Production

Cerro Bayo (Chile)

Cerro Bayo is an underground mine located in southern Chile that produces both silver and gold. Production at the Cerro Bayo Mine in 2007 was approximately 1.7 million ounces of silver and 37,479 ounces of gold compared to 2.3 million ounces of silver and 40,923 ounces of gold in 2006. Cash costs per ounce of silver produced increased to $8.22 in 2007 from $3.04 in 2006. The decrease in production and increase in costs were due primarily to a 19% decline in ore grades and a 9.6% decrease in tons mined as a result of focusing our mining activities on narrower vein systems in the mine. During 2008, production will include additional vein system areas that are wider and we believe more productive.

We continue to conduct exploration activities on our land position. During 2007, we spent approximately $2.9 million on exploration for new silver and gold mineralization and $2.2 million on reserve development for new gold and silver mineralization. In the second half of the year, five new silver- and gold-bearing veins were discovered approximately one mile east of the mine’s processing facilities. We plan to continue our extensive exploration and mine development programs in 2008 with a budget of $4.9 million for this work.