10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 1-11887

CANYON RESOURCES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
Incorporation or organization) 84-0800747
(I.R.S. Employer
Identification No.)

14172 Denver West Parkway, Suite 250, Golden, CO
(Address of principal executive offices) 80401
(Zip Code)

(303) 278-8464
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.01 par value per share	American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o                No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes o                No þ

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

Yes þ                No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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

Large accelerated filer o           Accelerated filer o           Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                No þ

As of June 30, 2005, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $23,569,713 based on the closing sale price as reported on the National Association of Securities Dealers Automated Quotation System National Market System.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at March 20, 2006
Common Stock, $0.01 par value per share	38,320,533 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the registrant’s 2006 Annual Meeting of Stockholders scheduled to be held on June 6, 2006 and to be filed within 120 days of December 31, 2005, are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K.

CANYON RESOURCES CORPORATION
FORM 10-K
Year ended December 31, 2005

TABLE OF CONTENTS

Item
Number		Page
	PART I
1.	Business	1
1A.	Risk Factors	8
1B.	Unresolved Staff Comments	14
2.	Properties	15
3.	Legal Proceedings	30
4.	Submission of Matters to a Vote of Security Holders	31
	PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	31
6.	Selected Financial Data	32
7.	Management’s Discussion and Analysis of Financial Condition And Results of Operations	33
7A.	Quantitative and Qualitative Disclosures about Market Risk	45
8.	Financial Statements and Supplementary Data	46
9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	73
9A.	Controls and Procedures	73
9B.	Other Information	73
	PART III
10.	Directors and Executive Officers of the Registrant	74
11.	Executive Compensation	74
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	74
13.	Certain Relationships and Related Transactions	74
14.	Principal Accountant Fees and Services	74
	PART IV
15.	Exhibits and Financial Statement Schedules	75
Converse Uranium Project, Exploration, Development and Mine Operating Agreement
Subsidiaries of the Registrant
Consent of Ehrhardt Keefe Steiner & Hottman P.C.
Consent of PricewaterhouseCoopers LLP
Consent of Chlumsky, Armbrust & Meyer
Certification of CEO Pursuant to Section 302
Certification of Chief Accounting Officer Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of Chief Accounting Officer Pursuant to Section 906

PART I

ITEM 1 BUSINESS

GLOSSARY OF SELECTED MINING TERMS

Cut-off Grade: The minimum grade of ore used to establish reserves and mineralized material.

Doré: Unrefined gold and silver bullion consisting of approximately 90% precious metals that will be further refined to almost pure metal.

Feasibility Study: An engineering study designed to define the technical, economic, and legal viability of a mining project with a high degree of reliability.

Grade: The metal content of ore, usually expressed in troy ounces per ton or grams per tonne.

Heap Leaching: A method of recovering gold or other precious metals from a heap of ore placed on an impervious pad, whereby a dilute leaching solution is allowed to percolate through the heap, dissolving the precious metal, which is subsequently captured and recovered.

Mineralized Material: Rock containing minerals or metals of potential economic significance that has been delineated by drilling and/or sampling to establish continuity and support an estimate of tonnage and an average grade of the selected metal(s). Under Securities and Exchange Commission standards, such a deposit does not qualify as a reserve until a comprehensive evaluation based upon unit costs, grade, recoveries, and other factors concludes economic and legal feasibility.

Net Smelter Return Royalty: A defined percentage of the gross revenue from a mineral extraction operation, less a proportionate share of transportation, insurance, and processing costs.

Patented Mining Claim: A patented mining claim is one for which the Federal Government has passed its title to the claimant, making it private land. A person may mine and remove minerals from a mining claim without a mineral patent. However, a mineral patent gives the owner exclusive title to the locatable minerals. It also gives the owner title to the surface and other resources.

Probable Reserves: Reserves for which quantity and grade and/or quality are computed from information similar to that used for Proven Reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for Proven Reserves, is high enough to assume continuity between points of observation.

Proven Reserves: Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling, and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well-defined that size, shape, depth and mineral content of reserves are well-established.

Reclamation: The process of returning land to another use after mining is completed.

Recoverable: That portion of metal contained in ore that can be extracted by processing.

Reserves: That part of a mineral deposit which could be economically and legally extracted or produced at the time of reserve determination.

Run-of-Mine: Mined ore of a size that can be processed without further crushing.

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Strip Ratio: The ratio between tonnage of waste and ore in an open pit mine.

Tons or Tonnes: Tons or short tons contain 2,000 pounds and tonnes or metric tons contain 2,204.6 pounds or 1,000 kilograms.

Unpatented Mining Claim: A parcel of property located on federal lands pursuant to the General Mining Law and the requirements of the state in which the unpatented claim is located, the paramount title of which remains with the federal government. The holder of a valid, unpatented lode-mining claim is granted certain rights including the right to explore and mine such claim under the General Mining Law.

Waste: Barren rock or mineralized material that is too low in grade to be economically processed.

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The matters discussed in this Annual Report on Form 10-K, when not historical matters are forward-looking statements that involve a number of risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein. Such forward-looking statements include, among others, scoping and feasibility studies for the Briggs and Reward projects and non-cyanide recovery testwork, mineralized material estimates, potential residual production levels, future expenditures, cash requirement predictions, the ability to finance continuing operations and the potential reopening of the Briggs mines. Factors that could cause actual results to differ materially from these forward-looking statements include, among others, the factors described in “Item 1A – Risk Factors” of this Annual Report on Form 10-K. Many of these factors are beyond our ability to control or predict. We disclaim any intent or obligation to update our forward-looking statements, whether as a result of receiving new information, the occurrence of future events, or otherwise.

BUSINESS STRATEGY

Impairment of our McDonald Gold Project, combined with the opportunity presented by dramatic strengthening of the gold market, has caused us to undertake a critical review of all of our assets and activities. This has resulted in the development of a forward-looking strategy that focuses on creating near term cash flow from our existing property positions, while also creating growth from project generation, acquisition and joint venture activities.

The center point of our strategy is to plan the re-start of mining operations at our Briggs Mine. This site retains its operating permits and we continue to produce gold from residual leaching operations. We are currently performing infill drilling between the Goldtooth and Briggs Main pits and are conducting initial redevelopment activities at the Briggs Mine. It is expected that this data will result in a recalculation of ore reserves. Cost estimates for re-start of the operation will be prepared and we expect to finalize a new plan of operations for the Briggs mine and processing facilities, utilizing mineralized material at Briggs, and potentially the satellite Cecil R deposit and the nearby Reward deposit.

Canyon is actively pursuing and evaluating acquisition and joint venture opportunities. Our primary focus in this effort is to consolidate known gold deposits in close proximity to our Briggs Mine in the Panamint Range of California. Our second focus is on gold deposits located in Nevada, followed by a focus on North America in general. In this effort, it’s helpful that we have a 27 year exploration history in gold, uranium and industrial minerals. The information generated by this history, combined with our extensive mineral right positions in Montana, provides a strong opportunity for generating joint ventures. Under this strategy, we will join with other companies who can focus their funds and expertise on adding value to properties that we develop through mineral rights or information that we control, while we retain a joint venture or operating position in those properties.

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We are continuing to pursue the “takings claim” value of our impaired McDonald Project in Montana with the courts. We have filed a motion to pursue our Federal takings claim before the United Stated District Court in Helena, Montana and are waiting on the decision of the court concerning the docketing of this suit.

GENERAL

Canyon Resources Corporation, a Delaware corporation, is a Colorado-based company that was organized in 1979 to explore, acquire, develop, and mine precious metal and other mineral properties. References to “Canyon”, “we”, “our”, and “us” are used herein to refer to the Company or to any or all of the wholly-owned and majority-owned subsidiaries of Canyon Resources Corporation (See organizational chart on next page). Since 1986, we have been a reporting company. Our securities were traded on NASDAQ until August 16, 1996. On August 19, 1996, we listed our shares of common stock for trading on The American Stock Exchange (AMEX).

We are involved in all phases of the mining business from early stage exploration, exploration drilling, development drilling, feasibility studies and permitting, through construction, operation and final closure of mining properties.

We have gold production operations in the western United States (U.S.), and conduct exploration activities in the search for additional valuable mineral properties primarily in the western U.S. Our exploration and development efforts emphasize precious metals (gold and silver). We have conducted a portion of our mineral exploration and development through joint ventures with other companies. (See “Item 2 — Properties.”)

Once acquired, mineral properties are evaluated by means of geologic mapping, rock sampling, and geochemical analyses. Properties having favorable geologic conditions and anomalous geochemical results usually warrant further exploration. In almost all cases, exploration or development drilling is required to further test the mineral potential of a favorable property.

Properties that have demonstrated mineralized material of a potentially economic nature are further evaluated by conducting various studies, including calculation of tonnage and grade, metallurgical testing, development of a mine plan, environmental baseline studies and economic feasibility studies. If economics of a project are favorable, a plan of operations is developed and submitted to the required governmental agencies for review. Depending on the magnitude of the proposed project and its expected environmental impact, a rigorous environmental review may be required prior to issuance of permits for the construction of a mining operation.

The organizational chart on the following page reflects our legal ownership of significant active subsidiaries and ownership interests in various gold properties as of March 15, 2006. Properties are routinely being acquired, sold, joint-ventured, or abandoned in the ordinary course of business.

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1	The wholly-owned Reward project is currently retained at the corporate level.
2	We sold the property in 2002 but retained a 2.5% NSR royalty.
3	The Converse Joint Venture was established in early 2006 (See “Item 2 — Properties — Development Properties — Converse Uranium Joint Venture”).

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OPERATIONS

The Briggs Mine, located in southeastern California, produced 9,289 ounces of gold and 1,700 ounces of silver, which represents all of our production during 2005. Briggs is continuing reclamation activities on the leach pad but is currently in the process of redeveloping the mine facilities for possible re-start of mining operations in late 2006 or early 2007. (See “Item 2 — Properties — Production Properties — Briggs Mine.”)

The Kendall Mine, located near Lewistown, Montana, continued with reclamation and closure activities, principally relating to collection, treatment and disposal of water collected from the process system and mine area, and in re-contouring the leach pads and pit areas. (See “Item 2 — Properties — Closure Properties — Kendall Mine.”)

Recent development activities included the acquisition and pre-feasibility study of the Reward property located in southwestern Nevada and the acquisition and subsequent joint venture of uranium properties located in east-central Wyoming. Exploration activities during 2005 included infill drilling around the Briggs Mine and the optioning, evaluation and subsequent release of the Hycroft property located in Nevada.

FINANCING

Equity Transactions

On December 2, 2005, we raised $2,373,009 through the sale of units, at $0.76 per unit, consisting of 3,300,004 shares of unregistered common stock, 1,650,003 Series A warrants with an exercise price of $1.30 per share, and 825,004 Series B warrants with an exercise price of $1.08 per share. Additionally, H.C. Wainwright & Co., Inc. acted as placement agent and received 115,500 Series A warrants, 57,750 Series B warrants, and 231,000 Series C warrants as part of its fee. The Series C warrants have an exercise price of $0.76 per share. The shares of common stock underlying the warrants were unregistered. In late December 2005, we filed an S-1 registration statement with the Securities and Exchange Commission (the “SEC”) to register the shares of common stock issued and the shares of common stock underlying the warrants.

On March 15, 2005, we raised $3,148,417 through the sale of units, at $0.721 per unit, consisting of 4,366,735 shares of registered common stock and 2,651,466 warrants. The shares of common stock were registered through a shelf registration statement declared effective by the SEC on February 27, 2004. The warrants are exercisable at a price of $1.03 per share of common stock from September 22, 2005 until March 14, 2008 and will become registered when the recently filed S-1 Registration Statement becomes effective.

On March 1, 2005, our $2,424,000 convertible subordinated debentures became due. Debenture holders of $1,599,000 were paid the principal amounts of their notes in either cash or shares of common stock and warrants, and debenture holders of $825,000 agreed to extend the term of their debentures to March 1, 2011.

