Form 20-F

A ground magnetic magnetic survey was done by Cartwright Geophysics of Vancouver Canada over the grid. The strongest magnetic feature is concentrated in the northern portion of the grid. Ground truthing of this feature indicated that it was due to an unaltered, fresh looking, strongly magnetic diabase dyke. The potassically altered breccia zone exposed along the San Diego River corresponds to an isolated weak magnetic feature and a strong magnetic feature roughly 200m in diameter underlies a hill which created a pronounced bend in the San Diego River. This magnetic feature coincides with the strongest molybdenum anomaly on the grid. The feature of most interest however, is the magnetic large scale low that coincides very well with the copper soil anomaly. It appears that the mineralization / alteration system is open to the northeast as well as to the south.

Geology of the Claims

Only a small portion of the claim block has been mapped. The northern portion of the mapped area is dominated by a topographically prominent area of post mineral andesite tuff and agglomerate/conglomerate. This andesite sits unconformably on a metamorphic complex comprising muscovite facies slate, meta felsite, and coarse grained meta-intrusive. At lower elevations along the San Diego River and several of its tributaries, porphyritic intermediate to felsic intrusive phases are exposed. The dominant phases are hornblende quartz diorite porphyry, diorite porphyry, both of which have been intruded by younger biotitic granodiorite porphyry. Chalcopyrite, molybdenite and disseminated pyrite are mostly associated with the granodiorite porphyry and chalcopyrite with minor molybdenite occurs in the diorite and quartz diorite porphyries.

A classic alteration pattern was mapped which shows a potassically altered breccia zone within a phyllic zone which lies within a peripheral propylitic zone. The high copper zone from the soil survey coincides with the zone of phyllic alteration.

A leach cap is exposed along the bulldozer road established by Noranda at an elevation of ~ 300m above the river level. Beneath this zone is a zone of mixed oxides and sulphides, and fresh sulphides are dominant along the San Diego River with only weak surficial oxidation present. Scattered occurrences of chalcocite have been noted along some of the intermittent tributaries but due to the limited exposure the only way to properly determine the extent and degree of secondary enrichment will be by drilling.


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High levels of copper in silts to the south of the known area of mineralization/alteration were invariably located near felsic porphyry dikes intruding the metamorphic complex. These dikes contain low levels of disseminated chalcopyrite and molybdenite and indicate that the main body of the porphyry probably underlies that particular area as well but is obscured by the metamorphic complex.

Rock chip sampling was done along outcrops exposed along the new bulldozer trail, as well as along exposures in streams and outcrops adjacent to the San Diego River. The copper and molybdenum values in the rock chips generally reflect the level of copper and molybdenum values in the soils in the area. Higher soil values are found than rock chip samples on the grid and the only way to determine the relationship of the soil values to the underlying unoxidized bedrock values will be by drilling.

The maximum values for copper, molybdenum and gold in the rock chip samples were 2330 ppm, 235ppm, and 122 ppb respectively. The mean values for all the rock chips taken for copper, molybdenum and gold were 582 ppm, 48 ppm, and 13 ppb with standard deviations of 443, 54 and 18 respectively.

Drilling

No drilling has been carried out on the Property or surrounding area by Noranda or anyone else.

2004/2005 Program

In advance of diamond drilling, a 1,077 line kilometre airborne magnetic survey covering an area of 12.5 kilometres by 12.5 kilometres was completed on the San Diego Property. The survey appears to have outlined the intrusive complex which hosts the porphyry copper system outlined on surface by hydrothermal alteration and by copper, molybdenum and gold geochemical anomalies. The interpreted intrusive complex is substantially larger than the porphyry copper system outlined on surface.

The soil geochemical grid has also been extended to the northeast, southwest and southeast in the area of the main geochemical anomaly. The main copper and molybdenum geochemical anomaly has been closed off and is totally surrounded by a well defined zinc halo. The copper anomaly has been expanded to 3.5 kilometres by 2.0 kilometres. The coincident molybdenum anomaly is slightly smaller than the copper anomaly.

The gold geochemical anomaly has not been closed off, especially to the southwest, and the higher gold values are not coincident with the higher copper and molybdenum values.

A more subtle copper geochemical anomaly, (greater than 100 ppm) with related molybdenum and gold values, is located approximately 4.5 kilometres northwest of the main geochemical anomaly. Geological mapping and prospecting is required to determine its significance.

A 35 line kilometre Induced Polarization (IP) survey on 600 metre spaced lines is underway. The results of the IP survey will be used in conjunction with geology and geochemistry to identify and prioritize drill targets.

Site preparations for a 3,000 metre diamond drill program are in progress and drilling is scheduled to begin in early January.

The Company has committed to spending CDN$1,000,000 on exploration by May 31, 2005. Exploration work is being conducted by the project operator, Noranda Exploracion Mexico, S.A. de C.V., under the guidance of a management committee comprised of representatives from the Company and Noranda.


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Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

This discussion should be read in conjunction with the audited financial statements of the Company and related notes included therein.

All statements other than statements of historical facts included in this Report, including, without limitation, the statements under “Operating and Financial Review and Prospects,” “Information on the Company,” and “Property, plant and equipment” and located elsewhere herein regarding industry prospects and the Company’s financial position are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company’s expectations (“Cautionary Statements”) are disclosed in this Report, including, without limitation, in conjunction with the forward-looking statements included in this Re port under “Item 3(C) – Risk Factors.” All subsequent written and oral forward-looking statements attributed to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statement.

A. Operating Results

United States Generally Accepted Accounting Principles

See note 12 to the financial statements for the material differences between Canadian GAAP and United States GAAP as applicable to the Company's operations.

Critical Accounting Policies

The Company prepares its Consolidated Financial Statements in conformity with Canadian GAAP, which conform in all material respects to United States GAAP, except for those items disclosed in note 14 of the Notes to the Consolidated Financial Statements. For United States readers, the Company has detailed the differences and has also provided a reconciliation of the differences between the United States and Canadian GAAP, where applicable, in note 14, as referred to above.

The preparation of the Company’s Consolidated Financial Statements requires it make estimates and judgments that affect its reported amounts of assets, liabilities, revenues and expenses. The amounts recorded for valuation of non-producing mineral properties, future income taxes, useful lives of capital assets and valuation of long-term investments are based on estimates. Furthermore, on an ongoing basis, the Company evaluates its estimates, including those related to asset impairment and contingencies. These estimates are all based on information that is currently available to the Company and on various other assumptions that it believes to be reasonable under the circumstances. By their nature, these estimates are subject to measurement uncertainty and the impact on the consolidated financial statements of future periods could be material. Actual results could vary from those estimates under different assumptions and conditions.

The Company lists all of its significant accounting policies in note 2 to its Consolidated Financial Statements. Of those significant accounting policies listed in note 2 to the Consolidated Financial Statements, the Company has identified the following critical accounting policies, which are believed to be the most critical in fully understanding and evaluating the reported financial results:

Accounting for Exploration Expenditures and Mineral Property Acquisition

All direct costs related to the acquisition of mineral property interests are capitalized by property. Exploration costs are charged to operations in the period incurred until such time as it has been determined that a property has economically recoverable reserves, in which case subsequent exploration costs and the costs incurred to develop a property are capitalized.

Gains and losses are recognized on property dispositions when the value of the consideration received exceeds and is less than, respectively, the carrying value of the property. Partial dispositions or option proceeds with respect to undeveloped properties are credited against the cost of the related property except that, when the proceeds exceed the cost, the excess is credited to operations. The aggregate costs related to abandoned properties are charged to operations.


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The Company reviews the carrying values of mineral property interests on a regular basis by reference to the project economics, including the timing of the exploration and/or development work, the work programs and exploration results experienced by the Company and others. When the carrying value of a property exceeds its estimated net recoverable amount, an impairment provision is made for the other than temporary decline in value.

Accounting for Stock-based Compensation

Effective August 1, 2003 the Company changed its accounting policy on a prospective basis with respect to the method of accounting for stock-based compensation. The Company adopted CICA 3870, Stock-based Compensation and Other Stock-based Payments, and has chosen to account for all grants of options to employees, non-employees and directors after August 1, 2003 in accordance with the fair value method for accounting for stock-based compensation as defined by accounting principles generally accepted in Canada. Stock-based compensation awards expense is calculated using the Black-Scholes option pricing model. (“Black-Scholes”). Previously, the Company used the intrinsic value method for valuing stock-based compensation awards granted to employees and directors where compensat ion expense is recognized for the excess, if any, of the quoted market price of the Company’s common shares over the common share exercise price on the day that options are granted.

The fair value of the stock options at the date of grant is charged to operations, with an offsetting credit to stock options – shareholders’ equity, on a straight-line basis over the vesting period. Any consideration paid on exercise of stock options together with the related portion of stock options – shareholders’ equity is credited to share capital.

Future Income Taxes

Future income tax assets and liabilities are computed based on differences between the carrying amounts of assets and liabilities on the balance sheet and their corresponding tax values, using the enacted or substantively enacted, as applicable, income tax rates at each balance sheet date. Future income tax assets also result from unused loss carryforwards and other deductions. The value of future income tax assets is reviewed quarterly and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realizable amount.

Differences between Canadian GAAP and U.S. GAAP

The following discussion of operating results and liquidity and capital resources is based on the Company’s Canadian GAAP financial statements (see Item 17). The Company has provided a reconciliation of Canadian GAAP to U.S. GAAP in the financial statements (note 12).

Fiscal year ended July 31, 2004 compared to fiscal year ended July 31, 2003

During the year ended July 31, 2004, the Company incurred a loss of $968,916 (2003 - $665,834). The Company’s loss per share was $0.05 for 2004 compared to a loss per share of $0.09 for 2003. The decrease in the loss per share is primarily attributable to the increase in the weighted average number of shares outstanding from 7,792,644 in 2003 to 19,228,797 in 2004.

During the year, the Company spent $302,754 (2003 - $268,517) on exploration of its Cape Ray property. The Company received $115,735 (2003 - $77,897) from the Government of Newfoundland and Labrador through their Junior Company Exploration Assistance Program. These monies are used to offset exploration expenditures.

During the year, the Company spent only $500 (2003 - $45,843) on its South Quinn property as this property has been optioned to Bayswater Ventures Corp.

The Company began to incur exploration costs on its San Diego property during the fourth quarter of fiscal 2004. The Company spent $97,447 (2003 - $nil) on exploration with the majority of the first year’s spending to come during the 1^st and 2^nd quarter of fiscal 2005.


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Using the fair value method for stock-based compensation, the Company recorded a charge to earnings of $273,278 (2003 - $nil) for the year ended July 31, 2004 for stock options granted to employees and directors.

Throughout the bulk of the year, Management curtailed travel and promotion as the Company was only carrying out a limited exploration program. This has also resulted in a corresponding decrease in printing and telephone and communication costs. It is expected that travel and promotion costs will increase during the 2005 fiscal year because of the exploration program on the San Diego Project.

The Company paid management fees of $68,072 (2003 - $nil). Management devotes a portion of their time to the Company and a portion of their time to other companies where they are directors and/or officers. Accordingly, management invoices the Company based on the percentage of time each of the individuals devote to the Company. The Company’s business and projects required a greatly increased amount of management time during fiscal 2004 compared to 2003. Also, the Company paid certain members of management $65,561 (2003 - $nil) for geological technical services, which are included in exploration expenditures. In total, the Company paid $46,883 (2003 - $nil) to the President, $35,250 (2003 - $nil) to the Chairman of the Board and $51,000 (2003 - $nil) to the exploration manager.

Starting in July 2004, the Company will be paying its non-executive directors (Mr. Sadler and Mr. Gibbons) $1,000 per month.

The Company paid an arms-length private company $86,000 (2003 - $52,000) for accounting, secretarial and general administrative services and paid the same private company $10,000 (2003 - $13,000) for rent.

The Company’s interest income has increased by $31,778 in 2004 over 2003 because the Company’s cash balance has been much higher during the year compared to 2003.

Fiscal year ended July 31, 2003 compared to fiscal year ended July 31, 2002

The Company incurred a loss of $665,834 (2002 - $148,220). The Company’s loss per share was $0.09 for 2003 compared to a loss per share of $0.04 for 2002. The Company resumed active business in June 2002 and as a result operating expenses were significantly higher in 2003 compared to 2002. Almost every line item on the statement of operations has increased significantly in 2003.

Effective July 31, 2003, the Company changed its method of accounting for mineral exploration expenditures, from deferring them until the viability of a project was determined, to charging them to operations as incurred. Under the new policy, only expenditures incurred on properties identified as having substantial evidence that a commercial body of ore has been located are capitalized and accounted for in accordance with the Company’s accounting policy for mineral properties.

The new policy is consistent with current reporting practices in the mining industry and management considers the change will appropriately present the Company’s operations and financial position. This change in accounting policy has been applied retroactively to 2002 and has increased the 2003 net loss by $236,463 (2002 - $nil) and loss per share by $(0.03) (2002 - $nil).

Under Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 1581, Business Combinations, and CICA Handbook Section 3062, Goodwill and Other Intangible Assets, mining assets without established mineral reserves are required to be classified as intangible assets. Intangible assets with indefinite useful lives should be tested for impairment annually, or more frequently if events or changes in circumstances indicate the asset might be impaired.


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Under CICA Handbook Section 3061, Property, Plant and Equipment, and Emerging Issue Committee Abstract 126, Accounting by Mining Enterprises for Exploration Costs, mining enterprises that have not established mineral reserves are not precluded from considering the capitalized costs of acquired mineral rights to have characteristics of property, plant and equipment. The Company follows these recommendations and therefore the unproven mineral property claim costs are initially capitalized as property, plant and equipment. Such assets are tested for impairment in accordance with the provisions of the CICA Handbook Section 3063, Impairment of Long-lived Assets.

The Company has interpreted the adoption of CICA Handbook Sections 1581 and 3062 and has determined that it is not required to change its accounting for the cost of its contract based mining assets. Regardless of whether the unproven mineral property claims are classified as intangible assets or property, plant and equipment, there is no material difference to the financial statements of the Company for the years ended July 31, 2003, 2002 and 2001.

The CICA may provide additional guidance that requires accounting for mining assets that differs from the Company’s interpretation.

Of the $236,463 expended on exploration during 2003, $190,620 was expended on the Cape Ray property, net of $77,897 in government grants received during the year. The Company completed two drill programs on the Cape Ray property. The Company spent only $45,843 on the South Quinn property as it optioned the property to Bayswater in May 2003.

Management of the Company has traveled extensively throughout Canada and Europe to promote the Company and to seek additional equity financing for the exploration and option commitments on its two projects and for general working capital.

During the year ended July 31, 2003, the Company revised and updated its internet web site (www.terranovagold.com), printed promotional material, enhanced shareholder communication and incurred consulting services to help obtain and manage its Berlin Stock Exchange and Frankfurt Stock Exchange listings.

In October 2002, the Company was approved for listing on the Berlin Stock Exchange. The Company paid $9,456 in consulting services and $7,942 in filing fees to obtain the Berlin listing. In May 2003, the Company was approved for listing on the Frankfurt Stock Exchange.

Office and miscellaneous, printing and telephone and communications have increased by $51,427 over 2002. During 2003, the Company disseminated more news releases to a broader range of shareholders and potential investors, printed a greater quantity of brochures, news releases and financial statements, and incurred significant postage and mailout costs associated with the Extraordinary General Meeting held on April 9, 2003.

The Company has made no payments to any of its directors or officers except $16,000 was paid to the secretary for services provided to the Company, which services included responding to shareholder inquiries.

The Company paid a private company $52,000 (2002 - $nil) for accounting, secretarial and general administrative services and paid the same private company $13,000 (2002 - $nil) for rent. Rent has increased in 2003 because the Company has increased the amount of office space that it is using.

The Company purchased new geological computer software for $10,347 during year. This software will help the Company model the Cape Ray Project deposits in three dimensions.

B. Liquidity and Capital Resources

As at July 31, 2004, the Company had working capital of $2,230,498 compared to a working capital deficit of $9,774 at July 31, 2003. The increase in working capital is mainly attributable to the completion of an investment agreement which netted the Company $2,159,406 and the completion of a private placement in May 2004 which netted the Company $685,827. The bulk of these funds have been invested in short term money market instruments while the remaining funds have been used for exploration and general working capital.


