20-F

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 20-F (Annual Report)

(Mark One)

Registration statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 or

 X

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended   December 31, 2007   or

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from

 to

Commission file number           

or

______    Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Southwestern Resources Corp.

(Exact name of registrant as specified in its charter)

Province of British Columbia, Canada

(Jurisdiction of incorporation or organization)

Suite 1650 – 701 West Georgia Street, Vancouver, British Columbia V7Y 1C6

(Address of principal executive offices)

______________    Giovanni Susin, Tel: 604.669.2525, E-mail: gsusin@swgold.com___________________

____________Suite 1650 – 701 West Georgia Street, Vancouver, British Columbia V7Y 1C6_______________

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class

Name of each exchange on which registered

Common Shares without Par Value

______ Toronto Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

N/A

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2007.

44,922,936

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:  Yes ____         No ____

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.  Yes ____   No ____

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X

No     

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and Large accelerated filer” in Rule 12b-2 of the Exchange Act:  Large Accelerated Filer ____ Accelerated Filer __X__ Non-accelerated filer ____

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

_______ U.S. GAAP

_______ International Financial reporting Standards as issued by The International Accounting Standards Board

___X___ Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17    X   

   Item 18

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):  Yes ____  No __X__

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes

No

  Not Applicable    X      

The information set forth in this Form 20-F annual report is as at December 31, 2007 unless an earlier or later date is indicated.

All amounts in annual report are based on accounting principles generally accepted in Canada, unless stated otherwise.

TABLE OF CONTENTS

PART I 

PAGE 

ITEM 1

Identity of Directors, Senior Management and Advisors

3

ITEM 2

Offer Statistics and Expected Timetable

3

ITEM 3

Key Information

3

ITEM 4

Information on the Company

9

ITEM 4A

Unresolved Staff Comments

9

ITEM 5

Operating and Financial Review and Prospects

23

ITEM 6

Directors, Senior Management and Employees

29

ITEM 7

Major Shareholders and Related Party Transactions

40

ITEM 8

Financial Information

42

ITEM 9

The Offer and Listing

43

ITEM 10

Additional Information

44

ITEM 11

Quantitative and Qualitative Disclosure about Market Risk

57

ITEM 12

Description of Securities Other than Equity Securities

57

PART II

PAGE 

ITEM 13

Defaults, Dividend Arrearages and Delinquencies

57

ITEM 14

Material Modifications to the Rights of Security Holders and

Use of Proceeds

57

ITEM 15

Controls and Procedures

58

ITEM 16A

Audit Committee Financial Expert

__

ITEM 16B

Code of Ethics

__

ITEM 16C

Principal Accountant Fees and Services

__

ITEM 16D

Exemptions from the Listing Standards for Audit Committees

__

ITEM 16E

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

__

PART III

PAGE 

ITEM 17

Financial Statements

58

ITEM 18

Financial Statements

58

ITEM 19

Exhibits

58

Glossary of Mining Terms

Arsenopyrite – a metallic mineral composed of iron, arsenic and sulphur.

Assay – the chemical test of rock samples to determine the mineral content.

Clastic – pertaining to or being a rock or sediment composed principally of broken fragments that are derived from pre-existing rocks or minerals and that have been transported individually some distance from their places of origin.

Fault – a break across which rock units are displaced.

Feasibility Study – a study, which provides sufficient information to establish the commercial viability of a project.

Formation – a distinctive body of rock that is given a name to distinguish it from other rocks on a geological map.

Host-Rock – the rock enclosing a particular feature such as mineralization or veins.

Mineralization – rock that contains an undetermined amount of minerals or metals.

Ore – rock, generally containing metallic or non-metallic minerals that can be mined and processed at a profit.

Sulphide – means a compound of metal and sulphur. Metals such as copper, nickel, lead and zinc occur most commonly as suphides.

Tonne – metric unit of weight equivalent to 1.102 tons.

Volcaniclastic – a clastic rock containing volcanic material in whatever proportion, and without regard to its origin or environment.

____________

(1) Please refer to “Use of Mineral Reserve and Resource Technology” on the following page.

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Forward Looking Statements and Cautionary Notices

This Annual Report of Form 20-F contains forward-looking statements including, but are not limited to, statements with respect to the timing and possible outcome of pending litigation, the future price of gold, silver and other metals, the estimation of mineral resources, the realization of mineral resource estimates, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of the development of new deposits, success of exploration activities, permitting time lines, currency fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage and the timing and possible outcome of pending litigation.  In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not exp ect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved".  

Forward-looking statements are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about Southwestern's business and the industry and markets in which it operates.  Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which are difficult to predict and which may cause the actual results, performance or achievements of Southwestern to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.  Such factors include, among others, Southwestern’s access to additional capital to fund future activities; the loss of mineral properties or the inability to obtain mining licences; the inherently risky nature of Southwestern's activities and its lack of experience in bringing an exploration property into production; its ability to repatriate any earnings; foreig n exchange fluctuations; the political stability and economic uncertainty of those areas in which Southwestern carries on operations and the lack of infrastructure in those areas; title risks; the risks and uncertainties associated with joint ventures and Southwestern's reliance on third parties; statutory and regulatory compliance; the adequacy and availability of insurance coverage; Southwestern’s dependence upon employees and consultants and fluctuations in mineral prices; risks related to the adverse occurrences concerning the Company’s Boka Gold Project, including risks related to the class action lawsuits, the ongoing negative publicity for the Company and the potential for further impairment of the Boka Gold Project; risks related to the Company’s history of net losses and uncertainty of obtaining additional financing; risks related to international operations; actual results of current exploration activities; results of reclamation activities; conclusions of economi c evaluations; changes in project parameters as plans continue to be refined; future prices of gold, silver and other metals; possible variations in ore reserves, grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities, as well as those factors discussed in the section entitled "Risk Factors" in this Form 20-F.  Although Southwestern has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended, as well as other risk factors described in this Form 20-F under “Item 3.  Key Information -- D.  Risk Factors”.  There can be no assurance tha t forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.  Accordingly, readers should not place undue reliance on forward-looking statements.  Southwestern expressly disclaims any intent or obligation to update these forward-looking statements, unless it specifically states otherwise.

Use of Mineral Reserve and Resource Terminology

All resource estimates included in this Form 20-F have been prepared in accordance with Canadian National Instrument 43-101 (“NI 43-101”) and the Canadian Institute of Mining and Metallurgy Classification System.  These standards differ significantly from the requirements of the SEC.  In particular, the term “resource” does not equate to the term “reserves”.  Under U.S. standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made.  The SEC’s disclosure standards normally do not permit the inclusion of information concerning “measured”, “indicated”, or “inferred” mineral resources in documents filed with the SEC, unless such information is required to be disclosed by the laws of the Company’s principal jurisdiction.  

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Accordingly, information concerning descriptions of mineralization and resources contained in this Form 20-F may not be comparable to information from U.S. companies subject to the SEC’s reporting and disclosure requirements.

Cautionary Note to U.S. Investors concerning estimates of Measured and Indicated Resources:  This Form 20-F uses the terms “measured and indicated resources”.  The Company advises U.S. investors that while these terms are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them.  U.S. investors are cautioned not to assume that any part or all of mineral deposits in this category will ever be converted into reserves.

Cautionary Note to U.S. Investors concerning estimates of Inferred Resources:  This Form 20-F uses the term “inferred resources”.  The Company advises U.S. investors that while this term is recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.  “Inferred resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility.  It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category.  Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases.  U.S. investors are cautioned not to assume that any part or all of an inferred resource exists or is economically or legally minable.

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PART I

ITEM 1

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this Item.

ITEM 2

OFFER STATISTICS AND EXPECTED TIMETABLE

This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this Item.

ITEM 3

KEY INFORMATION

A.

Selected Financial Data

The selected financial data in Table 1 have been derived from the financial statements of the Company which have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”).  All amounts are in Canadian dollars.

Table 1.  Selected Financial Data -- Canadian GAAP

(Expressed in thousands, except per share amounts)

	Year Ended December 31, 2007	Year Ended December 31, 2006	Year Ended December 31, 2005 (as restated)	Year Ended December 31, 2004 (as restated)	Year Ended December 31, 2003 (as restated)
Interest and Other Revenue	1,721	2,333	1,346	1,127	445
Net Loss	(48,988)	(1,450)	(9,540)	(18,525)	(8,049)
Net Loss Per Common Share	(1.09)	(0.03)	(0.22)	(0.44)	(0.23)
Total Assets	58,507	119,926	108,174	82,179	45,264
Long Term Debt	-	-	-	-	-
Share Capital	175,769	179,239	178,923	149,476	107,635
Shareholders’ Equity	56,930	107,126	105,698	80,556	44,863
Common Shares Outstanding	44,923	45,854	45,934	42,786	39,122

The Company has not declared or paid any dividends during the periods indicated.

The selected financial data in Table 1 above have been derived from the financial statements of the Company which have been prepared in accordance with Canadian GAAP which differ in certain respects from those principles that the Company would have followed had its financial statements been prepared in accordance with United States

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generally accepted accounting principles (“U.S. GAAP”).  Refer to Note 17 of the Company’s financial statements for information about the significant differences between Canadian and U.S. GAAP as applicable to the Company’s financial statements.

Had the Company followed U.S. GAAP, the items disclosed in Table 1 above would have been reported as follows (all amounts are in Canadian dollars):

Table 2.  Selected Financial Data -- U.S. GAAP

                        (Expressed in thousands, except per share amounts)

	Year Ended December 31, 2007	Year Ended December 31, 2006	Year Ended December 31, 2005	Year Ended December 31, 2004	Year Ended December 31, 2003
Interest and Other Revenue	1,721	2,333	1,346	1,127	445
Net Loss	(25,506)	(23,930)	(17,180)	(19,227)	(10,035)
Net Loss Per Common Share	(0.56)	(0.52)	(0.39)	(0.46)	(0.28)
Total Assets	30,547	67,618	76,084	55,102	33,692
Long Term Debt	-	-	-	-	-
Share Capital	175,769	179,239	178,923	149,476	107,635
Shareholders’ Equity	28,970	56,750	73,608	53,479	33,291
Common Shares Outstanding	44,923	45,854	45,934	42,786	39,122

All dollar amounts set forth in this report are in Canadian dollars, except where otherwise indicated.

1.

On February 29, 2008, the noon buying rate in New York City for cable transfer in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York was $1.02 U.S. = $1.00 Canadian.  

All exchange rate calculations in #2 and #3 below are based on the noon buying rate in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York.

2.

The following table sets forth the high and low exchange rates for the Canadian dollar, expressed in U.S. dollars, for each month during the six months preceding the filing due date for this Form 20-F Annual Report.   

Month	2/08	1/08	12/07	11/07	10/07	9/07
High Rate	1.0190	1.0324	1.0217	1.0008	1.0004	1.0564
Low Rate	0.9719	0.9905	0.9785	0.9170	0.9499	0.9931

3.

The following table sets forth the average exchange rates for the Canadian dollar, expressed in U.S. dollars, for each of the past 5 fiscal years, calculated by using the average of the exchange rates in effect on the last day of each month during the period indicated.

	Year Ended December 31,
	2007	2006	2005	2004	2003
Average Rate During Period	.9375	.8843	.8275	.7705	.7187

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B.

Capitalization and Indebtedness

This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.

C.

Reasons for the Offer and Use of Proceeds

This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.

D.

Risk Factors

Class Actions and Lawsuits

The Company is named as a defendant in several class action lawsuits filed by certain shareholders of the Company.  The Company cannot assure that it will succeed in defending any claims, that judgments will not be entered against it with respect to any litigation or that reserves the Company may set aside will be adequate to cover any such judgments.  If any of these actions or proceedings against the Company is successful, it may be subject to significant damages awards.  Any such award for damages could materially and adversely affect the Company's financial condition, liquidity and results of operations for the quarter or year in which the Company records it, as well as the Company's ability to favorably resolve its other lawsuits.  In addition, the Company is the plaintiff in a lawsuit against its former President and CEO in which it seeks the recovery of substantial payments.  See "Legal Proceedings and Regulatory Acti ons" for more information.

The Company is incurring significant legal fees in prosecuting and defending its lawsuits, and it may not ultimately prevail in such lawsuits or be able to collect on such judgments if it does.  The Company may not have sufficient cash resources to commence and/or prosecute some or all of the legal claims that the Company may have against third parties. Additionally, the defense of these claims could divert the attention of the Company's management and other personnel for significant periods of time.  

Should the ultimate resolution of the action differ from management's assessments and assumptions, a material adjustment to the Company's financial position and the results of its operations could result. Management's assessments and assumptions include that a reliable estimate of the exposure cannot be made at this preliminary stage of the lawsuits, and it is possible that the Company will be required to pay substantial judgments.  Expenses incurred in connection with these matters (which include substantial fees of lawyers and other professional advisors and potential obligations to indemnify officers and directors who may be or become parties to such actions) could adversely affect the Company's cash position.

Civil Liability in the Secondary Market

On December 31, 2005, Bill 198 came into force in Ontario, creating liability for misrepresentations by public companies in written disclosure and oral statements. These amendments also created liability for fraud and market manipulation. Since then, other provinces and territories have adopted or are expected to adopt similar legislation.  The legislation creates a right of action for damages against the Company, its directors and certain of its officers in the event that the Company or a person with actual, implied or apparent authority to act or speak on behalf of the Company releases a document or makes a public oral statement that contains a misrepresentation or the Company fails to make timely disclosure of a material change.

The Company has a disclosure and stock trading policy that governs communications with shareholders and others and reflects the Company's commitment to timely, effective and accurate corporate disclosure in accordance with all applicable laws.  The Company has a disclosure committee to review and determine disclosure of material information and to mitigate risks associated with the disclosure of inaccurate or incomplete information.  There can be no assurance that the Company's processes will be followed by all committee members at all times.

6

The Company also evaluates on an annual basis the effectiveness of internal controls over financial reporting and disclosure controls and procedures.  Any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Due to the inherent limitations in all controls systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected.  Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

Compliance with Laws and Legal Standards

The Company relies on its employees, officers, board of directors and partners to demonstrate reasonable legal and ethical standards.  Situations might occur where individuals do not adhere to the Company's policies, thereby exposing the Company to the possibility of damages, sanctions and fines, or negatively affecting financial or operating results.

The Company operates in foreign jurisdictions and is required to comply with local laws and regulations, which may differ substantially from Canadian laws and add to the legal exposure the Company faces.

Although management cannot predict outcomes with certainty, management believes it has reasonable policies, processes and awareness in place for proper compliance and that these programs are having a positive effect on reducing risks. The Company has instituted a code of business conduct and ethics for its employees, consultants, officers and directors.  In addition, legal counsel qualified in the relevant foreign jurisdictions are engaged by the Company to provide legal advice as appropriate.

Negative Publicity

As a result of the Company withdrawing on July 19, 2007 all its previously announced results for the Boka Project, the Company has been the subject of continuing negative publicity.  This negative publicity may have an effect on the terms under which some joint venture partners will be willing to do business with the Company and could affect the Company's financial performance or financial condition.  The Company also believes that many of its employees are operating under stressful conditions, which reduce morale and could lead to increased employee turnover.  Continuing negative publicity could have a material adverse effect on the Company's business, the market price of its publicly trading shares, and its ability to raise capital.

Continued Assessment of the Boka Project

The Company is an exploration stage mineral exploration company engaged in the identification, acquisition, evaluation and exploration of mineral properties.  The continued assessment of the Boka Project could result in a further write-down, termination of exploration and development work or loss of the Company's interest in the Boka Project.  If any of the foregoing were to occur, this would have a material adverse effect on the Company's business, financial condition and results of operations. The future prospects of the Boka Project are contingent and uncertain.

History of Net Losses; Uncertainty of Additional Financing

To date, the Company has had no revenue from the exploration activities on its properties.  The Company has not yet found that development activity is warranted on any of its properties.  Even if the Company does undertake development activity on any of its properties, there is no certainty that the Company will produce revenue, operate profitably or provide a return on investment in the future.

The Company has incurred losses in most years of its operations.  The exploration of the Company’s properties therefore depends on the Company’s ability to obtain additional required financing.  There is no assurance that the Company will be successful in obtaining the required financing, which could cause the Company to postpone its exploration plans or result in the loss or substantial dilution of its interest (as existing or as proposed to be acquired) in its properties as disclosed herein.

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Company at Exploration Stage Only; No Experience in Placing Properties into Production

The Company has no experience in placing mineral deposit properties into production, and its ability to do so will be dependent upon using the services of appropriately experienced personnel or entering into agreements with other major resource companies that can provide such expertise.  At present, none of the Company’s personnel has any experience in actually operating mines.  There can be no assurance that the Company will have available to it the necessary expertise when and if the Company places mineral deposit properties into production.

Possible Loss of Interests in Exploration Properties; Possible Failure to Obtain Mining Licenses

The agreements pursuant to which the Company acquired its interests in properties provide that the Company must make a series of cash payments over certain time periods, expend certain minimum amounts on the exploration of the properties or contribute its share of ongoing expenditures.  If the Company fails to make such payments or expenditures in a timely fashion, the Company may lose its interest in those properties.  Further, even if the Company does complete exploration activities, it may not be able to obtain the necessary licenses to conduct mining operations on the properties, and thus would realize no benefit from its exploration activities on the properties.

Mineral Exploration and Development Activities Inherently Risky

The business of mineral exploration and extraction involves a high degree of risk.  Few properties that are explored are ultimately developed into production and there is a risk that none of the Company’s properties is commercially viable.  Unusual or unexpected formations, formation pressures, fires, power outages, labour disruptions, flooding, explosions, cave-ins, landslides and the inability to obtain suitable or adequate machinery, equipment or labour are other risks involved in extraction operations and the conduct of exploration programs.  Although the Company carries liability insurance with respect to its mineral exploration operations, the Company may become subject to liability for damage to life and property, environmental damage, cave-ins or hazards against which it cannot insure or against which it may elect not to insure.  There are also physical risks to the exploration personnel working in the rugged terrain of P eru and China, often in poor climate conditions.

Previous mining operations may have caused environmental damage at certain of the Company’s properties.  It may be difficult or impossible to assess the extent to which such damage was caused by the Company or by the activities of previous operators, in which case, any indemnities and exemptions from liability may be ineffective.

If any of the Company’s properties is found to have commercial quantities of ore, the Company would be subject to additional risks respecting any development and production activities.  

Repatriation of Earnings

Peru has no limitation on profit or capital remittances to foreign shareholders provided that all applicable Peruvian taxes have been paid.  However, there can be no assurance that additional restrictions on the repatriation of earnings in Peru will not be imposed in the future.

Chinese regulations provide that, subject to payment of applicable taxes, foreign investors may remit out of China, in foreign exchange, profits or dividends derived from a source within China. Remittance by foreign investors of any other amounts (including, for instance, proceeds of sale arising from a disposal by a foreign investor of any of his investment in China) out of China is subject to the approval of the State Administration of Exchange Control or its local branch office.  No assurance can be given that such approval would be granted if the Company disposes of all or part of its interest in the Boka Gold Project.  Further, there can be no assurance that additional restrictions on the repatriation of earnings in China will not be imposed in the future.

Foreign Currency Fluctuations

The Company carries out exploration activities in Peru and China that render it subject to foreign currency fluctuations.  While the Company minimizes the risks associated with foreign currency fluctuations by holding essentially all of its cash and short-term investments in U.S. and Canadian dollars rather than the local currencies, to the extent that its operations in those countries are carried out using the local currency, any appreciation of such

8

local currency relative to the U.S. and Canadian dollar could have an adverse impact on the financial position of the Company.  Since the Company’s financial results are reported in Canadian dollars, its financial position and results are impacted by exchange rate fluctuations between the Canadian and U.S. dollars.

Political Investment Risk; Political Instability in Developing Countries

The Company’s mineral interests are in countries that may be affected by varying degrees of political instability and the policies of other nations in respect of these countries.  These risks and uncertainties include military repression, political and labour unrest, extreme fluctuations in currency exchange rates, high rates of inflation, terrorism, hostage taking and expropriation.

The Company’s mining, exploration and development activities may be affected by changes in government, political instability and the nature of various government regulations relating to the mining industry.  Any changes in regulations or shifts in political conditions are beyond the control of the Company and may adversely affect its business and/or its holdings.  Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, environmental legislation and safety factors.  The Company’s operations in Peru and China entail significant governmental, economic, social, medical and other risk factors common to all developing countries.  See "Economic Uncertainty in Developing Countries".  The status of Peru and China as developing countries may make it more difficult for the Company to obtai n any required financing because of the investment risks associated with these countries.

Economic Uncertainty in Developing Countries

The Company’s operations in Peru and China may be adversely affected by economic uncertainty characteristic of developing countries.  There can be no assurance that any governmental action to control inflationary or deflationary situations will be effective in ensuring economic stability, or that future governmental actions will not trigger inflationary or deflationary cycles.  Additionally, changes in inflation or deflation rates and governmental actions taken in response to such changes can also affect currency values in such countries.  Any such changes could have a material adverse effect on the Company’s results of operations and financial condition.

Operations in China are subject to risks relating to China’s relatively recent transition to a market economy administered by a socialist government.  While China has recently permitted private economic activities, the government of China has exercised and continues to exercise substantial control over virtually every sector of China’s economy through regulation and state ownership.  The Company’s prospects, results of operations and financial condition may be adversely affected by political, economic and social uncertainties in China, changes in China’s leadership, diplomatic developments and changes or lack of certainty in the laws and regulations of China.

Operations in Peru are also subject to risk.  Peru’s fiscal regime is generally favourable to the mining industry and has been relatively stable over the past ten years or so, but there is a risk that this could change in a relatively short period of time.  In addition, labour in Peru is customarily unionized and there are risks that labour unrest or wage agreements may materially impact operations.  The Company believes that the current conditions in Peru are relatively stable and conducive to conducting business, however, its current and future mineral exploration activities could be adversely impacted by political or economic developments.

Current Mineral Exploration Conditions

The current infrastructure in China may not be adequate to support the Company’s planned activities.  For example, water supply, electricity supply and transportation accessibility are presently satisfactory at the Boka Gold Project, however, their continued reliability, or the ability of the appropriate authorities to maintain these utilities, is undetermined.  In addition, there could be technical risks associated with exploration at the Boka Gold Project, including, but not limited to, failure of the leach ponds and the system of tunnels excavated by previous mining operations.  These risks could result in increased operating costs.

Similarly, in Peru, while the current infrastructure is adequate to support the Company’s activities at its properties, the infrastructure at the Liam Gold-Silver Project in particular will require augmentation if advanced exploration or development is undertaken.  

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Title Risks

The acquisition of title to resource properties or interests therein is a very detailed and time-consuming process.  Title to and the area of resource concessions may be disputed.  The Company has conducted an internal investigation of title to its significant resource properties.  Based on a review of records maintained by the relevant government agencies in each country in which the Company has properties, and, based upon legal opinions prepared for the Company in the case of the Boka Gold Project and the Liam Gold-Silver Project, the Company’s resource properties or interests therein are registered or are in the process of being registered in the name of the Company, its appropriate joint venture partner, the property vendor, and in the case of the Boka Gold Project in the name of Yunnan Gold Mountain Mining Co. Ltd. (the “Cooperative Company”), or a combination thereof.  There is no guarantee of title to any of the Company’s properties.  The properties may be subject to prior unregistered agreements or transfers and title may be affected by undetected defects.  Title may be based upon interpretation of a country’s laws, which laws may be ambiguous, inconsistently applied and subject to reinterpretation or change.  The Company has not surveyed the boundaries of any of its mineral properties and consequently the boundaries of the properties may be disputed.

Specific Risks Associated with Title to and Future Development of the Boka Gold Project

While the Cooperative Company is authorized to explore for gold on the Boka Gold Project, it is required to obtain further approvals from regulatory authorities in China in order to explore for minerals other than gold or to conduct mining operations.  The laws of China governing the establishment of joint venture companies are ambiguous, inconsistently applied and subject to reinterpretation or change.  While the Company believes that the Cooperative Company has been properly established and the Company has taken the steps necessary to obtain its interest in the Boka Gold Project, there can be no guarantee that such steps will be sufficient to preserve the Company’s interests in the project.

Risks Associated with Joint Venture Agreements

The Company operates in China through a joint venture with a government controlled entity.  Although this connection benefits the Company in some respects, there is a substantial inequality with respect to the influence of the respective joint venture partners with the various levels of government. The government holds a substantial degree of subjective control over the application and enforcement of laws and the conduct of business.  This inequality would become particularly detrimental if a business dispute arose between joint venture partners.  The Company sought to mitigate this risk by including an international arbitration clause in the Boka Gold Project joint venture agreement and will endeavour to maintain positive relations with both its joint venture partner and local governments, but there can be no guarantee that these measures will be sufficient to protect the Company’s interests in the Boka Gold Project.

In addition to the risks inherent in doing business with government controlled entities, the Company’s interests in its various properties in Peru and China are also subject to the risks normally associated with the conduct of joint and cooperative ventures.  The existence or occurrence of one or more of the following circumstances and events could have a material adverse impact on the Company’s profitability or the viability of its interests held through joint or cooperative ventures, which could have a material adverse impact on the Company’s business prospects, results of operations and financial condition: (i) disagreements with partners on how to conduct exploration; (ii) inability of partners to meet their obligations to the joint or cooperative venture or third parties; and (iii) disputes or litigation between partners regarding budgets, development activities, reporting requirements and other joint or cooperative venture matte rs.

Third Party Reliance

The Company’s rights to acquire an interest in certain resource properties may have been granted by third parties who themselves hold only a lease or an option to acquire such properties.  If such persons fail to fulfill their obligations, the Company could lose its interest in the property and may have no meaningful recourse, as it does not have any direct contractual arrangements with the underlying property holders.  Where the Company’s interests in

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resource properties are managed or operated by third parties, the Company’s interests may be adversely affected in the event such third parties mismanage the operations being carried out on such properties.

Risks Relating to Statutory and Regulatory Compliance

The current and future operations of the Company, from exploration through development activities and commercial production, if any, are and will be governed by laws and regulations governing mineral concession acquisition, prospecting, development, mining, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies engaged in exploration activities and in the development and operation of mines and related facilities generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits.  The Company has received all necessary permits for the exploration work it is presently conducting, however such permits are, as a practical matter, subject to the discretion of government authorities and there can be no assurance that the Company will be succ essful in maintaining such permits.  Further, there can be no assurance that all permits which the Company may require for future exploration, construction of mining facilities and conduct of mining operations, if any, will be obtainable on reasonable terms or on a timely basis, or that such laws and regulations would not have an adverse effect on any project which the Company may undertake.

Failure to comply with applicable laws, regulations and permits may result in enforcement actions thereunder, including the forfeiture of claims, orders issued by regulatory or judicial authorities requiring operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or costly remedial actions.  The Company may be required to compensate those suffering loss or damage by reason of its mineral exploration activities and may have civil or criminal fines or penalties imposed for violations of such laws, regulations and permits.  The Company is not currently covered by any form of environmental liability insurance.  See "Insurance Risk", below.

The implementation by the United States Securities and Exchange Commission of requirements for procedures regarding internal controls, pursuant to Section 404 of the Sarbanes-Oxley Act, imposes substantial obligations on the Company and there can be significant consequences of non-compliance.

Existing and possible future laws, regulations and permits governing operations and activities of exploration companies, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in capital expenditures or require abandonment of, or delays in, exploration.

Insurance Risk

No assurance can be given that insurance to cover the risks to which the Company’s activities are subject will be available at all or at commercially reasonable premiums. The Company currently maintains insurance within ranges of coverage which it believes to be consistent with industry practice for companies of a similar stage of development.  As noted above, the Company carries liability insurance with respect to its mineral exploration operations, but is not currently covered by any form of political risk insurance or any form of environmental liability insurance, since insurance against political risks and environmental risks (including liability for pollution) or other hazards resulting from exploration and development activities is prohibitively expensive.  The payment of any such liabilities would reduce the funds available to the Company.  If the Company is unable to fully fund the cost of remedying an environmental problem, i t might be required to suspend operations or enter into costly interim compliance measures pending completion of a permanent remedy.

Competition

Significant and increasing competition exists for mineral deposits in each of the jurisdictions in which the Company conducts operations.  As a result of this competition, much of which is with large established mining companies with substantially greater financial and technical resources than the Company, the Company may be unable to acquire additional attractive mining claims or financing on terms it considers acceptable.  The Company also competes with other mining companies in the recruitment and retention of qualified employees.

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Fluctuation of Mineral Prices

Factors beyond the control of the Company may affect the marketability of any ore or minerals discovered at and extracted from the Company’s properties.  Resource prices have fluctuated widely, particularly in recent years, and are affected by numerous factors beyond the Company’s control including international economic and political trends, inflation, currency exchange fluctuations, interest rates, global or regional consumption patterns, speculative activities and increased production due to new and improved extraction and production methods.  The impact of these factors cannot accurately be predicted.

Dependence on Key Management, Employees and Consultants

The Company’s growth depends on the efforts of key members of management, as well as key employees and consultants.  Loss of any of the services of these service providers could have a material adverse impact on the Company.  The Company does have agreements regarding the provision of consulting services, which provide, among other things, that either party may terminate on 30 days notice.  The Company does not have key man insurance with respect to any of its key employees or consultants.

Enforcement of Judgments

Since essentially all of the Company’s assets are located outside of Canada, there may be difficulties in enforcing any judgments obtained in Canadian courts.

Conflicts

Certain of the directors of the Company also serve as directors of other companies involved in mineral resource exploration and development and, to the extent that such other companies may participate in ventures in which the Company may participate, there exists the possibility for such directors to be in a position of conflict.  In accordance with the laws of British Columbia, directors of the Company are required to act honestly, in good faith and in the best interests of the Company.  In addition, each director must declare his or her interest and abstain from voting on any contract or transaction in which the director may have a conflict of interest.

Price Fluctuations: Share Price Volatility

In recent years, the securities markets in the United States and Canada have experienced a high level of price and volume volatility, and the market price of securities of many companies, particularly those considered development stage companies, including the Company, have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that continual fluctuations in price will not occur. Nor can there be any assurance that the ongoing litigation regarding the Boka Project will not lead to further fluctuation in the share price.

Dividends Unlikely

The Company has not paid any dividends since the date of its incorporation, and it is not anticipated that dividends will be declared in the short or medium term.

Adverse Tax Consequences to U.S. Shareholders Resulting From Company’s PFIC Status

The Company will be considered a passive foreign investment company (“PFIC”) for U.S. holders of the Company’s Common Shares because the only source of income is interest, a passive source of income.  

A U.S. shareholder holding stock in a foreign corporation during any year in which such a corporation qualifies as a PFIC is subject to U.S. federal income tax under one of two alternative tax regimes at the election of each such U.S. shareholder.  A U.S. shareholder who elects in a timely manner to treat the Company as a Qualified Electing fund (“QEF”) will be subject to current federal income tax for any taxable year in which the shareholder holds stock in the Company and in which the Company qualified as a PFIC on (i) their pro-rata share of the Company’s net capital

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gains and (ii) ordinary earnings regardless of whether such amounts are actually distributed.  The amounts described above are included in the U.S. shareholder’s tax year during which the Company’s taxable year ends.

Where the U.S. shareholder does not make a timely QEF election, then special taxation rules apply to (i) gains realized on the disposition or deemed disposition of their common shares and (ii) to excess distributions as defined.  Generally, non-electing shareholders would be required to pro-rate all gains realized on dispositions of their shares and excess distributions over the entire holding period of the common shares (regardless of whether the pro-rata amounts reflect actual earnings for the period).  All gains and distributions allocated to prior years would be taxed at the highest tax rate for each such prior year applicable to ordinary income.  The non-electing U.S. shareholder would also be liable for interest on the foregoing tax liability for each such prior period calculated as if such liability had been due for each such prior year.

See “Item 10.  Additional Information  – E.  Taxation” for more detailed discussion of United States Federal Income tax consequences for U.S. holders as defined.

Conflicts of Interest

Certain of our directors and officers serve as directors or officers of other natural resource companies or have significant shareholdings in natural resource companies and, to the extent that such other companies may participate in ventures in which we may participate, our directors may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. In the event that such a conflict of interest arises at a meeting of our directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. Under the laws of the Province of British Columbia, our directors are required to act honestly, in good faith and in the best interests of the Company. In determining whether or not we will participate in a particular program and the interest therein to be acquired by it, our directors will primarily consider the degree of risk to which we may be exposed and our financial position at that time.

Enforceability of Civil Liabilities

The enforcement by investors of civil liabilities under the federal securities laws of the United States may be adversely affected by the fact that the Company is incorporated under the laws of a foreign country, that most of its officers and directors are residents of a foreign country and that all or a substantial portion of the assets of the Company and such persons are located outside the United States. As a result, it may be difficult for holders of the common shares to effect service of process on such persons within the United States or to realize in the United States upon judgments rendered against them.

ITEM 4

INFORMATION ON THE COMPANY

A.

History and Development of the Company

Organization; Registered Office

The head office and principal address of the Company is located at Suite 1650, 701 West Georgia Street, Vancouver, British Columbia, Canada, V7Y 1C6.  The registered office of the Company is located at Suite 1650, 701 West Georgia Street, Vancouver, British Columbia, Canada, V7Y 1C6.

General  

Southwestern is an exploration stage mineral exploration company engaged in the identification, evaluation, acquisition and exploration of mineral properties with the potential to host gold, silver and base metals.  The Company’s principal mineral property interests are in Peru and China.  The Company’s common shares were listed on the TSX on May 31, 1994 and trade under the symbol SWG.

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The Company’s principal property in Peru is the Liam Gold-Silver Project situated in the Department of Cuzco in the southern portion of the Peru Tertiary Volcanic Belt and located 170 kilometres northwest of Arequipa.  This project is a 50/50 Joint Venture with Newmont Peru Limited and is comprised of 282,292 hectares of exploration concessions

The Company’s principal property in China is the Boka Gold Project (the "Boka Gold Project") in Yunnan Province, in which it has earned interests under an agreement entered into in November 2002.  The Boka Gold Project covers an area of approximately 157 square kilometres of exploration concessions and mining leases located about 150 kilometres north of the capital city of Kunming in north central Yunnan Province and adjoins, along the southwest edge, the Dongchuan Copper Camp that has been mined continuously since the 1950’s.

The Company’s Antay Project (porphyry copper-molybdenum) covers 31,000 hectares in southern Peru and is 100% owned by Southwestern.  Southwestern has entered into joint venture agreements with third parties and holds directly other properties in the Tintaya-Bambas copper-gold skarn/porphyry belt of southern Peru.

The Company owns approximately 48.2% of the outstanding shares of Zincore, which holds the oxide zinc-silver-lead Accha-Yanque Project, comprised of the Accha and Yanque properties and a number of other properties, covering 16,500 hectares within a 30 kilometre long belt, in southern Peru.

All of the Company's properties are at the exploration stage, without any commercially viable mineral deposits or reserves.

During the past three years the Company has conducted its exploration activities principally in China and Peru.

Recent Intercorporate Developments

The Company formerly held a 15.1% interest in Aurora Platinum Corp. (“Aurora”), previously a TSX Venture Exchange (“TSXV”) listed company exploring for nickel-copper-platinum-palladium as well as other metals in Canada (Ontario and Québec).  On July 1, 2005, all of the shares of Aurora were acquired by FNX Mining Company Inc. ("FNX"), a TSX listed company, in exchange for shares of FNX.  As a result of this transaction, Southwestern received 644,133 shares of FNX.  During 2005 and 2006, all of the FNX shares held by Southwestern were sold for total proceeds of $8,749,417.  

During fiscal 2006, Southwestern completed a restructuring transaction pursuant to which it transferred certain of its zinc assets to its newly formed, wholly-owned subsidiary, Zincore Metals Inc. (“Zincore”).  With a new board of directors and independent management, Zincore subsequently completed an initial public offering of its common shares and commenced trading on the TSX in November 2006 under the symbol ZNC.  Southwestern retained a 50.4% shareholding interest (38.6 million common shares) in Zincore and continued the consolidation basis of accounting for presentation of its interest in Zincore in the balance sheet for the year ended December 31, 2006.  

In April 2007 the Company sold 500,000 common shares of Zincore for gross proceeds of $350,000 and recorded a gain of $212,000. This sale resulted in the Company’s shareholding interest in Zincore being reduced from 50.4% to 49.7%.   As a consequence of the reduction of the Company’s interest and resulting loss of control, the assets and liabilities of Zincore ceased to be consolidated in the Company’s balance sheet effective April 1, 2007.  

In 2007, the Company sold all of its common shares of Lake Shore Gold Corp. (“Lake Shore”) and recorded a gain of $3,346,000. As well, during the same period the Company purchased 1,361,000 common shares of Superior Diamonds Inc. (“Superior”) at a cost of $517,000.  Due to the Company and Superior no longer having a director and president in common as at July 1, 2007, the Company ceased to account for its investment in Superior using the equity method as it has determined that it no longer has significant influence. The Company now classifies its investment in Superior as available-for-sale and records the changes in market price in comprehensive loss.

Recent Developments in 2007

On July 4, 2007, Timo Jauristo was appointed interim President and Chief Executive Officer ("CEO") following John Paterson's resignation as President, CEO, and Director of the Company on June 19, 2007.

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On July 19, 2007, the Company disclosed that its special committee of independent directors formed to review all aspects of the Boka Project, had determined that there were deficiencies in the Company's control procedures at the Boka Project which resulted in errors in previously reported assay results.  Furthermore, the review indicated that the integrity of certain stored drill core samples had been compromised.  As a consequence, the Company withdrew all of its previously announced results for the Boka Project and initiated a detailed review.  As a result of this review, a new NI-43-101 Technical Report for the Boka Project was filed on SEDAR (www.sedar.com) on November 9, 2007 and included a completed Inferred Mineral Resource estimate based on composited drill hole assay data from the reconstructed and validated assay database for the project. That Technical Report indicated that there is upside potential to the Boka Project and that the exploration concessions and mining licenses that make up the Boka Project are in good standing.

As at December 31, 2007 the Boka Project was recorded at a carrying value of $10.0 million.  The Company considered the carrying value of the Boka Project as at December 31, 2007 in accordance with Canadian generally accepted accounting principles and determined that an impairment had occurred, resulting in a write-down of $33.8 million to a value which management considered to be a reasonable estimate of the fair value of the project.  This estimate was based on further in depth analysis of that Technical Report received in November 2007 and discussions with various independent third parties. The Company can provide no assurance that the continued assessment of and further work on the Boka Project will not result in another impairment charge in the future. The future prospects of the Boka Project are contingent and uncertain. The Company is reviewing all of its options to maximize and enhance shareholder value in respect of the Boka Proje ct. These options include further exploration and development work, joint ventures, option/royalty arrangements, divestitures and other value enhancing initiatives.

The Company and John Paterson have been named in a class-action lawsuit in each of British Columbia, Ontario and Quebec where the plaintiffs allege that the Company and Paterson negligently or recklessly misrepresented the quantity of gold in its drill samples taken from the Boka Project.  The Company is vigorously defending itself against such claims.

In August 2007, the Company announced that it had commenced legal action in the Supreme Court of British Columbia against John Paterson, and certain affiliated companies, for, among other things, fraud, breach of fiduciary, statutory and contractual duties and insider trading. The Company is seeking to recover damages and losses caused to the Company.  (See “Item 8 – Financial Information – Consolidated Statements and Other Financial Information – Legal Proceedings”).

Principal Capital Expenditures/Divestitures Over Last Three Fiscal Years

During 2007, the Company expended $13.7 (on a consolidated basis) on mineral properties in Peru and China, including $8.2 million on the Boka Project and $2.4 on the Liam Joint Venture. During 2006, the Company expended $16.1 million on mineral property and related deferred costs in China and Peru. The majority of these expenditures were incurred on the pre-feasibility and drilling program at the Boka Project in China.   During 2005, the Company expended $14.9 million on mineral property and related deferred costs in China and Peru.

Disclosure of Outstanding Share Data

As at March 17, 2008 there were 44,923,000 common shares issued and outstanding and 3,617,000 stock options outstanding none of which are exercisable. There have been no changes since December 31, 2007.

Current and Planned Capital Expenditures/Divestitures

The Company will continue to focus on maximizing shareholder value regarding all of its mineral properties and investments. Its focus will be on its projects in Peru where expenditures are planned to be approximately $4.5 million during 2008. The Company will look for joint venture partners on most of its properties to preserve capital and minimize shareholder risk. On the Boka Gold Project the Company is currently exploring its options including but not limited to further exploration and development work, joint ventures, option/royalty arrangements, divestitures and other value enhancing initiatives.  

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The Company and John Paterson have been named in three class-action lawsuits in British Columbia, Ontario and Quebec where the plaintiffs allege that the Company and Paterson negligently or recklessly misrepresented the quantity of gold in drill samples taken from the Boka Project.  The Company is vigorously defending itself against such claims.  The consolidated financial statements as at December 31, 2007 do not include any provisions for liability that may be necessary should the Company be unsuccessful in defending such claims as the amount of the potential liability is not determinable as of the date of these financial statements.  (See “Item 8 – Financial Information – Consolidated Statements and Other Financial Information – Legal Proceedings”).

Public Takeover Offers

During the current and previous fiscal year, the Company has not received any public takeover offers from third parties nor has the Company made any such takeover offers.   

B.

Business Overview

Summary

The Company is a mineral exploration company engaged in the location, evaluation, acquisition and exploration of mineral properties with the potential to host gold, silver and base metals.  The Company holds interests in material mineral properties in Peru and China.  The Company's exploration activities are focused on gold, silver and base metals at its Peruvian properties and on gold at its Chinese property. The Company's Peruvian properties are held through the Company's 100% owned subsidiary Minera del Suroeste S.A.C., while the Company’s China property is held through the Company’s 100% owned subsidiary Canadian Southwest Gold Inc.  See "-- C.  Organizational Structure."  All of the Company's properties are in the exploration stage without any assurances that commercially viable mineral deposits, a reserve, exist in any of the Company's properties until further work is done and a final evaluation concludes economic and legal feasibility.

The long-term objectives of management of the Company are to seek lower risk, higher potential properties that can be advanced to the proven reserve category with minimum expenditures.  The Company's policy is to lower its exposure at various stages of exploration by joint venturing properties to a third party while attempting to maximize shareholder value.  Management has set a long term goal for the Company to be a significant producer of precious and base metals.  The Company believes this goal can be best achieved by financing future development of various properties by selling portions thereof to major mining operators and then structuring joint ventures in such a way that the Company retains a significant interest without being required to contribute funds until the property is in production. The Company intends to finance its activities with the proceeds from private offerings, public offe rings, income from operations, and through joint ventures.

Applicable Government Regulation

The Company currently has exploration offices and/or carries out exploration in Peru and China.  In each of these countries operations are subject to government regulations and other factors related to mining ventures.  In particular, mining activities may be affected by legislation, regulations, policies and controls relating to prospecting, exploration, development, production, protection of the environment, mining taxes, labor standards or conditions under which minerals may be extracted or marketed.  The effect of these factors cannot be accurately determined.

PERU

Introduction

Peru is located in Western South America and is bordered by the Pacific Ocean on the west, Ecuador and Colombia on the north, Brazil and Bolivia on the east and Chile on the south. Land area totals 496,200 square miles, an area slightly smaller than the State of Alaska. Peru has a population of approximately 28 million, Lima being its capital and principal city with a population of around seven million.

Peru’s unit of currency is the Nuevo (New) Sol. Mining is one of the largest industries in Peru, with copper, gold and silver being particularly important.

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Peru is a Republican Constitutional Democracy with three branches of government: Legislative, Executive and Judicial. The Legislature is a unicameral parliament. Elections for Presidency and Congress are held every five years with the next election scheduled for 2011. Members of the Supreme Court are appointed by the National Council of the Magistracy. Peru has 25 Regions and one Province. The Regions are administered by a Regional President who is elected by the population.

During the 1990’s, former President Alberto Fujimori applied strict measures aimed at eliminating hyperinflation, restoring fiscal order, eliminating terrorism, privatizing the economy and reestablishing Peru’s international credit standing. During the Fujimori Presidency, inflation was reduced to single digits, the active elements of the terrorist groups were imprisoned and privatization of the economy was undertaken.  A program of legal reforms and incentives instituted by the Fujimori Government has removed many of the obstacles to foreign investment in Peru. Laws to promote and protect foreign capital were enacted by Congress. In July 2006, after expiration of the five-year term presidency of Mr. Alejandro Toledo, a U.S. trained economist whose polices have remained very similar to Mr. Fujimori’s, Mr. Alan García, the leader of the American Popular Revolutionary Alliance party, won a five-year term as President of Peru after a closely contested election.  Mr. Garcia was previously president of the country from 1985 to 1990 during a period of economic disarray and increasing violence from terrorism.  

Currently Peru enjoys one of the highest economic growth rates in South America, inflation has been held at low levels and terrorism has largely disappeared. The government has undertaken several initiatives to reduce poverty including the execution of a free trade agreement with the United States and the initiation of discussions for the execution of similar agreements with other countries, to increase exports and increase spending on social programs.

Foreign investment framework

Peru signed the Constitutive Agreement of the World Bank's Multilateral Investment Guaranty Agency (MIGA), which was ratified by the Peruvian Congress on April 2, 1991. Peru has also signed the World Bank's International Covenant on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). Furthermore, Peru has signed a Covenant with the United States Overseas Private Investment Corporation (OPIC).

Under the terms of the Foreign Investment Promotion Law, foreign investors have the same rights as Peruvian Nationals and enjoy equal status with these and the State, except in one situation. The one limitation is that, for reasons of national security, foreign investors (individuals or legal entities) are restricted from acquiring properties within 50 kilometers from Peru borders, unless they have express authorization from the Council of Ministers. Foreign investors may acquire shares or property rights from nationals. Legislative Decree 708, which applies to mining companies, provides for tax, administrative and free exchange stability. Foreign companies have the right to export mineral concentrates or refined products. There are no specific taxes on exportation of these products. Capital, dividends and profits are also freely exportable.

Labor issues

Under Peruvian Law and subject to certain exceptions, up to 20% of the employees of a Peruvian company may be foreign nationals. In addition and also subject to exceptions, up to 30% of the overall amount of a company’s payroll, may be destined to the payment of wages to foreign nationals. Peruvian law provides for a minimum monthly wage of 550 Peruvian Nuevos Soles per month (US$190.97). Other employee benefits are also payable by law.

Tax Law

Income tax is payable by individuals or companies domiciled in Peru , regardless of the source of this income. Non-domiciled individuals or companies are also liable for income taxes on their Peruvian-based income. Peruvian “domiciled” individuals are subject to Income Tax with the following progressive cumulative scale: (i) a 15% rate will be applicable if the annual net income amounts to approximately US$ 32,812; (ii) a 21% rate will apply for the annual net income exceeding US$ 32,812 and up to US$ 65,625; and, (iii) a 30% rate will be levied for the annual net income exceeding US$ 65,625.

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Generally speaking, payments of Peruvian source incomes by Peruvian taxpayers to non-domiciled entities are subject to an Income Tax withholding levied at a rate of 30%. In the specific case of interest, however and under certain circumstances, a reduced withholding rate of 4.99% may apply where interest payments are made to non-domiciled unrelated lenders. Reduced withholding tax rates may also apply where there is a Double Taxation Convention in force between Peru and the lender’s country of residence (e.g., the Peru / Canada and the Peru / Chile, Conventions foresee a maximum withholding tax rate of 15% on interest payments made by Peruvian borrowers to lenders that are resident in Canada or Chile, respectively).

Businesses are taxed at a rate of 30%. A separate corporate tax does not exist in Peru.

Dividends are considered income in Peru and are subject to a 4.1% tax. Capital gains from the trading of stock, as well as interest from deposit accounts and bonds are temporarily not taxable, although subject to certain conditions.

Peru has a financial transactions tax of 0.07% on all transactions in the Peruvian banking system which is withheld each time a transaction occurs (the rate will be reduced to 0.06% for the year 2009; and, to 0.05% as of the year 2010). Peru also has an assets tax of 0.5% on a company's net assets which exceed approximately US$347,000, based on the Company’s prior year's balance sheet. This tax is only payable by companies that have commenced production and the rate will be reduced to 0.4% as of January 1^st, 2009.

In Peru, the General Tax on Sales ("IGV") is a value added tax paid on all sales of goods and services and importation at the rate of 19% of the value of the sale and is paid by the recipient of the goods and services at the time of each transaction. This tax may be refunded as a fiscal credit against taxes payable on sales or provisions of services. The credit is personal and non-transferable other than in the case of a company's reorganization. Acquisitions and investments incurred by a mining company prior to the sale of minerals or properties, in the exploration stage, may be accumulated as pre-operative expenses and deducted from taxes due once income is generated by operations. Mining exploration companies may qualify for the early recovery of the 19% IGV paid on goods and services if an exploration project has minimum expenditures of US$500,000 and approval has been received from the Peruvian Ministry of Energy and Mines in the form of a n Exploration Investment Agreement.

Peruvian law requires that mining concession holders pay a mining royalty as consideration for the extraction of mineral resources. The mining royalty is payable monthly on a variable cumulative rate of 1% to 3% of the value of the ore concentrate or equivalent, calculated in accordance with price quotations in international markets, subject to certain deductions such as indirect taxes, insurance, freight and other specified expenses.  The mining royalty payable is determined based on the following schedule: (i) under US$60 million of annual sales of concentrates:  1%; (ii) in excess of US$60 million and up to US$120 million of annual sales:  2%; and (iii) in excess of US$120 million of annual sales:  3%.

No exchange controls exist in Peru. No government authorization is required to carry out exchange operations. There is no fee charged for possession and receipt of foreign currency. Individuals or corporations may remit foreign currency abroad, or retain it in the country. Exporters are not required to exchange foreign currency they receive for local currency.

Stability Agreements

Foreign investors and local enterprises may apply for certain tax, currency and other stability agreements with the government of Peru, provided that certain requirements and minimum investments are met. The agreements guarantee stability for a term of ten years with respect to (i) the income tax regime, (ii) the currency exchange regime, including free availability of foreign currency and free remittance of capital and profits abroad (only for foreign investors); (iii) non-discrimination (for foreign investors and local enterprises); and (iv) the labor contracting regime (only for local enterprises).

Additionally, local enterprises conducting mining activities may execute mining stability contracts for ten or fifteen year terms, as long as certain minimum production or investment commitments are assumed. In addition to the above stability features, these contracts assure the free trade of mineral production, internally and externally, and provide administrative stability respecting validity fees, penalties and other mining related fees. The income tax rate stabilized will comprise the rate in force at the date of execution of the contract, plus two additional percentage

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points; while the IGV, the excise tax and similar taxes, are only stabilized with respect to the possibility of passing on their economic impact to the purchasers of the company’s production.

Mining Law

Mineral deposits are considered to be owned by the government but made available to the private sector.

Under Peru’s Uniform Text of Mining Law, the right to explore for and exploit minerals is granted by the government by way of concessions. The initial claim request is called a “petitorio” (pediment) and once granted is called a “concesión” (concession).

A Peruvian mining concession is a property right, independent from the ownership of surface land on which it is located. The rights granted by a mining concession can be transferred, or sold and, in general, may be the subject of any transaction or contract. Mining concessions may be privately owned and no state participation is required. Within a concession, there is an obligation to compensate landowners for the destruction or disturbance of their land. Mining concession title gives one the right to explore and exploit minerals within the concession boundaries.  

The application (i.e., the pediment) is carried out by a paper procedure that specifies the UTM co-ordinates of the claim corners. Individual claims can be as small as 100 hectares and as large as 1,000 hectares. Claim boundaries must now be oriented north-south and east-west. Before 1992, claims were described by direction and distance from various geographical points and could be oriented in any direction.

At the time of applying for a petitorio a payment of US$3.00 per hectare and a set fee of 350 Nuevos Soles per petitorio must be made. The granting process can take up to six months, depending on the volume of claim applications at the time. The process involves several stages which include acceptance of the application by the claim registration office; verification that the area is free to be claimed; notification to the various parties involved if there is any superposition of pre-existing claims; an announcement in local and national newspapers (at a cost of approximately US$ 415 per claim); a technical review; awarding of title; and finally granting of the concession.

The first application submitted has priority over subsequent applications. However, if the application relates to an area which has become open for staking due to an older concession lapsing, all parties staking on the first day are considered equal. Should two or more applicants apply for identical ground on the same day, the conflict can be resolved privately by those applicants, or failing that, the contested ground will be auctioned (“remate”) and will be awarded to the highest bidder among the applicants.

Concessions are available to foreign companies on an equal basis provided that they have formed a Peruvian mining company or established a branch in Peru.

In order to conduct exploration or mining activities, the holder of a concession should purchase the surface land required for the project or reach agreement with the owner for its temporary use. If any of this is not possible, a legal easement may be requested from the mining authorities (these easements have been rarely granted).

Mining concessions are irrevocable as long as their holders pay an annual validity fee of US$3.00 per hectare and meet the minimum production standards set forth by Peruvian law or pay the penalty accrued if such standards are not reached: (i) The annual validity fee is based on the January to December calendar year, but title holders have until June 30 of the current year to pay the fee; (ii) A minimum level of annual commercial production of US$100 per hectare in gross sales, should be reached within six years following the grant of the concession. If that were not the case, the concession holder must also make a penalty payment of US$6.00 per hectare for the 7th through 11th year following the granting of the concession, and of US$20.00 per hectare thereafter. Payment of this penalty may be exempted in a given year if the investments made on the property during the previous year, was 10 times the penalty (e.g., US$60 or US$200, as applicable).  N on-payment of any of the validity fee or penalties for two consecutive years, results in the cancellation of the concession.

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Environmental Law

Each stage of exploration or mining requires some type of authorization or permit, beginning with an application for an environmental permit for initial exploration and continuing with an Environmental Impact Assessment for mining, which includes public hearings.

For permitting purposes, exploration mining activities in Peru are classified in three categories. The need for a specific authorization is dependant on whether the exploration activities cause surface disturbance and, in this latter case, the scope of the requirements that should be fulfilled will vary depending on whether the respective exploration program generates effluents or waste and that involve the disturbance of less or more than ten hectares, twenty drill sites, or the construction of tunnels of less or more than fifty meters.

CHINA

Currency

The current monetary unit in China is the Renminbi ("RMB") (also referred to as yuan)¹.

Outward Remittance of Profits

China has a set of regulations relating to outward remittance of foreign investors' share of profits and final repatriation of their investments in foreign currency. Subject to payment of applicable taxes on profits, the foreign investor in a foreign invested enterprise may receive from China in foreign exchange, its shares of the distributable profits or dividends. Remittance of some other amounts (including, for instance, proceeds of sale arising from a disposal by the foreign investor of any of its investment in China and a foreign investor's distributable income derived from the assets of the foreign investment enterprise after its liquidation) out of China is subject to the approval of the State Administration of Foreign Exchange or its local branch office. There can be no assurance that additional restrictions on the repatriation of earnings in China will not be imposed in the future.

Environmental Law

In March 1994, the Chinese government adopted and promulgated China Agenda 21 - White Paper on China’s  Population, Environment and Development in the 21st Century. This document put forward China’s overall strategy, measures and program of action for sustainable development. The Environmental Protection Law of the People's Republic of China has established the basic principles for balancing environmental protection with economic and social development and defines the rights and duties of governments of all levels and of all individuals and corporations regarding environmental protection. China has enacted and promulgated many special laws governing environmental protection, including the Law on the Prevention and Control of Water Pollution, the Law on the Prevention and Control of Air Pollution and the Law on the Prevention and Control of Environmental Pollution by Solid Waste. In addition, the Chines e government has enacted more than 30 administrative decrees regarding environmental protection.

Mineral exploration must be carried out in compliance with all environmental legislation and regulations and an environmental impact assessment report must be filed when applying for a mining permit. An environmental impact assessment must be completed by a qualified Chinese entity and the environmental impact assessment report must be approved by the provincial or state environmental protection agency.

Costs incurred by the Company to comply with environmental regulations to date have been nominal compared to its exploration expenditures.

Mining Law

Natural resources in China are the property of the State. A new Mineral Resources Law of the People's Republic of China came into force on January 1, 1997. The Ministry of Land and Resources ("MOLAR") has central control over all mineral resources in China. MOLAR and the departments of land and resources ("DOLAR") at the

¹ As of 29 February, 2008 the exchange rate was 7.27 RMB per Canadian Dollar.

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provincial and county level are responsible for issuing exploration and mining permits, which represent the rights to explore and mine natural resources in China.

In early 1998 three regulations were promulgated, regarding (a) Registering to Explore for Mineral Resources Using the Block System; (b) Registering to Mine Mineral Resources; and (c) Transferring Exploration Rights and Mining Rights. In late 2000, a regulation was promulgated regarding the Grant and Transfer of Mineral Rights. On June 11, 2003, MOLAR issued the Measures for the Administration of Invitation to Bid, Auction and Listing of Exploration Rights and Mining Rights (for Trial Implementation), which was amended in part by MOLAR's Notice of Further Regulating the Administration of the Grant of Mineral Rights issued on January 20, 2006. Depending on the type of mineral, the granting of exploration rights and mining rights may be subject to invitation to bid, auction or listing.

Applicants, subject to certain registration and business license requirements, may apply to obtain exploration permits. Under the Circular on Relevant Issues in Standardizing the Scope of Authorization to Grant Exploration Permits and Mining Licenses (the "MOLAR Circular") issued by MOLAR on September 30, 2005, subject to the Foreign Investment Catalogue, the foreign-invested enterprises are put on an equal footing with domestic companies in relation to the issuance of mineral rights and in certain circumstances the relevant DOLAR at the provincial level is delegated with the authority to issue exploration permits to them. Permit holders must pay an annual exploration fee ranging from 100 to 500 RMB per square kilometre. Minimum exploration expenditures of 2,000 Renminbi in the first year, 5,000 RMB in the second year and 10,000 RMB each year thereafter for each square kilometre must be committed within an exploration permit. Generally, an exploration permit is valid for no more than three years but extensions may be granted for periods not to exceed two years for each extension. Exploration programs must commence within six months of the issuance of the exploration permit. Otherwise, fines may be imposed depending on the size of the exploration permit.

A mining permit, which is required for any exploitation and mining activities, can be obtained by applying to the appropriate government department. The holders of exploration rights have priority to obtain mining permits on the same areas within the valid term and reserved term of the exploration permits. Holders of mining permits are required to pay mining rights use fees in the amount of RMB 1,000 per square kilometre within the mining permit, although such mining rights use fees may be exempted for companies conducting mining in China’s remote and underdeveloped regions or for minerals in short supply by the State, etc.. If the mining project is large, the mining license is normally valid for a period of up to 30 years, 20 years for medium scale projects, and 10 years for small-scale projects. Applications can be made to extend the valid period of the mining license.

If the exploration permit or mining permit to be granted to an applicant was developed with State funds, the applicant will be required to pay a purchase price for such permit that is determined based on a formal valuation of the permit by an assessor recognized by the state-own asset administrative department and such valuation being subject to verification by MOLAR.

Exploration rights and mining rights can be transferred, with government approval, provided that, among other things, a minimum capital investment has been made and a minimum period has passed since the transferor's original acquisition of such rights.

The Chinese government has classified mineral exploration by foreign companies as being encouraged, allowed, restricted or prohibited, depending on the mineral. In accordance with the Foreign Investment Catalogue issued on October 31, 2007, exploration and mining of precious metals such as gold, silver and platinum are restricted. A gold mining company will be required to obtain a gold mining certificate from the National Development and Reform Commission.

A mining company will be required to obtain the lawful right to use the land it will occupy in connection with operation of the mine. It may do so through a grant or allocation of land use rights from the State, or through a transfer or lease of rights from the prior holder of the land use rights.

Tax Law

On March 16, 2007, the Enterprise Income Tax Law (“New Law”) was promulgated by the National People's Congress (“NPC”) and became effective on January 1, 2008. Generally, a foreign-invested exploration and mining

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company ("FIMC") that engages in the mining of metal ores will be subject to the following taxes and fees in China under the New Law:

Enterprise Income Tax. An FIMC is subject to a 25% enterprise income tax calculated on net income beginning in 2008. The enterprise income tax rate could be reduced to 15% through 2010 if the FIMC is located in the Western Region and is considered an "encouraged project" by the tax authority. Under the New Law, high-technology enterprises newly established in the Western Region and supported by the State will enjoy certain transitional preferential treatment. Irrespective of the transitional treatment specific to the Western Region, the Cooperative Company may be eligible to enjoy a five-year grandfather treatment since it was established prior to the enactment of the New Law. As part of this grandfather treatment, until the end of 2012, the Cooperative Company may enjoy a 2+3 tax holiday (i.e., exemption from enterprise income tax for two years, followed by 50% reduction of enterprise income tax for three years). The New Law provides that the 25% enterprise income tax rate will be phased in gradually in accordance with rules to be promulgated by the State Council for foreign invested enterprises that are currently enjoying a tax rate lower than 25%.

Dividends. Under the New Law, the interest and dividends of foreign investors shall be subject to a withholding income tax at a rate of 20%, but currently the rate is discounted to 10%.

VAT. Value-added tax ("VAT") is levied on the sale of goods and the provision of certain categories of processing and other services under the Provisional Regulations on Value-Added Tax. The general rate of VAT is 17%. The mining and dressing of ferrous and most non-ferrous minerals is subject to a 13% rate. Gold production is currently ‘zero rated' for VAT purposes.

Resource tax, compensation fees and land use rights

The Resource Tax Regulations and the Regulations Concerning Administration of the Collection of Mineral Resource Compensation Fees require that resources tax and resource compensation fee be collected from all mining companies operating in China including FIMCs.

Resource Tax. An FIMC may be subject to resource tax. The State Council determines the taxable resource items and the range of the tax rates in general, and the Ministry of Finance decides on the specific tax rates applicable to particular projects. According to the Resource Tax Regulations, the applicable rates for non-ferrous metallic mineral ore, such as gold and copper, range from RMB 0.4 to RMB 30 per tonne.

Mineral Resource Compensation Fee. An FIMC, as the mining rights holder, must pay a mineral resource compensation fee, which equals to a certain percentage of the revenue generated from sales of relevant mineral products, ranging from 0.5% to 4%. The applicable rate is subsequently reduced through the application of a "recovery rate coefficient". FIMCs engaged in exploration and mining of non-oil/gas mineral resources in the Western Region are exempt from paying exploration rights use fee and mining rights use fee for one year and pay half of the fees in the ensuing two years. An FIMC that is engaged in an exploration or mining project that is encouraged under the Foreign Investment Catalogue is exempt from paying the mineral resource compensation fees for five years.

Land use rights grant fees or rentals. An FIMC must apply for temporary or formal land use rights in order to explore or mine minerals, and must pay the applicable land use rights grant fee if the company obtains the land use rights by way of grant, or pay rent if the company obtains the land use rights by way of renting. The rates of the land use rights grant fees or rentals are determined locally.

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C.

Organizational Structure

D.

Property, Plant and Equipment

Liam Gold-Silver Project

The following disclosure is derived from the 43-101 Technical Report dated March 24, 2008 prepared by Joerg M. Kleinboeck, B.Sc., P. Geo. of Caracle Creek International Consulting Inc. titled “Independent Technical Report, Liam Gold Silver Property, Department of Cusco, Peru” (the “Liam Technical Report"). The full text of the Liam Technical Report can be found at SEDAR (www.sedar.com).

Introduction

The Liam Gold-Silver Project (or the “Project”) was originally comprised of three parts, the Liam Core Zone, the Liam Regional Zone and the Area of Interest.  However, by an agreement dated October 19, 2005, the Liam Regional Venture Agreement (the “LRV Agreement”), the Liam Core Zone was amalgamated with the Liam Regional Zone to form the Liam Regional Venture.  The concessions in the Liam Regional Venture constitute the “Project Area” and are held by either Minera del Suroeste S.A.C. (“Misosa”) an affiliate of Southwestern or Newmont Peru S.R.L. (“Newmont Peru”).  The Project currently contains 282,292 hectares of exploration concessions.

