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Augusta Resource Corp – ‘40FR12B’ on 7/13/06 – ‘EX-99.7’

On:  Thursday, 7/13/06, at 5:59pm ET   ·   As of:  7/14/06   ·   Accession #:  1062993-6-2010   ·   File #:  1-32943

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/14/06  Augusta Resource Corp             40FR12B     7/13/06   61:4.7M                                   Newsfile Corp/FA

Registration of Securities of a Canadian Issuer — SEA’34 §12(b)   —   Form 40-F
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 40FR12B     Registration Statement                              HTML     69K 
 2: EX-99.1     Annual Information Form for the Year Ended          HTML    180K 
                          December 31, 2005                                      
11: EX-99.10    MD&A for the Six Months Ended June 30, 2005         HTML    120K 
12: EX-99.11    First Quarter Report                                HTML    144K 
13: EX-99.12    MD&A for the Three Months Ended March 31, 2005      HTML     80K 
14: EX-99.13    Management Information Circular                     HTML    129K 
15: EX-99.14    Form of Proxy                                       HTML     34K 
16: EX-99.15    Preliminary Assessment and Economic Evaluation      HTML    373K 
17: EX-99.16    Mineral Resource Estimate                           HTML    257K 
18: EX-99.17    News Release Dated June 30, 2006                    HTML     27K 
19: EX-99.18    Material Change Report Dated June 26, 2006          HTML     22K 
20: EX-99.19    Material Change Report Dated June 14, 2006          HTML     48K 
 3: EX-99.2     Annual Information Form for the Year Ended          HTML    254K 
                          December 31, 2004                                      
21: EX-99.20    Material Change Report Dated June 5, 2006           HTML     21K 
22: EX-99.21    Material Change Report Dated June 2, 2006           HTML     19K 
23: EX-99.22    Material Change Report Dated May 18, 2006           HTML     25K 
24: EX-99.23    Material Change Report Dated May 5, 2006            HTML     26K 
25: EX-99.24    Material Change Report Dated April 27, 2006         HTML     19K 
26: EX-99.25    Material Change Report Dated April 11, 2006         HTML     18K 
27: EX-99.26    Material Change Report Dated April 7, 2006          HTML     26K 
28: EX-99.27    Material Change Report Dated March 17, 2006         HTML     23K 
29: EX-99.28    Material Change Report Dated March 6, 2006          HTML     20K 
30: EX-99.29    Material Change Report Dated February 16, 2006      HTML     23K 
 4: EX-99.3     Audited Annual Financial Statements                 HTML    534K 
31: EX-99.30    Material Change Report Dated January 26, 2006       HTML     31K 
32: EX-99.31    Material Change Report Dated January 16, 2006       HTML     26K 
33: EX-99.32    Material Change Report Dated January 16, 2006       HTML     30K 
34: EX-99.33    Material Change Report Dated November 22, 2005      HTML     21K 
35: EX-99.34    Material Change Report Dated November 11, 2005      HTML     28K 
36: EX-99.35    Material Change Report Dated October 13, 2005       HTML     26K 
37: EX-99.36    Material Change Report Dated September 29, 2005     HTML     22K 
38: EX-99.37    Material Change Report Dated September 20, 2005     HTML     20K 
39: EX-99.38    News Release Dated September 9, 2005                HTML     18K 
40: EX-99.39    News Release Dated August 25, 2005                  HTML     21K 
 5: EX-99.4     MD&A for the Years Ended December 31, 2005 and      HTML    169K 
                          2004                                                   
41: EX-99.40    Material Change Report Dated August 25, 2005        HTML     18K 
42: EX-99.41    Material Change Report Dated July 12, 2005          HTML     23K 
43: EX-99.42    Material Change Report Dated July 5, 2005           HTML     20K 
44: EX-99.43    News Release Dated June 23, 2005                    HTML     20K 
45: EX-99.44    Material Change Report Dated June 14, 2005          HTML     20K 
46: EX-99.45    News Release Dated June 9, 2005                     HTML     19K 
47: EX-99.46    Material Change Report Dated June 8, 2005           HTML     27K 
48: EX-99.47    Material Change Report Dated May 13, 2005           HTML     23K 
49: EX-99.48    Material Change Report Dated May 13, 2005           HTML     22K 
50: EX-99.49    Material Change Report Dated March 29, 2005         HTML     21K 
 6: EX-99.5     First Quarter Report                                HTML    198K 
51: EX-99.50    Material Change Report Dated March 4, 2005          HTML     22K 
52: EX-99.51    News Release Dated March 4, 2005                    HTML     24K 
53: EX-99.52    News Release Dated March 1, 2005                    HTML     26K 
54: EX-99.53    News Release Dated February 17, 2005                HTML     18K 
55: EX-99.54    News Release Dated February 11, 2005                HTML     18K 
56: EX-99.55    News Release Dated February 8, 2005                 HTML     21K 
57: EX-99.56    Material Change Report Dated January 27, 2005       HTML     22K 
58: EX-99.57    Consent of Expert in Connection With the Paee       HTML     18K 
                          Report                                                 
59: EX-99.58    Consent of Expert in Connection With the Rosemont   HTML     18K 
                          Property Report                                        
60: EX-99.59    Auditor's Consent (Ernst & Young LLP)               HTML     17K 
 7: EX-99.6     MD&A for the Three Months Ended March 31, 2006      HTML     99K 
61: EX-99.60    Auditor's Consent (Deloitte & Touche LLP)           HTML     17K 
 8: EX-99.7     Third Quarter Report                                HTML    244K 
 9: EX-99.8     MD&A for the Nine Months Ended September 30, 2005   HTML    135K 
10: EX-99.9     Second Quarter Report                               HTML    239K 


EX-99.7   —   Third Quarter Report


This Exhibit is an HTML Document rendered as filed.  [ Alternative Formats ]



 <! 
  Filed by Automated Filing Services Inc. (604) 609-0244 - Augusta Resource Corporation - Exhibit 7  
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Third Quarter Report

September 30, 2005

 (Restated)

 

 

 

Notice to Readers

The interim restated unaudited consolidated financial statements of Augusta Resource Corporation (the “Company”) for the nine months ended September 30, 2005 (“Financial Statements”) have been prepared by management and have not been reviewed by the Company’s auditors. The Financial Statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2004 which are available at the SEDAR website at www.sedar.com.


Directors’ Report to Our Shareholders

During the first half of the year management acquired three new properties, secured the financing required to close those acquisitions and provided the capital for work expenditures. For the third quarter of the year we have focused on drilling and development of these properties and announced our results. We are committed to completing the announced drilling programs and to aggressively pursue new programs when regulatory approval is received. We have also added further executive talent with the appointment of a Vice President of Projects and Environment, further strengthening our team and enabling advancement of the Company’s objectives.