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On August 27, 2003, the Company completed an investment agreement with Ocean Resources Capital Holdings Plc. (“ORCH”), a company whose shares trade on the Alternative Investment Market (“AIM”) of the London Stock Exchange, whereby, ORCH issued to the Company a total of 5,200,000 units in the capital of ORCH (the “Units”) at £0.50 per Unit (each Unit consisting of one share and one warrant entitling the holder thereof to acquire one additional share together with one secondary warrant at any time following the issuance of the Units). As consideration, the Company issued to ORCH a loan note (the “Note”) in the principal amount of £2,600,000. The Note was convertible and redeemable into common shares of the Company, was unsecured and bore interest at 12% per annum payable by half yearly installments on December 31 and Ju ne 30 of each year. The Company sold the 5,200,000 Units and realized net sale proceeds of $2,159,406. The Company paid a finder’s fee in the amount of $86,376.

In accordance with the terms of the investment agreement, ORCH was granted the right to convert the entire £2,600,000 principal amount of the Note to common shares of the Company at C$0.60 per share, for 10,825,966 shares (the “Conversion Shares”), calculated on a previously agreed conversion ratio between the British pound and the Canadian dollar of 1 to 2.4983. No interest was due or payable on the Note at that time, and so no interest was converted.

In addition, the Company issued to ORCH 2,000,000 share purchase warrants entitling ORCH to acquire up to 2,000,000 common shares of the Company at $0.45 per common share expiring on September 8, 2005.

The debenture conversion price of $0.60 per Company common share and the £0.50 value of the ORCH units were established at the time that ORCH initiated discussions to invest in the Company. Subsequently, due to market conditions, ORCH and the Company agreed to proceed with the issuance of the convertible debenture, provided that ORCH was obligated to immediately convert the debenture into Company common shares. The Company required this obligation because the Company would not be able to realize proceeds on the sale of the Units equivalent to the face value of the convertible debenture.

Accordingly, the transaction has been accounted for as an issuance by the Company of 10,825,966 shares for the $2,159,409 realized on the sale of the Units. Share capital has been credited with $2,159,409 less a finder’s fee of $86,376.

On May 21, 2004, the Company issued 2,018,070 common shares at $0.35 per share for gross proceeds of $706,325 pursuant to a private placement. Along with the common shares, the Company issued 2,018,070 warrants entitling the holder to purchase one additional common share at a price of $0.35 per share until May 10, 2006. Of the 2,018,070 common shares and 2,018,070 warrants issued, 336,785 were flow-through common shares and 336,785 were flow-through warrants exercisable into flow-through common shares. The Company paid $20,498 in finders’ fees.

During the fiscal year, the Company received $245,900 pursuant to the exercise of 1,228,000 warrants.

In order for the Company to keep its Cape Ray and San Diego property options in good standing, the Company must make the following cash payments and the following exploration expenditures during fiscal 2005:

	Cape Ray	San Diego	Total


Option payments	$ 55,000	$ -	$ 55,000
Exploration	383,471	913,372	1,296,843


	$ 438,471	$ 913,372	$ 1,351,843


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It is expected that the Company’s current working capital will be sufficient to meet its exploration commitments and its operating costs for 2005.

Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following table sets forth certain information as of November 30, 2004 about the Company’s current directors and senior management:

Name	Age	Position	Other Reporting Companies
Name	Age	Position	Company	Position
			Company	Position

David Patterson	51	Chief Executive Officer and Director	Donner Minerals Ltd. Knight Resources Ltd.	CEO and Director CEO and Director

Harvey Keats	59	President and Director	Donner Minerals Ltd. Knight Resources Ltd.	President and Director President and Director

Kerry Sparkes	41	Director	Donner Minerals Ltd. Knight Resources Ltd.	Director Director

Rex Gibbons	58	Director	n/a	n/a

Laurie Sadler	59	Director	Donner Minerals Ltd. Knight Resources Ltd. Coastport Capital Inc.	Director Director CEO and Director

Shirley Mooney	62	Secretary	Harlow Ventures Inc.	President and Director

B. Executive Compensation

The following table sets forth the compensation paid, and benefits in kind granted to the Directors and members of the Company’s administrative, supervisory or management bodies for the year ended July 31, 2004.

Name and Principal Position	Annual Compensation			Long Term Compensation
	Salary ($)
		Bonus ($)	Other Annual Compen-sation ($)	Awards Restricted Stock Award(s) ($)	Payouts
		Bonus ($)	Other Annual Compen-sation ($)		Securities Under Options/ SARs Granted (#)	LTIP Payouts ($)
						LTIP Payouts ($)

Harvey Keats¹ President	nil	nil	46,833	nil	700,000	nil

David Patterson² Chairman	nil	nil	35,250	nil	725,000	nil

Rex Gibbons³ Director	nil	nil	1,000	nil	110,000	nil

Kerry Sparkes⁴ Director	nil	nil	51,000	nil	325,000	nil

Laurie Sadler⁵ Director	nil	nil	1,000	nil	150,000	nil

Shirley Mooney⁶ Secretary	nil	nil	500	nil	200,000	nil

(1) Paid to Keats Consulting Inc., a private company controlled by Harvey Keats.

(2) Paid to Elysian Enterprise Inc., a Patterson family private company.

(3) Paid to Rex Gibbons for Director’s fees.

(4) Paid to Sparkes Consulting Ltd., a private company controlled by Kerry Sparkes.

(5) Paid to Laurie Sadler for Director’s fees.

(6) Paid to Shirley Mooney, payment represents services provided to the Company.


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Management devotes a portion of their time to the Company and a portion of their time to other companies where they are directors and/or officers. Accordingly, management invoices the Company based on the percentage of time each of the individuals devote to the Company.

Compensation of Directors

On July 1, 2004, the Company began to compensate its outside/independent directors, namely Rex Gibbons and Laurie Sadler, by paying them $1,000 per month. In addition, during the fiscal year ended July 31, 2004 the Company used the services of directors and companies owned by directors in order to supervise all geological activities, as well as provide management and other services. These transactions occurred in the normal course of operations. In this regard, the Company paid during the past fiscal year: (i) Keats Consulting Inc., a private company beneficially owned by Harvey Keats, the President and a director of the Company, $46,883 for providing management, geological and technical services to the Company; (ii) Sparkes Consulting Ltd., a private company beneficially owned by Kerry Sparkes, a director of the Company, $51,000 for providing management, geological and technical services to the Company; and (iii) Elysian Enterprises Inc., a Patterson family private company, $35,250 for management services provided by David Patterson, a director of the Company.

During the fiscal year ended July 31, 2004, the Company granted an aggregate of 2,010,000 stock options to its directors. The purpose of granting such options is to assist the Company in compensating, attracting, retaining and motivating the directors of the Company and to closely align the personal interests of such persons to that of the shareholders.

Long Term Incentive Plan (LTIP) Awards

The Company does not have LTIP awards pursuant to which cash or non-cash compensation is intended to serve as an incentive for performance whereby performance is measured by reference to financial performance or the price of the Company’s securities, was paid or distributed.

Defined Benefit or Actuarial Plan Disclosure

The Company has no defined benefit or actuarial plans.


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Options

The Company maintains a “fixed” Stock Option Plan whereby a maximum of 4,008,840 common shares, may be reserved for issuance pursuant to the exercise of options. As at December 31, 2004 3,735,000 stock options are outstanding pursuant to the Stock Option Plan. The purpose of the Stock Option Plan is to provide the Company with a share related mechanism to enable the Company and its subsidiaries to attract, retain and motivate qualified directors, officers, employees and other service providers, to reward directors, officers, employees and other service providers, for their contribution toward the long term goals of the Company and its subsidiaries and to enable and encourage such individuals to acquire shares of the Company as long term investments.

The following information is intended as a brief description of the Stock Option Plan:

1. The exercise price of stock options granted under the Stock Option Plan, as determined by the board of directors in its sole discretion, shall not be less than the closing price of the Company’s shares traded through the facilities of the Exchange on the date prior to the date of grant, less allowable discounts, in accordance with the policies of the Exchange or, if the shares are no longer listed for trading on the Exchange, then such other exchange or quotation system on which the shares are listed or quoted for trading.

2. The board of directors shall not grant options to any one person in any one year which will, when exercised, exceed 5% of the issued and outstanding shares of the Company or to consultants or to those persons employed by the Company who perform investor relations services which will, when exercised, exceed 2% of the issued and outstanding shares of the Company.

3. Upon expiry of an option, or in the event an option is otherwise terminated for any reason, without having been exercised in full, the number of shares in respect of the expired or terminated option shall again be available for the purposes of the Stock Option Plan. All options granted under the Stock Option Plan may not have an expiry date exceeding ten years from the date on which the board of directors grant and announce the granting of the option.

4. If the option holder ceases to be a director of the Company or ceases to be employed by the Company (other then by reason of death), as the case may be, then the option granted shall expire on no later than the 30th day following the date that the option holder ceases to be a director or ceases to be employed by the Company, subject to the terms and conditions set out in the Stock Option Plan.

See Item 6(e) for details of the stock options held by all of the Company’s Directors and members of its administrative, supervisory and management bodies.

C. Board Practices

The Board of Directors of the Company is currently comprised of Harvey Keats, David Patterson, Kerry Sparkes, Rex Gibbons and Laurie Sadler. Each director of the Company is elected annually and holds office until the next Annual General Meeting of the Members unless that person ceases to be a Director before then. The Board of Directors currently has one committee; the Audit Committee. The Audit Committee is comprised of Messrs. Keats, Gibbons and Sadler. This committee is responsible for reviewing the Company’s financial reporting procedures, internal controls and the performance of the Company’s external auditors. The committee is also responsible for reviewing quarterly financial statements and the annual audited financial statements. The committee is also responsible for approving the annual audited Financial Statements and recommending them to the Boar d.

Termination of Employment, Changes in Responsibility and Employment Contracts

The Company does not have any compensatory plan or arrangement which will result from the resignation, retirement or other termination of employment of any Directors and/or member of the Company’s administrative, supervisory or management bodies or from a change of control of the Company or a change in any of such persons’ responsibilities following a change of control.


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Conflicts of Interest

Mr. Keats, Sparkes, Patterson, Gibbons and Sadler, the directors of the Company, also serve as officers and/or directors of other companies whose securities are listed on the TSX Venture Exchange, and which engage in mineral resource exploration and development activities. To the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation the result of which could cause the Company to lose potential exploration and development opportunities. In the event that such a conflict of interest arises at a meeting of the directors of the Company, a director who has such a conflict will abstain from voting for or against the approval of such a participation or such terms. In appropriate cases the Co mpany will establish a special committee of independent directors to review a matter in which several directors, or management, may have a conflict. From time to time several companies may participate in the acquisition, exploration and development of natural resource properties thereby allowing for their participating in larger programs, permitting involvement in a greater number of programs and reducing financial exposure in respect of any one program. It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of these companies due to the financial position of the company making the assignment. In accordance with the laws of the Province of British Columbia, the directors of the Company are required to act honestly, in good faith and in the best interest of the Company. In determining whether the Company will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the potential benefits to the Company, the degree of risk to which the Company may be exposed and its financial position at the time. Other than as indicated, the Company has no other procedures or mechanisms to deal with conflicts of interest.

D. Employees

In the past three financial years, the Company has not had any employees, other than the Company's officers and directors. Three of the Company’s directors are geologists. The Company also retains the services of independent geologists, geological engineers and administrative consultants on a contract basis.

E. Share Ownership

The following table lists as of November 30, 2004, the share ownership of all of the Company’s Directors and members of its administrative, supervisory and management bodies. The Company has only one class of shares, common, with no par value and all of the common shares have the same voting rights.

Name	Number of Shares Held	Percentage of Shares Held (%) ⁽¹⁾	Number of Stock Options Held	Number of Share Purchase Warrants Held	Exercise Price ($)	Expiration Date

David Patterson	1,225,500	5.21%	725,000 50,000		$0.35 $0.35	March 4, 2006 August 6, 2006

Harvey Keats	Nil	0%	700,000 75,000		$0.35 $0.35	March 4, 2006 August 6, 2006

Kerry Sparkes	Nil	0%	325,000 75,000		$0.35 $0.35	March 4, 2006 August 6, 2006

Rex Gibbons	Nil	0%	40,000 60,000 50,000		$0.40 $0.35 $0.40	August 21, 2004 March 4, 2006 July 1, 2006

Laurie Sadler	Nil	0%	150,000		$0.40	July 1, 2006

Shirley Mooney	Nil	0%	150,000 50,000 50,000		$0.35 $0.40 $0.35	March 4, 2006 July 1, 2006 August 6, 2006

(1) The percentage ownership is based on 23,508,050 shares outstanding as of December 31, 2004.

None of the aforementioned options or share purchase warrants were issued to officers, directors or senior management of the Company as part of a compensation plan.


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Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

As of December 31, 2004, to the best of the Company’s knowledge, the following parties have ownership of 5% or greater of the Company’s common shares, all of which have the same voting rights attached thereto as all other common shares of the Company:

Name	Number of Common Shares Held	Percentage of Shares Held (%) ⁽¹⁾	Number of Share Purchase Warrants Held	Exercise Price ($)	Expiration Date

David Patterson	1,225,500	5.21%	Nil

Ocean Resources Holdings Plc.	10,825,966	46.05%	2,000,000	$0.45	Sept. 8, 2005

(1) The percentage ownership is based on 23,508,050 shares outstanding as of December 31, 2004.

David Patterson has acquired an option from Ocean Resources Capital Holdings Plc. (‘ORCH’) to acquire 5,000,000 commons shares of the Company held by ORCH at a price of $0.45 per common share until August 18, 2005.

As of November 8, 2004 the Company had 330 shareholders of record of which 17,373,2067 (73.90%) shares were held by 131 shareholders of record resident in Canada.

Other than as disclosed above the Company is not aware of any other company, any foreign government or any other person, jointly or severally, that directly or indirectly controls the Company. The Company is not aware of any arrangements the operation of which may at a future date result in a change in control of the Company.

B. Related Party Transactions

Related party transactions are disclosed in note 8 of the financial statements. In addition to management and director fees, the Company entered into a one year lease with ViewNorth Properties Ltd., (“ViewNorth”) whereby the Company pays $2,000 per month for rent for its executive offices and $500 per month for operating costs effective June 1, 2004. The Company and ViewNorth have a common director. The Company also purchased office furniture in the amount of $4,069 from a company owned by a spouse of a director.

Item 8. FINANCIAL INFORMATION

A. Consolidated Statement and Other Financial Information

See Item 17 for the Company’s Financial Statements.

The Company knows of no pending legal or arbitration proceedings including those relating to bankruptcy, governmental receivership or similar proceeding and those involving any third party against it, nor is the Company involved as a plaintiff in any material pending litigation.

The Company knows of no pending proceedings to which any director, member of senior management, or affiliate is either a party adverse to the Company or its subsidiaries or has a material interest adverse to the Company or its subsidiaries.

To the best of the Management’s knowledge, the Company has not since the date of its incorporation, declared or paid any dividends, nor does it intend to declare any dividend for the foreseeable future.

B. Significant Changes

None.


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Item 9. THE LISTING

A. Listing Details and Markets

The Common Shares of the Company are listed on the TSX Venture Exchange under the symbol TGC and on the and Frankfurt Stock Exchange under symbol GLT. The Company's primary listing is on the TSX Venture Exchange. The following table sets out the market price range of the Common Shares on the TSX Venture Exchange within each of the periods indicated:

Market Prices	High ($)	Low ($)	Average Trading Volume

Annual High and Low Fiscal 2004 Fiscal 2003 Fiscal 2002 Fiscal 2001 Fiscal 2000	0.47 0.72 0.46 0.80 0.80	0.22 0.15 0.10 0.11 0.21	24,894 22,574 8,037 2,075 1,113

Quarterly High and Low Fiscal 1^st Quarter – 2004 Fiscal 2^nd Quarter – 2004 Fiscal 3^rd Quarter – 2004 Fiscal 4^th Quarter - 2004 Fiscal 1^st Quarter – 2003 Fiscal 2^nd Quarter – 2003 Fiscal 3^rd Quarter – 2003 Fiscal 4^th Quarter – 2003	0.37 0.32 0.40 0.47 0.72 0.56 0.46 0.30	0.22 0.22 0.22 0.28 0.32 0.38 0.15 0.16	15,580 24,913 30,034 29,047 18,323 14,160 21,050 36,761

Most Recent Six Months December 2004 November 2004 October 2004 September 2004 August 2004 July 2004	0.28 0.36 0.37 0.36 0.36 0.43	0.19 0.23 0.31 0.27 0.26 0.34	18,527 24,990 14,910 31,209 6,076 11,147

There is no active trading market for the Common Shares in the United States, although United States residents may purchase Common Shares in Canada.