Location and Access

The Liam Gold-Silver Project of Southwestern Resources Corp. (“Southwestern”) is located in the Department of Cusco, southern Peru at 14° 46’S latitude, 72° 23’E longitude, approximately 190 kilometres northwest of the city of Arequipa and 20 kilometres north of the Arcata silver-gold mine.  The Project area is located within the western slopes and the continental divide of the Cordillera Occidental (Western Cordillera) at an altitude of 4500 metres to 5300 metres within the northwesterly-trending Southern Peru, Tertiary Volcanic Belt.

The Liam area can be reached by road from Arequipa via the communities of Puente Callari, Sibayo, Cailloma and Arcata.  The 305 kilometre trip from Arequipa to the Arcata mine site takes between six to seven hours driving on

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moderate condition gravel roads.  A secondary Arcata-constructed road continues north from the mine to a junction with the new Liam access road, 21 kilometres and 45-minute travel time.  A new road constructed by the Soteco Joint Venture advances from this point and continues north to the Liam drill and camp area, an additional 18.5 kilometres and one hour travel time.  The total distance by road from Arequipa to the Liam camp is roughly 340 kilometres in 8.5 hours time.  

Apart from the small communities which provide accommodation and services to the mining operations at Orcopampa and Arcata, there is limited infrastructure in the area.  Gravel roads have been built north from Arcata to Liam and other nearby areas to provide access for mineral exploration work.  Small airstrips that support light aircraft can be found in the villages of Orcopampa and Espinar.

Agreements and Property Ownership

On October 1, 2003 a letter of intent was executed by Newmont Delaware and Southwestern and then amended on October 9, 2003 (collectively the “Letter of Intent”).  The Letter of Intent was subsequently formalized in two agreements:  (1) an Option Agreement dated November 14, 2003 between Misosa and Newmont Peru regarding the Liam Core Zone; and (2) the Regional Joint Venture Agreement dated November 14, 2003 between Newmont Delaware and Southwestern, regarding the Liam Regional Zone.  

Under the Option Agreement, Misosa granted Newmont Peru the option to earn an undivided 50% interest in the Liam Core Zone by spending a total of US$5 million over a three-year period, with a minimum annual expenditure of US$1 million, which must include 5,000 metres of drilling.  After earning an undivided 50% interest, Newmont Peru had the second option to earn an additional undivided 10% interest in the Liam Core Zone by producing a positive feasibility study.  In addition, Newmont Peru had the third option to earn a further undivided 10% interest in the Liam Core Zone, thereby increasing its interest to an undivided 70% interest, by funding all costs incurred to commencement of commercial production of mineral products from the Liam Core Zone.  If Newmont Peru elected the third option, it was entitled to receive 90% of distributable profits until it had been reimbursed for all costs incurred during the third option, while the remaining 10% of profits was distributable to the parties pro rata.

Under the Regional Joint Venture Agreement, Southwestern and Newmont Delaware contributed certain mineral concessions and each had an undivided 50% participating interest in the Regional Joint Venture.  The parties agreed to spend a total of US$5 million in the Area of Interest over a five-year period, with Southwestern as exploration manager.  If the Technical Committee formed under the Regional Joint Venture determined that any project within the Area of Interest, based on a preliminary scoping study of its tonnage, or grade, initial metallurgy or initial economic valuation, constituted a viable exploration project, then Newmont Delaware had the election to earn an additional 20% interest in that project by producing a feasibility study and by funding all costs incurred to the commencement of commercial production.  Newmont Delaware also had similar preferential rights to distributable profits as those specified for the Liam Core Zone. & nbsp;

By the Liam Regional Joint Venture Agreement (the LRV Agreement), dated October 19, 2006, Newmont Peru and Misosa agreed to terminate the Liam Core Zone agreement and to amalgamate the 3,500 hectares Core Zone area with the Liam Regional area.  The amalgamated area is referred to in this report as the Liam Regional Venture (LRV) and is comprised of the concessions in the former Regional Joint Venture plus the 3,500 hectares from the Core zone.

Under the terms of the Liam Regional Venture, Newmont and Southwestern each have a 50% working interest and will each contribute 50% of the exploration funding.  Newmont can earn a 70% interest in those portions of the Liam Regional Venture that it advances to a bankable feasibility study by funding 100% of the costs to put a deposit into commercial production.  Southwestern is manager of the LRV, however, the technical committee may appoint Newmont as manager on designated portions of the overall project.

General Geology

On a regional basis, the Liam Gold-Silver Project is located in the central part of the northwest-trending Tertiary Volcanic Belt of southern Peru.  The volcanic belt has been developed on top of older, mainly sedimentary, Paleozoic and Mesozoic units, which in general lie to the southwest and northeast of the volcanic belt.  Northwest-

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trending, belt-parallel zones of Cretaceous to Tertiary age felsic intrusives lie to the southwest and northeast of the central part of the Tertiary Volcanic Belt (Figure 3).

Dominant structural trends are northeast, northwest and to a lesser extent north-south.  Base metal mineralization generally occurs associated with the intrusives as porphyry and a skarn-type mineralization.  Gold-silver mineralization, usually of the high or low sulphidation epithermal type, tends to occur within a northwest-trending, belt-parallel zone, centrally located in the Tertiary Volcanic Belt.  Examples are the Madrigal, Caylloma, Suckuytan, Orcopampa, Poracota, Ares and Arcata mines and prospects to the south, and Santa Rosa and Selene to the northwest of Liam.

Within the Liam Regional Venture Area, the oldest volcanic units are those of the Tacaza Formation, which in turn are overlain by the Late Miocene Alpabamba volcanics consisting of bedded felsic to andesitic tuffs and lavas and associated re-worked units (Figure 4).  It is the Alpabamba units which host the Cerro Crespo-Queshca gold-silver mineralization.  Following formation of the Alpabamba units, they were hydrothermally altered and mineralized.  The Liam Core site is considered to have been a volcanic centre and the site of on-going cratering, brecciation, alteration and mineralization.

The generally unaltered andesitic Barroso Group volcanics of Pleistocene age were extruded over the argillically altered Alpabamba volcanics.  Quaternary alluvial and glacial deposits occur throughout the lower areas and valleys.  Local structural trends appear to duplicate those that are present on a regional basis.

The Liam Core Zone area of mineralization is considered to be localized in a large volcanic complex consisting of several maar-like craters surrounded by sub-horizontal to inward dipping felsic volcaniclastics, flows and epiclastics which have been extensively faulted and fractured.  In addition, they have been pervasively silicified, argillized and intruded by multiple diatreme and hydrothermal breccias.  Gold-silver mineralization appears to be associated with the introduction of the various breccia units.

Exploration Results

Liam Core Zone

There were two drilling programs conducted on the Liam Core Zone Area prior to the initial Newmont-Southwestern Joint Venture agreements in late 2003, one in September through November 1998 by the Soteco Joint Venture and a second one in June to early November 2003 by Misosa.  The Soteco drilling confirmed that the strong high sulphidation epithermal alteration zone observed on surface continued to depth, however, no intersections of precious metal mineralization over economic widths were encountered.  As a result of the work done by Misosa at Cerro Crespo, it is now apparent that the Soteco drill holes were drilled below the main zone of mineralization at Cerro Crespo.  It is of interest to note that one up-hole, LM98DOZ, drilled by Soteco intersected 159 grams per tonne silver over 1.8 metres, however, the hole was abandoned due to drilling problems.  In total, Soteco completed 12 holes for a total of 1,781.20 metres.

In 2003, Misosa conducted 3,197.55 metres of diamond drilling in 19 holes.  This work outlined a significant zone of gold-silver mineralization with a strike length of approximately 350 metres, a width of 125 metres +/- and a vertical extent of about 150 metres.  

In late April 2004, Newmont Peru commenced a Phase 1 drilling program on the Liam Core Project.  In a press release dated September 29, 2004, Southwestern reported the results from five holes drilled at Cerro Crespo and 11 holes drilled at Cerro Queshca (Table 4).  Holes Li-021 and Li-022 drilled at Cerro Crespo were drilled 300 metres south of the butte but no significant gold or silver mineralization was intersected (Figure 5).  

Two holes, Li-023 and Li-024 intersected a new gold-silver zone of mineralization on the northeast flank of Cerro Crespo butte.  On March 16, 2005 the results for 3 additional holes, Li-028, Li-029 and Li-031 at Cerro Crespo were reported (Table 4 and Figure 5).  Holes Li-023, Li-024, Li-028 and Li-029 are all within the new zone of gold-silver mineralization northeast of Cerro Crespo and Li-031 is northwest of Cerro Crespo.  

Holes Li-021 and Li-022 were collared about 300 metres south of Cerro Crespo and contained no significant results.

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The Cerro Queshca drilling has been very widely spaced, however, the initial results indicated that the better grade gold mineralization is controlled by a steeply-dipping, major, east-west-trending structure.  To date, Newmont has completed 33 (4,997 metres) holes at Cerro Crespo and 33 at Cerro Queshca (4,617 metres).

Apart from the original Liam Core Zone area of Cerro Crespo and Cerro Queshca, Southwestern has completed drilling on the Astana, Carelli, Huacullo, Pacobamba, Aluja, Numa, and Farallon areas.

The zones that exhibit characteristics of high sulphidation type epithermal gold-silver mineralization are, Cerro Crespo, Cerro Queshca, Astana, Astana South, Astana Southwest - Careli and Aluja.  Low sulphidation type epithermal gold-silver mineralization is present at Farallon, Ibel, Huacullo, and Gran Leon.  At Numa, the mineralization is of the limestone-hosted silver-lead-zinc type, although it does show some characteristics associated with epithermal type mineralization.

The Astana-Farallon zone lies approximately eight kilometres southwest of the Cerro Crespo butte.  Work during 2005 outlined a large epithermal system over an area approximately 10 kilometres long and up to 4.5 kilometres wide.  All mineralization is associated with extensive fracture systems containing druzy quartz, hematite and barite hosted by an altered rhyodacite.  Crackle breccias and tectonic breccias are also present.  The Astana zone measures approximately 300 metres x 200 metres while the Astana South is approximately 200 metres x 100 metres and the Astana Southwest is 600 metres x 200 metres.  All of these zones are considered to be of the high sulphidation type mineralization.  The Farallon zone which measures approximately 1,200 metres x 800 metres is considered to be of the low sulphidation type.  The Astana and Farallon zones are approximately three kilometres apart and the intervening area is mainly over burden covered.  To date, 10 holes totaling 1,785.0m have targeted the Astana zone, and 11 holes totaling 2250.0m have targeted the Farallon zone.

The Careli zone is located approximately 35 kilometres north-northeast of Cerro Crespo and consists of a poorly exposed zone of vuggy silica measuring approximately 700 metres along strike and up to 200 metres wide.  The mineralization is considered to be of the high sulphidation type with the general trend of the mineralization being northwest-southeast.  To date, 12 holes totalling 2,025.0m have tested the Careli zone.

The Ibel zone, which is of the low sulphidation type, is located 28 kilometres northwest of Cerro Crespo.  Two areas of mineralization have been identified and sampled.  These are the Huamancharpa Sur and the Huamancharpa Norte.  At Huamancharpa Sur alteration and mineralization has been identified over an area measuring 1,200 metres x 800 metres.  The host rocks are shales, which have been silicified and moderately stockworked.  Mineralization appears to consist on surface of limonite (after pyrite) and arsenopyrite within the quartz stockwork.  At Huamancharpa Norte gold-silver mineralization is associated with hydrothermal veins and breccias.  Four separate zones of veins and breccias have been identified, which vary in length from 450 metres to 3,000 metres and with widths between 1 to 10 metres.  

The Huacullo zone is located six kilometres southeast of Ibel and again consists of low sulphidation type epithermal mineralization.  Mineralization consists of veins and hydrothermal breccias which extend for up to 1,200 metres and range from 0.5 metres to 10 metres in width (Figure 10).  These gold-silver bearing veins are unusual in that the veins and breccias contain high molybdenum values ranging from 200 parts per million to 1,300 parts per million.  Four main breccia vein zones with a northwest-southeast trend have been identified with the largest being 2,000 metres long and up to 20 metres wide and hosting typical low sulphidation type mineralization.  It is considered that the Huacullo zone is very similar to the low sulphidation mineralization being mined at the Arcata, Ares, and Orcopampa deposits to the south as well as at the Milo property, which is a joint venture between Southwestern and Yamana Gold.  No sulphides are present at surface, however, a gradient array induced polarization survey showed chargeability values at depth which are interpreted to represent the presence of sulphides at depth within the Huacullo zone.  To date, 21 holes totaling 2376.4m have tested the Huacullo zone.

The Gran Leon is another area of extensive low sulphidation type gold-silver mineralization lying approximately 65 kilometres northeast of Cerro Crespo.  Work on this property is of a preliminary nature; however, it suggests an extensive gold-rich system with over 50 veins being identified, the largest of which is two metres wide and 2,500 metres long.  The initial sampling suggests that this system is significantly enriched in gold relative to silver.  

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Aluja is a new discovery of high sulphidation epithermal mineralization located approximately 45 kilometres north-northwest of Cerro Crespo.  The mineralization is associated with high sulphidation type gold-silver epithermal veins and breccia zones hosted within the Barroso volcanics that cover an area of 2.0 km by 1.5 km. To date, 9 holes totaling 2064.0m have tested the Aluja zone.

In July 2006 Southwestern and Newmont Peru (Southwestern Press Release dated July 17, 2006) announced the discovery of widespread silver mineralization in the northeastern portion of the joint venture area.  The mineralization is associated with extensive breccia and stockwork type replacement bodies in limestone with the largest of the zones being the Numa West zone which extends for approximately 2,500 metres north-south and varies in width from five metres to 50 metres.  To date, 18 holes totaling 3097.0m have tested the Numa zone.

Pacobamba – 7 holes totaling 1384.6m were drilled testing mineralization hosted in epithermal breccias and skarn environments.

Boka Gold Project, Yunnan, China

The following disclosure is derived from the 43-101 Technical Report dated November 9, 2007 prepared by Warwick Board, Alex Trueman and Gary Hawthorn of Snowden Mining Industry Consultants Inc. (“Snowden”) titled “Mineral Resource Update, Boka Gold Project, Yunnan Province, P.R.C.” (the “Snowden Report”). The full text of the Snowden Report can be found at SEDAR (www.sedar.com).

The Boka Property is located in the western part of the Yangtze Platform in Yunnan Province, China. The Boka Gold Project consists of three contiguous Exploration Permits and three Mining Permits within the Dongchuan District. The Property is at an advanced stage of exploration, with 50 m spaced exploration drilling defining the two main areas of gold mineralization. Historical artisanal mining in the form of adits covers a small portion of the defined mineralization at the Boka Property (the “Boka Deposit”).

Location and Access

The Boka Gold Project is located in the north-eastern part of the Yunnan Province of the People’s Republic of China at a latitude of 26°29'N and a longitude of 103°02'E, approximately 265 kilometres by road to the north of the provincial capital city of Kunming. The road is paved all the way and is suitable for vehicular logistical support of an exploration project on the plateau. The entire journey from Kunming to the Property takes approximately three to four hours.

Agreements and Property Ownership

The Boka Property consists of three contiguous valid Exploration Permits and three valid Mining Permits. The Boka Property is owned by the Cooperative Company, a Sino-Foreign Joint Venture Company, which is 90% owned by Southwestern Resources Corp.’s (“Southwestern”) wholly owned subsidiary Canadian Southwest Gold Inc. (“Canadian Southwest Gold”) and 10% owned by Brigade 209 of the Yunnan Nuclear Industry of Yunnan Province (“Team 209”).

General Geology

The Boka Property is located in the western part of the Yangtze (or Southwest China) Platform. This part of the Yangtze Platform is characterized by a complex and protracted depositional and deformation history that extended from the Middle Proterozoic (approximately 1,850 Ma (“millions of years ago”) until, at least, the Late Triassic (about 199 Ma).

The oldest rocks in the vicinity of the Boka Property are marine volcano-sedimentary rocks of the Middle to Late Proterozoic (1,850 Ma to 850 Ma) Kunyang Group. Gold mineralization in the Boka Property is hosted by sedimentary rocks of the Dayingpan Formation, one of at least eight formations forming the Kunyang Group. The Luoxue Formation of the Kunyang Group hosts the Dongchuan-type copper-bearing strata to the south of the Boka Property. Rocks of the Kunyang Group appear to be characterized by a north-south trend in the vicinity of the Boka Property.

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Rocks of the Kunyang Group were consolidated during the Jinningian orogeny (850 Ma), intruded by associated granitoids (about 845 Ma to 819 Ma) and overlain by a series of younger platform sedimentary sequences. Deposition in this part of the Yangtze Platform was periodically punctuated by periods of tectonism.

Regional extensional conditions in the western marginal parts of the Yangtze Platform from the Devonian onwards resulted in the development of numerous rift-related basins and troughs. The Boka Property is situated immediately to the west of a major rift-related structure – the Xiaojiang Fault – in the eastern part of the Panxi Rift. This fault extends for hundreds of kilometres and is seismically active.

A series of narrow (2 metres to 10 metres wide), discontinuous mineralized intercepts define an overall northwest-southeast trend (about 330°) and moderate dip (30° to 40°) to the east for the mineralization at the Boka Deposit. This suggests that there are at least two levels of structural control on the gold mineralization: lode/regional-scale control on the overall distribution of the mineralization (i.e., fluid focussing along faults and shear zones); and vein/local-scale control on the distribution of gold within host structures (i.e., in zones with favourable physicochemical factors for mineralization).

Two main ore zones, B1N and B1S were identified. The overall mineralization at B1N zone can be traced over a strike length of about 600 metres and appears to extend approximately 450 metres down dip, being open at depth. Mineralization in the B1S zone appears to extend approximately 350 metres along strike and approximately 500 metres down dip, and is also apparently open at depth. Discontinuous mineralization intercepts in both zones range between 2 metres and 10 metres wide, within the broader zone that is up to 290 metres wide.

Exploration and Results

Regional investigations led Southwestern to the Boka region, where miners were extracting gold from numerous pits and adits. Southwestern’s management visited the area and, as a result of this visit, signed an agreement in 2002 Team 209 to conduct a due diligence program over an area of approximately 800 kilometres². Exploration conducted during this program included regional stream sediment sampling, rock chip sampling and detailed rock chip sampling of two of the tunnels at the mine site. Geochemical exploration data indicated that the Boka region was highly prospective for gold mineralization.

After the formation of the joint venture partnership, Southwestern performed geochemical sampling, surface mapping, sampling, and mapping of mine workings, geophysical surveys, and drilling. Artisanal miners exploited the gold mineralization by a series of tunnels and workings at Boka 11, B1N, B1S, and Boka 7 and the Cooperative Company commenced its evaluation of the Boka Property by mapping and sampling these tunnels at B1N.

Southwestern first reported significant gold mineralization for the adits (tunnel XG-15 in the B1N zone) in December 2002, and first reported significant intersections of gold mineralization in drill holes (drill hole B02-01) in March 2003.  

Technical Reports for the project were filed on SEDAR in March 2003, June 2003, August 2003, January 2004, February 2005, and September 2005. All of these reports present new drilling results for the project.

Developments During 2007 – Withdrawal of Previously Reported Drill Results

On July 19, 2007, Southwestern issued a press release withdrawing all of its previously reported results for the Boka Property, advising that such results should not be relied upon. In July 2007, Southwestern engaged Snowden to create an independently verified gold assay database for the Boka Property. Snowden completed a NI 43-101 Technical Report in November 2007 (the “Snowden Report”). The Snowden Report is available on SEDAR (www.sedar.com).

Southwestern conducted a high-quality twin drilling program on the Boka Deposit (both B1N and B1S zones) for data verification and metallurgical testing purposes. Geologists from Southwestern’s Peruvian operations attended the Boka Property to independently oversee the twin drilling program. A total of 27 drill holes were planned for this program, however the program was stopped due to dangerous working conditions (poor weather) during the drilling

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of the seventeenth drill hole. A further four drill holes were also stopped before reaching their target depth due to dangerous conditions. Twin drill hole locations were selected to test original drill holes for which elevated gold grades were reported over wide zones. Twin drill holes were given the same drill hole number as the original drill hole, with the suffix ‘A’ added to distinguish between original and twin.

The majority of the holes were drilled inclined toward the southwest (245° on average) at angles of between -55° and -76° (averaging -69°). A single drill hole (B06-174A) was drilled vertically. The orientation of the drill holes was designed to orthogonally intersect the mineralization, resulting in drill hole intercepts that approximate the true width of the mineralization.

Snowden compared the assay data from Southwestern’s May 9, 2007 Boka Property assay database (the “Southwestern Database”) to the reconstructed and verified database. Based on this work, Snowden concluded that manual and deliberate changes were made to assay data, increasing the grade of samples within mineralized intersections. Based on the foregoing, Snowden elected not to report the results of previous Mineral Resource estimates in the Snowden Report. Refer to Southwestern’s press releases dated July 19, 2007 and August 27, 2007 for further information.

Available results from the recent twin drill hole program display similar grades and grade trends to the original drill hole using the officially certified assay data. This increases confidence in the validity and quality of the official original assay data in the Boka Property exploration database. It also indicates that the original samples were not tampered with or salted. Using the available information Snowden has estimated an Inferred Mineral Resource for the Boka Project (see glossary for a definition of “Inferred Mineral Resource” according to standards published by the Canadian Institute of Mining). The Mineral Resource is for zones B1N and B1S and is based on gold assay data from drill holes only. Adit sample data were not used for the Mineral Resource estimation for a number of reasons, including the lack of official assay data and because the adits intersect high grade ‘pockets’ and therefore are not representative. The In ferred Mineral Resource was determined by ordinary kriging using the Datamine Studio software.

Table showing Inferred Mineral Resource for various cut-off grades

Cut-off (g/t Au)	Tonnage (Mt)	Grade (g/t Au)
0.01	50.5	0.4
0.25	22.1	0.8
0.50	11.9	1.3
0.75	7.6	1.6
1.00	5.5	1.9
1.50	3.0	2.5

Cautionary Note to U.S. Investors concerning estimates of Inferred Resources:  This Form 20-F uses the term “inferred resources”.  The Company advises U.S. investors that while this term is recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.  “Inferred resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility.  It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category.  Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases.  U.S. investors are cautioned not to assume that any part or all of an inferred resource exists or is economically or legally minable.

In addition to the upside potential described above, numerous target areas (e.g., Boka 2, 8, and 11) containing gold, copper, and copper-cobalt anomalies have been defined with soil sampling and rock chip sampling. Little detailed exploration has been conducted on these targets, which may constitute further potential within the project area. The priority areas for follow-up sampling, mapping and/or drilling include gold-in-soil anomalies in Boka 2, 7, 8, 11, and Lower Zone target areas, as well as three target areas of gold or gold-copper soil anomalies in the Tuobuka-Shanmu License area.

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Proposed Exploration Program and Budget

Southwestern is evaluating its options for the Boka Property.  No commitment to a particular exploration approach has been made and therefore Snowden did not estimate likely costs.

Cautionary Note to U.S. Investors concerning estimates of Measured and Indicated Resources:  This Form 20-F uses the terms “measured and indicated resources”.  The Company advises U.S. investors that while these terms are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them.  U.S. investors are cautioned not to assume that any part or all of mineral deposits in this category will ever be converted into reserves.

ITEM 4A

UNRESOLVED STAFF COMMENTS

There are no Unresolved Staff comments applicable to the Company.

ITEM 5

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Introduction

The following discussion of the financial condition, changes in financial condition and results of operations of the Company for the three years ended December 31, 2007, should be read in conjunction with the consolidated financial statements of the Company and related notes included therein, and with the selected data set forth in Item 3 above.

The Company’s reporting currency is the Canadian dollar and all amounts in this document are expressed in Canadian dollars, unless otherwise noted.  The Company reports its financial position, results of operations and cash-flows in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”).  Differences between Canadian and United States generally accepted accounting principles that would affect the Company’s reported financial results are disclosed in Note 17 of the Financial Statements.  The discussion in this Item 17 is made as of March 17, 2008.

Critical Accounting Policies and Estimates

Mineral properties and related exploration and development costs are recorded at cost on a property-by-property basis. Costs incurred for general exploration that are not project specific or do not result in the acquisition of mineral properties are charged to operations. Management periodically reviews the underlying value of mineral properties and records a provision to reduce the costs incurred to net realizable amounts as appropriate. If an impairment is determined to exist, the mineral property will be written down to its net realizable value. The recoverability of the amounts capitalized for mineral property interests is dependent upon the delineation of economically recoverable ore reserves, the Company’s ability to obtain the necessary financing to complete their development and realize profitable production or proceeds from the disposition thereof. It is reasonably possible that changes could occur in the near term that could adversely affe ct management’s estimates and may result in future write-downs of capitalized mineral property interest carrying values.

Effective as of January 1, 2007 the Company has adopted Canadian Institute of Chartered Accountants (CICA) Handbook Section 3855 – Financial Instruments – Recognition and measurement, CICA Handbook Section 1530 – Comprehensive Income, CICA Handbook Section 3865 – Hedges, and CICA Handbook Section 3251 - Equity.  These accounting policy changes were adopted on a prospective basis with no restatement of prior period financial statements.  

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, loans and receivables, or other financial liabilities. Financial assets held-to-maturity, loans and receivables and financial liabilities other than those held-for-trading, are measured at amortized cost. Available-for-sale instruments are measured at fair value with unrealized gains and losses recognized in other comprehensive income. Instruments classified as held-for-trading are measured at fair value with

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unrealized gains and losses recognized on the statement of loss. Investments in corporations in which the Company exercises significant influence are accounted for using the equity method, whereby the investment is initially recorded at cost and is adjusted to recognize the Company’s share of earnings or losses and reduced by dividends and distributions received.  

Upon adoption of this new standard, the Company has designated its cash and cash equivalents as held-for-trading, which are measured at fair value.  Exploration advances and other receivables are classified as loans and receivables, which are measured at amortized cost.  Accounts payable and accrued charges are classified as other liabilities, which are measured at amortized cost.  Investments in significantly influenced affiliates are classified as held-to-maturity, which are measured at amortized cost.  The Company has classified its investments in public companies (other than those that the Company has significant influence, as available-for-sale and therefore carries them at fair market value, with the unrealized gain or loss recorded in shareholders’ equity as a component of other comprehensive income. These amounts will be reclassified from shareholders’ equity to net income when the investment is sold. Previously, inv estments in these public companies were carried at cost, less provisions for other than temporary declines in value. This change in accounting policy results in a $3,428,000 increase in the carrying value of investments in public companies as at January 1, 2007, representing the cumulative unrealized gain at that time.

Comprehensive income is the change in shareholders’ equity during a period from transactions and other events and circumstances from non-owner sources. In accordance with CICA Handbook Section 1530, the Company now reports a consolidated statement of comprehensive income and a new category, accumulated other comprehensive income, in the shareholders’ equity section of the consolidated balance sheet. The components of this new category will include unrealized gains and losses on financial assets classified as available-for-sale.

CICA Handbook section 3870 Stock-Based Compensation and Other Stock-Based Payments establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services.  Compensation expense is determined using the Black-Scholes Option Pricing Model based on estimated fair values of all stock-based awards at the date of grant and is expensed to operations over each award’s vesting period.  

The Black-Scholes Option Pricing Model utilizes subjective assumptions such as expected price volatility and expected life of the option.  Changes in these input assumptions can significantly affect the fair value estimate.

A.

Operating Results

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006 and Year Ended December 31, 2005

The consolidated net loss for the years ended December 31, 2007, 2006 and 2005 was $49.0 million or $1.09 loss per share, $1.5 million or $0.03 loss per share and $9.5 million or $0.22 loss per share, respectively.

The significant increase in net loss in 2007 in comparison to previous years was primarily due to the write-down of the Boka Project of $33.8 million, significantly higher foreign exchange losses, higher exploration expenditures of a reconnaissance nature, and significantly lower gains on shares issued by affiliated companies. Higher legal fees and lower interest income was partially offset by a reduction in stock-based compensation when compared to the previous year.

Effective January 1, 2007, the Company changed its practice of reporting stock-based compensation on a separate line in the Consolidated Statements of Loss and Deficit to a method of allocating the expense to (i) salaries and benefits to employees, (ii) consulting fees, and (iii) general exploration for individuals involved in exploration work.  The allocation for the years ended 2007, 2006 and 2005 were as follows:

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	2007	2006	2005
Office salaries	$997	$1,663	$1,212
Consulting fees	1,218	2,399	3,505
General exploration	2,366	793	718
Zincore	336	433	-
Total	$4,917	$5,288	$5,435

For the year ended December 31, 2007, the stock-based compensation value was determined using the Black-Scholes option pricing model.  A weighted-average grant-date fair value of $1.07 (2006 – $5.82; 2005 - $4.15) for each option grant was estimated using the following weighted-average assumptions: no dividends are to be paid; volatility of 66% (2006 - 54%; 2005 – 58%); risk free interest rate of 3.9% (2006 – 4.0%; 2005 – 3.5%); and expected life of 3.5 years (2006 – 3.5 years; 2005 – 3.5 years).

The fair value computed using the Black-Scholes model is only an estimate of the potential value of the individual options and the Company is not required to make payments for such transactions.

General and Administrative Expenses

Overall general and administrative expenses increased to $9.8 million in 2007 compared with $9.5 million in 2006 and $8.6 million in 2005.  The increase was mainly due to higher legal fees as a result of the legal issues confronting the Company and increased salary expenses due to retention bonuses given to employees as a result of the issues surrounding the Boka Gold Project.  See “Item 4.  Information on the Company – A.  History and Development of the Company – Recent Developments in 2007 – Events Relating to Boka Gold Project”.  These increases in expenditures were partially offset by a decrease in stock-based compensation compared to prior years.  All other expenditures remained fairly comparable to prior years.

Foreign exchange gains and losses result primarily from the translation of US dollar denominated monetary assets to Canadian dollars.  The Company maintains sufficient US dollar reserves to fund foreign exploration expenditures over the short term.  Foreign exchange loss was significantly higher in 2007 when compared to 2006 and 2005 due to the significant strengthening in the Canadian dollar relative to the U.S. dollar in 2007 when the Canadian dollar reached and surpassed par with its US counterpart.  

General exploration expense relates to expenditures of a generative nature along with some of the costs of maintaining the Company’s foreign exploration offices.  General exploration expense has been increasing over the past three years due to increased general reconnaissance work being conducted in China and Peru to generate new projects, higher stock-based compensation for stock options granted to employees performing exploration activities, and in 2007, the costs of operating the Company’s exploration offices increased due to retention bonuses granted to all employees.

During 2007, expenditures totalling $36.0 million were written off relating to: the Boka Project in China ($33.8 million), Yunnan Gold Project in China ($860,000) and various non-core projects in China (including the Inco Joint Venture) and Peru.  The costs relating to the Yunnan Gold Project were written off as a result of the joint venture partner on the project (Newmont Overseas Exploration Limited) terminating the joint venture based on the evaluation of the project area to date.  During 2006, a total of $593,000 in expenditures were written off of which $538,000 related to the Minaspata property in Peru.  In 2005, $698,000 was written off relating to the Sichuan project in China and various non-core projects in Peru.  

Interest and other income is comprised of interest revenue and management fees charged to affiliated companies and was lower in 2007, when compared to 2006, due to lower cash balances. In 2006 it was higher than in 2005 due to higher interest revenue as a result of higher cash balances.

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Dilution gains of $866,000 (2006 - $6,845,000; 2005 - $414,000) were recorded mainly as a result of equity financings completed by Zincore and Superior Diamonds Inc. (“Superior”) during these years. The large gain in 2006 represents a gain on dilution as a result of Zincore’s initial public offering.  Gains or losses on shares issued by affiliated companies arise when the ownership interest of the Company in a significantly influenced or controlled company is diluted as a result of share issuances of the investee company.  The Company does not receive any cash proceeds (nor is it required to make any payments) for such transactions.

During 2007, the Company recorded a gain of $3,346,000 on the sale of its investment in Lake Shore Gold Corp. (“Lake Shore”). The Company sold two million shares of Lake Shore for proceeds of $4.9 million.  As well, the Company sold 500,000 common shares of Zincore for gross proceeds of $350,000 and recorded a gain of $212,000. In 2006 the Company sold all of its common shares of Jinshan Gold Mines Inc. (“Jinshan”) and FNX Mining Co. (“FNX”) and recorded gains of $1,142,000 and $1,939,000, respectively.  A gain of $1,018,000 was recorded in 2005 for the partial sale of FNX shares.

During 2007, the Company recorded a loss of $1,203,000 (2006 – a gain of $68,000; 2005 – a loss of $218,000) as its equity in the operations of affiliated companies. The 2007 loss relates primarily to the equity in operations of Zincore ($1,116,000). The gain in 2006 relates only to the Company’s share of gains recorded by Superior whereas the Company’s share of gains and losses of Aurora Platinum Corp. (“Aurora”) were also included in 2005.  Equity in operations of affiliated companies represents the Company’s share of the net gains or losses for the reporting period in a significantly influenced company. Due to the Company and Superior no longer having a director and president in common as at July 1, 2007, the Company no longer accounts for its investment in Superior using the equity method as it has determined that it no longer has significant influence.  

Non-controlling interest of $434,000 represents the minority share of net losses of Zincore for the three months ended March 31, 2007. Non-controlling interest of $432,000 represents the minority share of net losses of Zincore for the two months ended December 31, 2006.

Summary of Quarterly Results (unaudited)

 (All numbers are in thousands except per share amounts)

Fiscal Quarter Ended	4th Quarter December 31, 2007	3rd Quarter  September 30, 2007	2nd Quarter      June 30, 2007	1st Quarter      March 31, 2007
Interest and other income	288	368	429	636
Net 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 December 31,2006	3rd Quarter  September 30, 2006	2nd Quarter      June 30, 2006	1st Quarter      March 31, 2006
Interest and other income	677	537	607	512
Net gain(loss)	6,424	(1,369)	(2,830)	(3,675)
Net gain(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.

B.

Liquidity and Capital Resources

The Company expended $11.7 million on operating activities during the year ended December 31, 2007 compared with $5.9 million in 2006 and $5.2 million in 2005.  The increase in 2007 relates mainly to significant legal and consulting fees, reconnaissance costs and foreign exchange losses as well as higher salaries and consulting fees due to retention payments.  

The Company expended $18.9 million on investing activities during 2007 compared with $15.3 million in 2006 and $9.5 million in 2005. During 2007, the Company expended $13.7 million on mineral properties in Peru and China, including $8.2 million on the Boka Project and $2.4 million on the Liam Joint Venture. The Company received proceeds of $11.0 million from the maturity of a short-term investment and the sale of Lake Shore and Zincore common shares. The Company also had a decrease in cash of $15.4 million due to the deconsolidation of Zincore

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which led to the commencement of equity accounting for its investment. During 2006, the Company expended $16.1 million on mineral property and related deferred costs in China and Peru. The majority of these expenditures were incurred on the pre-feasibility and drilling program at the Boka Project in China.   A total of $5.8 million was expended on acquisition of short-term investments which have a term to maturity of six months and a further $583,000 on capital and other assets.  The Company also received proceeds of approximately $7.2 million from the sale of Jinshan and FNX shares.  During 2005, the Company expended $14.9 million on mineral property and related deferred costs in China and Peru.  A total of $1.9 million was expended on acquisition of shares in Superior ($400,000) and Lake Shore ($1.5 million) and a further $200,000 on capital assets.  The Company also received proceeds of approxima tely $3.0 million from the sale of FNX shares.  

The carrying value of mineral properties decreased by $28.5 million as a result of exploration expenditures of $13.3 million which were offset by $36.0 million in mineral property write offs and a $5.8 million reduction due to the deconsolidation of Zincore.    

In August 2006, the Company received regulatory approval of its normal course issuer bid pursuant to which the Company could acquire up to 2 million of its own common shares until August 30, 2007. During 2007, the Company purchased 930,600 of its own common shares for costs totalling $7.2 million pursuant to its normal course issuer bid. During the same period, all of these common shares, as well as 41,200 common shares purchased in 2006, were cancelled and resulted in a loss of $3.7 million being recorded as a charge to deficit. During 2006 the Company purchased 366,900 shares for total consideration of $3,342,000.  Of the shares purchased, 325,700 were cancelled, resulting in a loss of $1,735,000 of which $912,500 flowed to the Consolidated Statements of Loss and Deficit and the difference recorded in contributed surplus. The Company also cancelled 80,000 common shares it had acquired pursuant to its previous normal course issuer bid and recorded a loss of $466,944 in March 2006.

Due to the adoption of new accounting standards (see "Critical Accounting Policies and Estimates") effective January 1, 2007, the Company now measures assets classified as available-for-sale at fair value and includes resulting unrealized gains and losses on a new Consolidated Statement of Comprehensive Loss.  A total of $865,000 was recorded as unrealized losses on available-for-sale investments in 2007. The accumulated other comprehensive loss of $958,000 reported on the consolidated balance sheet includes an adjustment for cumulative unrealized gains on available-for-sale investments at January 1, 2007 of $3.4 million, which is reduced by a realized portion of $1.6 million relating to the sale of Lake Shore common shares and an unrealized loss of $865,000 as noted above.

As at December 31, 2007, the Company’s significantly influenced and other investments had a carrying value of $14.7 million (2006 - $4.4 million) and a market value of $19.9 million (2006 - $9.0 million). The market value of the Company’s interest in Zincore at December 31, 2006 was $34 million but was not included in the results for 2006 discussed above as it was consolidated at the time. Zincore’s market value is included in the results for 2007.

In February 2008 the Company sold 4,089,378 common shares of Superior for gross proceeds of $1,231,194. As a result of this transaction the Company’s interest in Superior was reduced to 6.5% from 12.9%.

The Company has commitments totalling $1,035,504 over three years (2008 - $376,547; 2009 - $376,547; 2010 - $282,410) pertaining to leasehold obligations of Southwestern.  As well, the Company has employee retention payment obligations of $670,667 in 2008. With respect to other contractual obligations, there are no material changes during the current period that are outside the ordinary course of the Company's business.

As a result of the legal actions the Company is involved with, a material adjustment to the Company's financial position and the results of its operations could result. Management's assessments and assumptions include that a reliable estimate of the exposure cannot be made at this preliminary stage of the lawsuits, and it is possible that the Company will be required to pay substantial judgments.  Expenses incurred in connection with these matters (which include substantial fees of lawyers and other professional advisors and potential obligations to indemnify officers and directors who may be or become parties to such actions) could adversely affect the Company's cash position.

Disclosure of Outstanding Share Data

The following is a summary of changes in outstanding shares and stock options since December 31, 2007:

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	Stock options outstanding	Common shares outstanding	Share capital $
Balance, December 31, 2007	3,617,000	44,922,936	$175,769,471
Stock options exercised	--	--	--
Balance, March 17, 2008	3,617,000	44,922,936	$175,769,471

C.

Research and Development, Patents and Licenses

As the Company is a mineral exploration company with no properties in production, the information required by this section is inapplicable.

D.

Trend Information

Financial Outlook

Southwestern has no commercial production on any of its mineral properties, and accordingly, it does not generate cash from operations.  The Company has no long-term debt and as at December 31, 2007 has working capital of  $18.5 million (2006 - $61.6 million). In management’s view the Company has sufficient working capital in the near term to fund planned exploration work and ongoing operating expenditures.  The Company is dependent on equity capital to fund exploration and development of its mineral properties over the longer term.  Actual funding requirements may vary from those planned due to a number of factors, including the timing and progress of exploration activities and ongoing litigation the Company is involved in.  Management may seek joint venture partners, where appropriate, in order to minimize the dependence on equity capital.

E.

Off-balance Sheet Arrangements

The Company has no off-balance sheet arrangements required to be disclosed in this Annual Report on Form 20-F.  

F.

Tabular Disclosure of Contractual Obligations

The information required by this section is included above under “ -- B.  Liquidity and Capital Resources”.

ITEM 6

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.

Directors and Senior Management

The following table sets out certain information concerning the directors and executive officers of the Company.  In accordance with the Company’s Articles the Board of Directors determine the number of directors to be elected at the Company’s Annual General Meeting of shareholders.  Directors are elected by the shareholders at each annual general meeting as required to fill any vacancies.  Directors are elected for a term of one year by ordinary resolution of the shareholders at the time of election.  Directors may also increase the size of the Board of Directors by up to one-third over the number in office after any Annual General Meeting.  (Information as to municipality of residence and principal occupation (in the table below) has been provided by individual directors and officers.)

Name & Residence Age	Position with the Company	Principal Occupation, Business or Employment	Director Since
Timo Jauristo (1) Vancouver, B.C. 50	Director, Interim President, Chief Executive Officer and Vice President, Corporate Development	Interim President and Chief Executive Officer since July 2007 and Vice President, Corporate Development of Southwestern; President, Chief Executive Officer  and Director of Zincore Metals Inc. Former General Manager – Corporate Development for Placer Dome Inc. from January 2000 to June 2005 (public mining company); President of Austgold Consulting Ltd. (private consulting company)	2006
W. David Black (2)(3)(4)(5) Vancouver, B.C. 66	Director and Chair of the Board of Directors	Chair of the Board of the Company since August 2004. Retired; Partner, DuMoulin Black, LLP, from 1968 to December 2003.	2000

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James B. Hume (1)(2)(3)(4) Calgary, Alberta 57	Director	President and CEO of the Kahanoff Group of companies based in Alberta.	2002
William D. McCartney (1)(2)(3)(4)(5) Vancouver, B.C. 52	Director	President and CEO of Pemcorp Management Inc. (private financial consulting company).	2004
Alejandro Losada-Calderon Duncraig, Western Australia	Vice President, Exploration	Vice President, Exploration of the Company since February 2007, Exploration geologist and project manager working on major mining projects throughout Australia, China and the Americas.	N/A
Giovanni N. Susin Coquitlam, B.C.	Vice President, Finance and Chief Financial Officer	Vice President, Finance and CFO of the Company since April 2007; Chief Financial Officer of Superior Diamonds Inc.	N/A
Thomas W. Beattie West Vancouver, B.C.	Vice President, Corporate Affairs and Corporate Secretary	Vice President, Corporate Affairs of the Company; Director of Superior Diamonds Inc.; President of Westvista Management Inc. (private consulting company).	N/A
Stanley Myers Lima, Peru	Director of Exploration – Latin America	Director of Exploration – Latin America, of the Company since January 2007 Exploration geologist and project manager.	N/A

(1) Member of the Environment and Safety Committee.

(2) Member of the Compensation Committee.

(3) Member of the Corporate Governance and Nominating Committee.

(4) Member of the Audit Committee.

(5) Member of the Special Committee of independent directors.  The mandate of the Special Committee is to address all matters (including class actions, securities matters, shareholder suits, directors' and officers' liability insurance and/or actions commenced by the Company) in regards to litigation, investigations and proceedings related thereto, relating to the Company and its Boka Project (China).  Further, the Special Committee is to review and finalize all public disclosure relating to the Boka Project and related investigations.

There are no family relationships between any director or executive officer and any other director or executive officer.  There are no arrangements or understanding with major shareholders, suppliers or others, pursuant to which any person referred to above was selected as a director or member of senior management.

B.

Compensation

Under applicable Canadian standards,  “Named Executive Officers” (each an “NEO”) means the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) of the Company, regardless of the amount of compensation of that individual, and each of the Company’s three most highly compensated executive officers, other than the CEO and CFO, who were serving as executive officers at the end of the most recent financial year and whose total salary and bonus amounted to $150,000 or more.  

The Company currently has five NEO's:  Timo Jauristo, Interim President and CEO; Giovanni Susin, Vice President, Finance and CFO, Thomas Beattie, Vice President, Corporate Affairs and Corporate Secretary; Alejandro Losada-Calderon, Vice President, Exploration, and David Black, Chair of the Board.  Mr. Black is independent of the Company, however, by definition, a chair of the board is considered an executive officer.  Also by definition, John Paterson, former CEO and Parkash Athwal, former CFO of the Company, are considered NEO's.

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Summary Compensation Table

		Annual Compensation			Long Term Compensation
					Awards		Payouts
Name and Principal Position	Year(1)	Salary ($)	Bonus ($)	Other Annual Compen- sation ($)	Securities Under Options granted (#)(2)	Shares or Units Subject to Resale Restric-tions ($)	LTIP Payouts ($)	All Other Compen- sation ($)
Timo Jauristo(3) Interim President & CEO and VP, Corporate Development	2007 2006 2005	nil nil nil	nil 70,000(4) 20,000(4)	120,900(4) 136,480 (4) 106,720 (4)	400,000 50,000 300,000	nil nil nil	nil nil nil	30,500(5) nil nil
John G. Paterson(6) Former President & CEO	2007 2006 2005	nil nil nil	n/a(7) n/a(7) n/a(7)	121,000(8) 217,000 (8) 194,250 (8)	nil 50,000 125,000	nil nil nil	nil nil nil	264,000(5) nil nil
Giovanni Susin(9) VP, Finance & CFO	2007 2006 2005	138,400 112,000 102,400	nil 8,000 5,000	nil nil nil	175,000 20,000 20,000	nil nil nil	nil nil nil	25,000(5) nil nil
Parkash Athwal(10) Former VP, Finance & CFO	2007 2006 2005	nil nil nil	nil 70,000(11) 50,000(11)	34,198(11) 98,050(11) 93,675(11)	nil 50,000 100,000	nil nil nil	nil nil nil	nil nil nil
W. David Black Chair of the Board	2007 2006 2005	205,000 120,000 120,000	nil nil nil	nil nil nil	400,000 40,000 50,000	nil nil nil	nil nil nil	nil nil nil
Thomas W. Beattie VP, Corporate Affairs & Corporate Secretary	2007 2006 2005	nil nil nil	nil 70,000(12) 50,000(12)	190,290(12) 139,450(12) 140,050(12)	275,000 50,000 100,000	nil nil nil	nil nil nil	25,000(5) nil nil
Alejandro Losada-Calderon(13) VP, Exploration	2007 2006 2005	nil nil nil	nil n/a n/a	167,215 n/a n/a	275,000 n/a n/a	nil nil nil	nil nil nil	24,615(5) nil nil

(1)

Southwestern did not grant any Stock Appreciation Rights (“SAR”). SAR means a right, granted by the Company as compensation for employment services or office, to receive cash or an issue or transfer of securities based wholly or in part on changes in the trading price of publicly traded securities.

(2)

Southwestern did not have any Long-Term Incentive Plans (“LTIP”). LTIP means any plan providing compensation intended to motivate performance over a period greater than one financial year. LTIP’s do not include option plans, SAR plans or plans for compensation through shares or units that are subject to restrictions on resale.

(3)

On July 4, 2007 Mr. Jauristo was appointed Interim President and CEO of Southwestern.  Mr. Jauristo is also a member of the Board of Directors.

(4)

Paid to Austgold Consulting Ltd., a private consulting company controlled by Mr. Jauristo.

(5)

Mr. Paterson was paid a severance payment in June 2007 while Messrs. Jauristo, Susin, Beattie and Losada-Calderon received retention payments in 2007.

(6)

On June 19, 2007, Mr. Paterson resigned as President, CEO and director of Southwestern.

(7)

The term n/a means not applicable.

(8)

Paid to Glengarry Resource Management Inc., a private consulting company controlled by Mr. Paterson.

(9)

Mr. Susin was appointed Vice President, Finance and CFO of Southwestern, effective May 1, 2007.

(10)

Ms. Athwal retired as Vice President, Finance and CFO of Southwestern, effective April 30, 2007.

(11)

Paid to PKA Financial Management Inc., a private consulting company controlled by Ms. Athwal.

37

(12)

Paid to Westvista Management Inc., a private consulting company controlled by Mr. Beattie.

(13)

Mr. Losada-Calderon, a consultant to the Company, was appointed an officer of the Company on February 25, 2007.

Option Grants During the Most Recently Completed Fiscal Year

The following table sets forth information concerning grants of stock options during the financial year ended December 31, 2007 to the Named Executive Officers pursuant to the rules and policies of the Toronto Stock Exchange (the “Exchange”) and in accordance with the provisions of the Business Corporations Act (British Columbia) and the Regulations thereunder.

NEO Name	Securities Under Options Granted (#)	% of Total Options Granted to Employees in Financial Year(1)	Exercise or Base Price ($/Security)	Market Value of Securities Underlying Options on the Date of Grant ($/Security)	Expiration Date
Timo Jauristo	400,000	11.1	$0.65	$0.65	December 10, 2012
David Black	400,000	11.1	$0.65	$0.65	December 10, 2012
Alejandro Losada-Calderon	275,000	7.6	$0.65	$0.65	December 10, 2012
Giovanni Susin	175,000	4.8	$0.65	$0.65	December 10, 2012
Thomas Beattie	275,000	7.6	$0.65	$0.65	December 10, 2012
John Paterson	nil	nil	nil	nil	nil
Parkash Athwal	nil	nil	nil	nil	nil

(1)

Percentage of all of the Company’s options granted during the last fiscal year, including those granted to directors.

Aggregated Option Exercises During the Most Recently Completed Financial Year and Financial Year-End

Option Values

During the last financial year ended December 31, 2007, no options were exercised by the Named Executive Officers.

Pension Plans

The Company does not provide retirement benefits for directors or executive officers.

Termination of Employment, Change in Responsibilities and Employment Contracts

The Company has entered into contracts with certain of the Named Executive Officers, or companies controlled by such Named Executive Officers, and the compensation paid pursuant to those contracts is disclosed under the section titled “Statement of Executive Compensation - Summary Compensation Table”.  

The contracts establish the terms and conditions under which the Company will compensate the Named Executive Officers or companies controlled by the Named Executive Officers for management and/or specialized exploration consulting services.  Key terms address the daily consulting rate, services to be provided, termination by either party upon 30 days notice, and obligations regarding confidentiality and non-competition with the Company.

The Company has also entered into a contract with four of the Named Executive Officers whereby, in the event that the officer ceases to be an officer of the Company within six months after the date on which control of the Company changes, the Company will pay the following amounts:  Timo Jauristo, $734,400; Thomas W. Beattie, $756,000;

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Alejandro Losada-Calderon, $660,000 and Giovanni Susin, $450,000. The contracts provide that payment of such compensation is not triggered simply by voluntary resignation or termination for cause.

Compensation of Directors

In 2007 two independent directors of the Company were each paid as follows:  James B. Hume $56,501 and William D. McCartney $125,000. Compensation paid to the other board members is disclosed under the section titled “Compensation - Summary Compensation Table” (the non-independent director, Timo Jauristo, does not receive additional compensation, and compensation paid to W. David Black, Chair, is disclosed in the Summary Compensation Table, notwithstanding he is an independent director). All of the compensation to Messrs. Hume, McCartney and Black is paid in their capacities as directors and, in the case of Mr. Black and Mr. McCartney, also as members of the Special Committee. In addition, stock options to purchase shares of the Company are granted to the Company's directors from time to time.

The following stock options were granted to the directors of the Company who were not Named Executive Officers, as a group, during the last financial year ended December 31, 2007:

Option Grants in Last Financial Year to Directors Who Are Not Named Executive Officers (as a group)

Name	Securities Under Options Granted (#)	% of Total Options Granted to Employees in Financial Year(1)	Exercise or Base Price ($/Security)	Market Value of Securities Underlying Options on the Date of Grant ($/Security)	Expiration Date
Directors who are not Named Executive Officers	650,000	18.0	$0.65	------	December 10, 2012

(1)

Percentage of all of stock options granted during the last financial year.

The following table sets forth details of all exercises of stock options during the last financial year ended December 31, 2007, by directors who are not Named Executive Officers of the Company, as a group, and the financial year-end value of unexercised stock options on an aggregated basis:

Aggregated Option Exercises in Last Financial Year and Financial Year-End Option Values of Directors Who Are Not Named Executive Officers (as a group)

During the last financial year ended December 31, 2007, no options were exercised by the directors who are not Named Executive Officers.

C.

Board Practices

Tenure of Board of Directors

Please refer to “ -- A.  Directors and Senior Management,” above, for information about terms of office and length of service of the directors of the Company.

No director of the Company is currently party to a service contract with the Company or any of its subsidiaries that provides for benefits upon termination of employment, other than Timo Jauristo, in his capacity as Interim President and Chief Executive Officer of the Company.  See above – Compensation “Termination of Employment, Change on Responsibilities and Employment Contracts.

The Company’s Audit and Compensation Committees are described below.  All of the directors on each committee are “independent” within the meaning of the corporate governance guidelines established by the TSX.  

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Audit Committee

The Audit Committee is composed of three independent and financially literate directors of the Company, James B. Hume (Committee Chair), William D. McCartney and W. David Black, each of whom has the expertise to understand and evaluate financial statements that are prepared using both US and Canadian Generally Accepted Accounting Principles, the principles applied to natural resource companies’ financial statements and the internal controls required to accurately report the Company’s financial position. Mr. Hume and Mr. McCartney are considered to be financial experts and have been designated by the board as the “Audit Committee Financial Experts” as that term is defined under Section 407 of the Sarbanes-Oxley Act of 2002.  The Audit Committee is appointed by the Board of Directors and its members hold office until removed by the Board of Directors or until the next annual shareholders meeting of the Company, at which time their appointments expire and they are eligible for reappointment.

The primary function of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities by reviewing the financial information to be provided to the shareholders and others, the systems of internal controls and management information systems established by management and the Company’s internal and external audit process and monitoring compliance with the Company's legal and regulatory requirements with respect to its financial statements.  The Audit Committee also evaluates the performance of the Company’s auditors, pre-approves all audit and non-audit services provided by the auditors and establishes the remuneration of the auditors.

Compensation Committee

The Company’s Compensation Committee, which administers the Company’s executive compensation program, is composed of W. David Black, William D. McCartney and James B. Hume. Mr. Black is the Chair of the Committee.  The Committee is responsible for making recommendations to the Board with respect to the compensation of executive officers of the Company as well as with respect to the Company’s stock option plan.  The Committee also assumes responsibility for reviewing and monitoring the long-range compensation strategy for the senior management of the Company.

D.

Employees

The average number of total employees for 2007, 2006 and 2005 is as follows:

Year	Employees
	Full-Time	Seasonal
2007	117	91
2006	112	215
2005	94	173

None of the Company’s employees are unionized.  The number of seasonal employees fluctuates depending on the size and timing of the Company’s exploration programs.  

E.

Share Ownership

Each of the persons listed (or whose compensation is otherwise disclosed) in subsection 6.B above owns less than 1% of the shares of the Company.

The following table sets forth the share ownership of those persons listed as at December 31, 2007 (or whose compensation is otherwise disclosed) in subsection 6B above, and includes details of all options to purchase shares of the Company held by such persons:

40

Name	Number of common shares(1)	Number of Options/Warrants	Beneficial Ownership Percentage(2)	Purchase Price of Options (if any)	Exercise Price	Expiry Date
W. David Black	37,000	400,000	< 1%	n/a	$0.65	December 10, 2012
Timo Jauristo	nil	300,000	< 1%	n/a	$0.65	December 10, 2012
William D. McCartney	nil	400,000	< 1%	n/a	$0.65	December 10, 2012
James B. Hume	10,000	260,000	< 1%	n/a	$0.65	December 10, 2012
Thomas W. Beattie	15,660	275,000	< 1%	n/a	$0.65	December 10, 2012
Giovanni Susin	nil	175,000	< 1%	n/a	$0.65	December 10, 2012
Alex Losada-Calderon	nil	275,000	< 1%	n/a	$0.65	December 10, 2012

(1)   Includes beneficial, direct and indirect shareholdings.

(2)   Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission.  In computing the number of shares owned by a person and the percentage ownership of that person, common shares subject to options or warrants (if any) held by that person that are currently exercisable or exercisable within 60 days of the ownership calculation date, are deemed outstanding.  Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person.  This table has been prepared based on 44,922,936 common shares outstanding as of December 31, 2007.

Stock Option Plan

The Company’s current stock option plan (the “Plan”), as approved by the shareholders on May 7, 2007 and by the Toronto Stock Exchange on May 25, 2007.

1.

The Plan is a ‘rolling’ or ‘evergreen’ stock option plan under which the aggregate number of common shares that may be subject to option at any one time may not exceed 10% of the issued and outstanding shares of the Company as of that date, including shares issued as a result of the exercise of options.  Ten percent of the 44,922,936 currently issued and outstanding shares of the Company is 4,492,293.  

2.

Under the Plan, the Board of Directors is authorized to designate persons to whom options could be granted. Currently, employees, directors and officers of and service providers to the Company and its subsidiaries are eligible participants in the Plan (“Eligible Participants”).

3.

As of March 20, 2008, the total number of shares that have been approved by the Exchange for issuance under the Plan and all of the Company’s prior stock option plans is 4,433,617 (less than 10% of the 44,922,936 issued and outstanding shares), of which 3,617,000 options have been granted, representing 8.05% of the Company’s issued and outstanding shares, and 816,617 remain reserved for issuance but not yet granted.

4.

The Plan provides that under no circumstances shall the Plan, together with all of the Company's other previously established or proposed stock options, stock option plans, employee stock purchase plans or any other compensation or incentive mechanisms involving the issuance or potential issuance of shares, result, at any time, in:  (i) the number of shares reserved for issuance pursuant to stock options granted to insiders exceeding 10% of the issued and outstanding shares; (ii) the issuance to insiders, within a one year period, of a number of shares exceeding 10% of the issued and outstanding shares; or (iii) the issuance to any one insider and such insider's associates, within a one year period, of a number of shares exceeding 5% of the issued and outstanding shares.

5.

The exercise price for an option granted under the Plan is the “market price”, which is the volume weighted average trading price for the last five trading days on which the Company’s shares traded prior to the date of grant of options.  The Company presently does not have a share purchase plan and nor does it grant stock appreciation rights.

6.

Options granted have a vesting period if required by the Board or the Exchange policies.  The Board has imposed a schedule, which is not part of the Plan, on the vesting of options for all options granted.

41

7.

Options may not be granted for a term exceeding 10 years.

8.

Options granted under the Plan may not be assigned by the optionee other than by will or pursuant to the laws of succession, and to a trust, RESP or RRSP or similar legal entity established by the optionee.

9.

If the optionee ceases to be an Eligible Participant for any reason other than death, then such optionee has the lesser of 90 days, which date will be extended to the date that is ten days after the end of a Blackout Period, if applicable or until the expiry date of the options within which to exercise any option vested not exercised prior to the date of ceasing to be an Eligible Participant.  Where, however, the employment or service contract with an optionee is terminated (i) without a valid cause, the Board may, in its discretion, amend the terms of any option held by such optionee to permit such person to exercise any or all of such options as if such optionee’s employment or engagement had not been terminated and (ii) for cause, the Board may, in its discretion, amend the terms of any options held by such optionee which have not been previously exercised such that the options will only be exercisable on the next five (5) business days following the date of personal delivery of a written notice of termination to the optionee.  A Blackout Period is imposed by the Company, when no optionee may exercise options.

In the event of death of an optionee, options held by such optionee may be exercised until the earlier of the expiry date of such options or one year from the date of death, which date will be extended to the date that is ten days after the end of a Blackout Period, if applicable after which the options terminate.

10.

Options will be adjusted in the event of any consolidation or subdivision of shares or the declaration of a dividend.  In the event of a take-over bid or a change of control, as defined in the Plan, the Options become vested and exercisable in accordance with the terms of the 2005 Plan.

ITEM 7

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.

Major Shareholders

To the knowledge of the directors and executive officers of the Company, only the following persons or companies beneficially own, directly or indirectly, or exercise control or direction over shares carrying 5% or more of the voting rights attached to all outstanding shares of the Company which have the right to vote in all circumstances, as at March 20, 2008:

Name	Number of Shares	Percentage of Outstanding Shares
John G. Paterson(1)	8,058,250	17.73%

    (1)    Based solely on the Company’s review of the public record, 789,250 shares are owned directly by John G. Paterson and  7,269,000 shares are owned by Global Gold Corporation, a private Ontario corporation ("Global").  Public records also indicate that John G. Paterson is president of Global and owns indirectly and/or exercises control or direction over the shares of the Company held by Global.

The shareholder identified above does not have special rights with respect to their common shares beyond those rights accorded all shareholders of the Company’s common shares.

As of February 29, 2008, there were 44,922,936 common shares of the Company issued and outstanding.  Based on the records of the Company’s registrar and transfer agent, Computershare Investor Services Inc. of Vancouver, Canada, as at such date there were 63 registered holders of the Company’s common shares resident in the United States, holding 5,654,996 common shares.  This number represents approximately 12.58% of the total issued and outstanding common shares of the Company as at February 29, 2008.

To the best of the Company’s knowledge, and from its review of the public record, the Company is not directly or indirectly controlled by another corporation, a foreign government or any other natural or legal persons severally or jointly and no stockholder owns more than five percent (5%) of its voting stock except as set forth above.  

42

The Company is not aware of any arrangements the operation of which may at a subsequent date result in a change of control of the Company.

B.

Related Party Transactions

Listed below are the only material transactions that were effected (or are proposed) since the beginning of the last three financial years between the Company or any of its subsidiaries and:

(a)

enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, the Company;

(b)

associates;

(c)

individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the Company, and close members of any such individual’s family;

(d)

key management personnel, that is, those persons having authority and responsibility for planning, directing and controlling the activities of the Company, including directors and senior management of companies and close members of such individuals’ families; and

(e)

enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence including enterprises owned by directors or major shareholders of the Company and enterprises that have a member of key management in common with the Company.

The Company or its subsidiaries is currently a party to consulting agreements with companies controlled by each of Timo Jauristo, Interim President and Chief Executive Officer and, Thomas W. Beattie, Corporate Secretary and VP Corporate Affairs, and with Alejandro Losada-Calderon, the Vice President Exploration. For further information about these agreements, please see “Item 6.  Directors, Senior Management and Employees -- B.  Compensation --Termination of Employment, Change in Responsibilities and Employment Contracts”.

No officer or director of the Company, or any associate of such person, was indebted to the Company at any time during the fiscal years ended December 31, 2007, 2006 or 2005.

C.

Interests of Experts and Counsel

This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.

ITEM 8

FINANCIAL INFORMATION

A.

Consolidated Statements and Other Financial Information

This Annual Report contains the audited consolidated financial statements of the Company for the years ended December 31, 2007, 2006 and 2005, including an Audit Report dated March 17, 2008.  The following financial statements are included:  Consolidated Balance Sheets as at December 31, 2007 and 2006; Consolidated Statements of Loss and Deficit for the Fiscal Years Ended December 31, 2007, 2006 and 2005; and Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 2007, 2006 and 2005.  Also included are Notes to the Consolidated Financial Statements for the Fiscal Years Ended December 31, 2007, 2006 and 2005.  The Company’s consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles.  Except as described in Note 17 to the consolidated financial statements, there are no material differences, for the purposes of these financial statements, betw een accounting principles generally accepted in Canada and the United States.

43

Legal Proceedings

On July 19, 2007, the Company disclosed that its special committee of independent directors, formed to review all aspects of the Boka Project, had determined that there were deficiencies in the Company's control procedures at the Boka Project which resulted in errors in previously reported assay results.  Furthermore, the review indicated that the integrity of certain stored drill core samples had been compromised.  As a consequence, the Company withdrew all of its previously announced results for the Boka Project and conducted a detailed review.  As a result of this review, a new Technical Report for the Boka Project was filed on SEDAR on November 9, 2007 and included a completed Inferred Mineral Resource estimate based on composited drill hole assay data from the reconstructed and validated assay database for the project. The Technical Report indicated that there is upside potential to the Boka Project and that the exploration concession s and mining licenses that make up the Boka Project are in good standing.  