During 2005, exercise of stock options resulted in proceeds of approximately $6,600 and 10,000 shares of common stock were issued.

During 2004, debenture holders of $250,000 converted their principal amounts to 181,158 shares.

In March 2004, we raised $7,127,300 through the sale of 1,631,000 shares of common stock at a price of $4.37 per share. The shares of common stock were registered through a shelf registration statement declared effective by the SEC on February 27, 2004.

During 2004, certain outstanding warrants were exercised which resulted in the issuance of 1,499,700 shares of common stock where $2,529,400 in proceeds were received.

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During 2004, exercise of stock options resulted in proceeds of approximately $180,200 and the issuance of 162,500 shares of common stock.

During 2004, 139,500 shares of common stock were issued to an employee as compensation for services.

Leasing Arrangements and Equipment Lease Buyouts

We originally leased most of mining and electrical generation equipment for the Briggs Mine. In January 2003, we exercised a lease purchase option to buy the remaining mining fleet for approximately $1.6 million at an interest rate of 6.75%, which was paid off in 2004.

AVAILABILITY OF MINERAL DEPOSITS; COMPETITION AND MARKETS

Gold mineralization is found in many countries and in many different geologic environments, and in most cases, is accompanied by the presence of silver mineralization. Country politics and tax structure are important criteria, as well as the geologic favorability, in the decision to invest in exploration in a country. Since many companies are engaged in the exploration and development of gold properties and often have substantially greater technical and financial resources than us, we may be at a disadvantage with respect to some of our competitors in the acquisition and development of suitable mining prospects. Mineral properties in an early stage of exploration, or not currently being explored, are often relatively inexpensive to acquire; therefore, we believe that the expertise of our staff and our ability to rapidly evaluate and respond to opportunities allow us to compete effectively for such properties with many companies having far greater financial resources.

In general, larger and higher grade gold deposits can be produced at a lower cost per ounce than smaller and lower grade deposits. Also, deposits that can be mined by open pit methods often can be exploited more profitably than those which must be mined by underground methods. There are numerous large gold mining operations throughout the world owned by other companies that are able to produce gold for a lower cost than we can. Demand for gold and other factors in the financial marketplace have more of an impact on the gold price than does the production of larger, lower cost producers due to the large above-ground supplies. Therefore, our principal competitive objective is to acquire suitable mining prospects rather than market gold.

The marketing of all minerals is affected by numerous factors, many of which are beyond our control. Such factors include the price of the mineral in the marketplace, imports of minerals from other nations, demand for minerals, the availability of adequate refining and milling facilities, and the market price of competitive minerals used in the same industrial applications. The market price of minerals is extremely volatile and beyond our control. Gold prices are generally influenced by basic supply/demand fundamentals, inflation, alternative investment markets, and the strength or weakness of the U.S. dollar. The market dynamics of supply/demand can be heavily influenced by economic policy; e.g., central banks sales/purchases, political unrest, conflicts between nations, and general perceptions about inflation. Fluctuating metal prices may have a significant impact on our results of operations and operating cash flow. Decreasing mineral prices will adversely affect the market values of our properties and may lead to the recording of asset impairments.

The decision to put a mine into production and the commitment of the funds necessary for that purpose must be made long before the first revenues from production will be received. During the last five years, the average annual market price of gold has fluctuated between $271 and $445 per ounce. The economics of a mine may change due to price fluctuations during the project’s life. Although it is possible to protect against price fluctuations by hedging in certain circumstances, the volatility of mineral prices represents a substantial risk in the mining industry. We may hedge a portion of our production under certain operational and market conditions, or if required by a bank related to a financing.

CUSTOMERS

In 2005 and 2004, our gold production was sold primarily to Standard Bank London Limited and our silver production to Metalor USA Refining Corporation. Given the nature of the commodities being sold and because

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many other potential purchasers of gold and silver exist, we do not believe that the loss of such buyers would have an adverse effect on our results of operations or financial condition.

ENVIRONMENTAL MATTERS

The exploration, development, and production programs we conduct in the U.S. are subject to local, state, and federal regulations regarding environmental protection. Many of our mining and exploration activities are conducted on public lands. The USDA Forest Service extensively regulates mining operations conducted in National Forests. Department of Interior regulations cover mining operations carried out on most other public lands. All of our operations involving the exploration for or the production of minerals are subject to existing laws and regulations relating to exploration procedures, safety precautions, employee health and safety, air quality standards, pollution of water sources, waste materials, odor, noise, dust and other environmental protection requirements adopted by federal, state and local governmental authorities. We may be required to prepare and present to such authorities data pertaining to the effect or impact that any proposed exploration for or production of minerals may have upon the environment. The requirements imposed by any such authorities may be costly, time consuming, and may delay operations. Future legislation and regulations designed to protect the environment, as well as future interpretations of existing laws and regulations, may require substantial increases in equipment and operating costs and delays, interruptions, or a termination of operations. We cannot accurately predict or estimate the impact of any such future laws or regulations, or future interpretations of existing laws and regulations, on our operations.

The U.S. has an extensive framework of environmental legislation that undergoes constant revision. We participate in the legislative process through independent contact with legislators and through trade organizations to assist legislative bodies in making informed decisions.

Historic mining activities have occurred on certain of our properties. In the event that such historic activities have resulted in releases or threatened releases of regulated substances to the environment, potential for liability may exist under federal or state remediation statutes. We are not aware of any pending claims under these statutes at this time, and cannot predict whether any such claims will be asserted in the future.

Environmental regulations add to the cost and time needed to bring new mines into production and add to operating and closure costs for mines already in operation. As we place more mines into production, the costs associated with regulatory compliance can be expected to increase. Such costs are a normal cost of doing business in the mining industry, and may require significant capital and operating expenditures in the future. Additional information and the potential effects of environmental regulation on specific properties are described in “Item 2 — Properties.”

Although some of the countries in which we may do business have not as yet developed environmental laws and regulations, it is our policy to adhere to North American standards. We cannot accurately predict or estimate the impact of any future laws or regulations developed in foreign countries on our operations.

We are also required to have surety bonds including reclamation bonds and a bond to mitigate any “foreseeable release” of pollutants (See “Item 1(A). Risk Factors”).

We believe that we are currently in material compliance with all applicable environmental regulations and there are no enforcement procedures currently ongoing.

EMPLOYEES

As of March 20, 2006, we had 20 employees. None of our employees are covered by collective bargaining agreements.

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SEASONALITY

Seasonality does not currently have a material impact on our operations.

PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS & GOVERNMENT CONTRACTS

Other than interests in mining properties granted by governmental authorities and private landowners, we do not own any material patents, trademarks, licenses, franchises or concessions.

ITEM 1A RISKS FACTORS

SPECIFIC RISKS RELATED TO US

Failure To Extend The Life Of The Briggs Mine Would Significantly Reduce Our Gold Production.

Our only income and revenue producing asset is the Briggs Mine, located in California. We placed our Briggs Mine in production in 1996 and it has produced 552,583 ounces of gold through December 2005. Portions of the mine are currently being reclaimed while we perform redevelopment activities, and the leach pad is being rinsed of residual cyanide while recovering projected production of approximately 1,700 ounces during 2006. Although we are exploring for additional gold reserves adjacent to the mine, there can be no assurance that our exploration program will be successful in allowing a re-start of mining activities. Our failure to extend the life of the Briggs Mine may have a significant adverse effect upon our future gold production and our financial condition.

Montana Regulatory Authorities May Impose Reclamation Requirements On Our Closure of the Kendall Mine That Would Significantly Increase Our Funding Requirements for Such Closure.

Our wholly-owned subsidiary, CR Kendall Corporation, has spent approximately $10.3 million on reclamation and closure activities at the Kendall Mine through December 31, 2005, and expects to spend an additional $3.2 million through mine closure. In 1999 and 2000, the Montana Department of Environmental Quality (DEQ) revised the required reclamation bond amount from the existing $1.9 million to approximately $14.2 million. We believe the revised bond amount exceeds the cost of remaining work and our subsidiary filed an administrative appeal to the DEQ’s actions, which is still pending. In February 2001, CR Kendall Corporation entered into an agreement with the DEQ under which the $1.9 million supporting the then existing bond was transferred to an interest bearing account at the DEQ for use in continuing reclamation at the Kendall minesite and the appeals regarding bond amounts were stayed.

In January 2002, we became aware that the DEQ intends to proceed with an Environmental Impact Statement (EIS) to determine the closure requirements for final reclamation at our Kendall Mine. After a long hiatus the EIS has been reactivated and work is ongoing and we are working closely with the DEQ to finalize it. Depending on the outcome of the EIS, the reclamation costs may vary from our current estimate. The release of our financial obligation on the property will only take place once the regulatory agencies have given final approval to all closure measures and are satisfied that the mine has met all reclamation requirements. There is no assurance of agency satisfaction with mine closure. The amounts necessary to achieve a final mine closure may be impacted by the outcome of the described pending matters and we may not have sufficient funds to complete the Kendall reclamation if such matters are resolved adversely to us, which would have a material adverse effect on our business.

Unfavorable Resolution Of The McDonald Lawsuit Would Prevent Us From Realizing Its Value.

In November 1998, the Montana electorate passed an anti-cyanide initiative (I-137). I-137, as modified by the State Legislature in April 1999, bans development of new gold and silver mines, which use open-pit mining methods and cyanide in the treatment and recovery process. In April 2000, our Seven-Up Pete Venture (SPV) filed lawsuits in Montana State District Court and in the U.S. District Court, seeking to have I-137 declared

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unconstitutional, or, alternatively, to obtain a “takings” or damage award for the lost value of the SPV’s mineral properties. The SPV’s federal takings claims were stayed pending exhaustion of remedies available to it at the state level. Through a series of court decisions, most recently with a Montana Supreme Court decision on June 8, 2005, the provisions of I-137 were upheld and the SPV was denied its takings compensation claim and the Montana Supreme Court affirmed the cancellation of the state mining leases over the core of the McDonald deposit, which is a part of the SPV. On July 19, 2005, the SPV, along with private plaintiffs, filed a motion in the U.S. District Court to reopen its reserved federal takings claim. On November 4, 2005, SPV, together with private plaintiffs, filed a petition for Writ of Certiorari with the U.S. Supreme Court, seeking review of the Montana Supreme Court decision. On January 27, 2006 the U.S. District Court denied the motion to reopen the reserved federal takings claims because of the pending petition to the U.S. Supreme Court, but ruled the motion may be refiled once the Montana Supreme Court decision has been finalized by action of the U.S. Supreme Court. On February 21, 2006, the U.S. Supreme Court denied grant of certiorari. As a result, on that same day the SPV filed a motion to reopen its U.S. District Court claim.

Gold Production at Our Briggs Mine Involves Many Steps and the Amount of Gold to be Recovered is Not Known with Certainty.

We have historically produced gold at our Briggs Mine using the heap leaching process. This process involves the application of cyanide solutions by drip irrigation to ore stacked on an impervious pad. As the solution percolates through the heap, gold is dissolved from the ore into solution. In March 2005, we stopped adding cyanide to the process and have been “rinsing” the pad with water only, since that time. The result of this “rinsing” is that the water pushes out any residual gold that was previously dissolved when we were adding cyanide. This rinse solution is collected and processed with activated carbon that collects the gold from the solution onto the carbon. Through the subsequent process of pressure stripping the gold is returned to solution in a more highly concentrated state. This concentrated solution of gold is further processed in an electrowinning circuit, which collects the gold onto electric cathodes which are melted into gold bars. In October 2005, we achieved our goal of producing all of the previously estimated “recoverable” gold on the leach pad. This estimated “recoverable” gold quantity was computed based on estimates derived from laboratory leach column tests of the ore and then applying the estimated recovery percentage to the ores on the leach pad. Subsequent (after October 2005) gold production is now above the amounts forecasted within the recovery models used at the mine and are, therefore, highly speculative and we cannot know with certainty the amount of gold to be recovered from the Briggs Mine. The forecasts are based on actual production of the last few months and the schedule of remaining areas to be rinsed on the leach pad.