The Form 20-F registration statement became automatically effective, December 16, 2002, being 60 days from the date of the first filing of the Form 20-F being October 15, 2002. As a foreign private issuer the Company will be subject to certain of the reporting obligations of the Exchange Act including:

filing an annual report, on a Form 20-F, within 6 months after the end of the Company’s fiscal year end which form must include audited financial statements in compliance with US GAAP or reconciled to US GAAP; and
filing periodic reports on Form 6-K, any “significant information” with respect to the Company and its subsidiaries which the Company (i) is required to make public in its own country, (ii) has filed with a non-U.S. stock exchange on which the Company’s securities are traded and which the exchange has make public, or (iii) has distributed to holders of its securities, either directly or through a press release.

As a foreign private issuer the Company will not be subject to the reporting obligations of the proxy rules of Section 14 of the Exchange Act nor the short-swing profit recovery provisions contained in Section 16 of the Exchange Act.


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Item 10. ADDITIONAL INFORMATION

A. Memorandum and Articles of Incorporation

The information called for by Item 10.B has been reported previously in the Company’s registration statement on Form 20-F dated February 19, 2004.

B. Exchange Controls

There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of Common Shares, other than withholding tax requirements. See ”Item 10(D) – Taxation.”

There is no limitation imposed by Canadian law or by the constituent documents of the Company on the right of a non-resident to hold or vote Common Shares, other than are provided in the Investment Canada Act (Canada). The following summarizes the principal features of the Investment Canada Act (Canada).

The Investment Canada Act (Canada) requires certain “non-Canadian” individuals, governments, corporations or other entities who wish to acquire a “Canadian business” (as defined in the Investment Canada Act), or establish a “new Canadian business” (as defined in the Investment Canada Act) to file either a notification or an application for review with a governmental agency known as “Investment Canada”. The Investment Canada Act requires that certain acquisitions of control by a Canadian business by a “non-Canadian” must be reviewed and approved by the Minister responsible for the Investment Canada Act on the basis that the Minister is satisfied that the acquisition is “likely to be of net benefit to Canada”, having regard to criteria set forth in the Investment Canada Act. Only acquisitions of control rules for the determination of whether control has been acquired and, pursuant to those rules, the acquisition of one-third or more of the voting shares of a corporation may, in some circumstances, be considered to constitute an acquisition of control. Certain reviewable acquisitions of control may not be implemented before being approved by the Minister; if the Minister does not ultimately approve a reviewable acquisition which has been completed, the acquired Canadian business would be divested. Failure to comply with the review provisions of the Investment Canada Act could result in, among other things, an injunction or a court order directing disposition of assets or shares.

C. Taxation

The following is a general discussion of material possible Canadian and United Sates federal income tax consequences, under current law, generally applicable to a U.S. Holder (as hereinafter defined) of common shares of the Company. This discussion does not address all potentially relevant federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of 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.

IT IS RECOMMENDED THAT HOLDERS AND PROSPECTIVE HOLDERS OF COMMON SHARES OF THE COMPANYCONSULT THEIR OWN TAX ADVISORS ABOUT THE 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” means a holder of common shares of the Company who is a citizen or individual resident of the United States, a company or partnership created or organized in or under the laws of the United States or of any political subdivision thereof or an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income, or a trust if (i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust. This summary does not address the tax consequences to, and U.S. Holder does not include, persons subject to specific provisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals, persons or entities that have a “functional currency” other than the U.S. dollar, shareholders who hold common shares as part of a straddle, hedging or a conversion transaction, and shareholders who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services.


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A “U.S. Resident” means a U.S. Holder who (i) is a resident of the United States for the purposes of the Canada-United States Income Tax Convention, 1980 (the “Convention”); (ii) is not currently, nor has previously been a resident of Canada or deemed to be a resident of Canada for the purposes of the Income Tax Act (Canada) (herein referred to as the “Canada Tax Act”) at any time while the holder has held common shares; (iii) holds his or her common shares as capital property; (iv) deals at arm’s length with the Company for the purposes of the Canada Tax Act; and (v) does not use or hold, and is not deemed under the Canada Tax Act to use or hold, such common shares in carrying a business or performing independent services in Canada. Common shares w ill generally be considered to be capital property to a U.S. Resident unless they are held as inventory in the course of carrying on a business or were acquired in a transaction considered to be an adventure or concern in the nature of trade.

This summary is limited to U.S. Holders who own common shares as capital assets. This summary does not address the consequences to a person or entity holding an interest in a shareholder or the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares.

CANADIAN FEDERAL INCOME TAX CONSEQUENCES

The following discussion is based upon the current provisions of the Canada Tax Act and the regulations (the “Regulations”) enacted thereunder as at the date hereof, the Company’s understanding of the current published administrative and assessing policies of the Canada Revenue Agency, all specific proposals to amend the Canada Tax Act and the Regulations publicly announced by the Minister of Finance before the date hereof (the “Proposed Amendments”) and the provisions of the Convention as at the date hereof. This summary does not take into account provincial, territorial or foreign income tax considerations (see “United States Federal Income Tax Consequences” below), and does not take into account or anticipate any changes in law, whether by judicial, governmental or legislation decision or action except to the extent of the Propos ed Amendments. No assurance can be given that any of the Proposed Amendments will be enacted into law or that legislation will implement the Proposed Amendments in the manner now proposed.

Distribution on Common Shares of the Company

Under the Convention, dividends which are paid or credited, or are deemed to be paid or credited, to a U.S. Resident in respect of the common shares will generally be subject to Canadian withholding tax at a rate of 5% of the gross amount of the dividends if the beneficial owner of the dividends is a company which owns at least 10% of the voting stock of the Company or 15% of the gross amount of the dividends if the beneficial owner of the dividends is any other U.S. Resident (other than certain exempt organizations referred to in Article XXI of the Convention).

For tax years beginning after December 31, 2002, qualified dividends received by certain U.S. shareholders from a qualified foreign (non-U.S.) corporation are subject to a reduced rate of tax. Dividends received from a foreign corporation that was a foreign personal holding company, foreign investment company, or passive foreign investment company in either the taxable year of the corporation in which the dividend was paid, or the preceding taxable year are not qualified dividends (see discussion below regarding the Corporation’s status as a passive foreign investment company).

Disposition of Common Shares of the Company

A U.S. Resident will generally not be subject to tax under the Canada Tax Act in respect of any capital gain realized on the disposition or deemed disposition of common shares unless such common shares are “taxable Canadian property”, as defined in the Canada Tax Act, to the U.S. Resident. The common shares will not generally constitute taxable Canadian property to a U.S. Resident unless either (i) at any time during the five –year period ending at the time of the disposition of the common shares by such U.S. Resident, 25% or more of the issued shares (and in the view of the Canada Revenue Agency, taking into account any rights to acquire shares) of any class or series of the capital stock of the Company were owned by such U.S. Resident, persons with whom the U.S. Resident did not deal at arm’s length or such U.S. Resident together with such perso ns, or (ii) the U.S. Resident’s common shares are otherwise deemed to be taxable Canadian property. Capital gains realized on the disposition of common shares that constitute taxable Canadian property to a U.S. Resident will nevertheless, by virtue of the Convention, not be subject to tax under the Canadian Tax Act, provided that shares of the Company do not derive their value principally from real property, including the right to explore for or exploit natural resources and rights to amounts computed by reference to production, situated in Canada at the time of disposition.


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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (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. This discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.

Distribution on Common Shares of the Company

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 United States federal income tax purposes the gross amount of such distributions equal to the U.S. dollar value of such dividends on the date of receipt (based on the exchange rate 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 federal income tax liability or, alternatively, may be deducted in computing the U.S. Holders’ 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 sales of exchange of the common shares. Preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.

In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a 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 requirement 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% or 80% 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% or 20%, respectively, 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.

Under current temporary Treasury Regulations, dividends paid, and the proceeds of a sales of Company’s common shares, will be subject to U.S. information reporting requirements and may also be subject to the 28% U.S. backup withholding tax, unless the Company or paying agent is furnished with a duly completed and signed Form W-9. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS.


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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 receive 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 United States 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 worldwide 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. In addition, this limitation is calculated separately with respect to specific classes of income such as “passive income”, “high withholding tax interest”, “financial services income”, “shipping income”, and certain other classifications of income. Dividends distributed by the Company will generally constitute “passive income” or, in the case of certain U.S. Holders, “financial services income” for these purposes. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific, and U.S. Holders of common shares of the Company are encouraged to consult their own tax advisors regarding their individual circumstances .

Disposition of Common Shares of the Company

A U.S. Holder will recognize a gain or loss upon the sale of common shares of the Company equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholder’s tax basis in the common shares of the Company. This gain or loss will be a capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder, which will be long-term capital gain or loss if the common shares of the Company are held for more than one year. Lower long-term capital gain rates will apply if the U.S. Holder is an individual, estate or trust and such U.S. Holder has held the common shares for more than twelve months. Deductions for net capital losses are subject to significant limitations. For U.S. Holders that are not corporations, any unused portion of such net capital loss may be carried ove r to be used in later taxation years until such net capital loss is thereby exhausted. For U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years 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

In the following circumstances, the above sections of this discussion may not describe the United States federal income tax consequences resulting from the holding and disposition of common shares:

Foreign Personal Holding Company

If at any time during a taxable year more than 50% of the total combined voting power or the total value of the Company’s outstanding shares is owned, directly or indirectly, by five or fewer individuals who are citizens or residents of the United States and 50% (60% in the first year) or more of the Company’s gross income for such year was derived from certain passive sources (e.g., from dividends received from its subsidiaries), the Company may be treated as a “foreign personal holding company”. In that event, U.S. Holders that hold common shares would be required to include in gross income for such year their allocable portions of such passive income to the extent the Company does not actually distribute such income.

Foreign Investment Company

If 50% or more of the combined voting power or total value of the Company’s outstanding shares is held, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and the Company is found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that the Company may be treated as a “foreign investment company” as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging common shares to be treated as ordinary income rather than capital gain.


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Passive Foreign Investment Company

Certain United States income tax legislation contains rules governing “passive foreign investment companies” (“PFIC”) which can have significant tax effects on U.S. Holders of foreign corporations. These rules do not apply to non-U.S. Holders. 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 fair market value (or, if the corporation is not publicly traded and is either a 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. The Company believes that it qualified as a PFIC for the current fiscal year and may qualify as a PFIC in subsequent years. There can be no assurance that the Company’s determination concerning its PFIC status will not be challenged or that it will able to satisfy record keeping requirements which will be imposed on a Qualified Electing Fund (“QEF”). Each U.S. Holder of the Company is urged to consult a tax advisor with respect to how the PFIC rules affect their tax situation.

A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a PFIC may elect to be subject to United States federal income taxation under one of two alternative tax regimes. In the event that no such election is made, the PFIC rules will apply. The following is a discussion of the two alternative elective tax regimes applied to such U.S. Holders of the Company. In addition, special rules apply if a foreign corporation qualifies as both a PFIC and a “controlled foreign corporation” (See more detailed discussion at “Controlled Foreign Corporation” below).

Assuming that the Company satisfies record-keeping requirements, a U.S. Holder who elects in a timely manner to treat the Company as a QEF (an “Electing U.S. Holder”) will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year in which the Company 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 shareholder’s taxable year in which (or with which) the Company’s taxable year ends, regardless of whether such amounts are actually d istributed.

The effective QEF election also allows the Electing U.S. Holder to (i) generally treat any gain realized on the disposition of Company common shares (or deemed to be realized on the pledge of his 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, 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.

The procedure a U.S. Holder must comply with in making an effective 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, i.e., a timely 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 his 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 must elect to recognize (i) under the rules of Section 1291 of the Code (discussed below), any gain that he would otherwise recognize if the U.S. Holder sold his stock on the qualification date or (ii) if the Company is a controlled foreign corporation, the U.S. Holder’s pro rata share of the Company’s post-1986 earnings and profits as of the qualification date. The qualification date is the first day of the Company’s first tax year in which the Company qualified as a “qualified electing fund” with respect to such U.S. Holder. The elections to recognize such gain or earnings and profits can only be made if such U.S. Holder’s holding period for the common shares of the Company includes the qualification date. By electing to recognize such gain or earnings and profits, the U.S. Holder will be deemed to have made a timely QEF election. A U.S. Holder who made elections to recognize gain or earnings and profits after May 1, 1992 and before January 27, 1997 may, under certain circumstances, elect to change such U.S. Holder’s qualification date to the first day of the first QEF year. U.S. Holders are urged to consult a tax advisor regarding the availability of and procedure for electing to recognize gain or earnings and profits under the foregoing rules. In addition, s pecial rules apply if a foreign corporation qualifies as both a PFIC and a “controlled foreign corporation” (See more detailed discussion at “Controlled Foreign Corporation” below).


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If the Company no longer qualifies as a PFIC in a subsequent year, a timely QEF election will remain in effect, although not applicable, during those years that the Company is not a PFIC. Therefore, if the Company requalifies as a PFIC, the QEF election previously made is still valid, and the U.S. Holder is required to satisfy the requirements of that election. Furthermore, a QEF election remains in effect with respect to a U.S. Holder, although dormant, after a U.S. Holder disposes of its entire interest in the Company. Upon the U.S. Holder’s reacquisition of an interest in the Company, the QEF election will apply to the newly acquired stock of the Company.

Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S. Holders who hold (actually or constructively) marketable stock of a foreign corporation that qualifies as a PFIC, may annually elect to mark such stock to the market (a “mark-to-market election”). If such an election is made, such U.S. Holder will not be subject to the special taxation rules of Section 1291 described below for the taxable year for which the mark-to-market election is made. A U.S. Holder who makes such an election will include in income for the taxable year for which the election was made an amount equal to the excess, if any, of the fair market value of the common shares of the Company as of the close of such tax year over such U.S. Holder’s adjusted basis in such common shares. In addition, the U.S. Holder is allowed a deduction for the lesser of (i) the e xcess, if any, of such U.S. Holder’s adjusted tax basis in the common shares over the fair market value of such shares as of the close of the tax year, or (ii) the excess, if any, of (A) the mark-to-market gains for the common shares in the Company included by such U.S. Holder for prior tax years, including any amount which would have been included for any prior tax year but for Section 1291 interest on tax deferral rules discussed below with respect to Non-Electing U.S. Holders, over (B) the mark-to-market losses for shares that were allowed as deductions for prior tax years. U.S. Holder’s adjusted tax basis in the common shares of the Company will be increased to reflect the amount included or deducted as a result of a mark-to-market election. A mark-to-market election only applies to the taxable year in which the election was made. A separate election must be made by a U.S. Holder for each subsequent taxable year. The IRS has issued final regulations that provide procedures for a U.S. person to make the annual mark-to-market election for marketable stock held in a PFIC. These regulations are effective for tax years beginning on or after May 3, 2004. U.S. Holders are encouraged to consult their tax advisor regarding the manner of making such an election.

If a U.S. Holder does not make a timely QEF or mark-to-market election during a year in which it holds (or is deemed to have held) the shares in question and the Company is a PFIC (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 reasons of a pledge) of his Company common shares and (ii) certain “excess distributions”, as specifically 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 Company common shares and all excess distributions on his Company common shares over the entire holding period for the Company. 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) 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 7;personal interest” which, as discussed above, is wholly nondeductible. 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 Company common shares, then the Company will continue to be treated as a PFIC with respect to such Company common shares, even if it is no longer definitionally a PFIC. A Non-electing U.S. Holder may terminate this deemed PFIC status by electing to recognize a gain (which will be taxed under the rules discussed above for Non-electing U.S. Holders) as if such Company 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 IRS has issued proposed regulations that, subject to certain exceptions, 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. Generally, in such cases the basis of the Company common shares in the hands of the transferee and the basis of any property received in the exchange for those common shares would be increased by the amount of gain recognized. An Electing U.S. Holder would not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. The transferee’s basis in this case will depend on the manner of the transfer. In a transfer at death, for example, the transferee’s basis is equal to (i) the fair market value of the Electing U.S. Holder’s common shares, less (ii) the excess of the fair market value of the Electing U.S. Holder’s common shares reduced by the U.S. Holder’s adjusted basis in these common shares at death. The specific tax effect to the U.S. Holder and the transferee may vary based on the manner in which the common shares are transferred. Each U.S. Holder of the Company is urged to consult a tax advisor with respect to how the PFIC rules affect their tax situation.


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Certain special, generally adverse, rules will apply with respect to Company common shares while the Company is a PFIC whether or not it is treated as a QEF. For example under Section 1298(b)(6) of the Code, 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 shares.