As a result of the developments on the Boka Project, the Company, along with John Paterson, former President and CEO of Southwestern, have been named as defendants in three prospective class action lawsuits filed in Ontario, Quebec and British Columbia by certain shareholders of the Company, claiming as much as $320 million in damages.  The lawsuits, brought in 2007 on behalf of shareholders who purchased the Company's common shares, allege primarily that the defendants negligently or recklessly misrepresented drilling results and other data and information relating to the Boka Project.  The lawsuit is at a very early stage and as a result the Company is not able to estimate the potential loss exposure.  The Company will vigorously defend the matter, although no assurances can be given with respect to the outcome of such proceedings.  

In August 2007, the Company filed a lawsuit against John Paterson for, among other things, fraud, breach of fiduciary, statutory and contractual duties and insider trading.  The Company is seeking to recover all damages and losses caused to the Company.  In addition, in September and October 2007 the Company obtained injunctions from the Supreme Court of British Columbia which enjoined John Paterson, his wife and his affiliated Company, Glengarry Resource Management Inc., from dealing with their assets except as provided in the injunctions.  The Company is also working with its legal counsel in China to pursue all remedies against its former general manager for the Boka Project, John Zhang, relating to similar claims.

Dividend Policy

The Company has not paid any dividends on its Common Shares and has no dividend policy with respect to the payment of dividends.

B.

Significant Changes

No significant change has occurred since the date of the annual financial statements included in this Annual Report on Form 20-F.  

ITEM 9

THE OFFER AND THE LISTING

A.

Offer and Listing Details

The common shares of the Company have been listed for trading on The Toronto Stock Exchange (the “TSX”) since May 31, 1994.  The Company has one class of shares.  The following table sets out the annual high and low market prices of the common shares on the TSX during the five most recent full fiscal years through December 31, 2007:

	TSX	TSX
	HIGH (Cdn. $)	LOW (Cdn. $)
2003	20.43	3.23
2004	21.50	9.70
2005	12.57	7.25
2006	15.95	7.04
2007	8.66	0.50

44

The following table sets out the market price range of the common shares on the TSX for the last two fiscal years by fiscal quarter:

	TSX	TSX
	HIGH (Cdn. $)	LOW (Cdn. $)
2006
First Quarter	15.95	12.75
Second Quarter	15.35	8.16
Third Quarter	10.60	8.32
Fourth Quarter	10.00	7.04
2007
First Quarter	8.66	7.10
Second Quarter	8.20	5.51
Third Quarter	6.40	0.98
Fourth Quarter	1.04	0.50

The following table sets out the high and low market prices of the common shares on the TSX for the last six months:

	TSX	TSX
	HIGH (Cdn. $)	LOW (Cdn. $)
September 2007	1.28	0.98
October 2007	1.04	0.90
November2007	0.94	0.57
December2007	0.69	0.50
January2008	0.71	0.50
February 2008	0.61	0.47

On March 17, 2008, the closing price of the common shares on the TSX was Cdn. $0.50.

B.

Plan of Distribution

This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.

C.

Markets

The Company’s common shares are listed for trading on the TSX.

D.

Selling Shareholders

This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.

E.

Dilution

This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.

45

F.

Expenses of the Issue

This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.

ITEM 10

ADDITIONAL INFORMATION

A.

Share Capital

This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.

B.

Memorandum and Articles of Association

1.  The Company’s objects and purposes as set forth in its Memorandum and Articles:

In 2004, British Columbia adopted the Business Corporations Act (the “BCBCA”), which replaced the Company Act.  Under the BCBCA, a Memorandum is now called a “Notice of Articles”.  The Company has taken the necessary steps to bring its charter documents into conformity with the BCBCA and to that end has filed its Notice of Articles, with replaces the Company’s “Memorandum”, with the Registrar of Companies.  The Company’s Notice of Articles and Articles (the “Articles”) are silent as to the Company’s objects and purposes.

2.  Matters relating to Directors of the Company:

(a) Director’s power to vote on a proposal, arrangement or contract in which the director is materially interested:

Under the Articles a director is not allowed to vote on a proposal, arrangement, contract or transaction in which the director is materially interested, unless all the directors have a disclosable interest, in which case any or all of those directors may vote on such resolution.

(b) Directors’ power, in the absence of an independent quorum, to vote compensation to themselves or any members of their body:

Article 13.3 provides that “The directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine. If the directors so decide, the remuneration of the directors, if any, will be determined by the shareholders. That remuneration may be in addition to any salary or other remuneration paid to any officer or employee of the Company as such, who is also a director.”

(c) Borrowing powers exercisable by the directors and how such borrowing powers can be varied:

Article 8 addresses the borrowing powers of the directors:

The Directors may, from time to time on behalf of the Company:  (1) borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate; (2) issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person and at such discounts or premiums and on such other terms as they consider appropriate; (3) guarantee the repayment of money by any other person or the performance of any obligation of any other person; and (4) mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of the Company.

46

(d) Retirement of directors under an age limit requirement:

The Company’s Articles are silent with regard to the retirement or non-retirement of directors under an age limit requirement.

(e) Number of shares, if any, required for qualification:

Article 13.4 states that “a Director is not required to hold a share in the capital of the Company as qualification for his or her office but must be qualified as required by the BCBCA , to become, act, or continue to act as a Director.”

3.  Rights, preferences and restrictions attaching to each class of shares:

The rights, preferences and restrictions attaching to each class of the Company’s shares are as follows:

Common Shares

The holders of Common Shares are entitled to receive notice of, and attend and vote at, all meetings of shareholders of the Company. Each Common Share carries the right to one vote and all the shares rank equally as to voting.  The holders of Common Shares are entitled to dividends, if and when declared by the Board of Directors.  There are no conversion rights, special liquidation rights, pre-emptive rights, subscription rights, redemption or retraction rights attached to the Common Shares.  In the event of liquidation, dissolution or winding up of the Company, the holders of Common Shares shall be entitled to receive, on a prorated basis, all of the assets remaining after the Company has paid its liabilities. The Company may, by resolution of the Board of Directors and in compliance with the BCA, purchase any of its shares at the price and upon the terms specified in the resolution. Upon liquidation, dissolution or wi nding up of the Company, holders of common stock are entitled to receive pro rata the assets of Company, if any, remaining after payments of all debts and liabilities.  No shares have been issued subject to call or assessment.  There are no pre-emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds.

4.  Actions necessary to change the rights of holders of the Company’s shares:

The Company may:

(1)

by directors' resolution or by ordinary resolution, in each case as determined by the directors:

(a)

create one or more classes or series of shares or, if none of the shares of a class or series of shares are allotted or issued, eliminate that class or series of shares;

(b)

increase, reduce or eliminate the maximum number of shares that the Company is authorized to issue of any class or series of shares or establish a maximum number of shares that the Company is authorized to issue out of any class or series of shares for which no maximum is established;

(c)

subdivide or consolidate all or any of its unissued, or fully paid issued, shares;

(d)

if the Company is authorized to issue shares of a class of shares with par value:

(i)

decrease the par value of those shares; or

(ii)   if none of the shares of that class of shares are allotted or issued, increase the par value of those shares;

(e)

change all or any of its unissued shares with par value into shares without par value or any of its unissued shares without par value into shares with par value or change all or any of its fully paid issued shares with par value into shares without par value; or

(f)

alter the identifying name of any of its shares; and

47

(2)

by ordinary resolution otherwise alter its shares or authorized share structure.

The Company, save as otherwise provided by the Articles and subject to the BCBCA, may:

(1) By directors’ resolution or by ordinary resolution, in each case as determined by the directors, authorize alterations to the Articles that are procedural or administrative in nature or are matters that pursuant to the Articles are solely within the directors’ powers, control or authority; and

(2) If the BCBCA does not specify the type of resolution and the Articles do not specify another type of resolution, the Company may by ordinary resolution alter the Articles.

5.  Conditions governing manner in which annual general meetings and extraordinary general meetings of shareholders are convoked, including conditions of admission:

The Company must hold a general meeting of shareholders at least once every calendar year at a time determined by the Board of Directors, but not later than 15 months after its last annual reference date. The Board of Directors may convene an extraordinary general meeting at any time. The Board of Directors must convene an extraordinary general meeting also upon requisition by the Company’s shareholders in accordance with the BCBCA. A shareholders’ requisition for an extraordinary general meeting must state the objects of the meeting requested and be signed by the requisitioning shareholders and deposited at the registered office of the Company. All shareholder meetings of the Company must be held in British Columbia, or at a place out of British Columbia approved by the Registrar.

At least 21 days’ notice of a shareholders meeting must be given to the shareholders entitled to attend the general meeting, specifying the place, day and hour of the meeting, and when special business is to be considered, the general nature of that business. Only shareholders of record on the record date fixed by the directors in accordance with the Act will be entitled to receive notice of, and to attend and vote at, a general meeting.

No business shall be transacted at any general meeting unless the requisite quorum is present at the commencement of the meeting. The quorum for the transaction of business at a general meeting is one person present in person, or represented by proxy.

6.  Limitations on rights to own securities of the Company:

There are no limitations upon the rights to own securities, except pursuant to the Company’s Shareholder Rights Plan, as described below.

The Investment Canada Act (the “ICA”) enacted on June 20, 1985, as amended by the Canada-United States Free Trade Agreement Implementation Act (Canada), requires the  notification and, in certain cases, advance review and approval by the Government of Canada of the acquisition by a “non-Canadian” of “control” of a “Canadian business,” all as defined in the ICA. For the purposes of the ICA, “control” can be acquired through the acquisition of all or substantially all of the assets used in carrying on the Canadian business, or the direct or indirect acquisition of interests in an entity that carries on a Canadian business or which controls the entity, which carries on the Canadian business. Under the ICA, control of a corporation is deemed to be acquired through the acquisition of a majority of the voting shares of a corporation, and is presumed to be acquired where one third or more, but less than a majori ty, of the voting shares of a corporation are acquired, unless it can be established that the corporation is not controlled in fact by the acquirer through the ownership of voting shares. Other rules apply with respect to the acquisition of non-corporate entities.

To the best of the Company’s knowledge, there are no governmental laws, decrees or regulations in Canada relating to restriction on the import/export of capital, or which affect the remittance of interest, dividends, or other payments to non-resident holders of the Company’s common stock. Any such remittance to United States’ residents, however, is subject to a 15% withholding tax pursuant to Articles X, Xl, and XII of the reciprocal Canada-United States Income Tax Convention. Except for the ICA, there are no limitations under the laws of Canada, the Province of

48

British Columbia, or in the Charter or any other constituent documents of the registrant on the rights of foreigners to hold and/or vote the shares of the registrant. The provisions of the ICA provide legislative guidelines for screening and evaluating new foreign investment in Canada. The purpose of the legislation is to:

a.

encourage investment in Canada that contributes to economic growth and employment; and

b.

provide for the review of significant investments in Canada by non-Canadians to ensure such benefit to Canada.

All investments that meet the following criteria are subject to a review:

a.

direct acquisition of control of an existing Canadian business with assets of $5 million or more by a non-WTO investor;

b.

indirect acquisition of an existing Canadian business with assets of $50 million or more by a non-WTO investor;

c.

indirect acquisition of control of an existing Canadian business with assets of $5 million or more where the assets of the Canadian business being acquired exceed 50% of the total assets involved in the worldwide transaction;

d.

direct acquisition of control of an existing Canadian business with assets of $295 million or more by a WTO investor; and

e.

investments in prescribed areas related to cultural heritage or national identity where the discretionary authority to review is exercised.

Except as provided in the ICA, there are no limitations under the laws of Canada, the Province of British Columbia or in any constituent documents of the Company on the right of non-Canadians to hold or vote the common shares of the Company.

Shareholder Rights Plan

The Directors adopted and approved a shareholder rights plan agreement dated as of July 23, 2007 between the Corporation and Computershare which became effective the same day (the "Rights Plan").  The Rights Plan was implemented to ensure, to the extent possible, that all Shareholders are treated equally and fairly in connection with any take-over bid for the Corporation. The Rights Plan is designed, among other things, to prevent a creeping take-over of the Corporation and preserve its ability to obtain the best value for all Shareholders.  Under the terms of the Rights Plan and in accordance with applicable stock exchange rules, Shareholders ratified and confirmed the Rights Plan at a meeting dated January 23, 2008.

Objectives of the Rights Plan

The principal objectives of the Rights Plan are to ensure that in the context of a bid for control of the Corporation through an acquisition of the Corporation's Shares, the Directors have sufficient time to consider alternatives for maximizing Shareholder value, to provide adequate time for competing bids to emerge, to ensure that Shareholders have an equal opportunity to participate in such a bid and to give Shareholders adequate time to properly assess the bid and reduce the pressure to tender typically encountered by a shareholder of an issuer that is subject to a bid.

In adopting the Rights Plan, the Directors considered the following issues which exist in the current legislative framework governing take-over bids in Canada:

(a)

Time.  Securities legislation permits a take-over bid to expire in 35 days.  The Directors view this period as insufficient to allow Shareholders to adequately consider a take-over bid and to make a reasoned and unhurried decision.  The Rights Plan provides a mechanism whereby the minimum expiry period for a take-over bid must be 60 days after the date of the bid and securities tendered or deposited to the bid can only be taken up or paid for if at such date more than 50% of the Shares outstanding held by Independent Shareholders (generally, Shareholders other than the Offeror or Acquiring Person (someone who beneficially owns more than 20% of the outstanding Shares), their Associates and Affiliates, and Persons acting jointly or in concert with the Offeror or Acquiring Person) have been deposited or tendered.  The

49

Rights Plan is intended to provide Shareholders with adequate time to properly evaluate an offer and to provide the Directors with sufficient time to consider alternatives for maximizing Shareholder value.  Those alternatives could include, if deemed appropriate by the Directors, the identification of other potential bidders, the conducting of an orderly auction or the development of a restructuring alternative which could enhance Shareholder value.

(b)

Pressure to Tender.  A Shareholder may feel compelled to tender to a bid that the Shareholder considers to be inadequate out of a concern that failing to tender may result in the Shareholder being left with illiquid or minority discounted securities in the Corporation.  This is particularly so in the case of a partial bid for less than all securities of a class, where the bidder wishes to obtain a control position but does not wish to acquire all of the Shares.  The Rights Plan provides a mechanism in the Permitted Bid provision which is intended to ensure that a Shareholder can separate the tender decision from the approval or disapproval of a particular take-over bid.  By requiring that a bid remain open for acceptance for a further ten Business Days following public announcement that more than 50% of the Shares held by Independent Shareholders have been deposited, a Shareholder's decision to accept a bid i s separated from the decision to tender, reducing the undue pressure to tender typically encountered by a securityholder of an issuer that is the subject of a take-over bid.

(c)

Unequal Treatment.  While existing securities legislation has substantially addressed many concerns of unequal treatment, there remains the possibility that control of an issuer may be acquired pursuant to a private agreement in which a small group of securityholders dispose of their securities at a premium to market price which premium is not shared with other securityholders.  In addition, a person may slowly accumulate securities through stock exchange acquisitions which may result, over time, in an acquisition of control without payment of fair value for control or a fair sharing of a control premium among all securityholders.  The Rights Plan addresses these concerns by applying to all acquisitions of greater than 20% of the Shares, to better ensure that Shareholders receive equal treatment.

General Impact of the Rights Plan

The Rights Plan is not intended to secure the continuance of existing Directors or management in office, nor to avoid a bid for control of the Corporation in a transaction that is fair and in the best interests of Shareholders.  For example, through the Permitted Bid mechanism, Shareholders may tender to a bid which meets the Permitted Bid criteria without triggering the Rights Plan, regardless of the acceptability of the bid to the Directors.  Furthermore, even in the context of a bid that does not meet the Permitted Bid criteria, the Directors will continue to be bound to consider fully and fairly any bid for the Corporation's Shares in any exercise of its discretion to waive application of the Rights Plan or redeem the Rights.  In all such circumstances, the Directors must act honestly and in good faith with a view to the best interests of the Corporation.

The Rights Plan does not preclude any Shareholder from utilizing the proxy mechanism to promote a change in the management or direction of the Corporation, and has no effect on the rights of holders of outstanding Shares of the Corporation to requisition a meeting of Shareholders in accordance with the provisions of the Corporation's governing documents and securities legislation, or to enter into agreements with respect to voting their Shares.  The definitions of "Acquiring Person" and "Beneficial Ownership" have been developed to minimize concerns that the Rights Plan may be inadvertently triggered or triggered as a result of an overly-broad aggregating of holders of institutional Shareholders and their clients.

The Rights Plan will not interfere with the day-to-day operations of the Corporation.  The issuance of the Rights does not in any way alter the financial condition of the Corporation, impede its business plans or alter its financial statements.  In addition, the Rights Plan is initially not dilutive and is not expected to have any effect on the trading of Shares.  However, if a Flip-In Event occurs and the Rights separate from the Shares, as described in the summary, reported earnings per Shares and reported cash flow per Shares on a fully-diluted or non-diluted basis may be affected.  In addition, holders of Rights not exercising their Rights after a Flip-In Event may suffer substantial dilution.

In summary, the dominant effect of the Rights Plan will be to enhance Shareholder value and ensure equal treatment of all Shareholders in the context of an acquisition of control of the Corporation.

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7.  Provisions of Company’s articles, charter or by-laws that have the effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition, or corporate restructuring involving the Company:

There are no provisions that would have the effect of delaying, deferring, or preventing a change in control of the Company.

8.  Provisions governing the ownership threshold above which shareholder ownership must be disclosed:

The British Columbia Securities Act provides that a person that has direct or indirect beneficial ownership of, control or direction over, or a combination of direct or indirect beneficial ownership of, and of control or direction over, securities of the issuer carrying more than 10% of the voting rights attached to all the issuer’s outstanding voting securities must, within 10 days of becoming an “insider”, file an insider report in the required form effective the date on which the person became an insider, disclosing any direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer. The British Columbia Securities Act also provides for the filing of a report by an “insider” of a reporting issuer who acquires or transfers securities of the issuer.  This insider report must be filed within 10 days of the date that the security is acquired.

The U.S. rules governing the ownership threshold above which shareholder ownership must be disclosed are more stringent than those under the British Columbia Securities Act.  Section 13 of the Exchange Act imposes reporting requirements on persons who acquire beneficial ownership (as such term is defined in the Rule 13d-3 under the Exchange Act) of more than 5 per cent of a class of an equity security registered under Section 12 of the Exchange Act.  In general, such persons must file, within 10 days after such acquisition, a report of beneficial ownership with the Securities and Exchange Commission containing the information prescribed by the regulations under Section 13 of the Exchange Act.  This information is also required to be sent to the issuer of the securities and to each exchange where the securities are traded.

C.

Material Contracts

Following is a summary of each material contract, other than contracts entered into the ordinary course of business, to which the Company is a party, during the previous two fiscal years:

Except for contracts entered into in the ordinary course of business, the following are the only material contracts entered into by the Company or its subsidiaries that are in effect:

1.

Escrow Agreement (the "Escrow Agreement") dated June 1, 2006 among the Company, Computershare Investor Services Inc. (the "Escrow Agent") and Zincore Metals Inc. (“Zincore”).  Pursuant to the Escrow Agreement, Southwestern, as a principal shareholder of Zincore, agreed to deposit in escrow its securities of the Zincore (the "Escrowed Securities") with the Escrow Agent. The Escrow Agreement provides that the Escrowed Securities will be released from escrow in equal tranches at six-month intervals over the 18 months following the listing of the Zincore common shares on the TSX which occurred on November 8, 2006 (that is, 25% of Southwestern’s holdings being released in each tranche, with an initial 25% tranche being released on the date of the closing of the IPO and the final tranche on April 7, 2008).

2.

Lock-Up Agreement dated September 5, 2006 between the Company, Computershare Investor Services Inc. as third party escrow agent, and Zincore whereby 34,000,000 common shares of Zincore owned by Southwestern are restricted from resale until November 7, 2008, subject to certain exceptions.

3.

Shareholder Rights Plan Agreement dated 23 January 2008 between the Company and Computershare Investor Services Inc.

4.

The following are consulting agreements and change of control agreements, general summaries of which are contained in Item 6- Directors, Senior Management and Employees, B. Compensation, Termination of Employment, Change in Responsibilities and Employment Contracts.

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a.

Consulting Agreement between the Company and Austgold Consulting Ltd. dated April 1, 2007 and amended November 2, 2007.

b.

Consulting Agreement between the Company and Westvista Management Inc. dated April 1, 2007.

c.

Consulting Agreement between the Company’s wholly owned subsidiary Southwestern Gold (Bermuda) Ltd. and Alejandro Losada-Calderon dated February 23, 2007.

d.

Change of Control Agreement between the Company and Timo Jauristo dated April 1, 2007.

e.

Change of Control Agreement between the Company and Thomas W. Beattie dated April 1, 2007.

f.

Change of Control Agreement between the Company and Alejandro Losada-Calderon dated February 25, 2007.

g.

Change of Control Agreement between the Company and Giovanni Susin dated May 1, 2007.

D.

Exchange Controls

Canada has no system of exchange controls.  There are no exchange restrictions on borrowing from foreign countries or on the remittance of dividends, interest, royalties and similar payments, management fees, loan repayments, settlement of trade debts or the repatriation of capital.

E.

Taxation

Canadian Federal Income Tax Consequences  

The following discussion is a summary of the principal Canadian federal income tax considerations generally applicable to purchasers of the Company’s Common Shares who, for purposes of the Income Tax Act (Canada) and Income Tax Regulations (the “Canadian Act”), deal at arm’s length with the Company, hold Common Shares as capital property, are not residents of Canada at any time when holding Common Shares, and do not use or hold and are not deemed to use or hold Common Shares in or in the course of carrying on business in Canada and, in the case of insurers who carry on an insurance business in Canada and elsewhere, do not hold Common Shares that are effectively connected with an insurance business carried on in Canada.  Such a purchaser is referred to in this discussion as a “shareholder”.

This summary is based on the current provisions of the Canadian Act and the Canada-United States Income Tax Convention (1980) (the “Treaty”) as amended.  This summary takes into account specific proposals to amend the Canadian Act publicly announced by the Minister of Finance prior to the date hereof and the Company’s understanding of the current published administrative and assessing practices of Revenue Canada, Taxation.  This summary does not take into account Canadian provincial income tax law or the income tax laws of any country other than Canada.

A shareholder of the Company will generally not be subject to tax pursuant to the Canadian Act on a capital gain realized on a disposition of Common Shares unless the Common Shares are “taxable Canadian property” to the shareholder for purposes of the Canadian Act and the shareholder is not eligible for relief pursuant to an applicable bilateral tax treaty.  The Common Shares will not be taxable Canadian property to a shareholder provided that the Company is listed on a prescribed Canadian or foreign stock exchange within the meaning of the Canadian Act and provided that such shareholder, or persons with whom such shareholder did not deal at arm’s length (within the meaning of the Canadian Act), or any combination thereof, did not own 25% or more of the issued shares of any class or series of the Company at any time within five years immediately preceding the date of disposition.  In addition, the Treaty will generally exempt a s hareholder who is a resident of the United States for purposes of the Treaty from tax in respect of a disposition of Common Shares provided that the value of the shares of the Company is not derived (directly or indirectly) principally from a real property interest (including resource property) situated in Canada.

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Under the Canadian Act, a disposition of shares that constitute taxable Canadian property will give rise to a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition of such shares, net of any disposition costs, exceeds (or is less than) the adjusted cost base of such shares to the shareholder.  Generally, unless exempt under an applicable bilateral tax treaty, one half of any such capital gain realized by the shareholder on a disposition or deemed disposition of such shares is included in computing his Canadian income tax for that year as a taxable capital gain.  One half of any capital loss realized by a shareholder on a disposition or deemed disposition of such a share in a taxable year may generally be deducted from his Canadian taxable capital gains for that year.

Under the Canadian Act, the disposition of a share by a shareholder may occur or be deemed to occur in a number of circumstances including on a sale or gift of such share or upon the death of the shareholder.

The initial adjusted cost base of a share to a shareholder will be the cost to him of that share.  Under the Canadian Act, certain additions to or reductions of the cost of a share may be required from time to time.  The adjusted cost base of each share of a corporation owned by a shareholder at any particular time will be the average adjusted cost base to him of all shares of the same class of that corporation owned by him at that time.

Any dividend, including stock dividends, paid or credited, or deemed to be paid or credited, by the Company to or for the benefit of a shareholder will be subject to Canadian withholding tax at the rate of 25% on the gross amount of the dividend, subject to the provisions of any applicable bilateral income tax treaty.  Pursuant to the Treaty, the rate of withholding tax generally will be reduced to 15% in respect of dividends paid to a shareholder who is a resident of the United States for purposes of the Treaty.  The rate of withholding is further reduced to 5% if the beneficial owner of the shares is a corporation that is a resident of the United States for purposes of the Treaty and owns at least 10% of the voting shares of the Company.

United States Federal Income Tax Consequences

NOTICE PURSUANT TO IRS CIRCULAR 230:  NOTHING CONTAINED IN THIS SUMMARY CONCERNING ANY U.S. FEDERAL TAX ISSUE IS INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, BY A NON-U.S. HOLDER (AS DEFINED BELOW), FOR THE PURPOSE OF AVOIDING U.S. FEDERAL TAX PENALTIES UNDER THE CODE (SEE DEFINITION BELOW).  THIS SUMMARY WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED BY THIS DOCUMENT.  EACH NON-U.S. HOLDER SHOULD SEEK U.S. FEDERAL TAX ADVICE, BASED ON SUCH NON-U.S. HOLDER’S PARTICULAR CIRCUMSTANCES, FROM AN INDEPENDENT TAX ADVISOR.

The following is a general discussion of the material U.S. federal income tax consequences, under current law, which may be applicable to a U.S. Holder (as defined below) of Common Shares of the Company.  This discussion does not address all potentially relevant U.S. federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of U.S. federal income tax law, such as those described below as excluded from the definition of a U.S. Holder.  In addition, this discussion does not cover any state, local or foreign tax consequences.  (See “ Canadian Federal Income Tax Consequences” above.)

The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended to the date hereof (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time.  In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any future legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.  

This discussion is for general information only and it is not intended to be, nor should it be construed to be, legal or tax advice to any U.S. Holder or prospective U.S. Holder of common shares of the Company, and no opinion or representation with respect to the U.S. federal income tax consequences to any such U.S. Holder or prospective U.S. Holder is made.  Accordingly, U.S. Holders and prospective U.S. Holders of common shares of the Company should

53

consult their own financial advisor, legal counsel, or accountant regarding the U.S. federal, state, local and foreign tax consequences of purchasing, owning and disposing of common shares of the Company.

U.S. Holders

As used herein, a “U.S. Holder” is a holder of Common Shares of the Company who or which is a citizen or individual resident (or is treated as a citizen or individual resident) of the United States for U.S. federal income tax purposes, a corporation or partnership created or organized (or treated as created or organized for federal income tax purposes) in or under the laws of the United States or any political subdivision thereof, or a trust or estate the income of which is includable in its gross income for U.S. federal income tax purposes without regard to its source, if, (i) a court within the United States is able to exercise primary supervision over the administration of the trust and (ii) one or more United States trustees have the authority to control all substantial decisions of the trust.  For purposes of this discussion, a U.S. Holder does not include persons subject to special provisions of U.S. federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers and Holders who acquired their stock through the exercise of employee stock options or otherwise as compensation, persons subject to the alternative minimum tax, and persons who own their common shares of the Company other than as a capital asset within the meaning of Section 1221 of the Code.

Distributions on Common Shares of the Company

Subject to the provisions of U.S. tax laws relating to passive foreign investment companies (PFICs) and controlled foreign corporations (CFCs), U.S. Holders receiving dividend distributions (including constructive dividends) with respect to Common Shares of the Company are required to include in gross income for U.S. federal income tax purposes the gross amount of such distributions equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange date on such date) to the extent that the Company has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions.  Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’s U.S. federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder’s U.S. federal taxable income by those who itemize deductions.  (See more detailed discussion at “Foreign Tax Credit” below).  To the extent that distributions exceed current or accumulated earnings and profits of the Company, they will be treated first as a return of capital up to the U.S. Holder’s adjusted basis in the Common Shares and thereafter as gain from the sale or exchange of the Common Shares.  Preferential tax rates for long-term capital gains are applicable to a U.S. Holder that is an individual, estate or trust.  There are currently no preferential tax rates for long-term capital gains for a U.S. Holder that is a corporation.

In the case of foreign currency received as a distribution that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt.  Generally, any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss.  However, an individual whose realized gain does not exceed $200 will not recognize that gain, to the extent that there are no expenses associated with the transaction that meet the requirements for deductibility as a trade or business expense (other than travel expenses in connection with a business trip) or as an expense for the production of income.  

Dividends paid on the Common Shares of the Company will not generally be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations.  A U.S. Holder which is a corporation may, under certain circumstances, be entitled to a 70% deduction of the United States source portion of dividends received from the Company (unless the Company qualifies as a “foreign personal holding company” or a “passive foreign investment company”, as defined below) if such U.S. Holder owns shares representing at least 10% of the voting power and value of the Company.  The availability of this deduction is subject to several complex limitations, which are beyond the scope of this discussion.

With effect from January 1, 2003, the United States reduced the maximum tax rate on certain qualifying dividend distributions to 15% (5% for certain U.S. Holders). In order for dividends paid by foreign corporations to qualify for

54

the reduced rates, (1) the foreign corporation must meet certain requirements, including that it not be classified as a foreign investment company or a passive foreign investment company for U.S. federal income tax purposes in either the taxable year of the distribution or the preceding taxable year, and (2) the U.S. Holder must meet the required holding period.  In order to meet the required holding period, the U.S. Holder must hold the Company common shares for at least 60 days during the 120-day period beginning 60 days before the ex-dividend date.

There is the possibility that the Company common shares are passive foreign investment company shares.  As such, any dividends on the Company’s common shares may not be eligible for the reduced maximum tax rates.  

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of Common Shares of the Company may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld.  Generally, it will be more advantageous to claim a credit because a credit reduces U.S. federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax.  This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year.  There are significant and complex limitations, which apply to the credit; among which is the general limitation that the credit cannot exceed the proportionate shares of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or its world-wide taxable income.  In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources.  Complex rules govern this classification process.  There are further limitations on the foreign tax credit for certain types of income such as “passive income”, “high withholding tax interest”, “financial services income”, “shipping income”, and certain other classifications of income.  The availability of the foreign tax credit and the application of the limitations on the credit are fact specific and holders and prospective holders of Common Shares of the Company should consult their own tax advisors regarding their individual circumstances.

Disposition of Common Shares of the Company

Subject to the provisions of U.S. tax laws relating to passive foreign investment companies (PFICs) and controlled foreign corporations (CFCs), U.S. Holders will recognize gain or loss upon the sale of Common Shares of the Company equal to the difference, if any, between the amount of cash plus the fair market value of any property received, and the Holder’s tax basis in the Common Shares of the Company.  This gain or loss will be capital gain or loss if the Common Shares are a capital asset in the hands of the U.S. Holder unless the Company were to become a controlled foreign corporation.  For the effect on the Company of becoming a controlled corporation, see “Controlled Foreign Corporation Status” below.  Any capital gain will be a short-term or long-term capital gain or loss depending upon the holding period of the U.S. Holder.  Gains and losses are netted and combined according to special rules in arriving at the o verall capital gain or loss for a particular tax year.  Deductions for net capital losses are subject to significant limitations.  For U.S. Holders who are individuals, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted.  For U.S. Holders which are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.

Other Considerations for U.S. Holders

In the following circumstances, the above sections of this discussion may not describe the U.S. federal income tax consequences resulting from the holding and disposition of Common Shares of the Company:

Passive Foreign Investment Company

THE PFIC PROVISIONS OF THE U.S. TAX LAWS ARE EXTREMELY COMPLEX AND U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS WITH RESPECT TO THE POTENTIAL APPLICATION OF THE PFIC RULES TO THEIR HOLDINGS OF SHARES AND SECURITIES ISSUED BY THE COMPANY.

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A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a passive foreign investment company (“PFIC”) is subject to U.S. federal income taxation of that foreign corporation under one of two alternative tax methods at the election of each such U.S. Holder.

Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is “passive income,” which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by value (or, if the Company is a publicly traded controlled foreign corporation or makes an election, adjusted tax basis), of its assets that produce or are held for the production of “passive income” is 50% or more.  Publicly traded corporations must apply this test on a fair market value basis only.

As a PFIC, each U. S. Holder must determine under which of the alternative tax methods it wishes to be taxed.  Under one method, a U.S. Holder who elects in a timely manner to treat the Company as a Qualified Electing Fund (“QEF”), as defined in the Code, (an “Electing U.S. Holder”) will be subject, under Section 1293 of the Code, to current U.S. federal income tax for any taxable year in which the Company’s qualifies as a PFIC on his pro-rata share of the Company’s (i) “net capital gain” (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Holder and (ii) “ordinary earnings” (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income to the Electing U.S. Holder, in each case, for the U.S. Holder’s taxable year in which (or with which) the Company taxable year ends, r egardless of whether such amounts are actually distributed.

A QEF election also allows the Electing U.S. Holder to (i) generally treat any gain realized on the disposition of his Common Shares (or deemed to be realized on the pledge of his Common Shares) as capital gain; (ii) treat his share of the Company’s net capital gain, if any, as long-term capital gain instead of ordinary income, and (iii) either avoid interest charges resulting from PFIC status altogether (see discussion of interest charge below), or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of the Company’s annual realized net capital gain and ordinary earnings subject, however, to an interest charge.  If the Electing U.S. Holder is not a corporation, such an interest charge would be treated as “personal interest” that is not deductible at all in taxable years beginning after 1990.

The procedure a U.S. Holder must comply with in making a timely QEF election will depend on whether the year of the election is the first year in the U.S. Holder’s holding period in which the Company is a PFIC.  If the U.S. Holder makes a QEF election in such first year, (sometimes referred to as a “Pedigreed QEF Election”), then the U.S. Holder may make the QEF election by simply filing the appropriate documents at the time the U.S. Holder files its tax return for such first year.  If, however, the Company qualified as a PFIC in a prior year, then in addition to filing documents, the U.S. Holder may also elect to recognize as an “excess distribution” (i) under the rules of Section 1291 (discussed below), any gain that he would otherwise recognize if the U.S. Holder sold his stock on the application date or (ii) if the Company is a controlled foreign corporation (“CFC”), the Holder’s pro rata share of the Company’s earnings and profits. (But see “Elimination of Overlap Between Subpart F Rules and PFIC Provisions”).  Either the deemed sale election or the deemed dividend election will result in the U.S. Holder being deemed to have made a timely QEF election.

With respect to a situation in which a Pedigreed QEF election is made, if the Company no longer qualifies as a PFIC in a subsequent year, normal Code rules and not the PFIC rules will apply.

If a U.S. Holder has not made a QEF Election at any time (a “Non-electing U.S. Holder”), then special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reason of a pledge) of his Common Shares and (ii) certain “excess distributions”, as specially defined, by the Company.

A Non-electing U.S. Holder generally would be required to pro-rate all gains realized on the disposition of his Common Shares and all excess distributions over the entire holding period for the Common Shares.  All gains or excess distributions allocated to prior years of the U.S. Holder (other than years prior to the first taxable year of the Company during such U.S. Holder’s holding period and beginning after January 1, 1987 for which it was a PFIC)

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would be taxed at the highest tax rate for each such prior year applicable to ordinary income.  The Non-electing U.S. Holder also would be liable for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year.  A Non-electing U.S.  Holder that is not a corporation must treat this interest charge as “personal interest” which, as discussed above, is wholly non-deductible.  The balance of the gain or the excess distribution will be treated as ordinary income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance.

If the Company is a PFIC for any taxable year during which a Non-electing U.S. Holder holds Common Shares, then the Company will continue to be treated as a PFIC with respect to such Common Shares, even if it is no longer by definition a PFIC.  A Non-electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-Electing U.S. Holders) as if such Common Shares had been sold on the last day of the last taxable year for which it was a PFIC.

Under Section 1291(f) of the Code, the Department of the Treasury has issued proposed regulations that would treat as taxable certain transfers of PFIC stock by Non-electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death.

If a U.S. Holder makes a QEF Election that is not a Pedigreed Election (i.e., it is made after the first year during which the Company is a PFIC and the U.S. Holder holds shares of the Company) (a “Non-Pedigreed Election”), the QEF rules apply prospectively but do not apply to years prior to the year in which the QEF first becomes effective.  U.S. Holders should consult their tax advisors regarding the specific consequences of making a Non-Pedigreed QEF Election.

Certain special, generally adverse, rules will apply with respect to the Common Shares while the Company is a PFIC whether or not it is treated as a QEF.  For example under Section 1297(b)(6) of the Code (as in effect prior to the Taxpayer Relief Act of 1997), a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such stock.

The foregoing discussion is based on currently effective provisions of the Code, existing and proposed regulations thereunder, and current administrative rulings and court decisions, all of which are subject to change.  Any such change could affect the validity of this discussion.  In addition, the implementation of certain aspects of the PFIC rules requires the issuance of regulations which in many instances have not been promulgated and which may have retroactive effect.  There can be no assurance that any of these proposals will be enacted or promulgated, and if so, the form they will take or the effect that they may have on this discussion.  Accordingly, and due to the complexity of the PFIC rules, U.S. Holders of the Company are strongly urged to consult their own tax advisors concerning the impact of these rules on their investment in the Company.  For a discussion of the impact of the Taxpayer Relief Act of 1997 on a U.S. Holder of a PFIC, see “Mark-to-Market Election For PFIC Stock Under the Taxpayer Relief Act of 1997” and “Elimination of Overlap Between Subpart F Rules and PFIC Provisions” below.

Mark-to-Market Election for PFIC Stock

A U.S. Holder of a PFIC may make a mark-to-market election with respect to the stock of the PFIC if such stock is marketable as defined below.  This provision is designed to provide a current inclusion provision for persons that are Non-Electing Holders.  Under the election, any excess of the fair market value of the PFIC stock at the close of the tax year over the Holder’s adjusted basis in the stock is included in the Holder’s income.  The Holder may deduct any excess of the adjusted basis of the PFIC stock over its fair market value at the close of the tax year.  However, deductions are limited to the net mark-to-market gains on the stock that the Holder included in income in prior tax years, or so called “unreversed inclusions.”

For purposes of the election, PFIC stock is marketable if it is regularly traded on (1) a national securities exchange that is registered with the SEC, (2) the national market system established under Section 11A of the Securities Exchange Act of 1934, or (3) an exchange or market that the IRS determines has rules sufficient to ensure that the market price represents legitimate and sound fair market value.

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A Holder’s adjusted basis of PFIC stock is increased by the income recognized under the mark-to-market election and decreased by the deductions allowed under the election.  If a U.S. Holder owns PFIC stock indirectly through a foreign entity, the basis adjustments apply to the basis of the PFIC stock in the hands of the foreign entity for the purpose of applying the PFIC rules to the tax treatment of the U.S. owner.  Similar basis adjustments are made to the basis of the property through which the U.S. persons hold the PFIC stock.

Income recognized under the mark-to-market election and gain on the sale of PFIC stock with respect to which an election is made is treated as ordinary income.  Deductions allowed under the election and loss on the sale of PFIC with respect to which an election is made, to the extent that the amount of loss does not exceed the net mark-to-market gains previously included, are treated as ordinary losses.  The U.S. or foreign source of any income or losses is determined as if the amount were a gain or loss from the sale of stock in the PFIC.

If PFIC stock is owned by a CFC (discussed below), the CFC is treated as a U.S. person that may make the mark-to-market election.  Amounts includable in the CFC’s income under the election are treated as foreign personal holding company income, and deductions are allocable to foreign personal holding company income.

The above provisions apply to tax years of U.S. persons beginning after December 31, 1997, and to tax years of foreign corporations ending with or within such tax years of U.S. persons.

The rules of Code Section 1291 applicable to nonqualified funds generally do not apply to a U.S. Holder for tax years for which a mark-to-market election is in effect.  If Code Section 1291 is applied and a mark-to-market election was in effect for any prior tax year, the U.S. Holder’s holding period for the PFIC stock is treated as beginning immediately after the last tax year of the election.  However, if a taxpayer makes a mark-to-market election for PFIC stock that is a nonqualified fund after the beginning of a taxpayer’s holding period for such stock, a coordination rule applies to ensure that the taxpayer does not avoid the interest charge with respect to amounts attributable to periods before the election.

Controlled Foreign Corporation Status

THE CFC PROVISIONS OF THE U.S. TAX LAWS ARE EXTREMELY COMPLEX AND U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS WITH RESPECT TO THE POTENTIAL APPLICATION OF THE CFC RULES TO THEIR HOLDINGS OF SHARES AND SECURITIES ISSUED BY THE COMPANY.

If more than 50% of the voting power of all classes of stock or the total value of the stock of the Company is owned, directly or indirectly, by U.S. Holders, each of whom own 10% or more of the total combined voting power of all classes of stock of the Company, the Company would be treated as a “controlled foreign corporation” or “CFC” under Subpart F of the Code.  This classification would bring into effect many complex results including the required inclusion by such 10% U.S. Holders in income of their pro rata shares of “Subpart F income” (as defined by the Code) of the Company and the Company’s earnings invested in “U.S. property” (as defined by the Code).  In addition, under Section 1248 of the Code, gain from the sale or exchange of Common Shares of the Company by such a 10% U.S. Holder of Registrant at any time during the five year period ending with the sale or exchange is treated as ordinar y dividend income to the extent of earnings and profits of the Company attributable to the stock sold or exchanged.  Because of the complexity of Subpart F, and because the Company may never be a CFC, a more detailed review of these rules is beyond the scope of this discussion.

Elimination of Overlap Between Subpart F Rules and PFIC Provisions

Under Section 1297(d) of the Code, a PFIC that is also a CFC will not be treated as a PFIC with respect to certain 10% U.S. Holders.  For the exception to apply, (i) the corporation must be a CFC within the meaning of section 957(a) of the Code and (ii) the U.S. Holder must be subject to the current inclusion rules of Subpart F with respect to such corporation (i.e., the U.S. Holder is a “United States Shareholder,” see “Controlled Foreign Corporation,” above).  The exception only applies to that portion of a U.S. Holder’s holding period beginning after December 31,

58

1997.  For that portion of a United States Holder before January 1, 1998, the ordinary PFIC and QEF rules continue to apply.

As a result of this provision, if the Company were ever to become a CFC, U.S. Holders who are currently taxed on their pro rata shares of Subpart F income of a PFIC which is also a CFC will not be subject to the PFIC provisions with respect to the same stock if they have previously made a Pedigreed QEF Election.  The PFIC provisions will however continue to apply to PFIC/CFC U.S. Holders for any periods in which they are not subject to Subpart F and to U.S. Holders that did not make a Pedigreed QEF Election unless the U.S. Holder elects to recognize gain on the PFIC shares held in the Company as if those shares had been sold.

The PFIC provisions of the Code are very complicated, and U.S. Holders should consult their own financial advisor, legal counsel or accountant regarding the PFIC rules and how they may impact their U.S. federal income tax situation.

F.

Dividends and Paying Agents

This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.

G.

Statement by Experts

This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.

H.

Documents on Display

Copies of the Company’s exhibits and documents are available for inspection at the Company’s head office located at 1650 – 701 West Georgia Street, Vancouver, British Columbia, Canada.

I.

Subsidiary Information

The information referred to in this section is not required for reports filed in the United States.

ITEM 11

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has not commenced mining operations and accordingly, has no gold operating revenues.  However, future fluctuations in the price of gold could impact the Company’s ability to secure future financing on the Company’s existing mineral property interests.  

Gold prices may fluctuate widely from time to time and are affected by numerous factors, including the following: expectations with respect to the rate of inflation, exchange rates, interest rates, global and regional political and economic circumstances and governmental policies, including those with respect to gold holdings by central banks. The demand for, and supply of, gold affect gold prices, but not necessarily in the same manner as demand and supply affect the prices of other commodities. The supply of gold consists of a combination of new mine production and existing stocks of bullion and fabricated gold held by governments, public and private financial institutions, industrial organizations and private individuals. The demand for gold primarily consists of jewelry and investments. Additionally, hedging activities by producers, consumers, financial institutions and individuals can affect gold supply and demand. While gold can be readily sold on numerous markets throughout the world, its market value cannot be predicted for any particular time.

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Fluctuations in the price of commodities required for the construction and operation of a gold mine, including fuel and steel, could also impact the economics of the project and the Company’s ability to secure future financing.

At December 31, 2007 the Company does not have significant foreign currency assets or liabilities and does not incur significant expenses in foreign currencies.  Consequently, the Company is not currently subject to significant foreign exchange risk.

Other than the capital lease obligations, the Company has no interest bearing long-term liabilities.  However, the rate of return on the Company’s portfolio of short-term investments and cash equivalents is subject to change based on movements in market interest rates.

The Company does not currently engage in any hedging or derivative transactions to manage these risks.

ITEM 12

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this Item.

PART II

ITEM 13

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

The Company has no material debts requiring current payment.  The Company has not declared any dividends on its common stock.  The Company has no other class of share.  Therefore, there are no material defaults, dividend arrears or delinquencies.

ITEM 14

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Except as disclosed herein, neither the Company nor any other person has (i) modified materially any instrument defining the rights of holders of any class of registered securities, (ii) modified materially or qualified the rights evidenced by any class of registered securities by issuing or modifying any other class of securities, or (iii) withdrawn or substituted a material amount of the assets securing any class of registered securities.  There has been no change in the trustees or paying agents for any of the Company’s securities during the previous fiscal year.  

ITEM 15

CONTROLS AND PROCEDURES

A.

Evaluation of Disclosure Controls and Procedures

As of December 31, 2007, an evaluation was carried out by the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as amended).  Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company is reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and financial

60

officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

B.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the President and Chief Executive Officer and the Vice-President and Chief Financial Officer and effected by the Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. It includes those policies and procedures that:

(a) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(b) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are made only in accordance with authorizations of management and the directors of the Company; and

(c) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2007 using criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company’s management has concluded that the Company’s internal controls over financial as at December 31, 2007 was effective as of such date.

The effectiveness of internal control over financial reporting as of December 31, 2007 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears herein.

C.

Attestation Report of the Registered Public Accounting Firm

We have audited the internal control over financial reporting of Southwestern Resources Corp. and subsidiaries (the “Company”) as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

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A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2007 of the Company and our report dated March 17, 2008 expressed an unqualified opinion on those financial statements and included a separate report titled Comments by Independent Registered Chartered Accountants on Canada-United States of America Reporting Differences referring to changes in accounting principles and conditions and events that raise substantial doubt on the Company’s ability to continue as a going concern.

/s/ Deloitte & Touche LLP

Independent Registered Chartered Accountants

Vancouver, Canada

March 17, 2008

D.

Change in Internal Control over Financial Reporting

There have been no changes in our internal control of financial reporting (as defined in Rules 13a – 15(f) and 15d – 15(f) under the Exchange Act) during the quarter ended December 31, 2007 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

ITEM 16A

AUDIT COMMITTEE FINANCIAL EXPERT

The Company has an Audit Committee established by the Board of Directors.  The members of the Audit Committee are James B. Hume, W. David Black and William D. McCartney.  The Board has designated James B. Hume and William D. McCartney as “Audit Committee Financial Experts” as that term is defined under Section 407 of the Sarbanes-Oxley Act of 2002.  Mr. Hume and Mr. McCartney are “independent” as that term is defined under the rules of the American Stock Exchange.

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ITEM 16B

CODE OF ETHICS

The Company has adopted a Code of Business Conduct and Ethics that applies to all directors, officers, employees and consultants, including its Chief Executive Officer, Chief Financial Officer and principal accounting officer.  The Company’s Code of Business Conduct and Ethics is posted on its website, www.swgold.com.

ITEM 16C

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The aggregate amounts billed by Deloitte & Touche LLP to the Company for each of the fiscal years ended December 31, 2007 and 2006 for audit fees, audit-related fees, tax fees and all other fees are set forth below:

	Year Ended December 31, 2007	Year Ended December 31, 2006
Audit Fees (1)	$275,986	$113,000
Audit-Related Fees (2)	0	28,000
Tax Fees (3)	12,900	12,560
All Other Fees	-	-
Totals	$288,886	$153,560

NOTES:

⁽¹⁾  “Audit Fees” represent fees for the audit of the Company’s annual financial statements, review of the Company’s interim financial statements and review in connection with the Company’s statutory and regulatory filings.  Amounts shown are the aggregate Audit Fees billed and related to the last two fiscal years.

⁽²⁾  “Audit-Related Fees” represent fees billed for assurance and related services that are related to the performance of the audit or review of the Company’s financial statements, principally for consultation concerning financial accounting and reporting standards and translation services.

⁽³⁾  “Tax Fees” represent fees for Canadian corporate tax advice.

The Audit Committee is authorized by the Board to review the performance of the Company’s external auditors and approve in advance provision of all audit and non-audit services by the external auditors.  The Audit Committee may delegate pre-approval authority to a member of the Audit Committee.  The decisions of any Audit Committee member to whom pre-approval authority is delegated must be presented to the full Audit Committee at its next scheduled meeting.  All of the engagements and fees for 2007 were pre-approved by the Audit Committee.  The Audit Committee reviews with Deloitte and Touche LLP whether the non-audit services to be provided are compatible with maintaining the auditors’ independence.

ITEM 16D

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES___

The information referred to in this section is not applicable as to the Company, as its common shares are not listed on any U.S. securities exchange.

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ITEM 16E

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Period	Total Number of Shares (or Units) Purchased	Average Price Paid per share (or Units)	Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Values) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Month #1 (Jan. 1 to Jan. 31)	nil	nil	366,900	1,633,100
Month #2 (Feb. 1 to Feb. 28)	157,000	7.39	523,900	1,476,100
Month #3 (Mar. 1 to Mar. 31)	463,600	8.21	987,500	1,012,500
Month #4 (Apr. 1 to Apr. 30)	45,000	7.82	1,032,500	967,500
Month #5 (May 1 to May 31)	173,000	7.15	1,205,500	794,500
Month #6 (Jun. 1 to Jun. 30)	92,000	7.14	1,297,500	702,500
Month #7 (Jul. 1 to July. 31)	nil	nil	1,297,500	702,500
Month #8 (Aug. 1 to  Aug. 31)	nil	nil	1,297,500	702,500
Month #9 (Sept. 1 to Sept. 30)	nil	nil	1,297,500	702,500
Month #10 (Oct. 1 to Oct. 31)	nil	nil	1,297,500	702,500
Month #11 (Nov. 1 to Nov. 30)	nil	nil	1,297,500	702,500
Month #12 (Dec. 1 to Dec. 31)	nil	nil	1,297,500	702,500

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PART III

ITEM 17

FINANCIAL STATEMENTS

The following financial statements are attached and incorporated herein:

Description of Document	Page
Management’s Responsibility for Financial Reporting	F-1
Auditors’ Report dated March 17, 2008	F-2
Consolidated Balance Sheets as at December 31, 2007 and 2006	F-3
Consolidated Statements of Loss and Deficit for the Fiscal Years Ended December 31, 2007, 2006 and 2005	F-4
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 2007, 2006 and 2005	F-5
Notes to Consolidated Financial Statements for the Fiscal Years Ended December 31, 2007, 2006 and 2005	F-6

ITEM 18

FINANCIAL STATEMENTS

See Item 17.

ITEM 19

EXHIBITS

The following exhibits are attached and incorporated herein:

	Description of Document
1.1	Certificate of Incorporation	*
1.2	Certificate of Change of Name
1.3	Articles
2.1	Shareholder Rights Plan Agreement, between the Company and Computershare Trust Company of Canada dated 23 July 2007
4.1	Consulting Agreement – Austgold Consulting Ltd.
4.2	Consulting Agreement – Westvista Management Inc.
4.3	Consulting Agreement – Alejandro Losada-Calderon
4.4	Change in Control Agreement – Austgold Consulting Ltd.
4.5	Change in Control Agreement - Westvista Management Inc.
4.6	Change in Control Agreement - Alejandro Losada-Calderon

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4.7	Change in Control Agreement – Giovanni Susin
4.8	Evergreen Stock Option Plan
4.9	Escrow Agreement
4.10	Lock-Up Agreement
10	Black Out Notice
12.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
12.2	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
13.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1	Consent of Author Joerg Kleinboeck
15.2	Consent of Author Caracle Creek International Consulting Inc.
15.3	Consent of Author Warwick Board
15.4	Consent of Author Alex Trueman
15.5	Consent of Author Gary Hawthorn
15.6	Consent of Author Snowden Mining Industry Consultants Inc.
99.1	Consolidated Financial Statements for Years Ended December 31, 2006 and 2007
99.2	Management’s Discussion and Analysis

*

Previously filed.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this Annual Report on Form 20-F for the year ended December 31, 2007, to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated at Vancouver, British Columbia, this 28 day of March, 2008.

Southwestern Resources Corp.

Per:

“Timo Jauristo”

Timo Jauristo

Interim President and

Chief Executive Officer

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 [DUPLICATE EXHIBIT LIST]

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EX-1.2

EX-1.3

EFFECTIVE DATE
OF ARTICLES:

June 3, 2004

Incorporation number:389242

The Company has as its articles the following articles.

Full name and signature of authorized signatory	Date of signing
“John G. Paterson” John G. Paterson	June 3, 2004

SOUTHWESTERN RESOURCES CORP.
(the “Company”)

ARTICLES

1.

INTERPRETATION

1.1

Definitions

In these Articles, unless the context otherwise requires:

(1)

“board of directors”, “directors” and “board” mean the directors or sole director of the Company for the time being;

(2)

“Business Corporations Act” means the Business Corporations Act (British Columbia) from time to time in force and all amendments thereto and includes all regulations and amendments thereto made pursuant to that Act;

(3)

“Interpretation Act” means the Interpretation Act (British Columbia) from time to time in force and all amendments thereto and includes all regulations and amendments thereto made pursuant to that Act;

(4)

“legal personal representative” means the personal or other legal representative of the shareholder;

(5)

“registered address” of a shareholder means the shareholder’s address as recorded in the central securities register;

(6)

“seal” means the seal of the Company, if any.

1.2

Business Corporations Act and Interpretation Act Definitions Applicable

The definitions in the Business Corporations Act and the definitions and rules of construction in the Interpretation Act, with the necessary changes, so far as applicable, and unless the context requires otherwise, apply to these Articles as if they were set out herein. If there is a conflict between a definition in the Business Corporations Act and a definition or rule in the Interpretation Act relating to a term used in these Articles, the definition in the Business Corporations Act will prevail in relation to the use of the term in these Articles. If there is a conflict between these Articles and the Business Corporations Act, the Business Corporations Act will prevail.

2.

SHARES AND SHARE CERTIFICATES

2.1

Authorized Share Structure

The authorized share structure of the Company consists of shares of the class or classes and series, if any, described in the Notice of Articles of the Company.

2.2

Form of Share Certificate

Each share certificate issued by the Company must comply with, and be signed as required by, the Business Corporations Act.

2.3

Shareholder Entitled to Certificate or Acknowledgment

Each shareholder is entitled, without charge, to (a) one share certificate representing the shares of each class or series of shares registered in the shareholder’s name or (b) a non-transferable written acknowledgment of the shareholder’s right to obtain such a share certificate, provided that in respect of a share held jointly by several persons, the Company is not bound to issue more than one share certificate

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and delivery of a share certificate to one of several joint shareholders or to one of the shareholders’ duly authorized agents will be sufficient delivery to all.

2.4

Delivery by Mail

Any share certificate or non-transferable written acknowledgment of a shareholder’s right to obtain a share certificate may be sent to the shareholder by mail at the shareholder’s registered address and neither the Company nor any director, officer or agent of the Company is liable for any loss to the shareholder because the share certificate or acknowledgement is lost in the mail or stolen.

2.5

Replacement of Worn Out or Defaced Certificate or Acknowledgement

If the directors are satisfied that a share certificate or a non-transferable written acknowledgment of the shareholder’s right to obtain a share certificate is worn out or defaced, they must, on production to them of the share certificate or acknowledgment, as the case may be, and on such other terms, if any, as they think fit:

(1)

order the share certificate or acknowledgment, as the case may be, to be cancelled; and

(2)

issue a replacement share certificate or acknowledgment, as the case may be.

2.6

Replacement of Lost, Stolen or Destroyed Certificate or Acknowledgment

If a share certificate or a non-transferable written acknowledgment of a shareholder’s right to obtain a share certificate is lost, stolen or destroyed, a replacement share certificate or acknowledgment, as the case may be, must be issued to the person entitled to that share certificate or acknowledgment, as the case may be, if the directors receive:

(1)

proof satisfactory to them that the share certificate or acknowledgment is lost, stolen or destroyed; and

(2)

any indemnity the directors consider adequate.

2.7

Splitting Share Certificates

If a shareholder surrenders a share certificate to the Company with a written request that the Company issue in the shareholder’s name two or more share certificates, each representing a specified number of shares and in the aggregate representing the same number of shares as the share certificate so surrendered, the Company must cancel the surrendered share certificate and issue replacement share certificates in accordance with that request.

2.8

Certificate Fee

There must be paid as a fee to the Company for issuance of any share certificate under Articles 2.5, 2.6 or 2.7, the amount, if any determined by the directors, which must not exceed the amount prescribed under the Business Corporations Act.

2.9

Recognition of Trusts

Except as required by law or statute or these Articles, no person will be recognized by the Company as holding any share upon any trust, and the Company is not bound by or compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share or fraction of a share or (except as by law or statute or these Articles provided or as ordered by a

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court of competent jurisdiction) any other rights in respect of any share except an absolute right to the entirety thereof in the shareholder.

3.

ISSUE OF SHARES

3.1

Directors Authorized

Subject to the Business Corporations Act and the rights of the holders of issued shares of the Company, the Company may issue, allot, sell or otherwise dispose of the unissued shares, and issued shares held by the Company, at the times, to the persons, including directors, in the manner, on the terms and conditions and for the issue prices (including any premium at which shares with par value may be issued) that the directors may determine. The issue price for a share with par value must be equal to or greater than the par value of the share.

3.2

Commissions and Discounts

The Company may at any time, pay a reasonable commission or allow a reasonable discount to any person in consideration of that person purchasing or agreeing to purchase shares of the Company from the Company or any other person or procuring or agreeing to procure purchasers for shares of the Company.

3.3

Brokerage

The Company may pay such brokerage fee or other consideration as may be lawful for or in connection with the sale or placement of its securities.

3.4

Conditions of Issue

Except as provided for by the Business Corporations Act, no share may be issued until it is fully paid. A share is fully paid when:

(1)

consideration is provided to the Company for the issue of the share by one or more of the following:

(a)

past services performed for the Company;

(b)

property;

(c)

money; and

(2)

the directors in their discretion have determined that the value of the consideration received by the Company is equal to or greater than the issue price set for the share under Article 3.1.

3.5

Share Purchase Warrants and Rights

Subject to the Business Corporations Act, the Company may issue share purchase warrants, options and rights upon such terms and conditions as the directors determine, which share purchase warrants, options and rights may be issued alone or in conjunction with debentures, debenture stock, bonds, shares or any other securities issued or created by the Company from time to time.

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4.

SHARE REGISTERS

4.1

Central Securities Register and any Branch Securities Register

As required by and subject to the Business Corporations Act, the Company must maintain a central securities register and may maintain a branch securities register. The directors may, subject to the Business Corporations Act, appoint an agent to maintain the central securities register or any branch securities register. The directors may also appoint one or more agents, including the agent which keeps the central securities register, as transfer agent for its shares or any class or series of its shares, as the case may be, and the same or another agent as registrar for its shares or such class or series of its shares, as the case may be. The directors may terminate such appointment of any agent at any time and may appoint another agent in its place.

4.2

Closing Register

The Company must not at any time close its central securities register.

5.

SHARE TRANSFERS

5.1

Registering Transfers

A transfer of a share of the Company must not be registered unless:

(1)

a duly signed instrument of transfer in respect of the share has been received by the Company;

(2)

if a share certificate has been issued by the Company in respect of the share to be transferred, that share certificate has been surrendered to the Company; and

(3)

if a non-transferable written acknowledgment of the shareholder’s right to obtain a share certificate has been issued by the Company in respect of the share to be transferred, that acknowledgment has been surrendered to the Company.

For the purpose of this Article, delivery or surrender to the agent which maintains the Company's central securities register or a branch securities register, if applicable, will constitute receipt by or surrender to the Company.

5.2

Form of Instrument of Transfer

The instrument of transfer in respect of any share of the Company must be either in the form, if any, on the back of the Company’s share certificates or in any other form that may be approved by the directors from time to time.

5.3

Transferor Remains Shareholder

Except to the extent that the Business Corporations Act otherwise provides, the transferor of shares is deemed to remain the holder of the shares until the name of the transferee is entered in a securities register of the Company in respect of the transfer.

5.4

Signing of Instrument of Transfer

If a shareholder, or his or her duly authorized attorney, signs an instrument of transfer in respect of shares registered in the name of the shareholder, the signed instrument of transfer constitutes a complete and sufficient authority to the Company and its directors, officers and agents to register the number of shares

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specified in the instrument of transfer or specified in any other manner, or, if no number is specified, all the shares represented by the share certificates or set out in the written acknowledgments deposited with the instrument of transfer:

(1)

in the name of the person named as transferee in that instrument of transfer; or

(2)

if no person is named as transferee in that instrument of transfer, in the name of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered.

5.5

Enquiry as to Title Not Required

Neither the Company nor any director, officer or agent of the Company is bound to inquire into the title of the person named in the instrument of transfer as transferee or, if no person is named as transferee in the instrument of transfer, of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered or is liable for any claim related to registering the transfer by the shareholder or by any intermediate owner or holder of the shares, of any interest in the shares, of any share certificate representing such shares or of any written acknowledgment of a right to obtain a share certificate for such shares.

5.6

Transfer Fee

There must be paid as a fee to the Company, registration of any transfer, the amount, if any, determined by the directors.

6.

TRANSMISSION OF SHARES

6.1

Legal Personal Representative Recognized on Death

In case of the death of a shareholder, the legal personal representative, or if the shareholder was a joint holder, the surviving joint holder, will be the only person recognized by the Company as having any title to the shareholder’s interest in the shares. Before recognizing a person as a legal personal representative, the directors may require proof of appointment by a court of competent jurisdiction, a grant of letters probate, letters of administration or such other evidence or documents as the directors consider appropriate.

6.2

Rights of Legal Personal Representative

The legal personal representative has the same rights, privileges and obligations with respect to the shares as were held by the shareholder, including the right to transfer the shares in accordance with these Articles, provided the documents required by the Business Corporations Act and the directors have been deposited with the Company.

7.

PURCHASE OF SHARES

7.1

Company Authorized to Purchase Shares

Subject to Article 7.2, the special rights and restrictions attached to the shares of any class or series and the Business Corporations Act, the Company may, if authorized by resolution of the directors, purchase, redeem or otherwise acquire any of its shares at the price and upon the terms specified in such resolution.

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7.2

Purchase When Insolvent

The Company must not make a payment or provide any other consideration to purchase, redeem or otherwise acquire any of its shares if there are reasonable grounds for believing that:

(1)

the Company is insolvent; or

(2)

making the payment or providing the consideration would render the Company insolvent.

7.3

Redemption of Shares

If the Company proposes to redeem some but not all of the shares of any class, the Directors may, subject to any special rights and restrictions attached to such class of shares, decide the manner in which the shares to be redeemed shall be selected.