Properties

The Company has acquired the Rosemont copper property located in Arizona, the Lone Mountain copper/zinc property in New Mexico, the Mount Hamilton gold/molybdenum property in Nevada, and the Shell tungsten/molybdenum property in Nevada.

Financing

$16,480,921 has been raised through private placements, options, warrants and a convertible debenture.

Personnel

The Company has engaged the services of James Sturgess as the Vice President of Projects and Environment, responsible for all environmental permitting and oversight of project development activities. Mr. Sturgess works in our Denver office.

Work Programs

The new executive personnel and technical team have focused the Company on advancing the properties through drilling and project development.

Rosemont Property – After the Company reviewed the historic geologic model and drill data and constructed an electronic database, including updated structure and lithology, a modern resource estimate and initial pit-optimization were completed and used to design a 3,000 metre drill program. The 3,000 metre program is designed to carry out confirmation and in-fill drilling of previous programs. In September the Company announced expansion of the drill program to approximately 10,000 metres and currently three drilling rigs are working on site. Initial results were promising and the first three drill holes designed to confirm the down dip extension were announced on October 13, 2005. On November 10, 2005 results of an additional 1139.3 meters were announced. These additional drill intersections compare favorably to the historic resource results completed by Anamax and Asarco. A pre-feasibility study and corresponding technical report are planned for completion by the first quarter of 2006.

Lone Mountain Property - Data from previous programs has been acquired and has been compiled in an electronic database. The geological model has been refined, and was used to design a drill program. Permit applications for a 3,100 metre drill program have been submitted for approval. Negotiations with the private property surface owners for access to this site are being finalized.

Mount Hamilton Properties – Compilation of data from prior programs has been completed and an updated geological model developed. The Company plans to complete a 3,000 metre diamond drill program to verify previously discovered molybdenum and tungsten mineralized bodies and explore their extensions. Permit applications, including environmental review for public comment, have been submitted to the U.S. Forest Service.

As the work programs continue we will announce the results as available. We are looking forward to further encouraging results and appreciate your support.

On behalf of the Board,

/S/ Gil Clausen  
Gil Clausen November 23, 2005
President & Chief Executive Officer  

    
Augusta Resource Corporation 2


AUGUSTA RESOURCE CORPORATION
CONSOLIDATED BALANCE SHEETS
As at September 30, 2005 and December 31, 2004

          September 30     December 31  
    Notes     2005     2004  
ASSETS         (restated, note 2)        
                   
CURRENT                  
   Cash   4   $  5,487,009   $  989,799  
   Accounts receivable   12     35,525     32,979  
   Marketable securities   4,5     89,596     -  
   Prepaid expenses   12     17,330     37,567  
   Deferred debt issuance costs         214,519     -  
          5,843,979     1,060,345  
                   
FIXED ASSETS   4,6     9,888     -  
                   
MINING ASSETS   4,7              
   Mining properties         15,533,126     285,064  
   Deferred exploration expenses         1,315,741     19,785  
          16,848,867     304,849  
        $  22,702,734   $  1,365,194  
                   
LIABILITIES                  
                   
CURRENT                  
   Accounts payable and accrued liabilities   12   $  987,441   $  534,183  
   Current portion of convertible debenture   9     4,483,281     -  
   Current portion of notes and advances   8     1,093,239     23,288  
          6,563,961     557,471  
                   
LONG -TERM                  
   Future income taxes   9     2,200,000     -  
   Notes and advances   8     1,390,052     32,997  
          10,154,013     590,468  
                   
                   
SHAREHOLDERS' EQUITY                  
                   
Share capital   10     15,880,582     4,611,331  
Contributed surplus   10     5,726,918     104,500  
Subscriptions received         -     1,050,000  
Foreign currency translation         11,944     -  
Deficit         (9,070,723 )   (4,991,105 )
          12,548,721     774,726  
        $  22,702,734   $  1,365,194  

On Behalf of the Board of Directors    
     
     
     
/S/ Richard W. Warke   /S/ Gil Clausen
Richard W. Warke – Director   Gil Clausen - Director

See accompanying Notes to the Consolidated Financial Statements

    
Augusta Resource Corporation 3

AUGUSTA RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the period of January 1 to September 30, 2005 and 2004

    Three Months Ended September 30     Nine Months Ended September 30  
                         
    2005     2004     2005     2004  
    (restated, note 2)           (restated, note 2)        
EXPENSES                        
 Accounting and audit $  -   $  -   $  -   $  (500 )
 Amortization   748     -     748     -  
 Administration   7,500     7,500     22,500     22,500  
 Consulting and communication   3,421     -     42,173     -  
 Debt issue costs   135,534     -     180,712     -  
 Filing and regulatory   (7,932 )   993     106,914     13,672  
 Fiscal and advisory services   5,437     -     22,460     -  
 Foreign exchange (gain)   (240,268 )   (328 )   (237,828 )   1,413  
 Interest and finance charges   991,785     (3,614 )   1,335,412     1,677  
 Investor relations   3,489     -     36,725     -  
 Legal fees   (1,367 )   59,199     3,884     59,199  
 Office and sundry   57,396     -     188,110     3,295  
 Recruitment fees   -     -     45,174     -  
 Salaries and benefits   180,900     43,750     392,327     131,407  
 Stock based compensation   336,005     22,815     681,530     22,815  
 Travel   14,867     (2 )   35,037     3,509  
                         
 Loss from operations   (1,487,515 )   (130,313 )   (2,855,878 )   (258,987 )
 Interest and other income   29,021     -     36,441     -  
 Gain from settlement of debt   -     -     8,847     -  
 Write-off of mining assets   -     -     -     (509,154 )
                         
LOSS FOR THE PERIOD   (1,458,494 )   (130,313 )   (2,810,590 )   (768,141 )
                         
Deficit, beginning of the period   (7,533,376 )   (4,649,876 )   (4,991,105 )   (4,012,048 )
Change in accounting policy (note 3)   -     (32,500 )   -     (32,500 )
Restated deficit, beginning of period, as restated   (7,533,376 )   (4,682,376 )   (4,991,105 )   (4,044,548 )
Share issue expenses   (78,853 )   -     (1,269,028 )   -  
    -     -              
DEFICIT, END OF PERIOD $  (9,070,723 ) $  (4,812,689 ) $  (9,070,723 ) $  (4,812,689 )
                         
BASIC & DILUTED LOSS PER SHARE $  (0.04 ) $  (0.01 ) $  (0.09 ) $  (0.06 )
                         
WEIGHTED AVERAGE NUMBER                        
OF SHARES OUTSTANDING   35,122,731     16,584,555     30,331,680     12,629,446  

See accompanying Notes to the Consolidated Financial Statements

    
Augusta Resource Corporation 4

AUGUSTA RESOURCE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period of January 1 to September 30, 2005 and 2004