Controlled Foreign Corporation

If more than 50% of the voting power of all classes of shares or the total value of the shares of the Company is owned, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships and companies or estates or trusts other than foreign estates or trusts, each of whom own 10% or more of the total combined voting power of all classes of shares of the Company (“United States shareholder”), the Company could be treated as a controlled foreign corporation (“CFC”) under Subpart F of the Code. This classification would effect many complex results, one of which is the inclusion of certain income of a CFC which is subject to current U.S. tax. The United States generally taxes a United States shareholder of a CFC currently on their pro rata shares of the Subpart F income of the CFC. Such U.S. shareholders are gen erally treated as having received a current distribution out of the CFC’s Subpart F income and are also subject to current U.S. tax on their pro rata shares of the CFC’s earnings invested in U.S. property. The foreign tax credit described above may reduce the U.S. tax on these amounts. In addition, under Section 1248 of the Code, gain from the sale or exchange of shares by a U.S. Holder of common shares of the Company who is or was a United States shareholder at any time during the five-year period ending with the sale or exchange is treated as ordinary income to the extent of earnings and profits of the Company attributable to the shares sold or exchanged. If a foreign corporation is both a PFIC and CFC, the foreign corporation generally will not be treated as a PFIC with respect to United States shareholders beginning after 1997 and for taxable years of foreign corporations ending with or within such taxable years of United States shareholders. Special rules apply to United States shareholders wh o are subject to the special taxation rules under Section 1291 discussed above with respect to PFIC. Because of the complexity of Subpart F, and because it is not clear that Subpart F would apply to U.S. Holders of common shares of the Company, a more detailed review of these rules is outside of the scope of this discussion.

D. Documents on Display

The Documents concerning the Company which are referred to in this Report are either annexed hereto as exhibits (See Item 19) or may be inspected at the principal offices of the Company.

Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A. Qualitative Information about Market Risk

Currency Exchange Rate Sensitivity

The results of the Company’s operations are subject to currency transnational risk and currency transaction risk. Regarding currency transnational risk, the operating results and financial position of the Company are reported in Canadian dollars in the Company’s financial statements. The fluctuation of the US dollar in relation to the Canadian dollar will therefore have an impact upon the profitability of the Company and may also affect the value of the Company’s assets and the amount of shareholders’ equity.


	53

In regards to transaction risk, the Company’s functional currency is the Canadian dollar and its activities are predominantly executed using the Canadian dollar. The Company incurs a relatively small portion of its expenses in U.S. dollars. The Company’s common shares are listed on the TSX Venture Exchange and are bought and sold in Canadian dollars. The Company has not entered into any agreements or purchased any instruments to hedge any possible currency risks at this time.

Interest Rate Sensitivity

The Company currently has no short term or long term debt requiring interest payments. As a result, the Company has not entered into any agreement or purchased any instrument to hedge against possible interest rate risks at this time.

Commodity Price Sensitivity

The future revenue and profitability of the Company will be dependent, to a significant extent, upon prevailing spot market prices for gold and copper. In the past gold and copper prices have been volatile. Prices are subject to wide fluctuations in response to changes in supply of and demand for gold and copper, market uncertainty and a variety of additional factors that are beyond the control of the Company. The Company’s properties are in the exploration phase and accordingly the Company is not generating any operating revenues and is therefore not subject to any short term volatility in the prices of gold or copper. As the Company is in the exploration phase, the above factors have had no material impact on operations or income. No futures or forward contracts have been entered into by the Company.

PART II

Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

None

Item 13. DEFAULTS, DIVIDENTD ARREARAGES AND DELINQUENCIES

None

Item 14. MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS AND USE OF

PROCEEDS

None

Item 15. CONTROLS AND PROCEDURES

As of July 31, 2004 ("Date of Evaluation"), an evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO"), of the effectiveness of our disclosure controls and procedures. Based on the evaluation, the CEO has concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

The Company's disclosure controls and procedures operate such that important information flows to appropriate collection and disclosure points in a timely manner and are effective to ensure that such information is accumulated and communicated to the Company's management, and made known to the Company's CEO, including during the period in which this Annual Report on Form 20-F was prepared, as appropriate to allow timely decision regarding the required disclosure.

There have been no significant changes in the Company's internal controls or the occurrence of events or other factors that could significantly affect these controls, subsequent to the Date of Evaluation, nor have there been any corrective actions with regard to significant deficiencies or material weaknesses.


	54

Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT

All of the members of the Audit Committee are financially literate and the Board has determined that Laurie Sadler of the Audit Committee meets the requirements of an “audit committee financial expert: as defined in Item 16A of Form 20-F.

Item 16B. CODE OF ETHICS

The Company is in the process of preparing a code of ethic that applies to all the Company’s Officers, including the President and the Chief Executive Officer. A code of ethics has not been adopted at the date of this annual report.

Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Morgan & Company acted as the Company’s independent registered Chartered Accountant for the fiscal periods ended July 31, 2004, 2003 and 2002. The chart below sets forth the total amount billed the Company by Morgan & Company for services performed in the years 2004 and 2003 and breaks down these amounts by category of service in Cdn$:

	Year 2004 $	Year 2003 $

Audit	13,401	9,821

Tax	630	960

All Other Fees	Nil	Nil

“Audit Fees” are the aggregate fees billed by Morgan & Company for the audit of the Company’s annual financial statements, attestation services that are provided in connection with statutory and regulatory filings or engagements and assistance in responding to comment letters from securities regulatory bodies and consultations with the Company’s management as to accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretation by the securities regulatory authorities, accounting standard vetting bodies or other regulatory or standard setting bodies.

“Tax Fees” are fees for professional services rendered by Morgan & Company for tax compliance and tax advice on actual or contemplated transactions.

Audit Committee’s pre-approval policies and procedures

The Audit Committee nominate and engages the independent auditors to audit the financial statements, and approves all audit, audit-related services, tax services and other services provided by Morgan & Company. Any services provided by Morgan & Company that are not specifically included within the scope of the audit must be pre-approved by the audit committee prior to any engagement. The audit committee is permitted to approve certain fees for audit-related services, tax services and other services pursuant to a de minimus exception before the completion of the engagement.


	55

PART III

Item 17. FINANCIAL STATEMENTS

The consolidated financial statements of the Company have been prepared on the basis of Canadian GAAP. A reconciliation to U.S. GAAP is included therein.

The Report of the Independent Registered Chartered Accountant, financial statements and notes thereto, schedules thereto as required under Item 17 are found immediately below. The Report of the Independent Chartered Accountant, Morgan & Company, is included herein immediately preceding the respective financial statements, notes, schedules, etc.

Financial Statements:

Report of the Independent Registered Chartered Accountant dated October 6, 2004

Balance Sheets as of July 31, 2004 and July 31, 2003

Statements of Loss and Deficit for the Years Ended

July 31, 2004, July 31, 2003 and July 31, 2002

Statement of Cash Flows for the Years Ended

July 31, 2004, July 31, 2003 and July 31, 2002

Statement of Shareholders Equity for the Years Ended

July 31, 2004, July 31, 2003 and July 31, 2002

Notes to the Financial Statements

Schedule of Exploration Expenditures for the Years Ended

July 31, 2004, July 31, 2003 and July 31, 2002

All other financial statement schedules are omitted because the information is not required, is not material or is otherwise included in the financial statements or related notes thereto.

Item 18. FINANCIAL STATEMENTS

The Company has elected to report under Item 17.

Item 19. EXHIBITS

1.1 Memorandum and Articles of Incorporation (Previously Filed)

4.1 Certificates of Name Change (Previously Filed)

4.2 Option Agreement dated May 24, 2002 between the Company and South Coast Ventures Inc. regarding the South Quinn Lake Property (Previously Filed)

4.3 Technical Report dated June 17, 2002 on the South Quinn Lake Property (Previously Filed)

4.4 Option Agreement dated August 20, 2002 between the Company and South Coast Ventures Inc. regarding the Cape Ray Property (Previously Filed)

4.5 Option Agreement dated May 7, 2003 between the Company and Bayswater Ventures Corp. regarding the South Quinn Lake Property (Previously Filed)

4.6 Letter Agreement dated May 18, 2004 between the Company and Noranda Exploration Mexico, S.A. De C.V. regarding the San Diego Property

12.1 Certification of Harvey Keats required by Rule 13a-14(a)

12.2 Certification of David Patterson required by Rule 13a-14(a)

13.1 Section 906 of the Sarbanes-Oxley Act of 2002, Certification of Harvey Keats

13.2 Section 906 of the Sarbanes-Oxley Act of 2002, Certification of David Patterson

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual repot on its behalf.

Dated: January 31, 2005 Terra Nova Gold Corp.

By: /s/Harvey Keats/s/

Harvey Keats,

President


	56

MORGAN

& COMPANY

CHARTERED ACCOUNTANTS

AUDITORS’ REPORT

To the Shareholders of Terra Nova Gold Corp. (an exploration stage company)

We have audited the balance sheets of Terra Nova Gold Corp. as at July 31, 2004 and 2003, and the statements of operations, cash flows, and shareholders’ equity for each of the years in the three year period ended July 31, 2004. 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.

We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance 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 presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at July 31, 2004 and 2003, and the results of its operations and its cash flows for each of the years in the three year period ended July 31, 2004 in accordance with Canadian generally accepted accounting principles.

On October 6, 2004, we reported separately to the shareholders of Terra Nova Gold Corp. on financial statements for the same period, prepared in accordance with Canadian generally accepted accounting principles.

Vancouver, Canada “Morgan & Company”

October 6, 2004 &n bsp; Chartered Accountants

Comments By Auditors’ For U.S. Readers On Canada-United States Reporting Difference

To the Shareholders of Terra Nova Gold Corp. (an exploration stage company)

The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph (following the opinion paragraph) to describe changes in accounting policies that have been implemented in the financial statements as follows:

i) Effective August 1, 2003, the Company prospectively changed its accounting policy for stock based compensation and other stock based payments; and

ii) Effective August 1, 2002, the Company retroactively changed its method of accounting for mineral exploration expenditures, from deferring them until the viability of a project was determined, to charging them to operations as incurred.

The impact of these changes in accounting policies is set out in Note 3 to the financial statements.

Although we conducted our audits in accordance with both Canadian generally accepted auditing standards and the standards of the Public Company Oversight Board (United States), our report to the Shareholders, dated October 6, 2004, is expressed in accordance with Canadian reporting standards which do not permit a reference to such conditions and events in the auditors’ report when these are adequately disclosed in the financial statements.

Vancouver, Canada “Morgan & Company”

October 6, 2004 Chartered Accountants

Tel: (604) 687-5841 P.O. Box 10007 Pacific Centre

Fax: (604) 687-0075 1488 - 700 West Georgia Street

www.morgan-cas.com Vancouver, BC V7Y 1A1

Terra Nova Gold Corp.

Financial Statements

TERRA NOVA GOLD CORP.
(An exploration stage company)
Balance Sheets
(Canadian Dollars)


	July 31,	July 31,
	2004	2003

ASSETS

Current
Cash and cash equivalents	$ 337,120	$ 43,501
Short term investments	1,780,981	-
Amounts receivable	12,221	18,064
Advances for exploration	129,792	4,010
Prepaid expenses	8,631	-


Total Current Assets	2,268,745	65,575

Property, plant and equipment (note 4)	18,961	7,859

Unproven mineral property claims (note 5)	270,082	137,540


Total Assets	$ 2,557,788	$ 210,974

LIABILITIES AND SHAREHOLDERS' EQUITY

Current
Accounts payable and accrued liabilities	$ 38,247	$ 67,049
Loans payable	-	8,300


Total Liabilities	38,247	75,349


Shareholders' equity
Share capital (note 6)
Authorized - 100,000,000 common shares without par value
Issued and outstanding - 23,508,050 (2003 - 9,158,236)	14,874,442	11,794,888
Stock options (note 7)	273,278	-
Deficit	(12,628,179)	(11,659,263)


Total Shareholders' Equity	2,519,541	135,625


Total Liabilities and Shareholders' Equity	$ 2,557,788	$ 210,974

Commitments (note 5)

See accompanying notes to the financial statements.

TERRA NOVA GOLD CORP.
(An exploration stage company)
Statements of Operations
(Canadian Dollars)


	Year ended	Year ended	Year ended
	July 31,	July 31,	July 31,
	2004	2003	2002


Expenses
Accounting and audit fees	$ 14,031	$ 13,781	$ 24,135
Administration fees	86,000	52,000	-
Amortization	9,149	5,845	839
Consulting fees	12,069	41,056	46,188
Directors fees	2,000	-	-
Exploration expenditures (see schedule)	284,966	236,463	-
Filing and transfer agent fees	30,447	27,796	13,454
Legal fees	21,181	46,649	27,178
Management fees	68,072	-	15,000
Office and miscellaneous	35,857	43,062	6,789
Promotion	86,284	110,624	4,899
Rent	16,087	27,400	2,600
Stock-based compensation (note 7)	273,278	-	-
Telephone and communications	13,401	19,386	4,232
Travel	42,252	33,242	16,189
Less: interest income	(33,543)	(1,765)	(435)


Loss before other items	(961,531)	(655,539)	(161,068)

Other items
Loss on disposal of property, plant and equipment	(7,385)	-	-
Gain on sale of marketable securities	-	3,105	12,848
Write-down of marketable securities	-	(13,400)	-


Loss for the year	$ (968,916)	$ (665,834)	$ (148,220)

Basic and diluted loss per share	$ (0.05)	$ (0.09)	$ (0.04)

Weighted average number of
shares outstanding	19,228,797	7,792,644	3,933,978

See accompanying notes to the financial statements.

TERRA NOVA GOLD CORP.
(An exploration stage company)
Statements of Cash Flows
(Canadian Dollars)


	Year ended	Year ended	Year ended
	July 31,	July 31,	July 31,
Cash provided by (used for):	2004	2003	2002


Operating activities
Loss for the period	$ (968,916)	$ (665,834)	$ (148,220)
Items not involving cash:
Amortization	9,149	5,845	839
Stock-based compensation	273,278	-	-
Loss on sale of property, plant and equipment	7,385	-	-
Gain on sale of marketable securities	-	(3,105)	(12,848)
Write-down of marketable securities	-	13,400	-
Accrued interest income	(30,981)	-	-
Changes in non-cash operating
working capital items:
Amounts receivable	5,843	(13,645)	(3,846)
Advances for exploration	(125,782)	(4,010)	-
Prepaid expenses	(8,631)	16,929	(16,929)
Accounts payable and accrued liabilities	(28,802)	46,229	18,057


	(867,457)	(604,191)	(162,947)


Financing activities
Loans payable	(8,300)	8,300	-
Common shares issued for cash	3,004,554	355,400	387,500


	2,996,254	363,700	387,500


Investing activities
Purchase of short term investments	(1,750,000)	-	-
Sale of marketable securities	-	28,205	17,848
Mineral property acquisition costs	(57,542)	(26,350)	(6,440)
Purchases of property, plant and equipment	(27,636)	(10,347)	-


	(1,835,178)	(8,492)	11,408


Increase (decrease) in cash and cash equivalents	293,619	(248,983)	235,961

Cash and cash equivalents, beginning of period	43,501	292,484	56,523


Cash and cash equivalents, end of period	$ 337,120	$ 43,501	$ 292,484

Non-cash investing activities:
Shares issued for acquisition
of unproven mineral properties	$ 75,000	$ 102,350	$ 2,400
Acquisition of marketable securities	$ -	$ -	$ 33,500

See accompanying notes to the financial statements.

TERRA NOVA GOLD CORP.
(An exploration stage company)
Statements of Shareholders' Equity
(Canadian Dollars)


					Total
		Common shares without par value			Shareholders'
	Number	Amount	Stock Options	Deficit	Equity


Balance at July 31, 2001	3,893,636	$ 10,947,238	$ -	$ (10,845,209)	$ 102,029
Issuance of common shares for cash	2,925,000	387,500	-	-	387,500
Issuance of common shares for unproven
mineral property claims	20,000	2,400	-	-	2,400
Loss for the year	-	-	-	(148,220)	(148,220)


Balance at July 31, 2002	6,838,636	11,337,138	-	(10,993,429)	343,709
Issuance of common shares for cash	1,742,000	260,400	-	-	260,400
Issuance of common shares for flow-
through private placement	256,756	95,000	-	-	95,000
Issuance of common shares for unproven
mineral property claims	320,844	102,350	-	-	102,350
Loss for the year	-	-	-	(665,834)	(665,834)


Balance at July 31, 2003	9,158,236	11,794,888	-	(11,659,263)	135,625
Issuance of common shares upon
conversion of convertible debenture	10,825,966	2,073,030	-	-	2,073,030
Issuance of common shares for cash	2,909,285	813,649	-	-	813,649
Issuance of common shares for flow-
through private placement	336,785	117,875	-	-	117,875
Issuance of common shares for unproven
mineral property claims	277,778	75,000	-	-	75,000
Fair value of vested stock options	-	-	273,278	-	273,278
Loss for the year	-	-	-	(968,916)	(968,916)


Balance at July 31, 2004	23,508,050	$ 14,874,442	$ 273,278	$ (12,628,179)	$ 2,519,541

See accompanying notes to the financial statements.