7.4

Sale and Voting of Purchased Shares

If the Company retains a share which it has redeemed, purchased or otherwise acquired, the Company may sell, gift or otherwise dispose of the share, but, while such share is held by the Company, it:

(1)

is not entitled to vote the share at a meeting of its shareholders;

(2)

must not pay a dividend in respect of the share; and

(3)

must not make any other distribution in respect of the share.

8.

BORROWING POWERS

8.1

The Company, if authorized by the directors, may:

(1)

borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate;

(2)

issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person and at such discounts or premiums and on such other terms as they consider appropriate;

(3)

guarantee the repayment of money by any other person or the performance of any obligation of any other person; and

(4)

mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of the Company.

8.2

Any bonds, debentures or other debt obligations of the Company may be issued at a discount, premium or otherwise, or with special privileges as to redemption, surrender, drawing, allotment of or conversion into or exchange for shares or other securities, attending and voting at general meetings of the Company, appointment of Directors or otherwise and may, by their terms, be assignable free from any equities between the Company and the person to whom they were issued or any subsequent holder thereof, all as the Directors may determine.

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9.

ALTERATIONS

9.1

Alteration of Authorized Share Structure

Subject to Article 9.2 and the Business Corporations Act, the Company may:

(1)

by directors' resolution or by ordinary resolution, in each case as determined by the directors:

(a)

create one or more classes or series of shares or, if none of the shares of a class or series of shares are allotted or issued, eliminate that class or series of shares;

(b)

increase, reduce or eliminate the maximum number of shares that the Company is authorized to issue of any class or series of shares or establish a maximum number of shares that the Company is authorized to issue out of any class or series of shares for which no maximum is established;

(c)

subdivide or consolidate all or any of its unissued, or fully paid issued, shares;

(d)

if the Company is authorized to issue shares of a class of shares with par value:

(i)

decrease the par value of those shares; or

(ii) if none of the shares of that class of shares are allotted or issued, increase the par value of those shares;

(e)

change all or any of its unissued shares with par value into shares without par value or any of its unissued shares without par value into shares with par value or change all or any of its fully paid issued shares with par value into shares without par value; or

(f)

alter the identifying name of any of its shares; and

(2)

by ordinary resolution otherwise alter its shares or authorized share structure.

9.2

Special Rights and Restrictions

Subject to the Business Corporations Act, the Company may:

(1)

by directors' resolution or by ordinary resolution, in each case as determined by the directors, create special rights or restrictions for, and attach those special rights or restrictions to, the shares of any class or series of shares, if none of those shares have been issued; or vary or delete any special rights or restrictions attached to the shares of any class or series of shares, if none of those shares have been issued; and

(2)

by special resolution of the shareholders of the class or series affected, do any of the acts in (1) above if any of the shares of the class or series of shares have been issued.

9.3

Change of Name

The Company may by resolution of its directors or by ordinary resolution, in each case as determined by the directors, authorize an alteration of its Notice of Articles in order to change its name.

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9.4

Other Alterations

The Company, save as otherwise provided by these Articles and subject to the Business Corporations Act, may:

(1)

by directors' resolution or by ordinary resolution, in each case as determined by the directors, authorize alterations to the Articles that are procedural or administrative in nature or are matters that pursuant to these Articles are solely within the directors' powers, control or authority; and

(2)

if the Business Corporations Act does not specify the type of resolution and these Articles do not specify another type of resolution,  by ordinary resolution alter these Articles.

10.

MEETINGS OF SHAREHOLDERS

10.1

Annual General Meetings

Unless an annual general meeting is deferred or waived in accordance with the Business Corporations Act, the Company must hold its first annual general meeting within 18 months after the date on which it was incorporated or otherwise recognized, and after that must hold an annual general meeting at least once in each calendar year and not more than 15 months after the last annual reference date at such time and place as may be determined by the directors.

10.2

Resolution Instead of Annual General Meeting

If all the shareholders who are entitled to vote at an annual general meeting consent by a unanimous resolution under the Business Corporations Act to all of the business that is required to be transacted at that annual general meeting, the annual general meeting is deemed to have been held on the date of the unanimous resolution. The shareholders must, in any unanimous resolution passed under this Article 10.2, select as the Company’s annual reference date a date that would be appropriate for the holding of the applicable annual general meeting.

10.3

Calling of Meetings of Shareholders

The directors may, whenever they think fit, call a meeting of shareholders.

10.4

Location of Meetings of Shareholders and Meetings by Telephone or Other Electronic Means

A meeting of the Company may be held:

 (1)

at a location outside British Columbia if that location is:

(a)

approved by resolution of the directors before the meeting is held; or

(b)

approved in writing by the Registrar of Companies before the meeting is held; and

(2)

entirely or in part bymeans of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting, if approved by directors’ resolution prior to the meeting and subject to the Business Corporations Act.  Any person participating in a meeting by such means is deemed to be present at the meeting.

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10.5

Notice for Meetings of Shareholders

Subject to Article 10.2, the Company must send notice of the date, time and location of any meeting of shareholders, in the manner provided in these Articles, or in such other manner, if any, as may be prescribed by directors' resolution (whether previous notice of the resolution has been given or not), to each shareholder entitled to attend the meeting, to each director and to the auditor of the Company, unless these Articles otherwise provide, at least the following number of days before the meeting:

(1)

if and for so long as the Company is a public company, 21 days;

(2)

otherwise, 10 days.

10.6

Record Date for Notice

The directors may set a date as the record date for the purpose of determining shareholders entitled to notice of any meeting of shareholders. The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Business Corporations Act, by more than four months. The record date must not precede the date on which the meeting is held by fewer than:

(1)

if and for so long as the Company is a public company, 21 days;

(2)

otherwise, 10 days.

If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.

10.7

Record Date for Voting

The directors may set a date as the record date for the purpose of determining shareholders entitled to vote at any meeting of shareholders. The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Business Corporations Act, by more than four months. If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.

10.8

Failure to Give Notice and Waiver of Notice

The accidental omission to send notice of any meeting to, or the non-receipt of any notice by, any of the persons entitled to notice does not invalidate any proceedings at that meeting. Any person entitled to notice of a meeting of shareholders may, in writing or otherwise, waive or reduce the period of notice of such meeting.

10.9

Notice of Special Business at Meetings of Shareholders

If a meeting of shareholders is to consider special business within the meaning of Article 11.1, the notice of meeting or a circular prepared in connection with the meeting must:

(1)

state the general nature of the special business; and

(2)

if the special business includes considering, approving, ratifying, adopting or authorizing any document or the signing of or giving of effect to any document, have attached to it a copy of the document or state that a copy of the document :

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(a)

will be available for inspection by shareholders at the Company’s records office, or at such other reasonably accessible location in British Columbia as is specified in the noticeduring statutory business hours on any one or more specified days before the day set for the holding of the meeting; and

(b)

may provide that the document is available by request from the Company or accessible electronically or on a website as determined by the directors.

11.

PROCEEDINGS AT MEETINGS OF SHAREHOLDERS

11.1

Special Business

At a meeting of shareholders, the following business is special business:

(1)

at a meeting of shareholders that is not an annual general meeting, all business is special business except business relating to the conduct of or voting at the meeting;

(2)

at an annual general meeting, all business is special business except for the following:

(a)

business relating to the conduct of or voting at the meeting;

(b)

consideration of any financial statements of the Company presented to the meeting;

(c)

consideration of any reports of the directors or auditor;

(d)

the setting or changing of the number of directors;

(e)

the election or appointment of directors;

(f)

the appointment of an auditor;

(g)

the setting of the remuneration of an auditor;

(h)

business arising out of a report of the directors not requiring the passing of a special resolution or an exceptional resolution;

(i)

any other business which, under these Articles or the Business Corporations Act, may be transacted at a meeting of shareholders without prior notice of the business being given to the shareholders.

11.2

Special Majority

The majority of votes required for the Company to pass a special resolution at a meeting of shareholders is two-thirds of the votes cast on the resolution.

11.3

Quorum

Subject to the special rights and restrictions attached to the shares of any class or series of shares, the quorum for the transaction of business at a meeting of shareholders is one person present or represented by proxy.

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11.4

Other Persons May Attend

The directors, the president (if any), the secretary (if any), the assistant secretary (if any), any lawyer for the Company, the auditor of the Company and any other persons invited by the directors are entitled to attend any meeting of shareholders, but if any of those persons does attend a meeting of shareholders, that person is not to be counted in the quorum and is not entitled to vote at the meeting unless that person is a shareholder or proxy holder entitled to vote at the meeting.

11.5

Requirement of Quorum

No business, other than the election of a chair of the meeting and the adjournment of the meeting, may be transacted at any meeting of shareholders unless a quorum of shareholders entitled to vote is present at the commencement of the meeting, but such quorum need not be present throughout the meeting.

11.6

Lack of Quorum

If, within one-half hour from the time set for the holding of a meeting of shareholders, a quorum is not present:

(1)

in the case of a general meeting requisitioned by shareholders, the meeting is dissolved, and

(2)

in the case of any other meeting of shareholders, the meeting stands adjourned to the same day in the next week at the same time and place.

11.7

Lack of Quorum at Succeeding Meeting

If, at the meeting to which the meeting referred to in Article 11.7(2) was adjourned, a quorum is not present within one-half hour from the time set for the holding of the meeting, the meeting shall be terminated.

11.8

Chair

The following individual is entitled to preside as chair at a meeting of shareholders:

(1)

the chair of the board, if any, or the individual the chair of the board designates in writing to preside as chair of the meeting of shareholders; or

(2)

if the chair of the board is absent or unwilling to act as chair of the meeting, the president, if any, or the individual the president designates in writing to preside as chair of the meeting of shareholders.

11.9

Selection of Alternate Chair

If, at any meeting of shareholders, there is no chair of the board president or designate willing to act as chair of the meeting or present within 15 minutes after the time set for holding the meeting, or if the chair of the board and the president have advised the secretary, if any, or any director present at the meeting, that they are not willing to act as chair of the meeting or will not be present at the meeting, the directors present must choose a director, officer or corporate counsel to be chair of the meeting or if none of the above persons are present or if they decline to take the chair, the shareholders entitled to vote at the meeting who are present in person or by proxy may choose any person present at the meeting to chair the meeting.

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11.10

Adjournments

The chair of a meeting of shareholders may, and if so directed by the meeting must, adjourn the meeting from time to time and from place to place, but no business may be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.

11.11

Notice of Adjourned Meeting

It is not necessary to give any notice of an adjourned meeting or of the business to be transacted at an adjourned meeting of shareholders except that, when a meeting is adjourned for 30 days or more, notice of the adjourned meeting must be given as in the case of the original meeting.

11.12

Decisions by Show of Hands or Poll

Subject to the Business Corporations Act, every motion put to a vote at a meeting of shareholders will be decided on a show of hands unless a poll, before or on the declaration of the result of the vote by show of hands, is directed by the chair or demanded by at least one shareholder entitled to vote who is present in person or by proxy.

11.13

Declaration of Result

The chair of a meeting of shareholders must declare to the meeting the decision on every question in accordance with the result of the show of hands or the poll, as the case may be, and that decision must be entered in the minutes of the meeting. A declaration of the chair that a resolution is carried by the necessary majority or is defeated is, unless a poll is directed by the chair or demanded under Article 11.12, conclusive evidence without proof of the number or proportion of the votes recorded in favour of or against the resolution.

11.14

Motion Need Not be Seconded

No motion proposed at a meeting of shareholders need be seconded unless the chair of the meeting rules otherwise, and the chair of any meeting of shareholders is entitled to propose or second a motion.

11.15

Casting Vote

In case of an equality of votes, the chair of a meeting of shareholders, either on a show of hands or on a poll, has a second or casting vote in addition to the vote or votes to which the chair may be entitled as a shareholder.

11.16

Manner of Taking Poll

Subject to Article 11.17, if a poll is duly demanded at a meeting of shareholders:

(1)

the poll must be taken:

(a)

at the meeting, or within seven days after the date of the meeting, as the chair of the meeting directs; and

(b)

in the manner, at the time and at the place that the chair of the meeting directs;

(2)

the result of the poll is deemed to be the decision of the meeting at which the poll is demanded; and

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(3)

the demand for the poll may be withdrawn by the person who demanded it.

11.17

Demand for Poll on Adjournment

A poll demanded at a meeting of shareholders on a question of adjournment must be taken immediately at the meeting.

11.18

Chair Must Resolve Dispute

In the case of any dispute as to the admission or rejection of a vote given on a poll, the chair of the meeting must determine the dispute, and his or her determination made in good faith is final and conclusive.

11.19

Casting of Votes

On a poll, a shareholder entitled to more than one vote need not cast all the votes in the same way.

11.20

Demand for Poll

No poll may be demanded in respect of the vote by which a chair of a meeting of shareholders is elected.

11.21

Demand for Poll Not to Prevent Continuance of Meeting

The demand for a poll at a meeting of shareholders does not, unless the chair of the meeting so rules, prevent the continuation of a meeting for the transaction of any business other than the question on which a poll has been demanded.

11.22

Retention of Ballots and Proxies

The Company must, for at least three months after a meeting of shareholders, keep each ballot cast on a poll and each proxy voted at the meeting, and, during that period, make them available for inspection during normal business hours by any shareholder or proxyholder entitled to vote at the meeting. At the end of such three month period, the Company may destroy such ballots and proxies.

12.

VOTES OF SHAREHOLDERS

12.1

Number of Votes by Shareholder or by Shares

Subject to any special rights or restrictions attached to any shares and to the restrictions imposed on joint shareholders under Article 12.3:

(1)

on a vote by show of hands, every person present who is a shareholder or proxy holder and entitled to vote on the matter has one vote; and

(2)

on a poll, every shareholder entitled to vote on the matter has one vote in respect of each share entitled to be voted on the matter and held by that shareholder and may exercise that vote either in person or by proxy.

12.2

Votes of Persons in Representative Capacity

A person who is not a shareholder may vote at a meeting of shareholders, whether on a show of hands or on a poll, and may appoint a proxy holder to act at the meeting, if, before doing so, the person satisfies

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the chair of the meeting, or the directors, that the person is a legal personal representative or a trustee in bankruptcy for a shareholder who is entitled to vote at the meeting.

12.3

Votes by Joint Holders

If there are joint shareholders registered in respect of any share:

(1)

any one of the joint shareholders may vote at any meeting, either personally or by proxy, in respect of the share as if that joint shareholder were solely entitled to it; or

(2)

if more than one of the joint shareholders is present at any meeting, personally or by proxy, and more than one of them votes in respect of that share, then only the vote of the joint shareholder present whose name stands first on the central securities register in respect of the share will be counted.

12.4

Legal Personal Representatives as Joint Shareholders

Two or more legal personal representatives of a shareholder in whose sole name any share is registered are, for the purposes of Article 12.3, deemed to be joint shareholders.

12.5

Representative of a Corporate Shareholder

If a corporation, that is not a subsidiary of the Company, is a shareholder, that corporation may appoint a person to act as its representative at any meeting of shareholders of the Company, and:

(1)

for that purpose, the instrument appointing a representative must:

(a)

be received at the registered office of the Company or at any other place specified, in the notice calling the meeting, for the receipt of proxies, at least the number of business days specified in the notice for the receipt of proxies, or if no number of days is specified, two business days before the day set for the holding of the meeting; or

(b)

be provided, at the meeting, to the chair of the meeting or to a person designated by the chair of the meeting;

(2)

if a representative is appointed under this Article 12.5:

(a)

the representative is entitled to exercise in respect of and at that meeting the same rights on behalf of the corporation that the representative represents as that corporation could exercise if it were a shareholder who is an individual, including, without limitation, the right to appoint a proxy holder; and

(b)

the representative, if present at the meeting, is to be counted for the purpose of forming a quorum and is deemed to be a shareholder present in person at the meeting.

Evidence of the appointment of any such representative may be sent to the Company by written instrument, fax or any other method of transmitting legibly recorded messages.

12.6

Proxy Provisions Do Not Apply to All Companies

Articles 12.7 to 12.15 do not apply to the Company if and for so long as it is a public company or a pre-existing reporting company which has the Statutory Reporting Company Provisions as part of its Articles or to which the Statutory Reporting Company Provisions apply.

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12.7

Appointment of Proxy Holders

Every shareholder of the Company, including a corporation that is a shareholder but not a subsidiary of the Company, entitled to vote at a meeting of shareholders of the Company may, by proxy, appoint up to two proxy holders to attend and act at the meeting in the manner, to the extent and with the powers conferred by the proxy.

12.8

Alternate Proxy Holders

A shareholder may appoint one or more alternate proxy holders to act in the place of an absent proxy holder.

12.9

When Proxy Holder Need Not Be Shareholder

A person must not be appointed as a proxy holder unless the person is a shareholder, although a person who is not a shareholder may be appointed as a proxy holder if:

(1)

the person appointing the proxy holder is a corporation or a representative of a corporation appointed under Article 12.5;

(2)

the Company has at the time of the meeting for which the proxy holder is to be appointed only one shareholder entitled to vote at the meeting; or

(3)

the shareholders present in person or by proxy at and entitled to vote at the meeting for which the proxy holder is to be appointed, by a resolution on which the proxy holder is not entitled to vote but in respect of which the proxy holder is to be counted in the quorum, permit the proxy holder to attend and vote at the meeting.

12.10

Deposit of Proxy

A proxy for a meeting of shareholders must:

(1)

be received at the registered office of the Company or at any other place specified, in the notice calling the meeting, for the receipt of proxies, at least the number of business days specified in the notice, or if no number of days is specified, two business days before the day set for the holding of the meeting; or

(2)

unless the notice provides otherwise, be provided, at the meeting, to the chair of the meeting or to a person designated by the chair of the meeting.

A proxy may be sent to the Company by written instrument, fax or any other method of transmitting legibly recorded messages.

12.11

Validity of Proxy Vote

A vote given in accordance with the terms of a proxy is valid notwithstanding the death or incapacity of the shareholder giving the proxy and despite the revocation of the proxy or the revocation of the authority under which the proxy is given, unless notice in writing of that death, incapacity or revocation is received:

(1)

at the registered office of the Company, at any time up to and including the last business day before the day set for the holding of the meeting at which the proxy is to be used; or

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(2)

by the chair of the meeting, before the vote is taken.

12.12

Form of Proxy

A proxy, whether for a specified meeting or otherwise, must be either in the following form or in any other form approved by the directors or the chair of the meeting:

[name of company]
(the “Company”)

The undersigned, being a shareholder of the Company, hereby appoints [name] or, failing that person, [name], as proxy holder for the undersigned to attend, act and vote for and on behalf of the undersigned at the meeting of shareholders of the Company to be held on [month, day, year] and at any adjournment of that meeting.

Number of shares in respect of which this proxy is given (if no number is specified, then this proxy if given in respect of all shares registered in the name of the shareholder): _____________________

Signed [month, day, year]

[Signature of shareholder]

[Name of shareholder—printed]

12.13

Revocation of Proxy

Subject to Article 12.14, every proxy may be revoked by an instrument in writing that is:

(1)

received at the registered office of the Company at any time up to and including the last business day before the day set for the holding of the meeting at which the proxy is to be used; or

(2)

provided, at the meeting, to the chair of the meeting.

12.14

Revocation of Proxy Must Be Signed

An instrument referred to in Article 12.13 must be signed as follows:

(1)

if the shareholder for whom the proxy holder is appointed is an individual, the instrument must be signed by the shareholder or his or her legal personal representative or trustee in bankruptcy;

(2)

if the shareholder for whom the proxy holder is appointed is a corporation, the instrument must be signed by the corporation or by a representative appointed for the corporation under Article 12.5.

12.15

Production of Evidence of Authority to Vote

The chair of any meeting of shareholders may, but need not, inquire into the authority of any person to vote at the meeting and may, but need not, demand from that person production of evidence as to the existence of the authority to vote.

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13.

DIRECTORS

13.1

Number of Directors

The number of directors, excluding additional directors appointed under Article 14.8, is set at:

(1)

subject to paragraphs (2) and (3), the number of directors that is equal to the number of the Company’s first directors;

(2)

if the Company is a public company, the greater of three and the most recently set of:

(a)

the number of directors elected by ordinary resolution (whether or not previous notice of the resolution was given); and

(b)

the number of directors set under Article 14.4;

(3)

if the Company is not a public company, the most recently set of:

(a)

the number of directors elected by ordinary resolution (whether or not previous notice of the resolution was given); and

(c)

the number of directors set under Article 14.4.

13.2

Change in Number of Directors

If the number of directors is set under Articles 13.1(2) or 13.1(3):

(1)

the shareholders may elect or appoint the directors needed to fill any vacancies in the board of directors up to that number;

(2)

if the shareholders do not elect or appoint the directors needed to fill any vacancies in the board of directors up to that number contemporaneously with the setting of that number, then the directors may appoint, or the shareholders may elect or appoint, directors to fill those vacancies.

13.3

Directors’ Acts Valid Despite Vacancy

An act or proceeding of the directors is not invalid merely because fewer than the number of directors set or otherwise required under these Articles is in office.

13.4

Qualifications of Directors

A director is not required to hold a share in the capital of the Company as qualification for his or her office but must be qualified as required by the Business Corporations Act to become, act or continue to act as a director.

13.3

Remuneration of Directors

The directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine. If the directors so decide, the remuneration of the directors, if any, will be determined by the shareholders. That remuneration may be in addition to any salary or other remuneration paid to any officer or employee of the Company as such, who is also a director.

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13.4

Reimbursement of Expenses of Directors

The Company must reimburse each director for the reasonable expenses that he or she may incur in and about the business of the Company.

13.5

Special Remuneration for Directors

If any director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director, or if any director is otherwise specially occupied in or about the Company’s business, he or she may be paid remuneration fixed by the directors, or, at the option of that director, fixed by ordinary resolution, and such remuneration may be either in addition to, or in substitution for, any other remuneration that he or she may be entitled to receive.

13.6

Gratuity, Pension or Allowance on Retirement of Director

Unless otherwise determined by ordinary resolution, the directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any director or to his or her spouse or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.

14.

ELECTION AND REMOVAL OF DIRECTORS

14.1

Election at Annual General Meeting

At every annual general meeting and in every unanimous resolution contemplated by Article 10.2:

(1)

the shareholders entitled to vote at the annual general meeting for the election of directors must elect, or in the unanimous resolution appoint, a board of directors consisting of the number of directors for the time being set under these Articles; and

(2)

those directors whose term of office expires at the annual general meeting cease to hold office immediately before the election or appointment of directors under paragraph (1), but are eligible for re-election or re-appointment.

14.2

Consent to be a Director

No election, appointment or designation of an individual as a director is valid unless:

(1)

that individual consents to be a director in the manner provided for in the Business Corporations Act; or

(2)

that individual is elected or appointed at a meeting at which the individual is present and the individual does not refuse, at the meeting, to be a director.

14.3

Failure to Elect or Appoint Directors

If:

(1)

the Company fails to hold an annual general meeting, and all the shareholders who are entitled to vote at an annual general meeting fail to pass the unanimous resolution contemplated by Article 10.2, on or before the date by which the annual general meeting is required to be held under the Business Corporations Act; or

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(2)

the shareholders fail, at the annual general meeting or in the unanimous resolution contemplated by Article 10.2, to elect or appoint any directors;

then each director then in office continues to hold office until the earlier of:

(3)

the date on which his or her successor is elected or appointed; and

(4)

the date on which he or she otherwise ceases to hold office under the Business Corporations Act or these Articles.

14.4

Places of Retiring Directors Not Filled

If, at any meeting of shareholders at which there should be an election of directors, the places of any of the retiring directors are not filled by that election, those retiring directors who are not re-elected and who are asked by the newly elected directors to continue in office will, if willing to do so, continue in office to complete the number of directors for the time being set pursuant to these Articles until further new directors are elected at a meeting of shareholders convened for that purpose. If any such election or continuance of directors does not result in the election or continuance of the number of directors for the time being set pursuant to these Articles, the number of directors of the Company is deemed to be set at the number of directors actually elected or continued in office.

14.5

Directors May Fill Casual Vacancies

Any casual vacancy occurring in the board of directors may be filled by the directors.

14.6

Remaining Directors Power to Act

The directors may act notwithstanding any vacancy in the board of directors, but if the Company has fewer directors in office than the number set pursuant to these Articles as the quorum of directors, the directors may only act for the purpose of appointing directors up to that number or of summoning a meeting of shareholders for the purpose of filling any vacancies on the board of directors or, subject to the Business Corporations Act, for any other purpose.

14.7

Shareholders May Fill Vacancies

If the Company has no directors or fewer directors in office than the number set pursuant to these Articles as the quorum of directors, the shareholders may elect or appoint directors to fill any vacancies on the board of directors.

14.8

Additional Directors

Notwithstanding Articles 13.1 and 13.2, between annual general meetings or unanimous resolutions contemplated by Article 10.2, the directors may appoint one or more additional directors, but the number of additional directors appointed under this Article 14.8 must not at any time exceed in any other case, one-third of the number of the current directors who were elected or appointed as directors other than under this Article 14.8.

Any director so appointed ceases to hold office immediately before the next election or appointment of directors under Article 14.1(1), but is eligible for re-election or re-appointment.

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14.9

Ceasing to be a Director

A director ceases to be a director when:

(1)

the term of office of the director expires;

(2)

the director dies;

(3)

the director resigns as a director by notice in writing provided to the Company or a lawyer for the Company; or

(4)

the director is removed from office pursuant to Articles 14.10 or 14.11.

14.10

Removal of Director by Shareholders

The Company may remove any director before the expiration of his or her term of office by special resolution. In that event, the shareholders may elect, or appoint by ordinary resolution, a director to fill the resulting vacancy. If the shareholders do not elect or appoint a director to fill the resulting vacancy contemporaneously with the removal, then the directors may appoint or the shareholders may elect, or appoint by ordinary resolution, a director to fill that vacancy.

14.11

Removal of Director by Directors

The directors may remove any director before the expiration of his or her term of office if the director is convicted of an indictable offence, or if the director ceases to be qualified to act as a director of a company and does not promptly resign, and the directors may appoint a director to fill the resulting vacancy.

15.

ALTERNATE DIRECTORS

15.1

Appointment of Alternate Director

Any director (an “appointor”) may by notice in writing received by the Company appoint any person (an “appointee”) who is qualified to act as a director to be his or her alternate to act in his or her place at meetings of the directors or committees of the directors at which the appointor is not present unless (in the case of an appointee who is not a director) the directors have reasonably disapproved the appointment of such person as an alternate director and have given notice to that effect to his or her appointor within a reasonable time after the notice of appointment is received by the Company.

15.2

Notice of Meetings

Every alternate director so appointed is entitled to notice of meetings of the directors and of committees of the directors of which his or her appointor is a member and to attend and vote as a director at any such meetings at which his or her appointor is not present.

15.3

Alternate for More Than One Director Attending Meetings

A person may be appointed as an alternate director by more than one director, and an alternate director:

(1)

will be counted in determining the quorum for a meeting of directors once for each of his or her appointors and, in the case of an appointee who is also a director, once more in that capacity;

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(2)

has a separate vote at a meeting of directors for each of his or her appointors and, in the case of an appointee who is also a director, an additional vote in that capacity;

(3)

will be counted in determining the quorum for a meeting of a committee of directors once for each of his or her appointors who is a member of that committee and, in the case of an appointee who is also a member of that committee as a director, once more in that capacity;

(4)

has a separate vote at a meeting of a committee of directors for each of his or her appointors who is a member of that committee and, in the case of an appointee who is also a member of that committee as a director, an additional vote in that capacity.

15.4

Consent Resolutions

Every alternate director, if authorized by the notice appointing him or her, may sign in place of his or her appointor any resolutions to be consented to in writing.

15.5

Alternate Director Not an Agent

Every alternate director is deemed not to be the agent of his or her appointor.

15.6

Revocation of Appointment of Alternate Director

An appointor may at any time, by notice in writing received by the Company, revoke the appointment of an alternate director appointed by him or her.

15.7

Ceasing to be an Alternate Director

The appointment of an alternate director ceases when:

(1)

his or her appointor ceases to be a director and is not promptly re-elected or re-appointed;

(2)

the alternate director dies;

(3)

the alternate director resigns as an alternate director by notice in writing provided to the Company or a lawyer for the Company;

(4)

the alternate director ceases to be qualified to act as a director; or

(5)

his or her appointor revokes the appointment of the alternate director.

15.8

Remuneration and Expenses of Alternate Director

The Company may reimburse an alternate director for the reasonable expenses that would be properly reimbursed if he or she were a director, and the alternate director is entitled to receive from the Company such proportion, if any, of the remuneration otherwise payable to the appointor as the appointor may from time to time direct.

16.

POWERS AND DUTIES OF DIRECTORS

16.1

Powers of Management

The directors must, subject to the Business Corporations Act and these Articles, manage or supervise the management of the business and affairs of the Company and have the authority to exercise all such

22

powers of the Company as are not, by the Business Corporations Act or by these Articles, required to be exercised by the shareholders of the Company.

16.2

Appointment of Attorney of Company

The directors may from time to time, by power of attorney or other instrument, under seal if so required by law, appoint any person to be the attorney of the Company for such purposes, and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the directors under these Articles and excepting the power to fill vacancies in the board of directors, to remove a director, to change the membership of, or fill vacancies in, any committee of the directors, to appoint or remove officers appointed by the directors and to declare dividends) and for such period, and with such remuneration and subject to such conditions as the directors may think fit. Any such power of attorney may contain such provisions for the protection or convenience of persons dealing with such attorney as the directors think fit. Any such attorney may be authorized by the directors to sub-delegate all or any of the powers, authorities and discretions for the time being vested in him or her.

16.3

Remuneration of Auditor

The directors may set the remuneration of the auditor.

17.

DISCLOSURE OF INTEREST OF DIRECTORS

17.1

Obligation to Account for Profits

A director or senior officer who holds a disclosable interest (as that term is used in the Business Corporations Act) in a contract or transaction into which the Company has entered or proposes to enter is liable to account to the Company for any profit that accrues to the director or senior officer under or as a result of the contract or transaction only if and to the extent provided in the Business Corporations Act.

17.2

Restrictions on Voting by Reason of Interest

A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter is not entitled to vote on any directors’ resolution to approve that contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution.

17.3

Interested Director Counted in Quorum

A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter and who is present at the meeting of directors at which the contract or transaction is considered for approval may be counted in the quorum at the meeting whether or not the director votes on any or all of the resolutions considered at the meeting.

17.4

Disclosure of Conflict of Interest or Property

A director or senior officer who holds any office or possesses any property, right or interest that could result, directly or indirectly, in the creation of a duty or interest that materially conflicts with that individual’s duty or interest as a director or senior officer, must disclose the nature and extent of the conflict as required by the Business Corporations Act.

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17.5

Director Holding Other Office in the Company

A director may hold any office or place of profit with the Company, other than the office of auditor of the Company, in addition to his or her office of director for the period and on the terms (as to remuneration or otherwise) that the directors may determine.

17.6

No Disqualification

No director or intended director is disqualified by his or her office from contracting with the Company either with regard to the holding of any office or place of profit the director holds with the Company or as vendor, purchaser or otherwise, and no contract or transaction entered into by or on behalf of the Company in which a director is in any way interested is liable to be voided for that reason.

17.7

Professional Services by Director or Officer

Subject to the Business Corporations Act, a director or officer, or any person in which a director or officer has an interest, may act in a professional capacity for the Company, except as auditor of the Company, and the director or officer or such person is entitled to remuneration for professional services as if that director or officer were not a director or officer.

17.8

Director or Officer in Other Corporations

A director or officer may be or become a director, officer or employee of, or otherwise interested in, any person in which the Company may be interested as a shareholder or otherwise, and, subject to the Business Corporations Act, the director or officer is not accountable to the Company for any remuneration or other benefits received by him or her as director, officer or employee of, or from his or her interest in, such other person.

18.

PROCEEDINGS OF DIRECTORS

18.1

Meetings of Directors

The directors may meet together for the conduct of business, adjourn and otherwise regulate their meetings as they think fit, and meetings of the directors held at regular intervals may be held at the place, at the time and on the notice, if any, as the directors may from time to time determine.

18.2

Voting at Meetings

Questions arising at any meeting of directors are to be decided by a majority of votes and, in the case of an equality of votes, the chair of the meeting has a second or casting vote.

18.3

Chair of Meetings

The following individual is entitled to preside as chair at a meeting of directors:

(1)

the chair of the board, if any;

(2)

in the absence of the chair of the board or if designated by the chair, the president, a  director or other officer; or

(3)

any other director or officer chosen by the directors if:

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(a)

neither the chair of the board nor the president is present at the meeting within 15 minutes after the time set for holding the meeting;

(b)

neither the chair of the board nor the president is willing to chair the meeting; or

(c)

the chair of the board and the president have advised the secretary, if any, or any other director, that they will not be present at the meeting.

18.4

Meetings by Telephone or Other Communications Medium

A director may participate in a meeting of the directors or of any committee of the directors in person or by telephone if all directors participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other. A director may participate in a meeting of the directors or of any committee of the directors by a communications medium other than telephone if all directors participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other and if all directors who wish to participate in the meeting agree to such participation. A director who participates in a meeting in a manner contemplated by this Article 18.4 is deemed for all purposes of the Business Corporations Act and these Articles to be present at the meeting and to have agreed to participate in that manner.

18.5

Calling of Meetings

A director may, and the secretary or an assistant secretary of the Company, if any, on the request of a director must, call a meeting of the directors at any time.

18.6

Notice of Meetings

Other than for meetings held at regular intervals as determined by the directors pursuant to Article 18.1, reasonable notice of each meeting of the directors, specifying the place, day and time of that meeting must be given to each of the directors and the alternate directors by any method set out in Article 24.1 or orally or by telephone.

18.7

When Notice Not Required

It is not necessary to give notice of a meeting of the directors to a director or an alternate director if:

(1)

the meeting is to be held immediately following a meeting of shareholders at which that director was elected or appointed, or is the meeting of the directors at which that director is appointed; or

(2)

the director or alternate director, as the case may be, has waived notice of the meeting.

18.8

Meeting Valid Despite Failure to Give Notice

The accidental omission to give notice of any meeting of directors to, or the non-receipt of any notice by, any director or alternate director, does not invalidate any proceedings at that meeting.

18.9

Waiver of Notice of Meetings

Any director or alternate director may send to the Company a document signed by him or her waiving notice of any past, present or future meeting or meetings of the directors and may at any time withdraw that waiver with respect to meetings held after that withdrawal. After sending a waiver with respect to all

25

future meetings and until that waiver is withdrawn, no notice of any meeting of the directors need be given to that director and, unless the director otherwise requires by notice in writing to the Company, to his or her alternate director, and all meetings of the directors so held are deemed not to be improperly called or constituted by reason of notice not having been given to such director or alternate director.

18.10

Quorum

The quorum necessary for the transaction of the business of the directors may be set by the directors and, if not so set, is deemed to be set at two directors or, if the number of directors is set at one, is deemed to be set at one director, and that director may constitute a meeting.

18.11

Validity of Acts Where Appointment Defective

Subject to the Business Corporations Act, an act of a director or officer is not invalid merely because of an irregularity in the election or appointment or a defect in the qualification of that director or officer.

18.12

Consent Resolutions in Writing

A resolution of the directors or of any committee of the directors consented to in writing by all of the directors entitled to vote on it, whether by signed document, fax, email or any other method of transmitting legibly recorded messages, is as valid and effective as if it had been passed at a meeting of the directors or of the committee of the directors duly called and held. Such resolution may be in two or more counterparts which together are deemed to constitute one resolution in writing. A resolution passed in that manner is effective on the date stated in the resolution or on the latest date stated on any counterpart. A resolution of the directors or of any committee of the directors passed in accordance with this Article 18.12 is deemed to be a proceeding at a meeting of directors or of the committee of the directors and to be as valid and effective as if it had been passed at a meeting of the directors or of the committee of the directors that satisfies all the requirements of the Business Corporations Act and all the requirements of these Articles relating to meetings of the directors or of a committee of the directors.

19.

EXECUTIVE AND OTHER COMMITTEES

19.1

Appointment and Powers of Executive Committee

The directors may, by resolution, appoint an executive committee consisting of the director or directors that they consider appropriate, and this committee has, during the intervals between meetings of the board of directors, all of the directors’ powers, except:

(1)

the power to fill vacancies in the board of directors;

(2)

the power to remove a director;

(3)

the power to change the membership of, or fill vacancies in, any committee of the directors; and

(4)

such other powers, if any, as may be set out in the resolution or any subsequent directors’ resolution.

19.2

Appointment and Powers of Other Committees

The directors may, by resolution:

26

(1)

appoint one or more committees (other than the executive committee) consisting of the director or directors that they consider appropriate;

(2)

delegate to a committee appointed under paragraph (1) any of the directors’ powers, except:

(a)

the power to fill vacancies in the board of directors;

(b)

the power to remove a director;

(c)

the power to change the membership of, or fill vacancies in, any committee of the directors; and

(d)

the power to appoint or remove officers appointed by the directors; and

(3)

make any delegation referred to in paragraph (2) subject to the conditions set out in the resolution or any subsequent directors’ resolution.

19.3

Obligations of Committees

Any committee appointed under Articles 19.1 or 19.2, in the exercise of the powers delegated to it, must:

(1)

conform to any rules that may from time to time be imposed on it by the directors; and

(2)

report every act or thing done in exercise of those powers at such times and in such manner and form as the directors may require.

19.4

Powers of Board

The directors may, at any time, with respect to a committee appointed under Articles 19.1 or 19.2:

(1)

revoke or alter the authority given to the committee, or override a decision made by the committee, except as to acts done before such revocation, alteration or overriding;

(2)

terminate the appointment of, or change the membership of, the committee; and

(3)

fill vacancies in the committee.

19.5

Committee Meetings

Subject to Article 19.3(1) and unless the directors otherwise provide in the resolution appointing the committee or in any subsequent resolution, with respect to a committee appointed under Articles 19.1 or 19.2:

(1)

the committee may meet and adjourn as it thinks proper;

(2)

the committee may elect a chair of its meetings but, if no chair of a meeting is elected, or if at a meeting the chair of the meeting is not present within 15 minutes after the time set for holding the meeting, the directors present who are members of the committee may choose one of their number to chair the meeting;

(3)

a majority of the members of the committee constitutes a quorum of the committee; and

27

(4)

questions arising at any meeting of the committee are determined by a majority of votes of the members present, and in case of an equality of votes, the chair of the meeting does not have a second or casting vote.

20.

OFFICERS

20.1

Directors May Appoint Officers

The directors may, from time to time, appoint such officers, if any, as the directors determine and the directors may, at any time, terminate any such appointment.

20.2

Functions, Duties and Powers of Officers

The directors may, for each officer:

(1)

determine the functions and duties of the officer;

(2)

entrust to and confer on the officer any of the powers exercisable by the directors on such terms and conditions and with such restrictions as the directors think fit; and

(3)

revoke, withdraw, alter or vary all or any of the functions, duties and powers of the officer.

20.3

Qualifications

No officer may be appointed unless that officer is qualified in accordance with the Business Corporations Act. One person may hold more than one position as an officer of the Company. Any person appointed as the chair of the board or as the managing director must be a director. Any other officer need not be a director.

20.4

Remuneration and Terms of Appointment

All appointments of officers are to be made on the terms and conditions and at the remuneration (whether by way of salary, fee, commission, participation in profits or otherwise) that the directors thinks fit and are subject to termination at the pleasure of the directors, and an officer may in addition to such remuneration be entitled to receive, after he or she ceases to hold such office or leaves the employment of the Company, a pension or gratuity.

21.

INDEMNIFICATION

21.1Mandatory Indemnification of Directors and Officers

The directors must cause the Company to indemnify its directors and officers, and former directors and officers, and alternate directors, and their respective heirs and personal or other legal representatives to the greatest extent permitted by the Business Corporations Act.  Each director and officer is deemed to have contracted with the Company on the terms of the indemnity referred to in this section.

21.2Mandatory Payment of Directors and Officers’ Expenses

The directors must cause the Company to pay the expenses reasonably and actually incurred by its directors and officers, and former directors and officers, and alternate directors, and their respective heirs and personal or other legal representatives to the greatest extent permitted by the Business Corporations

28

Act.  Each director and officer is deemed to have contracted with the Company on the terms of the indemnity referred to in this section.

21.3

Indemnification

Subject to any restrictions in the Business Corporations Act and these Articles, the Company may indemnify any person.

21.4

Non-Compliance with Business Corporations Act

The failure of a director, alternate director or officer of the Company to comply with the Business Corporations Act or these Articles does not invalidate any indemnity to which he or she is entitled under this Part.

21.5

Company May Purchase Insurance

The Company may purchase and maintain insurance for the benefit of any person (or his or her heirs or legal personal representatives) who:

(1)

is or was a director, alternate director, officer, employee or agent of the Company;

(2)

is or was a director, alternate director, officer, employee or agent of a corporation at a time when the corporation is or was an affiliate of the Company;

(3)

at the request of the Company, is or was a director, alternate director, officer, employee or agent of a corporation or of a partnership, trust, joint venture or other unincorporated entity;

(4)

at the request of the Company, holds or held a position equivalent to that of a director, alternate director or officer of a partnership, trust, joint venture or other unincorporated entity;

against any liability incurred by him or her as such director, alternate director, officer, employee or agent or person who holds or held such equivalent position.

22.

DIVIDENDS

22.1

Payment of Dividends Subject to Special Rights

The provisions of this Article 22 are subject to the rights, if any, of shareholders holding shares with special rights as to dividends.

22.2

Declaration of Dividends

Subject to the Business Corporations Act, the directors may from time to time declare and authorize payment of such dividends as they may deem advisable.

22.3

No Notice Required

The directors need not give notice to any shareholder of any declaration under Article 22.2.

22.4

Record Date

The directors may set a date as the record date for the purpose of determining shareholders entitled to receive payment of a dividend. The record date must not precede the date on which the dividend is to be

29

paid by more than two months. If no record date is set, the record date is 5 p.m. on the date on which the directors pass the resolution declaring the dividend.

22.5

Manner of Paying Dividend

A resolution declaring a dividend may direct payment of the dividend wholly or partly by the distribution of specific assets or of fully paid shares or of bonds, debentures or other securities of the Company, or in any one or more of those ways.

22.6

Settlement of Difficulties

If any difficulty arises in regard to a distribution under Article 22.5, the directors may settle the difficulty as they deem advisable, and, in particular, may:

(1)

set the value for distribution of specific assets;

(2)

determine that cash payments in substitution for all or any part of the specific assets to which any shareholders are entitled may be made to any shareholders on the basis of the value so fixed in order to adjust the rights of all parties; and

(3)

vest any such specific assets in trustees for the persons entitled to the dividend.

22.7

When Dividend Payable

Any dividend may be made payable on such date as is fixed by the directors.

22.8

Dividends to be Paid in Accordance with Number of Shares

All dividends on shares of any class or series of shares must be declared and paid according to the number of such shares held.

22.9

Receipt by Joint Shareholders

If several persons are joint shareholders of any share, any one of them may give an effective receipt for any dividend, bonus or other money payable in respect of the share.

22.10

Dividend Bears No Interest

No dividend bears interest against the Company.

22.11

Fractional Dividends

If a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the currency of the dividend, that fraction may be disregarded in making payment of the dividend and that payment represents full payment of the dividend.

22.12

Payment of Dividends

Any dividend or other distribution payable in cash in respect of shares may be paid by cheque, made payable to the order of the person to whom it is sent, and mailed to the address of the shareholder, or in the case of joint shareholders, to the address of the joint shareholder who is first named on the central securities register, or to the person and to the address the shareholder or joint shareholders may direct in writing. The mailing of such cheque will, to the extent of the sum represented by the cheque (plus the

30

amount of the tax required by law to be deducted), discharge all liability for the dividend unless such cheque is not paid on presentation or the amount of tax so deducted is not paid to the appropriate taxing authority.

22.13

Capitalization of Surplus

Notwithstanding anything contained in these Articles, the directors may from time to time capitalize any surplus of the Company and may from time to time issue, as fully paid, shares or any bonds, debentures or other securities of the Company as a dividend representing the surplus or any part of the surplus.

23.

DOCUMENTS, RECORDS AND REPORTS

23.1

Recording of Financial Affairs

The directors must cause adequate accounting records to be kept to record properly the financial affairs and condition of the Company and to comply with the Business Corporations Act.

23.2

Inspection of Accounting Records

Unless the directors determine otherwise, or unless otherwise determined by ordinary resolution, no shareholder of the Company is entitled to inspect or obtain a copy of any accounting records of the Company.

24.

NOTICES

24.1

Method of Giving Notice

Unless the Business Corporations Act or these Articles provides otherwise, a notice, statement, report or other record required or permitted by the Business Corporations Act or these Articles to be sent by or to a person may be sent by any one of the following methods:

(1)

mail addressed to the person at the applicable address for that person as follows:

(a)

for a record mailed to a shareholder, the shareholder’s registered address;

(b)

for a record mailed to a director or officer, the prescribed address for mailing shown for the director or officer in the records kept by the Company or the mailing address provided by the recipient for the sending of that record or records of that class;

(c)

in any other case, the mailing address of the intended recipient;

(2)

delivery at the applicable address for that person as follows, addressed to the person:

(a)

for a record delivered to a shareholder, the shareholder’s registered address;

(b)

for a record delivered to a director or officer, the prescribed address for delivery shown for the director or officer in the records kept by the Company or the delivery address provided by the recipient for the sending of that record or records of that class;

(c)

in any other case, the delivery address of the intended recipient;

(3)

sending the record by fax to the fax number provided by the intended recipient for the sending of that record or records of that class;

31

(4)

sending the record by email to the email address provided by the intended recipient for the sending of that record or records of that class;

(5)

physical delivery to the intended recipient.

24.2

Deemed Receipt of Mailing

A record that is mailed to a person by ordinary mail to the applicable address for that person referred to in Article 24.1 is deemed to be received by the person to whom it was mailed on the day, Saturdays, Sundays and holidays excepted, following the date of mailing.

24.3

Certificate of Sending

A certificate signed by the secretary, if any, or other officer of the Company or of any other corporation acting in that behalf for the Company stating that a notice, statement, report or other record was addressed as required by Article 24.1, prepaid and mailed or otherwise sent as permitted by Article 24.1 is conclusive evidence of that fact.

24.4

Notice to Joint Shareholders

A notice, statement, report or other record may be provided by the Company to the joint shareholders of a share by providing the notice to the joint shareholder first named in the central securities register in respect of the share.

24.5

Notice to Trustees

A notice, statement, report or other record may be provided by the Company to the persons entitled to a share in consequence of the death, bankruptcy or incapacity of a shareholder by:

(1)

mailing the record, addressed to them:

(a)

by name, by the title of the legal personal representative of the deceased or incapacitated shareholder, by the title of trustee of the bankrupt shareholder or by any similar description; and

(b)

at the address, if any, supplied to the Company for that purpose by the persons claiming to be so entitled; or

(2)

if an address referred to in paragraph (1)(b) has not been supplied to the Company, by giving the notice in a manner in which it might have been given if the death, bankruptcy or incapacity had not occurred.

25.

SEAL

25.1

Who May Attest Seal

Except as provided in Articles 25.2 and 25.3, the Company’s seal, if any, must not be impressed on any record except when that impression is attested by the signatures of:

(1)

any two directors;

(2)

any officer, together with any director;

32

(3)

if the Company only has one director, that director; or

(4)

any one or more directors or officers or persons as may be determined by the directors.

25.2

Sealing Copies

For the purpose of certifying under seal a certificate of incumbency of the directors or officers of the Company or a true copy of any resolution or other document, despite Article 25.1, the impression of the seal may be attested by the signature of any director or officer.

25.3

Mechanical Reproduction of Seal

The directors may authorize the seal to be impressed by third parties on share certificates or bonds, debentures or other securities of the Company as they may determine appropriate from time to time. To enable the seal to be impressed on any share certificates or bonds, debentures or other securities of the Company, whether in definitive or interim form, on which facsimiles of any of the signatures of the directors or officers of the Company are, in accordance with the Business Corporations Act or these Articles, printed or otherwise mechanically reproduced, there may be delivered to the person employed to engrave, lithograph or print such definitive or interim share certificates or bonds, debentures or other securities one or more unmounted dies reproducing the seal and the chair of the board or any senior officer together with the secretary, treasurer, secretary-treasurer, an assistant secretary, an as sistant treasurer or an assistant secretary-treasurer may in writing authorize such person to cause the seal to be impressed on such definitive or interim share certificates or bonds, debentures or other securities by the use of such dies. Share certificates or bonds, debentures or other securities to which the seal has been so impressed are for all purposes deemed to be under and to bear the seal impressed on them.

26.

PROHIBITIONS

26.1

Definitions

In this Article 26:

(1)

“designated security” means:

(a)

a voting security of the Company;

(b)

a security of the Company that is not a debt security and that carries a residual right to participate in the earnings of the Company or, on the liquidation or winding up of the Company, in its assets; or

(c)

a security of the Company convertible, directly or indirectly, into a security described in paragraph (a) or (b);

(2)

“security” has the meaning assigned in the Securities Act (British Columbia);

(3)

“voting security” means a security of the Company that:

(a)

is not a debt security, and

(b)

carries a voting right either under all circumstances or under some circumstances that have occurred and are continuing.

33

26.2

Application

Article 26.3 does not apply to the Company if and for so long as it is a public company or a pre-existing reporting company which has the Statutory Reporting Company Provisions as part of its Articles or to which the Statutory Reporting Company Provisions apply.

26.3

Consent Required for Transfer of Shares or Designated Securities

No share or designated security may be sold, transferred or otherwise disposed of without the consent of the directors and the directors are not required to give any reason for refusing to consent to any such sale, transfer or other disposition.

34

EX-2.1

SHAREHOLDER RIGHTS PLAN AGREEMENT

BETWEEN

SOUTHWESTERN RESOURCES CORP.

AND

COMPUTERSHARE INVESTOR SERVICES INC.

Made as of July 23, 2007

SANGRA MOLLER LLP

1000 CATHEDRAL PLACE

925 WEST GEORGIA STREET

VANCOUVER, BC  V6C 3L2

TABLE OF CONTENTS

SHAREHOLDER RIGHTS PLAN AGREEMENT

THIS AGREEMENT is made as of the 23^rd day of July, 2007 between:

SOUTHWESTERN RESOURCES CORP., a corporation incorporated pursuant to the Business Corporations Act (British Columbia) (the "Corporation")

- and -

COMPUTERSHARE INVESTOR SERVICES INC., a corporation incorporated under the laws of Canada (the "Rights Agent").

WHEREAS:

A.

The Board of Directors has determined that it is advisable to adopt a shareholder rights plan (the "Rights Plan") to ensure, to the extent possible, that (a) all shareholders of the Corporation are treated fairly in connection with any take-over offer for the Corporation or other acquisition of control of the Corporation and that (b) the Board of Directors are provided with sufficient time to evaluate take-over bids and to explore and develop alternatives to maximize shareholder value.

B.

In order to implement the Rights Plan, the Board of Directors has:

(a)

authorized and declared a distribution of one right (a "Right") effective at the Close of Business at the Record Time in respect of each Common Share outstanding at the Close of Business at the Record Time;

(b)

authorized the issuance of one Right in respect of each Common Share issued after the Record Time and prior to the earlier of the Separation Time and the Expiration Time; and

(c)

authorized the issuance of Rights Certificates to holders of Rights pursuant to the terms and subject to the conditions set forth herein.

C.

Each Right entitles the holder thereof, after the Separation Time, to purchase securities of

the Corporation pursuant to the terms and subject to the conditions set forth herein.

D.

The Corporation desires to appoint the Rights Agent to act on behalf of the Corporation, and the Rights Agent is willing to so act, in connection with the issuance, transfer, exchange and replacement of Rights Certificates, the exercise of Rights and other matters referred to herein.

NOW THEREFORE, in consideration of the premises and respective agreements set forth herein, the parties hereby agree as set forth below.

2

ARTICLE 1.
INTERPRETATION

1.1

Certain Definitions

For the purposes of this agreement, including the recitals hereto, the terms set forth below have the meanings indicated.

(a)

"Acquiring Person" means any Person who is the Beneficial Owner of 20% or more of the outstanding Common Shares, but does not include:

(i)

The Corporation or any Subsidiary of the Corporation;

(ii)

any Person who becomes the Beneficial Owner of 20% or more of the outstanding Common Shares as a result of one or any combination of

(A)

a Common Share Reduction,

(B)

a Permitted Bid Acquisition,

(C)

an Exempt Acquisition, and

(D)

a Pro Rata Acquisition,

provided, however, that if a Person shall become the Beneficial Owner of 20% or more of the outstanding Common Shares by reason of one or any combination of a Common Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition and a Pro Rata Acquisition, and thereafter becomes the Beneficial Owner of more than an additional 1.0% of the number of Common Shares outstanding pursuant to one or any combination of a Common Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition or a Pro Rata Acquisition or any combination thereof, then, as of the date that such Person becomes a Beneficial Owner of such additional Common Shares, such Person shall become an "Acquiring Person";

(iii)

for the period of 10 days after the Disqualification Date (as hereinafter defined), any Person who becomes the Beneficial Owner of 20% or more of the outstanding Common Shares as a result of such Person becoming disqualified from relying on Clause 1.1(d)(ii)(B) where such disqualification results solely because such Person is making or has announced a current intention to make a Take-over Bid, either alone or by acting jointly or in concert with any other Person, unless such disqualified Person during such 10 day period acquires more than 1.0% of the number of Common Shares then outstanding in addition to those Common Shares

3

such disqualified Person already holds. For the purposes of this definition, "Disqualification Date" means the first date of public announcement that such Person is making or intends to make a Take-over Bid, either alone or by acting jointly or in concert with another Person; or

(iv)

an underwriter or a member of a banking or selling group that becomes the Beneficial Owner of 20% or more of the Common Shares in connection with a distribution of securities pursuant to an underwriting agreement with the Corporation.

(b)

"Affiliate", when used to indicate a relationship with a specified company or corporation, means a Person that directly, or indirectly, controls, or is controlled by, or is under common control with, such specified company or corporation.

(c)

"Associate", when used to indicate a relationship with a specified Person, means any relative of such specified Person who has the same home as such specified Person, or any person to whom such specified Person is married, or any person with whom such specified Person is living in a conjugal relationship outside marriage, or any relative of such spouse or other Person who has the same home as such specified Person, or a child of such specified Person.

(d)

(i)

A Person shall be deemed the "Beneficial Owner" of, and to have

"Beneficial Ownership" of, and to "Beneficially Own":

(A)

any securities of which such Person or any of such Person's Affiliates or Associates is the owner at law or in equity;

(B)

any securities of which such Person or any of such Person's Affiliates or Associates has the right to acquire within 60 days (whether such right is exercisable immediately or within a period of 60 days thereafter and whether or not on the condition or occurrence of a contingency or the making of one or more payments) upon the conversion, exchange or exercise of any Convertible Security or pursuant to any agreement, arrangement, pledge or understanding, whether or not in writing, other than:

(1)

customary agreements with and between underwriters and banking group or selling group members with respect to a distribution of securities, and

(2)

pledges of securities in the ordinary course of the pledgee's business; and

(C)

any securities that are Beneficially Owned within the meaning of Clauses 1.1(d)(i)(A) or 1.1(d)(i)(B) by any other Person with which such Person is acting jointly or in concert.

4

(ii)

Notwithstanding the provisions of Clause 1.1(d)(i), a Person shall not be deemed the "Beneficial Owner" of, or to have "Beneficial Ownership" of, or to "Beneficially Own", any security because:

(A)

(1)

the holder of such security has agreed to deposit or tender

such security to a Take-over Bid made by such Person or   any of such Person's Affiliates or Associates or any other   Person referred to in Clause 1.1(d)(i)(C) pursuant to a   Permitted Lock-up Agreement, or

(2)

such security has been deposited or tendered pursuant to a

Take-over Bid made by such Person or any of such   Person's Affiliates or Associates or made by any other   Person acting jointly or in concert with such Person until   such deposited or tendered security has been taken up;

(B)

such Person, any Affiliate or Associate of such Person or any other Person acting jointly or in concert with such Person holds such security; provided that:

(1)

the ordinary business of such Person (the "Portfolio Manager") includes the management or administration of investment funds for other Persons and such security is held by the Portfolio Manager in the ordinary course of such business in the performance of the Portfolio Manager's duties for the account of any other Person (a "Client"), including non-discretionary accounts held on behalf of a Client by a broker or dealer appropriately registered under applicable law,

(2)

the ordinary business of such Person (the "Fund Manager") is manager or trustee of one or more mutual funds registered or qualified to issue its securities under the laws of Canada or the United States of America or any province or state thereof (each, a "Mutual Fund"), or is a Mutual Fund, and holds such security for the purposes of its activity as such Fund Manager or Mutual Fund,

(3)

such Person (the "Trust Company") is licensed to carry on the business of a trust company under applicable laws and, as such, acts as trustee or administrator or in a similar capacity in relation to the estates of deceased or incompetent Persons (each, an "Estate Account") or in relation to other accounts (each, an "Other Account") and holds such security in the ordinary course of such duties for such Estate Accounts or for such Other Accounts,

(4)

such Person (the "Crown Agent") is established by statute for purposes that include, and the ordinary business or

5

activity of such Person includes, the management of investment funds for employee benefit plans, pension plans, insurance plans, or various public bodies, or

(5)

such Person (the "Plan Administrator") is the administrator or the trustee of one or more pension funds or plans registered under the laws of Canada or the United States of America or any province or state thereof (each, a "Plan"), or is a Plan, and holds such security for the purposes of its activity as such Plan Administrator or Plan,

provided; however, that in any of the foregoing cases, the Portfolio Manager, the Fund Manager, the Mutual Fund, the Trust Company, the Crown Agent, the Plan Administrator or the Plan, as the case may be, is not then making or has not then announced an intention to make, a Take-over Bid, other than an Offer to Acquire Common Shares or other securities pursuant to a distribution by the Corporation, a Permitted Bid or by means of ordinary market transactions (including pre-arranged trades entered into in the ordinary course of business of such Person) executed through the facilities of a stock exchange or organized over-the-counter market in respect of securities of the Corporation, alone or by acting jointly or in concert with any other Person;

(C)

such Person is a Client of the same Portfolio Manager as another Person on whose account the Portfolio Manager holds such security, or because such Person is an Estate Account or an Other Account of the same Trust Company as another Person on whose account the Trust Company holds such security or because such Person is a Plan with the same Plan Administrator as another Plan on whose account the Plan Administrator holds such security;

(D)

such Person is a Client of a Portfolio Manager and such security is owned at law or in equity by the Portfolio Manager or because such Person is an Estate Account or an Other Account of a Trust Company and such security is owned at law or in equity by the Trust Company or such Person is a Plan and such security is owned at law or in equity by the Plan Administrator of such Plan; or

(E)

such Person is the registered holder of securities as a result of carrying on the business, or acting as a nominee of, a securities depositary.

For the purposes of this Agreement, in determining the percentage of the outstanding Common Shares with respect to which a Person is or is deemed to be the Beneficial Owner, any unissued Common Shares as to which such Person is deemed the Beneficial Owner pursuant to this Subsection 1.1(d) shall be deemed outstanding.

6

(e)

"Board of Directors" means the board of directors of the Corporation or any duly constituted and empowered committee thereof.

(f)

"Business Day" means any day, other than a Saturday or Sunday or a day on which banking institutions in Vancouver, British Columbia are authorized or obligated by law to close.

(g)

"Canadian Dollar Equivalent" of any amount which is expressed in United States dollars means on any day, the Canadian dollar equivalent of such amount determined by reference to the U.S. - Canadian Exchange Rate in effect on such date.

(h)

"Close of Business" on any given date means the time on such date (or, if such date is not a Business Day, the time on the next succeeding Business Day) at which the principal office of the transfer agent for the Common Shares in Vancouver, British Columbia (or after the Separation Time, the principal office of the Rights Agent in Vancouver, British Columbia) is closed to the public.

(i)

"Closing Price" per security of any securities on any date of determination means:

(i)

the closing board lot sale price or, if such price is not available, the average of the closing bid and asked prices, for each of such securities as reported by the principal stock exchange or national securities quotation system on which such securities are listed or admitted to trading (provided that, if at the date of determination such securities are listed or admitted to trading on more than one stock exchange or national securities quotation system, then such price or prices shall be determined based upon the stock exchange or quotation system on which such securities are then listed or admitted to trading on which the largest number of such securities were traded during the most recently completed calendar year);

(ii)

if for any reason none of such prices is available on such day or the securities are not listed or admitted to trading on a stock exchange or a national securities quotation system, then the last sale price, or in case no sale takes place on such date, the average of the high bid and low asked prices for each of such securities in the over-the-counter market, as quoted by any reporting system then in use; or

(iii)

if for any reason none of such prices is available on such day or the securities are not listed or admitted to trading on a stock exchange or a national securities quotation system or quoted by any such reporting system, then the average of the closing bid and asked prices as furnished by a professional market maker making a market in the securities selected in good faith by the Board of Directors,

7

provided, however, that (A) if for any reason none of such prices are available on such date, then the "Closing Price" per security of such securities on such date shall mean the fair value per security of the securities on such date as determined by a nationally or internationally recognized investment dealer or investment banker with respect to the fair value per security of such securities, and (B) if the Closing Price so determined is expressed in United States dollars, then such amount shall be converted to the Canadian Dollar Equivalent.

(j)

"Co-Rights Agents" has the meaning ascribed thereto in Subsection 4.1(a).

(k)

"Common Share Reduction" means an acquisition or redemption by the Corporation of Common Shares which, by reducing the number of Common Shares outstanding, increases the percentage of Common Shares Beneficially Owned by any Person to 20% or more of the Common Shares then outstanding.

(l)

"Common Shares" means the common class shares in the share capital of the Corporation as presently constituted, as such shares may be subdivided, consolidated, reclassified or otherwise changed from time to time.

(m)

"Competing Permitted Bid" means a Take-over Bid that:

(i)

is made after another Permitted Bid has been made and prior to the expiry of such Permitted Bid;

(ii)

satisfies all components of the definition of a Permitted Bid other than the requirement set forth in Subclause 1. 1 (ii)(ii)(A)(1); and

(iii)

contains, and the take-up and payment for securities tendered or deposited thereunder is subject to, irrevocable and unqualified conditions that no Common Shares shall be taken up or paid for pursuant to such Take-over Bid prior to the Close of Business on a date that is no earlier than the later of:

(A)

35 days after the date of such Take-over Bid, and

(B)

the earliest date on which Common Shares may be taken up or paid for under any other Permitted Bid that preceded the Competing Permitted Bid that is then in existence for the Common Shares.

(n)

"Controlled" means as follows:

(i)

a body corporate is "controlled" by another Person if:

(A)

securities entitled to vote in the election of directors carrying more than 50% of the votes for the election of directors are held, directly or indirectly, by or for the benefit of the other Person, and

8

(B)

the votes carried by such securities are entitled, if exercised, to elect a majority of the board of directors of such body corporate; and

(ii)

a Person which is not a body corporate is "controlled" by another Person if more than 50% of the voting or equity interests of such Person are held, directly or indirectly, by or for the benefit of the other Person,

and "controls", "controlling" and "under common control with" shall be interpreted accordingly.

(o)

"Convertible Security" means a security convertible or exchangeable into a Common Share.

(p)

"Disposition Date" has the meaning ascribed thereto in Subsection 5.1(b).

(q)

"Effective Date" means July 23, 2007.

(r)

"Election to Exercise" has the meaning ascribed thereto in Clause 2.2(d)(ii).

(s)

"Exchange" means the Toronto Stock Exchange and any other exchange on which the Common Shares may, from time to time, be listed for trading.

