares

Without Par Value Treasury SharesContributed

SurplusComprehensive (Loss) Income

Deficit Accumulated During the Exploration

Stage

Total Shareholders’

EquityShares Amount Shares Amount

issuAnCe of Common shAres for CAsh 4,392 $ 541 – $ – $ – $ – $ – $ 541 issuAnCe of Common shAres for exPlorAtion exPenditures 600 75 – – – – – 75 net loss – – – – – – (296) (296)bAlAnCe, oCtober 31, 1991 4,992 616 – – – – (296) 320

issuAnCe of Common shAres for CAsh 4,378 884 – – – – – 884 net loss – – – – – – (270) (270)bAlAnCe, oCtober 31, 1992 9,370 1,500 – – – – (566) 934

issuAnCe of Common shAres for CAsh 3,350 815 – – – – – 815 issuAnCe of Common shAres for CAsh PursuAnt to PubliC offering 1,600 740 – – – – – 740 issuAnCe of Common shAres for CAsh on the exerCise of wArrAnts 100 50 – – – – – 50 net inCome – – – – – – 721 721 bAlAnCe, oCtober 31, 1993 14,420 3,105 – – – – 155 3,260

issuAnCe of Common shAres for CAsh PursuAnt to PubliC offering 4,200 14,957 – – – – – 14,957 issuAnCe of Common shAres for CAsh on the exerCise of wArrAnts 570 1,367 – – – – – 1,367 issuAnCe of Common shAres for CAsh 1,880 3,330 – – – – – 3,330 net loss for the 14 months ended deCember 31, 1994 – – – – – – (1,027) (1,027)bAlAnCe, deCember 31, 1994 21,070 22,759 – – – – (872) 21,887

issuAnCe of Common shAres for CAsh on the exerCise of wArrAnts 1,830 8,233 – – – – – 8,233 issuAnCe of Common shAres for CAsh 90 45 – – – – – 45 net loss – – – – – – (1,317) (1,317)bAlAnCe deCember 31, 1995 22,990 31,037 – – – – (2,189) 28,848

issuAnCe of Common shAres for CAsh PursuAnt to PubliC offering 7,408 47,346 – – – – – 47,346 issuAnCe of Common shAres for CAsh on the exerCise of wArrAnts 40 330 – – – – – 330 issuAnCe of Common shAres for CAsh 114 622 – – – – – 622 net loss – – – – – – (1,315) (1,315)bAlAnCe, deCember 31, 1996 30,552 79,335 – – – – (3,504) 75,831

issuAnCe of Common shAres for CAsh 2 11 – – – – – 11 own shAres PurChAsed for CAsh PursuAnt to shAre PurChAse ProgrAm – – (158) (384) – – – (384)net loss – – – – – – (3,820) (3,820)bAlAnCe, deCember 31, 1997 30,554 79,346 (158) (384) – – (7,324) 71,638

issuAnCe of Common shAres for CAsh 42 28 – – – – – 28 own shAres PurChAsed for CAsh PursuAnt to shAre PurChAse ProgrAm – – (1,838) (3,787) – – – (3,787)own shAres resold – – 600 1,212 426 – – 1,638 net loss – – – – – – (7,339) (7,339)bAlAnCe, deCember 31, 1998 30,596 79,374 (1,396) (2,959) – – (14,663) 62,178

own shAres PurChAsed for CAsh PursuAnt to shAre PurChAse ProgrAm – – (1,636) (3,896) – – – (3,896)own shAres resold – – 720 1,675 (426) – – 1,249 loss on sAle of own shAres – – – – – – (61) (61)net loss – – – – – – (10,642) (10,642)bAlAnCe, deCember 31, 1999 30,596 79,374 (2,312) (5,180) – – (25,366) 48,828

issuAnCe of Common shAres for CAsh 68 147 – – – – – 147 own shAres PurChAsed for CAsh PursuAnt to shAre PurChAse ProgrAm – – (1,432) (3,275) – – – (3,275)net loss – – – – – – (2,338) (2,338)bAlAnCe, deCember 31, 2000 30,664 $ 79,521 (3,744) $ (8,455) $ – $ – $ (27,704) $ 43,362







Stage



issuAnCe of Common shAres for CAsh 2,254 $ 3,000 – $ – $ – $ – $ – $ 3,000 own shAres PurChAsed for CAsh PursuAnt to shAre PurChAse ProgrAm – – (1,030) (1,633) – – – (1,633)loss on sAle of own shAres – – 3,800 8,541 – – – 8,541 net loss – – – – – – (15,650) (15,650)bAlAnCe, deCember 31, 2001 32,918 82,521 (974) (1,547) – – (43,354) 37,620

issuAnCe of Common shAres for CAsh 178 364 – – – – – 364 own shAres PurChAsed for CAsh PursuAnt to shAre PurChAse ProgrAm – – (342) (459) – – – (459)stoCk-bAsed ComPensAtion – – – – 485 – – 485 net loss – – – – – – (13,872) (13,872)bAlAnCe, deCember 31, 2002 33,096 82,885 (1,316) (2,006) 485 – (57,226) 24,138