TERRA NOVA GOLD CORP.

(An exploration stage company)

Notes to the Financial Statements

July 31, 2004 and 2003

(Canadian Dollars)

1. Nature of Operations

The Company is a public company incorporated under the Company Act, British Columbia, Canada. The Company’s shares are listed on the TSX Venture Exchange and the Frankfurt Stock Exchange. The Company’s principal business activity is the exploration of mineral properties.

The Company has not yet determined whether its mineral properties contain ore reserves that are economically recoverable. The recoverability of amounts shown for mineral properties and related deferred costs is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development and future profitable production from the property or proceeds from disposition.

2. Significant Accounting Policies

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principals (“Canadian GAAP”). Except as indicated in note 12, these financial statements also comply in all material respects with generally accepted accounting principles used in the United States of America.

a) Cash and cash equivalents

Cash and cash equivalents include short term money market instruments with terms to maturity, at the date of issue, not exceeding ninety days.

b) Short term investments

Short term investments consist of money market instruments with terms to maturity, at the date of issue, greater than ninety days.

c) Property, plant and equipment

Property, plant and equipment is recorded at cost and amortized over the estimated useful lives of the assets on the following basis:

Computer software100% declining balance per annum

Computer hardware30% declining balance per annum

Office furniture and equipment20% declining balance per annum

The Company periodically evaluates the recoverability of its property, plant and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimates of future cash flows expected to result from the use of an asset and its eventual disposition are less than its carrying amount.

d) Unproven mineral property claims

The Company regularly reviews the carrying values of mineral property interests on a regular basis by reference to the project economics, including the timing of the exploration work, the work programs and exploration results experienced by the Company and others. When the carrying value of a property exceeds its estimated net recoverable amount, an impairment provision is made for the other than temporary decline in value.

2. Significant Accounting Policies (cont’d)

e) Loss per share

Basic earnings per common share is computed by dividing earnings by the weighted average number of common shares outstanding during the period. Diluted per share amounts reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted to common shares. The treasury stock method is used to determine the dilutive effect of stock options, warrants and other dilutive instruments.

f) Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

g) Stock-based compensation

The Company’s stock-based compensation plan is described in note 7a. The Company has adopted the fair value based method (note 3(a)) to account for the stock-based transactions with employees, non-employees and directors. Accordingly the fair value of the stock options at the date of grant is charged to operations, with an offsetting credit to contributed surplus, on a straight-line basis over the vesting period. Any consideration paid on exercise of stock options together with the related portion of contributed surplus is credited to share capital.

h) Income taxes

Future income taxes relate to the expected future tax consequences of differences between the carrying amount of balance sheet items and their corresponding tax values. Future tax assets, if any, are recognized only to the extent that, in the opinion of management, it is more likely than not that the future income tax assets will be realized. Future income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment or substantive enactment.

i) Comparative figures

The Comparative financial statements have been reclassified, where applicable, to conform with the presentation adopted in the current period.

3. Change in Accounting Policy

a) Effective August 1, 2003, the Company changed its accounting policy on a prospective basis with respect to the method of accounting for stock-based compensation. The Company adopted CICA 3870, Stock-based Compensation and Other Stock-based Payments, and has chosen to account for all grants of options to employees, non-employees and directors after August 1, 2003 in accordance with the fair value method for accounting for stock-based compensation as defined by accounting principles generally accepted in Canada. Stock-based compensation awards expense is calculated using the Black-Scholes option pricing model (“Black-Scholes”). Previously, the Company used the intrinsic value based method for valuing stock-based compensation awards granted to employees and directors where compensation expense is recognized for the excess, if any, of the quoted market price of the Company’s common shares over the common share exercise price on the day that options are granted.

Using the fair value based method for stock-based compensation, the Company recorded a charge to operations of $273,278 for the year ended July 31, 2004 for stock options granted to employees and directors. This amount was determined using Black-Scholes assuming no dividends were paid, one third vesting on the day of grant, one third vesting twelve months from the day of grant and one third vesting twenty-four months from the day of grant, a weighted average volatility of the Company’s share price of 102%, a weighted average annual risk free interest rate of 2.46% and an expected life of 1.5 years.

3. Change in Accounting Policy (cont’d)

b) Effective July 31, 2003, the Company changed its method of accounting for mineral exploration expenditures, from deferring them until the viability of a project was determined, to charging them to operations as incurred. Under the new policy, only expenditures incurred on properties identified as having substantial evidence that a commercial body of ore has been located are capitalized and accounted for in accordance with the Company’s accounting policy for mineral properties.

The new policy is consistent with current reporting practices in the mining industry and management considers the change will appropriately present the Company’s operations and financial position. This change in accounting policy has been applied retroactively to prior years and has increased the 2003 net loss by $236,463 and loss per share by $0.03.

4. Property, plant and equipment

	2004			2003

		Accumulated	Net Book	Net Book
	Cost	Amortization	Value	Value


Computer hardware	$ 5,515	$ 827	$ 4,688	$ -
Computer software	13,191	11,769	1,422	5,174
Office equipment and furniture	26,418	13,567	12,851	2,685


	$ 45,124	$ 26,163	$ 18,961	$ 7,859

5. Unproven Mineral Property Claims

The Company’s mineral properties are comprised of three separate option earn-in agreements on properties located in: 1) Cape Ray, Newfoundland and Labrador, Canada; 2) South Quinn Lake, Newfoundland and Labrador, Canada; and 3) San Diego, Mexico.

	Cape	South	San
Property Acquisition Costs	Ray	Quinn	Diego	Total


Balance at July 31, 2002	$ -	$ 8,840	$ -	$ 8,840
Option payments - cash	40,000	5,000	-	45,000
Option payments - shares	80,000	22,350	-	102,350
Option reimbursement	-	(18,750)	-	(18,750)
Staking costs	100	-	-	100


Balance at July 31, 2003	120,100	17,440	-	137,540
Option payments - cash	50,000	-	6,888	56,888
Option payments - shares	75,000	-	-	75,000
Staking costs	-	-	654	654


Balance at July 31, 2004	$ 245,100	$ 17,440	$ 7,542	$ 270,082

South Quinn Lake Property

On May 24, 2002, the Company entered into an option agreement with South Coast Ventures Inc. (“South Coast”) to acquire a 100% undivided interest in and to 36 mineral claims comprising the South Quinn Lake gold property located in central Newfoundland. In order to earn the interest, the Company must pay the optionor $75,000, issue the optionor 300,000 common shares and expend $400,000 on exploration by May 23, 2005 as follows:

5. Unproven Mineral Property Claims (cont’d)

	Cash		Share		Exploration
Payments to be made on or before	Payments		Payments		Expenditures


May 23, 2002	$ 5,000	(paid)	20,000	(issued)
November 23, 2002	$ 5,000	(paid)	30,000	(issued)
May 23, 2003	$ 15,000	(paid)	75,000	(issued)
May 23, 2004	$ 20,000	(paid)	75,000	(note 5c)
May 23, 2005	$ 30,000		100,000		$ 400,000

The property is subject to a 2.5% net smelter royalty (‘NSR’) from the proceeds of production from the property. The Company may reduce the 2.5% NSR to a 1.5% NSR at any time by paying $1 million.

On May 12, 2003, the Company entered into an option and joint venture agreement with Bayswater Ventures Corp. (“Bayswater”), a company related by virtue of a common director, whereby the Company has granted to Bayswater an option to acquire 95% of the Company’s interest in the South Quinn Lake Property (the “Property”). Bayswater may earn its interest in the Property in consideration and through direct or indirect assumption of all of the Company’s remaining obligations to South Coast pursuant to the May 24, 2002 option agreement, as follows:

a) Bayswater must pay to South Coast the following amounts which remain payable:

i. $15,000 on or before May 23, 2003 (paid);

ii. an additional $20,000 on or before May 23, 2004 (paid); and

iii. an additional $30,000 on or before May 23, 2005;

b) Bayswater must incur an aggregate of $344,029 of work expenditures on the Property (the Company has incurred an aggregate of $55,971 of the required $400,000 of work expenditures on the Property) on or before May 23, 2005, of which Bayswater must incur at least $75,000 of expenditures on or before August 31, 2004; and

c) The Company remains responsible for the delivery of the Company share payments to South Coast pursuant to the May 24, 2002 option agreement, and in lieu thereof Bayswater must pay to the Company the market price equivalent (as of the date of each delivery) of the following shares of the Company:

75,000 shares on or before May 23, 2003 (issued);
75,000 shares on or before May 23, 2004 (Bayswater transferred 75,000 shares of the Company to South Coast on behalf of the Company in lieu of the Company making the payment directly); and
100,000 shares on or before May 23 ,2005.

d) At any time during the 12 months following Bayswater’s exercise of the Option, the Company willl have the right, exercisable upon at least 30 days prior written notice, to purchase from Bayswater an additional 20% interest in the Property (to hold a 25% working interest therein), through the payment to Bayswater of an amount equal to 30% of the actual or deemed amounts of the Option Price paid hereunder and any subsequent amounts paid as expenditures on the Property, to the date of the notice.

Cape Ray

On August 15, 2002, the Company entered into an option agreement with South Coast to acquire a 100% interest in the Cape Ray property. The Cape Ray property consists of 46 mineral claims located in southwest Newfoundland.

In order to earn the 100% interest, the Company is required to pay a total of $420,000, to issue common shares with a total value of $580,000, to incur exploration expenditures of $1,900,000, and to carry out a feasibility study. The cash payments, share payments and expenditures are required to be made as follows:

5. Unproven Mineral Property Claims (cont’d)

	Cash		Share		Exploration
Payments to be made on or before	Payments		Payments		Expenditures


Upon signing	$ 5,000	(paid)
September 13, 2002	$ 10,000	(paid)	$ 30,000	(issued)
March 13, 2003	$ 25,000	(paid)	$ 50,000	(issued)	$ 50,000	(paid)
December 31, 2003	$ 50,000	(paid)	$ 75,000	(issued)	$ 400,000	(paid)
December 31, 2004	$ 55,000		$ 75,000		$ 450,000
December 31, 2005	$ 125,000		$ 150,000		$ 500,000
December 31, 2006	$ 150,000		$ 200,000		$ 500,000

The Company has the option of making cash payments, in lieu of share payments, if the Company’s common shares are trading at a price of less than $0.50 per share. The outstanding share payments are based on the average closing price of the Company’s common shares over the prior calendar year.

The Company has also agreed to pay South Coast an NSR from the proceeds of production from the property. The amount of the NSR is based on the price of gold and calculated as follows:

NSR gold price/ounce

1% up to and including $350 U.S./oz

2% from $351 U.S./oz up to and including $400 U.S./oz

3% from $401 U.S./oz up to and including $450 U.S./oz

4% above $450 U.S./oz

Upon completion of a positive feasibility study, the Company will pay South Coast a bonus of $250,000.

San Diego

On May 18, 2004, the Company entered into an option agreement with Noranda Exploration Mexico, S.A. de C.V. (“Noranda”) to acquire a 50% interest in a porphyry copper prospect in Michoacan State, Mexico situated roughly 200 km west-southwest of Mexico City and roughly 70 km south of Morelia, the state capital. The property is 82 square kilometers and is known as the San Diego Property.

The Company has the option to earn a 50% interest in the property by incurring a total of CDN$15,000,000 on exploration and related work on or before May 31, 2009.

In order to maintain the option in good standing, the Company is required to incur the following expenditures:

in the amount of at least CDN$1,000,000 on or before May 31, 2005,
in the aggregate amount of at least CDN$3,000,000 on or before May 31, 2006
in the aggregate amount of at least CDN$6,000,000 on or before May 31, 2007
in the aggregate amount of at least CDN$10,000,000 on or before May 31, 2008
in the aggregate amount of at least CDN$15,000,000 on or before May 31, 2009

The Company has committed to Noranda to incur at least CDN$1,000,000 of expenditures on or before May 31, 2005. As at July 31, 2004, advances for exploration contain $119,792 for future exploration expenditures on the property.

Exploration will be carried out by Noranda, under the direction of a Management Committee comprised of two representatives from each of the Company and Noranda. During the option period, Noranda is entitled to charge an administrative and overhead charge of 10% of direct project costs.

5. Unproven Mineral Property Claims (cont’d)

As long as Noranda has at least a 30% interest in the property, Noranda is entitled to designate the facilities at which all ore produced from the property will be concentrated, smelted and refined, at market rates.

Provided Noranda has at least 30% interest in the San Diego Property, Noranda has the right to earn an additional 15% interest in the property by carrying out a Commercial Feasibility Study prepared in conjunction with a recognized international mining engineering construction firm. Should either party’s interest fall below 10%, that interest will be converted to a 1% net smelter return royalty, purchasable at the discretion of the other party for $2,000,000.

Subsequent to the exercise of the option, the Company and Noranda both have a right of first refusal to purchase all or any part of the other party’s interest in the property.

6. Share Capital

a) The Company completed the following private placements:

i) On May 21, 2004, the Company issued 2,018,070 common shares at $0.35 per share for gross proceeds of $706,325. Along with the common shares, the Company issued 2,018,070 warrants entitling the holder to purchase one additional common share at a price of $0.35 per share until May 10, 2006. Of the 2,018,070 common shares and 2,018,070 warrants issued, 336,785 were flow-through common shares and 336,785 were flow-through warrants exercisable into flow-through common shares. For income tax purposes, the subscription funds of $117,875 relating to the flow-through common shares will be applied towards carrying out exploration activities and the expenditures will be renounced in favour of the subscriber. Accordingly, the Company will not have available deductions from taxable income in respect of such expenditures. The Company paid $20,49 8 in finders’ fees.

ii) On January 10, 2003, the Company issued 256,756 flow-through common shares at a price of $0.37 per share totaling $95,000. Along with the common shares, the company issued 256,756 flow-through share purchase warrants entitling the holder to purchase one additional common share at $0.50 per share expiring on January 10, 2005. For income tax purposes, the subscription funds of $95,000 will be applied towards carrying out exploration activities and the expenditures will be renounced in favour of the subscriber. Accordingly, the Company will not have available deductions from taxable income in respect of such expenditures.

iii) On October 15, 2002, the Company issued 200,000 common shares at a price of $0.30 per share totaling $60,000. Along with the common shares, the company issued 200,000 share purchase warrants entitling the holder to purchase one additional common share at $0.40 per share expiring on October 15, 2004.

b) On August 27, 2003, the Company completed an investment agreement with Ocean Resources Capital Holdings Plc. (“ORCH”), a company whose shares were admitted to trading on the Alternative Investment Market (“AIM”) of the London Stock Exchange on February 28, 2003, whereby, ORCH issued to the Company a total of 5,200,000 units in the capital of ORCH (the “Units”) at £0.50 per Unit (each Unit consisting of one share and one warrant entitling the holder thereof to acquire one additional share together with one secondary warrant at any time following the issuance of the Units). As consideration, the Company issued to ORCH a loan note (the “Note”) in the principal amount of £2,600,000. The Note was convertible and redeemable into comm on shares of the Company, was unsecured and bore interest at 12% per annum payable by half yearly installments on December 31 and June 30 of each year. The Company sold the 5,200,000 Units and realized net sale proceeds of $2,159,406. The Company paid a finder’s fee in the amount of $86,376.