(t)

"Exempt Acquisition" means a share acquisition in respect of which the Board of Directors has waived the application of Section 3.1 pursuant to Subsections 5.1(b), 5.1(d), or 5.1(f) or which was made on or prior to the Record Time.

(u)

"Exercise Price" means, as of any date, the price at which a holder of a Right may purchase the securities issuable upon exercise of one whole Right and, until adjustment thereof in accordance with the terms hereof, the Exercise Price shall be $100.00.

(v)

"Expansion

Factor" has the meaning ascribed thereto in Subclause 2.3(b)(iv)(A)(1).

(w)

"Expiration Time" means the earlier of:

(i)

the Termination Time; and

(ii)

the Close of Business on the date on which the first annual meeting of shareholders of the Corporation following the third year anniversary of the Effective Date is held,

provided, however, that if the resolution referred to in Section 5.15 is approved by the Independent Shareholders in accordance with Section 5.15 at or prior to such annual meeting, "Expiration Time" means the earlier of:

(iii)

the Termination Time; and

9

(iv)

the Close of Business on July 24, 2013.

(x)

"Fiduciary" means a trust company registered under the trust company legislation of Canada or any province thereof, a trust company organized under the laws of any state of the United States, a portfolio manager registered under the securities legislation. of one or more provinces of Canada or an investment adviser registered under the United States Investment Advisers Act of 1940, as amended, or any other securities legislation of the United States or any state of the United States.

(y)

"Flip-in Event" means a transaction or event in or pursuant to which any Person becomes an Acquiring Person.

(z)

"Governing Corporate Law" means the Business Corporations Act (British Columbia), and the regulations thereunder, and any comparable or successor laws or regulations thereto, or the relevant corporate law that otherwise governs the Corporation by virtue of continuance or amalgamation

(aa)

INTENTIONALLY DELETED

(bb)

"holder" has the meaning ascribed thereto in Section 2.8.

(cc)

"Independent Shareholders" means holders of outstanding Common Shares, other than any:

(i)

Acquiring Person;

(ii)

Offeror, other than a Person who at the relevant time is deemed not to Beneficially Own such Common Shares by reason of Clause 1.1 (d)(ii)(B);

(iii)

Affiliate or Associate of such Acquiring Person or Offeror;

(iv)

Person acting jointly or in concert with such Acquiring Person or Offeror;

(v)

employee benefit plan, stock purchase plan, deferred profit sharing plan and any similar plan or trust for the benefit of employees of the Corporation or a Subsidiary of the Corporation, unless the beneficiaries of such plan or trust direct the manner in which the Common Shares are to be voted or withheld from voting or direct whether or not the Common Shares are to be tendered to a Take-over Bid.

(dd)

"Market Price" per security of any securities on any date of determination means the average of the daily Closing Prices per security of such securities on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date of determination; provided, however, that if an event of a type analogous to any of the events described in Section 2.3 shall have caused any Closing Price used to determine the Market Price on any Trading Day not to be fully comparable with the Closing Price on the Trading Day immediately preceding such date of determination, each such Closing Price so

10

used shall be appropriately adjusted in a mariner analogous to the applicable adjustment provided for in Section 2.3 in order to make it fully comparable with the Closing Price on the Trading Day immediately preceding such date of determination.

(ee)

"Nominee" has the meaning ascribed thereto in Subsection 2.2(c).

(ff)

"Offer to Acquire" shall include:

(i)

an offer to purchase or a solicitation of an offer to sell Common Shares, or a public announcement of an intention to make such an offer or solicitation; and

(ii)

an acceptance of an offer to sell Common Shares, whether or not such offer to sell has been solicited,

or any combination thereof, and the Person accepting an offer to sell shall be deemed to be making an Offer to Acquire to the Person that made the offer to sell.

(gg)

"Offeror" means a Person who has announced a current intention to make, or who is making, a Take-over Bid.

(hh)

"Offeror's Securities" means the aggregate of the Common Shares Beneficially Owned on the date of a Take-over Bid by an Offeror.

(ii)

"Permitted Bid" means a Take-over Bid made by way of a Take-over Bid circular and which also complies with the following additional provisions:

(i)

the Take-over Bid is made to all holders of record of Common Shares other than the Offeror, for all Common Shares held by them; and

(ii)

the Take-over Bid contains, and the take-up and payment for securities tendered or deposited thereunder is subject to, irrevocable and unqualified conditions that:

(A)

no Common Shares shall be taken up or paid for pursuant to the Take-over Bid:

(1)

prior to the Close of Business on a date which is not less than 60 days following the date of the Take-over Bid, and

(2)

unless, at the Close of Business on such date, more than 50% of the then outstanding Common Shares held by Independent Shareholders have been deposited or tendered pursuant to the Take-over Bid and have not been withdrawn,

(B)

unless the Take-over Bid is withdrawn, Common Shares may be deposited pursuant to such Take-over Bid at any time prior to the

11

Close of Business on the date of the first take-up of or payment for Common Shares,

(C)

any Common Shares deposited pursuant to the Take-over Bid may be withdrawn until taken up and paid for, and

(D)

in the event that the requirement set forth in Subclause 1.1(ii)(ii)(A)(2) is satisfied, the Offeror will make a public announcement of that fact and the Take-over Bid will remain open for deposits and tenders of Common Shares for not less than 10 Business Days from the date of such public announcement,

provided that, should a Permitted Bid cease to be a Permitted Bid because it ceases to meet any or all of the requirements mentioned above prior to the time it expires (after giving effect to any extension) or is withdrawn, then any acquisition of Common Shares made pursuant to such Permitted Bid shall not be a Permitted Bid Acquisition. The term Permitted Bid shall include a Competing Permitted Bid.

(jj)

"Permitted Bid Acquisition" means an acquisition of Common Shares made pursuant to a Permitted Bid or a Competing Permitted Bid.

(kk)

"Permitted Lock-up Agreement" means an agreement between a Person and one or more holders of Common Shares (each, a "Locked-up Person") (the terms of which are publicly disclosed and a copy of which is made available to the public, including the Corporation, not later than the date of the Lock-up Bid (as defined below) or, if the Lock-up Bid has been made prior to the date on which such agreement is entered into, not later than the first Business Day following the date of such agreement) pursuant to which each such Locked-up Person agrees to deposit or tender Common Shares to a Take-over Bid (the "Lock-up Bid") made or to be made by the Person, any of such Person's Affiliates or Associates or any other Person acting jointly or in concert with such Person, provided that:

(i)

the agreement permits any Locked-up Person to terminate its obligation to deposit or tender to or not to withdraw Common Shares from the Lock-up Bid in order to tender or deposit the Common Shares to another Take-over Bid or support another transaction:

(A)

where the price or value per Common Share offered under such other Take-over Bid or transaction is higher than the price or value per Common Share offered under the Lock-up Bid, or

(B)

if:

(1)

the price or value per Common Share offered under the other Take-over Bid or transaction exceeds by as much as or more than a specified amount (the "Specified Amount") the price or value per Common Share offered under the Lock-up Bid, provided that such Specified Amount is not

12

greater than 7% of the price or value per Common Share offered under the Lock-up Bid, or

(2)

the number of Common Shares to be purchased under the other Take-over Bid or transaction exceeds by as much as or more than a specified number (the "Specified Number") the number of Common Shares that the Offeror has offered to purchase under the Lock-up Bid at a price or value per Common Share that is not less than the price or value per Common Share offered under the Lock-up Bid, provided that the Specified Number is not greater than 7% of the number of Common Shares offered under the Lock-up Bid,

and, for greater clarity, the agreement may contain a right of first refusal or require a period of delay to give such Person an opportunity to match a higher price in another Take-over Bid or transaction or other similar limitation on a Locked-up Person's right to withdraw Common Shares from the agreement, so long as the limitation does not preclude the exercise by the Locked-up Person of the right to withdraw Common Shares during the period of the other Take-over Bid or transaction; and

(ii)

no "break-up" fees, "top-up" fees, penalties, expenses or other amounts that exceed in the aggregate the greater of:

(A)

the cash equivalent of 2.5% of the price or value of the consideration payable under the Lock-up Bid to a Locked-up Person; and

(B)

50% of the amount by which the price or value of the consideration payable under another Take-over Bid or transaction to a Locked-up Person exceeds the price or value of the consideration that such Locked-up Person would have received under the Lock-up Bid,

shall be payable by a Locked-up Person pursuant to the agreement in the event a Locked-up Person fails to deposit or tender Common Shares to the Lock-up Bid or withdraws Common Shares previously tendered thereto in order to accept the other Take-over Bid or support another transaction.

(ll)

"Person" includes any individual, firm, partnership, association, trust, trustee, executor, administrator, legal personal representative, government, governmental body or authority, corporation, or other incorporated or unincorporated organization, syndicate or other entity.

(mm)

"Pro Rata Acquisition" means an acquisition by a Person of Common Shares pursuant to:

(i)

any dividend reinvestment plan or share purchase plan of the Corporation made available to all holders of Common Shares (other than holders

13

resident in any jurisdiction where participation in any such plan is restricted or impractical as a result of applicable law);

(ii)

a stock dividend, a stock split or other event pursuant to which such Person becomes the Beneficial Owner of Common Shares on the same pro rata basis as all other holders of Common Shares of the same class or series;

(iii)

the acquisition or exercise of rights to purchase Common Shares distributed to all holders of Common Shares (other than holders resident in any jurisdiction where such distribution is restricted or impractical as a result of applicable law) by the Corporation pursuant to a rights offering (but only if such rights are acquired directly from the Corporation); or

(iv)

a distribution of Common Shares or Convertible Securities made pursuant to a prospectus or by way of a private placement or a conversion or exchange of any Convertible Security,

provided, however, that such Person does not thereby acquire a greater percentage of Common Shares or of Convertible Securities so offered than such Person's percentage of Common Shares Beneficially Owned immediately prior to such acquisition.

(nn)

"Record Time" means the Close of Business on the Effective Date.

(oo)

"Redemption Price" has the meaning attributed thereto in Subsection 5.1(a).

(pp)

"Regular Periodic Cash Dividend" means cash dividends paid on the Common Shares at regular intervals in any fiscal year of the Corporation to the extent that such cash dividends do not exceed in the aggregate in any fiscal year, on a per share basis, the greatest of:

(i)

200% of the aggregate amount of cash dividends declared payable by the Corporation on its Common Shares in its immediately preceding fiscal year divided by the number of Common Shares outstanding as at the end of such fiscal year;

(ii)

300% of the arithmetic mean of the aggregate amounts of cash dividends declared payable by the Corporation on its Common Shares in its three immediately preceding fiscal years divided by the arithmetic mean of the number of Common Shares outstanding as at the end of each of such fiscal years; and

(iii)

100% of the aggregate consolidated net income of the Corporation, before extraordinary items, for its immediately preceding fiscal year divided by the number of Common Shares outstanding as at the end of such fiscal year.

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(qq)

"Rights" means the herein described rights to purchase securities pursuant to the terms and subject to the conditions set forth herein.

(rr)

"Rights Certificate" means the certificates representing the Rights after the Separation Time which shall be substantially in the form attached hereto as Schedule A.

(ss)

"Rights Register" and "Rights Registrar" have the respective meanings ascribed thereto in Subsection 2.6(a).

(tt)

"Securities Act" means the Securities Act (British Columbia), as amended, and the rules and regulations made thereunder, as now in effect or as the same may from time to time be amended, re-enacted or replaced.

(uu)

"Separation Time" means the Close of Business on the tenth Business Day (or such later Business Day as may be determined at any time or from time to time by the Board of Directors) after the earlier of:

(i)

the Stock Acquisition Date;

(ii)

the date of the commencement of, or first public announcement or disclosure of the intent of any Person (other than the Corporation or any Subsidiary of the Corporation) to commence, a Take-over Bid (other than a Permitted Bid, so long as such Take-over Bid continues to satisfy the requirements of a Permitted Bid); and

(iii)

the date on which a Permitted Bid ceases to qualify as a Permitted Bid, provided; however, that if any such Take-over Bid expires, is cancelled, is terminated or is otherwise withdrawn prior to the Separation Time, then such Take-over Bid shall be deemed, for purposes of this Subsection 1.1(uu) never to have been made, and, provided further, that if the Board of Directors determines, pursuant to Section 5.1, to waive the application of Section 3.1 to a Flip-In Event, then the Separation Time in respect of such Flip-In Event shall be deemed never to have occurred.

(vv)

"Stock Acquisition Date" means the first date of public announcement or disclosure by the Corporation or an Acquiring Person of facts indicating that a Person has become an Acquiring Person, which, for the purposes of this definition, shall include, without limitation, a report filed pursuant to Section 111 of the Securities Act or Section 13(d) of the U.S. Exchange Act announcing or disclosing such information.

(ww)

"Subsidiary" means a body corporate that is controlled by another Person.

(xx)

"Take-over Bid" means an Offer to Acquire Common Shares or Convertible Securities where the Common Shares subject to the Offer to Acquire, together with the Common Shares into or for which the securities subject to the Offer to Acquire are convertible or exchangeable and the Offeror's Securities, constitute in

15

the aggregate 20% or more of the outstanding Common Shares at the date of the Offer to Acquire.

(yy)

"Termination Time" means the time at which the right to exercise Rights shall terminate pursuant to Section 5.1.

(zz)

"Trading Day", when used with respect to any securities, means the day on which the principal Canadian or United States securities exchange (as determined by the Board of Directors) on which such securities are listed or admitted to trading is open for the transaction of business or, if the securities are not listed or admitted to trading on any Canadian or United States securities exchange, a Business Day.

(aaa)

"U.S. - Canadian Exchange Rate" on any date means:

(i)

if on such date the Bank of Canada sets an average noon spot rate of exchange for the conversion of one United States dollar into Canadian dollars, such rate; and

(ii)

in any other case, the rate for such date for the conversion of one United States dollar into Canadian dollars which is calculated in the manner which shall be determined by the Board of Directors from time to time acting in good faith.

(bbb)

"U.S. Exchange Act" means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder as from time to time in effect, and any comparable or successor laws, rules or regulations thereto.

(ccc)

"1933 Act" means the United States Securities Act of 1933, as amended, and the rules and regulations thereunder, and any comparable or successor laws, rules or regulations thereto.

1.2

Currency

All sums of money which are referred to in this Agreement are expressed in lawful money of Canada, unless otherwise specified.

1.3

Number and Gender

Wherever the context will require, terms (including defined terms) used herein importing the singular number only shall include the plural and vice versa and words importing any one gender shall include all others.

1.4

Sections and Headings

The division of this Agreement into Articles, Sections, Subsections, clauses, subclauses and Schedules and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms this "Agreement", "hereunder", "hereof" and similar expressions refer to this Agreement as amended or

16

supplemented from time to time and not to any particular Article, Section, Subsection, clause, subclause or Schedule or other portion hereof and include any agreement or instrument supplemental or ancillary hereto. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles, Sections, Subsections, clauses, subclauses and Schedules are to Articles, Sections, Subsections, clauses, subclauses and Schedules of or to this Agreement.

1.5

Statutory References

Unless the context otherwise requires, any reference to a specific section, subsection, clause or rule of any act or regulation shall be deemed to refer to the same as it may be amended, re-enacted or replaced or, if repealed and there shall be no replacement therefor, to the same as it is in effect on the date of this Agreement.

1.6

Determination of Percentage Ownership

The percentage of Common Shares Beneficially Owned by any Person, shall, for the purposes of this Agreement, be and be deemed to be the product determined by the formula:

100 x  A

           B

where:

A

 =

the aggregate number of votes for the election of all directors generally attaching to the Common Shares Beneficially Owned by such Person; and

B

=

the aggregate number of votes for the election of all directors generally attaching to all outstanding Common Shares.

Where any Person is deemed to Beneficially Own unissued Common Shares pursuant to Subsection 1.1(d), such Common Shares shall be deemed to be outstanding for the purpose of both A and B in the formula above

1.7

Acting Jointly or in Concert

For the purposes of this Agreement, a Person is acting jointly or in concert with every Person who is a party to an agreement, commitment or understanding, whether formal or informal or written or unwritten, with the first Person to acquire, or make an Offer to Acquire, Common Shares or Convertible Securities (other than customary agreements with and between underwriters and banking or selling group members with respect to a distribution of securities and pledges of securities in the ordinary course of business to secure indebtedness).

1.8

Generally Accepted Accounting Principles

Wherever in this Agreement reference is made to generally accepted accounting principles, such reference shall be deemed to be the recommendations at the relevant time of the Canadian Institute of Chartered Accountants, or any successor institute, applicable on a consolidated basis (unless otherwise specifically provided herein to be applicable on an

17

unconsolidated basis) as at the date on which a calculation is made or required to be made in accordance with generally accepted accounting principles. Where the character or amount of any asset or liability or item of revenue or expense is required to be determined, or any consolidation or other accounting computation is required to be made for the purpose of this Agreement or any document, such determination or calculation shall, to the extent applicable and except as otherwise specified herein or as otherwise agreed in writing by the parties, be made in accordance with generally accepted accounting principles applied on a consistent basis.

ARTICLE 2.
THE RIGHTS

2.1

Legend on Common Share Certificates

(a)

One Right for each Common Share shall be issued and Certificates representing the Common Shares (including without limitation Common Shares issued upon the conversion of Convertible Securities) issued after the later of (i) the Record Time and (ii) the date on which all required regulatory approvals required in respect of this Agreement have been received, but prior to the Close of Business on the earlier of (iii) the Separation Time and (iv) the Expiration Time, shall also evidence one Right for each Common Share represented thereby and shall have impressed on, printed on, written on or otherwise affixed to them the following legend:

"Until the Separation Time (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Shareholder Rights Plan Agreement, made as of July 23, 2007, as such agreement may from time to time be amended, restated, varied or replaced (the "Rights Agreement"), between Southwestern Resources Corp. and Computershare Investor Services Inc., as Rights Agent, the terms of which are hereby incorporated herein by reference and a copy of which is on file at the registered office of the Corporation and is available for viewing at www.sedar.com. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be amended or redeemed, may expire, may become void (if, in certain cases, they are "Beneficially Owned" by an "Acquiring Person", as such terms are defined in the Rights Agreement, or a transferee thereof) or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Corporation will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge as soon as practicable after the receipt of a written request therefor."

(b)

Certificates representing Common Shares that are issued and outstanding at the later of (i) the Record Time and (ii) the date on which all required regulatory approvals required in respect of this Agreement have been received, shall evidence one Right for each Common Share evidenced thereby, notwithstanding the absence of the foregoing legend, until the earlier of (iii) the Separation Time and (iv) the Expiration Time.

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2.2

Initial Exercise Price; Exercise of Rights; Detachment of Rights

(a)

Subject to adjustment as herein set forth, including without limitation as set forth in Article 3, each Right will entitle the holder thereof, from and after the Separation Time and prior to the Expiration Time, to purchase one Common Share for the Exercise Price as at the Business Day immediately preceding the Separation Time (which Exercise Price and number of Common Shares are subject to adjustment as set forth below). Notwithstanding any other provision of this Agreement, any Rights held by the Corporation or any of its Subsidiaries shall be void.

(b)

Until the Separation Time:

(i)

the Rights shall not be exercisable and no Right may be exercised; and

(ii)

each Right will be evidenced by the certificate for the associated Common Share registered in the name of the holder thereof (which certificate shall be deemed to represent a Rights Certificate) and will be transferable only together with, and will be transferred by a transfer of, such associated Common Share.

(c)

From and after the Separation Time and prior to the Expiration Time, the Rights may be exercised, and the registration and transfer of the Rights shall be separate from and independent of Common Shares. Promptly following the Separation Time, the Corporation will prepare or cause to be prepared and the Rights Agent will mail to each holder of record of Common Shares as of the Separation Time and, in respect of each Convertible Security converted into Common Shares after the Separation Time and prior to the Expiration Time, promptly after such conversion, the Corporation will prepare or cause to be prepared and the Rights Agent will mail to the holder so converting (other than a Person indicated by the Corporation in writing to be an Acquiring Person and, in respect of any Rights Beneficially Owned by such Acquiring Person which are not held of record by such Acquiring Person, the holder of record of such rights as indica ted by the Corporation in writing (a "Nominee")) at such holder's address as shown by the records of the Corporation (the Corporation hereby agreeing to furnish copies of such records to the Rights Agent for this purpose):

(i)

a Rights Certificate, substantially the form of Schedule A appropriately completed, representing the number of Rights held by such holder at the Separation Time and having such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Corporation may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law, rule or regulation or judicial or administrative order, or with any article or regulation of any stock exchange or quotation system on which the Rights may from time to time be listed or traded, or to conform to usage; and

19

(ii)

a disclosure statement prepared by the Corporation describing the Rights,

provided that a Nominee shall be sent the materials provided for in Clauses 2.2(c)(i) and 2.2(c)(ii) only in respect of all Common Shares held of record by it which are not Beneficially Owned by an Acquiring Person as indicated to the Rights Agent by the Corporation in writing, and the Corporation may require any Nominee or suspected Nominee to provide such information and documentation as the Corporation may reasonably require for such purpose.

(d)

Rights may be exercised in whole or in part on any Business Day after the Separation Time and prior to the Expiration Time by submitting to the Rights Agent, at its principal office in Vancouver, British Columbia:

(i)

the Rights Certificate evidencing such Rights;

(ii)

an election to exercise (an "Election to Exercise"), substantially in the form attached to the Rights Certificate, duly completed, and duly completed and executed in a manner acceptable to the Rights Agent; and

(iii)

payment by certified cheque, banker's draft or money order payable to the order of the Corporation, of a sum equal to the Exercise Price multiplied by the number of Rights being exercised and a sum sufficient to cover any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for Common Shares in a name other than that of the holder of the Rights being exercised.

(e)

Upon receipt of a Rights Certificate, accompanied by a duly completed and executed Election to Exercise, which does not indicate that such Right is ' null and void as provided by Subsection 3.1(b) and payment as set forth in Subsection 2.2(d), the Rights Agent (unless otherwise instructed by the Corporation) will thereupon promptly:

(i)

requisition from the transfer agent of the Common Shares certificates representing the number of Common Shares to be purchased (the Corporation hereby irrevocably authorizing its transfer agent to comply with all such requisitions);

(ii)

after receipt of such Common Share certificates, deliver such certificates to, or to the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder in the Election to Exercise;

(iii)

when appropriate and pursuant to Section 5.5, requisition from the Corporation the amount of cash, if any, to be paid in lieu of issuing fractional Common Shares;

20

(iv)

when appropriate and pursuant to Section 5.5, after receipt of such cash, deliver such cash to, or to the order of, the registered holder of the Rights Certificate; and

(v)

tender to the Corporation all payments received on exercise of the Rights.

(f)

If the holder of any Rights exercises less than all the Rights evidenced by such holder's Rights Certificate, a new Rights Certificate evidencing the Rights remaining unexercised will be issued by the Rights Agent to such holder or to such holder's duly authorized assigns.

(g)

The Corporation covenants and agrees that it will:

(i)

take all such action as may be necessary and within its power to ensure that all Common Shares delivered upon the exercise of Rights shall, at the time of delivery of the certificates for such Common Shares (subject to payment of the Exercise Price), be duly and validly authorized, executed, issued and delivered as fully paid and non-assessable;

(ii)

take all such action as may reasonably be considered to be necessary and within its power to comply with any applicable requirements of the Governing Corporate Law, the Securities Act, the U.S. Exchange Act, the 1933 Act and comparable legislation of each of the other provinces and territories of Canada and states of the United States of America, or the rules and regulations thereunder or any other applicable law, rule or regulation, in connection with the issuance and delivery of the Rights, the Rights Certificates and the issuance of any Common Shares upon exercise of the Rights;

(iii)

use reasonable efforts to cause all Common Shares issued upon exercise of the Rights to be listed on the principal exchanges on which the Common Shares are listed at that time;

(iv)

cause to be reserved and kept available out of its authorized and unissued Common Shares, the number of Common Shares that, as provided in this Agreement, will from time to time be sufficient to permit the exercise in full of all outstanding Rights;

(v)

pay when due and payable, if applicable, any and all federal, provincial and municipal taxes (not in the nature of income, capital gains or withholding taxes) and charges which may be payable in respect of the original issuance or delivery of the Rights Certificates or certificates for Common Shares issued upon the exercise of Rights, provided that the Corporation shall not be required to pay any transfer tax or charge which may be payable in respect of any transfer of Rights or the issuance or delivery of certificates for Common Shares issued upon the exercise of Rights, in a name other than that of the holder of the Rights being transferred or exercised; and

21

(vi)

after the Separation Time, except as permitted by Section 5.1 or Section 5.4, not take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights.

2.3

Adjustments to Exercise Price; Number of Rights

(a)

The Exercise Price, the number and kind of securities subject to purchase upon exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 2.3 and in Article 3.

(b)

In the event that the Corporation shall at any time after the Record Time and prior to the Expiration Time:

(i)

declare or pay a dividend on the Common Shares payable in Common Shares or Convertible Securities in respect thereof other than pursuant to any optional stock dividend plan;

(ii)

subdivide or change the then outstanding Common Shares into a greater number of Common Shares;

(iii)

consolidate or change the then outstanding Common Shares into a smaller number of Common Shares; or

(iv)

issue any Common Shares (or Convertible Securities in respect thereof) in respect of, in lieu of or in exchange for existing Common Shares, whether in a reclassification, amalgamation, statutory arrangement, consolidation or otherwise,

then the Exercise Price and the number of Rights outstanding (or, if the payment or effective date therefor shall occur after the Separation Time, the securities purchasable upon the exercise of Rights) shall be adjusted as follows:

(A)

if the Exercise Price and number of Rights outstanding are to be adjusted:

(1)

the Exercise Price in effect after such adjustment will be equal to the Exercise Price in effect immediately prior to such adjustment divided by the number of Common Shares (or other securities of the Corporation) (the "Expansion Factor") that a holder of one Common Share immediately prior to such dividend, subdivision, change, combination or issuance would hold thereafter as a result thereof, and

(2)

each Right held prior to such adjustment will become that number of Rights equal to the Expansion Factor, and the adjusted number of Rights will be deemed to be allocated among the Common Shares with respect to which the

22

original Rights were associated (if they remain outstanding) and the securities of the Corporation issued in respect of such dividend, subdivision, change, consolidation or issuance, so that each such Common Share (or other security of the Corporation) will have exactly one Right associated with it, and

(B)

if the securities purchasable upon exercise of Rights are to be adjusted, the securities purchasable upon exercise of each Right after such adjustment will be the securities that a holder of the securities purchasable upon exercise of one Right immediately prior to such dividend, subdivision, change, consolidation or issuance would hold thereafter as a result thereof.

Adjustments made pursuant to this Subsection 2.3(b) shall be made successively, whenever an event referred to in this Subsection 2.3(b) occurs.

(c)

If, after the Record Time and prior to the Expiration Time, the Corporation shall issue any of its securities other than Common Shares in a transaction of a type described in Clauses 2.3(b)(i) or 2.3(b)(iv), or such securities shall be treated herein as nearly equivalent to Common Shares as may be practicable and appropriate under the circumstances and the Corporation and the Rights Agent agree to amend this Agreement in order to effect such treatment.

(d)

If an event occurs which would require an adjustment under both this Section 2.3 and Section 3.1, the adjustment provided for in this Section 2.3 shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 3.1.

(e)

In the event the Corporation shall at any time after the Record Time and prior to the Separation Time issue any Common Shares otherwise than in a transaction referred to in Subsection 2.3(b), each such Common Share so issued shall automatically have one new Right associated with it, which Right shall be evidenced by the certificate representing such Common Share.

(f)

In the event the Corporation shall, at any time after the Record Time and prior to the Expiration Time, fix a record date for the making of a distribution to all holders of Common Shares of rights or warrants entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Common Shares (or Convertible Securities in respect of Common Shares) at a price per Common Share (or, in the case of such a Convertible Security, having a conversion, exchange or exercise price per share (including the price required to be paid to purchase such Convertible Security)) less than 90% of the Market Price per Common Share on such record date, the Exercise Price in effect after such record date will equal the Exercise Price in effect immediately prior to such record date multiplied by a fraction:

(A)

of which the numerator shall be the number of Common Shares outstanding on such record date plus the number of Common

23

Shares which the aggregate offering price of the total number of Common Shares so to be offered (and/or the aggregate initial conversion, exchange or exercise price of the Convertible Securities so to be offered (including the price required to be paid to purchase such Convertible Securities)) would purchase at such Market Price per Common Share; and

(B)

of which the denominator shall be the number of Common Shares outstanding on such record date plus the number of additional Common Shares to be offered for subscription or purchase (or into which the Convertible Securities so to be offered are initially convertible, exchangeable or exercisable).

(ii)

In case such subscription price is satisfied, in whole or in part, by consideration other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors. Such adjustment shall be made successively whenever such a record date is fixed. To the extent that such rights or warrants are not exercised prior to the expiration thereof, the Exercise Price shall be readjusted in the manner contemplated above based on the number of Common Shares (or securities convertible into or exchangeable for Common Shares) actually issued upon the exercise of such rights or warrants.

(iii)

For purposes of this Agreement, the granting of the right to purchase Common Shares (whether from treasury or otherwise) pursuant to any dividend or interest reinvestment plan or any share purchase plan providing for the reinvestment of dividends or interest payable on securities of the Corporation or the investment of periodic optional payments or employee benefit or similar plans (so long as such right to purchase is in no case evidenced by the delivery of rights or warrants by the Corporation) shall not be deemed to constitute an issue of rights or warrants by the Corporation; provided, however, that in the case of any dividend or interest reinvestment or share purchase plan, the right to purchase Common Shares is at a price per share of not less than 90% of the current market price per share (determined as provided in such plans) of the Common Shares.

(g)

In the event the Corporation shall at any time after the Record Time and prior to the Expiration Time fix a record date for the making of a distribution to all holders of Common Shares of:

(i)

evidences of indebtedness or assets (other than a Regular Periodic Cash Dividend or a dividend paid in Common Shares, but including any dividend payable in securities other than Common Shares); or

(ii)

rights or warrants entitling them to subscribe for or purchase Common Shares (or Convertible Securities in respect of Common Shares),

24

in an amount or at a price per Common Share (or, in the case of a Convertible Security in respect of Common Shares, having a conversion, exchange or exercise price per share (including the price required to be paid to purchase such Convertible Security)) less than 90% of the Market Price per Common Share on such record date (excluding rights or warrants referred to in Subsection 2.3(f)), the Exercise Price in effect after such record date shall be equal to the Exercise Price in effect immediately prior to such record date less the fair market value (as determined in good faith by the Board of Directors) of the portion of the assets, evidences of indebtedness, rights, warrants or other securities so to be distributed applicable to each of the securities purchasable upon exercise of one Right. Such adjustment shall be made successively whenever such a record date is fixed.

(h)

Each adjustment made pursuant to this Section 2.3 shall be made as of:

(i)

the payment or effective date for the applicable dividend, subdivision, change, combination or issuance, in the case of an adjustment made pursuant to Subsection 2.3(b); and

(ii)

the record date for the applicable dividend or distribution, in the case of an adjustment made pursuant to Subsections 2.3(f) or 2.3(g), subject to readjustment to reverse the same if such distribution shall not be made.

(i)

In the event the Corporation shall at any time after the Record Time and prior to the Expiration Time issue any shares (other than Common Shares), or rights or warrants to subscribe for or purchase any such shares, or Convertible Securities in respect of any such shares, in a transaction referred to in any of Clauses 2.3(b)(i) to 2.3(b)(iv), inclusive, if the Board of Directors acting in good faith determines that the adjustments contemplated by Subsections 2.3(b), 2.3(f) and 2.3(g) in connection with such transaction will not appropriately protect the interests of the holders of Rights, then the Board of Directors may from time to time, but subject to obtaining the prior approval of the holders of the Rights obtained as set forth in Subsection 5.4(b), determine what other adjustments to the Exercise Price, number of Rights or securities purchasable upon exercise of Rights would be appropriate and, notwithstanding Subsec tions 2.3(b), 2.3(f) and 2.3(g), such adjustments, rather than the adjustments contemplated by Subsections 2.3(b), 2.3(f) and 2.3(g), shall be made upon the Board of Directors providing written certification thereof to the Rights Agent as set forth in Subsection 2.3(q). The Corporation and the Rights Agent shall amend this Agreement as appropriate to provide for such adjustments.

(j)

Notwithstanding anything herein to the contrary, no adjustment of the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such Exercise Price; provided, however, that any adjustments which by reason of this Subsection 2.3(j) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All adjustments to the Exercise Price made pursuant to this Section 2.3 shall be calculated to the nearest cent.

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(k)

All Rights originally issued by the Corporation subsequent to any adjustment made to an Exercise Price hereunder shall evidence the right to purchase, at the adjusted Exercise Price, the number of Common Shares purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein.

(l)

Unless the Corporation shall have exercised its election, as provided in Subsection 2.3(m), upon each adjustment of an Exercise Price as a result of the calculations made in Subsections 2.3(f) and 2.3(g), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of Common Shares obtained by:

(i)

multiplying (A) the number of Common Shares covered by a Right immediately prior to such adjustment, by (B) the Exercise Price in effect immediately prior to such adjustment; and

(ii)

dividing the product so obtained by the Exercise Price in effect immediately after such adjustment.

(m)

The Corporation may elect on or after the date of any adjustment of an Exercise Price to adjust the number of Rights, in lieu of any adjustment in the number of Common Shares purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of Common Shares for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become the number of Rights that is equal to the result of dividing the relevant Exercise Price in effect immediately prior to adjustment of the relevant Exercise Price by the relevant Exercise Price in effect immediately after adjustment of the relevant Exercise Price. The Corporation shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the relevant Exercise Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least 10 calendar days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Subsection 2.3(m), the Corporation shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date, Rights Certificates evidencing, subject to Section 5.5, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Corporation, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Corporation, new Rights Certificates evidencing all the Rights to whic h such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and may bear, at the option of the Corporation, the relevant adjusted Exercise Price and shall be registered in the names of holders of record of Rights Certificates on the record date specified in the public announcement.

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(n)

 In any case in which this Section 2.3 shall require that an adjustment in an Exercise Price be made effective as of a record date for a specified event, the Corporation may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date of the number of Common Shares and other securities of the Corporation, if any, issuable upon such exercise over and above the number of Common Shares and other securities of the Corporation, if any, issuable upon such exercise on the basis of the relevant Exercise Price in effect prior to such adjustment; provided, however, that the Corporation shall deliver to such holder an appropriate instrument evidencing such holder's right to receive such additional Common Shares (fractional or otherwise) or other securities upon the occurrence of the event requiring such adjustment.

(o)

Notwithstanding anything in this Section 2.3 to the contrary, the Corporation shall be entitled to make such adjustments in the Exercise Price, in addition to those adjustments expressly required by this Section 2.3, as and to the extent that in its good faith judgment the Board of Directors shall determine to be advisable in order that any:

(i)

subdivision or consolidation of the Common Shares;

(ii)

issuance wholly for cash of any Common Shares at less than the applicable Market Price;

(iii)

issuance wholly for cash of any Common Shares or securities that by their terms are exchangeable for or convertible into or give a right to acquire Common Shares;

(iv)

stock dividends; or

(v)

issuance of rights, options or warrants referred to in this Section 2.3, hereafter made by the Corporation to holders of its Common Shares,

shall not be taxable to such shareholders.

(p)

Irrespective of any adjustment or change in the securities purchasable upon exercise of the Rights, the Rights Certificates thereto for and thereafter issued may continue to represent the securities so purchasable which were represented in the initial Rights Certificates issued hereunder.

(q)

Whenever an adjustment to the Exercise Price is made pursuant to this Section 2.3, the Corporation shall:

(i)

promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment;

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(ii)

promptly file with the Rights Agent and with each transfer agent for the Common Shares a copy of such certificate and mail a brief summary thereof to each holder of Rights who requests a copy; and

(iii)

cause notice of the particulars of such adjustment to be given to the holders of the Rights by way of press release or by such other means as the Corporation may determine.

Failure to file such certificate or to cause such notice to be given as aforesaid, or any defect therein, shall not affect the validity of any such adjustment or change.

2.4

Date on Which Exercise is Effective

Each Person in whose name any certificate for Common Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Common Shares represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered (together with a duly completed Election to Exercise) and payment of the Exercise Price for such Rights (and any applicable transfer taxes and other governmental charges payable by the exercising Person hereunder) was made; provided, however, that if the date of such surrender and payment is a date upon which the Common Share transfer books of the Corporation are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next Business Day on which the Common Share transfer books of the Corporation are open.

2.5

Execution, Authentication, Delivery and Dating of Rights Certificates

(a)

The Rights Certificates shall be executed on behalf of the Corporation by any two officers or directors of the Corporation. The signature of any of these officers or directors on the Rights Certificates may be manual or facsimile. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers or directors of the Corporation shall bind the Corporation, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the countersignature and delivery of such Rights Certificates.

(b)

Promptly following the Separation Time, the Corporation will notify the Rights Agent of such Separation Time and will deliver Rights Certificates executed by the Corporation to the Rights Agent for countersignature, and the Rights Agent shall countersign (manually or by facsimile signature in a manner satisfactory to the Corporation) and deliver such Rights Certificates to the holders of the Rights pursuant to Section 2.2. No Rights Certificate shall be valid for any purpose until countersigned by the Rights Agent as aforesaid.

(c)

Each Rights Certificate shall be dated the date of countersignature thereof.

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2.6

Registration, Transfer and Exchange

(a)

After the Separation Time, the Corporation will cause to be kept a register (the "Rights Register") in which, subject to such reasonable regulations as it may prescribe, the Corporation will provide for the registration and transfer of Rights. The Rights Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the Rights Register for the Corporation and registering Rights and transfers of Rights as herein provided and the Rights Agent hereby accepts such appointment. In the event that the Rights Agent shall cease to be the Rights Registrar, the Rights Agent will have the right to examine the Rights Register at all reasonable times.

(b)

After the Separation Time and prior to the Expiration Time, upon surrender for registration of transfer or exchange of any Rights Certificate, and subject to the provisions of Subsections 2.6(d) and 3.1(b), the Corporation will execute, and the Rights Agent will countersign, deliver and register, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder's instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as did the Rights Certificates so surrendered.

(c)

All Rights issued upon any registration of transfer or exchange of Rights Certificates shall be valid obligations of the Corporation, and such Rights shall be entitled to the same benefits under this Agreement as the Rights surrendered upon such registration of transfer or exchange.

(d)

Every Rights Certificate surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Corporation or the Rights Agent, as the case may be, duly executed by the holder thereof or such holder's attorney duly authorized, in writing. As a condition to the issuance of any new Rights Certificate under this Section 2.6, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) in connection therewith.

2.7

Mutilated, Lost, Stolen and Destroyed Rights Certificates

(a)

If any mutilated Rights Certificate is surrendered to the Rights Agent prior to the Expiration Time, the Corporation shall execute and the Rights Agent shall countersign and deliver in exchange therefor a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so surrendered.

(b)

If there shall be delivered to the Corporation and the Rights Agent prior to the Expiration Time:

(i)

evidence to their reasonable satisfaction of the destruction, loss or theft of any Rights Certificate; and

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(ii)

such security or indemnity as may be reasonably required by them to save each of them and any of their agents harmless,

then, in the absence of notice to the Corporation or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Corporation shall execute and, upon the Corporation's request the Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so destroyed, lost or stolen.

(c)

As a condition to the issuance of any new Rights Certificate under this Section 2.7, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) connected therewith.

(d)

Every new Rights Certificate issued pursuant to this Section 2.7 in lieu of any destroyed, lost or stolen Rights Certificate shall evidence a contractual obligation of the Corporation, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Rights duly issued hereunder.

2.8

Persons Deemed Owners

The Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the person in whose name a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever. As used in this Agreement, unless the context otherwise requires, the term "holder" of any Rights shall mean the registered holder of such Rights (or, prior to the Separation Time, the associated Common Shares).

2.9

Delivery and Cancellation of Certificates

All Rights Certificates surrendered upon exercise or for redemption, for registration of transfer or exchange shall, if surrendered to any Person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Corporation may at any time deliver to the Rights Agent for cancellation any Rights Certificates previously countersigned and delivered hereunder which the Corporation may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificate shall be countersigned in lieu of or in exchange for any Rights Certificates cancelled as provided in this Section 2.9 except as expressly permitted by this Agreement. The Rights Agent shall, subject to applicable law, destroy all cancelled Rights Certificates and deliver a certificate of destruction to the Corporation.

2.10

Agreement of Rights Holders

Each holder of Rights, by accepting such Rights, consents and agrees with the Corporation and the Rights Agent and with every other holder of Rights:

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(a)

to be bound by and subject to the provisions of this Agreement, as amended from time to time in accordance with the terms hereof, in respect of all Rights held;

(b)

that, prior to the Separation Time, each Right will be transferable only together with, and will be transferred by a transfer of, the associated Common Share;

(c)

that, after the Separation Time, the Rights will be transferable only on the Rights Register as provided herein;

(d)

that, prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) for registration of transfer, the Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the Person in whose name the Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on such Rights Certificate or the associated Common Share certificate made by anyone other than the Corporation or the Rights Agent) for all purposes whatsoever, and neither the Corporation nor the Rights Agent shall be affected by any notice to the contrary;

(e)

that such holder of Rights has waived its right to receive any fractional Rights or any fractional Common Shares or other securities upon exercise of a Right (except as provided herein);

(f)

that, without the approval of any holder of Rights or Common Shares and upon the sole authority of the Board of Directors acting in good faith, this Agreement may be supplemented or amended from time to time to cure any ambiguity or to correct or supplement any provision contained herein which may be inconsistent with the intent of this Agreement or is otherwise defective; and

(g)

notwithstanding anything in this Agreement to the contrary, neither the Corporation nor the Rights Agent shall have any liability to any holder of a Right or any other Person as a result of its inability to perform any of its obligations under this Agreement. by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation.

2.11

Exclusion of Warranty by Rights Agent

(a)

The Rights Agent shall have no obligation under this Agreement to ensure or verify compliance with any applicable laws or regulatory requirements on the issue, exercise or transfer of any Rights or Common Shares issuable upon the exercise thereof. The Rights Agent shall be entitled to process all proffered transfers and exercises of Rights upon the presumption that such transfers or exercises are permissible pursuant to all applicable laws and regulatory requirements.

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(b)

The Rights Agent may assume for the purposes of this Agreement that any address on the Register is the holder's actual address and is determinative as to residency and that the address of any transferee to whom any Rights are to be registered, as shown on the transfer document, is the transferee's residency.

(c)

The Rights Agent shall have no obligation to ensure that the legends appearing on the Rights Certificates or Common Shares comply with the regulatory requirements or securities laws of any applicable jurisdiction.

ARTICLE 3.
ADJUSTMENTS TO THE RIGHTS

3.1

Flip-in Event

(a)

Subject to Subsection 3.1(b) and Section 5.1, in the event that prior to the Expiration Time a Flip-in Event occurs, each Right shall thereafter constitute the right to purchase from the Corporation, upon exercise thereof in accordance with the terms hereof, that number of Common Shares as have an aggregate Market Price on the date of the consummation or occurrence of such Flip-in Event equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such right to be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 if, after such date of consummation or occurrence, an event of a type analogous to any of the events described in Section 2.3 shall have occurred with respect to such Common Shares).

(b)

Notwithstanding anything in this Agreement to the contrary, upon the occurrence of any Flip-in Event, any Rights that are or were Beneficially Owned on or after the earlier of the Separation Time and the Stock Acquisition Date, or which may thereafter be Beneficially Owned, by:

(i)

an Acquiring Person, any Affiliate or Associate of an Acquiring Person, any other Person acting jointly or in concert with an Acquiring Person or any Associate or Affiliate of an Acquiring Person (or any Affiliate or Associate of any such Person so acting jointly and in concert); or

(ii)

a transferee, direct or indirect, of an Acquiring Person, any Affiliate or Associate of an Acquiring Person, any other Person acting jointly or in concert with an Acquiring Person or any Associate or Affiliate of an Acquiring Person (or any Affiliate or Associate of any such Person so acting jointly and in concert), in a transfer of Rights occurring subsequent to the Acquiring Person becoming such,

shall become null and void without any further action and any holder of such Rights (including any transferee of, or other successor entitled to, such Rights, whether directly or indirectly) shall thereafter have no right to exercise such Rights under any provisions of this Agreement and, further, shall thereafter not

32

have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The holder of any Rights represented by a Rights Certificate which is submitted to the Rights Agent upon exercise or for registration of transfer or exchange which does not contain the necessary certifications set forth in the Rights Certificate establishing that such Rights are not void under this Subsection 3.1(b) shall be deemed to be an Acquiring Person for the purposes of this Subsection 3.1(b) and such Rights shall become null and void.

(c)

Any Rights Certificate that represents Rights Beneficially Owned by a Person described in either of Clauses 3.1(b)(i) or 3.1(b)(ii) or transferred to any Nominee of any such Person, and any Rights Certificate issued upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain or will be deemed to contain the following legend:

"The Rights represented by this Rights Certificate were issued to a Person who was an Acquiring Person or an Affiliate or an Associate of an Acquiring Person (as such terms are defined in the Rights Agreement) or acting jointly or in concert with any of them. This Rights Certificate and the Rights represented hereby shall be void in the circumstances specified in Subsection 3.1(b) of the Rights Agreement."

The Rights Agent shall not be under any responsibility to ascertain the existence of facts that would require the imposition of such legend but shall be required to impose such legend only if instructed to do so by the Corporation or if a holder fails to certify upon transfer or exchange in the space provided to do so.

(d)

After the Separation Time, the Corporation shall do all such acts and things necessary and within its power to ensure compliance with the provisions of this Section 3.1 including, without limitation, all such acts and things as may be required to satisfy the requirements of the Governing Corporate Law, the Securities Act and the securities laws or comparable legislation in each of the provinces of Canada and in any other jurisdiction where the Corporation is subject to such laws and the rules of the stock exchanges where the Common Shares are listed at such time in respect of the issue of Common Shares upon the exercise of Rights in accordance with this Agreement.

3.2

Fiduciary Duties of the Board of Directors

For clarification it is understood that nothing contained in this Article 3 shall be considered to affect the obligations of the Board of Directors to exercise its fiduciary duties. Without limiting the generality of the foregoing, nothing contained herein shall be construed to suggest or imply that the Board of Directors shall not be entitled to recommend that holders of the Common Shares reject or accept any Take-over Bid or take any other action including, without limitation, the commencement, prosecution, defence or settlement of any litigation and the submission of additional or alternative Take-over Bids or other proposals to the shareholders of the Corporation with respect to any Take-over Bid or otherwise that the Board of Directors believes is necessary or appropriate in the exercise of its fiduciary duties.

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ARTICLE 4.
THE RIGHTS AGENT

4.1

General

(a)

The Corporation hereby appoints the Rights Agent to act as agent for the Corporation and the holders of the Rights in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Corporation may from time to time appoint such co-rights agents ("Co-Rights Agents") as it may deem necessary or desirable. In the event the Corporation appoints one or more Co-Rights Agents, the respective duties of the Rights Agent and Co-Rights Agents shall be as the Corporation may determine. The Corporation agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonably incurred expenses and other disbursements in the administration and execution of this Agreement and the exercise and performance of its duties hereunder, including fees and disbursements of counsel and other experts consulted by the Rights Agent pursuant to Subsection 4.3(a). The Corporation also agrees to indemnify the Rights Agent and each of its directors, officers, employees, agents and shareholders for, and to hold each of them harmless against, any loss, liability, cost, claim, action, damage, suit or expense, incurred without negligence, bad faith or wilful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including without limitation the costs and expenses of defending against any claim of liability, which right to indemnification will survive the termination of this Agreement. In the event of any disagreement arising regarding the terms of this Agreement the Rights Agent shall be entitled, at its option, to refuse to comply with any and all demands whatsoever until the dispute is settled either by written agreement amongst the parties to this Agreement or by a court of competent jurisdictio n.

(b)

The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any certificate for Common Shares, Rights Certificate, certificate for other securities of the Corporation, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons.

(c)

The Corporation shall inform the Rights Agent in a reasonably timely manner of events which may materially affect the administration of this Agreement by the Rights Agent and, at any time upon request, shall provide to the Rights Agent an incumbency certificate certifying the then current officers of the Corporation.

4.2

Merger, Amalgamation, Consolidation or Change of Name of Rights Agent

(a)

Any corporation into which the Rights Agent or any successor Rights Agent may be merged or amalgamated or with which it may be consolidated, or any

34

corporation resulting from any merger, amalgamation or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any corporation succeeding to the shareholder services business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights Agent under this Agreement without the execution or filing of any document or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 4.4. In case at the time such successor Rights Agent succeeds to the agency created by this Agreement any of the Rights Certificates have been countersigned but not delivered any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates h ave not been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates will have the full force provided in the Rights Certificates and in this Agreement.

(b)

In case at any time the name of the Rights Agent is changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement.

4.3

Duties of Rights Agent

The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Corporation and the holders of Rights Certificates, by their acceptance thereof, shall be bound:

(a)

The Rights Agent, at the Corporation's expense, may consult with legal counsel (who may be legal counsel for the Corporation) and the opinion of such counsel will be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion; the Rights Agent may also, with the approval of the Corporation (such approval not to be unreasonably withheld), consult with such other experts as the Rights Agent shall consider necessary or appropriate to properly carry out the duties and obligations imposed under this Agreement and the Rights Agent shall be entitled to rely in good faith on the advice of any such expert.

(b)

Whenever in the performance of its duties under this Agreement the Rights Agent deems it necessary or desirable that any fact or matter be proved or established by the Corporation prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by a person believed by the Rights Agent to be the Chief Executive Officer,

35

President, Chief Financial Officer or the Secretary or Assistant Secretary of the Corporation and delivered to the Rights Agent; and such certificate will be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.

(c)

The Rights Agent will not be liable hereunder except for losses caused principally and directly by its negligence, bad faith or wilful misconduct.

(d)

The Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the certificates for Common Shares, or the Rights Certificates (except its countersignature thereof which countersignature shall not be construed as a representation or warranty by the Rights Agent as to the validity of this Agreement or the Rights Certificate(s), except the due certification thereof) or be required to verify the same, and all such statements and recitals are and will be deemed to have been made by the Corporation only.

(e)

The Rights Agent will not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any Common Share certificate, or Rights Certificate (except its countersignature thereof); nor will it be responsible for any breach by the Corporation of any covenant or condition contained in this Agreement or in any Rights Certificate; nor will it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Subsection 3.1(b) or any adjustment required under the provisions of Section 2.3 or responsible for the manner, method or amount of any such adjustment, nor will it be responsible for the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights after receipt of the certificate contemplated by Section 2.3 describing any such adjustment or any written notice from the Corporation or any holder that a Person has become an Acquiring Person); nor will it by any act hereunder be deemed to make any representation or warranty as to the authorization of any Common Shares to be issued pursuant to this Agreement or any Rights or as to any Common Shares, when issued, being duly and validly authorized, issued and delivered as fully paid and non-assessable.

(f)

The Corporation agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement.

(g)

The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any individual believed by the Rights Agent to be the Chief Executive Officer, President, Chief Financial Officer, or the Secretary or Assistant Secretary of the Corporation, and to apply to such individuals for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such individual. It is understood that

36

instructions to the Rights Agent shall, except where circumstances make it impractical or the Rights Agent otherwise agrees, be given in writing and, where not in writing, such instructions shall be confirmed in writing as soon as reasonably practicable after the giving of such instructions.

(h)

The Rights Agent and any shareholder or director, officer or employee of the Rights Agent may buy, sell or deal in Common Shares, Rights or other securities of the Corporation or become pecuniarily interested in any transaction in which the Corporation may be interested, or contract with or lend money to the Corporation or otherwise act as fully and freely as though it were not the Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Corporation or for any other legal entity.

(i)

The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, default, omission, neglect or misconduct of any such attorneys or agents or for any loss to the Corporation resulting from any such act, default, omission, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof.

4.4

Change of Rights Agent

The Rights Agent may resign and be discharged from its duties under this Agreement by giving 60 days prior written notice (or such lesser notice as is acceptable to the Corporation) to the Corporation, to each transfer agent of Common Shares and to the holders of the Rights, all in accordance with Section 5.9 and at the expense of the Corporation. The Corporation may remove the Rights Agent by giving 30 days prior written notice to the Rights Agent, to each transfer agent of the Common Shares and to the holders of the Rights in accordance with Section 5.9. If the Rights Agent should resign or be removed or otherwise become incapable of acting, the Corporation will appoint a successor to the Rights Agent. If the Corporation fails to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of any Rights (which holder shall, with such notice, submit such holder's Rights Certificate for inspection of the Corporation), then the holder of any Rights may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Corporation or by such a court, must be a corporation incorporated under the laws of Canada or a province thereof and authorized to carry on the business of a trust company in the Province of British Columbia. After appointment, the successor Rights Agent will be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent, upon receiving all amounts owing to it hereunder (unless otherwise agreed by the Rights Agent), shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Corporation will file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares and mail a notice thereof in writing to the holders of the Rights in accordance with Section 5.9. Failure to give any notice provided for in this Section 4.4, however, or any

37

defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.

ARTICLE 5.
MISCELLANEOUS

5.1

Redemption, Waiver, Extension and Termination

(a)

Subject to the prior consent of the holders of Common Shares or Rights obtained as set forth in Subsections 5.4(a) or 5.4(b), as applicable, the Board of Directors acting in good faith may, at any time prior to the later of the Stock Acquisition Date and the Separation Time, elect to redeem all but not less than all of the then outstanding Rights at a redemption price of $0.00001 per Right, appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 if an event of the type analogous to any of the events described in Section 2.3 shall have occurred, (such redemption price being herein referred to as the "Redemption Price").

(b)

The Board of Directors shall waive the application of Section 3.1 in respect of the occurrence of any Flip-in Event if the Board of Directors has determined in good faith, following the Stock Acquisition Date and prior to the Separation Time, that a Person became an Acquiring Person by inadvertence and without any intention to become, or knowledge that it would become, an Acquiring Person under this Agreement and, in the event that such a waiver is granted by the Board of Directors, such Stock Acquisition Date shall be deemed not to have occurred. Any such waiver pursuant to this Subsection 5.1(b) may only be given on the condition that such Person, within 14 days after the foregoing determination by the Board of Directors or such later date as the Board of Directors may determine (the "Disposition Date"), has reduced its Beneficial Ownership of Common Shares such that the Person is no longer an Acquirin g Person. If the Person remains an Acquiring Person at the Close of Business on the Disposition Date, then the Disposition Date shall be deemed to be the date of occurrence of a further Stock Acquisition Date and Section 3.1 shall apply thereto.

(c)

In the event that a Person acquires Common Shares pursuant to a Permitted Bid or an Exempt Acquisition referred to in Subsection 5.1(d), then the Board of Directors shall, immediately upon the consummation of such acquisition and without further formality, be deemed to have elected to redeem the Rights at the Redemption Price.

(d)

The Board of Directors acting in good faith may, prior to the occurrence of the relevant Flip-in Event, upon prior written notice delivered to the Rights Agent, determine to waive the application of Section 3.1 to a Flip-in Event that may occur by reason of a Take-over Bid made by means of a Take-over Bid circular to all holders of record of Common Shares; provided that, if the Board of Directors waives the application of Section 3.1 to a particular Take-over Bid pursuant to this Subsection 5.1(d), then the Board of Directors shall be deemed to have waived the application of Section 3.1 to any other Take-over Bid made by means of a Take-over Bid circular to all holders of record of Common Shares prior to the

38

expiry of any Take-over Bid in respect of which a waiver is, or is deemed to have been, granted under this Subsection 5.1(d).

(e)

Subject to the prior consent of the holders of Common Shares obtained as set forth in Subsection 5.4(b)(i), the Board of Directors may, at any time prior to the occurrence of a Flip-in Event as to which the application of Section 3.1 has not been waived pursuant to this Section 5.1, if such Flip-in Event would occur by reason of an acquisition of Common Shares otherwise than pursuant to a Take-over Bid made by means of a Take-over Bid circular to all registered holders of Common Shares and otherwise than in the circumstances set forth in Subsection 5.1(b) or (c), waive the application of Section 3.1 to such Flip-in Event. In such event, the Board of Directors shall extend the Separation Time to a date at least 10 Business Days subsequent to the meeting of shareholders called to approve such waiver.

(f)

The Board of Directors may, prior to the Close of Business on the tenth Business Day following a Stock Acquisition Date or such later Business Day as it may from time to time determine, upon prior written notice delivered to the Rights Agent, waive the application of Section 3.1 to the related Flip-in Event; provided that the Acquiring Person has reduced its Beneficial Ownership of Common Shares (or has entered into a contractual arrangement with the Corporation, acceptable to the Board of Directors, to do so within 10 days of the date on which such contractual arrangement is entered into or such later date as the Board of Directors may determine) such that, at the time the waiver becomes effective pursuant to this Subsection 5.1(f), such Person is no longer an Acquiring Person. In the event of such a waiver becoming effective prior to the Separation Time, for the purposes of this Agreement, such Flip-in Event shall be d eemed not to have occurred.

(g)

Where a Take-over Bid that is not a Permitted Bid Acquisition is withdrawn or otherwise terminated after the Separation Time has occurred and prior to the occurrence of a Flip-in Event, or if the Board of Directors grants a waiver under Subsection 5.1(f) after the Separation Time, then the Board of Directors may elect to redeem all the outstanding Rights at the Redemption Price. Upon the Rights being redeemed pursuant to this Subsection 5.1(g), all of the provisions of this Agreement shall continue to apply as if the Separation Time had not occurred and Rights Certificates representing the number of Rights held by each holder of record of Common Shares at the Separation Time had not been mailed to each such holder and for all purposes of this Agreement the Separation Time shall be deemed not to have occurred and the Corporation shall be deemed to have issued replacement Rights to the holders of its then outstandin g Common Shares.

(h)

If the Board of Directors is deemed under Subsection 5.1(c) to have elected or elects under Subsections 5.1 (a) or 5.1(g) to redeem the Rights, then the right to exercise the Rights will thereupon, without further action and without notice, terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price.

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(i)

Within 10 days after the Board of Directors is deemed under Subsection 5.1 (c) to have elected or elects under Subsection 5.1 (a) or 5.1(g) to redeem the Rights, the Corporation shall give notice of redemption to the holders of the then outstanding Rights by mailing such notice to each such holder at his last address as it appears upon the Rights Register or, prior to the Separation Time, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made.

5.2

Expiration

No Person will have any rights pursuant to this Agreement or in respect of any Right after the Expiration Time, except in respect of any right to receive cash, securities or other property which has accrued at the Expiration Time and except as specified in Subsections 4.1 (a) and 4.1(b).

5.3

Issuance of New Rights Certificates

Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Corporation may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the number or kind or class of shares purchasable upon exercise of Rights made in accordance with the provisions of this Agreement.

5.4

Supplements and Amendment

(a)

The Corporation may from time to time amend, vary or delete any of the provisions of this Agreement and the Rights prior to the date of the initial meeting of shareholders to confirm the Rights Plan as set forth in Section 5.21 without the approval of the shareholders of the Corporation and on or after the date of such confirmation, no amendment, variation or deletion shall be made without the prior consent of the shareholders of the Corporation or holders of the Rights, subject to Subsections 5.4(b) and 5.4(c), except that amendments, variations or deletions made for any of the following purposes shall not require such prior approval:

(i)

subject to subsequent ratification in accordance with Subsection 5.4(b), in order to make such changes as are necessary in order to maintain the validity of this Agreement and the Rights as a result of any change in any applicable legislation, regulations or rules; or

(ii)

in order to make such changes as are necessary in order to cure any clerical or typographical error.

Notwithstanding anything in this Section 5.4 to the contrary, no amendment, variation or deletion shall be made to the provisions of Article 4.4 or any other provision specifically relating to the rights or duties of the Rights Agent except with the written concurrence of the Rights Agent thereto.

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(b)

Any amendment, variation or deletion made by the Board of Directors pursuant to Subsection 5.4(a) which is made on or after the date of shareholder confirmation as set forth in Section 5.21 and which requires shareholder approval shall, if made:

(i)

prior to the Separation Time, be submitted to the shareholders of the Corporation at the next meeting of shareholders and the shareholders may, by resolution passed by a majority of the votes cast by Independent Shareholders who vote in respect of such amendment, variation or deletion, confirm or reject such amendment or supplement; or

(ii)

after the Separation Time, be submitted to the holders of Rights at a meeting to be held on a date not later than the date of the next meeting of shareholders of the Corporation and the holders of Rights may, by resolution passed by a majority of the votes cast by the holders of Rights which have not become void pursuant to Subsection 3.1(b) who vote in respect of such amendment, variation or deletion, confirm or reject such amendment or supplement.

Any amendment, variation or deletion subject to shareholder approval shall be effective from the later of the date of the consent of the holders of Common Shares or Rights, as applicable, adopting such amendment, variation or deletion and the date of approval thereof by the Exchange (except in the case of another amendment, variation or deletion referred to in Clauses 5.4(a)(i), which shall be effective from the later of the date of the resolution of the Board of Directors adopting such amendment, variation or deletion and the date or approval thereof by the Exchange and shall continue in effect until it ceases to be effective (as in this Subsection 5.4(b) described) and, where such amendment, variation or deletion is confirmed, it shall continue in effect in the form so confirmed). If an amendment, variation or deletion pursuant to Clauses 5.4(a)(i), is rejected by the shareholders or the holders of Rights or is not sub mitted to the shareholders or holders of Rights as required, then such amendment, variation or deletion shall cease to be effective from and after the termination of the meeting at which it was rejected or to which it should have been but was not submitted or from and after the date of the meeting of holders of Rights that should have been but was not held, and no subsequent resolution of the Board of Directors to amend, vary or delete any provision of this Agreement to substantially the same effect shall be effective until confirmed by the shareholders or holders of Rights, as the case may be.

(c)

For greater certainty, neither the exercise by the Board of Directors of any power or discretion conferred on it hereunder nor the making by the Board of Directors of any determination or the granting of any waiver it is permitted to make or give hereunder shall constitute an amendment, variation or deletion of the provisions of this Agreement or the Rights, for purposes of this Section 5.4 or otherwise.

(d)

The approval, confirmation or consent of the holders of Rights with respect to any matter arising hereunder shall be deemed to have been given if the action requiring such approval, confirmation or consent is authorized by the affirmative

41

votes of the holders of Rights present or represented at and entitled to be voted at a meeting of the holders of Rights and representing a majority of the votes cast in respect thereof. For the purposes hereof, each outstanding Right (other than Rights which are void pursuant to the provisions hereof or which, prior to the Separation Time, are held otherwise than by Independent Shareholders) shall be entitled to one vote, and the procedures for the calling, holding and conduct of the meeting shall be those, as nearly as may be, which are provided in the Corporation's bylaws and the Governing Corporate Law with respect to meetings of shareholders of the Corporation.

5.5

Fractional Rights and Fractional Shares

(a)

The Corporation shall not be required to issue fractions of Rights or to distribute Rights Certificates which evidence fractional Rights. After the Separation Time there shall be paid, in lieu of such fractional Rights, to the registered holders of the Rights Certificates with regard to which fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the Market Price of a whole Right.

(b)

The Corporation shall not be required to issue fractional Common Shares upon exercise of the Rights or to distribute certificates that evidence fractional Common Shares. In lieu of issuing fractional Common Shares, the Corporation shall pay to the registered holder of Rights Certificates at the time such Rights are exercised as herein provided, an amount in cash equal to the same fraction of the Market Price of one Common Share at the date of such exercise.

(c)

The Rights Agent shall have no obligation to make any payments in lieu of fractional Rights unless the Corporation shall have provided the Rights Agent with the necessary funds to pay in full all amounts payable in accordance with Subsection 2.2(e).