    Three Months Ended September 30     Nine Months Ended September 30  
    2005     2004     2005     2004  
    (Restated, Note 2)           (Restated, Note 2)        
NET INFLOW (OUTFLOW) OF CASH RELATED TO                        
THE FOLLOWING:                        
                         
OPERATING                        
Net loss for the period $  (1,458,494 ) $  (130,313 ) $  (2,810,590 ) $  (768,141 )
Items not affecting cash:                        
 Discount interest on debt   855,943     -     1,153,886     -  
 Amortization   748     -     748     -  
 Unrealized foreign exchange   (205,824 )   -     (205,824 )   -  
 Debt issue costs   135,534     -     180,712     -  
 Accrued interest and loan bonus   -     -     -     643  
 Gain on settlement of debt   -     -     (8,847 )   -  
 Write-off of mining assets   -     -     -     509,154  
    (672,093 )   (130,313 )   (1,689,915 )   (258,344 )
 Net changes in non-cash                        
 working capital items:                        
     Accounts receivable   (67,349 )   10,000     (2,546 )   (604 )
     Prepaid items   34,838     -     20,237     -  
     Stock based compensation   336,005     22,815     681,530     22,815  
     Accounts payable & accrued liabilities   (83,997 )   (36,736 )   (397,320 )   (102,510 )
    (452,596 )   (134,234 )   (1,388,014 )   (338,642 )
                         
FINANCING                        
 Issuance of common shares   707,260     138,000     10,480,921     383,000  
 Repayment of notes and advances   -     -     (14,950 )   -  
 Issuance of convertible debt security   -     -     6,000,000     -  
 Share issue expense   (123,852 )   -     (832,520 )   -  
    583,408     138,000     15,633,451     383,000  
                         
INVESTING                        
 Acquisition of DHI Minerals Ltd.   -     -     (4,000 )   -  
 Investment in mining properties, net of related payables   -     -     (8,590,461 )   -  
 Investment in marketable securities   (6,035 )   -     (89,596 )   -  
 Investment in fixed assets   -     -     (10,636 )   -  
 Deferred exploration expenses, net of related payables   (830,920 )   -     (1,065,478 )   (41,400 )
    (836,955 )   -     (9,760,171 )   (41,400 )
                         
Foreign currency translation   11,944     -     11,944     -  
                         
NET CASH INFLOW (OUTFLOW)   (694,200 )   3,766     4,497,210     2,959  
CASH, BEGINNING OF PERIOD   6,181,209     1,728     989,799     2,535  
CASH, END OF PERIOD $  5,487,009   $  5,494   $  5,487,009   $  5,494  
                         
SUPPLEMENTAL INFORMATION                        
 Interest paid $  -   $  -   $  -   $  4  
 Interest received $  29,021   $  -   $  36,441   $  -  
 Non-cash transactions                        
     Acquisition of DHI Minerals Ltd. $  -   $  -   $  4,760,601   $  -  
     Investment in mining properties $  -   $  -   $  120,000   $  -  

Refer to Notes 7, 8 and 10 for non-cash operating, financing and investing activities

    
Augusta Resource Corporation 5

NOTES TO THE FINANCIAL STATEMENTS

1.

CONTINUING OPERATIONS

   

Augusta Resource Corporation (the “Company”) has interests in mining assets at the exploration stage, the economic viability of which has not been assessed. The realization of the company’s investment in mineral properties is dependent upon various factors, including the existence of economically recoverable mineral reserves, the ability to obtain the necessary financing to complete the exploration and development of the properties, future profitable operations, or, alternatively, upon disposal of the investment on an advantageous basis.

 

 

These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern which assume that the Company will realize its assets and discharge its liabilities in the normal course of business. The Company has a history of losses, has working capital deficit of $719,982 (2004 –$502,874), and has a deficit of $9,070,723 (2004 – $4,991,105). Realization values of assets may be substantially different from the carrying values as shown in these financial statements should the Company be unable to continue as a going concern.

 

 

The Company’s ability to meet its obligations and maintain its operations is contingent upon successful completion of additional financing arrangements and the continuing support of its creditors.

 

 

2.

RESTATEMENT

   

During the preparation of the Form 40-F filing document, a requirement of an American Stock and Options Exchange (AMEX) listing the Company is seeking, the Company discovered non- cash errors relating to its financial statements for the year ended December 31, 2005. In the previously released second quarter, third quarter and year end financial statements the Company had not properly accounted for the convertible debenture issued in June of 2005. CICA Handbook Section 3860 requires that the proceeds received from the issuance of convertible debt be allocated between its equity and debt components. The Company had treated all the proceeds as debt. Further, upon review of the option pricing model (Black-Scholes) used for valuing stock options and warrants issued during 2005 the Company concluded that the time period used to calculate the volatility assumption required adjustment.

   

Additional third quarter adjustments (which were properly reflected in the year end consolidated financial statements) relate primarily to the change in the discount rate for the debt incurred in the Mount Hamilton acquisition from 4% to 15% and the recording of the tax gross-up, (see Note 7 to the restated consolidated financial statements for the three and nine months ended September 30, 2005).


    
Augusta Resource Corporation 6


NOTES TO THE FINANCIAL STATEMENTS

2.

RESTATEMENT (continued)

   

Through and as at September 30, 2005 the impact of the restatement was:


      As previously     Adjustments     As restated  
      reported              
  September 30,2005                  
                     
  Balance Sheet                  
           Deferred debt issuance costs   0     214,519     214,519  
           Mining properties   13,760,126     1,773,000     15,533,126  
           Convertible debt   6,000,000     (1,516,719 )   4,483,281  
           Notes and advances   2,812,291     (329,000 )   2,483,291  
           Future income taxes   0     2,200,000     2,200,000  
           Share capital   18,596,689     (2,716,107 )   15,880,582  
           Contributed surplus   6,072,383     (345,465 )   5,726,918  
           Deficit   (13,765,533 )   4,694,810     (9,070,723 )
                     
  Statement of operations                  
           Debt issuance costs   0     180,712     180,712  
           Foreign exchange (gain)   (214,828 )   (23,000 )   (237,828 )
           Interest and finance charges   233,815     1,101,597     1,335,412  
           Stockbased compensation   5,502,720     (4,821,190 )   681,530  
           Loss from operations   (6,417,759 )   3,561,881     (2,855,878 )
           Net loss for the period   (6,372,471 )   3,561,881     (2,810,590 )
           Share issue expenses   (2,401,957 )   1,047,184     (1,354,773 )
           Deficit, end of period   (13,765,533 )   4,609,065     (9,156,468 )
           Loss per share   (0.21 )   0.12     (0.09 )
                     
  Statement of cash flows                  
           Net loss for the period   (6,372,471 )   3,561,881     (2,810,590 )
           Accrued interest on debt   52,289     1,101,597     1,153,886  
           Debt issuance costs   0     180,712     180,712  
           Unrealized foreign exchange   (182,824 )   (23,000 )   (205,824 )
           Stock based compensation   5,502,720     (4,821,190 )   681,530  

3.