Recent California Legislation and Regulations May Prohibit Us From Developing Any Projects Adjacent to Our Briggs Mine.

On December 12, 2002, the California State Mining and Geology Board (CSMGB) enacted an Emergency Backfill Regulation, for 120 days, that essentially requires that all future metal mines be backfilled to the original contour of the landscape. On April 10, 2003, the CSMGB made this backfill regulation permanent. In April 2003, the California Legislature passed a bill which stipulates that, if a project is located within one mile of a Native American sacred site and on limited use lands within the California Desert Conservation Area (CDCA), new open-pit metal mine projects must be backfilled during reclamation. Our Briggs project is located in the Panamint Range within the designated limited use land of the CDCA and the nearby Timbisha Shoshone Native American tribe has stated that they consider the entire project area to be sacred. Any new open pit developments on our properties outside the existing plan of operations area might be required to comply with these regulations. However, the bill also provides an exemption from the backfilling requirement in the case of any amended reclamation plan or financial assurances necessary for the continued operation or expansion of a surface mining operation in existence on January 1, 2003, as was Briggs.

We Have Significant Obligations At The Briggs Mine, Which May Adversely Impact Liquidity.

Our Briggs Mine in California operates under a number of permits issued by state, local and federal agencies. Those agencies required us to post $4.2 million in surety bonds including a $3.0 million reclamation bond, a $1.0

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million bond to mitigate any “foreseeable release” of pollutants, and a $0.1 million reclamation bond for exploration. We have partially collateralized the surety bonds at the Briggs Mine with $0.1 million in cash, a $0.2 million letter of credit and a security interest in 28,000 acres of real property mineral interests. We also have agreed to make additional cash deposits with the surety totaling $1.5 million over a three year period at the rate of $0.5 million per year, commencing June 30, 2001. Neither the $0.5 million due on June 30, 2001, June 30, 2002 or June 30, 2003 were deposited with the surety. We have held discussions with the surety to modify the agreement. There can be no assurance that we will be able to renegotiate the agreement with the surety and we could be subject to a potential legal proceeding by the surety for the funds. The requirement to pay the surety these amounts totaling $1.5 million would adversely impact our liquidity and financial condition. We are actively conducting closure and reclamation activities on the heap leach pads at the Briggs Mine.

We Have A History Of Losses, Which May Continue In The Future.

Our operating history has resulted in losses from operations for the past five fiscal years. We also anticipate a loss from operations for the fiscal year ended December 31, 2006. In the past the Briggs Mine has been profitable during a given fiscal year; however, our operations as a whole may be unprofitable due to:

• exploration and development costs on properties from which no revenue is derived;

• continuing general and administrative costs; and

• interest expense associated with debt.

Our Briggs Mine ceased mining operations in early 2004, but we are currently redeveloping the Briggs facilities with the expectation to re-start the mining operations in late 2006 or early 2007. Although we have identified several additional new sources of gold production and revenue, there is no assurance that we will be successful in developing profitable operations in the future.

RISKS RELATED TO OUR MINERAL EXPLORATION AND DEVELOPMENT ACTIVITIES

We May Not Have Sufficient Funding For Exploration, Which May Hinder Our Growth.

Historically, we have funded our exploration activities through joint venture partners as well as using our own cash resources. Additional funding from existing partners or third parties, however, may be necessary to conduct detailed and thorough evaluations of, and to develop certain properties. Our ability to obtain this financing will depend upon, among other things, the price of gold and the industry’s perception of its future price. Therefore, availability of funding is dependent largely upon factors outside of our control, and cannot be accurately predicted. We do not know from what sources we will derive any required funding. If we cannot raise additional funds, as to which there can be no assurance, we will not be able to fund certain exploration activities. Until additional funds become available, we anticipate restricting our exploration activities to the vicinity of our Briggs Mine.

We May Not Have Sufficient Funding To Achieve Production If Our Exploration and Development Is Successful.

We will be required to expend potentially large sums if our exploration and/or development activities are successful in developing new ore reserves near our Briggs Mine or on other properties and we wish to put such properties into production. The amount of such financing could be reduced if we sell assets or enter into joint ventures on one or more of our properties. We will need to seek additional funding for the Seven-Up Pete and Reward projects if environmental permitting and development proceeds. However, there can be no assurance that we will be able to obtain the required funds for all or any of our projects. Failure to obtain such funds may reduce our profitability and growth.

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The Nature Of Mineral Exploration And Production Activities Involves A High Degree Of Risk; We Could Incur A Writedown On Our Investment In Any Project.

Exploration for minerals is highly speculative and involves greater risk than many other businesses. Many exploration programs, including some of ours, do not result in the discovery of mineralization and any mineralization discovered may not be of sufficient quantity or quality to be profitably mined. Uncertainties as to the metallurgical amenability of any minerals discovered may not warrant the mining of these minerals on the basis of available technology. Our operations are subject to all of the operating hazards and risks normally incident to exploring for and developing mineral properties, such as:

• encountering unusual or unexpected formations;

• environmental pollution;

• personal injury and flooding;

• decrease in recoverable reserves due to a lower precious metal price; and

• changing environmental laws and regulations.

If management determines that, based on any factors including the foregoing, capitalized costs associated with any of our mineral interests are not likely to be recovered, we would incur a writedown on our investment in such property interest. We have experienced losses of this type from time to time. During the second quarter of 2005, we wrote off our carrying value of the McDonald Gold Project by approximately $9.2 million. In 2003, we wrote down our investment in the Briggs Mine by approximately $3.4 million.

Our Industry Is Highly Competitive, Mineral Lands Are Scarce, And We May Not Be Able To Obtain Quality Properties.

In addition to us, many companies and individuals engage in the mining business, including large, established mining companies with substantial capabilities and long earnings records. There is a limited supply of desirable mineral lands available for claim staking, lease, or acquisition in the U.S. and other areas where we conduct exploration activities. We may be at a competitive disadvantage in acquiring mining properties since we must compete with these individuals and companies, many of which have greater financial resources and larger technical staffs. The annual exploration budgets for major mining companies typically are tens of millions of dollars. Our exploration budget for 2006 is expected to be not more than $1.5 million. From time to time, specific properties or areas which would otherwise be attractive to us for exploration or acquisition are unavailable due to their previous acquisition by other companies.

Gold Prices Are Volatile And Declines Have An Adverse Effect On Our Share Price And Business Plan.

The market price of minerals is extremely volatile and beyond our control. Basic supply/demand fundamentals generally influence gold prices. The market dynamics of supply/demand can be heavily influenced by economic policy. Fluctuating metal prices have a significant impact on our results of operations and operating cash flow. Furthermore, if the price of a mineral should drop dramatically, the value of our properties which are being explored or developed for that mineral could also drop dramatically and we might not be able to recover our investment in those properties. Our decision to put a mine into production, and commitment of the funds necessary for that purpose must be made long before the first revenues from production will be received. During the prior five years, the average annual market price of gold has fluctuated between $271 per ounce and $445 per ounce. Price fluctuations between the time that we make such a decision and the commencement of production can completely change the economics of the mine. Although it is possible for us to protect against some price fluctuations by hedging in certain circumstances, the volatility of mineral prices represents a substantial risk in which no amount of planning or technical expertise can eliminate. Generally, we sell gold at spot prices, unless price hedging is required in connection with project loans.

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The average annual gold price per ounce since 2001 based on the London PM Fix is as follows:

2001	2002		2003		2004		2005
$271	$	310	$	363	$	410	$	445

The year-to-date average London PM Fix gold price as of March 20, 2006 was $553 per ounce.

We Must Comply With Complex Environmental Regulations Which Are Increasing And Costly.

Compliance with environmental quality requirements and reclamation laws imposed by federal, state, provincial, and local governmental authorities may:

• require significant capital outlays;

• materially affect the economics of a given property;

• cause material changes or delays in our intended activities; and

• expose us to lawsuits.

These authorities may require us to prepare and present data pertaining to the effect or impact that any proposed exploration for or production of minerals may have upon the environment. The requirements imposed by any such authorities may be costly, time consuming, and may delay operations. Future legislation and regulations designed to protect the environment, as well as future interpretations of existing laws and regulations, may require substantial increases in equipment and operating costs and delays, interruptions, or a termination of operations. We cannot accurately predict or estimate the impact of any such future laws or regulations, or future interpretations of existing laws and regulations, on our operations. Historic mining activities have occurred on certain of our properties. If such historic activities have resulted in releases or threatened releases of regulated substances to the environment, potential for liability may exist under federal or state remediation statutes. Except as discussed in our periodic filings with the SEC, we are not aware of any such claims under these statutes at this time, and cannot predict whether any such claims will be asserted in the future.

Title To Mineral Properties Can Be Uncertain And We Are At Risk Of Loss Of Ownership.

Our U.S. mineral properties consist of private mineral rights, leases covering state and private lands, leases of unpatented mining claims, and unpatented mining claims. Many of our mining properties in the U.S. are unpatented mining claims to which we have only possessory title. Because title to unpatented mining claims is subject to inherent uncertainties, it is difficult to determine conclusively ownership of such claims. These uncertainties relate to such things as sufficiency of mineral discovery, proper posting and marking of boundaries and possible conflicts with other claims not determinable from descriptions of record. Since a substantial portion of all mineral exploration, development and mining in the U.S. now occurs on unpatented mining claims, this uncertainty is inherent in the mining industry.

The present status of our unpatented mining claims located on public lands allows us the exclusive right to mine and remove valuable minerals, such as precious and base metals. We also are allowed to use the surface of the land solely for purposes related to mining and processing the mineral-bearing ores. However, legal ownership of the land remains with the U.S. We remain at risk that the mining claims may be forfeited either to the U.S. or to rival private claimants due to failure to comply with statutory requirements.

Legislation Has Been Proposed That Would Significantly Affect The Mining Industry.

Members of the U.S. Congress have repeatedly introduced bills which would supplant or alter the provisions of the Mining Law of 1872. If enacted, such legislation could change the cost of holding unpatented mining claims and could significantly impact our ability to develop mineralized material on unpatented mining claims. Such bills have proposed, among other things, to either eliminate or greatly limit the right to a mineral patent and to impose a federal royalty on production from unpatented mining claims. Although it is impossible to predict at this point what any legislated royalties might be, enactment could adversely affect the potential for development of such

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mining claims and the economics of existing operating mines on federal unpatented mining claims. Passage of such legislation could adversely affect our financial performance.

The Economics and Ore Grades at Current And Future Development Properties Are Uncertain, And We Could Experience A Write-down On Our Investment.

Decisions as to whether any of the mineral development properties, which we now hold or which we may acquire in the future, contain commercial ore reserves and whether such properties should therefore be sold, retained or brought into production will depend upon the results of exploration programs and/or feasibility analyses and the recommendations of duly qualified engineers or geologists. There can be no assurance that any of the development properties we now hold, or which we may acquire, will contain a commercial ore reserve, and therefore, no assurance that we will ever generate a positive cash flow from the sale of production on such properties. In addition, once we decide to place a property into production, risks still exist that the amount and grade of its reserves will not actually be as predicted. To the extent we experience lower amounts and/or grades of reserves, the costs per unit produced and profitability can be adversely affected. Depending upon the extent of such an effect on any of our properties, we could incur a writedown on our investment in any such property.

RISKS RELATED TO OUR COMMON STOCK

The Exercise Of Options, Warrants, And Conversion Of Our Existing Debentures And The Future Issuances Of Common Stock Will Dilute Current Shareholders And May Reduce The Market Price Of Our Common Stock.