5.6

Rights of Action

Subject to the terms of this Agreement, rights of action in respect of this Agreement, other than rights of action vested solely in the Rights Agent, are vested in the respective holders of the Rights; and any holder of any Rights, without the consent of the Rights Agent or of the holder of any other Rights may, on such holder's own behalf and for such holder's own benefit and the benefit of other holders of Rights, enforce, and may institute and maintain any suit, action or proceeding against the Corporation to enforce, or otherwise act in respect of, such holder's right to exercise such holder's Rights in the manner provided in this Agreement and in such holder's Rights Certificate. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to s pecific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement.

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5.7

Holder of Rights Not Deemed a Shareholder

No holder, as such, of any Rights shall be entitled to vote, receive dividends or be deemed for any purpose the holder of Common Shares or any other securities which may at any time be issuable on the exercise of Rights, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights, as such, any of the rights of a shareholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in Section 5.8) or to receive dividends or subscription rights or otherwise, until such Rights shall have been exercised in accordance with the provisions hereof.

5.8

Notice of Proposed Actions

In case the Corporation proposes after the Separation Time and prior to the Expiration Time to effect the liquidation, dissolution or winding up of the Corporation or the sale of all or substantially all of the Corporation's assets, then, in each such case, the Corporation shall give to each holder of a Right, in accordance with Section 5.9, a notice of such proposed action, which shall specify the date on which such liquidation, dissolution, or winding up is to take place, and such notice shall be so given at least 20 Business Days prior to the date of the taking of such proposed action by the Corporation.

5.9

Notices

Notices or demands authorized or required by this Agreement to be given or made to or by the Rights Agent, the holder of any Rights or the Corporation will be sufficiently given or made and shall be deemed to be received if delivered or sent by first-class mail, postage prepaid, or by facsimile machine or other means of printed telecommunication, charges prepaid and confirmed in writing by mail or delivery, addressed (until another address is filed in writing with the Rights Agent or the Corporation, as applicable), as follows:

(a)

if to the Corporation:

Southwestern Resources Corp.

P.O. Box 10102

#1650-701 West Georgia Street

Vancouver, BC V7Y 1C6

Attention:

President

Facsimile No.: 604-688-5175

(b)

if to the Rights Agent:

Computershare Investor Services Inc.

510 Burrard Street, 3^rd Floor

Vancouver, BC V6C 3B9

Attention:

General Manager, Client Services

Facsimile No.: (604)-664-9401

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(c)

if to the holder of any Rights, to the address of such holder as it appears on the Rights Register or, prior to the Separation Time, on the registry books of the Corporation for the Common Shares.

Any notice which is mailed or sent or delivered in the manner herein provided for shall be deemed given and received whether or not the holder receives the notice.

5.10

Costs of Enforcement

The Corporation agrees that if the Corporation, or any other Person the securities of which are purchasable upon exercise of Rights, fails to fulfill any of its obligations pursuant to this Agreement, then the Corporation or such Person will reimburse the holder of any Rights for the costs and expenses (including legal fees) incurred by such holder in actions to enforce his rights pursuant to any Rights or this Agreement.

5.11

Regulatory Approvals

Any obligation of the Corporation or action or event contemplated by this Agreement, shall be subject to applicable law and to the receipt of any requisite approval or consent from any governmental or regulatory authority including, without limitation, the Exchange. Without limiting the generality of the foregoing, any issuance or delivery of debt or equity securities (other than non-convertible debt security) of the Corporation upon the exercise of Rights and any amendment to this Agreement shall be subject to the applicable prior consent of the stock exchanges on which the Corporation is from time to time listed.

Unless provided with written notice to the contrary, the Rights Agent is entitled to assume that all such necessary consents and approvals have been obtained.

5.12

Declaration as to Non-Canadian and Non-United States Holders

If, upon the advice of outside counsel, any action or event contemplated by this Agreement would require compliance with the securities laws or comparable legislation of a jurisdiction outside Canada and the United States of America, the Board of Directors acting in good faith may take such actions as it may deem appropriate to ensure that such compliance is not required, including without limitation establishing procedures for the issuance to a Canadian resident Fiduciary of Rights or securities issuable on exercise of Rights, the holding thereof in trust for the Persons entitled thereto (but reserving to the Fiduciary or to the Fiduciary and the Corporation, as the Corporation may determine, absolute discretion with respect thereto) and the sale thereof and remittance of the proceeds of such sale, if any, to the Persons entitled thereto. In no event shall the Corporation or the Rights Agent be required to issue or deliver Rights or secur ities issuable on exercise of Rights to Persons who are citizens, residents or nationals of any jurisdiction other than Canada and any province or territory thereof and of the United States of America and any state thereof in which such issue or delivery would be unlawful without registration of the relevant Persons or securities for such purposes.

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5.13

Successors

All the covenants and provisions of this Agreement by or for the benefit of the Corporation or the Rights Agent shall bind and enure to the benefit of their respective successors and assigns hereunder.

5.14

Benefits of this Agreement

Nothing in this Agreement shall be construed to give to any Person other than the Corporation, the Rights Agent and the holders of the Rights any legal or equitable right, remedy or claim under this Agreement; this Agreement shall be for the sole and exclusive benefit of the Corporation, the Rights Agent and the holders of the Rights.

5.15

Shareholder Review

At or prior to the first annual meeting of shareholders of the Corporation following the third anniversary of the date of this Agreement, provided that a Flip-in Event has not occurred prior to such time, the Board of Directors shall submit a resolution ratifying the continued existence of this Agreement to the Independent Shareholders for their consideration and, if thought advisable, approval. If a majority of the votes cast by Independent Shareholders who vote in respect of such resolution are voted against the continued existence of this Agreement, then the Board of Directors shall, immediately upon the confirmation by the chairman of such shareholders' meeting of the result of the vote on such resolution and without further formality, be deemed to have elected to redeem the Rights at the Redemption Price.

5.16

Determinations and Actions by the Board of Directors

All actions, calculations, interpretations and determinations (including all omissions with respect to the foregoing) which are done or made by the Board of Directors, in good faith:

(a)

may be relied upon by the Rights Agent (and in the case of reliance by the Rights Agent, the good faith of the Board of Directors shall be presumed); and

(b)

shall not subject the Board of Directors to any liability to the holders of the Rights or to any other parties.

5.17

Governing Law

This Agreement and the Rights issued hereunder shall be deemed to be a contract made under the laws of the Province of British Columbia and for all purposes will be governed by and construed in accordance with the laws of such province applicable to contracts to be made and performed entirely within such province.

5.18

Language

Les parties aux présentes ont exigé que la présente convention ainsi que tous les documents et avis qui s'y rattachent ou qui en coulent soient rédiges en langue anglaise. The parties hereto have required that this Agreement and all documents and notices related thereto or resulting therefrom be drawn up in English.

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5.19

Counterparts

This Agreement may be executed in any number of counterparts and each of such counterparts will for all purposes be deemed to be an original, and all such counterparts shall together constitute one and the same instrument.

5.20

Severability

If any term or provision hereof or the application thereof to any circumstance is, in any jurisdiction and to any extent, invalid or unenforceable, such term or provision will be ineffective only to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions hereof or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable.

5.21

Effective Date

This Agreement is effective as of and from July 23, 2007, subject to receipt of all required regulatory approvals. If the Rights Plan is not confirmed by resolution passed by a majority of the votes cast by Independent Shareholders who vote in respect of such Rights Plan at a meeting to be held not later than six months from the date of this Agreement, then this Agreement and any outstanding Rights shall be of no further force and effect.

5.22

Time of the Essence

Time shall be of the essence hereof.

46

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed effective the 23^rd day of July, 2007.

SOUTHWESTERN RESOURCES CORP.

By: /s/ W. David Black

By: /s/ William McCartney

COMPUTERSHARE INVESTOR SERVICES INC.

By: /s/ June Glover

By: /s/ Claire Brinkworth

SCHEDULE A

to a Shareholder Rights Plan Agreement made as of July 23, 2007, between Southwestern Resources Corp. and Computershare Investor Services Inc.

[Form of Rights Certificate]

Certificate No.

Rights

THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE CORPORATION, ON THE TERMS SET FORTH IN THE SHAREHOLDER RIGHTS PLAN AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SUBSECTION 3.1(b) OF SUCH AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON, CERTAIN RELATED PARTIES OF AN ACQUIRING PERSON OR A TRANSFEREE OF AN ACQUIRING PERSON OR ANY SUCH RELATED PARTIES WILL BECOME VOID WITHOUT FURTHER ACTION.

Rights Certificate

This certifies that

 is the registered holder of the number of Rights set forth above, each of which entitles the registered holder thereof, subject to the terms, provisions and conditions of the Shareholder Rights Plan Agreement made as of July 23, 2007, as such agreement may from time to time be amended, restated, varied or replaced (the "Rights Agreement") between Southwestern Resources Corp., a British Columbia corporation, (the "Corporation") and Computershare Investor Services Inc., a trust company incorporated under the laws of the Canada, as Rights Agent (the "Rights Agent"), which term shall include any successor Rights Agent under the Rights Agreement), to purchase from the Corporation, at any time after the Separation Time and prior to the Expiration Time (as such terms are defined in the Rights Agreement), one fully paid common share of the Corporation (a "Common Sh are") at the Exercise Price referred to below, upon presentation and surrender of this Rights Certificate, together with the Form of Election to Exercise appropriately completed and duly executed, to the Rights Agent at its principal office in Vancouver, Canada. Until adjustment thereof in certain events as provided in the Rights Agreement, the Exercise Price shall be $100.00 per Right (payable in cash, certified cheque or money order payable to the order of the Corporation).

The number of Common Shares which may be purchased for the Exercise Price is subject to adjustment as set forth in the Rights Agreement.

This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Rights Agent, the Corporation and the holder of the Rights Certificates. By acceptance hereof, the holder is deemed to accept, and agrees to be bound by the terms of the Rights Agreement. Copies of the Rights Agreement are on file at the registered office of the Corporation and are available upon written request.

This Rights Certificate, with or without other Rights Certificates, upon surrender at the principal office of the Rights Agent in Vancouver, British Columbia may be exchanged for

A-2

another Rights Certificate or Rights Certificates of like tenor evidencing an aggregate number of Rights equal to the aggregate number of Rights evidenced by the Rights Certificate or Rights Certificates surrendered. If this Rights Certificate shall be exercised in part, the registered holder shall be entitled to receive, upon surrender hereof, another Rights Certificate or Rights Certificates for the number of whole Rights not exercised.

In certain circumstances described in the Rights Agreement, each Right evidenced hereby may be adjusted so as to entitle the registered holder thereof to purchase or receive securities or shares in the capital of the Corporation other than Common Shares or more or less than one Common Share (or a combination thereof), all as provided in the Rights Agreement. The number of Common Shares which may be purchased for the Exercise Price is subject to adjustment as set forth in the Rights Agreement.

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Corporation at a redemption price of $0.00001 per Right subject to adjustment in certain events.

No fractional Common Shares will be issued upon the exercise of any Right or Rights evidenced hereby, but in lieu thereof a cash payment will be made, as provided in the Rights Agreement.

No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Common Shares or any other securities which may at any time be issuable upon the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of any meeting or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights or otherwise, until the Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement.

A-3

This Rights Certificate shall not be valid for any purpose until it shall have been countersigned by the Rights Agent.

WITNESS the facsimile signature of the proper officers of the Corporation.

Date:

SOUTHWESTERN RESOURCES CORP.

By:

By:

Countersigned:

COMPUTERSHARE INVESTOR SERVICES INC.

By:

FORM OF ELECTION TO EXERCISE

SOUTHWESTERN RESOURCES CORP.

The undersigned hereby irrevocably elects to exercise

 whole Rights represented by this Rights Certificate to purchase the Common Shares issuable upon the exercise of such Rights and requests that certificates for such Common Shares be issued in the name of and delivered to:

Rights Certificate No.    

Name

Address

City and Province

Social Insurance No. or other taxpayer

identification numbers

If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to:

Name

Address

City and Province

Social Insurance No. or other taxpayer

identification numbers

Date:

Signature

Written Signature Guaranteed

(Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever)

Signature must be guaranteed by a Canadian chartered bank or trust company, a member of a recognized stock exchange in Canada or a member of the Securities Transfer Association Medallion (STAMP) Program.

(To be completed by the holder if true)

The undersigned hereby represents, for the benefit of the Corporation and all holders of Rights and Common Shares, that the Rights evidenced by this Rights Certificate are not and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or by an Affiliate or Associate of an Acquiring Person, any other Person acting jointly or in

concert with an Acquiring Person or any Affiliate or Associate of any such other Person (as such terms are defined in the Rights Agreement).

Signature

NOTICE

In the event that the certifications set forth above in the Form of Election to Exercise and Assignment are not completed, the Corporation shall deem the Beneficial Owner of the Rights represented by this Rights Certificate to be an Acquiring Person (as defined in the Rights Agreement) and, accordingly, such Rights shall be null and void.

FORM OF ASSIGNMENT

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

(Please print name and address of transferee)

the Rights represented by this Rights Certificate, together with all right, title and interest therein.

Date:	Signature:
Written Signature Guaranteed	(Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever)

Signature must be guaranteed by a Canadian chartered bank or trust company, a member of a recognized stock exchange in Canada or a member of the Securities Transfer Association Medallion (STAMP) Program.

(To be completed by the assignor if true)

The undersigned hereby represents, for the benefit of the Corporation and all holders of Rights and Common Shares, that the Rights evidenced by this Rights Certificate are not and, to the knowledge of the undersigned have never been, Beneficially Owned by an Acquiring Person or by an Affiliate or Associate of an Acquiring Person, any other Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of any such other Person (as such terms are defined in the Rights Agreement).

Signature

(Please print name below signature)

NOTICE

In the event that the certifications set forth above in the Form of Election to Exercise and Assignment are not completed, the Corporation shall deem the Beneficial Owner of the Rights represented by this Rights Certificate to be an Acquiring Person (as defined in the Rights Agreement) and, accordingly, such Rights shall be null and void.

EX-4.1

CONSULTING AGREEMENT

THIS AGREEMENT (this “Agreement”) dated for reference and effective the 1st day of April 2007.

BETWEEN:

SOUTHWESTERN RESOURCES CORP. a company duly incorporated under the laws of the Province of British Columbia having an office at Suite 1650, 701 West Georgia Street, Vancouver, B.C. V7Y 1C6 (Facsimile: (604) 688-5175)

(the “Company”)

AND:

AUSTGOLD CONSULTING LTD., a British Columbia company with an office at 3392 West 36^th Avenue, Vancouver, BC V6N 2R9.

(the “Consultant”)

WHEREAS:

1.

The Consultant is in the business of providing specialized geological consulting services.

2.

The Company requires the services of a consultant, and the Consultant represents that the Consultant is qualified and desires to perform the services required by the Company as a consultant to and not as an employee of the Company.

The parties agree as follows:

1.

ENGAGEMENT OF CONSULTANT

1.1

The Consultant hereby agrees to provide consulting services with respect to those matters described in Schedule “A” when requested by the Company and additional services that are requested by the Company from time-to-time and accepted by the Consultant (the “Services”).

1.2

The Consultant will perform the Services in an efficient, competent, timely and professional manner and provide the standard of care, skill, and diligence normally provided by competent professionals in the performance of services similar to the Services contemplated by this Agreement.

1.3

The Consultant acknowledges that the Company conducts its business in many countries and that the Consultant may be required to travel from time-to-time to various countries to perform the Services.

1.4

During the term of this Agreement, the Consultant will:

1.4.1

devote so much time and attention as is required to complete, or cause the completion of, the Services on a timely basis, but the Consultant is otherwise entitled to engage in the provision of Services for other clients of the Consultant;

1.4.2

perform the Services at such times, by such means and in such a manner as are determined by the Consultant in its sole and exclusive control; and

1

1.4.3

provide Services from the Consultant’s primary business location, as set forth in the preamble to this Agreement above, or, as required and requested by the Company, at its offices or other locations specified by the Company.

2.

COMPENSATION AND EXPENSES

2.1

The Company will pay the Consultant for Services performed in accordance with the terms of Schedule “B”.  Such compensation will be the sole compensation for the Consultant.

2.2

The Consultant will be responsible for all of its own general expenses arising from the performance of its obligations under this Agreement. The Company will reimburse the Consultant for (a) all pre-authorized travel expenses, including out-of-country medical, emergency evacuation/repatriation insurance coverage for the Consultant, and (b) other expenses, including out-of-pocket expenses, actually and properly incurred by the Consultant in connection with the provision of Services; provided that the Company, in its sole discretion, agrees that such expenses were actually and properly incurred; and further provided that the Consultant furnishes receipts to the Company in respect of such expenses.

2.3

Except as otherwise provided in herein, the Consultant will prepare and submit monthly to the Company a detailed statement of fees and expenses for purposes of invoicing, including Goods and Service Tax and any other applicable taxes.  The statement will set forth the number of days the Consultant performed Services and will be accompanied by evidence substantiating expenses incurred.  Subject to verification by the Company, payment of amounts due will be made by the Company within thirty (30) days after receipt of such statements.

2.4

The Consultant shall maintain and have available to it, at its expense, such facilities, equipment and personnel as is required by it to perform the Services.

3.

TERM

3.1

This Agreement will be for the term specified in Schedule “C”.

4.

NATURE OF THE RELATIONSHIP

4.1

It is expressly agreed, represented and understood that the parties have entered into an arm’s length independent contract for the rendering of the Services and that the Consultant shall at all times be an independent contractor with control over the manner and means of its performance of its obligations hereunder, and not an employee, agent or servant of the Company.  Neither this Agreement, nor any action of the parties under this Agreement, will create or will be deemed to create a partnership, joint venture, master/servant, employer/employee, principal/agent or any relationship other than an independent contractor providing an independent service for which the Company will be invoiced according to the terms and conditions of this Agreement.

4.2

The Consultant’s contact within the Company is the person specified in Schedule “D”;

4.3

Neither the Consultant nor its employees, subcontractors or agents shall be entitled, as a result of or pursuant to this Agreement, to rights or privileges applicable to employees of the Company including, but not limited to, liability insurance, group insurance, pension plans, holiday paid vacation and other benefit plans which may be available from time to time between the Company and its employees.

2

4.4

The Consultant shall be responsible for providing, training and managing its employees and shall take full responsibility for its employees, and without limiting the generality of the foregoing, shall be responsible for (a) payment of all of its employee training costs and (b) payments to the proper authorities of all remittances required by applicable law or regulation, including employment insurance premiums, pension contributions, worker’s compensation premiums and all other similar payments and assessments arising as a result of the provision of the Services hereunder by the Consultant (collectively the “Remittances”).

4.5

At the request of the Company, the Consultant agrees to provide verification of payment by the Consultant of all Remittances due by the Consultant as a result of compensation paid hereunder.  If the Company does not receive such verification of payment in a timely manner or is not satisfied with such verification the Consultant authorizes the Company to deduct from the compensation paid hereunder from time to time such sums as may be reasonably required to pay  for such Remittances.

4.6

The Consultant hereby acknowledges that as an independent contractor, the Consultant will not qualify for any assistance under the Unemployment Insurance Act (Canada).  

5.

     COMPLIANCE WITH PROVINCIAL AND FEDERAL LAWS

5.1

The Consultant will comply with all requirements of all applicable federal, provincial, or local laws, rules or regulations.  The Consultant covenants that it has all licenses, work permits or other authorizations required to enable the Consultant to perform Services under this Agreement in the jurisdiction where the Services are to be performed.

6.

       NON-DISCLOSURE AND NON-COMPETITION

6.1

The Consultant agrees to concurrently execute and deliver a confidentiality and non-competition agreement (the “Confidentiality Agreement”) in the form attached as Schedule “E” to this Agreement.

6.2

Subject to the terms and conditions of the Confidentiality Agreement, nothing contained herein or therein shall preclude the Consultant from providing services similar to the Services, or any other services, to other clients of the Consultant.  

7.

TERMINATION

7.1

In the event that the Consultant violates any of the material provisions of this Agreement or fails in a material way to properly perform the Services then, at the option of the Company, this Agreement will at once cease and terminate upon notice of same to Consultant by Company.  

7.2

Either party may terminate this Agreement for any reason upon thirty (30) days written notice to the other party.

7.3

Under circumstances where this Agreement has been terminated pursuant to Section 7.1 or Section 7.2 above, the parties shall be under no further obligation to one another, other than:

7.3.1

the Company shall have the obligation to pay all amounts owed to the Consultant with respect to: (a) such Services as have been performed by the Consultant up to the date of the termination of this Agreement for which the Company has not previously paid the Consultant, and (b) expenses actually and properly incurred by the Consultant in connection with the provision of the Services for which the

3

Consultant has not been reimbursed by the Company pursuant to Section 2.2 of this Agreement; and  

7.3.2

the obligations of the Consultant pursuant to the Confidentiality Agreement shall continue in accordance with the terms thereof.

8.

ASSIGNMENT AND SUBCONTRACTING

8.1

Neither party may assign this Agreement in whole or in part.

8.2

The Consultant may subcontract the provision of the Services or any obligation of the Consultant under this Agreement.  Subcontracting shall not derogate from the liability of the Consultant to perform the Services or its obligations hereunder.

9.

NOTICES

9.1

Any notice required or permitted to be given under this Agreement will be in writing and may be delivered personally or by telex or facsimile or by pre-paid registered post addressed to the parties at the above mentioned addresses or at such address of which notice may be given by either of such parties.  Any notice will be deemed to have been received, if personally delivered or delivered by telex or facsimile, on the date of such delivery, and, if mailed as aforesaid, then on the fourth business day after the day of mailing.

10.

ENTIRE AGREEMENT

10.1

This Agreement and the Confidentiality Agreement contain the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes and replaces all previous written and oral agreements among the parties hereto.  

11.

AMENDMENTS AND WAIVER

11.1

This Agreement may only be amended by further written agreement executed and delivered by the Consultant and the Company.  Except as otherwise provided, no waiver or consent by a party to any breach or default by the other party will be effective unless evidenced in writing, executed and delivered by the party so waiving or consenting and no waiver or consent effectively given as aforesaid will operate as a waiver of or consent to any further or other breach or default in relation to the same or any other provision of this Agreement.

12.

INTERPRETATION

12.1

This Agreement will be governed by and construed in accordance with the laws of the Province of British Columbia.  Notwithstanding the foregoing, it is agreed that either party may commence an action in respect of the enforcement of rights hereunder in any jurisdiction in which the other party resides, has assets, carries on business or has an office.

12.2

All headings used in this Agreement are for convenience of reference only and are not to be used in the aid of interpretation of this Agreement.

12.3

This Agreement may be executed in any number of counterparts with the same effect as if all of the parties have signed the same document.  All counterparts shall be construed together and shall constitute one agreement.  This Agreement may be validly executed by means of transmission of signed facsimile or other electronic delivery.

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12.4

Unless otherwise specified, all funds referred to in this Agreement shall be in the lawful monies of Canada.

12.5

If any term, covenant or condition of this Agreement or the application thereof to any party or circumstances is deemed to be invalid or unenforceable to any extent, the remainder of this Agreement or the application of such term, covenant or condition to a party or circumstances other than those to which it is held invalid or unenforceable will not be affected thereby and each remaining term, covenant or condition of this Agreement will be enforceable to the fullest extent permitted by law.

IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written.

Signed on behalf of SOUTHWESTERN RESOURCES CORP. by: /s/ John G. Paterson ____________________________________________ Authorized Signatory /s/ Thomas W. Beattie ____________________________________________ Authorized Signatory	) ) ) ) ) ) ) ) )
AUSTGOLD CONSULTING LTD.        /s/ Timo Jauristo By:_________________________________ Authorized Signatory	) ) ) ) )

5

THESE ARE SCHEDULES “A” to “D” TO THE CONSULTING AGREEMENT BETWEEN

SOUTHWESTERN RESOURCES CORP. AND THE CONSULTANT

SCHEDULE “A”

Services to be provided are as follows:

-

Assist Vice President, Exploration on controls of exploration spending

-

Marketing to North American and European institutions

-

Assess both early and advanced stage opportunities

-

Design and implement an investor relations program

-

Through contacts in the industry, seek opportunities and assess their economic potential

SCHEDULE “B”

The Company will pay the Consultant the sum of $1,020 per day (plus GST if applicable) for each day Services are provided, payable in accordance with the terms of the Agreement, it being understood that the Consultant will not provide Services for more than 20 days per calendar month.

SCHEDULE “C”

The term of this Agreement will be one (1) year commencing on April 1, 2007 unless earlier terminated in accordance with the provisions of the Agreement.

SCHEDULE “D”

The Company’s representative, until further notice, is the Company’s Chair.

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THIS IS SCHEDULE “E” TO THE CONSULTING AGREEMENT BETWEEN

SOUTHWESTERN RESOURCES CORP. AND THE CONSULTANT

CONFIDENTIALITY AND NON-COMPETITION AGREEMENT

This Confidentiality and Non-Competition Agreement (this “Agreement”) is made effective this 1st day of April 2007.

BETWEEN:

SOUTHWESTERN RESOURCES CORP., a company duly incorporated under the laws of the Province of British Columbia having an office at Suite 1650, 701 West Georgia Street, Vancouver, B.C. V7Y 1C6  (Facsimile: (604) 688-5175)

(the “Disclosing Party”)

AND:

AUSTGOLD CONSULTING LTD., a British Columbia company with an office at 3392 West 36^th Avenue, Vancouver, BC V6N 2R9.

(hereinafter called the “Receiving Party”)

WHEREAS the Receiving Party will receive and have access to certain confidential data and information proprietary to the Disclosing Party;

AND WHEREAS the Disclosing Party is prepared to make available, and the Receiving Party will have access to, said confidential data and information;

AND WHEREAS for the purposes of future discussions between the parties, the Receiving Party agrees that any and all disclosures made or data and information provided by the Disclosing Party to it will be subject to the terms and conditions of this Agreement;

NOW, in consideration of the disclosure to it of information by the Disclosing Party, the Receiving Party hereby undertakes, covenants and agrees as follows:

1.

Definitions

For purposes of this Agreement, the following definitions will apply:

a.

“Affiliate”: one corporation is affiliated with another corporation where one of them is the subsidiary of the other or both are subsidiaries of the same corporation or each is controlled by the same corporation;

b.

“Confidential Information” means any and all data, records, reports, compilations, drill hole logs, calculations, opinions, maps, charts, documents and other information whatsoever written or oral and whether or not noted thereon to be confidential provided to the Receiving Party by the Disclosing Party or its Representatives and all summaries, extracts or copies therefrom and all notes, memoranda, studies or analyses based thereon;

c.

“Person” will be interpreted broadly to include individuals, corporations, associations, groups, partnerships and trusts;

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d.

“Representative” means any director, officer, employee, or consultant of a party to this Agreement or its Affiliates; and

e.

“Term” means that period of time specified in paragraph 9.

2.

Covenants of Receiving Party

The Receiving Party covenants and agrees as follows:

a.

The Receiving Party agrees to, and to cause its Representatives to, receive, protect and maintain the Confidential Information in the strictest confidence. The Receiving Party agrees not to, and to cause its Representatives not to, disclose the Confidential Information to any Person except pursuant to an agreement that was entered into by the Receiving Party on terms and conditions that do not contravene, violate or breach, and are not inconsistent with, the operative provisions of this Agreement;

b.

The Receiving Party acknowledges that the release, publication or dissemination of the Confidential Information could be harmful to the Disclosing Party; and

c.

At the request of the Disclosing Party, all materials delivered to the Receiving Party or its Representatives with respect to Confidential Information hereunder and any copies thereof made by the Receiving Party or its Representatives will forthwith be returned to the Disclosing Party and will at all times be deemed to be owned by the Disclosing Party.

3.

Exceptions

This Agreement does not apply to those portions of the Confidential Information (together called the “Non-Confidential Information”) that:

a.

are part of the public domain at the time they are made known to the Receiving Party;

b.

are made known to the Receiving Party without an obligation of confidentiality by a third party who did not acquire knowledge of the details, either directly or indirectly, under an obligation of confidentiality;

c.

after they are made known to the Receiving Party, become part of the public domain through no fault, act or omission of the Receiving Party, its Representatives or of any party to whom the Receiving Party has properly disclosed details of the Confidential Information; or

d.

the Receiving Party can establish were in its possession prior to the date of disclosure of such details by the Disclosing Party.

4.

Consent

Any consent on behalf of the Disclosing Party required or contemplated by this Agreement will only be valid and binding on the Disclosing Party if such consent is in writing and signed by the proper officers of the Disclosing Party.

5.

Acquisition Within the Area of Interest

Except with the prior written consent of the Disclosing Party, which shall not be unreasonably withheld, neither the Receiving Party nor any of its Representatives will, during the Term of this Agreement and for a period of two years thereafter, directly or indirectly, through associates or Affiliates, acquire any property interests, including, without limitation, any exploration concessions, permits, mining or other claims or rights, leases, interests in land, fee lands, surface

8

rights or water rights (each, a “Property Interest”) in any property that is part of, or within, a ten (10) kilometre radius of (the “Area of Interest”), any property in which the Disclosing Party (a) holds a Property Interest at the time of execution of this Agreement, or (b) acquires a Property Interest during the Term of this Agreement, and nor will the Receiving Party provide any Services or services similar to the Services to anyone (other than the Company or its Affiliates) within the Area of Interest.

6.

Action to Prohibit Release of Confidential Information

If the Confidential Information or any part thereof is disclosed by the Receiving Party or its Representatives contrary to the terms of this Agreement, the Receiving Party will at the direction of the Disclosing Party take all steps necessary, including legal action, to prohibit the party in receipt of such Confidential Information from using or dealing with that Confidential Information which has been disclosed to it, and the Receiving Party will indemnify and hold harmless the Disclosing Party if it becomes necessary for the Disclosing Party to take any steps, including legal action, to prohibit such party from using or dealing with that Confidential Information which has been disclosed to it.  Receiving Party will defend, hold harmless and indemnify Disclosing Party against all cost, loss, damage and liability of any kind, including legal costs, arising out of any breach of this Agreement by Receiving Party.

7.

Remedies

The parties to this Agreement recognize that a breach by the Receiving Party of any of the covenants herein contained could result in significant, immediate and irreparable harm and damage to the Disclosing Party and that the Disclosing Party could not adequately be compensated for such damages by monetary award alone and, accordingly, the Receiving Party agrees that in the event of any such breach, in addition to all other remedies available to the Disclosing Party at law or in equity, the Disclosing Party will be entitled as a matter of right to apply to a court of competent jurisdiction for such relief by way of restraining order, injunction, decree or otherwise, as may be appropriate, to ensure compliance with the provisions of this Agreement.  Receiving Party agrees to reimburse Disclosing Party for all costs and expenses, including reasonable legal fees, incurred by the Disclosing Party in enforcing the terms of this Agreeme nt.  This Agreement is in addition to, and not in substitution for or in derogation of, Disclosing Party’s common law rights or any other explicit or implied terms of the disclosure of the Confidential Information by the Disclosing Party to the Receiving Party.

8.

Reasonableness of Agreement

The Receiving Party agrees that the restrictions contained in this Agreement are reasonable in order to protect the legitimate business interests of the Disclosing Party and waives all defenses to the strict enforcement of such restrictions by the Disclosing Party.

9.

Term

The obligations and undertakings of the Receiving Party hereunder will extend for a period of two (2) years from the termination date of the Consulting Agreement dated April 1, 2007 between the Disclosing Party and the Receiving Party (the “Consulting Agreement”).

10.

Assignability

This Agreement may not be assigned by the Receiving Party without the express written consent of the Disclosing Party.

9

11.

No Interest

In no event will the Receiving Party be deemed, by virtue of this Agreement, to have acquired any right or interest of any kind, in or to, the Confidential Information.

12.

Governing Law

This Agreement will be governed by the laws of the Province of British Columbia, Canada, and the federal laws of Canada applicable therein, and any proceeding relating to or arising as a consequence of this Agreement will be commenced or maintained only in the courts of British Columbia, Canada.

13.

Severability

If any covenant or provision herein is determined to be void or unenforceable in whole or in part, it will be severable from and will not be deemed to affect or impair the enforceability or validity of any other covenant or provision of this Agreement or any part thereof.

14.

Entire Agreement

This Agreement and the Consulting Agreement contain the entire understanding and agreement between the parties with respect to the subject matter hereunder, including, without limitation, the Confidential Information, and supersedes any prior understandings and agreements relating thereto. No other contract or agreement exists between the parties hereto relating to the Confidential Information.

15.

Execution in Counterparts

This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same document.

IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written.

Signed on behalf of SOUTHWESTERN RESOURCES CORP. by: /s/ John G. Paterson ____________________________________________ Authorized Signatory /s/ Thomas W. Beattie ____________________________________________ Authorized Signatory	) ) ) ) ) ) ) ) )
AUSTGOLD CONSULTING LTD.        /s/ Timo Jauristo By:_________________________________ Authorized Signatory	) ) ) ) )

10

CONSULTING AGREEMENT - AMENDMENT

THIS AMENDMENT is dated for reference and effective the November 2, 2007.

BETWEEN:

SOUTHWESTERN RESOURCES CORP., a company duly incorporated under the laws of the Province of British Columbia having an office at Suite 1650, 701 West Georgia Street, Vancouver, B.C. V7Y 1C6.

(the “Company”)

AND:

AUSTGOLD CONSULTING LTD., a British Columbia company with an office at 3392 West 36^th Avenue, Vancouver, BC V6N 2R9.

(the “Consultant”)

WHEREAS the Company and the Consultant executed a Consulting Agreement dated April 1, 2007 (the “Consulting Agreement”).

For valuable consideration, the receipt and sufficiency of which is acknowledged, the Company and the Consultant agree as follows:

1.

The Consulting Agreement be amended as follows:

Schedule “B”, which states:

SCHEDULE “B”

The Company will pay the Consultant the sum of $1,020 per day (plus GST if applicable) for each day Services are provided, payable in accordance with the terms of the Agreement, it being understood that the Consultant will not provide Services for more than 20 days per calendar month.

is replaced with:

SCHEDULE “B”

The Company will pay the Consultant the sum of $1,200 per day (plus GST if applicable) for each day Services are provided, payable in accordance with the terms of the Agreement, it being understood that the Consultant will not provide Services for more than 20 days per calendar month.

2.

The remainder of the Consulting Agreement remains unaltered and in full force and effect.

IN WITNESS WHEREOF the parties have executed this Consulting Agreement Amendment as of the day and year first above written.

The Corporate Seal of Southwestern Resources

)

Corp. was affixed in the presence of:

)

      /s/ W. David Black

)

By:_________________________________

)

C/S

Authorized Signatory

)

     /s/ Giovanni Susin

)

By:__________________________________

)

Authorized Signatory

)

Austgold Consulting Ltd.

)

)

        /s/ Timo Jauristo

)

By:_________________________________

)

Authorized Signatory

)

1

EX-4.2

CONSULTING AGREEMENT

THIS AGREEMENT (this “Agreement”) dated for reference and effective the 1st day of April 2007.

BETWEEN:

SOUTHWESTERN RESOURCES CORP. a company duly incorporated under the laws of the Province of British Columbia having an office at Suite 1650, 701 West Georgia Street, Vancouver, B.C. V7Y 1C6 (Facsimile: (604) 688-5175)

(the “Company”)

AND:

WESTVISTA MANAGEMENT INC., a company duly incorporated under the laws of the Province of British Columbia, having an office at 5381 Monte Bre Court, West Vancouver, B.C. V7W 3B2.

(the “Consultant”)

WHEREAS:

1.

The Consultant is in the business of providing specialized legal consulting services.

2.

The Company requires the services of a consultant, and the Consultant represents that the Consultant is qualified and desires to perform the services required by the Company as a consultant to and not as an employee of the Company.

The parties agree as follows:

1.

ENGAGEMENT OF CONSULTANT

1.1

The Consultant hereby agrees to provide consulting services with respect to those matters described in Schedule “A” when requested by the Company and additional services that are requested by the Company from time-to-time and accepted by the Consultant (the “Services”).

1.2

The Consultant will perform the Services in an efficient, competent, timely and professional manner and provide the standard of care, skill, and diligence normally provided by competent professionals in the performance of services similar to the Services contemplated by this Agreement.

1.3

The Consultant acknowledges that the Company conducts its business in many countries and that the Consultant may be required to travel from time-to-time to various countries to perform the Services.

1.4

During the term of this Agreement, the Consultant will:

1.4.1

devote so much time and attention as is required to complete, or cause the completion of, the Services on a timely basis, but the Consultant is otherwise entitled to engage in the provision of Services for other clients of the Consultant;

1.4.2

perform the Services at such times, by such means and in such a manner as are determined by the Consultant in its sole and exclusive control; and

1

1.4.3

provide Services from the Consultant’s primary business location, as set forth in the preamble to this Agreement above, or, as required and requested by the Company, at its offices or other locations specified by the Company.

2.

COMPENSATION AND EXPENSES

2.1

The Company will pay the Consultant for Services performed in accordance with the terms of Schedule “B”.  Such compensation will be the sole compensation for the Consultant.

2.2

The Consultant will be responsible for all of its own general expenses arising from the performance of its obligations under this Agreement. The Company will reimburse the Consultant for (a) all pre-authorized travel expenses, including out-of-country medical, emergency evacuation/repatriation insurance coverage for the Consultant, and (b) other expenses, including out-of-pocket expenses, actually and properly incurred by the Consultant in connection with the provision of Services; provided that the Company, in its sole discretion, agrees that such expenses were actually and properly incurred; and further provided that the Consultant furnishes receipts to the Company in respect of such expenses.

2.3

Except as otherwise provided in herein, the Consultant will prepare and submit monthly to the Company a detailed statement of fees and expenses for purposes of invoicing, including Goods and Service Tax and any other applicable taxes.  The statement will set forth the number of days the Consultant performed Services and will be accompanied by evidence substantiating expenses incurred.  Subject to verification by the Company, payment of amounts due will be made by the Company within thirty (30) days after receipt of such statements.

2.4

The Consultant shall maintain and have available to it, at its expense, such facilities, equipment and personnel as is required by it to perform the Services.

3.

TERM

3.1

This Agreement will be for the term specified in Schedule “C”.

4.

NATURE OF THE RELATIONSHIP

4.1

It is expressly agreed, represented and understood that the parties have entered into an arm’s length independent contract for the rendering of the Services and that the Consultant shall at all times be an independent contractor with control over the manner and means of its performance of its obligations hereunder, and not an employee, agent or servant of the Company.  Neither this Agreement, nor any action of the parties under this Agreement, will create or will be deemed to create a partnership, joint venture, master/servant, employer/employee, principal/agent or any relationship other than an independent contractor providing an independent service for which the Company will be invoiced according to the terms and conditions of this Agreement.

4.2

The Consultant’s contact within the Company is the person specified in Schedule “D”;

4.3

Neither the Consultant nor its employees, subcontractors or agents shall be entitled, as a result of or pursuant to this Agreement, to rights or privileges applicable to employees of the Company including, but not limited to, liability insurance, group insurance, pension plans, holiday paid vacation and other benefit plans which may be available from time to time between the Company and its employees.

2

4.4

The Consultant shall be responsible for providing, training and managing its employees and shall take full responsibility for its employees, and without limiting the generality of the foregoing, shall be responsible for (a) payment of all of its employee training costs and (b) payments to the proper authorities of all remittances required by applicable law or regulation, including employment insurance premiums, pension contributions, worker’s compensation premiums and all other similar payments and assessments arising as a result of the provision of the Services hereunder by the Consultant (collectively the “Remittances”).

4.5

At the request of the Company, the Consultant agrees to provide verification of payment by the Consultant of all Remittances due by the Consultant as a result of compensation paid hereunder.  If the Company does not receive such verification of payment in a timely manner or is not satisfied with such verification the Consultant authorizes the Company to deduct from the compensation paid hereunder from time to time such sums as may be reasonably required to pay  for such Remittances.

4.6

The Consultant hereby acknowledges that as an independent contractor, the Consultant will not qualify for any assistance under the Unemployment Insurance Act (Canada).  

5.

     COMPLIANCE WITH PROVINCIAL AND FEDERAL LAWS

5.1

The Consultant will comply with all requirements of all applicable federal, provincial, or local laws, rules or regulations.  The Consultant covenants that it has all licenses, work permits or other authorizations required to enable the Consultant to perform Services under this Agreement in the jurisdiction where the Services are to be performed.

6.

       NON-DISCLOSURE AND NON-COMPETITION

6.1

The Consultant agrees to concurrently execute and deliver a confidentiality and non-competition agreement (the “Confidentiality Agreement”) in the form attached as Schedule “E” to this Agreement.

6.2

Subject to the terms and conditions of the Confidentiality Agreement, nothing contained herein or therein shall preclude the Consultant from providing services similar to the Services, or any other services, to other clients of the Consultant.  

7.

TERMINATION

7.1

In the event that the Consultant violates any of the material provisions of this Agreement or fails in a material way to properly perform the Services then, at the option of the Company, this Agreement will at once cease and terminate upon notice of same to Consultant by Company.  

7.2

Either party may terminate this Agreement for any reason upon thirty (30) days written notice to the other party.

7.3

Under circumstances where this Agreement has been terminated pursuant to Section 7.1 or Section 7.2 above, the parties shall be under no further obligation to one another, other than:

7.3.1

the Company shall have the obligation to pay all amounts owed to the Consultant with respect to: (a) such Services as have been performed by the Consultant up to the date of the termination of this Agreement for which the Company has not previously paid the Consultant, and (b) expenses actually and properly incurred by the Consultant in connection with the provision of the Services for which the

3

Consultant has not been reimbursed by the Company pursuant to Section 2.2 of this Agreement; and  

7.3.2

the obligations of the Consultant pursuant to the Confidentiality Agreement shall continue in accordance with the terms thereof.

8.

ASSIGNMENT AND SUBCONTRACTING

8.1

Neither party may assign this Agreement in whole or in part.

8.2

The Consultant may subcontract the provision of the Services or any obligation of the Consultant under this Agreement.  Subcontracting shall not derogate from the liability of the Consultant to perform the Services or its obligations hereunder.

9.

NOTICES

9.1

Any notice required or permitted to be given under this Agreement will be in writing and may be delivered personally or by telex or facsimile or by pre-paid registered post addressed to the parties at the above mentioned addresses or at such address of which notice may be given by either of such parties.  Any notice will be deemed to have been received, if personally delivered or delivered by telex or facsimile, on the date of such delivery, and, if mailed as aforesaid, then on the fourth business day after the day of mailing.

10.

ENTIRE AGREEMENT

10.1

This Agreement and the Confidentiality Agreement contain the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes and replaces all previous written and oral agreements among the parties hereto.  

11.

AMENDMENTS AND WAIVER

11.1

This Agreement may only be amended by further written agreement executed and delivered by the Consultant and the Company.  Except as otherwise provided, no waiver or consent by a party to any breach or default by the other party will be effective unless evidenced in writing, executed and delivered by the party so waiving or consenting and no waiver or consent effectively given as aforesaid will operate as a waiver of or consent to any further or other breach or default in relation to the same or any other provision of this Agreement.

12.

INTERPRETATION

12.1

This Agreement will be governed by and construed in accordance with the laws of the Province of British Columbia.  Notwithstanding the foregoing, it is agreed that either party may commence an action in respect of the enforcement of rights hereunder in any jurisdiction in which the other party resides, has assets, carries on business or has an office.

12.2

All headings used in this Agreement are for convenience of reference only and are not to be used in the aid of interpretation of this Agreement.

12.3

This Agreement may be executed in any number of counterparts with the same effect as if all of the parties have signed the same document.  All counterparts shall be construed together and shall constitute one agreement.  This Agreement may be validly executed by means of transmission of signed facsimile or other electronic delivery.

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12.4

Unless otherwise specified, all funds referred to in this Agreement shall be in the lawful monies of Canada.

12.5

If any term, covenant or condition of this Agreement or the application thereof to any party or circumstances is deemed to be invalid or unenforceable to any extent, the remainder of this Agreement or the application of such term, covenant or condition to a party or circumstances other than those to which it is held invalid or unenforceable will not be affected thereby and each remaining term, covenant or condition of this Agreement will be enforceable to the fullest extent permitted by law.

IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written.

Signed on behalf of SOUTHWESTERN RESOURCES CORP. by: /s/ John G. Paterson ____________________________________________ Authorized Signatory /s/ Parkash K. Athwal ____________________________________________ Authorized Signatory	) ) ) ) ) ) ) ) )
WESTVISTA MANAGEMENT INC.         /s/ Thomas W. Beattie By:_________________________________ Authorized Signatory	) ) ) ) )

5

THESE ARE SCHEDULES “A” to “D” TO THE CONSULTING AGREEMENT BETWEEN

SOUTHWESTERN RESOURCES CORP. AND THE CONSULTANT

SCHEDULE “A”

Services to be provided are as follows:

-

Assist management in the further development and implementation of its business plan and objectives.

-

Assist in the negotiation of agreements, including mining agreements.

-

Organize and prepare minutes of meetings of directors and their committees.

-

Assist with compliance with the laws in the various jurisdictions in which the company carries on business.

-

Summarize legal and tax frameworks and economic and political regimes for conducting business in foreign countries.

-

Participate in the preparation of prospectuses and other financing documents.

-

Assist with compliance with all regulatory requirements for a publicly listed company.

SCHEDULE “B”

The Company will pay the Consultant the sum of $1,050 per day (plus GST if applicable) for each day Services are provided, payable in accordance with the terms of the Agreement, it being understood that the Consultant will not provide Services for more than 20 days per calendar month.

SCHEDULE “C”

The term of this Agreement will be one (1) year commencing on April 1, 200­7 unless earlier terminated in accordance with the provisions of the Agreement.

SCHEDULE “D”

The Company’s representative, until further notice, is the Company’s Chair.

6

THIS IS SCHEDULE “E” TO THE CONSULTING AGREEMENT BETWEEN

SOUTHWESTERN RESOURCES CORP. AND THE CONSULTANT

CONFIDENTIALITY AND NON-COMPETITION AGREEMENT

This Confidentiality and Non-Competition Agreement (this “Agreement”) is made effective this 1st day of April 2007.

BETWEEN:

SOUTHWESTERN RESOURCES CORP., a company duly incorporated under the laws of the Province of British Columbia having an office at Suite 1650, 701 West Georgia Street, Vancouver, B.C. V7Y 1C6  (Facsimile: (604) 688-5175)

(the “Disclosing Party”)

AND:

WESTVISTA MANAGEMENT INC., a company duly incorporated under the laws of the Province of British Columbia, having an office at 5381 Monte Bre Court, West Vancouver, B.C. V7W 3B2.

(hereinafter called the “Receiving Party”)

WHEREAS the Receiving Party will receive and have access to certain confidential data and information proprietary to the Disclosing Party;

AND WHEREAS the Disclosing Party is prepared to make available, and the Receiving Party will have access to, said confidential data and information;

AND WHEREAS for the purposes of future discussions between the parties, the Receiving Party agrees that any and all disclosures made or data and information provided by the Disclosing Party to it will be subject to the terms and conditions of this Agreement;

NOW, in consideration of the disclosure to it of information by the Disclosing Party, the Receiving Party hereby undertakes, covenants and agrees as follows:

1.

Definitions

For purposes of this Agreement, the following definitions will apply:

a.

“Affiliate”: one corporation is affiliated with another corporation where one of them is the subsidiary of the other or both are subsidiaries of the same corporation or each is controlled by the same corporation;

b.

“Confidential Information” means any and all data, records, reports, compilations, drill hole logs, calculations, opinions, maps, charts, documents and other information whatsoever written or oral and whether or not noted thereon to be confidential provided to the Receiving Party by the Disclosing Party or its Representatives and all summaries, extracts or copies therefrom and all notes, memoranda, studies or analyses based thereon;

c.

“Person” will be interpreted broadly to include individuals, corporations, associations, groups, partnerships and trusts;

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d.

“Representative” means any director, officer, employee, or consultant of a party to this Agreement or its Affiliates; and

e.

“Term” means that period of time specified in paragraph 9.

2.

Covenants of Receiving Party

The Receiving Party covenants and agrees as follows:

a.

The Receiving Party agrees to, and to cause its Representatives to, receive, protect and maintain the Confidential Information in the strictest confidence. The Receiving Party agrees not to, and to cause its Representatives not to, disclose the Confidential Information to any Person except pursuant to an agreement that was entered into by the Receiving Party on terms and conditions that do not contravene, violate or breach, and are not inconsistent with, the operative provisions of this Agreement;

b.

The Receiving Party acknowledges that the release, publication or dissemination of the Confidential Information could be harmful to the Disclosing Party; and

c.

At the request of the Disclosing Party, all materials delivered to the Receiving Party or its Representatives with respect to Confidential Information hereunder and any copies thereof made by the Receiving Party or its Representatives will forthwith be returned to the Disclosing Party and will at all times be deemed to be owned by the Disclosing Party.

3.

Exceptions

This Agreement does not apply to those portions of the Confidential Information (together called the “Non-Confidential Information”) that:

a.

are part of the public domain at the time they are made known to the Receiving Party;

b.

are made known to the Receiving Party without an obligation of confidentiality by a third party who did not acquire knowledge of the details, either directly or indirectly, under an obligation of confidentiality;

c.

after they are made known to the Receiving Party, become part of the public domain through no fault, act or omission of the Receiving Party, its Representatives or of any party to whom the Receiving Party has properly disclosed details of the Confidential Information; or

d.

the Receiving Party can establish were in its possession prior to the date of disclosure of such details by the Disclosing Party.

4.

Consent

Any consent on behalf of the Disclosing Party required or contemplated by this Agreement will only be valid and binding on the Disclosing Party if such consent is in writing and signed by the proper officers of the Disclosing Party.

5.

Acquisition Within the Area of Interest

Except with the prior written consent of the Disclosing Party, which shall not be unreasonably withheld, neither the Receiving Party nor any of its Representatives will, during the Term of this Agreement and for a period of two years thereafter, directly or indirectly, through associates or Affiliates, acquire any property interests, including, without limitation, any exploration concessions, permits, mining or other claims or rights, leases, interests in land, fee lands, surface

8

rights or water rights (each, a “Property Interest”) in any property that is part of, or within, a ten (10) kilometre radius of (the “Area of Interest”), any property in which the Disclosing Party (a) holds a Property Interest at the time of execution of this Agreement, or (b) acquires a Property Interest during the Term of this Agreement, and nor will the Receiving Party provide any Services or services similar to the Services to anyone (other than the Company or its Affiliates) within the Area of Interest.

6.

Action to Prohibit Release of Confidential Information

If the Confidential Information or any part thereof is disclosed by the Receiving Party or its Representatives contrary to the terms of this Agreement, the Receiving Party will at the direction of the Disclosing Party take all steps necessary, including legal action, to prohibit the party in receipt of such Confidential Information from using or dealing with that Confidential Information which has been disclosed to it, and the Receiving Party will indemnify and hold harmless the Disclosing Party if it becomes necessary for the Disclosing Party to take any steps, including legal action, to prohibit such party from using or dealing with that Confidential Information which has been disclosed to it.  Receiving Party will defend, hold harmless and indemnify Disclosing Party against all cost, loss, damage and liability of any kind, including legal costs, arising out of any breach of this Agreement by Receiving Party.

7.

Remedies

The parties to this Agreement recognize that a breach by the Receiving Party of any of the covenants herein contained could result in significant, immediate and irreparable harm and damage to the Disclosing Party and that the Disclosing Party could not adequately be compensated for such damages by monetary award alone and, accordingly, the Receiving Party agrees that in the event of any such breach, in addition to all other remedies available to the Disclosing Party at law or in equity, the Disclosing Party will be entitled as a matter of right to apply to a court of competent jurisdiction for such relief by way of restraining order, injunction, decree or otherwise, as may be appropriate, to ensure compliance with the provisions of this Agreement.  Receiving Party agrees to reimburse Disclosing Party for all costs and expenses, including reasonable legal fees, incurred by the Disclosing Party in enforcing the terms of this Agreeme nt.  This Agreement is in addition to, and not in substitution for or in derogation of, Disclosing Party’s common law rights or any other explicit or implied terms of the disclosure of the Confidential Information by the Disclosing Party to the Receiving Party.

8.

Reasonableness of Agreement

The Receiving Party agrees that the restrictions contained in this Agreement are reasonable in order to protect the legitimate business interests of the Disclosing Party and waives all defenses to the strict enforcement of such restrictions by the Disclosing Party.

9.

Term

The obligations and undertakings of the Receiving Party hereunder will extend for a period of two (2) years from the termination date of the Consulting Agreement dated April 1, 2007 between the Disclosing Party and the Receiving Party (the “Consulting Agreement”).

10.

Assignability

This Agreement may not be assigned by the Receiving Party without the express written consent of the Disclosing Party.

9

11.

No Interest

In no event will the Receiving Party be deemed, by virtue of this Agreement, to have acquired any right or interest of any kind, in or to, the Confidential Information.

12.

Governing Law

This Agreement will be governed by the laws of the Province of British Columbia, Canada, and the federal laws of Canada applicable therein, and any proceeding relating to or arising as a consequence of this Agreement will be commenced or maintained only in the courts of British Columbia, Canada.

13.

Severability

If any covenant or provision herein is determined to be void or unenforceable in whole or in part, it will be severable from and will not be deemed to affect or impair the enforceability or validity of any other covenant or provision of this Agreement or any part thereof.

14.

Entire Agreement

This Agreement and the Consulting Agreement contain the entire understanding and agreement between the parties with respect to the subject matter hereunder, including, without limitation, the Confidential Information, and supersedes any prior understandings and agreements relating thereto. No other contract or agreement exists between the parties hereto relating to the Confidential Information.

15.

Execution in Counterparts

This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same document.

IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written.

Signed on behalf of SOUTHWESTERN RESOURCES CORP. by: /s/ John G. Paterson ____________________________________________ Authorized Signatory /s/ Parkash K. Athwal ____________________________________________ Authorized Signatory	) ) ) ) ) ) ) ) )
WESTVISTA MANAGEMENT INC.        /s/ Thomas W. Beattie By:_________________________________ Authorized Signatory	) ) ) ) )

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EX-4.3

CONSULTING AGREEMENT

THIS AGREEMENT (this “Agreement”) dated for reference and effective the ­­­­­23rd day of February 2007.

BETWEEN:

SOUTHWESTERN GOLD (BERMUDA) LIMITED, a company duly incorporated under the laws of Bermuda and having an office at 4^th Floor, Jardine House, 33 Reid Street, Hamilton, Bermuda HM11

(the “Company”)

AND:

ALEJANDRO LOSADA-CALDERON having an address at PO Box 727; Hillarys; Western Australia; 6923

(the “Consultant”)

WHEREAS:

1.

The Consultant is in the business of providing specialized exploration consulting services.

2.

The Company, and its subsidiaries and affiliates (collectively hereafter the “Company”) require the services of a consultant, and the Consultant represents that the Consultant is qualified, has the necessary equipment, facilities and personnel, and desires to perform the services required by the Company as a consultant to and not as an employee of the Company.

The parties agree as follows:

1.

ENGAGEMENT OF CONSULTANT

1.1

The Consultant hereby agrees to provide consulting services with respect to those matters described in Schedule “A” when requested by the Company and additional services that are requested by the Company from time-to-time and accepted by the Consultant (the “Services”).

1.2

The Consultant will perform the Services in an efficient, competent, timely and professional manner and provide the standard of care, skill, and diligence normally provided by competent professionals in the performance of services similar to the Services contemplated by this Agreement.

1.3

The Consultant acknowledges that the Company conducts its business in many countries and that the Consultant may be required to travel from time-to-time to various countries to perform the Services.

1.4

During the term of this Agreement, the Consultant will:

1.4.1

devote so much time and attention as is required to complete, or cause the completion of, the Services on a timely basis, but the Consultant is otherwise entitled to engage in the provision of Services for other clients of the Consultant;

1

1.4.2

perform the Services at such times, by such means and in such a manner as are determined by the Consultant in its sole and exclusive control; and

1.4.3

provide Services from the Consultant’s primary business location, as set forth in the preamble to this Agreement above, or, as required and requested by the Company, at its offices or other locations specified by the Company.

2.

COMPENSATION AND EXPENSES

2.1

The Company will pay the Consultant for Services performed in accordance with the terms of Schedule “B”.  Such compensation will be the sole compensation for the Consultant.

2.2

The Consultant will be responsible for all of its own general expenses arising from the performance of the Consultant’s obligations under this Agreement. The Company will reimburse the Consultant for (a) all pre-authorized travel expenses, including out-of-country medical, emergency evacuation/repatriation insurance coverage for the Consultant, and (b) other expenses, including out-of-pocket expenses, actually and properly incurred by the Consultant in connection with the provision of Services; provided that the Company, in its sole discretion, agrees that such expenses were actually and properly incurred; and further provided that the Consultant furnishes receipts to the Company in respect of such expenses.

2.3

Except as otherwise provided in herein, the Consultant will prepare and submit monthly to the Company a detailed statement of fees and expenses for purposes of invoicing and any applicable taxes.  The statement will set forth the number of days the Consultant performed Services and will be accompanied by evidence substantiating expenses incurred.  Subject to verification by the Company, payment of amounts due will be made by the Company within thirty (30) days after receipt of such statements.

3.

TERM

3.1

This Agreement will be for the term specified in Schedule “C”.

4.

NATURE OF THE RELATIONSHIP

4.1

It is expressly agreed, represented and understood that the parties have entered into an arm’s length independent contract for the rendering of the Services and that the Consultant shall at all times be an independent contractor with control over the manner and means of its performance of its obligations hereunder, and not an employee, agent or servant of the Company.  Neither this Agreement, nor any action of the parties under this Agreement, will create or will be deemed to create a partnership, joint venture, master/servant, employer/employee, principal/agent or any relationship other than an independent contractor providing an independent service for which the Company will be invoiced according to the terms and conditions of this Agreement.

4.2

The Consultant’s contact within the Company is the person specified in Schedule “D”;

4.3

Neither the Consultant nor the Consultant’s subcontractors or agents shall be entitled, as a result of or pursuant to this Agreement, to rights or privileges applicable to employees of the Company including, but not limited to, liability insurance, group insurance, pension plans, holiday paid vacation and other benefit plans which may be available from time to time between the Company and its employees.

4.4

The Consultant shall be responsible for payments to the proper authorities of all remittances required by applicable law or regulation, including employment insurance

2

premiums, pension contributions, worker’s compensation premiums and all other similar payments and assessments arising as a result of the provision of the Services hereunder by the Consultant (collectively the “Remittances”).

4.5

At the request of the Company, the Consultant agrees to provide verification of payment by the Consultant of all Remittances due by the Consultant as a result of compensation paid hereunder.  If the Company does not receive such verification of payment in a timely manner or is not satisfied with such verification the Consultant authorizes the Company to deduct from the compensation paid hereunder from time to time such sums as may be reasonably required to pay for such Remittances.

5.

     COMPLIANCE WITH LAWS

5.1

The Consultant will comply with all requirements of all applicable laws, rules or regulations.  The Consultant has all licenses, work permits or other authorizations required to enable the Consultant to perform Services under this Agreement in the jurisdiction where the Services are to be performed.

6.

       NON-DISCLOSURE AND NON-COMPETITION

6.1

The Consultant agrees to concurrently execute and deliver a confidentiality and non-competition agreement (the “Confidentiality Agreement”) in the form attached as Schedule “E” to this Agreement.

6.2

Subject to the terms and conditions of the Confidentiality Agreement, nothing contained herein or therein shall preclude the Consultant from providing services similar to the Services, or any other services, to other clients of the Consultant.  

7.

TERMINATION

7.1

In the event that the Consultant violates any of the material provisions of this Agreement or fails in a material way to properly perform the Services then, at the option of the Company, this Agreement will at once cease and terminate upon notice of same to Consultant by Company.  

7.2

Either party may terminate this Agreement for any reason upon thirty (30) days written notice to the other party.

7.3

Under circumstances where this Agreement has been terminated pursuant to Section 7.1 or Section 7.2 above, the parties shall be under no further obligation to one another, other than:

7.3.1

the Company shall have the obligation to pay all amounts owed to the Consultant with respect to: (a) such Services as have been performed by the Consultant up to the date of the termination of this Agreement for which the Company has not previously paid the Consultant, and (b) expenses actually and properly incurred by the Consultant in connection with the provision of the Services for which the Consultant has not been reimbursed by the Company pursuant to Section 2.2 of this Agreement; and  

7.3.2

the obligations of the Consultant pursuant to the Confidentiality Agreement shall continue in accordance with the terms thereof.

8.

ASSIGNMENT AND SUBCONTRACTING

8.1

Neither party may assign this Agreement in whole or in part.

3

8.2

The Consultant may subcontract the provision of the Services or any obligation of the Consultant under this Agreement.  Subcontracting shall not derogate from the liability of the Consultant to perform the Services or the Consultant’s obligations hereunder.

9.

NOTICES

9.1

Any notice required or permitted to be given under this Agreement will be in writing and may be delivered personally or by telex or facsimile or by pre-paid registered post addressed to the parties at the above mentioned addresses or at such address of which notice may be given by either of such parties.  Any notice will be deemed to have been received, if personally delivered or delivered by telex or facsimile, on the date of such delivery, and, if mailed as aforesaid, then on the fourth business day after the day of mailing.

10.

ENTIRE AGREEMENT

10.1

This Agreement and the Confidentiality Agreement contain the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes and replaces all previous written and oral agreements among the parties hereto.  

11.

AMENDMENTS AND WAIVER

11.1

This Agreement may only be amended by further written agreement executed and delivered by the Consultant and the Company.  Except as otherwise provided, no waiver or consent by a party to any breach or default by the other party will be effective unless evidenced in writing, executed and delivered by the party so waiving or consenting and no waiver or consent effectively given as aforesaid will operate as a waiver of or consent to any further or other breach or default in relation to the same or any other provision of this Agreement.

12.

INTERPRETATION

12.1

This Agreement will be governed by and construed in accordance with the laws of Bermuda.  Notwithstanding the foregoing, it is agreed that either party may commence an action in respect of the enforcement of rights hereunder in any jurisdiction in which the other party resides, has assets, carries on business or has an office.

12.2

All headings used in this Agreement are for convenience of reference only and are not to be used in the aid of interpretation of this Agreement.

12.3

This Agreement may be executed in any number of counterparts with the same effect as if all of the parties have signed the same document.  All counterparts shall be construed together and shall constitute one agreement.  This Agreement may be validly executed by means of transmission of signed facsimile or other electronic delivery.

12.4

Unless otherwise specified, all funds referred to in this Agreement shall be in the lawful monies of United States of America.

12.5

If any term, covenant or condition of this Agreement or the application thereof to any party or circumstances is deemed to be invalid or unenforceable to any extent, the remainder of this Agreement or the application of such term, covenant or condition to a party or circumstances other than those to which it is held invalid or unenforceable will not be affected thereby and each remaining term, covenant or condition of this Agreement will be enforceable to the fullest extent permitted by law.

4

IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written.