CHANGE IN ACCOUNTING POLICY

Stock based compensation

Effective January 1, 2004, the Company adopted the CICA Handbook Section 3870, “Stock-based Compensation and Other Stock-based Payments”, which requires fair value accounting for all stock options issued during the year. Compensation expense for options granted is determined based on the estimated fair values of the stock options at the time of grant, the cost of which is recognized over the vesting periods of the respective options. This change in accounting policy was applied retroactively without restatement of prior periods. On January 1, 2004, the company increased the deficit by $32,500 and increased contributed surplus by $32,500.


    
Augusta Resource Corporation 7

NOTES TO THE FINANCIAL STATEMENTS

4.

SIGNIFICANT ACCOUNTING POLICIES


  (a)

Generally accepted accounting principles

     
 

These interim financial statements should be read in conjunction with the annual financial statements of the Company. These consolidated interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles for interim financial information and accordingly, do not include all disclosures required for annual financial statements. These interim consolidated financial statements follow the same accounting policies and methods of their application as the annual financial statements of the Company.

     
  (b)

Basis of consolidation

     
 

These consolidated financial statements include the accounts of the following:

     
 

The Company’s wholly owned subsidiary DHI Minerals Ltd., a British Columbia corporation, and it’s 100% owned subsidiary, DHI Minerals (U.S.) Ltd. a Nevada corporation, which holds the Mount Hamilton Property.

     
 

Company’s wholly owned subsidiary, Augusta Resource (Arizona) Corporation, an Arizona corporation, which holds the Rosemount Property.

     
 

The inter-company transactions and balances have been eliminated for both subsidiaries.

     
  (c)

Cash and cash equivalents

     
 

Cash consists of deposits in banks and guaranteed investment certificates.

     
  (d)

Marketable securities

     
 

Marketable securities are valued at the lower of cost and market value.

     
  (e)

Fixed Assets

     
 

Fixed assets are stated at cost, net of accumulated depreciation.

     
 

Depreciation is calculated using the declining balance method, based on the estimated useful lives of the assets as follows:

Computer hardware                       30% declining balance

  (f)

Mining assets

     
 

Mining assets are comprised of undivided interests in properties and deferred exploration expenses on properties in the exploration stage. They are recorded at acquisition cost or at the attributed value in the case of a devaluation caused by a permanent impairment of value. Mining properties, related deferred exploration expenses and options to acquire


    
Augusta Resource Corporation 8


NOTES TO THE FINANCIAL STATEMENTS

4.

SIGNIFICANT ACCOUNTING POLICIES (continued)


  (f)

Mining assets (continued)

     
 

undivided interests in mining properties are amortized only as these properties are put into production or written off if they are abandoned.

     
 

During the normal course of its business, the Company enters into agreements to acquire undivided interests in mining properties, which are normally acquired in exchange for exploration and development expenses to be incurred according to different schedules, issuance of shares and payments subject to feasibility studies. In addition, royalties will be paid on commercial operations of certain mining properties.

     
 

The Company is in the process of exploring and developing its various properties. On a regular basis, the Company reviews the carrying values of deferred mineral property acquisition and exploration expenditures with a view to assessing whether there has been any impairment in value. In the event that the estimated net realizable value is determined to be insufficient to recover the carrying value of any property, the carrying value will be written down to the estimated fair value.

     
  (g)

Share issue expenses

Share issue expenses are recorded as an increase in the deficit in the year in which they are incurred.

  (h)

Loss per share

     
 

Basic net loss is computed using the weighted average number of common share equivalents outstanding during the period. The Company uses the treasury stock method for the calculation of diluted loss per share.


  (i)

Foreign currencies

     
 

The Company’s functional and reporting currency is the Canadian dollar. Translations undertaken in foreign currencies are translated into Canadian dollars at exchange rates prevailing at the time the transaction occurred. Monetary assets and liabilities denominated in foreign currencies are translated into equivalent Canadian dollars at the exchange rates in effect at the balance sheet date with any resulting gain or loss being recognized in the consolidated statement of operation. The effect of fluctuations in exchange rates between the dates of transactions and of settlements are reflected in the statement of operation and deficit.

     
 

The consolidated financial statements of DHI Minerals (U.S.) Ltd. and Augusta Resource (Arizona) Corporation are translated into Canadian dollars using the temporal method for integrated operations, as follows:


    
Augusta Resource Corporation 9


NOTES TO THE FINANCIAL STATEMENTS

4.

SIGNIFICANT ACCOUNTING POLICIES (continued)


  (i)

Foreign currencies (continued)

       
  a.

monetary assets and liabilities using the exchange rate in effect at the balance sheet date;

       
  b.

non-monetary assets and liabilities should be translated at historical exchange rates, unless the item is carried at fair market value, in which case the item will be translated at the exchange rate in effect at the balance sheet date;

       
  c.

revenue and expense items at approximate exchange rates prevailing at the time the transaction occurred;

       
  d.

depreciation or amortization of assets translated at historical exchange rates should be translated at the same exchange rates as the assets to which they relate;

       
  e.

translation gains and losses on monetary items or non-monetary items carried at market are included in the current periods statement of operations.


  (j)

Stock-based compensation plans

     
 

Effective January 1, 2004, the Company adopted the revised CICA Handbook Section 3870 Stock-based Compensation and Other Stock-based Payments. The revised standard requires that the fair value of stock options granted after January 1, 2002 be expensed in the statement of earnings. Previously the Company did not record stock options issued to employees as compensation expense and disclosed pro-forma information on the fair value of stock compensation issued during the period in the notes to the financial statements.


  (k)

Use of estimates

     
 

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles which require management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.


5.

MARKETABLE SECURITIES

   

The market value of all securities as at September 30, 2005 was $89,596. As of December 31, 2004, the market value was $NIL.


    
Augusta Resource Corporation 10


NOTES TO THE FINANCIAL STATEMENTS

6.

FIXED ASSETS


      September 30, 2005     December 31, 2004  
          Accumulated                
      Cost     Depreciation     Net Book Value     Net Book Value  
                           
  Computer hardware $  10,636   $  748   $  9,888   $  -  

7.