issuAnCe of Common shAres for CAsh 7,342 28,046 – – – – – 28,046 shAres CAnCelled (1,316) (3,296) 1,316 2,006 1,290 – – – stoCk-bAsed ComPensAtion – – – – 728 – – 728 net loss – – – – – – (8,049) (8,049)bAlAnCe, deCember 31, 2003 39,122 107,635 – – 2,503 – (65,275) 44,863

issuAnCe of Common shAres for CAsh 3,664 41,841 – – – – – 41,841 stoCk-bAsed ComPensAtion – – – – 12,377 – – 12,377 net loss – – – – – – (18,525) (18,525)bAlAnCe, deCember 31, 2004 42,786 149,476 – – 14,880 – (83,800) 80,556

issuAnCe of Common shAres for CAsh (exCluding exerCise of stoCk oPtions) 2,908 29,349 – – – – – 29,349 own shAres PurChAsed for CAsh PursuAnt to shAre PurChAse ProgrAm – – (80) (778) – – – (778)stoCk-bAsed ComPensAtion – – – – 5,435 – – 5,435 exerCise in stoCk oPtions 320 – – – (200) – – 676 net loss – – – – – – (9,540) (9,540)bAlAnCe, deCember 31, 2005 46,014 179,701 (80) (778) 20,115 – (93,340) 105,698

issuAnCe of Common shAres for CAsh (exCluding exerCise of stoCk oPtions) 58 556 – – – – – 556 own shAres PurChAsed for CAsh PursuAnt to shAre PurChAse ProgrAm – – (366) (3,342) – – – (3,342)stoCk-bAsed ComPensAtion – – – – 4,855 – – 4,855 exerCise in stoCk oPtions 228 899 – – (309) – – 590 stoCk oPtions grAnted by subsidiAry – – – – 219 – – 219 CAnCelled shAres (405) (1,585) 405 3,788 (1,290) – (913) – net loss – – – – – – (1,450) (1,450)bAlAnCe, deCember 31, 2006 45,895 179,571 (41) (332) 23,590 – (95,703) 107,126

own shAres PurChAsed for CAsh PursuAnt to shAre PurChAse ProgrAm – – (931) (7,214) – – – (7,214)stoCk-bAsed ComPensAtion – – – – 4,917 – – 4,917 stoCk oPtions grAnted by subsidiAry – – – – 169 – – 169 non-Controlling interest Portion of stoCk-bAsed ComPensAtion – – – – (336) – – (336)stoCk-bAsed ComPensAtion of signifiCAntly influenCed AffiliAte – – – – 298 – – 298CAnCelled shAres (972) (3,802) 972 7,546 – – (3,744) – net And ComPrehensive loss – – – – – 958 (48,988) (48,030)bAlAnCe, deCember 31, 2007 44,923 $ 175,769 – $ – $ 28,638 $ 958 $ (148,435) $ 56,930





Stage



ISSuANCe oF CoMMoN ShAReS FoR CASh 2,254 $ 3,000 – $ – $ – $ – $ – $ 3,000 owN ShAReS PuRChASeD FoR CASh PuRSuANt to ShARe PuRChASe PRoGRAM – – (1,030) (1,633) – – – (1,633)LoSS oN SALe oF owN ShAReS – – 3,800 8,541 – – – 8,541 Net LoSS – – – – – – (15,650) (15,650)BALANCe, DeCeMBeR 31, 2001 32,918 82,521 (974) (1,547) – – (43,354) 37,620

ISSuANCe oF CoMMoN ShAReS FoR CASh 178 364 – – – – – 364 owN ShAReS PuRChASeD FoR CASh PuRSuANt to ShARe PuRChASe PRoGRAM – – (342) (459) – – – (459)StoCk-BASeD CoMPeNSAtIoN – – – – 485 – – 485 Net LoSS – – – – – – (13,872) (13,872)BALANCe, DeCeMBeR 31, 2002 33,096 82,885 (1,316) (2,006) 485 – (57,226) 24,138

ISSuANCe oF CoMMoN ShAReS FoR CASh 7,342 28,046 – – – – – 28,046 ShAReS CANCeLLeD (1,316) (3,296) 1,316 2,006 1,290 – – – StoCk-BASeD CoMPeNSAtIoN – – – – 728 – – 728 Net LoSS – – – – – – (8,049) (8,049)BALANCe, DeCeMBeR 31, 2003 39,122 107,635 – – 2,503 – (65,275) 44,863

ISSuANCe oF CoMMoN ShAReS FoR CASh 3,664 41,841 – – – – – 41,841 StoCk-BASeD CoMPeNSAtIoN – – – – 12,377 – – 12,377 Net LoSS – – – – – – (18,525) (18,525)BALANCe, DeCeMBeR 31, 2004 42,786 149,476 – – 14,880 – (83,800) 80,556