Signed on behalf of SOUTHWESTERN GOLD (BERMUDA) LIMITED by: /s/Alastair Macdonald _________________________________________ Authorized Signatory /s/ Graham Collis _________________________________________ Authorized Signatory	) ) ) ) ) ) ) ) )
Signed, Sealed and Delivered by ALEJANDRO LOSADA-CALDERON in the presence of: /s/ Robert Lycett __________________________________________ Name : ____________________________________ Address:  __________________________________ Occupation: ________________________________	) ) ) ) ) ) ) ) ) )	/s/ Alejandro Losada-Calderon ________________________________ ALEJANDRO LOSADA-CALDERON

5

THESE ARE SCHEDULES “A” to “D” TO THE CONSULTING AGREEMENT BETWEEN

SOUTHWESTERN GOLD (BERMUDA) LIMITED AND THE CONSULTANT

SCHEDULE “A”

Services to be provided are as follows:

·

Responsible for the design and implementation of the Company’s gold, silver and base-metal programs around the globe;  

·

Work with the Executive team to assess and evaluate new exploration opportunities;  

·

Allocate material, human and financial resources to implement the Company’s exploration objectives and programs;  

·

Coordinate exploration activities globally for the Company and represent the Company; and

·

Act on behalf of the Company in exploration negotiations and other official functions.

SCHEDULE “B”

The Company will pay the Consultant the sum of US$785 per day for each day Services are provided, payable in accordance with the terms of the Agreement, it being understood that the Consultant will not provide Services for more than 20 days per calendar month.

In addition, the Company will reimburse the Consultant for the Consultant’s costs of relocating from Australia.

SCHEDULE “C”

The term of this Agreement will be two (2) years commencing on February ___, 2007 unless earlier terminated in accordance with the provisions of the Agreement.

SCHEDULE “D”

The Company’s representative, until further notice, is John G. Paterson, President and Chief Executive Officer of Southwestern Resources Corp., parent of the Company.  

6

THIS IS SCHEDULE “E” TO THE CONSULTING AGREEMENT BETWEEN

SOUTHWESTERN GOLD (BERMUDA) LIMITED AND THE CONSULTANT

CONFIDENTIALITY AND NON-COMPETITION AGREEMENT

This Confidentiality and Non-Competition Agreement (this “Agreement”) is made effective this 23rd day of February 2007.

BETWEEN:

SOUTHWESTERN GOLD (BERMUDA) LIMITED, a company duly incorporated under the laws of Bermuda and having an office at 4^th Floor, Jardine House, 33 Reid Street, Hamilton, Bermuda HM11

(the “Disclosing Party”)

AND:

ALEJANDRO LOSADA-CALDERON having an address at PO Box 727; Hillarys; Western Australia; 6923

(hereinafter called the “Receiving Party”)

WHEREAS the Receiving Party will receive and have access to certain confidential data and information proprietary to the Disclosing Party, its subsidiaries and affiliates (hereafter collectively the “Disclosing Party”);

AND WHEREAS the Disclosing Party is prepared to make available, and the Receiving Party will have access to, said confidential data and information;

AND WHEREAS for the purposes of future discussions between the parties, the Receiving Party agrees that any and all disclosures made or data and information provided by the Disclosing Party to the Receiving Party it will be subject to the terms and conditions of this Agreement;

NOW, in consideration of the disclosure to the Receiving Party of information by the Disclosing Party, the Receiving Party hereby undertakes, covenants and agrees as follows:

1.

Definitions

For purposes of this Agreement, the following definitions will apply:

a.

“Affiliate”: one corporation is affiliated with another corporation where one of them is the subsidiary of the other or both are subsidiaries of the same corporation or each is controlled by the same corporation;

b.

“Confidential Information” means any and all data, records, reports, compilations, drill hole logs, calculations, opinions, maps, charts, documents and other information whatsoever written or oral and whether or not noted thereon to be confidential provided to the Receiving Party by the Disclosing Party or its Representatives and all summaries, extracts or copies therefrom and all notes, memoranda, studies or analyses based thereon;

c.

“Person” will be interpreted broadly to include individuals, corporations, associations, groups, partnerships and trusts;

7

d.

“Representative” means any director, officer, employee, or consultant of a party to this Agreement or its Affiliates; and

e.

“Term” means that period of time specified in paragraph 9.

2.

Covenants of Receiving Party

The Receiving Party covenants and agrees as follows:

a.

The Receiving Party agrees to receive, protect and maintain the Confidential Information in the strictest confidence. The Receiving Party agrees not to disclose the Confidential Information to any Person except pursuant to an agreement that was entered into by the Receiving Party on terms and conditions that do not contravene, violate or breach, and are not inconsistent with, the operative provisions of this Agreement;

b.

The Receiving Party acknowledges that the release, publication or dissemination of the Confidential Information could be harmful to the Disclosing Party; and

c.

At the request of the Disclosing Party, all materials delivered to the Receiving Party with respect to Confidential Information hereunder and any copies thereof made by the Receiving Party will forthwith be returned to the Disclosing Party and will at all times be deemed to be owned by the Disclosing Party.

3.

Exceptions

This Agreement does not apply to those portions of the Confidential Information (together called the “Non-Confidential Information”) that:

a.

are part of the public domain at the time they are made known to the Receiving Party;

b.

are made known to the Receiving Party without an obligation of confidentiality by a third party who did not acquire knowledge of the details, either directly or indirectly, under an obligation of confidentiality;

c.

after they are made known to the Receiving Party, become part of the public domain through no fault, act or omission of the Receiving Party or of any party to whom the Receiving Party has properly disclosed details of the Confidential Information; or

d.

the Receiving Party can establish were in the Receiving Party’s possession prior to the date of disclosure of such details by the Disclosing Party.

4.

Consent

Any consent on behalf of the Disclosing Party required or contemplated by this Agreement will only be valid and binding on the Disclosing Party if such consent is in writing and signed by the proper officers of the Disclosing Party.

5.

Acquisition Within the Area of Interest

Except with the prior written consent of the Disclosing Party, which shall not be unreasonably withheld, the Receiving Party will not, during the Term of this Agreement and for a period of two years thereafter, directly or indirectly through associates, acquire any property interests, including, without limitation, any exploration concessions, permits, mining or other claims or rights, leases, interests in land, fee lands, surface rights or water rights (each, a “Property Interest”) in any property that is part of, or within, a ten (10) kilometre radius of (the “Area of

8

Interest”), any property in which the Disclosing Party (a) holds a Property Interest at the time of execution of this Agreement, or (b) acquires a Property Interest during the Term of this Agreement, and nor will the Receiving Party provide any Services or services similar to the Services to anyone (other than the Company or its Affiliates) within the Area of Interest.

6.

Action to Prohibit Release of Confidential Information

If the Confidential Information or any part thereof is disclosed by the Receiving Party contrary to the terms of this Agreement, the Receiving Party will at the direction of the Disclosing Party take all steps necessary, including legal action, to prohibit the party in receipt of such Confidential Information from using or dealing with that Confidential Information which has been disclosed to it, and the Receiving Party will indemnify and hold harmless the Disclosing Party if it becomes necessary for the Disclosing Party to take any steps, including legal action, to prohibit such party from using or dealing with that Confidential Information which has been disclosed to the Receiving Party.  Receiving Party will defend, hold harmless and indemnify Disclosing Party against all cost, loss, damage and liability of any kind, including legal costs, arising out of any breach of this Agreement by Receiving Party.

7.

Remedies

The parties to this Agreement recognize that a breach by the Receiving Party of any of the covenants herein contained could result in significant, immediate and irreparable harm and damage to the Disclosing Party and that the Disclosing Party could not adequately be compensated for such damages by monetary award alone and, accordingly, the Receiving Party agrees that in the event of any such breach, in addition to all other remedies available to the Disclosing Party at law or in equity, the Disclosing Party will be entitled as a matter of right to apply to a court of competent jurisdiction for such relief by way of restraining order, injunction, decree or otherwise, as may be appropriate, to ensure compliance with the provisions of this Agreement.  Receiving Party agrees to reimburse Disclosing Party for all costs and expenses, including reasonable legal fees, incurred by the Disclosing Party in enforcing the terms of this Agreeme nt.  This Agreement is in addition to, and not in substitution for or in derogation of, Disclosing Party’s common law rights or any other explicit or implied terms of the disclosure of the Confidential Information by the Disclosing Party to the Receiving Party.

8.

Reasonableness of Agreement

The Receiving Party agrees that the restrictions contained in this Agreement are reasonable in order to protect the legitimate business interests of the Disclosing Party and waives all defenses to the strict enforcement of such restrictions by the Disclosing Party.

9.

Term

The obligations and undertakings of the Receiving Party hereunder will extend for a period of two (2) years from the termination date of the Consulting Agreement dated February __ 2007 between the Disclosing Party and the Receiving Party (the “Consulting Agreement”).

10.

Assignability

This Agreement may not be assigned by the Receiving Party without the express written consent of the Disclosing Party.

11.

No Interest

In no event will the Receiving Party be deemed, by virtue of this Agreement, to have acquired any right or interest of any kind, in or to, the Confidential Information.

9

12.

Governing Law

This Agreement will be governed by and construed in accordance with the laws of Bermuda.  Notwithstanding the foregoing, it is agreed that either party may commence an action in respect of the enforcement of rights hereunder in any jurisdiction in which the other party resides, has assets, carries on business or has an office.

13.

Severability

If any covenant or provision herein is determined to be void or unenforceable in whole or in part, it will be severable from and will not be deemed to affect or impair the enforceability or validity of any other covenant or provision of this Agreement or any part thereof.

14.

Entire Agreement

This Agreement and the Consulting Agreement contain the entire understanding and agreement between the parties with respect to the subject matter hereunder, including, without limitation, the Confidential Information, and supersedes any prior understandings and agreements relating thereto. No other contract or agreement exists between the parties hereto relating to the Confidential Information.

15.

Execution in Counterparts

This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same document.

IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written.

Signed on behalf of SOUTHWESTERN GOLD (BERMUDA) LIMITED by: /s/Alastair Macdonald _________________________________________ Authorized Signatory /s/ Graham Collis _________________________________________ Authorized Signatory	) ) ) ) ) ) ) ) )
Signed, Sealed and Delivered by ALEJANDRO LOSADA-CALDERON in the presence of: /s/ Robert Lycett __________________________________________ Name : ____________________________________ Address:  __________________________________ Occupation: ________________________________	) ) ) ) ) ) ) ) ) )	/s/ Alejandro Losada-Calderon ________________________________ ALEJANDRO LOSADA-CALDERON

10

EX-4.4

CHANGE OF CONTROL AGREEMENT – OFFICER

THIS AGREEMENT made the 1^st day of April 2007.

BETWEEN:

SOUTHWESTERN RESOURCES CORP., a corporation continued under the laws of the Province of British Columbia, of Suite 1650 – 701 West Georgia Street, Vancouver, BC V7Y 1C6.

(the “Corporation”)

AND:

TIMO JAURISTO of 3392 West 36^th Avenue, Vancouver, BC V6N 2R9.

(the “Officer”)

In consideration of the sum of $10.00, the receipt and sufficiency of which is acknowledged, the mutual covenants herein contained and the “Officer” remaining as an officer of the “Corporation”, it is hereby agreed as follows:

1.      

In the event the Officer ceases to be an officer of the Corporation for any reason within six months of the date on which control of the Corporation changes (which event is called a “Change of Control”), the Corporation shall pay to the Officer $734,000 (the “Change of Control Payment”).  For the purposes of this Agreement, Change of Control will be deemed to have occurred if a transaction results in the Corporation having a new Control Person, where “Control Person” means:

a.

a person who holds sufficient number of the voting rights attached to all outstanding voting securities of the Corporation to affect materially the control of the Corporation; or

b.

each person in a combination of persons, acting in concert by virtue of an agreement, arrangement, commitment or understanding, which holds in total a sufficient number of the voting rights attached to all outstanding voting securities of the Corporation to affect materially the control of the Corporation,

and, if a person or combination of persons holds more than 30% of the voting rights attached to all outstanding voting securities of the Corporation, the person or combination of persons is deemed, in the absence of evidence to the contrary, to hold a sufficient number of the voting rights to be a Control Person of the Corporation.

2.

Notwithstanding paragraph 1, Change of Control does not include removal of the Officer as an officer of the Corporation for cause.  This Agreement shall terminate immediately upon a voluntary resignation of the Officer as an officer of the Corporation unless a Change of Control occurred first.

3.

The Change of Control Payment will be paid to the Officer within 15 days of the date on which one party hereto notifies the other party that a Change of Control has occurred (the “Change of Control Notice”), provided that the Officer may, within 10 days of receipt of the Change of Control Notice, elect by written notice to the Corporation that the Change of Control Payment be paid in cash to the Officer in equal monthly installments over a period of one year.

4.

On termination of this Agreement, the parties will remain liable for all obligations and liabilities hereunder, whether such obligations and liabilities accrue before or after termination of this Agreement.

5.

The provisions of this Agreement shall be governed by and interpreted in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein.

6.

All notices or other communications to be given hereunder shall be delivered by hand to the relevant address specified above.  Either party may change its address for service by notice in writing to the other party hereto specifying its new address for service hereunder.

7.

This Agreement shall be for a term of one year, provided that if the Officer is an officer of the Corporation at the end of the term or any renewal thereof then this Agreement shall automatically be extended for a further term of one year.

8.

The provisions of this Agreement shall enure to the benefit of and binding upon the respective successors and assigns of the Corporation and heirs of the Officer.

9.

Any notice to be given hereunder to the Corporation or the Officer will be deemed to be validly given if delivered or sent by facsimile to the respective addresses below and any such notice delivered on a business day in accordance with the foregoing will be deemed to have been received on the date of delivery or facsimile transmission:

To the Corporation, at:
Suite 1650 – 701 West Georgia Street P.O. Box 10102 Vancouver, BC V7Y 1C6
Attention:  Vice President, Corporate Affairs
Facsimile: (604) 688 5175 To the Officer, at:
3392 West 36^th Avenue Vancouver, BC V6N 2R9.

Facsimile:  

10.

This Agreement contains the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes and replaces all previous written and oral agreements among the parties hereto.

IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of the day and year first above written.

Signed on behalf of SOUTHWESTERN RESOURCES CORP. by: /s/ Thomas W. Beattie _________________________________________ Authorized Signatory /s/ Giovanni Susin _________________________________________ Authorized Signatory	) ) ) ) ) ) ) ) )
Signed, Sealed and Delivered in the presence of:	)
	)
/s/ Susy H. Horna	)
_________________________________________	)
(signature)	)	/s/ Timo Jauristo
	)	________________________________
_________________________________________	)	TIMO JAURISTO
(print name)	)

1

EX-4.5

CHANGE OF CONTROL AGREEMENT – OFFICER

THIS AGREEMENT made the 1^st day of April 2007.

BETWEEN:

SOUTHWESTERN RESOURCES CORP., a corporation continued under the laws of the Province of British Columbia, of Suite 1650 – 701 West Georgia Street, Vancouver, BC V7Y 1C6.

(the “Corporation”)

AND:

THOMAS W. BEATTIE of 5381 Monte Bre Court, West Vancouver, BC, V7W 3B2.

(the “Officer”)

In consideration of the sum of $10.00, the receipt and sufficiency of which is acknowledged, the mutual covenants herein contained and the “Officer” remaining as an officer of the “Corporation”, it is hereby agreed as follows:

1.      

In the event the Officer ceases to be an officer of the Corporation for any reason within six months of the date on which control of the Corporation changes (which event is called a “Change of Control”), the Corporation shall pay to the Officer $756,000 (the “Change of Control Payment”).  For the purposes of this Agreement, Change of Control will be deemed to have occurred if a transaction results in the Corporation having a new Control Person, where “Control Person” means:

a.

a person who holds sufficient number of the voting rights attached to all outstanding voting securities of the Corporation to affect materially the control of the Corporation; or

b.

each person in a combination of persons, acting in concert by virtue of an agreement, arrangement, commitment or understanding, which holds in total a sufficient number of the voting rights attached to all outstanding voting securities of the Corporation to affect materially the control of the Corporation,

and, if a person or combination of persons holds more than 30% of the voting rights attached to all outstanding voting securities of the Corporation, the person or combination of persons is deemed, in the absence of evidence to the contrary, to hold a sufficient number of the voting rights to be a Control Person of the Corporation.

2.

Notwithstanding paragraph 1, Change of Control does not include removal of the Officer as an officer of the Corporation for cause.  This Agreement shall terminate immediately upon a voluntary resignation of the Officer as an officer of the Corporation unless a Change of Control occurred first.

3.

The Change of Control Payment will be paid to the Officer within 15 days of the date on which one party hereto notifies the other party that a Change of Control has occurred (the “Change of Control Notice”), provided that the Officer may, within 10 days of receipt of the Change of Control Notice, elect by written notice to the Corporation that the Change of Control Payment be paid in cash to the Officer in equal monthly installments over a period of one year.

4.

On termination of this Agreement, the parties will remain liable for all obligations and liabilities hereunder, whether such obligations and liabilities accrue before or after termination of this Agreement.

5.

The provisions of this Agreement shall be governed by and interpreted in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein.

6.

All notices or other communications to be given hereunder shall be delivered by hand to the relevant address specified above.  Either party may change its address for service by notice in writing to the other party hereto specifying its new address for service hereunder.

7.

This Agreement shall be for a term of one year, provided that if the Officer is an officer of the Corporation at the end of the term or any renewal thereof then this Agreement shall automatically be extended for a further term of one year.

8.

The provisions of this Agreement shall enure to the benefit of and binding upon the respective successors and assigns of the Corporation and heirs of the Officer.

9.

Any notice to be given hereunder to the Corporation or the Officer will be deemed to be validly given if delivered or sent by facsimile to the respective addresses below and any such notice delivered on a business day in accordance with the foregoing will be deemed to have been received on the date of delivery or facsimile transmission:

To the Corporation, at:
Suite 1650 – 701 West Georgia Street P.O. Box 10102 Vancouver, BC V7Y 1C6
Attention:  Vice President, Corporate Affairs
Facsimile: (604) 688 5175 To the Officer, at:
5381 Monte Bre Court West Vancouver, BC V7W 3B2

Facsimile: (604) 921 1904

10.

This Agreement contains the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes and replaces all previous written and oral agreements among the parties hereto.

IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of the day and year first above written.

Signed on behalf of SOUTHWESTERN RESOURCES CORP. by: /s/ Giovanni Susin _________________________________________ Authorized Signatory _________________________________________ Authorized Signatory	) ) ) ) ) ) ) ) )
Signed, Sealed and Delivered in the presence of:	)
	)
/s/ Susy H. Horna	)
_________________________________________	)
(signature)	)	/s/ Thomas W. Beattie
	)	________________________________
_________________________________________	)	THOMAS W. BEATTIE
(print name)	)

1

EX-4.6

CHANGE OF CONTROL AGREEMENT – OFFICER

THIS AGREEMENT made the 25^th day of February 2007.

BETWEEN:

SOUTHWESTERN RESOURCES CORP., a corporation continued under the laws of the Province of British Columbia, of Suite 1650 – 701 West Georgia Street, Vancouver, B.C. V7Y 1C6

AND:

 ALEJANDRO LOSADA-CALDERON having an address at PO Box 727; Hillarys; Western Australia; 6923

In consideration of the sum of $10.00, the receipt and sufficiency of which is acknowledged, the mutual covenants herein contained and the “Officer” remaining as an officer of the “Corporation”, it is hereby agreed as follows:

1.      

In the event the Officer ceases to be an officer of the Corporation for any reason within six months of the date on which control of the Corporation changes (which event is called a “Change of Control”), the Corporation shall pay to the Officer $660,000 (the “Change of Control Payment”).  For the purposes of this Agreement, Change of Control will be deemed to have occurred if a transaction results in the Corporation having a new Control Person, where “Control Person” means:

a.

a person who holds sufficient number of the voting rights attached to all outstanding voting securities of the Corporation to affect materially the control of the Corporation; or

b.

each person in a combination of persons, acting in concert by virtue of an agreement, arrangement, commitment or understanding, which holds in total a sufficient number of the voting rights attached to all outstanding voting securities of the Corporation to affect materially the control of the Corporation,

and, if a person or combination of persons holds more than 30% of the voting rights attached to all outstanding voting securities of the Corporation, the person or combination of persons is deemed, in the absence of evidence to the contrary, to hold a sufficient number of the voting rights to be a Control Person of the Corporation.

2.

Notwithstanding paragraph 1, Change of Control does not include removal of the Officer as an officer of the Corporation for cause.  This Agreement shall terminate immediately upon a voluntary resignation of the Officer as an officer of the Corporation unless a Change of Control occurred first.

3.

The Change of Control Payment will be paid to the Officer within 15 days of the date on which one party hereto notifies the other party that a Change of Control has occurred (the “Change of Control Notice”), provided that the Officer may, within 10 days of receipt of the Change of Control Notice, elect by written notice to the Corporation that the Change of Control Payment be paid in cash to the Officer in equal monthly installments over a period of one year.

4.

On termination of this Agreement, the parties will remain liable for all obligations and liabilities hereunder, whether such obligations and liabilities accrue before or after termination of this Agreement.

5.

The provisions of this Agreement shall be governed by and interpreted in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein.

1

6.

All notices or other communications to be given hereunder shall be delivered by hand to the relevant address specified above.  Either party may change its address for service by notice in writing to the other party hereto specifying its new address for service hereunder.

7.

This Agreement shall be for a term of one year, provided that if the Officer is an officer of the Corporation at the end of the term or any renewal thereof then this Agreement shall automatically be extended for a further term of one year.

8.

The provisions of this Agreement shall enure to the benefit of and binding upon the respective successors and assigns of the Corporation and heirs of the Officer.

9.

Any notice to be given hereunder to the Corporation or the Officer will be deemed to be validly given if delivered or sent by facsimile to the respective addresses below and any such notice delivered on a business day in accordance with the foregoing will be deemed to have been received on the date of delivery or facsimile transmission:

To the Corporation, at:
Suite 1650 – 701 West Georgia Street P.O. Box 10102 Vancouver, BC V7Y 1C6
Attention:  Vice President, Corporate Affairs
Facsimile: (604) 688 5175 To the Officer, at:
PO Box 727 Hillarys Western Australia 6923
Facsimile:

10.

This Agreement contains the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes and replaces all previous written and oral agreements among the parties hereto.

IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of the day and year first above written.

Signed on behalf of SOUTHWESTERN RESOURCES CORP. by: /s/ Thomas W. Beattie _________________________________________ Authorized Signatory /s/ Giovanni Susin _________________________________________ Authorized Signatory	) ) ) ) ) ) ) ) )
Signed, Sealed and Delivered in the presence of:	)
	)
/s/ Susy H. Horna	)
_________________________________________	)
(signature)	)	/s/ Alejandro Losada-Calderon
	)	________________________________
_________________________________________	)	ALEJANDRO LOSADA-CALDERON
(print name)	)

2

EX-4.7

CHANGE OF CONTROL AGREEMENT – OFFICER

THIS AGREEMENT made the 1^st day of May 2007.

BETWEEN:

SOUTHWESTERN RESOURCES CORP., a corporation continued under the laws of the Province of British Columbia, of Suite 1650 – 701 West Georgia Street, Vancouver, BC V7Y 1C6.

(the “Corporation”)

AND:

GIOVANNI SUSIN 1511 Bramble Lane, Coquitlam, BC, V3E 2S7.

(the “Officer”)

In consideration of the sum of $10.00, the receipt and sufficiency of which is acknowledged, the mutual covenants herein contained and the “Officer” remaining as an officer of the “Corporation”, it is hereby agreed as follows:

1.      

In the event the Officer ceases to be an officer of the Corporation for any reason within six months of the date on which control of the Corporation changes (which event is called a “Change of Control”), the Corporation shall pay to the Officer $450,000 (the “Change of Control Payment”).  For the purposes of this Agreement, Change of Control will be deemed to have occurred if a transaction results in the Corporation having a new Control Person, where “Control Person” means:

a.

a person who holds sufficient number of the voting rights attached to all outstanding voting securities of the Corporation to affect materially the control of the Corporation; or

b.

each person in a combination of persons, acting in concert by virtue of an agreement, arrangement, commitment or understanding, which holds in total a sufficient number of the voting rights attached to all outstanding voting securities of the Corporation to affect materially the control of the Corporation,

and, if a person or combination of persons holds more than 30% of the voting rights attached to all outstanding voting securities of the Corporation, the person or combination of persons is deemed, in the absence of evidence to the contrary, to hold a sufficient number of the voting rights to be a Control Person of the Corporation.

2.

Notwithstanding paragraph 1, Change of Control does not include removal of the Officer as an officer of the Corporation for cause.  This Agreement shall terminate immediately upon a voluntary resignation of the Officer as an officer of the Corporation unless a Change of Control occurred first.

3.

The Change of Control Payment will be paid to the Officer within 15 days of the date on which one party hereto notifies the other party that a Change of Control has occurred (the “Change of Control Notice”), provided that the Officer may, within 10 days of receipt of the Change of Control Notice, elect by written notice to the Corporation that the Change of Control Payment be paid in cash to the Officer in equal monthly installments over a period of one year.

4.

On termination of this Agreement, the parties will remain liable for all obligations and liabilities hereunder, whether such obligations and liabilities accrue before or after termination of this Agreement.

5.

The provisions of this Agreement shall be governed by and interpreted in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein.

6.

All notices or other communications to be given hereunder shall be delivered by hand to the relevant address specified above.  Either party may change its address for service by notice in writing to the other party hereto specifying its new address for service hereunder.

7.

This Agreement shall be for a term of one year, provided that if the Officer is an officer of the Corporation at the end of the term or any renewal thereof then this Agreement shall automatically be extended for a further term of one year.

8.

The provisions of this Agreement shall enure to the benefit of and binding upon the respective successors and assigns of the Corporation and heirs of the Officer.

9.

Any notice to be given hereunder to the Corporation or the Officer will be deemed to be validly given if delivered or sent by facsimile to the respective addresses below and any such notice delivered on a business day in accordance with the foregoing will be deemed to have been received on the date of delivery or facsimile transmission:

To the Corporation, at:
Suite 1650 – 701 West Georgia Street P.O. Box 10102 Vancouver, BC V7Y 1C6
Attention:  Vice President, Corporate Affairs
Facsimile: (604) 688 5175 To the Officer, at:
1511 Bramble Lane Coquitlam, BC V3E 2S7

Facsimile:

10.

This Agreement contains the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes and replaces all previous written and oral agreements among the parties hereto.

IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of the day and year first above written.

Signed on behalf of SOUTHWESTERN RESOURCES CORP. by: /s/ Thomas W. Beattie _________________________________________ Authorized Signatory /s/ Timo Jauristo _________________________________________ Authorized Signatory	) ) ) ) ) ) ) ) )
Signed, Sealed and Delivered in the presence of:	)
	)
/s/ Esther Lee	)
_________________________________________	)
(signature)	)	/s/ Giovanni Susin
	)	________________________________
_________________________________________	)	GIOVANNI SUSIN
(print name)	)

1

EX-4.8

SOUTHWESTERN RESOURCES CORP.

EVERGREEN STOCK OPTION PLAN (2007)

PART 1

INTERPRETATION

1.1

Definitions  In this Plan the following words and phrases shall have the following meanings, namely:

(a)

“Blackout Period” means the interval of time during which the Company has determined that no Optionee may exercise any options of the Company;

(b)

"Board" means the board of directors of the Company;

(c)

"Company" means Southwestern Resources Corp.;

(d)

“Disinterested Shareholders” means the votes of Shares held directly or indirectly by Insiders benefiting from the amendment for which approval is sought are excluded;

(e)

“Eligible Participant” means employees, Service Providers, directors, officers, as defined herein, of the Company, its subsidiaries or Service Providers;

(f)

"Exchange" means The Toronto Stock Exchange or if the Company is not listed on The Toronto Stock Exchange then any other stock exchange on which the Shares are listed for trading;

(g)

“Exchange Policies” means the policies, bylaws, rules and regulations of the Exchange governing the granting of options by the Company, as amended from time to time;

(h)

"Exercise Price" means the price for which Shares may be purchased in accordance with an option granted under this Plan;

(i)

“Expiry Date” means the date that is the later of ten years from the date of grant of the option, or such shorter period as prescribed by the Exchange or by the Board or, in the case of options that expire during, or within 10 days of the expiry of, a Blackout Period, then the Expiry Date is ten days after the expiry of such Blackout Period;

(j)

“Insider” has the meaning ascribed thereto in the Exchange Policies;

(k)

"Joint Actor" means a person acting "jointly or in concert with" another person as that phrase is interpreted in section 96 of the Securities Act;

(l)

“Market Price” means the volume weighted average trading price for the last five trading days on which the Company’s shares traded prior to the date of grant of options;

(m)

“Optionee” means the recipient of an incentive stock option;

(n)

"Plan" means this stock option plan as from time to time amended;

(o)

"Securities Act" means the Securities Act, R.S.B.C. 1996, c.418, as amended, from time to time;

1

2007 Evergreen Stock Option Plan

(p)

“Securities Laws” means the act, policies, bylaws, rules and regulations of the securities commissions governing the granting of options by the Company, as amended from time to time;

(q)

“Service Provider” means a person or a company engaged by the Company to provide services for an initial, renewable or extended period of twelve months or more;

(r)

"Shares" means common shares of the Company.

1.2

Gender  Throughout this Plan, words importing the masculine gender shall be interpreted as including the female gender.

PART 2

PURPOSE OF PLAN

2.1

Purpose  The purpose of this Plan is to attract and retain employees, directors, officers and Service Providers to the Company and to motivate them to advance the interests of the Company by affording them with the opportunity to acquire an equity interest in the Company through options granted under this Plan to purchase Shares.

PART 3

GRANTING OF OPTIONS

3.1

Administration  This Plan shall be administered by the Board or, if the Board so elects, by a committee (which may consist of only one person) appointed by the Board from its members (the “Committee”).

3.2

Committee's Recommendations The Board may accept all or any part of recommendations of the Committee or may refer all or any part thereof back to the Committee for further consideration and recommendation.

3.3

Grant by Resolution  The Board may, by resolution, grant options to Eligible Participants, or such other eligible Optionees as permitted by Exchange Policies and Securities Laws, and specify the terms of such options, which shall be in accordance with Exchange Policies and Securities Laws.

3.4

Grant to Eligible Participants  The Committee may, by resolution, grant options to those Eligible Participants who are not Insiders of the Company or its subsidiaries and specify the terms of such options, which shall be in accordance with Exchange Policies and Securities Laws.

3.5

Terms of Option  The resolutions of the Board and the Committee shall specify the number of Shares to be placed under option to each Eligible Participant, the Exercise Price to be paid for such Shares upon the exercise of each such option, and the period, including any applicable vesting periods required by Exchange Policy, or by the Board or Committee, during which such option may be exercised.  

3.6

Written Agreement  Every option granted under this Plan shall be evidenced by a written agreement, containing such terms and conditions as required by Exchange Policies and Securities Laws, between the Company and the Optionee and, where not expressly set out in the agreement, the provisions of such agreement shall conform to and be governed by this Plan.  In the event of any inconsistency between the terms of the agreement and this Plan, the terms of this Plan shall govern.

2

2007 Evergreen Stock Option Plan

PART 4

CONDITIONS GOVERNING THE GRANTING AND EXERCISING OF OPTIONS

4.1

Exercise Price  The exercise price of an option granted under this Plan shall be not less than the Market Price.

4.2

Expiry Date  Each option shall, unless sooner terminated, expire on a date to be determined by the Board which will not be later than the Expiry Date.

4.3

Different Exercise Periods, Prices and Number  The Board and the Committee may, in their absolute discretion, upon granting an option under this Plan and subject to the provisions of Section 6.3 hereof, specify a particular time period or periods following the date of granting the option during which the Optionee may exercise his or her option to purchase Shares and may designate the exercise price and the number of Shares in respect of which such Optionee may exercise his or her option during each such time period.

4.4

Death of Optionee  If an Optionee dies prior to the expiry of his or her option, his or her  legal representatives may, within the earlier of one year from the date of the Optionee's death, which date will be extended to the date that is ten (10) days after the end of a Blackout Period, if applicable, or the Expiry Date of the option, exercise that portion of an option granted to the Optionee under this Plan which remains outstanding.

4.5

Termination of Engagement   In the event that an Optionee ceases to be an Eligible Participant for any reason other than death, then such Optionee has the lesser of 90 days, which date will be extended to the date that is ten (10) days after the end of a Blackout Period, if applicable, or until the Expiry Date within which to exercise any option not exercised prior to the date of ceasing to be an Eligible Participant. However, where the employment of an employee or the engagement of a Service Provider or Insider is terminated (i) without a valid cause the Board may, in its discretion, amend the terms of any option held by such Optionee to permit such person to exercise any or all of such options as if such Optionee’s employment or engagement had not been terminated and (ii) for cause the Board may, in its discretion, amend the terms of any options held by such Optionee that ha ve not been previously exercised such that the options will only be exercisable on the next five (5) business days following the date of personal delivery of a written notice to the Optionee.

4.6

Assignment  No option granted under this Plan or any right thereunder or in respect thereof shall be transferable or assignable otherwise than by will or pursuant to the laws of succession except that, if permitted by the rules and policies of the Exchange, an Optionee shall have the right to assign any option granted to him hereunder to a trust, RRSP, RESP or similar legal entity established by such Optionee.

4.7

Notice  Options shall be exercised only in accordance with the terms and conditions of the agreements under which they are respectively granted and shall be exercisable only by notice in writing to the Company.

4.8

Payment  Options may be exercised in whole or in part at any time, subject to any applicable vesting provisions, prior to their lapse or termination.  Shares purchased by an Optionee on exercise of an option shall be paid for in full at the time of their purchase.

PART 5

RESERVE OF SHARES FOR OPTIONS

3

2007 Evergreen Stock Option Plan

5.1

Sufficient Authorized Shares to be Reserved  Whenever the Articles of the Company limit the number of authorized Shares, a sufficient number of Shares shall be reserved by the Board to satisfy the exercise of options granted under this Plan.  

5.2

Maximum Number of Shares to be Reserved Under Plan  The aggregate number of Shares which may be subject to issuance pursuant to options granted under this Plan shall be 10% of the issued and outstanding Shares at the time of the stock option grant.  Any issuance of Shares from treasury, including issuances pursuant to exercise of options, shall automatically replenish the number of Shares issuable under the Plan.

5.3

Maximum Number of Shares Reserved for Insiders  Under no circumstances shall this Plan, together with all of the Company's other previously established or proposed stock options, stock option plans, employee stock purchase plans or any other compensation or incentive mechanisms involving the issuance or potential issuance of Shares, result, at any time, in:

(a)

the number of Shares reserved for issuance pursuant to stock options granted to insiders exceeding 10% of the issued and outstanding Shares;

(b)

the issuance to insiders, within a one year period, of a number of Shares exceeding 10% of the issued and outstanding Shares; or

(c)

the issuance to any one insider and such insider's associates, within a one year period, of a number of Shares exceeding 5% of the issued and outstanding Shares.

PART 6

CHANGES IN OPTIONS

6.1

Share Consolidation or Subdivision  In the event that the Shares are at any time subdivided or consolidated, the number of Shares reserved for option and the price payable for any Shares that are then subject to option shall be adjusted accordingly.

6.2

Stock Dividend  In the event that the Shares are at any time changed as a result of the declaration of a stock dividend thereon, the number of Shares reserved for option and the price payable for any Shares that are then subject to option may be adjusted by the Board to such extent as they deem proper in their absolute discretion.

6.3

Effect of a Take-Over BidIf a bona fide offer ( an "Offer") for Shares is made to the Optionee or to shareholders of the Company generally or to a class of shareholders which includes the Optionee, which Offer, if accepted in whole or in part, would result in the offeror becoming a control person of the Company, within the meaning of subsection 1(1) of the Securities Act, the Company shall, upon receipt of notice of the Offer, notify each Optionee of full particulars of the Offer, whereupon all Shares subject to such Option (“Option Shares”) will become vested and the Option may be exercised in whole or in part by the Optionee so as to permit the Optionee to tender the Option Shares received upon such exercise, pursuant to the Offer.  However, if:

(a)

the Offer is not completed within the time specified therein including any extensions thereof; or

(b)

all of the Option Shares tendered by the Optionee pursuant to the Offer are not taken up or paid for by the offeror in respect thereof,

then the Option Shares received upon such exercise, or in the case of clause (b) above, the Option Shares that are not taken up and paid for, may be returned by the Optionee to the Company and

4

2007 Evergreen Stock Option Plan

reinstated as authorized but unissued Shares and with respect to such returned Option Shares, the Option shall be reinstated as if it had not been exercised and the terms upon which such Option Shares were to become vested pursuant to section 4.3 shall be reinstated.  If any Option Shares are returned to the Company under this section 6.3, the Company shall immediately refund the exercise price to the Optionee for such Option Shares.

6.4

Acceleration of Expiry Date  If at any time when an Option granted under the Plan remains unexercised with respect to any unissued Option Shares, an Offer is made by an offeror or a Change of Control, as defined in s. 6.5, occurs, the directors may, upon notifying each Optionee of full particulars of the Offer or the Change of Control, declare all Option Shares issuable upon the exercise of Options granted under the Plan, vested, and declare that the Expiry Date for the exercise of all unexercised Options granted under the Plan is accelerated so that all Options will either be exercised or will expire prior to the date upon which Shares must be tendered pursuant to the Offer or the Change of Control.

6.5

Effect of a Change of Control  If a Change of Control (as defined below) occurs, all Option Shares subject to each outstanding Option will become vested, whereupon such Option may be exercised in whole or in part by the Optionee.  "Change of Control" means the acquisition by any person or by any person and a Joint Actor, whether directly or indirectly, of voting securities as defined in the Securities Act, of the Company, which, when added to all other voting securities of the Company at the time held by such person or by such person and a Joint Actor, totals for the first time not less than twenty percent (20%) of the outstanding voting securities of the Company or the votes attached to those securities are sufficient, if exercised, to elect a majority of the Board of Directors of the Company.

6.6

Certain Adjustments  In order to prevent substantial enlargement or dilution of the rights granted to, or available for, holders of options as compared to holders of Shares, in the event:

(a)

that any rights are granted to all holders of Shares to purchase Shares at prices substantially below fair market value;

(b)

of any distribution of evidences of indebtedness or assets of the Company (excluding dividends paid in the ordinary course) to all holders of Shares; or

(c)

that as a result of any recapitalization, merger, consolidation or otherwise, the Shares are converted into or exchangeable for any other securities;

then in any such case, subject to prior approval of the relevant stock exchanges, the number of Shares reserved for issuance and available for options under the Plan, the number of Shares subject to outstanding options and the exercise price per option shall be proportionately adjusted.

PART 7

SECURITIES LAWS AND EXCHANGE POLICIES

7.1

Exchange Policies and Securities Laws Apply  This Plan and the granting and exercise of any options hereunder are also subject to such other terms and conditions as are set out from time to time in the Securities Laws and Exchange Policies and such rules and policies shall be deemed to be incorporated into and become a part of this Plan.  In the event of an inconsistency between the provisions of such rules and policies and of this Plan, the provisions of such rules and policies shall govern.  In the event that the Company’s listing changes from one tier to another tier on a stock exchange or the Company’s shares are listed on a new stock exchange, the granting of options shall be governed by the rules and policies of such new tier or new stock exchange and unless inconsistent with

5

2007 Evergreen Stock Option Plan

the terms of this Plan, the Company shall be able to grant options pursuant to the rules and policies of such new tier or new stock exchange without requiring shareholder approval.

PART 8

AMENDMENT OR DISCONTINUANCE OF PLAN

8.1

Shareholder Approval of Amendments Shareholder approval shall be obtained for any of the following amendments to the Plan:

(a)

a change from fixed maximum percentage to a fixed maximum number;

(b)

any change to the definition of “Eligible Participant” which would have the potential of broadening or increasing Insider participation;

(c)

the addition of any form of financial assistance;

(d)

any amendment to a financial assistance provision which is more favourable to Optionees;

(e)

the addition of a deferred or restricted share unit or any other provision which results in Eligible Participants receiving shares while no cash consideration is received by the Company; and

(f)

any other amendments that may lead to significant or unreasonable dilution in the Company’s outstanding securities or may provide additional benefits to Eligible Participants, especially Insiders of the Company, at the expense of the Company and its existing shareholders.

8.2

Disinterested Shareholder Approval of Amendment  Disinterested Shareholder approval shall be obtained for any reduction in the exercise price, or extension of the term, of options granted under this Plan or any other arrangement to an Insider;

8.3

Amendment to Plan by Board of Directors The Board may, subject to receipt of requisite regulatory approval, where required, in its sole discretion make all other amendments to the Plan that are not of the type contemplated in section 8.1 or 8.2 above including, without limitation:

(a)

amend typographical, clerical and grammatical errors;

(b)

a change to the vesting provisions of an option or the Plan;

(c)

reflect changes to applicable securities laws;

(d)

change to the termination provisions of an option or the Plan which does not entail an extension beyond the  Expiry Date;

(e)

reduce the exercise price of an option for an Optionee who is not an Insider; and

(f)

the addition of a cashless exercise feature, payable in cash or securities.

8.4

Shareholder Approval Required by Securities Laws or Exchange Policies Notwithstanding the provisions of section 8.1 or 8.3 the Company shall additionally obtain requisite shareholder approval in respect of amendments to the Plan that are contemplated pursuant to

6

2007 Evergreen Stock Option Plan

section 8.1 or 8.3, to the extent such approval is required by any applicable Securities Laws or Exchange Policies.

8.5

Consent Required Notwithstanding all of the foregoing, no amendment to the Plan may alter or impair any of the terms of any options previously granted to an Optionee under the Plan without the consent of the Optionee.

8.6

Shareholder Approval of Plan  This Plan must receive shareholder approval every three years, at the Company’s Annual General Meeting.

PART 9

EFFECT OF PLAN ON OTHER COMPENSATION PLANS

9.1

Other Compensation Plans Not Affected  This Plan shall not in any way affect the policies or decisions of the Board in relation to the compensation of employees, Insiders and Service Providers.

PART 10

OPTIONEE'S RIGHTS AS A SHAREHOLDER

10.1

No Rights Until Option Exercised  An Optionee shall be entitled to the rights pertaining to share ownership, such as to dividends, only with respect to Shares that have been fully paid for and issued to him upon exercise of an option.

PART 11

EFFECTIVE DATE OF PLAN

11.1

Effective Date  This Plan shall become effective upon the later of the date of acceptance for filing of this Plan by the Exchange or the approval of this Plan by the shareholders of the Company. The Company may grant options under this Plan prior to Shareholder approval, provided that no exercise of such option or right may occur until Shareholder approval is obtained.

DATE OF PLAN:  MAY 7, 2007

7

2007 Evergreen Stock Option Plan

EX-4.9

EX-4.10

EX-10

SOUTHWESTERN RESOURCES CORP.

MEMORANDUM

To:	All Southwestern Resources Insiders, Employees and Consultants
From:	Thomas W. Beattie
Date:	June 27, 2007
Subject:	Blackout Period for Trading in the Company’s Shares

Southwestern Resources advises, effective immediately, that all insiders, employees and consultants are prohibited from buying or selling the Company’s shares or exercising stock options.

The Company’s Disclosure and Stock Trading Policy, adopted by the Board in May 2007, states that:

“Insiders (primarily directors and officers), employees and consultants with access to undisclosed material information concerning the Company are prohibited from trading in the Company’s securities until the information has been fully disclosed and a reasonable period of time has passed for the information to be disseminated.”

The Company will circulate another memorandum when the blackout period for trading in the Company’s shares is lifted.

Please contact me should you have any questions regarding the prohibition on trading or require a copy of the Company’s Disclosure and Stock Trading Policy.

P.O. Box 10102  #1650, 701 West Georgia Street, Vancouver, B.C.  Canada  V7Y 1C6

Telephone (604) 669 2525   Fax (604) 688 5175

EX-12.1

Exhibit 12.1

CERTIFICATION

I, Timo Jauristo, certify that:

1.  I have reviewed this annual report on Form 20-F of Southwestern Resources Corp.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.  The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5.  The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date:  March 28, 2008

/s/ Timo Jauristo

Timo Jauristo, Interim President and Chief Executive Officer

EX-12.2

Exhibit 12.2

CERTIFICATION

I, Giovanni Susin, certify that:

1.  I have reviewed this annual report on Form 20-F of Southwestern Resources Corp.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.  The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5.  The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date:  March 28, 2008

/s/ Giovanni Susin

Giovanni Susin, Vice President, Finance and Chief Financial Officer

EX-13.1

Exhibit 13.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report on Form 20-F of Southwestern Resources Corp. for the year ended December 31, 2007, as filed with the Securities and Exchange Commission, I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.  The annual report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.  The information contained in the annual report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

Date:  March 28, 2008

/s/ Timo Jauristo

Timo Jauristo

Interim President and Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.

EX-13.2

Exhibit 13.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report on Form 20-F of Southwestern Resources Corp. for the year ended December 31, 2007, as filed with the Securities and Exchange Commission, I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.  The annual report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.  The information contained in the annual report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

Date:  March 28, 2008

/s/ Giovanni Susin

Giovanni Susin

Vice President, Finance and Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.

EX-15.1

EX-15.2

EX-15.3

EX-15.4

EX-15.5

EX-15.6

EX-99.1

SOUTHWESTERN RESOURCES CORP.

AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the President & Chief Executive Officer and the Senior Vice-President & Chief Financial Officer and effected by the Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. It includes those policies and procedures that:

(a) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(b) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are made only in accordance with authorizations of management and the directors of the Company; and

(c) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2007 using criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company’s management has concluded that the Company’s internal controls over financial as at December 31, 2007 was effective as of such date.

/s/ Timo Jauristo	/s/ Giovanni Susin
Timo Jauristo Interim President and Chief Executive Officer	Giovanni Susin, CA Vice President, Finance & Chief Financial Officer

March 17, 2008

Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of

Southwestern Resources Corp.

We have audited the internal control over financial reporting of Southwestern Resources Corp. and subsidiaries (the “Company”) as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with gener ally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2007 of the Company and our report dated March 17, 2008 expressed an unqualified opinion on those financial statements and included a separate

report titled Comments by Independent Registered Chartered Accountants on Canada-United States of America Reporting Differences referring to changes in accounting principles and conditions and events that raise substantial doubt on the Company’s ability to continue as a going concern.

/s/ Deloitte & Touche LLP

Independent Registered Chartered Accountants

Vancouver, Canada

March 17, 2008

Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of

Southwestern Resources Corp.

We have audited the accompanying consolidated balance sheets of Southwestern Resources Corp. and subsidiaries (the “Company”) as at December 31, 2007 and 2006, and the related consolidated statements of loss and deficit, comprehensive loss and cashflows for each of the three years in the period ended December 31, 2007.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

With respect to the consolidated financial statements for the year ended December 31, 2007, we conducted our audit in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States).  With respect to the consolidated financial statements for the years ended December 31, 2006 and 2005, we conducted our audits in accordance with Canadian generally accepted auditing standards.  These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentati on. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Southwestern Resources Corp. and subsidiaries as at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in accordance with Canadian generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 17, 2008 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Independent Registered Chartered Accountants

Vancouver, Canada

March 17, 2008

Comment by Independent Registered Chartered Accountants on Canada-United States of America Reporting Differences

The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph (following the opinion paragraph) when there are changes in accounting principles that have a material effect on the comparability of the Company’s financial statements, such as the changes described in Note 2 to the consolidated financial statements.  The standards of the Public Company Accounting Oversight Board (United States) also require the addition of an explanatory paragraph when the financial statements are affected by conditions and events that raise substantial doubt on the Company’s ability to continue as a going concern, such as those described in Note 1 to the consolidated financial statements.  Although we conducted our audit in accordance with both Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), our report to the Board of Directors and Shareholders dated March 17, 2008 is expressed in accordance with Canadian reporting standards which do not require a reference to such changes in accounting principles or permit a reference to such conditions and events in the auditors’ report when these matters are properly accounted for and adequately disclosed in the financial statements.

/s/ Deloitte & Touche LLP

Independent Registered Chartered Accountants

Vancouver, Canada

March 17, 2008

SOUTHWESTERN RESOURCES CORP.

CONSOLIDATED BALANCE SHEETS

(AN EXPLORATION STAGE COMPANY)

(Expressed in thousands of Canadian Dollars, except per share amounts)

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 & 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
		-

APPROVED BY THE BOARD

/s/ Timo Jauristo                     /s/ David Black
Timo Jauristo                          David Black

See accompanying notes to consolidated financial statements

SOUTHWESTERN RESOURCES CORP.

CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT

(AN EXPLORATION STAGE COMPANY)

(Expressed 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 re-purchase 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

SOUTHWESTERN RESOURCES CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(AN EXPLORATION STAGE COMPANY)

(Expressed in thousands of Canadian Dollars except per share amounts)

	Cumulative from
	Inception 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 investment (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	)

See accompanying notes to consolidated financial statements

SOUTHWESTERN RESOURCES CORP.

CONSOLIDATED STATEMENTS OF CASHFLOWS

(AN EXPLORATION STAGE COMPANY)

(Expressed 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
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 & 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 Cash Flow Information (note 14)

See accompanying notes to consolidated financial statements

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

1.

NATURE AND CONTINUANCE OF OPERATIONS AND CONTINGENCIES

Southwestern Resources Corp. (“Southwestern” or the “Company) is an exploration stage junior mining company engaged in the identification, acquisition, evaluation, exploration and development of mineral properties, especially those with the potential to host gold, silver, and base metals, primarily in China and Peru.  Operations are conducted either directly or through agreements with third parties.  The Company has not determined whether these properties contain mineral reserves which are economically recoverable.  The recoverability of amounts capitalized as mineral properties is dependent upon the discovery of economically recoverable reserves, and the ability of the Company to obtain necessary financing to complete the development and attainment of future profitable production from the properties or proceeds from disposition.

On July 19, 2007, the Company disclosed that its special committee of independent directors (the "Committee") had determined that there were deficiencies in the Company's control procedures at the Boka Project which resulted in errors in previously reported assay results.  Furthermore, the review indicated that the integrity of certain stored drill core samples had been compromised.  As a consequence, the Company withdrew all of its previously announced results for the Boka Project and has initiated a detailed review.  A new Technical Report for the Project was filed on SEDAR on November 9, 2007 and included a completed Inferred Mineral Resource estimate based on composited drillhole assay data from the reconstructed and validated assay database for the project. The Report also indicated that the exploration concessions and mining licenses that make up the Boka project were in good standing.

As at December 31, 2007, the Boka Project is recorded at a carrying value of $10.0 million.  The Company considered the carrying value of the Boka Project as at December 31, 2007 in accordance with Canadian generally accepted accounting principles and determined that an impairment had occurred, resulting in a write-down of $33.8 million to its current carrying value to reflect management’s current estimate of its fair value as at the date of these financial statements. The Company can provide no assurance that the continued assessment of and further work on the Boka Project will not result in an additional impairment charge in the future. The future prospects of the Boka Project are contingent and uncertain.

The Company and John Paterson have been named in three class-action lawsuits in British Columbia, Ontario and Quebec where the plaintiffs allege that the Company and Paterson negligently or recklessly misrepresented the quantity of gold in its drill samples taken from the Boka Project.  The Company intends to vigorously defend itself against such claims.  The consolidated financial statements as at December 31, 2007 do not include any provision for liability that may be necessary should the Company be unsuccessful in defending such claims as the amount of the potential liability is not determinable as of the date of these financial statements.

In August 2007, the Company announced that it had commenced legal action in the Supreme Court of British Columbia against John Paterson, and certain affiliated companies, for, among other things, fraud, breach of fiduciary, statutory and contractual duties and insider trading. The Company is seeking to recover all damages and losses caused to the Company.

The Company’s continuing operations are dependent upon its ability to either secure additional equity capital or generate cash flow from operations in the future, which is not assured.  These consolidated financial statements do not include any adjustments

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

relating to the recoverability and classification of recorded assets and liabilities that might be necessary, should the Company be unable to secure additional equity capital or generate cash from operations in the future.

2.

CHANGE IN ACCOUNTING POLICIES

Effective as of January 1, 2007 the Company has adopted Canadian Institute of Chartered Accountants (CICA) Handbook Section 3855 – Financial Instruments – Recognition and measurement, CICA Handbook Section 3861 - Financial Instruments - Disclosure and Presentation, CICA Handbook Section 1530 – Comprehensive Income, CICA Handbook Section 3865 – Hedges, and CICA Handbook Section 3251 - Equity.  These accounting policy changes were adopted on a prospective basis with no restatement of prior period financial statements.  

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, loans and receivables, or other financial liabilities. Financial assets held-to-maturity, loans and receivables and financial liabilities other than those held-for-trading, are measured at amortized cost. Available-for-sale instruments are measured at fair value with unrealized gains and losses recognized in other comprehensive income. Instruments classified as held-for-trading are measured at fair value with unrealized gains and losses recognized on the statement of loss. Investments in corporations in which the Company exercises significant influence are accounted for using the equity method, whereby the investment is initially recorded at cost and is adjusted to recognize the Company’s share of earnings or losses and reduced by dividends and distributions received.  

Upon adoption of this new standard, the Company has designated its cash and cash equivalents as held-for-trading, which are measured at fair value.  Exploration advances and other receivables are classified as loans and receivables, which are measured at amortized cost.  Accounts payable and accrued charges are classified as other liabilities, which are measured at amortized cost.  The Company has classified its investments in public companies (other than those that the Company has significant influence in) as available-for-sale and therefore carries them at fair market value, with the unrealized gain or loss recorded in shareholders’ equity as a component of other comprehensive income. These amounts will be reclassified from shareholders’ equity to net income when the investment is sold. Previously, investments in these public companies were carried at cost, less provisions for other than temporary declines in value. This change in accounting policy results in a $3,428,000 increase in the carrying value of investments in public companies as at January 1, 2007, representing the cumulative unrealized gain at that time (see Note 10(f)).

Comprehensive income is the change in shareholders’ equity during a period from transactions and other events and circumstances from non-owner sources. In accordance with CICA Handbook Section 1530, the Company now reports a consolidated statement of comprehensive income and a new category, accumulated other comprehensive income, in the shareholders’ equity section of the consolidated balance sheet. The components of this new category will include unrealized gains and losses on financial assets classified as available-for-sale. The components of accumulated other comprehensive income for the year ended December 31, 2007 are disclosed in Note 10(f).

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

3.

SIGNIFICANT ACCOUNTING POLICIES

a)

Basis of Presentation

The consolidated financial statements are prepared based upon Canadian generally accepted accounting principles.  Information with respect to generally accepted accounting principles in the United States is provided in Note 17.

The financial statements of entities which are controlled by the Company through voting equity interests, referred to as subsidiaries, are consolidated.  Entities which are jointly controlled, referred to as joint ventures, are proportionately consolidated.  Variable Interest Entities (“VIEs”), which include, but are not limited to, special purpose entities, trusts, partnerships, and other legal structures, as defined by the Accounting Standards Board in Accounting Guideline (“AcG”) 15, “Consolidation of Variable Interest Entities” (“AcG 15”), are entities in which equity investors do not have the characteristics of a “controlling financial interest” or there is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial support.  VIEs are subject to consolidation by the primary beneficiary who will absorb the majo rity of the entities’ expected losses and/or expected residual returns.  The Company has determined that it does not have any VIE’s which require to be consolidated.  All intercompany balances and transactions have been eliminated upon consolidation.  

b)

Measurement Uncertainty

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the 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 periods. Significant estimates where management’s judgment is applied include asset valuations, income taxes, contingent liabilities and stock based compensation. Actual results may differ from those estimates.

c)

Financial Instruments

The Company classifies its financial instruments into one of the following categories:  held-for-trading (assets and liabilities), available-for-sale (assets), loans and receivables, held-to-maturity (assets) and other financial liabilities.  All financial instruments are measured at fair value on initial recognition.  

d)

Cash and Cash Equivalents

Cash and cash equivalents includes those short-term money market instruments which, on acquisition, have a term to maturity of three months or less.

e)

Short-term investments

Short-term investments include those short-term money market instruments which,   on acquisition, have a term to maturity of 90 days but less than one year.

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

f)

Mineral Properties

Mineral properties and related exploration and development costs are recorded at cost on a property-by-property basis. Costs incurred for general exploration that are not project specific or do not result in the acquisition of mineral properties are charged to operations. Management periodically reviews the underlying value of mineral properties and records a provision to reduce the costs incurred to net realizable amounts as appropriate. If an impairment is determined to exist, the mineral property will be written down to its net realizable value. The recoverability of the amounts capitalized for mineral property interests is dependent upon the delineation of economically recoverable ore reserves, the Company’s ability to obtain the necessary financing to complete their development and realize profitable production or proceeds from the disposition thereof. It is reasonably possible that changes could occur in the near term that c ould adversely affect management’s estimates and may result in future write-downs of capitalized mineral property interest carrying values.

g)

Joint Ventures

The Company holds a significant portion of its interests in mineral properties through joint venture agreements.  Currently the Company does not conduct its operating activities through these joint venture arrangements.

h)

Property, Plant and Equipment

Property, plant and equipment is recorded at cost.  Amortization is computed using the declining-balance method based on annual rates as follows:

Office and other equipment	20	%
Computer equipment	30	%
Leasehold improvements	straight-line over 6 years
Vehicles	30	%

i)

Asset Retirement Obligation

The Company follows the CICA’s Handbook Section 3110 “asset retirement obligations” which establishes standards for the recognition, measurement and disclosure of liabilities for asset retirement obligations and the associated asset retirement costs.  The standards apply to legal obligations associated with the retirement of long-lived tangible assets that arise from the acquisition, construction, development or normal operation of such assets.  The standards require that a liability for an asset retirement obligation be recognized in the period in which it is incurred and when a reasonable estimate of the fair value of the liability can be made.  Furthermore, a corresponding asset retirement cost should be recognized by increasing the carrying amount of the related long-lived asset.  The asset retirement cost is subsequently allocated in a rational and systematic method over the underlying asset’s useful life.  The initial fair value of the liability is accreted, by charges to operations, to its estimated normal future value.  Management has determined that it has no asset retirement obligations at this time.

j)

Future Income Taxes

The Company accounts for income taxes using the asset and liability method.  Under this method, future income taxes are recorded for the temporary differences between

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

the financial reporting basis and tax basis of the Company’s assets and liabilities.  These future taxes are measured by the provisions of currently substantively enacted tax laws.  Management believes that it is not sufficiently likely that the Company will generate sufficient taxable income to allow the realization of future tax assets and therefore the Company has fully provided for these assets.

k)

Foreign Currency Translation

All foreign currencies are translated into Canadian dollars using weighted average rates for the year for items included in the consolidated statements of loss and deficit, the rate in effect at the balance sheet date for monetary assets and liabilities, and historical rates for other assets included in the consolidated balance sheets.  Translation gains or losses are included in the determination of income.

l)   

Stock options

The fair value of all stock-based awards is estimated using the Black-Scholes model at the date of grant and is expensed to operations over each award’s vesting period.

m)    

Loss per Share

Basic loss per share is computed by dividing net loss (the numerator) by the weighted average number of outstanding common shares for the period (the denominator).  In computing diluted loss per share, an adjustment is made for the dilutive effect of the exercise of stock options and warrants using the treasury stock method.  In all periods presented, fully diluted loss per share is not presented, as it is anti-dilutive.

n)  

Comparative Figures

As described below, certain of the prior year’s figures have been reclassified to conform to the current year presentation.  

The Company previously presented stock based compensation expense as a separate line item within the expenses section of the statement of loss, comprehensive loss and deficit.  For the year ended December 31, 2007 the Company now presents stock based compensation expense within the same financial statement line items as the cash compensation paid (Note 10d) and has reclassified the prior year figures to conform to this presentation.

o)  

Recent Accounting Pronouncements

In June 2007, the CICA issued changes to Section 1400, General Standards of Financial Statement Presentation.  Section 1400 has been amended to include requirements to assess and disclose an entity’s ability to continue as a going concern.  Management shall make an assessment of an entity’s ability to continue as a going concern. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, those uncertainties shall be disclosed.  When financial statements are not prepared on a going concern basis, that fact shall be disclosed, together with the basis on which the financial statements are prepared and the reason why the

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

entity is not regarded as a going concern.  Section 1400 is effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2008.  Earlier adoption is encouraged.  The adoption of this standard will have no impact on the Company’s operating results or financial position and management expects that there will not be a material impact on the Company’s financial statement disclosure.

In December 2006, the CICA issued Section 1535, Capital Disclosures.  The main features of the new Section are as follows:

·

Requirements for an entity to disclose qualitative information about its objectives, policies and processes for managing capital;

·

A requirement for an entity to disclose quantitative data about what it regards as capital; and

·

A requirement for an entity to disclose whether it has complied with any externally imposed capital requirements and, if not, the consequences of such non-compliance.

Section 1535 is effective for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007.  The adoption of this standard will have no impact on the Company’s operating results or financial positionand management is currently in the process of evaluating the impact that these additional disclosure standards will have on the Company’s financial statements.  

In December 2006, the CICA issued Handbook section 3862, Financial Instruments – Disclosures and Section 3863, Financial Instruments – Presentation. Section 3862 modifies the disclosure requirements of Section 3861 and requires entities to provide disclosures in their consolidated financial statements that enable users to evaluate the significance of financial instruments on the entity’s consolidated financial position and performance, and the nature and extent of risks arising from financial instruments and non-financial derivatives. Section 3863, Financial Instruments – Presentation carries forward unchanged the presentation requirements for financial instruments of Section 3861, Financial Instruments – Disclosures and Presentation. Sections 3862 and 3863 apply to interim and annual consolidated financial statements relating to fiscal years beginning on or after October 1, 2007.

4.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents of $19.7 million (2006- $57.7 million) consist of money market instruments with credit ratings which expose the Company to minimal credit risk.

5.     

SHORT-TERM INVESTMENT

As at December 31, 2007, the Company had no short-term investments.  As at December 31, 2006, the Company had a short-term investment at a cost of US$4,963,322 (CDN $5,783,759), maturing on March 27, 2007, and yielding an interest rate of 5.20%.

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

6.     

PROPERTY, PLANT & EQUIPMENT

As at December 31, 2007

		Accumulated	Net Book
	Cost	Amortization	Value
Office and other equipment	$1,013	$675	$338
Computer equipment	1,094	793	301
Vehicles	803	529	274
	$2,910	$1,997	$913

As at December 31, 2006

		Accumulated	Net Book
	Cost	Amortization	Value
Office and other equipment	$931	$616	$315
Computer equipment	945	714	231
Vehicles	962	540	422
	$2,838	$1,870	$968

Amortization relating to exploration related assets has been allocated to mineral properties in the amount of $198,973 (2006 - $201,979).

7.     

MINERAL PROPERTIES

a)

	December 31, 2007	December 31, 2006
China
Boka	$10,000	$35,967
Yunnan Gold	-	857
Other	-	586
Total China	$10,000	37,410
Peru
Liam	$7,533	5,138
Accha-Yanque	-	3,108
Bambas West	-	738
Bambas Copper	1,224	974
Antay	708	960
Pacapausa	272	262
Other	2,292	1,965
Total Peru	12,029	13,145
Total	$22,029	$50,555

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

b)

For the year ended December 31, 2007, the significant expenditures were as follows:

	Boka	Liam	Accha-Yanque	Other	Total
Balance, beginning of year	$35,967	$5,138	$3,108	$6,342	$50,555
Property acquisition, and maintenance	276	221	1	229	727
Analytical	350	45	55	50	500
Geophysics	0	55	0	99	154
Geology	3,654	1,168	666	206	5,694
Drilling	3,154	837	981	307	5,279
Research	44	36	15	15	110
Project administration	384	33	132	196	745
Property 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

For the year ended December 31, 2006, the significant expenditures were as follows:

	Boka	Liam	Accha-Yanque	Other	Total
Balance, beginning of year	$25,596	$3,194	$1,256	$4,833	$34,879
Property acquisition, and maintenance	17	361	200	534	1,112
Analytical	346	56	94	135	631
Geophysics	21	33	--	46	100
Geology	3,718	1,341	1,152	1,524	7,735
Drilling	5,820	111	279	28	6,238
Research	26	15	46	22	109
Project administration	423	27	81	4	535
Property costs written off	--	--	--	(593)	(593)
Cost recovery	--	--	--	(191)	(191)
Balance, end of year	$35,967	$5,138	$3,108	$6,342	$50,555

       c)

The Company conducts its exploration independently as well as through joint venture agreements with third parties whereby a third party earns an interest in the Company’s property by fulfilling terms as outlined in the agreement.  The majority of joint venture agreements are structured in such a way as to allow an interested party to earn an interest in a project by making certain expenditures on the Company’s properties over a period of time.  The Company is also involved in exploration through option or earn-in agreements whereby it provides 100% of the funding in order to earn a controlling interest in a project owned by a third party.