MINING ASSETS


      Mining PropertiesCost     DeferredExploration Expenses  
  Miningassets:   2005     2004     2005     2004  
   Rosemont property $  8,439,226   $  -   $  1,121,231   $  -  
   Mt. Hamiltonproperty   6,574,757     37,157     139,497     16,191  
   LoneMountainproperty   271,236     -     38,630     -  
   Shell property   -     -     12,789     -  
   CoronationDiamond District properties   247,907     247,907     3,594     3,594  
    $  15,533,126   $  285,064   $  1,315,741   $  19,785  
                           
  Miningproperties:   2005     2004              
   Balance, beginningof year $  285,064   $  544,706              
       Acquisitioncosts   13,048,062     37,157              
       Acquisitiontaxgross-up   2,200,000     -              
       Write-offs   -     (296,799 )            
   Balance at September 30, 2005and December 31, 2004 $  15,533,126   $  285,064              
                           
  Deferredexploration expenses:   2005     2004              
   Balance, beginningof year $  19,785   $  174,549              
       Geologists, consultantsand professional services   1,295,956     57,591              
       Write-offs   -     (212,355 )            
   Balance at September 30, 2005and December 31, 2004 $  1,315,741   $  19,785              

    
Augusta Resource Corporation 11


NOTES TO THE FINANCIAL STATEMENTS

7.

MINING ASSETS (continued)

   

Property in Pima County, Arizona

   

On June 1, 2005, the Company announced that it had entered into an Option Agreement to purchase 100% of the Rosemont Ranch copper deposits in Pima County, Arizona. The property is approximately 50km southeast of Tucson, situated near a number of large porphyry type producing copper mines operated by Phelps Dodge and Asarco.

 

 

The property contains three known potentially open-pit mineable copper/molybdenum skarn  deposits on patented mining claims. Over 232,000 feet of diamond drilling has been conducted on the property by Anaconda/Amax and Asarco outlining approximately 5 billion pounds of copper. These are historical figures. Augusta has not yet completed the work necessary to verify the classification of the resource and is not treating the resource figure as a NI 43-101 defined resource verified by a Qualified Person at this time and therefore, the resource figures should not be relied upon. The Company has the right to purchase a 100% working interest in the property (which includes patented and unpatented claims, fee land and surface grazing rights) subject to a 3% NSR, for cash payments of US $20,800,000 payable over a three year period. The Company does not retain a liability to make the payments, but it would surrender any claims to the property. The Company has made the first payment of $6,666,666 USD.

 

 

Properties in White Pine County, Nevada

 

 

Mount Hamilton Gold Project

 

 

On December 2, 2004, the Company announced the signing of a heads of agreement to acquire a 100% interest in the Mount Hamilton Gold Project, located in White Pine County, Nevada. The Company purchased the Mount Hamilton Gold Project by purchasing, effective May 6, 2005, 100% of the shares of DHI Minerals Ltd., which owned 100% of DHI Minerals (U.S.) Ltd., holder of the property. The terms of the acquisition include the payment of $3,000,000 USD payable in cash over two years (Net present value of $3,103,438 based on a 15% discount rate), 3,750,000 common shares at $0.16 USD per share with a fair value of $720,000 and 3,750,000 warrants to purchase common shares with an exercise price of $0.16 USD per share for a period of two years with a fair value of $465,163. Under the terms of the acquisition the Company assumed the underlying Net Smelter Royalty (“NSR”) and minimum advance royalty payments to Centennial Minerals Company, LLC. Prior to commercial production, $100,000 USD per annum commencing on November 19, 2005 and continuing until November 19, 2010 when the annual payment amount increases to $300,000 USD per annum. Upon commencement of commercial production, a base rate of 3% NSR is payable, subject to an increase whenever the price of gold is greater than $400 USD per ounce. The NSR shall increase by one half of one percent for each $50 USD increment to a maximum of 8% NSR. The Company has the option to purchase up to one and one half percentage points of the NSR for $2,000,000 USD.

 

 

With the completion of a definitive agreement, effective May 6, 2005, the Company acquired 100% of the outstanding common shares of DHI Minerals Ltd. The purchase method was used to account for this transaction and the entire purchase consideration was allocated to the mining property acquired.


    
Augusta Resource Corporation 12


NOTES TO THE FINANCIAL STATEMENTS

7.

MINING ASSETS (continued)

   

Properties in White Pine County, Nevada (continued)

   

Mount Hamilton Gold Project (continued)


  Purchase price:      
  $3,000,000 USD (cash) $  3,103,438  
  3,750,000 common shares at $0.16 USD ($0.19 CDN)   720,000  
  3,750,000 warrants for common shares at $0.16 USD   465,163  
  300,000 common shares issued for a finder's fee   49,000  
  Total consideration paid   4,337,601  
  Professional fees   37,156  
  Future income tax liability (acquisition gross-up)   2,200,000  
  Total property value $  6,574,757  

The purchase price has been allocated on a preliminary basis to the fair value of the consideration provided which equates the fair value of the asset acquired based on management’s best estimates and takes into account all available information at the time these consolidated financial statements were prepared. The process has been conducted in accordance with the recent accounting pronouncement relating to “Mining Assets – Impairment and Business Combinations” (Emerging Issue Committee Abstract 152).

The future income tax liability of $2,200,000 relates to the tax effected difference between the tax bases of the assets acquired and the accounting allocation value.

The project is located approximately 45 miles east of Eureka, Nevada and 50 miles west of Ely, Nevada and is accessible from Highway 50 over good all-weather gravel roads. The White Pine Mining District has a long history of silver and gold mining, dating back to the first gold discovery in 1865.

Mount Hamilton has multiple exploration targets including surface bulk mineralization as well as high-grade vein style mineralization. Six separate high priority areas have been identified. An extensive amount of exploration and drilling information on these areas is included in the acquisition.

Shell Deposit

On January 26, 2005, the Company announced the signing of agreements to acquire the Shell Deposit in White Pine County, Nevada. The Shell Deposit, located nearby the Mount Hamilton property, was subject to past exploration programs, with results indicating that the property hosted molybdenum and gold mineralization. The Company is acquiring a 100% working interest, subject to an underlying Net Smelter Royalty ranging from 0.5% - 4.5%, for cash payment of $120,000 US, and annual advance royalty payments commencing at $80,000 US on first anniversary increasing by $20,000 per year until production commences.


    
Augusta Resource Corporation 13

NOTES TO THE FINANCIAL STATEMENTS

7.

MINING ASSETS (continued)

Property in Grant County, New Mexico

On March 1, 2005, the Company announced the signing of an agreement to acquire the Lone Mountain project in New Mexico. The Property is approximately 5 miles from the town of Silver City, New Mexico, 9 miles southwest of Phelps Dodge’s Chino mine and 5 miles northwest of Phelps Dodge’s Hurley smelter. The Company can acquire a 100% working interest, subject to an underlying Net Smelter Royalty ranging from 2.0% - 3.0%, minimum exploration commitments of $4,850,000 USD, $500,000 USD to be completed by February 11, 2006, and payments of US$1,000,000 cash and 325,000 common shares over a 3 year period. In addition, until the property is in commercial production, the Company will make payment of US$400,000 cash and 100,000 common shares on the fourth and each subsequent anniversary. The Company has the option to purchase half of the NSR for $2,000,000 USD. The agreement is effective on May 11, 2005. The Company has paid $100,000 USD and issued 50,000 common shares to date.