6. Share Capital (cont’d)

c) As at July 31, 2004, warrants exercisable and outstanding are as follows:

	Exercise
Expiry Date	Price	Number


October 15, 2004	$0.40	200,000
January 10, 2005	$0.50	256,756
September 8, 2005	$0.45	2,000,000
May 10, 2006	$0.35	2,018,070


		4,474,826

7. Stock Options

a) Stock Options Outstanding

The Company has one fixed stock option plan (“The 2003 Stock Option Plan”). Under The 2003 Stock Option Plan, the Company may grant options to directors, officers, employees, dependent contractors or consultants. The number of options outstanding at any time may not be more than 4,008,840.The exercise price associated with each grant of options is determined by the Company and is subject to the policies of the TSX Venture Exchange. The maximum term of each option’s life is 5 years. As long as the Company is not classified as a Tier 1 issuer on the TSX Venture Exchange, the options will vest as follows: one third on the award date, one third 12 months after the award date and one third 24 months after the award date. A summary of the Company’s stock options as at July 31, 2004 and changes during the year then ended is as follows:

7. Stock Options (cont’d)

			Weighted-
		Weighted-	average
	Number of	average	remaining
	Shares	exercise price	life (years)


Balance at July 31, 2001	175,000	$0.75	1.57
Cancelled	(100,000)	0.78
Expired	(10,000)	0.75


Balance at July 31, 2002	65,000	$0.71	0.42
Cancelled	(65,000)	0.71
Granted	680,000	0.36
Exercised	(60,000)	0.35


Balance at July 31, 2003	620,000	$0.37	1.01
Cancelled	(175,000)	0.40
Granted	3,310,000	0.36


Balance at July 31, 2004	3,755,000	$0.36	1.44

As at July 31, 2004, stock options exercisable and outstanding are as follows:

	Exercise	Options	Options
Expiry Date	Price	Outstanding	Exercisable


August 6, 2004	$0.35	405,000	405,000
August 21, 2004	$0.40	40,000	40,000
March 4, 2006	$0.35	2,810,000	936,667
July 1, 2006	$0.40	500,000	166,667


		3,755,000	1,548,334

b) Stock-Based Compensation

	Number of	Fair Value Amount

	Options	Unvested	Vested


Balance at July 31, 2003	620,000	$ -	$ -
Options cancelled	(175,000)	-	-
Options granted	3,310,000	479,033	-
Options vested	-	(273,278)	273,278


Balance at July 31, 2004	3,755,000	$ 205,755	$ 273,278

The Company uses the fair value based method of accounting for all stock-based awards. The stock compensation cost was calculated by using Black-Scholes assuming no dividends were paid, one third vesting on the day of grant, one third vesting twelve months from the day of grant and one third vesting twenty four months from the day of grant, a weighted average volatility of the Company’s share price of 102%, a weighted average annual risk free interest rate of 2.46% and an expected life of 1.5 years.

7. Stock Options (cont’d)

Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options.

During the year ended July 31, 2003, the Company used the intrinsic value based method of accounting for stock-based awards granted to employees and directors. Under this method, compensation cost is only recorded when exercise price is below the market price of the stock on the date of grant. During the year ended July 31, 2003, the Company granted a total of 680,000 stock options to employees and the exercise prices equaled the market prices on the dates of grant. If the Company used the fair value based method of accounting for stock-based awards granted to employees and directors, the Company would have incurred $156,450 of stock compensation cost, calculated using Black-Scholes assuming no dividends are to be paid, vesting occurring on the date of grant, a weighted average volatility of the Company’s share price of 127% and a weighted average annual risk free i nterest rate of 3.11%.

8. Related Party Transactions

Related parties are directors, officers and other companies with common directors and/or officers of the Company. Amounts due to/from related parties are non-interest bearing and without specific terms of repayment.

Related party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

The following is a summary of the related party transactions that occurred throughout the year:

	2004	2003	2002


Furniture & equipment	$ 4,069	$ -	$ -
Accounting services	$ -	$ -	$ 18,000
Consulting fees	$ -	$ -	$ 29,800
Directors fees	$ 2,000	$ -	$ -
Management fees	$ 68,072	$ -	$ 15,000
Promotion	$ -	$ 16,000	$ -
Rent	$ 6,087	$ -	$ 2,600
Exploration expenditures (Technical services)	$ 65,561	$ -	$ -
Accounts receivable (settled by receipt of 335,000 common
shares from a company related by a common officer)	$ -	$ (33,500)	$ 33,500
South Quinn Lake Property - option reimbursement	$ -	$ 18,750	$ -

9. Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, short term investments, amounts receivable, advances for exploration and accounts payable and accrued liabilities. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency, or credit risks arising from these financial instruments. The fair value of these financial instruments approximate their carrying values, unless otherwise noted.

10. Income Taxes

The reported income tax recovery differs from the amount computed by applying the Canadian basic statutory rate to the loss before income taxes. The reasons for this difference and the related tax effect are as follows:

	2004	2003	2002

Canadian basic statutory tax rate	36.4%	38.5%	42.6%

Potential income tax recovery based on reported loss	$ 353,073	$ 256,346	$ 63,142
Unrecognized tax losses	(116,700)	(117,979)	(51,338)
Temporary differences not recognized during the year	(4,846)	(2,250)	(357)
Permanent and other differences	(231,527)	(136,117)	(11,447)


	$ -	$ -	$ -

The Company has accumulated non-capital losses of approximately $1,500,000 which may be deducted in the calculation of taxable income in future years. The losses expire on various dates to 2012. Also, the Company has approximately $10,000 of capital losses and $7,000,000 of Canadian and foreign resource tax pools which may be deducted in the calculation of taxable income in future years. These losses and pools can be carried forward indefinitely.

Future income taxes result primarily from temporary differences in the recognition of certain revenue and expense items for financial and income tax reporting purposes. Significant components of the company’s future tax assets and liabilities are as follows:

	2004	2003

Future income tax assets
Tax value of resource properties in excess of book value	$ 2,570,484	$ 2,762,891
Non-capital losses carried forward	549,286	486,748
Capital losses carried forward	1,876	1,982
Tax value of property, plant and equipment in excess of book value	9,473	3,643
Valuation allowance for future income tax assets	(3,131,119)	(3,255,264)


Future income tax assets	$ -	$ -

Due to the uncertainty surrounding the realization of income tax assets in future years, the Company has a 100% valuation allowance against its potential future income tax assets.

11. Subsequent Event

Subsequent to July 31, 2004, the Company extended the expiry date of 385,000 options for two years to August 6, 2006 and 40,000 options for two years to August 21, 2006.

12. Differences Between Canadian and United States Generally Accepted Accounting Principles (“GAAP”)

These financial statements have been prepared in accordance with GAAP in Canada which differs in some respects from GAAP in the United States of America. The material differences between Canadian and United States of America GAAP, in respect of these financial statements, are as follows:

a) Under United States GAAP, all unproven mineral acquisition and exploration property expenditures are expensed in the year incurred in an exploration stage company.

12. Differences Between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) (cont’d)

b) During the year ended July 31, 2004, the Company adopted the fair value based method of accounting under the Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, with prospective application, effective August 1, 2003, as permissible under SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure. Fair value accounting for stock-based compensation was also adopted by the Company under Canadian GAAP effective August 1, 2003, which substantially harmonizes Canadian GAAP with US GAAP for the year ended July 31, 2004.

The pro-forma effect of stock options granted using the same model and assumptions as in note 7 as required by SFAS No. 123 is as follows:

	2003	2002


Loss for the year as per US GAAP	$ (827,912)	$ (157,060)
Additional compensation cost	(156,450)	-


Pro-forma loss for the year as per US GAAP	$ (984,362)	$ (157,060)

Pro-forma basic and diluted loss per share per US GAAP	$ (0.13)	$ (0.04)

As of July 1, 2000, Financial Accounting Standards Board (“FASB”) Interpretation No. 44 (FIN 44), Accounting for Certain Transactions Involving Stock Compensation, states that when fixed stock option awards to employees and directors are modified, the stock options must be accounted for as variable from the date of modification to the date the stock options are exercised, forfeited or expire unexercised. As a result, any increase in the market price over the reduced exercise price of the stock options must be recognized as compensation cost. During the years ended July 31, 2004, 2003 and 2002, the Company has not modified any stock option awards.

c) SFAS No. 115 requires investments to be classified with respect to holding period, as determined by management, as either held-to-maturity debt securities, trading securities or available-for-sale investments.

The Company has no held-to-maturity debt securities and no trading securities. The Company’s marketable securities are classified as available-for-sale investments and recorded at the lower of cost or market value for Canadian GAAP purposes. Such investments are not actively traded on short-term differences in price, and for US GAAP purposes, must have holding gains or losses reported as a component of comprehensive income.

SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Therefore, under US GAAP, the Company must report the unrealized holding gains on the marketable securities of $21,050 for 2002 as a component of other comprehensive income and exclude said amounts from earnings. There were no other comprehensive items.

d) Under Canadian income tax legislation, corporations are permitted to issue shares whereby the corporation agrees to incur qualifying expenditures as defined under the Canadian Income Tax Act, and renounce the related income tax deductions to the investors.

The Company has accounted for the issue of flow-through shares in accordance with Canadian GAAP as follows:

At the time of issue the funds received are recorded as share capital. Under Canadian GAAP, once the qualifying expenditures are made, the carrying values of both the unproven mineral property and share capital are reduced by the amount of the tax benefit renounced, calculated at the Company’s effective tax rate. As the Company’s effective tax rate is 0% for 2004, 2003 and 2002, no adjustment would be required.

In March, 2004, the Canadian Institute of Chartered Accountants (“CICA”) released EIC – 146 “Flow-Through Shares”, which requires the future income tax liability resulting from the timing differences on exploration expenditures renounced to investors and the resulting draw down of such future income tax liability be recorded as a credit to income. The entries are recorded when the exploration expenditures are renounced to the investors. EIC – 146 is effective for all flow-through share transactions initiated after March 19, 2004.

12. Differences Between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) (cont’d)

Canadian GAAP does not require a separate allocation of the amount of funds received by the corporation attributable to the flow-through feature at the time of issue. Also, in the absence of a specific restriction or requirement for the funds to be held in a separate bank account, Canadian GAAP permits funds which are to be spent within the current period to be included with cash and cash equivalents for purposes of classification on the balance sheet and statement of cash flows. Adequate disclosure of the commitment to incur qualifying expenditures and renounce the related tax deductions is required under Canadian GAAP.

United States GAAP requires the premium or discount from the market trading price at the time an irrevocable agreement to issue the flow-through shares exists, to be accounted for separately on the balance sheet. At the time the expenditures are made, the previously recorded premium or discount is reversed and offset against the tax provision on the income statement, and the deferred income tax liability on the balance sheet recorded. Also, notwithstanding whether there is a specific requirement to segregate the funds, the flow-though share funds which are unexpended at the balance sheet date are considered to be restricted and are not considered to be cash or cash equivalents under United States GAAP.

The effect of the adjustments that would have been made under United States GAAP related to the flow-through shares issued by the Company would be to increase share capital by $33,378 and to increase deficit by $33,378 resulting in no effect on shareholders’ equity.

e) In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. This standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. Companies are required to adopt SFAS 143 for fisca l years beginning after June 15, 2002, but early adoption is permitted. The Company has determined that the application of SFAS 143 has not had a material affect on its position or results of operations.

f) In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supersedes SFAS No. 141, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Although retaining many of the fundamental recognition and measurement provisions of SFAS No. 121, the new rules significantly change the criteria that would have to be met to classify an asset as held-for-sale. The statement also supersedes certain provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations – Reporting the Eff ects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, and will require expected future operating losses from discontinued operations to be displayed in discontinued operations in the period(s) in which the losses are incurred rather than as of the measurement date, as presently required. As required by SFAS No. 144, the Company adopted this new statement on August 1, 2002. The adoption of SFAS No. 144 did not have a material impact on the Company’s financial position, results of operations or cash flows.

g) In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard No. 146 ("SFAS 146"), Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 requires that the liability for a cost associated with an exit or disposal activity be recognized at its fair value when the liability is incurred. Under previous guidance, a liability for certain exit costs was recognized at the date that management committed to an exit plan. SFAS 146 is effective only for exit or disposal activities initiated after December 31, 2002. The adoption of this statement has not impacted the Company's financial statements.

h) In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities, that addresses the consolidation of variable interest entities. In December 2003, the FASB issued a revised Interpretation “FIN 46R.” Under the revised Interpretation, an entity deemed to be a business, based on certain specified criteria, need not be evaluated to determine if it is a Variable Interest Entity. The Company must apply the provisions to variable interests in entities created before August 1, 2002. Adoption of FIN 46 and FIN 46R did not have an impact on the Company’s financial condition, results of operations or cash flows.

12. Differences Between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) (cont’d)

i) In April 2003, the FASB issued Statement of Financial Accounting Standard No. 149 ("SFAS 149"), Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133. SFAS 149 is generally effective for derivative instruments, including derivative instruments embedded in certain contracts, entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS 149 did not have a material impact on the Company’s operating results or financial condition.

j) On April 22, 2003, the FASB announced its decision to require all companies to expense the fair value of employee stock options. Companies will be required to measure the cost according to the fair value of the options. Although the new guidelines have not yet been released, it is expected that they will be finalized soon and be effective in 2004. When final rules are announced, the Company will assess the impact to its financial statements.

k) In March 2004, the Emerging Issues Task Force issued EITF 04-2, Whether Mineral Rights are Tangible or Intangible Assets (“EITF 04-2”). The Task Force reached a consensus that mineral rights are tangible assets. In April 2004, the FASB issued proposed FASB Staff Positions (“FSPs”) FAS 141-1 and FAS 142-1, Interaction of FASB Statements No. 141, Business Combinations (“SFAS 141”), and No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), and EITF Issue No. 04-2, Whether Mineral Rights are Tangibl e or Intangible Assets. The proposed FSPs amend SFAS 141 and 142 to conform them to the Task Force consensus. The FSPs are effective for the first reporting period beginning after April 29, 2004. The Company does not anticipate that the adoption of EITF 04-2 and FSPs 141-1 and 142-1 will have a material effect on the Company’s results of operations, financial position or disclosures.

In March 2004, the EITF issued EITF 04-3, Mining Assets: Impairment and Business Combinations. EITF 04-3 requires mining companies to consider cash flows related to the economic value of mining assets (including mineral properties and rights) beyond those assets’ proven and probable reserves, as well as anticipated market price fluctuations, when assigning value in a business combination in accordance with SFAS 141 and when testing the mining assets for impairment in accordance with SFAS 144. The consensus is effective for fiscal periods beginning after March 31, 2004.

12. Differences Between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) (cont’d)

		Canadian
July 31, 2004	Reference	GAAP	Adjustments	US GAAP


ASSETS
Current assets
Cash and cash equivalents	d	$ 337,120	$ (96,262)	$ 240,858
Restricted flow-through funds	d	-	96,262	96,262
Short term investments		1,780,981	-	1,780,981
Amounts receivable		12,221	-	12,221
Advances for exploration		129,792	-	129,792
Prepaid expenses		8,631	-	8,631
Property, plant & equipment		18,961	-	18,961
Unproven mineral properties	a	270,082	(270,082)	-


		$ 2,557,788	$ (270,082)	$ 2,287,706

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities		$ 38,247	$ -	$ 38,247
Shareholders' equity
Share capital		14,874,442	33,378	14,907,820
Stock options		273,278	-	273,278
Deficit	a	(12,628,179)	(303,460)	(12,931,639)


		$ 2,557,788	$ (270,082)	$ 2,287,706

		Canadian
July 31, 2003	Reference	GAAP	Adjustments	US GAAP


ASSETS
Current assets
Cash and cash equivalents		$ 43,501	$ -	$ 43,501
Amounts receivable		18,064	-	18,064
Advances for exploration		4,010	-	4,010
Property, plant & equipment		7,859	-	7,859
Unproven mineral properties	a	137,540	(137,540)	-


		$ 210,974	$ (137,540)	$ 73,434

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities		$ 67,049	$ -	$ 67,049
Loans payable		8,300	-	8,300
Shareholders' equity
Share capital		11,794,888	33,378	11,828,266
Deficit	a	(11,659,263)	(170,918)	(11,830,181)


		$ 210,974	$ (137,540)	$ 73,434

12. Differences Between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) (cont’d)

July 31	Reference	2004	2003	2002


Loss for the year - Canadian GAAP		$ (968,916)	$ (665,834)	$ (148,220)
Unproven mineral property expenditures	a	(132,542)	(128,700)	(8,840)
Share capital discount on issuance of flow-through shares	d	-	(33,378)	-


Loss for the year - US GAAP		$ (1,101,458)	$ (827,912)	$ (157,060)

Basic and diluted loss per share - US GAAP		$ (0.06)	$ (0.11)	$ (0.04)

Other comprehensive income - Canadian GAAP		$ -	$ -	$ -
Unrealized holding gain on available-for-sale investments	c	-	-	21,050


Other comprehensive income - US GAAP		$ -	$ -	$ 21,050

July 31

Reference

2004

2003

2002

Share capital - Canadian GAAP

$ 14,874,442

$ 11,794,888

$ 11,337,138

Cumulative share capital discount on issuance

of flow-through shares

d

33,378

33,378

-

Share capital - US GAAP

$ 14,907,820

$ 11,828,266

$ 11,337,138

Deficit - Canadian GAAP

$ (12,628,179)

$ (11,659,263)