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

CHINA

See note 1 for description of Boka Project.

PERU

The Liam Project is an option agreement with Newmont Peru Limited (“Newmont”). Under the terms of the Liam Regional Venture Agreement, both Newmont and Southwestern each have a 50% working interest and will each contribute 50% of the exploration funding. Newmont can earn a 70% interest in those portions of the Project that it advances to a bankable feasibility study by funding 100% of the costs to place those deposits into commercial production.

The Pacapausa Project is subject to an option agreement with Minera Oro Vega S.A.C. ("Oro Vega"), the Peruvian subsidiary of International Minerals Corporation, under which Oro Vega can earn a 70% interest in the project by meeting certain work commitments, completing a feasibility study, and financing the project into production. Oro Vega has fulfilled the requirements to exercise the first option and Oro Vega and Southwestern formed a new 50/50 company to hold the property. Oro Vega has the option to earn up to 70% interest in the project by meeting additional work commitments.

The Antay Project is 100% owned by Southwestern since the option agreement with Anglo American Exploration Peru S.A. ("Anglo") was terminated in July 2007, due to unsuccessful efforts to secure a community access agreement to the Sayta porphyry prospect, which is situated in the northern section of the Project. After the termination of the agreement with Anglo, Southwestern has been successful in its discussions with the local community and access has subsequently been granted.

MINERAL PROPERTY WRITE-OFFS

During the year ended December 31, 2007, expenditures totalling $36.0 million were written off relating to the Boka Project in China ($33.8 million) as explained in note 1, the Yunnan Gold Project in China ($860,000) and various non-core projects in Peru and China.  The costs relating to the Yunnan Gold Project were written off as a result of the joint venture partner on the project (Newmont Overseas Exploration Limited) terminating the joint venture based on the evaluation of the project area to date.     

During the year ended December 31, 2006, expenditures totalling $593,000 were written off, of which $538,000 related to the Minaspata property in Peru, and the remaining amount relating to various non - core projects.

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

8.  

INVESTMENTS

a)

			December 31, 2007
			Quoted
	Ownership %	Carrying Value	Market Value
Zincore Metals Inc. – significantly influenced affiliate	48.2	$9,858	$15,049
Other investments	-	4,853	4,853
		$14,711	$19,902

			December 31, 2006
			Quoted
	Ownership %	Carrying Value	Market Value
Superior Diamonds Inc. –    significantly influenced affiliate	14.8	$1,919	$3,082
Other investments	-	2,485	5,913
		$4,404	$8,995

In April 2007 the Company sold 500,000 common shares of Zincore Metals Inc. (“Zincore”) for gross proceeds of $350,000 and recorded a gain of $212,000. This sale caused the Company’s interest in Zincore to be reduced from 50.4% to 49.7%.   As a result of the reduction of the Company’s interest and resulting loss of control, the assets and liabilities of Zincore were no longer consolidated in the Company’s balance sheet effective April 1, 2007.  The assets and liabilities of Zincore excluded from consolidation and the investment carrying value as at December 31, 2007 are detailed as follows:

CASH	$15,378
EXPLORATION ADVANCES AND OTHER RECEIVABLES	171
OTHER ASSETS	75
PROPERTY, PLANT AND EQUIPMENT	146
MINERAL PROPERTIES	5,774
	21,544
ACCOUNTS PAYABLE AND ACCRUED CHARGES	(662)
NON-CONTROLLING INTEREST	(10,360)
INVESTMENT AS AT APRIL 1, 2007	$10,522
SALE OF SHARES	(136)
EQUITY IN LOSS (APRIL 1, 2007 TO DECEMBER 31, 2007)	(1,116)
STOCK-BASED COMPENSATION	298
GAIN ON DILUTION	290
INVESTMENT AS AT DECEMBER 31, 2007	$9,858

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

During the year ended December 31, 2007, the Company sold all of its common shares of Lake Shore Gold Corp. (“Lake Shore”) and recorded a gain of $3,346,000. As well, during the same period the Company purchased 1,361,000 common shares of Superior Diamonds Inc. (“Superior”) at a cost of $517,000.  Due to the Company and Superior no longer having a director and president in common as at July 1, 2007, the Company no longer accounts for its investment in Superior using the equity method as it has determined that it no longer has significant influence. The Company now classifies its investment in Superior as available-for-sale and records the changes in market price in comprehensive loss.

In February 2008 the Company sold 4,089,378 common shares of Superior for gross proceeds of $1,231,194. As a result of this transaction the Company’s interest in Superior was reduced to 6.5% from 12.9%.

On March 31, 2006 an agreement was reached between the Company and Superior Diamonds Inc. (“Superior”) to convert a $200,000 long-term note receivable from Superior into 444,444 common shares of Superior at a price of $0.45 per share.

During the year ended December 31, 2006, the Company sold all of its 1,017,222 common shares of Jinshan Gold Mines Inc. and recorded a gain of $1,142,000. Also during 2006 the Company sold all of its remaining shares of FNX Mining Co. (“FNX”) totalling 419,509 (2005 – 224,626) common shares and recorded a gain of $1,939,000 (2005 - $1,018,000).

b) Details of gains on shares issued by, and equity in operations of, affiliated companies for the years ended 2007, 2006, and 2005 are as follows:

	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)	Gain on shares issued by affiliated companies(i)	Equity in operations of affiliated companies(ii)	Gain on shares issued by affiliated companies(i)	Equity in operations of affiliated 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.

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

9.  

INCOME TAXES

The provision for income taxes reported differs from the amounts computed by applying the cumulative Canadian federal and provincial income tax rates to the loss before tax provision due to the following:

	2007	2006	2005
Canadian statutory federal income tax rate	34%	34%	35%
Recovery of income taxes computed at statutory rates	$16,715	$527	$3,339
Effect 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	108
Change in valuation allowance	(9,966)	515	34
Income tax provision	$--	$--	$--

The approximate tax effect of each type of temporary difference that gives rise to the Company’s future income tax assets are as follows:

	2007	2006
Operating loss carry forwards	$4,990	$5,854
Tax value of assets in excess of carrying value	10,935	2,439
	15,925	8,293
Less:  Valuation allowance	(15,925)	(8,293)
Net future income tax liability	$--	$--

At December 31, 2007 the Company had the following loss carry-forwards available for tax purposes:

Country	Amount	Expiry
Canada	$16,298	2008 - 2027
Peru	$282	2008 - 2011
Mauritius	$478	none

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

10.  

SHARE CAPITAL

a)

Authorized: Unlimited common shares without par value.

b)

 Issued and outstanding:

	For the year ended December 31, 2007
	Number of		Treasury		Number of Shares
	Shares Issued	Amount	Shares	Amount	Outstanding	Amount
	(000’s)		(000’s)		(000’s)
Beginning of year	45,895	$179,571	41	$332	45,854	$179,239
Shares 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		Treasury		Number of Shares
	Shares Issued	Amount	Shares	Amount	Outstanding	Amount
	(000’s)		(000’s)		(000’s)
Beginning of year	46,014	$179,701	80	$778	45,934	$178,923
Options exercised	228	899	-	-	228	899
Private placement	58	556	-	-	58	556
Shares 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

During the year ended December 31, 2007, the Company purchased 930,600 of its own common shares for costs totalling $7,214,000 pursuant to its normal course issuer bid. During the same period, 930,600 of these common shares, as well as 41,200 common shares purchased in 2006, were cancelled and resulted in a loss of $3,744,000 being recorded as a charge to deficit.

On August 29, 2006 the Company received regulatory approval to implement a Normal Course Issuer Bid pursuant to which the Company can acquire up to two million of its own common shares.The Company purchased 366,900 of its own common shares at a cost of $3,342,000 during the year ended December 31, 2006 of which 325,700 were cancelled in 2006. The cancellation of these shares resulted in a loss of $1,735,627 of which $912,500 was recorded as a charge to deficit and the remaining $823,127 in contributed surplus.

In March 2006, the Company cancelled 80,000 common shares it had acquired pursuant to its previous normal course issuer bid in 2005. The cancellation of these shares resulted in a loss of $466,944 which was recorded in contributed surplus.

In June 2006, as part of the Antay property agreement, Anglo American Exploration BV purchased 58,414 common shares of Southwestern at $9.52 per share for gross proceeds of $556,101.

As a result of stock options exercised, there was a transfer of $309,240 from contributed surplus to share capital during the year ended December 31, 2006.

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

c)

Stock Options

Under the Company’s stock option plan there were 3,617,000 options outstanding, of which none were exercisable at December 31, 2007.  The stock options outstanding have an exercise price of $0.65 of which 25% vests after June 11, 2008, 25% after December 11, 2008, and 50% after December 11, 2009.The options may be exercisable for a period of up to five years and the exercise price cannot be less than the closing price on the Toronto Stock Exchange on the trading day immediately preceding the grant of the option.  The Board of Directors determines the time during which any option may vest.

	2007		2006
		Weighted-		Weighted-
	Number of	Average	Number of	Average
	Options	Exercise	Options	Exercise
	(000’s)	Price	(000’s)	Price
Outstanding at beginning of year	4,088	$13.19	3,659	$12.46
Granted	4,863	$2.52	755	$13.54
Exercised	-	$nil	(228)	$ 2.59
Cancelled	(5,334)	$11.96	(98)	$13.49
Outstanding at end of year	3,617	$0.65	4,088	$13.19
Exercisable at end of year	-	$nil	3,893	$13.11

The following table summarizes information about stock options outstanding at December 31, 2007:

Exercise Price	Number of	Weighted-Average	Weighted-Average	Number of	Weighted-Average
	Options	Remaining Years of	Exercise	Options	Exercise
	Outstanding	Contractual Life	Price	Exercisable	Price
	(000’s)			(000’s)
$0.65	3,617	4.95	$  0.65	-	$-

d) Stock-Based Compensation

As a result of stock options vesting and the amortization of previous grants during the year ended December 31, 2007, the Company recognized stock-based compensation expense and included this amount in contributed surplus as follows:

	2007	2006	2005
OFFICE SALARIES	$997	$1,663	$1,212
CONSULTING FEES	1,218	2,399	3,505
GENERAL EXPLORATION	2,366	793	718
ZINCORE	336	433	-
TOTAL	$4,917	$5,288	$5,435

For the year ended December 31, 2007, the stock-based compensation value was determined using the Black-Scholes option pricing model.  A weighted-average grant-date fair value of $1.07

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

(2006 – $5.82; 2005 - $4.15) for each option grant was estimated using the following weighted-average assumptions: no dividends are to be paid; volatility of 66% (2006 - 54%; 2005 – 58%); risk free interest rate of 3.9% (2006 – 4.0%; 2005 – 3.5%); and expected life of 3.5 years (2006 – 3.5 years; 2005 – 3.5 years).

The fair value computed using the Black-Scholes model is only an estimate of the potential value of the individual options and the Company is not required to make payments for such transactions.

The Black-Scholes Option Pricing Model utilizes subjective assumptions such as expected price volatility and expected life of the option.  Discrepancies in these input assumptions can significantly affect the fair value estimate.

e)  Contributed Surplus

	Year Ended December 31, 2007	Year 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	219
Non-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) Accumulated Other Comprehensive Income

	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	3,428
REALIZED 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

During the years ended December 31, 2007, 2006 and 2005 the Company paid remuneration to directors and to companies controlled by officers who are also directors.  The Company also received management fees, which are recorded as other income from Superior, Lake Shore and Zincore.  These are companies which are related by way of directors in common and/or by way of a management services agreement.  Details of these payments are as follows:

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

	2007	2006	2005
REMUNERATION PAID TO OFFICERS / DIRECTORS	$936	$756	$515
MANAGEMENT FEES RECEIVED	$259	$72	$117

There was also an amount of $39,752 (2006 - $5,669) due to Southwestern from the above mentioned companies at December 31, 2007.  All related party transactions are measured at the exchange amount which is the consideration agreed to between the parties.

12.  

SEGMENTED INFORMATION

Industry Information

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

Geographic Information

The Company’s only sources of revenue in 2007, 2006 and 2005 arose from interest earned on corporate cash reserves and from a note issued to Superior, and management fees.  The Company has non-current assets in the following geographic locations:

	2007	2006
Peru	$12,418	$13,719
China	10,856	37,750
Canada	15,159	4,693
	$38,433	$56,162

13.   

GENERAL AND ADMINISTRATIVE

	2007	2006	2005
Consulting	$  2,761	$  4,275	$  4,851
Shareholder information	566	560	347
Office	1,055	900	697
Legal and accounting	2,628	545	281
Travel	353	324	261
Salaries and benefits	2,447	2,849	2,121
Total	$9,810	$9,453	$8,558

14.  

SUPPLEMENTAL CASH FLOW INFORMATION

	2007	2006	2005
Other cash items:
Taxes Paid	$    17	$    28	$    31
Interest Received	$    1,605	$    2,189	$    1,201

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

15.  

COMMITMENTS

The Company has commitments totalling $1,035,504 over three years (2008 - $376,547; 2009 - $376,547; 2010 - $282,410) pertaining to leasehold obligations of Southwestern.  As well, the Company has employee retention bonus obligations of $670,667 in 2008. With respect to other contractual obligations, there are no material changes during the current period that are outside the ordinary course of the Company's business.

16.  

NON-CONTROLLING INTEREST

At December 31, 2007 and 2006, the Company’s non-controlling interest in Zincore was comprised of the following:

	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	-	10,844
Share of stock options granted	167	215
Share 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”)

The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), which differs in certain respects from those applicable in the United States and from practices prescribed by the United States Securities and Exchange Commission (“U.S. GAAP”).

Consolidated Balance Sheets

The significant measurement differences between Canadian GAAP and U.S. GAAP with respect to the Company’s consolidated balance sheets as at December 31, 2007 and 2006 are as follows:

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

		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 U.S. 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 U.S. 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 other comprehensive income (e)		1,496			3,428
Total shareholders' equity under U.S. GAAP		28,970			56,750
Total liabilities and shareholders' equity under U.S. GAAP	$	30,547		$	67,618

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

Consolidated Statements of Loss

The significant measurement differences between Canadian GAAP and U.S. GAAP with respect to the Company’s consolidated statements of loss for the period from inception to December 31, 2007 and for the years ended December 31, 2007, 2006 and 2005 are as follows:

		Cumulative from
		inception to			Years ended December 31,
		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 U.S. GAAP	$	(172,191	)	$	(25,506	)	$	(23,930	)	$	(17,180	)
Net loss per share under U.S. GAAP				$	(0.56	)	$	(0.52	)	$	(0.39	)

Consolidated Statements of Comprehensive Loss

The consolidated statements of comprehensive loss presented under U.S. GAAP for the period from inception to December 31, 2007 and for the years ended December 31, 2007, 2006 and 2005 is as follows:

		Cumulative from
		inception to			Years ended December 31,
		December 31, 2007			2007			2006			2005
Net loss under U.S. GAAP	$	(172,191	)	$	(25,506	)	$	(23,930	)	$	(17,180	)
Other comprehensive income (loss):
Net reclassification 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 U.S. GAAP	$	(169,737	)	$	(26,480	)	$	(28,124	)	$	(10,455	)
Net comprehensive loss per share under US GAAP				$	(0.59	)	$	(0.61	)	$	(0.24	)

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

Consolidated Statements of Cash Flows

The significant measurement differences between Canadian GAAP and U.S. GAAP with respect to the Company’s consolidated statements of cash flows for the period from inception to December 31, 2007 and for the years ended December 31, 2007, 2006 and 2005 are as follows:

	Cumulative from
	inception to		Years ended December 31,
	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 U.S. 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 U.S. GAAP	(19,451	)	(5,233	)	872		852

a)

Exploration expenditures

Under Canadian GAAP, the Company capitalizes exploration expenditures related to the search for commercially mineable body of ore. Under US GAAP, exploration expenditures can only be deferred subsequent to the establishment of mining reserves.

b)

Accounting for significantly influenced affiliates

The investments in note 8 categorized as “significantly influenced affiliates” are accounted for under the equity method for which there is no material difference under Canadian and US GAAP, except that the underlying results of operations are adjusted to conform with US GAAP prior to the calculation of the Company’s share of equity income (loss).  The significant conforming adjustment to the affiliates’ results relates to the accounting for mineral property expenditures.

c)

Accounting for sales of shares by an equity investment or subsidiary

The Company accounts for dilution gains and losses from the sale of shares by its equity investments or subsidiaries as income statement items for Canadian GAAP purposes.  Under US GAAP, dilution gains or losses that arise from a company in the exploration stage are treated as a charge to equity.

d)

Accounting for stock-based compensation

On January 1, 2006 the Company adopted Statement of Financial Standards (SFAS) No. 123R, “Share-Based Payment.” This statement requires the Company to recognize the cost of employee services received in exchange for the Company's equity instruments. Under SFAS No. 123R the Company is

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

required to record compensation expense over an award's vesting period based on the award's fair value at the date of grant. The Company has elected to adopt SFAS No. 123R on a modified prospective basis; accordingly the financial statements for the periods prior to January 1, 2006 will not include compensation cost calculated under the fair value method. The adoption of SFAS No. 123R has substantially eliminated differences between Canadian GAAP and US GAAP and therefore for the years ended December 31, 2007 and 2006 the Company was not required to record adjustments to record stock-based compensation under US GAAP.

Prior to January 1, 2006 the Company applied Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees,” and therefore recorded the intrinsic value of stock-based compensation as expense and applied the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.”

e)

Unrealized gains on available-for-sale-securities

Prior to January 1, 2007, the Company’s investments categorized as “other” in note 8 were carried at the lower of cost and estimated realizable value Canadian GAAP. Under U.S. GAAP these investments would be categorized as available for sale securities carried at the quoted market value with unrealized gains and losses temporarily recorded in a separate component of shareholders’ equity until the investment is sold, abandoned or impaired.

Effective January 1, 2007, this difference in accounting treatment has been eliminated due to the Company’s adoption of the new accounting standards pertaining to financial instruments , however, the adjustment related to unrealized gains on available-for-sale investments is a gain of $631,000 under U.S. GAAP compared with a loss of $865,000 for Canadian GAAP. This difference is due to the Company’s carrying value of its investment in Superior Diamonds being lower under U.S. GAAP than for Canadian GAAP and this resulted in an increase in the adjustment required to record the Company’s investment in Superior Diamonds at fair value on December 31, 2007.

f)

Impact of recent United States accounting pronouncements

(i)

In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”, (“SFAS 157”) which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 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 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

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

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. 141 R, 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, Non-controlling 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.

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(AN EXPLORATION STAGE COMPANY)

(All tabular amounts are in thousands of Canadian dollars)

18.

CONSOLIDATED SCHEDULE OF SHARE CAPITAL SINCE INCEPTION

									Deficit
			Common Shares						Accumulated			Total
			Without Par Value	Treasury Shares				Contributed	During the			Shareholders'
From Inception to December 31, 1998	Shares		Amount	Shares		Amount		Surplus	Exploration Stage			Equity
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

SOUTHWESTERN RESOURCES CORP.

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

(All tabular amounts are in thousands of Canadian dollars)

												Deficit
			Common Shares								Contributed	Accumulated		Total
			Without Par Value		Treasury Shares						Comprehensive	During the		Shareholders'
From January 1, 1999 to December 31, 2007	Shares		Amount		Shares		Amount		Surplus		(Loss) income	Exploration Stage		Equity
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
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					298
Cancelled 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

EX-99.2

SOUTHWESTERN RESOURCES CORP.

MANAGEMENT’S DISCUSSION & ANALYSIS

December 31, 2007 and 2006

Forward-Looking Statements

All statements made in this MD&A, other than statements of historical fact, are forward-looking statements.  The words "anticipate", "believe", "estimate", "expect", "intend", "may", "plan", "will", "would", "should", "guidance", "potential", "continue", "project", "forecast", "confident", "prospects", and similar expressions typically are used to identify forward-looking statements.

Forward-looking statements are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about the Company's business and the industry and markets in which it operates.  These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict.  Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements due to a number of factors, including but not limited to, the Company's access to additional capital to fund future activities, the loss of mineral properties or the inability to obtain mining licences, the inherently risky nature of the Company's activities and its lack of experience in bringing an exploration property into production, its ability to repatriate any earnings, foreign exchange fluctuations, the political stability and economic uncertai nty of those areas in which the Company carries on operations and the lack of infrastructure in those areas, title risks, the risks and uncertainties associated with joint ventures and the Company's reliance on third parties, statutory and regulatory compliance, the adequacy and availability of insurance coverage, the Company's dependence upon employees and consultants and fluctuations in mineral prices and other risks detailed in the Company's filings with the Canadian Securities Administrators.  Reference should be made to the section entitled "Risk Factors" contained in the Annual Information Form of the Company dated March 17, 2008 for a detailed description of the risks and uncertainties relating to the business of the Company.  These risks, as well as others, could cause actual results and events to vary significantly.  The Company expressly disclaims any intent or obligation to update these forward-looking statements, unless the Company specifically states otherwise.

General

This Management’s Discussion and Analysis (“MD&A”) of Southwestern Resources Corp. (the “Company” or “Southwestern”) provides an analysis of Southwestern’s financial results for the year ended December 31, 2007 compared to the previous year and should be read in conjunction with the Company’s December 2007 audited consolidated financial statements and related notes which have been prepared in accordance with Canadian generally accepted accounting principles.  Information with respect to generally accepted accounting principles in the United States is provided in Note 17 to the audited consolidated financial statements.  This MD&A has taken into account information available up to and including March 17, 2008.  All dollar amounts in this MD&A are expressed in Canadian dollars unless otherwise stated.    

Southwestern is an exploration stage mineral exploration company engaged in the identification, acquisition, evaluation and exploration of mineral properties, especially with the potential to host gold, silver and base metals, and is currently active in China and Peru.  The Company is a reporting issuer in British Columbia, Alberta, Manitoba, and Ontario and trades on the Toronto Stock Exchange (“TSX”) under the symbol SWG.

The Company conducts its exploration independently as well as through joint venture agreements.  The majority of the Company’s joint venture agreements are structured in such a way as to allow an interested party to earn an interest in a project by making certain expenditures on the Company’s properties over a period of time.  The Company is also involved in exploration through option or earn-in agreements whereby it provides 100% of the funding in order to earn a controlling interest in a project owned by a third party.

On July 4, 2007, Timo Jauristo was appointed interim President and Chief Executive Officer ("CEO") following John Paterson's resignation as President, CEO, and Director of the Company on June 19, 2007.

On July 19, 2007, the Company disclosed that its special committee of independent directors, formed to review all aspects of the Boka Project, had determined that there were deficiencies in the Company's control procedures at the Boka Project which resulted in errors in previously reported assay results.  Furthermore, the review indicated that the integrity of certain stored drill core samples had been compromised.  As a consequence, the Company withdrew all of its previously announced results for the Boka Project and initiated a detailed review. As a result of this review, a new NI 43-101Technical Report (the “Technical Report”) for the Boka Project was filed on SEDAR on November 9, 2007 and included a completed Inferred Mineral Resource estimate based on composited drillhole assay data from the reconstructed and validated assay database for the project. The Technical Report indicated that there is u pside potential to the Boka Project and that the exploration concessions and mining licenses that make up the Boka Project were in good standing.

As at December 31, 2007, The Boka Project was recorded at a carrying value of $10.0 million.  The Company considered the carrying value of the Boka Project as at December 31, 2007 in accordance with Canadian generally accepted accounting principles and determined that an impairment had occurred, resulting in a write-down of $33.8 million to a value which management considers to be a reasonable estimate of the fair value of the project at this time.  This estimate was based on further in depth analysis of the Technical Report received in November 2007 and discussions with various independent third parties. The Company can provide no assurance that the continued assessment of and further work on the Boka Project will not result in another impairment charge in the future. The future prospects of the Boka Project are contingent and uncertain. The Company is reviewing all of its options to maximize and enhance shareholder value in respect of the Boka Project. These options include further exploration and development work, joint ventures, option/royalty arrangements, divestitures and other value enhancing initiatives.

The Company and John Paterson have been named in three class-action lawsuits in British Columbia, Ontario and Quebec where the plaintiffs allege that the Company and Paterson negligently or recklessly misrepresented the quantity of gold in drill samples taken from the Boka Project.  The Company is vigorously defending itself against such claims.  The consolidated financial statements as at December 31, 2007 do not include any provision for liability that may be necessary should the Company be unsuccessful in defending such claims as the amount of the potential liability is not determinable as of the date of these financial statements.

In August 2007, the Company announced that it had commenced legal action in the Supreme Court of British Columbia against John Paterson and certain affiliated companies, for, among other things, fraud, breach of fiduciary, statutory and contractual duties and insider trading. The Company is seeking to recover all damages and losses caused to the Company.

As a result of the errors in previously reported assay results relating to the Boka Project, including defending itself in the lawsuits brought against it, as well as commencing legal action against its former CEO, the Company has incurred legal and consulting expenses totalling approximately $2.1 million during the year.

2

The Company spent approximately $12.0 million on exploration during the year (excluding Zincore expenditures on the Accha-Yanque property), of which $8.2 million (on a cash basis) related to drilling, pre-feasibility and associated costs at the Boka Project, and $2.4 million related to the Liam Project in Peru.  

CHINA

Boka Project

Subsequent to the discovery that there were errors in previously reported assay results relating to Boka as noted above, the Company commissioned an independent consultant to prepare a new 43-101 Technical Report. The report was released in November 2007.

The inferred mineral resource estimate was based on composited and top cut drillhole assay data from the reconstructed and validated assay database for the Boka Project.  Adit assay data was not taken into account or included in the Mineral Resource estimate.  Based on top cut drillhole data, grades and volume varied from 700,000 ounces of contained gold at 0.4 grams per tonne to 337,0000 ounces of contained gold at 1.9 grams per tonne. (See Technical Report filed on SEDAR on November 9, 2007). The Technical Report also indicated that there may be upside potential in the Mineral Resource estimate with the inclusion of the area currently defined by adit sampling.  The inclusion of this area would result in an extension of the Mineral Resource and could improve the estimated grades of the areas surrounding the adits.  In order to include the adit areas in the Mineral Resource estimate, additional drilli ng and sampling is required to confirm mineralization.

The Technical Report also indicated that the consultants believe that there is upside potential to the Mineral Resource at the Boka deposit.  The consultants note that there are indications of mineralization at depth beneath the Boka 1N and Boka 1S zones, and at depth in the relatively sparsely drilled area between the two zones.  The recommended work program includes: (a) additional infill drilling that achieves an effective 25 metre drillhole spacing to improve the understanding of the structural controls on mineralization and geological confidence level; and (b) investigating the option of opening up one or more of the adits to facilitate targeted underground drilling to: (i) define and quantify the potentially higher grade mineralization contained in the adit sampling areas; and (ii) improve the structural model and to collect bulk samples for analysis to improve confidence in the Mineral Res ource estimate.    

During 2007, the Company incurred expenditures totalling $7.9 million on the Project. The majority of these costs were incurred during the first half of the year primarily relating to the preparation of a pre-feasibility study.

PERU

Liam Gold-Silver Project

The Liam Project is a 50/50 joint venture between Southwestern and Newmont Peru Limited (“Newmont”) and is comprised of 282,292 hectares of claims located in the Tertiary Volcanic Belt of south-central Peru, approximately 170 kilometres northwest of Arequipa. Since inception of the joint venture in 2003, the partners have identified and evaluated 38 exploration prospects in the project area, nine of which have been drilled by either Newmont or Southwestern. The prospects and projects include high-sulphidation, low-sulphidation vein, low-sulphidation disseminated, carbonate-replacement, mesothermal vein, skarn and porphyry hydrothermal systems. The most advanced and significant projects in Liam are the Crespo and Queshca silver-gold and gold high-sulphidation systems.

3

During 2007, four projects were drilled by the partners: Numa, Aluja, Pacobamba and Huacullo. The drilling at Numa, Aluja and Pacobamba were first-pass drill tests on these projects, which were first identified by Southwestern during generative exploration in 2006.  The drilling at Huacullo was second-phase step-out holes following up on the successful results from the 2006 drilling.

Generative exploration was carried out in 2007 in several areas of Liam, by both Southwestern and Newmont, and resulted in several new, encouraging prospects being identified. These prospects will be further evaluated in 2008 and a technical review of the extensive Liam database will be completed in the first half of 2008 to generate and prioritize additional areas for exploration.

Due to substantial progress at Liam during 2007, an updated NI 43-101 document is planned for completion in 2008.

Descriptions of the numerous gold and silver zones included in the Liam Project, and their respective stages of evaluation, are presented below.

Cerro Crespo/Cerro Quescha

Since 2003 both Southwestern and Newmont have completed 88 holes/13,735 metres of drilling on this high-sulphidation silver-gold project, the results of which indicate that Crespo ridge is strongly mineralized with gold and silver and is comprised of massive silica, vuggy silica and silica-alunite alteration phases, cross-cut by hydrothermal and magmatic breccias. The cross-cutting breccias commonly carry high-grade silver (greater than 1,000 grames per tonne). A preliminary analysis completed by Newmont suggests that a mineral inventory of gold and silver is present and potentially economic.

Queshca is located approximately one kilometre north of Cerro Crespo and is comprised of six zones of outcropping gold-silver mineralization with high grade gold (multiple-grams per tonne) associated with structures and late iron oxide fracture fillings. Drilling has shown the six zones to be possible remnants of an eroded larger high-sulphidation system.  Potential to discover additional, modest-sized, mineralized bodies is present.

Southwestern and Newmont are determining the most beneficial manner to advance Cerro Crespo and Queshca into the next stage.

Numa

Numa consists of a silver-lead-zinc replacement mineralization within a 2,500-metre long zone of limestone with multiple, near-vertical breccia and replacement horizons up to 50 metres wide. Work completed during 2007 included collecting over 1,400 rock chip samples, geological mapping, geophysical surveying and drilling 18 core holes (3,097 metres). Results from sampling over the principal mineralized zone include 273 samples containing over 30 grams per tonne silver and 53 samples containing over 301 grams per tonne silver. The geophysical surveying suggests that the subsurface replacement bodies extend for considerable depth (greater than 150 metres depth).

4

Thirteen of the eighteen holes were drilled at the principal mineralized zone and five other holes were drilled on three peripheral, skarn and carbonate-replacement, targets. The results from the 13 holes in the principal carbonate replacement mineralized zone are encouraging. Mapping and sampling indicate that the mineralization is distributed over two kilometres of strike-length.  Mineralized thicknesses at depth are similar to widths seen in outcrop. Continuity between drill holes is not clear due to wide drill-spacing (up to 500 metres) and “pinch and swell” geometries of the mineralized zones seen on surface. Numa remains an exciting exploration project within the Liam Project.  Additional work is needed to determine the significance of the mineralization. Three dimensional modelling, detailed structural mapping and interpretation and geophysical surveying are being considered for planning the next phase of drilling in the principal mineralized zone.  Similarly, more field and interpretive work is planned to develop additional drill targets in the greater Numa area, as several other alteration zones identified in 2007 have not been drill-tested.

Aluja

Aluja is a strongly developed high-sulphidation alteration system hosted within pervasively alunite-quartz altered volcanic rocks. The alteration area covers 2.0 x 1.5 kilometres and consists of variable silica types, including large areas of upper level, vapour-phase derived, granular silica which suggests preservation of a possible mineralized system at depth. Over 2,300 samples have been collected from outcrop.  The highest grades (four samples with 4.0 to 54 grams per tonne gold) are from hydrothermal breccia bodies that cross-cut the granular silica zones, suggesting strong mineralization in the sub-surface.

During 2007, Newmont completed a 24 kilometre access road, installed a project camp, completed field work (mapping, sampling and geophysics) and drilled nine, reverse circulation holes (2,064 metres) for a first-pass test. Aluja results were not as  positive as expected; however, they do indicate anomalous subsurface values from a strongly altered area of 800 metres by 800 metres. Data review and additional fieldwork are planned to decide if further drilling is justified in 2008.  

Huacullo

Huacullo is a low-sulphidation gold-silver vein system located 18 kilometres northwest of Crespo/Queshca. Multiple veins outcrop at Huacullo and are present over at least 800 metres of strike-length.  Results from the five-hole (922 metres) second drill phase at Huacullo were not as positive as expected.

Previous drilling at Huacullo by Newmont in 2006 resulted in several significant silver and gold intersections which were highlighted by:  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 in HUA-008, 1.65 metres of 133.50 grams per tonne silver and 1.35 grams per tonne gold in HUA-004, 0.45 metres of 144 grams per tonne silver and 3.20 grams per tonne gold in HUA-002 and 0.90 metres of 109 grams per tonne silver in HUA-006.

Additional field evaluation at Huacullo will continue to test the size potential of the higher grade veins and possible shoots as well as to test for additional veins.

Pacapausa

Pacapausa comprises 7,933 hectares of exploration concessions located between the Selene silver mine to the north and the new Pallancata high-grade silver vein project being advanced to production to the south.

5

At the beginning of 2007, the project was subject to an option agreement with Minera Oro Vega ("Oro Vega"), the Peruvian subsidiary of International Minerals Corporation. In August 2007, Oro Vega notified Southwestern that they would exercise the first option of the agreement to acquire 50% of the project, after fulfilling the requirements of investing US $1,000,000 and drilling over 1,000 metres (2,082 metres were drilled) on the project.  Oro Vega has assigned their contractual position in the agreement to Minera Suyamarca S.A.C.(“Suyamarca”).  A new company is being incorporated between Southwestern and Suyamarca, with Suyamarca as operator, to hold and further explore the property.

Five target areas have been defined on the project each consisting of epithermal silver and gold mineralization within vein, stockwork and breccia zones. Surface sampling has defined several areas of high-grade silver. Eleven drill holes totalling 2,082 metres were completed during the first quarter of 2007. As reported by Oro Vega, highlights of the results include: 10.8 metres of 212 grams per tonne silver in hole PACA-009; 1.5 metres of 548 grams per tonne silver in hole PACA-001; and 4.8 metres of 100 grams per tonne silver in PACA-005.

Millo-Azucar

The Millo-Azucar project is comprised of both a high sulphidation alteration system and several low-sulphidation vein systems, located 20 kilometres to the northwest of the Crespo and Queshca projects of the Liam Project. Millo-Azucar is a Joint Venture with Meridian Gold Inc. (“Meridian”), whereby Meridian is earning a 70% interest in the project by funding all exploration costs through the completion of a pre-feasibility study.

Meridian recently completed a 15 hole (3,814 metres) second-phase drill program on the project and the drilling was carried out at both the Millo high sulphidation zone (six holes) and at the low sulphidation Espanola vein set (nine holes). Drill assay results have been received and none of the holes at Millo (MIL-001 through MIL-006) returned significant results. Results for the nine holes at Espanola were highlighted by a 4.7 metre intersection grading 463 grams per tonne silver and 1.93 grams per tonne gold and a 14.3 metre intersection grading 97 grams per tonne silver and 1.17 grams per tonne gold.

Previous drilling of 12 holes by Meridian in 2006 at Espanola (reported February 1, 2007), was highlighted by a 20.30 metre intersection grading 317 grams per tonne silver and 2.65 grams per tonne gold in hole PTT-004, a 17.10 metre intersection grading 162 grams per tonne silver and 1.80 grams per tonne gold in hole PTT-005 and a 0.70 metre intersection grading 814 grams per tonne silver and 27.10 grams per tonne gold in hole PTT-007.

Results from both phases of drilling at Espanola are very encouraging. Drilling to date at Espanola is within an area of 700 metres by 300 metres and was designed to test several distinct veins that partly form the Espanola vein set. New fieldwork by Meridian now indicates that the Espanola vein system extends for at least 3.5 kilometres in strike-length and at least three additional, sub-parallel veins have been identified. Mapping, sampling and additional drill target generation on the newly identified veins will continue through the first quarter of 2008.

Meridian has applied for a drill permit with the Peruvian Government, which, when approved, will enable Meridian to construct more than the presently approved 20 drill pads. Approval is expected early in the second quarter of this year and Meridian will then begin a third phase of drilling to test the greater strike-length of the Espanola vein set and other associated, newly identified veins.

6

Antay Project

The 31,100 hectare Antay copper-molybdenum porphyry project is situated within the Tintaya-Bambas Copper Gold Belt and is accessible by road from Cuzco, 150 kilometres to the northeast.  Antay is now 100% owned by Southwestern as its previous partner Anglo American Exploration Peru S.A. terminated its option agreement due to unsuccsssful efforts to secure a community access agreement to the Sayta porphyry. Since the termination Southwestern has been successful in obtaining a community access agreement.

Sayta is a large, significant, porphyry system exposed for over 1.5 kilometres and consists of multi-phase porphyritic intrusions, sheeted and stock-work quartz vein zones and hydrothermal breccia bodies. Geochemical results from 35 breccia outcrop samples averaged 1.19% copper (up to 7.81%), 0.011% molybdenum (up to 0.057%) and 0.013 grams per tonne gold (up to 1.36 grams per tonne).

New Generative Exploration

Southwestern is continuing to aggressively explore Peru and to generate new projects in south-central and southern Peru. Target types include porphyries, skarns, high and low sulphidation epithermal systems and veins, mesothermal gold and copper veins and polymetallic veins. During 2007, Southwestern staked over 100,000 hectares of claims in the Bambas-Tintaya Copper Belt of south-central Peru, the Southern Peru Copper Belt of southern Peru and within the Tertiary Volcanic Belt of central Peru.  At least six new prospects staked in 2007 are being planned for advancement with additional fieldwork to possible drill-stage in 2008.

Change in Accounting for the Investment in Zincore Metals Inc.

In April 2007, the Company sold 500,000 common shares of Zincore Metals Inc. ("Zincore") for gross proceeds of $350,000. This sale reduced the Company's interest in Zincore from 50.4% to 49.7%.  As a result of the reduction of the Company's interest and resulting loss of control, the assets and liabilities of Zincore were no longer consolidated in the Company's balance sheet effective April 1, 2007.  The exclusion of the assets and liabilities of Zincore from the Company's consolidation and the investment carrying value at December 31, 2007 are detailed as follows:

	As at December 31, 2007
(in thousands)
Cash	$15,378 15,378
Exploration advances and other    receivables	171
Other assets	75
Property, plant and equipment	146
Resource properties	5,774
	21,544
Accounts payable and accrued      charges	(662)
Non-controlling interest	(10,360)
Investment as at April 1, 2007	$10,522
Sale of shares	(136)
Equity in loss (April 1, 2007 to   December 31, 2007)	(1,116)
Stock-based compensation	298

7

Gain on dilution	290
Investment as at December 31, 2007	$9,858

Results of Operations

The consolidated net loss for the years ended December 31, 2007, 2006 and 2005 was $49.0 million or $1.09 loss per share, $1.5 million or $0.03 loss per share and $9.5 million or $0.22 loss per share, respectively.

The significant increase in net loss in 2007 in comparison to previous years was primarily due to the write-down of the Boka Project of $33.8 million, significantly higher foreign exchange losses, higher exploration expenditures of a reconnaissance nature, and significantly lower gains on shares issued by affiliated companies. Higher legal fees and lower interest income was partially offset by a reduction in stock-based compensation when compared to the previous year.

Effective January 1, 2007, the Company changed its practice of reporting stock-based compensation on a separate line in the Consolidated Statements of Loss and Deficit to a method of allocating the expense to (i) salaries and benefits to employees, (ii) consulting fees, and (iii) general exploration for individuals involved in exploration work.  The allocation for the years ended 2007, 2006 and 2005 were as follows:

(in thousands)	2007	2006	2005
Office salaries	$997	$1,663	$1,212
Consulting fees	1,218	2,399	3,505
General exploration	2,366	793	718
Zincore	336	433	-
Total	$4,917	$5,288	$5,435

For the year ended December 31, 2007, the stock-based compensation value was determined using the Black-Scholes option pricing model.  A weighted-average grant-date fair value of $1.07 (2006 – $5.82; 2005 - $4.15) for each option grant was estimated using the following weighted-average assumptions: no dividends are to be paid; volatility of 66% (2006 - 54%; 2005 – 58%); risk free interest rate of 3.9% (2006 – 4.0%; 2005 – 3.5%); and expected life of 3.5 years (2006 – 3.5 years; 2005 – 3.5 years).

The fair value computed using the Black-Scholes model is only an estimate of the potential value of the individual options and the Company is not required to make payments for such transactions.

Overall general and administrative expenses increased to $9.8 million in 2007 compared with $9.5 million in 2006 and $8.6 million in 2005.  The increase was mainly due to higher legal fees as a result of the legal issues confronting the Company discussed under “General” above and increased salary expenses due to retention bonuses given to employees as a result of the issues surrounding the Boka Project.  These increases in expenditures were partially offset by a decrease in stock-based compensation compared to prior years.  All other expenditures remained fairly comparable to prior years.

Foreign exchange gains and losses result primarily from the translation of US dollar denominated monetary assets to Canadian dollars.  The Company maintains sufficient US. dollar reserves to fund foreign exploration expenditures over the short term.  Foreign exchange loss was significantly higher in 2007 when compared to 2006 and 2005 due to the severe strengthening in the Canadian dollar in 2007 where it reached and surpassed par with its US counterpart.  

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General exploration expense relates to expenditures of a generative nature along with some of the costs of maintaining the Company’s foreign exploration offices.  General exploration expense has been increasing over the past three years due to increased general reconnaissance work being conducted in China and Peru to generate new projects, higher stock-based compensation for stock options granted to employees performing exploration activities, and in 2007, the costs of operating the Company’s exploration offices increased due to retention bonuses granted to all employees.

During 2007, expenditures totalling $36.0 million were written off relating to the Boka Project in China ($33.8 million), Yunnan Gold Project in China ($860,000) and various non-core projects in China (including the Inco Joint Venture) and Peru.  The costs relating to the Yunnan Gold Project were written off as a result of the joint venture partner on the project (Newmont Overseas Exploration Limited) terminating the joint venture based on the evaluation of the project area to date. During 2006, a total of $593,000 in expenditures were written off of which $538,000 related to the Minaspata property in Peru.  In 2005, $698,000 was written off relating to the Sichuan project in China and various non-core projects in Peru.  

Interest and other income is comprised of interest revenue and management fees charged to affiliated companies and was lower in 2007, when compared to 2006, due to lower cash balances. In 2006 it was higher than in 2005 due to higher interest revenue as a result of a larger treasury.

Dilution gains of $866,000 (2006 - $6,845,000; 2005 - $414,000) were recorded mainly as a result of equity financings completed by Zincore and Superior Diamonds Inc. (“Superior”) during these years. The large gain in 2006 represents a gain on dilution as a result of Zincore’s initial public offering.  Gains or losses on shares issued by affiliated companies arise when the ownership interest of the Company in a significantly influenced or controlled company is diluted as a result of share issuances of the investee company.  The Company does not receive any cash proceeds (nor is it required to make any payments) for such transactions.

During 2007, the Company recorded a gain of $3,346,000 on the sale of its investment in Lake Shore Gold Corp. (“Lake Shore”). The Company sold two million shares of Lake Shore for proceeds of $4.9 million.  As well, the Company sold 500,000 common shares of Zincore for gross proceeds of $350,000 and recorded a gain of $212,000. In 2006 the Company sold all of its common shares of Jinshan Gold Mines Inc. (“Jinshan”) and FNX Mining Co. (“FNX”) and recorded gains of $1,142,000 and $1,939,000, respectively.  A gain of $1,018,000 was recorded in 2005 for the partial sale of FNX shares.

During 2007, the Company recorded a loss of $1,203,000 (2006 – a gain of $68,000; 2005 – a loss of $218,000) as its equity in the operations of affiliated companies. The current year loss relates primarily to the equity in operations of Zincore ($1,116,000). The gain in 2006 relates only to the Company’s share of gains recorded by Superior whereas the Company’s share of gains and losses of Aurora Platinum Corp. (“Aurora”) were also included in 2005.   Equity in operations of affiliated companies represents the Company’s share of the net gains or losses for the reporting period in a significantly influenced company. Due to the Company and Superior no longer having a director and president in common as at July 1, 2007, the Company no longer accounts for its investment in Superior using the equity method as it has determined that it no longer has significant influence.  

Non-controlling interest of $434,000 represents the minority share of net losses of Zincore for the three months ended March 31, 2007. Non-controlling interest of $432,000 represents the minority share of net losses of Zincore for the two months ended December 31, 2006.

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Annual Financial Information

The following selected consolidated financial data has been prepared in accordance with Canadian generally accepted accounting principles and should be read in conjunction with the Company's audited consolidated financial statements.  All dollar amounts are in Canadian dollars.

(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		1,346
Net loss	(48,988)	(1,450)		(9,540)
Loss per share*	(1.09)	(0.03)		(0.22)
Financial Position:
Working capital	18,497	61,591		62,024
Mineral properties	22,029	50,555		34,879
Total assets	58,507	119,926		108,174
Non-controlling interest	-	10,627		-
Share capital	175,769	179,239		178,923
Contributed surplus	28,638	23,590		20,115
Accumulated  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 December 31,2007	3rd Quarter  September 30, 2007	2nd Quarter      June 30, 2007	1st Quarter      March 31, 2007
Interest and other income	288	368	429	636
Net 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 December 31,2006	3rd Quarter  September 30, 2006	2nd Quarter      June 30, 2006	1st Quarter      March 31, 2006
Interest and other income	677	537	607	512
Net 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.

An analysis of the quarterly results over the last eight quarters shows a significant variation between the quarters.  The difference in the second quarters was primarily the result of the equity in the operations of Zincore. The main difference in the first quarters was due to a gain on the sale of an investment recorded in March 2007.  The variation between the fourth quarters is mainly due to the write-down of the Boka project and other mineral properties in 2007, and a large gain on dilution of the Company's investment in Zincore in 2006.  In the third quarter the variation was primarily due to larger mineral property write-offs, foreign exchange losses, and legal fees.

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Financial Condition, Liquidity and Capital Resources

Southwestern is not in commercial production on any of its mineral properties, and accordingly, it does not generate cash from operations.  The Company finances its activities by raising capital through the equity markets.  Currently the Company has no long-term debt and working capital as at December 31, 2007 was $18.5 million (2006 - $61.6 million including $17.3 million from Zincore.).

The Company expended $11.7 million on net operating activities during the year ended December 31, 2007 compared with $5.9 million in 2006 and $5.2 million in 2005.  The increase in 2007 relates mainly to significant legal and consulting fees, reconnaissance costs and foreign exchange losses as well as higher salaries and consulting fees due to retention payments.  

The Company expended a net of $18.9 million on investing activities during 2007 compared with $15.3 million in 2006 and $9.5 million in 2005. During 2007, the Company expended $13.7 million on mineral properties in Peru and China, including $8.2 million on the Boka Project and $2.4 million on the Liam Joint Venture. The Company received proceeds of $11.0 million from the maturity of a short-term investment and the sale of Lake Shore and Zincore common shares. The Company also had a decrease in cash of $15.4 million due to the deconsolidation of Zincore which led to the  commencement of equity accounting for its investment. During 2006, the Company expended $16.1 million on mineral property and related deferred costs in China and Peru. The majority of these expenditures were incurred on the pre-feasibility and drilling program at the Boka Project in China.   A total of $5.8 million was expended on acquisiti on of short-term investments which have a term to maturity of six months and a further $583,000 on capital and other assets.  The Company also received proceeds of approximately $7.2 million from the sale of Jinshan and FNX shares.  During 2005, the Company expended $14.9 million on mineral property and related deferred costs in China and Peru.  A total of $1.9 million was expended on acquisition of shares in Superior ($400,000) and Lake Shore ($1.5 million) and a further $200,000 on capital assets.  The Company also received proceeds of approximately $3.0 million from the sale of FNX shares.  

The carrying value of mineral properties decreased by $28.5 million as a result of exploration expenditures of $13.3 million which were offset by $36.0 million in mineral property write offs and a $5.8 million reduction due to the deconsolidation of Zincore.    

In August 2006, the Company received regulatory approval of its normal course issuer bid pursuant to which the Company could acquire up to 2 million of its own common shares until August 28, 2007. During 2007, the Company purchased 930,600 of its own common shares for costs totalling $7.2 million pursuant to its normal course issuer bid. During the same period, all of these common shares, as well as 41,200 common shares purchased in 2006, were cancelled and resulted in a loss of $3.7 million being recorded as a charge to deficit. During 2006 the Company purchased 366,900 shares for total consideration of $3,342,000.  Of the shares purchased, 325,700 were cancelled, resulting in a loss of $1,735,000 of which $912,500 flowed to the Consolidated Statements of Loss and Deficit and the difference recorded in contributed surplus. The Company also cancelled 80,000 common shares it had acquired pursuant to its previous norm al course issuer bid and recorded a loss of $466,944 in March 2006.

Due to the adoption of new accounting standards (see "Critical Accounting Policies and Estimates") effective January 1, 2007, the Company now measures assets classified as available-for-sale at fair value and includes resulting unrealized gains and losses on a new Consolidated Statement of Comprehensive Loss.  A total of $865,000 was recorded as unrealized losses on available-for-sale investments in 2007. The accumulated other comprehensive loss of $958,000 reported on the consolidated balance sheet includes an adjustment for cumulative unrealized gains on available-for-sale investments at January 1, 2007 of $3.4 million, which is reduced by a realized portion of $1.6 million relating to the sale of Lake Shore common shares and an unrealized loss of $865,000 as noted above.

As at December 31, 2007, the Company’s significantly influenced and other investments had a carrying value of $14.7 million (2006 - $4.4 million) and a market value of $19.9 million (2006 - $9.0 million). The market value of the Company’s interest in Zincore at December 31, 2006 was $34 million but was not included in the numbers above as it was consolidated at the time. Zincore’s market value is included in the numbers relating to 2007.

In February 2008 the Company sold 4,089,378 common shares of Superior for gross proceeds of $1,231,194. As a result of this transaction the Company’s interest in Superior was reduced to 6.5% from 12.9%.

The Company has commitments totalling $1,035,504 over three years (2008 - $376,547; 2009 - $376,547; 2010 - $282,410) pertaining to leasehold obligations of Southwestern.  As well, the Company has employee retention payment obligations of $670,667 in 2008. With respect to other contractual obligations, there are no material changes during the current period that are outside the ordinary course of the Company's business.

In management’s view the Company has sufficient working capital in the near term to fund planned exploration work and ongoing operating expenditures.  The Company is dependent on equity capital to fund exploration and development of its mineral properties over the longer term.  Actual funding requirements may vary from those planned due to a number of factors, including the timing and progress of exploration activities and ongoing litigation the Company is involved in.  Management may seek joint venture partners, where appropriate, in order to minimize the dependence on equity capital.  

Outstanding Share Capital

As at March 11, 2008 there were 44,923,000 common shares issued and outstanding and 3,617,000 stock options outstanding, none of which are currently exercisable.  The stock options outstanding have an exercise price of $0.65 of which 25% vests after June 11, 2008, 25% after December 11, 2008, and 50% after December 11, 2009 .

Critical Accounting Policies and Estimates

Mineral properties and related exploration and development costs are recorded at cost on a property-by-property basis. Costs incurred for general exploration that are not project specific or do not result in the acquisition of mineral properties are charged to operations. Management periodically reviews the underlying value of mineral properties and records a provision to reduce the costs incurred to net realizable amounts as appropriate. If an impairment is determined to exist, the mineral property will be written down to its net realizable value. The recoverability of the amounts capitalized for mineral property interests is dependent upon the delineation of economically recoverable ore reserves, the Company’s ability to obtain the necessary financing to complete their development and realize profitable production or proceeds from the disposition thereof. It is reasonably possible that changes could occur in the near term that could adversely affect management’s estimates and may result in future write-downs of capitalized mineral property interest carrying values.

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Effective as of January 1, 2007 the Company has adopted Canadian Institute of Chartered Accountants (CICA) Handbook Section 3855 – Financial Instruments – Recognition and measurement, CICA Handbook Section 3861 - Financial Instruments - Disclosure and Presentation,CICA Handbook Section 1530 – Comprehensive Income, CICA Handbook Section 3865 – Hedges, and CICA Handbook Section 3251 - Equity.  These accounting policy changes were adopted on a prospective basis with no restatement of prior period financial statements.  

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, loans and receivables, or other financial liabilities. Financial assets held-to-maturity, loans and receivables and financial liabilities other than those held-for-trading, are measured at amortized cost. Available-for-sale instruments are measured at fair value with unrealized gains and losses recognized in other comprehensive income. Instruments classified as held-for-trading are measured at fair value with unrealized gains and losses recognized on the consolidated statement of loss. Investments in corporations in which the Company exercises significant influence are accounted for using the equity method, whereby the investment is initially recorded at cost and is adjusted to recognize the Company’s share of earnings or losses and reduced by dividends and distributions received.  

Upon adoption of this new standard, the Company has designated its cash and cash equivalents as held-for-trading, which are measured at fair value.  Exploration advances and other receivables are classified as loans and receivables, which are measured at amortized cost.  Accounts payable and accrued charges are classified as other liabilities, which are measured at amortized cost.  The Company has classified its investments in public companies, other than those that the Company has significant influence as available-for-sale and therefore carries them at fair market value, with the unrealized gain or loss recorded in shareholders’ equity as a component of other comprehensive income. These amounts will be reclassified from shareholders’ equity to net income when the investment is sold. Previously, investments in these public companies were carried at cost, less provisions for other than temporary declines in value. This change in accounting policy results in a $3,428,000 increase in the carrying value of investments in public companies as at January 1, 2007, representing the cumulative unrealized gain at that time.

Comprehensive income is the change in shareholders’ equity during a period from transactions and other events and circumstances from non-owner sources. In accordance with CICA Handbook Section 1530, the Company now reports a consolidated statement of comprehensive income and a new category, accumulated other comprehensive income, in the shareholders’ equity section of the consolidated balance sheet. The components of this new category will include unrealized gains and losses on financial assets classified as available-for-sale.

CICA Handbook section 3870 Stock-Based Compensation and Other Stock-Based Payments establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services.  Compensation expense is determined using the Black-Scholes Option Pricing Model based on estimated fair values of all stock-based awards at the date of grant and is expensed to operations over each award’s vesting period.  

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The Black-Scholes Option Pricing Model utilizes subjective assumptions such as expected price volatility and expected life of the option.  Changes in these input assumptions can significantly affect the fair value estimate.

Off-Balance Sheet Arrangements

The Company does not utilize off-balance sheet transactions.

Related Party Transactions

During the years ended December 31, 2007, 2006 and 2005 the Company paid remuneration for services rendered to directors and to companies controlled by officers who are also directors.  The Company also received management fees, which are recorded as other income from Superior, Lake Shore and Zincore.  These are companies which are related by way of directors in common and/or by way of a management services agreement.  Details of these payments are as follows:

	2007	2006	2005
Remuneration paid to officers / directors	$936	$756	$515
Management fees received	$259	$72	$117

There was also an amount of $39,752 (2006 - $5,669) due to Southwestern from the above mentioned companies at December 31, 2007.  All related party transactions are measured at the exchange amount which is the consideration agreed to between the parties.

Fourth Quarter

The Company recorded a consolidated net loss for the fourth quarter of 2007 totalling $38.4 million or $0.86 per share compared with a net earnings of $6.4 million or $0.14 per share for the same period in 2006. The loss in 2007 was mainly due to the write-down of the Boka Project, higher legal fees, retention bonuses for consultants and employees, foreign exchange losses and lower interest income when compared to the same period in 2006. The gain in 2006 was the result of a gain of $1.1 million and $0.6 million on the disposition of FNX and Jinshan shares respectively and a gain on dilution of $6.4 million on the issuance of shares by affiliated companies, the majority of which relates to Zincore.  These gains were partially offset by higher consulting fees and general exploration expenditures.

Financial Instruments and Other Instruments

The Company's financial instruments consist of cash and cash equivalents, exploration advances and other receivables, short-term investments, investments, accounts payable and accrued charges. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or credit risk arising from these financial instruments.

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Future Changes in Accounting Policies

In June 2007, the CICA issued changes to Section 1400, General Standards of Financial Statement Presentation.  Section 1400 has been amended to include requirements to assess and disclose an entity’s ability to continue as a going concern.  Management shall make an assessment of an entity’s ability to continue as a going concern. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, those uncertainties shall be disclosed.  When financial statements are not prepared on a going concern basis, that fact shall be disclosed, together with the basis on which the financial statements are prepared and the reason why the entity is not regarded as a going concern.  Section 1400 is effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2008.  Earlier adoption is encouraged.  The adoption of this standard will have no impact on the Company’s operating resul ts or financial position and management expects that there will not be a material impact on the Company’s financial statement disclosure.

In December 2006, the CICA issued Section 1535, Capital Disclosures.  The main features of the new Section are as follows:

·

Requirements for an entity to disclose qualitative information about its objectives, policies and processes for managing capital;

·

A requirement for an entity to disclose quantitative data about what it regards as capital; and

·

A requirement for an entity to disclose whether it has complied with any externally imposed capital requirements and, if not, the consequences of such non-compliance.

Section 1535 is effective for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007.  The adoption of this standard will have no impact on the Company’s operating results or financial position and management is currently in the process of evaluating the impact that these additional disclosure standards will have on the Company’s financial statements.

In December 2006, the CICA issued Handbook section 3862, Financial Instruments – Disclosures and Section 3863, Financial Instruments – Presentation. Section 3862 modifies the disclosure requirements of Section 3861 and requires entities to provide disclosures in their consolidated financial statements that enable users to evaluate the significance of financial instruments on the entity’s consolidated financial position and performance, and the nature and extent of risks arising from financial instruments and non-financial derivatives. Section 3863 Financial Instruments – Presentation carries forward unchanged the presentation requirements for financial instruments of Section 3861, Financial Instruments – Disclosures and Presentation. Sections 3862 and 3863 apply to interim and annual consolidated financial statements relating to fiscal years beginning on or after Octob er 1, 2007.

Corporate Governance

The Company’s Board of Directors follows recommended corporate governance guidelines for public companies to ensure transparency and accountability to shareholders.  

The current Board of Directors is comprised of four individuals, three of whom are neither officers nor employees of the Company and are unrelated in that they are independent of management. The Audit Committee is comprised of three directors who are independent of management.  Two of the three Audit Committee members are professional accountants.  

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The Audit Committee fulfills its role of ensuring the integrity of the reported information through its review of the interim and audited annual financial statements prior to their submission to the Board of Directors for approval. The Audit Committee meets with management quarterly to review the financial statements including the MD&A and to discuss other financial, operating and internal control matters. The Company also has the practice of engaging its external auditors to perform quarterly reviews of its interim financial statements.

Controls and Procedures

As required by Mulilateral Instrument 52-109, management is responsible for the design, establishment and maintenance of disclosure controls and procedures over the public disclosure of financial and non-financial information regarding the Company, and internal control over financial reporting to provide reasonable assurance regarding the integrity of the Company’s financial information and reliability of its financial reporting. Management maintains appropriate information systems, procedures and controls to ensure integrity of the financial statements and maintains appropriate information systems, procedures and controls to ensure that information used internally and disclosed externally is complete and reliable. The Company has a Disclosure Policy and a Disclosure Committee in place to mitigate risks associated with the disclosure of inaccurate or incomplete information.  The Company has also undertaken the task of evaluating the effectiveness of internal control over financial reporting and disclosure controls and procedures in order to comply with certification requirements of Sections 404 and 302 of the Sarbanes-Oxley Act.

The Company’s management, with the participation and under the supervision of its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), have designed the disclosure controls and procedures to provide reasonable assurance that material information relating to the Company, including its consolidated subsidiaries, is made known to them on a timely basis; and designed internal control over financial reporting to provide reasonable assurance regarding the reliability of the Company’s financial reporting.

An evaluation of the effectiveness of the Company’s disclosure controls and procedures was conducted as of December 31, 2007.  Based upon the results of that evaluation, the Company’s CEO and CFO have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective in providing reasonable assurance that the material information relating to the Company was made known to them on a timely basis and was processed and disclosed within the appropriate reports and time periods. The Company’s management believes that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Due to the inherent limitations in all controls systems, they cannot provide absolute assurance tha t all control issues and instances of fraud, if any, within the Company have been prevented or detected. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.  

There has been no change in the Company’s internal control over financial reporting during the year ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Management has assessed the effectiveness of its internal control over financial reporting as of December 31, 2007 using criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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The Company’s management has concluded that the Company’s internal controls over financial reporting as at December 31, 2007 was effective as of such date. The current year financial statements also includes an attestation report of the Company’s independent registered chartered accountants regarding internal control over financial reporting

On July 19, 2007, the Company announced it had determined that there were deficiencies in its control procedures for its Boka Project.  See discussion under "General".  The Company has enhanced how certain procedures are affected by implementing additional safeguards including those relating to data compilation procedures.  The Company is continuing to monitor and review the execution of its controls and procedures.

Risks and Uncertainties

The Company is an exploration stage mineral exploration company engaged in the identification, acquisition, evaluation and exploration of mineral properties.  The continued assessment of the Boka Project could result in a further write-down, termination of exploration and development work or loss of the Company's interest in its Boka Project.  If any of the foregoing were to occur, this would have a material adverse effect on the Company's business, financial condition and results of operations.

The Company is named as a defendant in several class action lawsuits filed by certain shareholders of the Company.  The Company cannot assure that it will succeed in defending any claims, that judgments will not be entered against it with respect to any litigation or that reserves the Company may set aside will be adequate to cover any such judgments.  If any of these actions or proceedings against the Company is successful, the Company may be subject to significant damages awards.  The Company is incurring significant legal expenses defending these lawsuits.  Additionally, the defence of these claims could divert the attention of the Company's management and other personnel for significant periods of time.

As a result of the Company withdrawing all its previously announced results for the Boka Project, the Company has been the subject of continuing negative publicity.  This negative publicity may have an effect on the terms under which some joint venture partners will be willing to do business with the Company and could affect its the Company’s financial performance or financial condition.  The Company also believes that many of its employees are operating under stressful conditions, which weaken morale and could lead to increased employee turnover.  Continuing negative publicity could have a material adverse effect on the Company's business, the market price of its publicly traded shares, and its ability to raise capital.

The specifics of the Company's other risks are detailed in disclosures with the heading "Risk Factors" in the Company's periodic filings with securities regulators.

Outlook

The Company’s business philosophy has been to focus exploration efforts on areas with world class potential, and to leverage management’s knowledge and technical expertise through joint venture agreements with major mining companies.  Southwestern has been successful in developing highly prospective exploration projects in emerging countries.  The Company will continue to focus the majority of its exploration activities in Peru and to seek opportunities to form additional joint ventures in order to reduce shareholder risk.

In 2008, the Company will explore all opportunities to enhance shareholder value relating to the Boka project, as well as exploring for new opportunities in China. In Peru, the Company and its partners are planning a significant amount of drilling on a number of properties such as Numa, Pacapausa, and Millo-Azucar as well as doing further study on the less advanced properties in the Company’s portfolio to evaluate the best course of action to advance them.

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The Company will work to resolve its legal issues while at the same time focusing on its core business strength of exploration.

Additional Information

Additional information is provided in the Company’s audited consolidated financial statements for the year ended December 31, 2007 and the Company’s Annual Information Form and Information Circular.  These documents are available on SEDAR at www.sedar.com.

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