Properties in the Coronation Diamond District, Nunavut, Canada

The Company has four separate option agreements with 4763 NWT Ltd. (“NWT”) to acquire working interests (“WI”) of 10% and 20% for 4 properties located in the Coronation Diamond District in Nunavut, Canada, which aggregate about 487,300 acres in the region.

The property agreements for the 4 properties require the Company to pay NWT cash amounts totaling $231,573. The terms of these agreements also require the Company to issue common shares to NWT totalling 116,670 common shares, of which 58,335 shares are to be issued within 10 days of the Approval Date and 58,335 shares by the first anniversary date of the initial share issuance. The Company issued 58,335 shares at a deemed value of $0.28 for a total value of $16,334 to NWT on April 29, 2003.

For the four properties comprising 487,300 acres, in which the Company can earn a 10% or 20% WI, NWT has optioned 85% and 70% WI, respectively, in each of the four properties to various third party exploration companies (“Primary Optionees”), with the balance of the 5% and 10% WI, respectively, to be retained by NWT. The Primary Optionees earn their interests by completing work expenditures over a 3 to 4 year period, whereby the Company will in effect have carried interests in these properties pending the Primary Optionees earning their 85% and 70% WI. The Company has agreed to assume responsibility for NWT’s work expenditures relative to NWT’s 5% and 10% WI in these properties for an amount up to the work expenditures to be completed by the Primary Optionees on each of these four properties to earn their 85% and 70% WI, respectively.

Prior to June 30, 2004, the Company held two additional option agreements with NWT to acquire a 100% working interest in the AW and BH properties, aggregating 241,300 acres. Those agreements required the Company to pay NWT cash amounts totalling $293,132 and to issue 200,000 common shares, of which 33,334 were to be issued within 10 days of the approved sale, 33,334 were to be issued by the first anniversary date of the initial share issuance, and 66,667 shares each by the second and third anniversaries. The Company issued 33,334 at a deemed value of $0.11 per share for a total value of $3,667 on May 7, 2003. In 2002, the Company entered into an option and joint venture agreement on the two properties, with Ashton Mining (Northwest Territories) Ltd. (“Ashton”), a wholly owned subsidiary of Ashton Mining of Canada


    
Augusta Resource Corporation 14

NOTES TO THE FINANCIAL STATEMENTS

7.

MINING ASSETS (continued)

   

Properties in the Coronation Diamond District, Nunavut, Canada (continued)

   

Inc. Under terms of the agreements, the Company was to fund a Phase 1 exploration program, aggregating $207,000 that Ashton would conduct during the 2003 exploration season. In July 2004, the Company received results from the 2003 summer exploration program conducted on the properties. Ashton notified the Company that it was terminating the agreements on both properties and the Company decided to not proceed any further with the properties and, effective June 30, 2004, has written off $296,799 in Mining Properties and $212,355 in Deferred Exploration Expenses.

   

As at September 30, 2005, the Company had paid $469,705 to NWT in acquiring working interests in six properties in the Coronation Diamond District, incurred $215,949 in relation to deferred exploration expenditures related to these properties, issued 33,334 shares at a deemed price of $0.11 per share and 58,335 shares at $0.28 per share, and accrued an amount of $55,000 to NWT included in accounts payable, which is to be settled by the issuance of shares of the Company, subject to regulatory approval.

   
8.

LONG TERM NOTES AND ADVANCES

   

As a result of the acquisition by the Company of the Mount Hamilton property, through DHI Minerals Ltd., the company has additional long-term liabilities outstanding to Diamond Hill Investments Ltd. Total notes and advances outstanding:


    September 30     December 31  
    2005     2004  
Notes and advances $  32,488   $  56,285  
Long term notes to Diamond Hill Investments Ltd.   2,450,803     -  
    2,483,291     56,285  
Less: Current portion   (1,093,239 )   (23,288 )
Total long term notes and advances $  1,390,052   $  32,997  

The purchase of the Mount Hamilton Gold Property assets from Diamond Hill Investments Ltd. included cash consideration of $3,000,000 USD. The initial installment payment of $500,000 USD was accrued in April 2005. The remaining $2,500,000 USD has been discounted using an interest rate of 15%.


    
Augusta Resource Corporation 15

NOTES TO THE FINANCIAL STATEMENTS

8.

LONG TERM NOTES AND ADVANCES (continued)


      Amount     Discounted     Discounted  
      USD$     USD$     CDN$  
  April 30, 2006 (current portion of long term note) $  1,000,000   $  940,259   $  1,093,239  
  April 30, 2007   1,500,000     1,195,538     1,390,052  
  Total long term notes and advances $  2,500,000   $  2,135,797   $  2,483,291  

In March 2003, the Company received a loan totaling $100,000. This loan was payable on demand and bears an interest rate of 5% per annum. This loan was repaid on November 20, 2003. Interest of $3,621 and a loan bonus consisting of 100,000 common shares at a deemed value of $0.10 per share and $10,000 cash was accrued for this loan and remains outstanding at September 30, 2005 as notes payable.

   

Advances do not provide for specific terms of repayment and are unsecured.

   
9.

CONVERTIBLE DEBENTURE

   

On June 1, 2005, in connection with the Rosemont acquisition, the Company issued a convertible debenture for $6,000,000. The debenture has a one-year term, with half due within six-months, and is convertible at the option of the lender into 2,181,818 common shares of the Company at a price of $2.75 per share. The convertible debenture bears an interest rate of 9% annually and the Company has the option to repay the convertible debenture on the specified repayment dates in cash or stock. Any accrued interest owing under the convertible debenture may be converted into common shares at the discretion of the lender. The convertible debenture was issued with 363,363 common shares of the Company to the lender at a fair market value at the date of the transaction of $2.805 per common share (after a discount of 15% to reflect a hold period that expired on October 2, 2005.).

   

In accordance with CICA Handbook Section 3860, and following the fair value allocation approach, the Company allocated the proceeds as follows:


Common shares $ 1,019,233  
Convertible debenture      
                   Equity component   1,478,083  
                   Debt component   3,502,684  
  $ 6,000,000  

The difference between the debt allocation of $3,502,684 and the repayment amount of $6,000,000 is accrued over the term of the debenture. Through September 30, 2005 $980,600 of interest expense had been accrued including $757,651 in the third quarter.


    
Augusta Resource Corporation 16

NOTES TO THE FINANCIAL STATEMENTS

9.