We have a substantial amount of outstanding options, warrants and convertible debentures that if completely exercised would dilute existing stockholders’ ownership by approximately 27%. While a substantial portion of our outstanding derivative securities are exercisable at prices in excess of the current market price of our common stock, if our share price increases substantially and these securities are exercised, then purchasers may experience substantial dilution of book value per share of our common stock. The issuance of additional securities may also reduce the market price of our common stock. The Board of Directors has the authority to authorize the offer and sale of additional securities without the vote of or notice to existing shareholders. Based on the need for additional capital to fund expected growth, it is likely that we will issue additional securities to provide such capital, and that such additional issuances may involve a significant number of shares. The issuance of additional securities will further dilute the percentage interests and may dilute the per share book value of persons purchasing securities in this offering, and may also reduce the market price of our common stock.

We are subject to the Continued Listing Criteria of the American Stock Exchange (“AMEX”).

Our common stock is currently listed on AMEX. In order to maintain our listing on AMEX, we must maintain certain share prices, financial and distribution targets, including maintaining a minimum amount of stockholders’ equity and a minimum number of public stockholders. In addition to objective standards, AMEX may delist the securities of any issuer if in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make further dealings on AMEX inadvisable; if the issuer sells or disposes of principal operating assets or ceases to be an operating company; if an issuer fails to comply with AMEX’s listing requirements; if an issuer’s common stock sells at what AMEX considers a “low selling price” and the issuer fails to correct this via a reverse split of shares of common stock after notification by AMEX; or if any other event shall occur or any condition shall exist which makes further dealings with AMEX, in its opinion, unadvisable.

If AMEX were to delist our common stock, investors could face material adverse consequences, including, but not limited to, a lack of a trading market for our securities, decreased analyst coverage of our securities, and an inability for us to obtain additional financing to fund our operations.

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The Price Of Our Common Stock Has A History of Volatility, Which May Prevent Shareholders From Realizing A Profit From Their Investment During Particular Time Frames.

The market price for shares of our common stock may be highly volatile depending on news announcements or changes in general market conditions. In recent years, the stock market has experienced extreme price and volume fluctuations. From January 1, 2003 to December 31 2005, our stock has traded in a range from a high of $5.17 to a low of $0.57 per share. Such volatility may prevent shareholders from realizing a profit on their investment during particular time frames in which they may wish to sell.

We Have Change In Control Provisions That Discourage A Corporate Takeover And Could Deprive Shareholders Of Opportunities To Sell At Temporarily Higher Prices.

Our Certificate of Incorporation and Bylaws contain certain measures designed to make it more difficult and time-consuming to change majority control of our Board of Directors and to reduce our vulnerability to an unsolicited take over offer, particularly an offer which does not contemplate the acquisition of all our outstanding shares of common stock or which does contemplate the restructuring or sales of all or part of our assets. These measures include:

• a provision that our directors may be removed only for cause and only with the approval of at least 66-2/3% of the shareholders entitled to vote for the election of directors;

• a provision that any vacancy on the Board may be filled by the remaining directors then in office, though less than a quorum; and

• a provision requiring a 66-2/3% shareholder vote to amend or repeal, or to adopt any provision inconsistent with these measures.

The foregoing measures may have certain negative consequences, including an effect on the ability of our shareholders or other individuals to:

• change the composition of the incumbent board of directors;

• benefit from certain transactions which are opposed by the incumbent board of directors; and

• make a tender offer or otherwise attempt to gain control of us, even if such attempt was beneficial to us and our shareholders.

The provisions relating to the removal of directors and the filling of vacancies limit the power of shareholders, even those with a majority interest in us, to remove incumbent directors and to fill vacancies on the board of directors.

In addition, in March of 1997, our Board adopted a Shareholder Rights Agreement designed to protect and maximize the value of our outstanding equity interest in the event of an unsolicited attempt by an acquirer to take us over, in a manner or on terms not approved by the Board. Takeover attempts frequently include coercive tactics to deprive a corporation’s Board of Directors the opportunity to negotiate or otherwise act in the best interest of its stockholders. Our Board believes these tactics often deprive stockholders of the full value of their shares. The Shareholder Rights Agreement, however, may have the effect of rendering more difficult or discouraging any acquisition of us deemed undesirable by the Board. The Shareholder Rights Agreement will cause substantial dilution to a person or group that attempts to acquire us on terms or in a manner not approved by the Board, except pursuant to an offer conditioned upon the elimination, purchase or redemption of the rights provided for in the Shareholder Rights Agreement which expires on March 20, 2007.

ITEM 1B UNRESOLVED STAFF COMMENTS

Not applicable.

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ITEM 2 PROPERTIES

CANYON RESOURCES CORPORATION
PROPERTIES AS OF 12/31/05

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The following table provides a summary of the most significant properties in which we have an interest as of December 31, 2005. More detailed information regarding each of these properties is provided in the text that follows.

		NATURE OF	DATES
PROPERTY	INTEREST	INTEREST	ACQUIRED	EXPIRY DATES
Production Properties:
Briggs Mine	100%	Patented &	1990	2010
		unpatented mining
		claims & leases
Kendall Mine	100%	Fee land	1987, 1990, 2001	Not applicable
Development Properties:
Seven-Up Pete	100%1	Patented &	1990, 1997	2007-2010
		unpatented mining
		claims
Reward	100%	Unpatented mining	2004, 2006	2024-2025
		claims & leases
Exploration Properties:
Panamint Range	100%	Unpatented mining	1990, 2006	Successive 5-year
		claims & leases		terms
Montana 900,000 acres	100%	Fee mineral rights	1990	Not applicable
Mina Cacha (Argentina)	2.5%	NSR royalty	1994	Not applicable
Converse Joint Venture	100%2	Unpatented mining	2005	2015
		claims & leases

1	See discussion at “Development Properties — Seven-Up Pete Venture — Legal Status.”
2	Property was joint-ventured in early 2006 with a uranium company. We retain 100% ownership until our partner achieves certain farm-in milestones after which they may earn up to a 75% interest.

PRODUCTION PROPERTIES

Briggs Mine

General

We acquired the Briggs Mine, located on the west side of the Panamint Range near Death Valley, California, in 1990. CR Briggs, our wholly-owned subsidiary, controls approximately 2,000 acres in Inyo County, California approximately 30 miles southwest of Bishop, CA. It is 16 miles northeast of Trona and 35 miles northeast of Ridgecrest in Inyo County, California. The legal description of the project area is Townships 21 through 23, and Range 44 through 45 West, Mount Diablo Meridian. Twelve unpatented claims and 3 patented claims are held by leases. CR Briggs owns 189 unpatented claims and 18 mill site claims for a total land package of 3 patented claims, 201 unpatented lode claims and 18 mill site claims on U.S. Bureau of Land Management (BLM) administered land. We own or control, through leasehold interests, 100% of the Briggs Mine, subject to a 3% net smelter returns royalty. Our mining claims are located on land prescribed for multiple use management by the BLM.

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Operations

The Briggs Mine is an open-pit, heap leach operation, initially designed to produce an average of 75,000 ounces of gold per year over a seven-year life. We increased the initial design production rate to approximately 85,000 ounces per year in 1999 and the site produced approximately 96,000 ounces in 2001. From 1997 into 2002, the ore was crushed in three stages to a minus ¹/4 inch size and conveyor-stacked on the leach pad. Gold is recovered from leach solutions in a carbon adsorption plant and refined into doré bars on site.

The Briggs Mine was constructed in 1996 and, through December 31, 2005, has produced 553,000 ounces of gold and 154,000 ounces of silver. Since 1996, a total of 75 million tons of rock have been mined by open-pit methods, including 52 million tons of waste. Of the 23.5 million tons of ore mined, 18.6 million tons have been crushed and, along with 4.8 million tons of run-of-mine ore and 111,400 tons of ore with an average grade of 0.188 opt gold from underground mining have been placed on the leach pad. A total of 733,850 ounces of gold has been

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placed on the leach pad during this period. The Briggs Mine placed the last fresh ore on the pads in April 2004 due primarily to lack of mine development. It is expected that ore on the heap leach pad will be rinsed through May 2006 and result in production of approximately 1,700 ounces of gold in 2006.

We are currently performing infill drilling between the Goldtooth and Briggs Main pits and have begun initial redevelopment activities at the Briggs Mine. It is expected that this data will result in a recalculation of ore reserves. Cost estimates for re-start of the operation will be prepared and we expect to finalize a new plan of operations for the Briggs Mine and processing facilities, utilizing mineralized material at Briggs, the satellite Cecil R deposit, and the nearby Reward deposit in late 2006 or early 2007. Until we prepare the cost estimates, obtain the necessary permits and approvals, including any all necessary bonding requirements, and obtain financing, we cannot provide assurance that the plan will be implemented or result in profitable operations.

Upon completion of mining, some of the Briggs mining equipment, including two 85-ton trucks, one loader, and two blast-hole rigs were sold. Mobile equipment remaining at Briggs includes four 85-ton trucks, two loaders, four dozers, and two graders, which are being used in reclamation activities. The 600 ton per hour capacity, three stage crushing plant at Briggs is in good condition, but will require new conveyor belting, seals and other maintenance including minor structural steel repairs and modification to make it operable as part of the Briggs Mine redevelopment. The crushing plant, which was last operated in 2002, was never dismantled or removed from original foundations. The gold recovery plant and refinery is currently in operation and will require periodic standard maintenance and repair. Power for the mine is supplied by four 1.0 megawatt diesel generators. These units will require engine and generator rebuilds to support full operation.

Significant reclamation activities were conducted at the Briggs Mine during 2005, including re-contouring, capping, and re-vegetation of selected areas. Over 86% of the site has now been re-contoured and most of the waste dumps have had growth media topsoil placed and seeded. During the year over 60% of the leach pad was re-contoured while gold leaching was underway. We believe this contributed to higher than planned gold recovery. Once gold recovery is completed, the pad will be rinsed, contoured to final slopes, covered, and seeded. If a decision is made to re-start the Briggs Mine during 2006, a new leach pad will be required for any future production.

The Briggs gold deposit is hosted by Precambrian quartz and amphibolite gneisses that have been severely deformed by faults of Tertiary age. High-angle faults and shear zones have acted as vertical conduits that channeled gold-bearing hydrothermal fluids upwards into a series of stacked low-angle faults. The primary high angle fault system in the Briggs mine area, which is believed to be the primary conduit for gold mineralization, is the north-south trending Goldtooth fault.

Statistical production and financial data for the last five years for the Briggs Mine are shown on the following table.

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BRIGGS MINE OPERATIONS

	2005		2004		2003		2002		2001
PRODUCTION
Open-Pit Mining
Tons mined (waste and ore)		—		1,330,399		6,858,500		8,885,600		11,490,750
Tons ore mined (crusher ore)		—		—		332,900		27,200		3,383,700
Gold grade of crusher ore (oz/ton)		—		—		0.051		0.043		0.036
Tons run-of-mine ore (ROM)		—		575,913		504,400		1,786,900		302,100
Gold grade of ROM (oz/ton)		—		0.047		0.033		0.036		0.023
Strip ratio (tons waste/tons ore)		—		1.3:1		7.2:1		3.9:1		2.1:1
Underground Mining
Tons mined		—		—		—		89,700		21,700
Gold grade (oz/ton)		—		—		—		0.187		0.193
Gold production (oz)		9,289		29,662		36,645		57,058		96,141
Silver production (oz)		1,700		8,543		11,519		14,914		28,177
Recoverable gold inventory (oz)		—		7,468		15,484		33,360		34,854
FINANCIAL
Ounces of gold sold		9,263		29,515		37,506		57,838		97,443
Average gold price realized	$	445	$	398	$	345	$	300	$	289
Revenue from mine operations	$	4,140,300	$	11,813,900	$	13,010,100	$	17,377,100	$	28,126,000
Capital expenditures 1	$	334,900	$	366,700	$	3,216,500	$	1,079,400	$	3,488,300

1 Excludes exploration drilling and permitting costs for reserve expansion.

Environmental Regulation

The Briggs Mine operates under the requirements of the following permits and agencies: (1) Plan of Operations, BLM; (2) Mining and Reclamation Plan, Inyo County; (3) Waste Discharge Requirements, Lahontan Regional Water Quality Control Board; (4) Permits to Operate, Great Basin Unified Air Pollution Control District; and (5) Section 404 Dredge and Fill Permit, Army Corps of Engineers. In January 2000, the Briggs Mine obtained an amendment to its operating permit that allows mining of the North Briggs and Goldtooth deposits. The amendment was obtained through an Environmental Assessment conducted by the BLM and an equivalent document approved by the Inyo County Planning Commission. In December 2000, the Briggs Mine obtained an amendment which allows increase of the leach pad total height to 190 feet, from the previous limit of 150 feet, approved by the BLM, the Inyo County Planning Commission, and Lahontan Regional Water Quality Board.