ISSuANCe oF CoMMoN ShAReS FoR CASh (exCLuDING exeRCISe oF StoCk oPtIoNS) 2,908 29,349 – – – – – 29,349 owN ShAReS PuRChASeD FoR CASh PuRSuANt to ShARe PuRChASe PRoGRAM – – (80) (778) – – – (778)StoCk-BASeD CoMPeNSAtIoN – – – – 5,435 – – 5,435 exeRCISe IN StoCk oPtIoNS 320 – – – (200) – – 676 Net LoSS – – – – – – (9,540) (9,540)BALANCe, DeCeMBeR 31, 2005 46,014 179,701 (80) (778) 20,115 – (93,340) 105,698

ISSuANCe oF CoMMoN ShAReS FoR CASh (exCLuDING exeRCISe oF StoCk oPtIoNS) 58 556 – – – – – 556 owN ShAReS PuRChASeD FoR CASh PuRSuANt to ShARe PuRChASe PRoGRAM – – (366) (3,342) – – – (3,342)StoCk-BASeD CoMPeNSAtIoN – – – – 4,855 – – 4,855 exeRCISe IN StoCk oPtIoNS 228 899 – – (309) – – 590 StoCk oPtIoNS GRANteD By SuBSIDIARy – – – – 219 – – 219 CANCeLLeD ShAReS (405) (1,585) 405 3,788 (1,290) – (913) – Net LoSS – – – – – – (1,450) (1,450)BALANCe, DeCeMBeR 31, 2006 45,895 179,571 (41) (332) 23,590 – (95,703) 107,126

owN ShAReS PuRChASeD FoR CASh PuRSuANt to ShARe PuRChASe PRoGRAM – – (931) (7,214) – – – (7,214)StoCk-BASeD CoMPeNSAtIoN – – – – 4,917 – – 4,917 StoCk oPtIoNS GRANteD By SuBSIDIARy – – – – 169 – – 169 NoN-CoNtRoLLING INteReSt PoRtIoN oF StoCk-BASeD CoMPeNSAtIoN – – – – (336) – – (336)StoCk-BASeD CoMPeNSAtIoN oF SIGNIFICANtLy INFLueNCeD AFFILIAte – – – – 298 – – 298CANCeLLeD ShAReS (972) (3,802) 972 7,546 – – (3,744) – Net AND CoMPReheNSIve LoSS – – – – – 958 (48,988) (48,030)

BALANCe, DeCeMBeR 31, 2007 44,923 $ 175,769 – $ – $ 28,638 $ 958 $ (148,435) $ 56,930


SouthweSteRN ReSouRCeS CoRP.2007 ANNuAL RePoRt

SwG | tSx

Some of the statements in this document constitute “forward-looking statements”. Where Southwestern expresses an expectation or belief as to future events or results, including management plans and objectives, and projections of exploration results, such expectation or belief is expressed in good faith and is believed to have a reasonable basis. While these statements represent our best current judgment, they are subject to risks and uncertainties that could cause actual results to vary, the specifics of which are detailed in disclosures with the heading “Risk Factors” in the Company’s periodic filings with securities regulators. Southwestern does not assume the obligation to update any forward-looking statement.

VancouVer corporate office

Southwestern resources corp.Suite 1650, 701 W Georgia Streetpo Box 10102Vancouver, British columbiaV7Y 1c6 canadatelephone 604 669 2525fax 604 688 5175email [email protected]

Lima office

minera del Suroeste Sacav. Del parque norte 829corpac San isidro, Lima 27 perutelephone 011 511 225 1125fax 011 511 225 2273

BeijinG office

no. 50 Liangmaqiao roadoffice c 413, chaoyang DistrictBeijing 100016 pr chinatelephone 011 8610 646 51916fax 011 8610 646 51915

KunminG office

no. 9 Sanshijie roadKunming city 650021Yunnan province pr chinatelephone 011 86 871 3611226fax 011 86 871 3610569

1 member of the Audit Committee2 member of the Corporate Governance and

Nominating Committee3 member of the Compensation

Committee4 member of the Environment and

Safety Committee5 member of the Special Committee

DirectorS anD officerS

David Black 1 2 3 4 5

chair of the Board

timo jauristo 4

interim president and ceo,Vp corporate Development and Director

alejandro Losada-calderonVp exploration

thomas Beattie Vp corporate affairs and Secretary

Giovanni SusinVp finance and chief financial officer

Stanley myersDirector of exploration, Latin america

james Hume 1 2 3

Director

William mccartney 1 2 3 4 5

Director

auDitorS

Deloitte & touche LLpfour Bentall centreSuite 2800 1055 Dunsmuir StreetVancouver, British columbiaV7X 1p4 canada

tranSfer aGent

computershare investor Services inc. 510 Burrard StreetVancouver, British columbiaV6c 3B9 canada

notice of annual meetingthe annual meeting of shareholders will be held at:

four Seasons Hotel791 West Georgia StreetVancouver, British columbia, canadatuesday, may 6, 2008 at 10:00 am

Stock exchange ListingSWG – tSX

WWW.SWGoLD.com

2007 annual report - knotia.ca · exciting projects in peru, where the company has the largest land...

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