CONVERTIBLE DEBENTURE (continued)

   

In connection with the issuance of the convertible debenture and common shares, the Company also paid a fee in the amount of 6% cash and 218,181 warrants to Northern Securities Inc. The fair value of the warrants of $247,769, which was allocated to debt ($144,643) and equity ($103,126), was calculated using the Black-Scholes option pricing model for warrant valuation, assuming an average volatility of 72% on the underlying shares, a risk free interest rate of 3.17%, a one year term to expiry and no annual dividends. Each warrant is exercisable to acquire one common share at $2.75 per warrant for a period of one year expiring on June 14, 2006. The warrants had a hold period expiring on October 15, 2005.

   

See Note 16, Subsequent Events for additional information on the renegotiation of certain terms of the convertible debenture.

   
10.

SHARE CAPITAL


  (a)

Authorized:                               Unlimited number of common shares without par value.

     
  (b)

Issued:

     
 

Changes in the Company’s share capital were as follows:


      Number of        
      Shares     Amount  
  Common shares, Balance at December 31, 2003   9,164,555   $  4,081,331  
     Issued for finder's fees   140,000     7,000  
     Issued for cash   10,460,000     523,000  
  Common shares, Balance at December 31, 2004   19,764,555     4,611,331  
     Issued for convertible debenture issuer bonus   363,363     1,019,233  
     Issued for property acquisitions   4,100,000     885,000  
     Issued for cash   8,998,500     8,370,551  
     Issued for fractional rounding due to share consolidation   9     -  
     Issued for options exercised   395,833     46,250  
     Issued for warrants exercised   3,600,208     948,217  
  Common shares, Balance at September 30, 2005   37,222,468   $  15,880,582  

    
Augusta Resource Corporation 17


NOTES TO THE FINANCIAL STATEMENTS

10.

SHARE CAPITAL (continued)


  (c)

Private Placement

     
 

On June 30, 2005, the Company announced the closing of its brokered private placement of 2,000,000 units at $2.50 per unit for gross proceeds of $5,000,000. Each unit is comprised of one common share and one warrant. Each warrant entitles the holder to purchase one common share at a price of $3.00 for a period of two years expiring on June 29, 2007. Finder’s fees of $350,000 cash and 200,000 broker’s warrants on the same terms as those issued under the private placement, were paid.

     
 

On March 3, 2005, the Company closed the private placement for 3,500,000 units at $0.30 per unit for proceeds of $1,050,000. Each unit is comprised of one common share and one half of a non-transferable share purchase warrant. One whole share purchase warrant entitles the holder to acquire one common share at a price of $0.45 for a period of one year expiring on March 3, 2006. A finder’s fee of $73,500 was paid for this placement.

     
 

On February 17, 2005, the Company announced a private placement of up to 2,000,000 units at $2.00 for total proceeds of $4,000,000. Each unit is comprised of one common share and one half share purchase warrant, with each full warrant entitling the subscriber to purchase an additional common share for $2.50 for a period of one year. The private placement closed in April 2005 for a total of 1,544,250 units for proceeds of $3,088,500 with 772,125 warrants issued, expiring April 15, 2006. Finder’s fees of $186,795 cash and 60,030 broker’s warrants on the same terms as those issued under the private placement, were paid.

     
 

On February 11, 2005, the Company announced a private placement of up to 2,000,000 units at $1.00 for total proceeds of $2,000,000. Each unit is comprised of one common share and one half share purchase warrant, with each full warrant entitling the subscriber to purchase an additional common share for $1.25 for a period of one year. The private placement closed in April 2005 for a total of 1,954,250 units for proceeds of $1,954,250 with 977,125 warrants issued, expiring April 15, 2006. Finder’s fees of $118,947.50 cash and 30,015 broker’s warrants on the same terms as those issued under the private placement, were paid.

     
  (d)

Options

     
 

On September 30, 2005, certain directors and officers of the Company held 3,214,333 stock options, and certain employees of the Company held 112,500 stock options to purchase common shares of the Company.

     
 

The following table summarizes the status of the Company’s stock option plans as at September 30, 2005:


    
Augusta Resource Corporation 18



10.

SHARE CAPITAL (continued)


  (d)

Options (continued)


      2005  
            Average Exercise  
      Number of Shares     Price  
  Outstanding at beginning of year   1,096,000   $  0.15  
     Granted   2,910,000   $  1.68  
     Exercised   (395,833 ) $  0.12  
     Expired   (16,667 ) $  0.45  
     Cancelled   (266,667 ) $  0.15  
  Outstanding at end of year   3,326,833   $  1.35  
               
  Options exercisable at September 30, 2005   766,833        

The following table summarizes information about stock options outstanding at September 30, 2005:

  Number     Number Weighted
  Outstanding at Weighted Average   Exercisable at Average
  September 30, Remaining Weighted Average  September 30,  Exercise
Exercise Prices 2005 Contractual Life Exercise Prices 2005 Prices
$ 0.30 87,666 1.2 Years $ 0.30 87,666 $ 0.30
$ 0.33 66,667 1.6 Years $ 0.33 66,667 $ 0.33
$ 0.10 50,000 4.0 Years $ 0.10 - $ 0.10
$ 0.10 212,500 4.1 Years $ 0.10 200,000 $ 0.10
$ 2.05 450,000 4.5 Years $ 2.05 112,500 $ 2.05
$ 1.96 125,000 4.5 Years $ 1.96 - $ 1.96
$ 2.30 100,000 4.8 Years $ 2.30 100,000 $ 2.30
$ 1.56 2,085,000 4.9 Years $ 1.56   $ 1.56
$ 1.55 150,000 5.0 Years $ 1.55 200,000 $ 1.55
  3,326,833     766,833  


    
Augusta Resource Corporation 19

NOTES TO THE FINANCIAL STATEMENTS

10.

SHARE CAPITAL (continued)


  (e) Warrants
     

The following table summarizes information about warrants outstanding at September 30, 2005. Each warrant is exercisable into one common share.


      Outstanding at       Outstanding at
Currency Exercise Price Expiry Dates January 1, 2005 Issued Exercised Expired September 30,2005
 CDN $ 0.45 March 3, 2006 - 1,750,000 360,000            - 1,390,000
 CDN $ 1.25 April 15, 2006 - 1,007,140 240,208            - 766,932
 CDN $ 2.50 April 15, 2006 - 832,155 -            - 832,155
 CDN $ 0.10 May 6, 2006 7,660,000 - 200,000            - 7,460,000
 CDN $ 2.75 June 14, 2006 - 218,181 -            - 218,181
 CDN $ 0.10 November 7, 2006 2,800,000 - 2,800,000            - -
 USD $ 0.16 May 6, 2007 - 3,750,000 -            - 3,750,000
 CDN $ 3.00 June 29, 2007 - 2,200,000 -            - 2,200,000
      10,460,000 9,757,476 3,600,208            - 16,617,268

 

A further 186,625 warrants were exercised between October 1 and November 23, 2005.