The BLM, Inyo County, the California Department of Conservation, and the Lahontan Regional Water Quality Control Board (Lahontan) have jointly required us to maintain a $3.03 million reclamation bond to ensure appropriate reclamation of the Briggs Mine. Additionally, Lahontan requires that we maintain a $1.01 million bond to ensure adequate funds to mitigate any “foreseeable release” of pollutants to state waters. The principal amounts of the bonds are subject to annual review and adjustment, and we have partially collateralized the bonds as follows: (1) $0.152 million held directly by the surety; (2) a bank Letter of Credit in the amount of $0.249 million which is collateralized with cash; and (3) a security interest in 28,000 acres of real property mineral interests in Montana. In 2000, we agreed to make additional cash deposits with the surety totaling $1.5 million over a three year period at the rate of $0.5 million per year, commencing June 30, 2001. We have not made any deposits to date, and have held discussions with the surety to reschedule the deposit requirements. If an acceptable rescheduling of the deposit requirements cannot be agreed to, the surety could seek to terminate the bonds which could result in us becoming liable for the principal amounts under our collateral agreement with the surety.

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DEVELOPMENT PROPERTIES

Seven-Up Pete Venture

General

Our Seven-Up Pete Venture (SPV) includes the Seven-Up Pete gold deposit, the McDonald gold deposit and the adjacent Keep Cool deposit.

On September 25, 1997, we, together with our wholly-owned subsidiary, CR Montana Corporation (CR Montana), purchased a 72.25% participating interest and underlying assets in the Seven-Up Pete Venture (SPV) from CR Montana’s partner in the SPV, Phelps Dodge Corporation (Phelps Dodge). The Company and its wholly-owned subsidiary now own 100% of the SPV.

We made an initial payment of $5 million and are required to make a final payment of $10 million upon issuance of all permits required for construction of the McDonald Gold Project, or alternatively, one-third of any proceeds received from a takings lawsuit. Due to the contingent nature of the transaction, we recorded only the initial payment of $5 million as additions to mining claims and leases.

The purchase payments are collateralized only by the 72.25% participating interest and underlying assets in the SPV transferred from Phelps Dodge to us and CR Montana in this transaction and the 50% co-tenancy interest in certain real property also transferred to us and CR Montana.

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McDonald Deposit

The McDonald gold deposit is a very large, open pitable, low grade gold deposit that is currently dependent on the use of the cyanide heap leach gold recovery process for economic viability. The viability on this project was severely impacted with the passage of the anti-cyanide ballot initiative I-137 in November 1998, which made the use of cyanide based gold recovery in open pit mining operations illegal in the State of Montana. Despite legal challenges and a subsequent initiative (I-147) to overturn I-137, the use of cyanide to recover gold from open pit mining operations in Montana remains illegal. In addition, as a result of a Montana Supreme Court decision dated June 8, 2005, the SPV’s mining leases with the State of Montana were cancelled. We are currently pursuing a takings claim for the value of this project in federal courts (see “Item 3. Legal Proceedings”, for a discussion on the McDonald Project). We wrote off the remaining $9.2 million of carrying value on this project at the end of the second quarter 2005.

The Keep Cool deposit is located two miles west of the McDonald Gold deposit in a similar rhyolitic horizon to McDonald. Keep Cool is believed to be a possible extension to the McDonald deposit and has only been

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delineated with a limited number of drill holes. About one third of the deposit is located on state mineral leases, now cancelled and the remainder on private lands.

Seven-Up Pete Deposit

The Seven-Up Pete property is part of the Seven-Up Pete Venture and is located seven miles east of Lincoln and 45 miles northwest of Helena, in Lewis and Clark County, Montana. Access to the properties is by dirt roads from a paved highway that crosses the property. The project consists of approximately 14 patented and 5 unpatented mining claims and most of the property is subject to a 5% net smelter returns royalty. Discussions are being held with owners of a portion of the mineral interests on the property for the purpose of perfecting our interest on their part of the property.

Between 1989 and 1993, exploration, bulk sampling, development studies, metallurgical testing, and environmental baseline studies were conducted on the Seven-Up Pete property. By 1993, the total drilling on the property was 378 holes totaling 159,410 feet of drilling. In addition, some 8,000 feet of surface trenching was completed. A Preliminary Feasibility Study was completed in January 1993, updating an earlier 1991 study.

The earlier studies utilized cyanide based gold recovery systems. State law currently prohibits the development of the Seven-Up Pete deposit as an open pit mine using conventional cyanide recovery technology. As a result, we have retained a reputable lab to conduct conventional gravity and froth flotation recovery analysis on bulk samples from the deposit. Initial results are promising, but substantial additional testwork is required to determine if this process route is viable. Final viability of a metallurgical process can only be determined through feasibility study to determine the economics of the project utilizing the new process route. Prior to development of the Seven-Up Pete deposit at any time in the future, an Environmental Impact Statement would need to be prepared and permitting approval would have to be gained.

The Seven-Up Pete property is covered by middle Tertiary andesitic volcanic rocks. The most important controls on mineralization at Seven-Up Pete are north to northwest-trending faults that have localized quartz-pyrite-precious metal mineralization. The structures generally dip to the west and can be up to 150 feet wide. Gold and silver occur in high grade quartz veins that are localized near the margins of the shear zone, as well as in lower grade shattered zones between the high grade veins. Gold mineralization occurs as free gold as well as submicroscopic particles associated with pyrite. A 2006 study performed utilizing the 1993 Feasibility Study mineral model without validation, indicates that unconstrained mineralized material associated with Seven-Up Pete controlled property totals 17 million tons at a grade of 0.035 ounces of gold per ton at a cutoff grade of 0.02 opt gold. This cutoff grade may be reflective of an appropriate cutoff grade for an open pit mine with a conventional grind/gravity/flotation recovery process.

Environmental Regulation

The Seven-Up Pete deposit occurs on patented mining claims within a U.S. National Forest. As with all mining projects, careful environmental study and permitting will be required before a mine can be developed on the property. There are no assurances that all needed permits will be issued nor that, in the event they are issued, such issuance will be timely, nor that conditions contained in permits issued by the agencies will not be so onerous as to preclude construction and operation of the project.

Mining activity in the U.S. is subject to the granting of numerous permits under applicable Federal and State statutes, including, but not limited to, the National Environmental Policy Act, the Clean Water Act, the Clean Air Act, and the Montana Environmental Policy Act. It is not legal to engage in mining activity without securing the permits required by these and other statutes. Initiation of gold production at the Seven-Up Pete deposit will thus require the granting of numerous permits, some of which are discretionary. We cannot at this time see any issues with this project concept that may impact the legal feasibility of the permitting process.

Major permits include the Operating Permit from the DEQ, the Operating Plan from the DNRC, the Air Quality Permit (DEQ), the Montana Pollutant Discharge Elimination System Permit (DEQ), a Non-Degradation

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Authorization (DEQ), a Stormwater Discharge Permit (DEQ), a Water Rights Permit (DNRC), a Section 404 Dredge and Fill Permit from the U.S. Army COE, and a Fiscal Impact Plan which must be approved by the Montana Hard Rock Impact Board and numerous local government units.

Reward Property

We control approximately 1,600 acres in southwestern Nye County about 5.5 miles south-southeast of Beatty, NV. The legal description of the project area is Township 12 South, Range 47 East, Sections 33-36, Township 13 South, Range 47E, Sections 2-4, 9-11, 16, Mount Diablo Meridian. We hold 16 unpatented lode claims and 6 unpatented placer claims under three mining leases, which expire in 2024 and 2025. In addition, we own 84 unpatented lode claims, bringing our land package to a total of 100 lode claims and 6 placer claims on BLM administered land.

The Reward property contains an intensely sheeted, north-south shear zone and associated veins, which vary from steeply dipping to modest dip (45 degrees) to the east, within a sequence of quartzitic beds, schists, and dolomites. The Reward gold-mineralized structure has been sampled by more than 287 holes totaling 100,825 feet drilled by a number of mining entities over the past 15 years. Gold mineralization has been encountered over a strike length

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of more than 2,400 feet and to a depth of 400 feet along the Reward structure. The width of mineralization within the structural zone ranges from a few feet to up to 200 feet. The mineralized structure remains open and untested at depth and along strike to the south. Initial metallurgical test work conducted by previous owners indicates that the gold contained in the mineralized rock at Reward is amenable to recovery by conventional cyanide heap-leaching.

Chlumsky, Armbrust & Meyer (CAM), a mining engineering consulting firm based in Lakewood, Colorado, has completed a pre-feasibility study for the Reward project in January 2006. The pre-feasibility study is based on a $425 gold price, $7.6 million in new capital expenditures, transfer of mobile equipment from the Briggs Mine, and contract crushing. Cash cost of operation would average $330 per ounce over a four year project life.

The project concept includes conventional open pit mining to deliver precious metal ore at a rate of 1.6 million tons per year over two years of mining. Leach operations would be conducted over a five year period. The ore would be crushed to >3/4 inch size and placed on a lined pad to be leached using conventional cyanide heap leach methodology. Solution from the pad would be circulated through carbon towers, where gold would be collected on the carbon. The carbon would then be transported to the Briggs Mine where gold would be recovered using existing equipment to produce gold doré, which would be sold to refineries. This project concept is essentially identical to the concept that was previously permitted in 2000 for options at the site by the previous owner.

The study developed a pit containing a diluted probable reserve of 2.6 million tons averaging 0.0315 ounces per ton (opt) of gold utilizing a 0.011 opt cut-off grade. Additionally, the mineralized material within the ultimate pits totals 0.74 million tons averaging 0.028 opt of gold. The life of mine stripping ratio was determined to be 1.68 tons of waste per ton of ore. A gold price of $400 per ounce was utilized in the analysis. The report recommends that additional drilling be conducted to improve the confidence level for reserve estimation. Additional metallurgical sampling and geotechnical analysis for pit slope angles is also recommended. We are planning to conduct drilling operations at the site along with geotechnical, metallurgical and feasibility study activities in 2006.

Environmental Regulation

The Reward deposit occurs on unpatented mining claims on land administered by the BLM. As with all mining projects, careful environmental study and permitting will be required before a mine can be developed on the property. There are no assurances that all needed permits will be issued nor that, in the event they are issued, such issuance will be timely, nor that conditions contained in permits issued by the agencies will not be so onerous as to preclude construction and operation of the project. The BLM issued an Environmental Assessment for the Reward project in 2000, which had been used as the basis for the issuance of required operating permits by the Nevada Department of Environmental Protection. The permits were voluntarily dropped by the former owner in 2001 and the property was released as the price of gold dropped below $300 per ounce. The formerly issued permits are not renewable. New environmental studies including an Environmental Assessment and permit applications must be submitted and issued before mining can commence on this property.