$ (10,993,429)

Cumulative write-down of unproven mineral properties

a

(270,082)

(137,540)

(8,840)

Cumulative share capital discount on issuance

of flow-through shares

d

(33,378)

(33,378)

-

Deficit - US GAAP

$ (12,931,639)

$ (11,830,181)

$ (11,002,269)

Accumulated other comprehensive income - Canadian GAAP

$ -

$ -

$ -

Unrealized holding gain on available-for-sale investments

-

-

21,050

Accumulated other comprehensive income - US GAAP

$ -

$ -

$ 21,050

2004

2003

2002

Cash provided by (used for) operating activities as per Canadian GAAP

$ (867,457)

$ (604,191)

$ (162,947)

Unproven mineral property acquisition costs

(57,542)

(26,350)

(6,440)

Cash provided by (used for) operating activities as per US GAAP

$ (924,999)

$ (630,541)

$ (169,387)

Cash provided by (used for) investing activities as per Canadian GAAP

$ (1,835,178)

$ (8,492)

$ 11,408

Unproven mineral property acquisition costs

57,542

26,350

6,440

Cash provided by (used for) investing activities as per US GAAP

$ (1,777,636)

$ 17,858

$ 17,848

TERRA NOVA GOLD CORP.
(An exploration stage company)
Schedule of Exploration Expenditures
(Canadian Dollars)


	Year ended	Year ended	Year ended
	July 31,	July 31,	July 31,
	2004	2003	2002


Cape Ray Property, Canada
Drilling	$ 199,394	$ 166,148	$ -
Geochemistry	12,996	1,185	-
Geology	3,025	87,242	-
Geophysics	32,597	13,942	-
Government grants	(115,735)	(77,897)	-
Technical services	54,742	-	-


	187,019	190,620	-


South Quinn Lake Property, Canada
Geology	500	44,843	-
Geophysics	-	1,000	-


	500	45,843	-


San Diego Property, Mexico
Geochemistry	8,331	-	-
Geology	23,568	-	-
Geophysics	40,664	-	-
Other	8,561	-	-
Property maintenance	5,504	-	-
Technical services	10,819	-	-


	97,447	-	-


	$ 284,966	$ 236,463	$ -

EX-4 3 noranda.htm EXHIBIT 4.6 Unassociated Document

Noranda Exploración

Gabriela Mistral y Calle Central

#118, Col. Periodista

Hermosillo, Sonora

C.P. 83150

Tel: (662) 210 2840

Fax: (662) 210 2847

May 18, 2004

Harvey Keats, President

Terra Nova Gold Corp.

Suite 1360, 605 Robson Street

Vancouver, BC V6B 5J3

Dear Harvey,

LETTER AGREEMENT BETWEEN

TERRA NOVA GOLD CORP. AND NORANDA EXPLORATION MEXICO, S.A. DE C.V.

REGARDING THE SAN DIEGO PROPERTY

Further to our recent conversations regarding the above property, Noranda Exploration Mexico, S.A. de C.V. (“Noranda”) proposes this letter agreement (“Letter Agreement”) as the basis for a formal agreement whereby Terra Nova Gold Corp. (“Terra Nova”) will have a working right and an option to acquire a 50% undivided interest in the following:

property owned by Noranda centered around NTS E14 A43; UTM Zone 14; 2118000N, 278000E located in Michoacan, Mexico.
Noranda’s interest pursuant to an underlying agreement with Juan José Vargas Ortega and Aureliano Abeja Rodriguez in Exploration Licence #2059, Public Mining Register #45, folio 23, volume 298 in the Book of Mining Concessions, and
Noranda’s interest pursuant to an underlying agreement with Pedro Fraga Medina, Juan Alberto Contreras Vásquez and José Natividad Pérez Calvo in Exploration Licence # 215477, Public Mining Register # 257, folio 129, volume 324 in the Book of Mining Concessions,

all of the above collectively referred to herein as the “Property” as fully described in Schedule “A” and shown on a map attached hereto as Schedule “B”. Copies of titles to the claims and copies of the underlying agreements (in Spanish) are attached hereto as Schedule “C”.

The terms of our agreement are as follows:

1. Noranda represents and warrants that:

i)Noranda is a corporation duly incorporated and organized and validly existing under the laws of Mexico.

ii)Noranda has full corporate power, authority and capacity to enter into this Letter Agreement and to carry out its obligations under this Letter Agreement. Noranda is qualified to carry on business in Mexico.

iii)Noranda has been duly authorized to enter into, and to carry out its obligations under, this Letter Agreement. No obligation of Noranda in this Letter Agreement conflicts with or will result in the breach of any term in:

(1)the articles or by-laws of Noranda; or

(2)any other agreement or binding commitment of Noranda.

iv)Noranda has duly executed and delivered this Letter Agreement, which binds Noranda in accordance with its terms.

v)The Property has been validly located, staked and recorded in accordance with the Mexican mining laws and regulations and all other applicable legislation and regulations in Mexico. There are no unstaked portions of open ground within the Property. The Property is properly and accurately described in Schedule “A”.

The Property is in good standing under the laws of Mexico.
The Property, and Noranda’s interest in the Property, are free and clear of all Liens.

viii)Noranda is or has the right to become the sole recorded and beneficial owner of the Property. Except as otherwise provided herein, there are no outstanding agreements or options to acquire or purchase the Property or any part thereof or interest therein. No individual, corporation or other entity has any royalty or other interest whatsoever in production or profits from the Property or any part thereof.

ix)All exploration permits, leases, licenses and mining claims payments, rentals, taxes, rates, assessments, renewal fees and other governmental charges, owing in respect of the Property, or any part of the Property, have been paid in full up to June 30, 2004.

x)It is not aware of any adverse claim against, or challenge to, the ownership of, or title to, the Property or Noranda’s interest in the Property.

xi)Noranda has conducted all activities on or in respect of the Property in compliance and the Property itself complies with all applicable statutes, regulations, by-laws, laws, orders and judgments and all directives, rules, consents, permits, orders, guidelines, approvals and policies of all applicable governmental authorities.

xii)Noranda has made available to Terra Nova all material, technical information and data in respect of the Property.

2. Terra Nova represents and warrants to Noranda as follows:

i)Terra Nova is a corporation duly incorporated and organized and validly existing under the Business Corporations Act (British Columbia).

ii)Terra Nova has full corporate power, authority and capacity to enter into this Letter Agreement and to carry out its obligations under this Letter Agreement.

iii)Terra Nova has been duly authorized to enter into, and to carry out its obligations under, this Letter Agreement. No obligation of Terra Nova in this Letter Agreement conflicts with or will result in the breach of any term in:

(a)the articles or by-laws of Terra Nova; or

(b)any other agreement or binding commitment of Terra Nova.

iv)Terra Nova has duly executed and delivered this Letter Agreement, which binds Terra Nova in accordance with its terms.

During the Option Period

3. Noranda hereby irrevocably grants to Terra Nova the exclusive working right and option to acquire a 50% undivided interest in the Property (the “Option”) on or before May 31, 2009 (the “Option Period”).

In order to maintain the Option in good standing, Terra Nova shall:

(a) fund the following expenditures (“Expenditures”):

i)in the amount of at least One Million Dollars (CDN$1,000,000) on or before May 31, 2005, such amount to be a firm commitment (“Committed Expenditures”)

ii)in the aggregate amount of at least Three Million Dollars (CDN$3,000,000) on or before May 31, 2006

iii)in the aggregate amount of at least Six Million Dollars (CDN$6,000,000) on or before May 31, 2007

iv)in the aggregate amount of at least Ten Million Dollars (CDN$10,000,000) on or before May 31, 2008

v)in the aggregate amount of at least Fifteen Million Dollars (CDN$15,000,000) on or before May 31, 2009

(b) These Expenditures may be accelerated and applied to future years’ Expenditures, and accordingly at Terra Nova’s election the Option may be exercised sooner. If, in a given period in section 3(a), Terra Nova fails to incur sufficient Expenditures, Terra Nova will nevertheless be deemed to have satisfied section 3(a), if Terra Nova pays Noranda an amount which is equal to the difference between Terra Nova’s actual Expenditures and the amount set out in the applicable section relating to such given period in section 3(a).

4. Cash Calls. Noranda may submit an invoice to Terra Nova up to 60 days prior to a quarter in which approved Expenditures are to be incurred or committed, setting out the estimated Expenditures for such 3 month period. Noranda may also submit other invoices relating to reconciliations, bills, accounts or other requests for payment in respect of any Expenditures made by Noranda in accordance with this Letter Agreement. Within 30 days of receipt of such invoice, Terra Nova shall pay Noranda the invoice amount. For greater certainty, in the event Terra Nova fails to make full payment to Noranda pursuant to the section 4, the Option shall terminate in accordance with section 6(f). Noranda shall not be obligated to expend any funds not provided by Terra Nova.

5.Government Assistance. Any grant or other form of government financial assistance received by a party with respect to expenditures on the Property shall be shared by the parties, in the proportion of their respective expenditures at the time that such financial assistance applies. For clarity, during the Option Period only, Terra Nova will receive 100% of any such financial assistance.

6. During the Option Period:

(a) Terra Nova shall have reasonable access to the Property on reasonable notice to Noranda;

(b) Noranda shall have the right to be operator and shall be entitled to include as Expenditures administrative and overhead charges of 10% of direct project costs;

(c) A management committee shall be formed, with two representatives each, and each party shall have an equal vote. In the case of a tie, Noranda shall have the casting vote. Both parties shall have meaningful input into the planning of the exploration programs.

(d) The operator shall prepare and submit a program and budget to the management committee for approval by at least December 1 of each calendar year.

Noranda, as operator, shall provide Terra Nova with a brief monthly summary report of exploration activities while active programs are carried out on the Property, and a more comprehensive annual report, and shall immediately notify Terra Nova of any significant results. Notwithstanding, if Terra Nova is in default of this Letter Agreement, Noranda shall not provide such information to Terra Nova until such default is corrected.
At any time after the Committed Expenditures are incurred, Terra Nova may terminate this Letter Agreement, allow this Letter Agreement to lapse by not fulfilling the requirements of section 3, or abandon its Option on all or part of the Property.
If either party acquires, directly or indirectly, any interest in any property which to the extent that property is within an area of interest as shown on a map attached hereto in Schedule B, the acquiring party must disclose it to the other party, who shall then have 30 days to elect to have the acquired property become part of the Property. The other party must then pay the acquiring party its proportionate share of the acquisition costs (which shall be deemed to be 50% during the Option Period).

Formation of the Joint Operating Company

7. If Terra Nova exercises the Option, then a joint operating company will automatically be formed between Noranda and Terra Nova (the “Joint Operating Company”). The following is a summary of the main Joint Operating Company terms:

(a) Initial expenditures and initial percentage interests on the date of formation of the Joint Operating Company shall be deemed to be:

Deemed Expenditures	Noranda $15,000,000	Terra Nova $15,000,000	Total $30,000,000
Joint Operating Co. Interests	50%	50%	100%

(b) Each party shall contribute its percentage interest share of expenditures to the Joint Operating Company, failing which its interest shall be diluted according to the following formula:

A = B x 100%, where

A is a party’s Joint Operating Company interest,

B is a party’s deemed expenditures under section 7(a) above, plus all of the party’s actual expenditures made after the formation of the Joint Operating Company, and

C is the parties’ total deemed expenditures under section 7(a) plus all of the parties’ expenditures made after the formation of the Joint Operating Company

(i) If a party’s interest dilutes to less than 10%, its interest shall be converted to a 1% NSR royalty (the “Royalty”) according to the royalty terms set out on Schedule “D”.

(ii)At any time, a party may purchase the royalty-holder’s rights to all future Royalty payments for an immediate payment of $2,000,000, paid in a lump sum.

(d)A management committee shall be formed, with two representatives from each party. All technical programs shall be decided by the management committee, with meaningful input by both parties. Each party shall have a vote equal to its percentage interest in the Property. In case of a tie, the operator shall have the casting vote.

(e)Noranda shall be the initial operator and shall be entitled to remain as operator as long as it is not in default, and has at least a 50% interest in the Property, in which case the non-operator may become operator as long as those conditions persist.

(f)The operator may include as expenditures an administrative and overhead charge of 15% of direct project costs, 5% of third party contract work and 3% of capital costs.

(g)The operator shall prepare and submit a program and budget to the management committee for approval by at least December 1 of each calendar year. Each program shall contain:

(i) a reasonably detailed outline of all activities the operator contemplates carrying out on the Property and the location and time frame thereof;

(ii) a reasonably itemized budget, broken down by month, of the projected expenditures under the program, and

(iii) the estimated amount and date of each payment that the non-operator would have to make to the operator.

(h)If the non-operator elects to participate in a program, the operator may submit an invoice to the non-operator 60 days immediately preceding a quarter in which expenditures are to be made or committed. The non-operator must pay the invoice within 30 days of receipt, failing which interest shall be charged at the rate of the Canadian Imperial Bank of Commerce’s prime rate plus 10%. If the non-operator fails to make full payment, including interest, within 60 days of the expiry of the 30 day period, its joint operating company interest shall automatically be extinguished and converted to a 1% Royalty as per clause 7(c) (i) and (ii).

(i)The operator shall not take any of the following actions without the prior written unanimous consent of the management committee:

(i) create, or permit to remain, any liens on any joint asset;

(ii) abandon, sell or otherwise dispose of the Property or any part thereof; or

(iii) settle any suit, claim or demand with respect to the joint operating company involving an amount in excess of $50,000.

(j)As long as Noranda has at least a thirty percent (30%) interest in the Property, it shall have the right to designate the facilities at which all ore produced from the Property shall be concentrated, smelted and refined, at market rates. Noranda would also retain the option to market any product derived from the Property.

8. Noranda’s Bump-Up Right. Provided Noranda has at least 30% interest in the Joint Operating Company, it shall have the right to earn an additional 15% interest in the Project by carrying out a Commercial Feasibility Study prepared in conjunction with a recognized international mining engineering construction firm.

9. All data and information provided to or received by the parties with respect to the Property and this Letter Agreement shall be treated as confidential. Notwithstanding the foregoing, the parties are entitled to disclose confidential information to prospective investors or lenders, who shall be required to keep all such confidential information confidential. Noranda recognizes Terra Nova’s need to issue press releases on results from the Property on a regular basis, however Noranda shall be entitled to review and comment on Terra Nova press releases for a period of at least one (1) full business day prior to their issuance.

10. All disputes between the parties in respect of this Letter Agreement shall be referred to arbitration under the Arbitration Act (Ontario).

11. Noranda shall have the right of first refusal to purchase all or any part of Terra Nova’s interest in the Property or under this Letter Agreement, including Terra Nova’s Joint Operating Company or Royalty interest. If Terra Nova has exercised its Option to earn a 50% interest in the Joint Operating Company, Terra Nova shall thereafter have the right of first refusal to purchase all or any part of Noranda’s interest in the Property or under this Letter Agreement, including Noranda’s Joint Operating Company or Royalty interest.

12. Notwithstanding section 11, Terra Nova may not assign this Letter Agreement without the prior written consent of Noranda, not to be unreasonably withheld, provided that it may assign to an affiliated company, which must then agree to be bound by the terms of this Letter Agreement. If Terra Nova has exercised its Option to earn a 50% interest in the Joint Operating Company, thereafter Noranda may not assign this Letter Agreement without the prior written consent of Terra Nova, not to be unreasonably withheld, provided that it may assign to an affiliated company, which must then agree to be bound by the terms of this Letter Agreement.

13. Terra Nova acknowledges that Noranda advised it to seek independent legal advice in respect of this Letter Agreement, and that it has not received any legal advice from Noranda’s legal counsel.

14. Each party shall promptly execute and deliver all further documents and take all further action reasonably necessary or desirable to give effect to the terms and intent of this Letter Agreement.

15. No waiver of any term of this Letter Agreement by a party is binding unless such waiver is in writing and signed by the party entitled to grant such waiver. No failure to exercise, and no delay in exercising any right, remedy or breach under this Letter Agreement shall be deemed to be a waiver of that right, remedy or breach.

16. No amendment, supplement or restatement of any term of this Letter Agreement is binding unless it is in writing and signed by each party.

17. A standard force majeure clause shall apply to this Letter Agreement.

18. Unless otherwise specified, words importing the singular include the plural and vice versa. The term “including” means “including, without limitation.”

19. The division of this Letter Agreement into sections and the insertion of headings are for convenience of reference only and are not to affect the construction or interpretation of this Letter Agreement.

20. If any term of this Letter Agreement is or becomes illegal, invalid or unenforceable, that term shall not affect the legality, validity or enforceability of the remaining terms of this Letter Agreement.