     
  (f)

Contributed Surplus

     
 

On September 30, 2005, the contributed surplus was as follows:


    2005  
Balance - Beginning of year $  104,500  
Stock-based compensation expense for the year   681,530  
Fair value of warrants issued on acquisition   465,163  
Fair value of equity component of convertible debenture   1,478,083  
Fair value of warrants issued on debt issuance   247,769  
Fair value of warrants issued on private placements   2,722,199  
Fair value of broker warrants issued   213,631  
Transfer upon exercise of warrants   (185,957 )
Balance - June 30, 2005 $  5,726,918  

    
Augusta Resource Corporation 20


NOTES TO THE FINANCIAL STATEMENTS

11.

STOCK-BASED COMPENSATION PLANS

   

On January 1, 2004, the Company adopted the revised CICA Handbook Section 3870 Stock- based Compensation and Other Stock-based Payments as described in Note 2(l).

 

 

In March 2005, 450,000 stock options with an exercise price of $2.05 were issued to a certain director and officer of the Company resulting in a fair value at the date of grant of $490,069. The fair value of stock compensation issued to the employee was determined using the Black-Scholes valuation model assuming a volatility factor of 85%, a risk free interest rate of 3.78% and an expected life of three years.

 

 

In April 2005, 125,000 stock options with an exercise price of $1.96 were issued to a certain officer of the Company resulting in a fair value at the date of grant of $128,647. The fair value of stock compensation issued to the employee was determined using the Black-Scholes valuation model assuming a volatility factor of 51%, a risk free interest rate of 3.42% and an expected life of four years.

 

 

In June 2005, 100,000 stock options with an exercise price of $2.30 were issued to a certain director of the Company resulting in a fair value at the date of grant of $151,029. The fair value of stock compensation issued to the director was determined using the Black-Scholes valuation model assuming a volatility factor of 71%, a risk free interest rate of 3.17% and an expected life of four years.

 

 

In August 2005, 2,085,000 stock options with an exercise price of $1.56 were issued to directors, officers and employees of the Company resulting in a fair value at the date of grant of $2,625,003. The fair value of stock compensation issued to directors, officers and employees was determined using the Black-Scholes valuation model assuming a volatility factor of 78%, a risk free interest rate of 4.21% and an expected life of four years.

 

 

In September 2005, 150,000 stock options with an exercise price of $1.55 were issued to a certain officer of the Company resulting in a fair value at the date of grant of $164,805. The fair value of stock compensation issued to the officer was determined using the Black-Scholes valuation model assuming a volatility factor of 82%, a risk free interest rate of 4.21% and an expected life of four years.

 

 

12.

RELATED PARTY TRANSACTIONS

 

 

As of September 30, 2005, the Company incurred expenses of $22,500 (2004 - $22,500) for administrative services provided by a company in which a director of the Company has a 25% interest.

 

 

As of September 30, 2005, the Company incurred salaries of $112,500 (2004 - $75,000) to the Chairman of the Company, $123,289 (2004 – $nil) to the President and CEO and $56,250 (2004 - $56,250) to a Director. Also, as of September 30, 2005, included in accounts payable and accrued liabilities is an amount of $56,250 (2004 - $nil) due to a Director of the Company for salaries accrued in the current year.


    
Augusta Resource Corporation 21


NOTES TO THE FINANCIAL STATEMENTS

12.

RELATED PARTY TRANSACTION (continued)

   

At September 30, 2005, included in accounts receivable is an amount of $4,349 (2004 – $nil) due from a related company with common directors as a result of a cost sharing arrangement for office rent and operating expenses.

   

Included in prepaid is $12,367 (2004 - $37,567) in advances for expenses to the Chairman.

   
13.

FINANCIAL INSTRUMENTS

   

The carrying values of cash, accounts receivable, marketable securities, accounts payable and accrued liabilities, loans, notes and advances and convertible debenture as reflected in the balance sheet approximate their fair values. The company has no significant concentrations of credit risk.

   
14.

COMMITMENTS

   

The lease for the office space in Canada commenced on April 1, 2003 and ends February 27, 22006. The lease for the office space in Colorado started on June 1, 2005 and ends on May 31, 2008. The future minimum lease payments are as follows:


Year      
2006 $  68,222  
2007   58,288  
2008   39,607  
Total $  166,117  

15.

SEGMENTED INFORMATION

   

The Company operates in one industry. As at September 30, 2005, the Company’s long-lived assets were in Canada, $251,501 (2004 - $251,501) and in the United States, $16,607,254 (2004 - $53,348).

   
16.

SUBSEQUENT EVENTS

   

On November 18, 2005 the Company announced that it has re-negotiated the terms of its convertible debenture to allow for repayment in the form of cash and stock, as opposed to cash or stock. The Company retired $3,000,000 of the convertible debenture plus interest by payment of $1,620,000 in cash and the issuance of 1,500,000 common shares valued at $1.10 per share. In consideration for the debenture holder amending the terms of the debenture the Company will issue 750,000 warrants with an exercise price of $1.44 expiring in one year. The Company has the right to force conversion of the warrants if the Company’s shares trade over $2.00 for a period of 30 days. The issuance of the warrants are subject to regulatory approval.


    
Augusta Resource Corporation 22



CORPORATE INFORMATION

  HEAD OFFICE #400 – 837 West Hastings Street
    Vancouver, BC, Canada V6C 3N6
     
    Telephone:         (604) 687-1717
    Facsimile:            (604) 687-1715
     
    Website:             www.augustaresource.com
    E-mail:                 info@augustaresource.com
     
     
     
  DIRECTORS Donald B. Clark
    Gil Clausen
    W. Durand Eppler
    Chris M.H. Jennings
    Michael A. Steeves
    Robert P. Wares
    Richard W. Warke
     
     
  OFFICERS Gil Clausen ~ President and Chief Executive Officer
  Richard Warke ~ Chairman
    Mike Clarke ~ Vice President Exploration
    James Sturgess ~ Vice President Projects and Environment
    Purni Parikh ~ Secretary
     
     
  REGISTRAR AND Computershare Trust Company of Canada
  TRANSFER AGENT #401 - 510 Burrard Street
    Vancouver, BC V6C 3B9
     
     
  AUDITORS Deloitte & Touche LLP
    #2800 - 1055 Dunsmuir Street
    Vancouver, BC V7X 1P4
     
     
  SOLICITORS Gowling Lafleur Henderson LLP
    1055 Dunsmuir Street
    Vancouver, BC V7X 1J1
     
     
  SHARES LISTED TSX Venture Exchange
    Trading Symbol ~ ARS

    
Augusta Resource Corporation 23



Dates Referenced Herein   and   Documents Incorporated by Reference

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