Converse Uranium Joint Venture

In the early 1980s, we conducted an aggressive uranium exploration program in the western U.S. Recently, we have made the decision to review our historic files and reactivate one of our prior projects located in Wyoming. We have acquired mineral rights on approximately 3,000 acres by claim staking in three separate locations within the program area, located along the southern end of the Powder River Basin in Wyoming. Drilling during 1981 and 1982 in the program area by us and a prior joint venture partner consisted of 88 drill holes for approximately 69,000 feet.

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Within the program area, uranium drill hole intercepts, as defined by down-hole gamma logging, identified the potential for multiple uranium roll front deposits. Uranium mineralization in the program area is hosted in the Chadron Formation, which is composed of sandstones, conglomerates, and red to green siltstones and claystones. The sandstones are lenticular in nature and average from 5 to 20 feet in thickness and occasionally range up to

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45-feet thick. All of the claims are underlain by the uranium host rocks of the Chadron Formation. The Crow Butte uranium deposit, currently being mined by Crow Butte Resources Inc., a subsidiary of Cameco Corporation, using in situ leach methods, is also hosted in the sandstones of the Chadron Formation. Crow Butte is located in Nebraska about 80 miles to the east of our project area in Wyoming.

We have signed an exploration, development and operating agreement with New Horizons Uranium Corporation, a uranium exploration company, to form the Converse Joint Venture which covers a 2,000 square mile area of interest in Converse and Niobrara Counties, Wyoming. Included in the joint venture area are approximately 3,000 acres of mining claims and surface/mineral leases that we contributed. Under terms of the joint venture, New Horizon may earn up to 70 percent interest in the joint venture for the expenditure of $2 million over a five year period. An additional five percent interest may be earned by New Horizon by funding the completion of a feasibility study for a uranium deposit on the lands under investigation.

New Horizon was established in October 2005 as a company to acquire, explore, develop and operate uranium properties on a worldwide basis. We have developed a team of experienced uranium and mining specialists and are currently acquiring, exploring and advancing uranium properties to increase value utilizing modern uranium and mining technologies.

Hycroft Mine Transaction

In January 2005, we entered into an option agreement to purchase the Hycroft Mine located in Nevada from Vista Gold Corporation. The agreement provided for us to expend $0.5 million in development, exploration drilling and mine engineering which was completed during a six-month option period. At any time during the six-month period, we could exercise the option to purchase the Hycroft Mine for $4.0 million in cash plus equity in the form of units. Each unit would consist of one share of common stock and a warrant to purchase one-half share of common stock. On August 8, 2005, we announced our decision not to exercise our option to purchase the Hycroft Mine.

PRINCIPAL EXPLORATION PROPERTIES

The status of exploration activities on our major exploration properties is described below. The properties described are believed to be the most significant of our current inventory. However, that inventory is constantly changing and it is to be expected that some of the properties discussed will eventually be joint-ventured, marketed or abandoned, and that other properties currently owned or acquired will become the object of more intensive exploration activities in the future.

Briggs/Panamint Properties

General

Outside the Briggs Mine, we have defined several advanced stage exploration targets within and adjacent to our Briggs area claim block. The Briggs gold deposit is hosted by Precambrian quartz and amphibolite gneisses that have been severely deformed by faults of Tertiary age. High-angle faults and shear zones have acted as vertical conduits that channeled gold-bearing hydrothermal fluids upwards into a series of stacked low-angle faults. Since the discovery of the Briggs gold deposit, we had developed a detailed geological understanding of this deposit type. Using this knowledge, we have identified significant gold mineralization in the Briggs area extending for 5 miles along the western flank of the Panamint Mountain Range. Areas identified within this block (from south to north) with indicated potential to host gold mineralization include Goldtooth, Briggs, North Briggs, Jackson, and Cecil R deposits.

In the fourth quarter of 2005 we commenced drilling at Goldtooth and North Briggs. The projected mineralized feeder zone at North Briggs has not yet been located, but there is a strong opportunity that the mineralization at North Briggs was introduced along the same vertical feeder structures that introduced the mineralization to the

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south at the Briggs and Goldtooth deposits. Thus, the first priority exploration target in the Panamint District is to test offsets to the north and east at North Briggs.

In addition, a separate, drilled target of significant gold mineralization is the Cecil R located four miles north of the Briggs Mine and within our claims in the Panamint District. A total of 52 drill holes have been completed in the Cecil R deposit, which define an area of contiguous mineralization. An in-house model of this area completed in 2005 shows mineralized material of 24.5 million tons at a grade of 0.033 opt gold, using a cutoff grade of 0.015 opt for this deposit. We have developed plans for additional drilling on this deposit in 2006 targeting potential extensions along strike from known mineralization in both directions. A second zone, the Jackson deposit is an area of anomalous gold values, which has been sampled in surface rocks along a 2,000 foot structural zone. This potential deposit is located about two to three miles north of Briggs. A limited amount of drilling has been completed on this target. This same structural zone may be the feeder conduit for the gold mineralization at Cecil R, 8,000 feet to the north. The Cecil R/Jackson area represents a significant target for further exploration drilling in efforts to develop the next gold deposit in the Panamint District.

We have conducted reconnaissance and detailed mapping and geochemical sampling of nearly the entire claim block. An aerial geophysical program was conducted across the entire claim block in 1996 and was followed up with ground reconnaissance in 1997. The geophysical and geochemical data will be used to assist further exploration for concealed gold deposits on the property.

Environmental Regulation

On December 12, 2002, the California State Mining and Geology Board (CSMGB) enacted an Emergency Backfill Regulation, for 120 days, that essentially requires that all future metal mines be backfilled with certain exceptions to the original contour of the landscape. On April 10, 2003, the CSMGB made this Backfill Regulation permanent. In April 2003, the California Legislature passed a bill which stipulates that, if a project is located within one mile of a Native American sacred site and on limited use lands within the California Desert Conservation Area (CDCA), new open-pit metal mine projects must be backfilled during reclamation. Briggs project is located in the Panamint Range within the designated limited use land of the CDCA and the nearby Timbisha Shoshone Native American tribe has stated that they consider the entire project area to be sacred. Any new open pit developments on our properties outside the existing Briggs plan of operations area may be required to comply with these regulations, although the Bill recognizes that under certain circumstances existing permit areas may be extended to incorporate mining locations necessary for the continued operation or expansion of the existing operation without the backfilling requirement.

Montana Properties

We own, through our wholly-owned subsidiary, CR Montana Corporation, approximately 900,000 acres of mineral rights and fee lands in western Montana. The fee mineral rights underlie surface rights owned by other parties. The lands and mineral rights are comprised primarily of lands assembled in the early 1900s by The Anaconda Company for their timber and mineral potential. The lands occur in fourteen counties in the mountainous terrain west of the Continental Divide, with most of the lands being located within fifty miles east and west of Missoula, extending to the Idaho State line, and within sixty miles west of Kalispell in northwestern Montana. The mineral rights and fee lands contain many known occurrences of mineral commodities including gold, silver, copper, barite and phosphate. We are currently evaluating the potential for developing exploration joint ventures on these properties.

Investment In Gold Resources Corporation

During 2003, we entered into an agreement with Gold Resource Corporation, a Colorado corporation, to finance the exploration and possible development of a gold/silver project in the State of Oaxaca, Mexico. In August 2004, we elected not to proceed with further financing and, as a consideration for our funding of $0.5 million of exploration, engineering, and metallurgical test work performed on the property, received 1.2 million shares of Gold Resources Corporation common stock. As of December 31, 2005, we own approximately 6.6% of its

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outstanding shares. If Gold Resources wishes to issue additional shares, we have the right of first offer. The carrying value of these shares of common stock were expensed in prior years as exploration costs.

Latin American Exploration

Argentina

In July 1997, CR International Corporation (CRIC), our wholly-owned subsidiary, entered into a Purchase and Sales Agreement with Minera El Desquite S.A. (Minera) for its Mina Cancha property located in Argentina. In 2002, CRIC received approximately $1.5 million in negotiated final payments of the initial purchase price, with the retention of a 2.5% net smelter return royalty on any production from the property. The Mina Cancha property is an epithermal gold exploration prospect in highly altered volcanic rocks, and is part of the Esquel property controlled by Meridian Gold Inc. Development of this property has been subject to local opposition. As a result, we are uncertain if any value can be derived from our ownership of this royalty.

CLOSURE PROPERTIES

Kendall Mine

General

The Kendall Mining District is located approximately 20 miles north of Lewistown, Montana, and is accessible by paved U.S. highway and graded dirt roads. The property rights we control include approximately 1,052 acres in 70 patented claims and fee land. We acquired most of the patented mining claims (approximately 981 acres) through the purchase of all of the common shares of Judith Gold Corporation in January 2001. The Kendall Mine was developed as an open-pit, heap-leach gold mine in September 1988, under the management of the Kendall Venture, a joint venture between us and Addwest Gold, Inc. (Addwest). On January 26, 1990, we acquired all of the issued and outstanding common stock of Addwest and through our wholly-owned subsidiary, CR Kendall Corporation, became the operator and sole owner of the operating interest in the Kendall Mine.

Operations

Through 1995, the Kendall Mine operation leached gold and silver from crushed ore on a year-round basis. Mining and crushing of all remaining ore was completed in January 1995. Leaching of the remaining gold in the heap leach pads continued through early 1998. All economic gold has now been recovered, and the mine is currently in a reclamation and closure mode. The Kendall Mine produced approximately 302,000 ounces of gold and approximately 136,000 ounces of silver from 1988 through 1998. From 1998 through 2005, we continued with closure activities, principally relating to collection, treatment and disposal of water contained in the process system and mine area, and re-vegetation of waste rock dump surfaces.

Environmental Regulation & Reclamation

The Kendall Mine operates under permits issued by the Montana Department of Environmental Quality (DEQ) and other regulatory agencies. A life of mine permit was granted by the DEQ on November 1, 1989. We are negotiating details of final mine closure with the DEQ. The DEQ has approved the portions of the closure plan related to re-contouring, re-vegetation, drainage and heap dewatering. Discussions of long-term water handling and heap closure methods continue.

In early 1996, we installed a system to capture and collect drainage from certain mine facilities. The DEQ and the Environmental Protection Agency inspected the system subsequent to its initial installation and agreed on system improvements which were completed. We will maintain, monitor, and, if necessary, improve the system until the DEQ determines that the system is no longer needed. In 2005, a Helena, Montana based firm performed laboratory column testwork to assess if treatment of drainage from the Kendall Mine facilities using organic reaction zones would be feasible. The column test results were successful. All of the constituents that may require

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treatment were effectively treated to achieve required water quality standards. These positive results were presented to the DEQ along with a minor permit amendment request to allow construction of a test facility. The permit amendment was approved. This facility will be used to potentially demonstrate the effectiveness of this approach to long term water management. Construction of the initial phase of the facility has commenced. The goal of this system is to demonstrate an effective and low maintenance system for long term water management at the site.

The Kendall Mine permit area covers some 1,040.4 acres of which some 446.3 acres were disturbed through the mining process. As of December 31, 2005, a total of 258.7 acres or 70.3% of the disturbed area had been reclaimed including contouring, topsoil placement, seeding and re-vegetation. Contouring of all remaining areas will be substantially complete by end of first quarter 2006. Final reclamation will require redistribution of topsoil, reseeding of some disturbed areas, final capping of the contoured heap leach pads and implementation of a long term water management system. We have spent approximately $10.3 million on reclamation and closure activities at the Kendall mine site through December 31, 2005. We have approximately $2.0 million on deposit in an interest bearing account with the DEQ for reclamation at the Kendall Mine.

In February 2002, the DEQ issued a decision that a comprehensive Environmental Impact Statement (EIS) is needed for completion of reclamation at Kendall. We desired to complete capping and re-vegetation of the leach pad areas during 2004, as well, but were ordered by the DEQ not to conduct the capping pending outcome of the DEQ’s EIS for ultimate reclamation of the Kendall mine site. Our estimate to achieve mine closure could be impacted by the outcome of an agency decision following an EIS.