21. This Letter Agreement constitutes the entire agreement between the parties with respect to the subject matter herein and supersedes all prior agreements, negotiations, discussions, undertakings, representations, warranties and understandings, whether written or verbal.

22. For every provision in this Letter Agreement, time is of the essence.

23. This Letter Agreement shall be governed by and shall be construed and interpreted in accordance with the laws of Ontario and the laws of Canada applicable in Ontario.

If the foregoing terms and conditions reflect our agreement, please execute and return the enclosed copy of this Letter Agreement, which is intended to create a binding agreement between us. We will then prepare a formal definitive Agreement which outlines other terms which are normal to the industry for the review and signature of both parties.

Yours very truly,

NORANDA EXPLORACIÓN MEXICO S.A DE C.V.

per: /s/Gary Woods/s/

The undersigned agrees with the above terms and conditions

TERRA NOVA GOLD CORP.

per: /s/Harvey Keats/s/

SCHEDULE A

to the Letter Agreement between Noranda Inc. and Terra Nova Gold Corp. dated May 18, 2004.

PROPERTY DESCRIPTION

CLAIM NAME	TITLE	SURFACE

		hectares

San Diego Fracción 1	219716	2,455

San Diego 2 Fracción 1	221693	4,688

San Diego 2 Fracción 2	221694	785

Carridos	205905	100

Carritres	215477	204

SCHEDULE B

to the Letter Agreement between Noranda Inc. and Terra Nova Gold Corp. dated May 18, 2004.

LOCATION MAPS

[Graphic]

SCHEDULE C

to the Letter Agreement between Noranda Inc. and Terra Nova Gold Corp. dated May 18, 2004.

CLAIM TITLES AND UNDERLYING AGREEMENTS

SCHEDULE D

to the Letter Agreement between Noranda Inc. and Terra Nova Gold Corp. dated May 18, 2004.

NET SMELTER RETURN ROYALTY

1. For the purposes of this Agreement the term "Net Smelter Returns" shall mean the actual proceeds received from any independent custom smelter, mill, mint or other purchaser for the sale of all minerals, metals or concentrates extracted and derived from the ore mined from the Property after deducting therefrom all charges and penalties for smelting and refining and the cost of transportation (to the mill or smelter and thereafter to the mint), insurance premiums, sampling and assaying charges incurred after the minerals, metals or concentrates have left the Property and all appropriate mint charges.

2. Within ninety (90) days following the end of each calendar year, commencing with the year in which the Property is brought into Commercial Production, the Operator shall deliver to the non-operator a statement of the Net Smelter Returns for the said calendar year, duly certified by an independent Chartered Accountant appointed by the Operator for such purposes, together with payment of the royalty, if any, determined as aforesaid. If the amount of Net Smelter Return is not ascertainable for a calendar quarter, it shall be estimated as nearly as possible at the time for payment and an adjustment shall be made at the end of each calendar year. The non-operator shall have the right within a period of three (3) months from receipt of the audited statements to cond uct an independent audit at its own cost and expense, the right to review the Operator's books and records relating thereto and an opportunity to discover issues raised with the Operator's auditors.

3. If any portion of the minerals, metals or concentrates extracted and derived from the ore mined from the Property are sold to a purchaser owned or controlled by the Operator or treated by a smelter owned or controlled by the Operator, the actual proceeds received shall be deemed to be an amount equal to what could be obtained from a purchaser or a smelter not so owned or controlled in respect of minerals, metals or concentrates, as applicable, of like quality and quantity, after deducting therefrom a charge equal to the transportation cost which would have been incurred had the material been transported to such third party purchaser or smelter.

EX-12 4 hkexhibit12.htm EXHIBIT 12.1 Exhibit 12.1

Exhibit 12.1

CERTIFICATION

I, Harvey Keats, President and Director certify that:

1. I have reviewed this Annual Report on Form 20-F of Terra Nova Gold Corp.;

2. Based on my knowledge, this Annual 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 Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;

4. The registrant's other certifying officers 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)) 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 registrant, 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) Evaluated the effectiveness of the registrant'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;

c) Disclosed in this report any change in the registrant'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 officers 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 company's board of directors (or persons performing the equivalent function):

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: January 31, 2005

By: /s/Harvey Keats/s/

Harvey Keats

President

EX-12 5 dpexhibit12.htm EXHIBIT 12.2 Exhibit 12.2

Exhibit 12.2

CERTIFICATION

I, David Patterson, certify that:

1. I have reviewed this Annual Report on Form 20-F of Terra Nova Gold Corp.;

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: January 31, 2005

By: /s/David Patterson/s/

David Patterson

Chief Executive Officer

EX-13 6 hkexhibit13.htm EXHIBIT 13.1 Exhibit 13.1

Exhibit 13.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) I, Harvey Keats, President of Terra Nova Gold Corp. (the “Company”) hereby certify, to my knowledge, that:

The Company’s Annual Report on Form 20-F for the year ended July 31, 2004 (“Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company.

/s/Harvey Keats/s/

Harvey Keats

President

January 31, 2005

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Report or as a separate disclosure document.

EX-13 7 dpexhibit13.htm EXHIBIT 13.2 Exhibit 13.2

Exhibit 13.2

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) I, David Patterson, Chief Executive Officer of Terra Nova Gold Corp. (the “Company”) hereby certify, to my knowledge, that:

/s/David Patterson/s/

David Patterson

Chief Executive Officer

January 31, 2005

-----END PRIVACY-ENHANCED MESSAGE-----

1 mile	= 1.609 kilometres	2,204 pounds	= 1 tonne
1 yard	= 0.9144 metre	2,000 pounds/1 short ton	= 0.907 tonnes
1 acre	= 0.405 hectare	1 troy once	= 31.103 grams
1 U.S. gallon	= 3.785 litres	1 imperial gallon	= 4.546 litres

	2004	2003	2002	2001	2000

High	$1.3968	$1.5747	$1.6132	$1.6021	$1.5593
Low	1.1774	1.2924	1.5110	1.4936	1.4344
Average for Period	1.3015	1.3914	1.5710	1.5513	1.4868
End of Period	1.2036	1.2924	1.5796	1.5926	1.5002

	December 2004	November 2004	October 2004	September 2004	August 2004	July 2004
High	1.2413	1.2270	1.2725	1.3068	1.3326	1.3348
Low	1.1858	1.1774	1.2197	1.2639	1.2963	1.3079

Licence No.	Claims	Hectares	Staked
6972M	12	300	1999.07.19
8876M	24	600	2002.05.24

	Signing	Approval	6 Month	31/12/03	31/12/04	31/12/05	31/12/06
Cash Payment	$5,000	$10,000	$25,000	$50,000	$55,000	$125,000	$150,000
Share Payment	n/a	$30,000	$50,000	$75,000	$75,000	$150,000	$200,000
Work Exp.	n/a	n/a	$50,000	$400,000	$450,000	$500,000	$500,000


	Years ended July 31,

	2004	2003	2002	2001	2000


Amounts in Accordance with
Canadian GAAP:
Total assets	$ 2,557,788	$ 210,974	$ 364,529	$ 104,792	$ 196,053
Net working capital (deficiency)	$ 2,230,498	$ (9,774)	$ 331,512	$ 97,833	$ 176,831
Share capital	$ 14,874,442	$ 11,794,888	$ 11,337,138	$ 10,947,238	$ 10,947,238
Shareholders' equity	$ 2,519,541	$ 135,625	$ 343,709	$ 102,029	$ 192,076
Loss	$ (968,916)	$ (665,834)	$ (148,220)	$ (90,047)	$ (689,155)
Loss per share	$ (0.05)	$ (0.09)	$ (0.04)	$ (0.02)	$ (0.18)
Weighted average number of
common shares	19,228,797	7,792,644	3,933,978	3,895,376	3,874,676

Amounts in Accordance with
U.S. GAAP:
Total assets	$ 2,287,706	$ 73,434	$ 376,739	$ 109,792	$ 186,053
Net working capital (deficiency)	$ 2,230,498	$ (9,774)	$ 352,562	$ 102,833	$ 176,831
Share capital	$ 14,907,820	$ 11,828,266	$ 11,337,138	$ 10,947,238	$ 10,947,238
Shareholders' equity (deficiency)	$ 2,249,459	$ (1,915)	$ 334,869	$ 102,029	$ 182,076
Loss	$ (1,101,458)	$ (827,912)	$ (136,010)	$ (75,047)	$ (85,774)
Loss per share	$ (0.06)	$ (0.11)	$ (0.04)	$ (0.02)	$ (0.02)
Weighted average number of
common shares	19,228,797	7,792,644	3,933,978	3,895,376	3,874,676

Licence No.	# Claims	Area (ha)	Issuance Date

7822M	4	100	Dec. 18, 2000

7832M	1	25	Dec. 18, 2000

7833M	1	25	Dec. 18, 2000

7834M	1	25	Dec. 18, 2000

7835M	2	50	Dec. 18, 2000

7837M	23	575	Dec. 18, 2000

7838M	4	100	Dec. 18, 2000

8741M	3	75	May 21, 2002

8273M	7	175	Nov 12, 2001

	46	1150

					Table I

Year	Company	Cape Ray Claim Group		Big Pond Claim Group		Isle aux Morts Claim Group		Total

		#	Footage	#	Footage	#	Footage	#	Footage

1976	Amax	2	410					2	410

1977	Rio	40	19,630					40	19,630

1978	Rio	24	10,823					24	10,823

1979	Rio	20	10,296					20	10,296

1980	Rio	21	10,931					21	10,931

1986	Dolphin	9	7,769					9	7,769

1987	Dolphin	23	23,004					23	23,004

1988	Dolphin	29	26,229					29	26,229

1989	Dolphin	18	9,410	22	6,612			40	16,022

1990	Fortune Bay					9	1,516	9	1,516

1991	Fortune Bay					10	3,163	10	3,163

1992	Placer Dome					5	1,705	5	1,705

1996	Royal Oak	2	1,265	11	4,613			13	5,878

	Total	188	119,767	33	11,225	24	6,384	245	137,376

						Table II

Year	Company	41 Deposit		04 Deposit		Big Pond Deposit		Isle aux Morts Deposits		Total

		#	Footage	#	Footage	#	Footage	#	Footage	#	Footage

1977	Rio			23	12,183					23	12,183

1978	Rio	17	8,563							17	8,563

1979	Rio	2	2,245	1	1,372					3	3,617

1980	Rio	21	10,931							21	10,931

1986	Dolphin	3	3,549	2	2,026					5	5,575

1987	Dolphin	11	8,898	8	10,377					19	19,275

1988	Dolphin			26	24,771					26	24,771

1989	Dolphin	9	4,031	9	5,379	19	5,852			37	15,262

1990	Fortune Bay							9	1,516	9	1,516

1991	Fortune Bay							10	3,163	10	3,163

1992	Placer Dome							5	1,705	5	1,705

1996	Royal Oak					11	4,613			11	4,613

	Total	63	38,217	69	56,108	30	10,465	24	6,384	186	111,174

Hole	From	To	Interval	Grade	UTM Location

#	(m)	(m)	(m)	g/t Au	Easting	Northing

IMR-02-01		NO SIGNIFICANT ASSAYS			362526	5296081

IMR-02-02 incl	9.7 16.9	11.8 17.9	2.1 1.1 1.0	17.63 30.26 2.33	362376	5295765

IMR-02-03 incl incl	13.6 23.2	20.4 26.6	6.8 2.0 3.4 2.4	17.76 47.22 1.81 2.48	362357	5295768

IMR-02-04 incl incl incl	6.60	21.20	14.6 8.0 5.0 0.6	4.87 3.74 6.55 13.34	362332	5295766

IMR-02-05 incl incl	27.7	39.70	12 2 5	3.03 6.10 4.55	362312	5295723

IMR-02-06	22.80	25.80	3	1.42	362381	5295792

Hole	From (m)	To (m)	Interval (m)	Grade (g/t Au)	Vein

CR-04-12
	170.38	171.91	1.53	2.80
	220.10	221.63	1.53	3.92
	224.00	231.95	7.95	10.10	A
incl.	224.00	225.53	1.53	17.48
incl.	228.00	230.44	2.44	17.27
	238.70	245.40	6.70	3.30	B
incl.	244.49	245.40	0.91	16.01
	251.16	252.07	0.91	1.32

CR-04-14
	162.77	164.30	1.53	6.85
	223.40	226.46	3.06	32.35	A
incl.	223.40	224.93	1.53	53.00
	240.20	241.11	0.91	2.80
	247.81	250.87	3.06	6.30	B

CR-04-15
	193.60	194.51	0.91	1.37
	201.80	202.71	0.91	10.37	A
	211.50	212.41	0.91	1.66
	213.36	214.89	1.53	7.31	B

CR-04-16
	210.30	211.83	1.53	1.45
	235.00	242.32	7.32	6.45	A
incl.	239.57	241.40	1.83	19.28	A

CR-04-17

	454.91	456.74	1.83	1.24	A?

CR-04-18

	332.84	334.67	1.83	4.56	A

	342.90	347.47	4.57	2.76	A

	371.56	372.47	0.91	9.06	B

CR-04-20

	258.17	259.08	0.91	3.00

	277.34	278.25	0.91	3.00

Claim Name	Exploration Concession	Hectares	Date of Acquisition	*Expiry Date*



San Diego Fraccion 1	219716	2,455	April 3, 2003	April 2, 2009

San Diego 2 Fraccion 1	221693	4,688	March 12, 2004	March 11, 2010

San Diego 2 Fraccion 2	221694	785	March 12, 2004	March 11, 2010

Carridos	205905	100	October 9, 2002 via agreement	2054¹

Carritres	215477	204	November 7, 2002via agreement	Feb 21, 2008

				PAYMENT SCHEDULE ($US)

				MONTHS

CLAIM	ON SIGNING	12	18	24	30	36	42	48	54	60	TOTAL



CARRIDOS	$5,000	$7,500		$10,000		$15,000		$200,000			$237,500

(RANCHERS)	9/10/2002	9/10/2003		9/10/2004		9/10/2005		9/10/2006



CARRITRES		$5,000	$5,000	$10,000	$10,000	$10,000	$10,000	$10,000	$10,000	$325,000	$395,000

(PROSP)		7/11/2003	7/5/2004	7/11/2004	7/5/2005	7/11/2005	7/5/2006	7/11/2006	7/5/2007	7/11/2007

Hole	From	To	Interval	Grade	UTM Location

#	(m)	(m)	(m)	(g/t Au)	Easting	Northing

CR-03-01	64.92	66.45	1.52	27.29	356327	5291513

04 deposit	66.45	67.21	0.76	12.51

	67.21	68.58	1.37	20.67

	Weighted Average		3.66	21.74

CR-03-02	218.85	220.37	1.52	15.60	356434	5291382

04 deposit	220.37	221.90	1.52	17.14

	221.90	222.20	0.30	0.00

	222.20	222.51	0.30	8.67

	222.51	222.81	0.30	2.91

	Weighted Average		3.96	13.50

CR-03-03	78.64	79.25	0.61	86.33	356311	5291508

04 deposit	79.25	80.16	0.91	1.30

	80.16	81.08	0.91	20.50

	81.08	82.14	1.07	40.83

	Weighted Average		3.51	33.12

	86.56	87.17	0.61	37.23

	Weighted Average		0.61	37.23

CR-03-04	NO SIGNIFICANT ASSAYS				356390	5291386

Hole	From	To	Interval	Grade	UTM Location

#	(m)	(m)	(m)	(g/t Au)	Easting	Northing

Big Pond (A-Shoot)

BP-03-01	18.20	21.35	3.15	6.99	349788	5287775

		incl	1.52	12.89

BP-03-02	33.30	34.10	0.80	11.24	349800	5287769

BP-03-03	38.10	39.32	1.22	6.71	349812	5287779

BP-03-04	69.13	70.44	1.31	10.51	349849	5287775

BP-03-05	69.20	73.21	4.01	2.42	349849	5287776

		incl.	0.98	5.60

BP-03-06	69.50	71.02	1.52	0.89	349855	5287789

BP-03-07	76.30	79.31	3.01	1.98	349854	5287789

BP-03-08	103.02	103.63	0.61	8.16	349894	5287788

BP-03-09				NSA	349898	5287791

BP-03-10	97.08	97.32	0.24	9.23	349952	5287798

BP-03-15	75.87	78.91	3.04	6.24	349849	5287775

		incl.	1.52	8.61

BP-03-16			ABANDONED		349882	5287791

Big Pond (B-Shoot)

BP-03-11				NSA	349872	5287861