Regulatory agencies must give final approval to all closure measures and be satisfied that the mine has met all reclamation requirements. There is no assurance of agency satisfaction with mine closure. The Kendall Mine uses internal and external technical and legal experts to monitor and ensure environmental compliance. We believe the operation is currently in material compliance with all environmental and safety regulations.

TITLE TO PROPERTY

U.S. Mineral Properties

Our U.S. mineral properties consist of fee mineral rights, leases covering state and private lands, leases of unpatented mining claims, and unpatented mining claims located or otherwise acquired. Many of our mining properties in the U.S. are unpatented mining claims to which we have only possessory title. Because title to unpatented mining claims is subject to inherent uncertainties, it is difficult to determine conclusively ownership of such claims. These uncertainties relate to such things as sufficiency of mineral discovery, proper posting and marking of boundaries and possible conflicts with other claims not determinable from descriptions of record. Since a substantial portion of all mineral exploration, development and mining in the U.S. now occurs on unpatented mining claims; this uncertainty is inherent in the mining industry. A holder of an unpatented mining claim, mill or tunnel site claim must pay a maintenance fee to the U.S. of $125 per claim per year for each assessment year instead of performing assessment work. In addition, a payment of $170 per claim is required for each new claim located and State law might require performance of assessment work.

The present status of our unpatented mining claims located on public lands of the U.S. allows us as claimant, and subject to appropriate regulations, the exclusive right to mine and remove valuable minerals, such as precious and base metals and industrial minerals, found therein, and also to use the surface of the land solely for purposes related to mining and processing the mineral-bearing ores. However, legal ownership of the land remains with the U.S. We remain at risk that the claims may be forfeited either to the U.S. or to rival private claimants due to failure to comply with statutory requirements as to location and maintenance of the claims.

LEASED PROPERTY

We lease approximately 4,306 square feet of office space and additional storage space at 14142 Denver West Parkway, Golden, Colorado 80401, under a lease which expires July 31, 2007. Rent is presently $7,000 per

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month including our prorata share of building operating costs. We maintain additional storage and/or facilities in Lincoln, Montana and Ridgecrest, California on a month-to-month basis.

ITEM 3 LEGAL PROCEEDINGS

CR Kendall — Water Rights Lawsuit

In October 2001, a Plaintiff group including members of the Shammel, Ruckman, and Harrell families, filed suit in Montana District Court against us and our wholly-owned subsidiary, CR Kendall Corporation. The Complaint alleges violation of water rights, property damage, trespass and negligence in connection with the operation of the Kendall Mine and seeks unspecified damages and punitive damages. We have taken the position that the allegations are without merit and believe that we will prevail in this matter.

In August 2002, a Preliminary Injunction was issued in Montana District Court on behalf of the Plaintiff group in connection with our auction of certain mineral rights and fee lands in western Montana. In October 2002, the Court issued a Supplemental Order which will sequester up to $528,000 of any proceeds realized from the auction until such time as the lawsuit is concluded. As of December 31, 2005, $281,300, which includes interest earned on the funds remitted, is held by the Court as required by the Order.

CR Kendall-Clean Water Act Lawsuit

In March 2004, the Montana Environmental Information Center and Earthworks/Mineral Policy Center brought civil action before the U.S. District Court for the District of Montana against CR Kendall Corporation and Canyon Resources claiming that the defendants have polluted waters of the U.S. with their operations at the Kendall Mine, near Lewistown, Montana. On February 2, 2006, U.S. District Court of Montana, Helena Division, dismissed this case without prejudice.

McDonald Gold Project — Takings Suit

The McDonald deposit and the gold occurrence at Keep Cool were discovered and drilled by our wholly-owned Seven-Up Pete Venture. This large, low grade, deposit is highly amenable to gold recovery utilizing cyanide recovery technology with heap leaching. This technology was made illegal in the State of Montana in 1998 with the passage of the anti-cyanide ballot initiative I-137 and re-enforced with the defeat of I-147, designed to repeal I-137, on November 2, 2004. This was a first of its kind legislation in the U.S.

We, along with the Seven-Up Pete Venture (SPV), and co-plaintiffs filed suits against the State of Montana in state and federal courts in April 2000 seeking to overturn I-137 or, alternatively, to obtain a “taking” damage award for the value of the SPV properties. By the time the initiative passed, the SPV had spent over $70 million drilling, permitting and engineering on its properties, including the McDonald gold project. The passage of this initiative rendered the McDonald property worthless as no other gold recovery process technology has been proven to be economically viable for these ores. We filed complaints before Montana state courts to recover the taken value of our properties, protect our mining leases and question the legality of the I-137 initiative. We were defeated in lower courts and appealed our case to the Montana Supreme Court. On June 8, 2005, the Montana Supreme Court upheld the I-137 initiative and denied that a taking had occurred. The Montana Supreme Court also affirmed cancellation of the SPV’s State mining leases. On July 19, 2005, the SPV filed its motion to reinstate its reserved Federal claim in the U.S. District Court for the District of Montana in Helena, Montana. On November 4, 2005, our wholly-owned subsidiary, the SPV, combined with private plaintiffs, filed a Petition for Writ of Certiorari with the U.S. Supreme Court, seeking review of the Montana State Supreme Court decision, and meeting the statutory deadline for filing such petition. On January 27, 2006, the U.S. District Court denied the motion to reopen the reserved federal takings claims because of the pending petition to the U.S. Supreme Court, but said the motion may be refiled once the Montana Supreme Court decision has been finalized by action of the U.S. Supreme Court. On February 21, 2006, the U.S. Supreme Court denied grant of certiorari. A motion was filed that day to reopen the federal takings claim in the U.S. District Court.

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The Montana Supreme court ruling cancelled our rights to those portions of the McDonald and Keep Cool deposits covered by state mineral leases. This ruling did not impact the Seven-Up Pete deposit since it is located entirely on private lands.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were brought to a vote of security holders in the fourth quarter of 2005.

PART II

ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is traded on AMEX under the symbol “CAU.” The following table reflects the quarterly high and low sales prices for our common stock during 2005 and 2004.

	Common Stock
2005	High		Low
Fourth Quarter	$	1.15	$	0.65
Third Quarter	$	0.80	$	0.57
Second Quarter	$	0.82	$	0.62
First Quarter	$	1.32	$	0.70
2004	High		Low
Fourth Quarter	$	4.08	$	1.06
Third Quarter	$	4.82	$	3.51
Second Quarter	$	4.81	$	2.26
First Quarter	$	5.36	$	3.33

During the first quarter of 2006 up to March 20, 2006, the high, low, and close prices for our common stock were $0.97, $0.74, and $0.85, respectively.

As of March 20, 2006, there were 1,047 holders of record of our common stock. The number of shareholders who beneficially own shares of common stock in nominee or “street” name or through similar arrangements is estimated by us to be approximately 4,831.

As of March 20, 2006, there were outstanding 38,320,533 shares of common stock.

Dividends

Since our inception, no cash dividends have been paid. For the foreseeable future, it is anticipated that we will use any earnings to finance our growth and that dividends will not be paid to shareholders.

Issues of Unregistered Securities

On September 1, 2005, we issued an option to purchase 50,000 shares of our common stock to a consultant hired by us to provide investor relations services. The option has an exercise price of $0.80 per share, a term of two years, and is immediately exercisable. The option was issued in reliance upon the exemption from registration provided under Section 4(2) of the Securities act of 1933, as amended. The option was subsequently cancelled and on December 22, 2005, we issued replacement warrants to purchase 50,000 shares of our common stock at an

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exercise price of $0.80 per share, a term of two years. The warrants were issued in reliance upon the exemption from registration provided under Section 4(2) of the Securities act of 1933, as amended.

ITEM 6 SELECTED FINANCIAL DATA

The following table presents selected information regarding our financial condition and results of operations over the past five years.

	December 31,
	2005			2004			2003			2002			2001
Summary of Consolidated Balance Sheets
Working Capital	$	4,195,500		$	2,462,100		$	4,887,400		$	2,887,200		$	1,175,100
Current Assets		6,183,700			7,741,900			9,503,300			9,495,100			9,791,600
Total Assets		14,646,700			25,615,000			33,313,200			35,456,200			41,245,600
Current Liabilities		1,988,200			5,279,800			4,615,900			6,607,900			8,616,500
Long-term Obligations		5,769,500			4,231,200			6,003,800			3,922,600			6,492,400
Total Liabilities		7,757,700			9,511,000			10,619,700			10,530,500			15,108,900
Common Stockholders’ Equity		6,889,000			16,104,000			22,693,500			24,925,700			26,136,700
Summary of Consolidated Statements of Operations
Sales	$	4,140,300		$	11,813,900		$	13,010,100		$	17,377,100		$	28,126,000
Income (Loss) Before Extraordinary Items and Cumulative Effect of Change in Accounting Principle								(14,130,500	)
Net Income (Loss)		(15,647,800	)		(17,386,400	)		(14,142,200	)		(3,074,200	)		(3,764,500	)
Net Income (Loss) Per Share
Basic and Diluted (1)		(0.46	)		(0.62	)		(0.63	)		(0.16	)		(0.27	)

(1) Common stock equivalents would be anti-dilutive during all years presented as Canyon recorded net losses.

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ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our cash and cash equivalents increased $1.0 million from December 31, 2004 to December 31, 2005, primarily due to two equity financings which resulted in proceeds of $5.5 million. These inflows allowed us to absorb negative operating cash flow of $3.2 million, pay off debentures of $0.9 million, and the acquisition of properties of $0.3 million. We ended the year with $5.6 million of cash and cash equivalents.

Operating losses were $16.0 million, $17.3 million and $14.3 million for the years ended December 31, 2005, 2004 and 2003, respectively. The following summary is the significant annual changes in the consolidated statement of operations in 2005 compared to 2004:

• Revenues decreased by $7.7 million to $4.4 million due to ceasing mining activities in April 2004.

• Cost of sales decreased by $7.4 million to $3.2 million which is in relation to the decrease in revenues due to our lack of mining activities.

• Depreciation, depletion, and amortization decreased by $3.9 million due primarily to the impairment of $9.2 million of McDonald mineral leases, which was being amortized on a straight line basis.

• Selling, general and administrative expenses decreased $4.6 million due primarily to the 2004 spending on the I-147 campaign in an unsuccessful effort to overturn the anti-cyanide initiative I-137.

• Exploration costs increased $1.1 million due primarily to the evaluation of the Hycroft property and infill drilling at Briggs.

• Asset retirement obligations decreased by $4.0 million due primarily to large adjustments to the asset retirement obligations in 2004.

• Debenture conversion expense of $0.4 million was recognized related to the conversion of a portion of the debentures in March 2005.

Revenues continued to decline year over year, due to lower production levels as no new ore was placed on the heap leach pads since April 2004. The Briggs operation reached the end of its current gold recovery plan with current revenue derived from ore previously placed on the heap leach pad. Revenues of $4.1 million in 2005 declined 65% and 68% from revenue levels in 2004 and 2003, respectively. Our lower production levels did not allow us to take full advantage of improving spot gold prices of $447 per ounce in 2005 as compared to $400 per ounce in 2004 and $347 per ounce in 2003.

On June 8, 2005, the Montana Supreme Court (1) upheld the anti-cyanide initiative, I-137, (2) affirmed the conclusion of the Montana Department of Natural Resources and Conservation hearing examiner with respect to termination of our mineral leases with the State of Montana, and (3) denied our takings compensation claim. Accordingly, we wrote off our $9.2 million carrying value for the McDonald mineral leases during the second quarter of 2005.

The Briggs Mine, located in southeastern California, produced 9,289 ounces of gold and 1,700 ounces of silver, which represents all of our production during 2005. Briggs is continuing reclamation activities including re-contouring, capping, and re-vegetation of the non-ore piles on the property while reviewing the possible re-start on the mine.

The Kendall Mine, located near Lewistown, Montana, continued with reclamation and closure activities, principally relating to collection, treatment and disposal of water contained in the process system and mine area, and in re-contouring the leach pads and pit areas.

Recent development activities included the acquisition and pre-feasibility study of the Reward property located in southwestern Nevada and the acquisition and subsequent joint venture of uranium properties located in east-central Wyoming. Exploration activities during 2005 included infill drilling around the Briggs Mine and the optioning, evaluation and subsequent release of the Hycroft property located in Nevada.

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Our financing of exploration on the El Aguila property, Oaxaca, Mexico, in 2003 and 2004 resulted in the conversion of our investment into shares of common stock of the company which owns the mineral rights. We currently hold 1.2 million shares of common stock which represents approximately 6.6% of the outstanding shares.

Critical Accounting Policies and Estimates

The ensuing discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America (U.S.) and contained within this Annual Report on Form 10-K. Certain amounts included in or affecting our financial statements and related disclosures must be estimated, requiring that certain assumptions be made with respect to values or conditions which cannot be made with certainty at the time the financial statements are prepared. Therefore, the reported amounts of our assets and liabilities, revenues and expenses, and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates. The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis for future cash flow estimates and units-of-production amortization determination; recoverability and timing of gold production from the heap leaching process; environmental, reclamation and closure obligations; asset impairments (including estimates of future cash flows); useful lives and residual values of intangible assets; fair value of financial instruments; valuation allowances for deferred tax assets; and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following significant assumptions and estimates affect our more critical practices and accounting policies used in the preparation of our consolidated financial statements.

Reserves: We have not declared a mineral reserve since year-end 2001 but reported mineralized material commencing at year-end 2002. When we have producing mines or are developing a mine we estimate our ore reserves at least on an annual basis. There are a number of uncertainties inherent in estimating quantities of reserves, including many factors beyond our control. Ore reserve estimates are based upon engineering evaluations of assay values derived from samplings of drill holes and other openings. Additionally, declines in the market price of gold may render certain reserves containing relatively lower grades of mineralization uneconomic to mine. Further, availability of permits, changes in operating and capital costs, and other factors could materially and adversely affect ore reserves. We use our ore reserve estimates in determining the unit basis for mine depreciation and amortization of closure costs. Changes in ore reserve estimates could significantly affect these items.

We produce gold at our Briggs Mine using the heap leach process. This process involves the application of cyanide solutions by drip irrigation to ore stacked on an impervious pad. As the solution percolates through the heap, gold is dissolved from the ore into solution. This solution is collected and processed with activated carbon, which precipitates the gold out of solution and onto the carbon. Through the subsequent processes of acid washing and pressure stripping, the gold is returned to solution in a more highly concentrated state. This concentrated solution of gold is then processed in an electrowinning circuit, which re-precipitates the gold onto cathodes for melting into gold doré bars. We must make certain estimates regarding this overall process, the most significant of which are the amount and timing of gold to be recovered. Although we can calculate with reasonable certainty the tonnage and grades of gold ore placed under leach by engineering survey and laboratory analysis of drill hole samples, the recovery and timing factors are influenced by the size of the ore under leach (crushed or run-of-mine) and the particular mineralogy of a deposit being mined. We base our estimates on laboratory leaching models, which approximate the recovery from gold ore under leach on the heap. From this data, we estimate the amount of gold that can be recovered and the time it will take for recovery. We continually monitor the actual monthly and cumulative recovery from the heap as a check against the laboratory models, however, ultimate recovery will not be known with certainty until active leaching has stopped and pad rinsing is completed. Because it is impossible to physically measure the exact amount of gold remaining under leach, we calculate, or derive the amount, by

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taking the difference between the cumulative estimated recoverable gold placed on the heap and the known amount of gold cumulatively produced as doré.

Inventories: We must capture and classify our inventory related costs to achieve the “matching concept” of expenses and revenues as required by generally accepted accounting principles. Costs capitalized to inventory relating to the heap leach pad include (1) the direct costs incurred in the mining and crushing of the rock and delivery of the ore onto the heap leach pad, (2) applicable depreciation, depletion and amortization, and (3) allocated indirect mine general and administrative overhead costs. These costs are relieved from this inventory when gold is produced as doré, and added to (1) all direct costs incurred in the leaching and refining processes, (2) applicable depreciation, depletion and amortization, and (3) allocated indirect mine general and administrative overhead costs for determining the cost of inventory related to doré. As our estimate of time to recover gold from first being placed under leach to doré production is twelve months, inventory costs are considered a current asset. The Briggs Mine stopped loading ore on the heap leach pad in April 2004 and we stopped active leaching with cyanide in March 2005. Recent gold production has occurred during the final rinsing process of the heap leach pad which is expected to last until mid-year 2006.

Asset Retirement Obligations: On January 1, 2003, we became subject to the accounting and reporting requirements of Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 establishes accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Fair value is determined by estimating the retirement obligations in the period an asset is first placed in service and then adjusting the amount for estimated inflation and market risk contingencies to the projected settlement date of the liability. The result is then discounted to a present value from the projected settlement date to the date the asset was first placed in service. The present value of the asset retirement obligation is recorded as an additional property cost and as an asset retirement liability. The amortization of the additional property cost (using the units of production method) is included in depreciation, depletion and amortization expense and the accretion of the discounted liability is recorded as a separate operating expense in our Statement of Operations.

When a mine is shut down and begins the final reclamation we may decide to record the reclamation liability on an undiscounted basis depending on the time frame and materiality of the expenditures. The asset retirement obligations of the Kendall mine and the Seven-Up Pete Venture are recorded on an undiscounted basis.

Impairments: We have recorded asset impairments of $9.2 million, $0.0 million, and $3.4 million, during 2005, 2004 and 2003, respectively, based on the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and effective January 1, 2002.

We evaluate the carrying value of our producing properties, equipment and mining claims and leases when events or changes in circumstances indicate that the properties may be impaired, but not less than annually. For producing properties and equipment, an impairment loss is recognized when the estimated future cash flows (undiscounted and without interest) expected to result from the use of the asset are less than the carrying amount of the asset. Measurement of the impairment loss is based on discounted cash flows. Impairments of mining claims and leases are based on their fair value, which would generally be assessed with reference to comparable property sales transactions in the market place.

Derivatives Instruments and Hedging Activities : Beginning in 2000, the accounting for derivative instruments and hedging activities has been guided by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and SFAS No. 138 Accounting for Certain Derivative Instruments and Certain Hedging Activities-an Amendment to SFAS No. 133. That guidance requires entities to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (2) a hedge of the exposure to variable cash flows of a forecasted transaction, or (3) a hedge of the foreign currency exposure.

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During 2004 and 2003, we had used derivative financial instruments to manage well defined market risks associated with fluctuating gold prices. Floating rate forward sales contracts were used to manage our exposure to gold prices on a portion of future gold production. These derivative instruments were not designated as hedges and were recognized as assets or liabilities and marked-to-market quarterly with changes recorded in earnings. On settlement of a contract, against which we have delivered gold production, the contract price is recognized as revenue from the gold sale. If financially settled, the resulting gain or loss is included in revenue if we had sufficient gold production to otherwise settle the contract by delivery. Gains or losses resulting from all other financially settled contracts are recorded as other income (expense). As of December 31, 2005, we did not have any open derivative contracts.

Stock-Based Compensation: In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment, which revised SFAS No. 123, Accounting for Stock-Based Compensation, and superseded Accounting Principles Board (“APB”) Opinion 25, Accounting for Stock Issued to Employees and its related implementation guidance. SFAS No. 123R requires that goods or services received in exchange for share-based payments result in a cost that is recognizable in the financial statements; that cost should be recognized in the income statement as an expense when the goods or services are consumed by the enterprise. We will adopt SFAS No. 123R on January 1, 2006, using the modified prospective method. Accordingly, compensation expense will be recognized for all awards granted or modified after the effective date. The nonvested portion of awards will be recognized ratably over the remaining vesting period after the effective date. The effect on net income from employee stock options issued in 2005 or earlier and vesting in 2006 is approximately $20,300.

We currently apply the intrinsic value method in accordance with APB Opinion 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for employee stock options. Accordingly, because stock option exercise prices equal the market value on the date of grant, no compensation cost is currently recognized for stock option grants. Had compensation cost for the options been recognized based on market value at grant dates as prescribed by SFAS No. 123R, our net income would have been reduced by $294,700, $351,300 and $672,900 for the year ended 2005, 2004 and 2003, respectively.

Income Taxes: We must use significant judgment in assessing our ability to generate future taxable income to realize the benefit of our deferred tax assets, which are principally in the form of net operating loss carry forwards and in applying a valuation allowance to all or part of these deferred tax assets using a “more likely than not” criterion.

Potential Litigation Liabilities: We are subject to litigation as the result of our business operations and transactions. We utilize external counsel in evaluating potential exposure to adverse outcomes from judgments or settlements. To the extent that actual outcomes differ from our estimates, or additional facts and circumstances cause us to revise our estimates, net income will be affected.

RESULTS OF OPERATIONS

2005 Compared to 2004

We recorded a net loss of $15.6 million, or $0.46 per share, on revenues of $4.1 million in 2005. This compares to a net loss of $17.4 million, or $0.62 per share, on revenues of $11.8 million in 2004.

During 2005, we sold 9,263 ounces of gold and 2,116 ounces of silver at an average realized price of $447 per equivalent gold ounce. During 2004, we sold 29,515 ounces of gold and 8,700 ounces of silver at an average realized price of $400 per equivalent gold ounce. The New York Commodity Exchange (COMEX) daily closing gold prices averaged $445 and $409 per ounce in 2005 and 2004, respectively. All of the revenues in 2005 and 2004 were from domestic activities.

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The following table summarizes our gold deliveries and revenues in 2005 and 2004.

	2005						2004
	Gold		Average Price		Revenue		Gold		Average Price		Revenue
	Ounces		Per Oz.		$000’s		Ounces		Per Oz.		$000’s
Deliveries
Forwards		—		—		—		3,820	$	378	$	1,442
Spot sales		9,263	$	445		4,125		25,695	$	401		10,316
Cash settlement of forwards		—		—		—		—		—		—
		9,263	$	445		4,125		29,515	$	398		11,758
Other transactions
Silver proceeds		—		—		15		—		—		56
		9,263	$	447	$	4,140		29,515	$	400	$	11,814

Cost of sales was $3.2 million in 2005 compared to $10.7 million in 2004. These amounts include write downs of inventories at the Briggs Mine to net realizable value of $0.1 million in 2005 compared to $1.1 million in 2004. The write-downs of inventories were a result of high unit costs of production resulting from lower production levels. In 2005 and 2004, cost of sales includes all direct and indirect costs of mining, crushing, processing, and overhead expenses of our production operations.

Depreciation, depletion, and amortization was lower in 2005 due to the carrying values for the McDonald undeveloped mineral leases being written down by $9.2 million in 2005 as a result of a June 8, 2005 decision by the Montana Supreme Court canceling the state mineral leases and the reclassification of the Seven-Up Pete property from undeveloped mineral claims to mining claims and leases which are reviewed at least annually for impairment and no longer amortized. There were no property impairments recorded in 2004.

Selling, general, and administration expenses were lower in 2005 due to our $3.4 million contribution during 2004 in the funding of the I-147 campaign in Montana.

Development activities during 2005 included the acquisition and pre-feasibility study of the Reward property located in southwestern Nevada and the acquisition and subsequent joint venture of uranium properties located in east-central Wyoming. Development activities in 2004 consisted of preacquisition work on the Reward property. Exploration activities during 2005 amounted to $1.6 million and included infill drilling around the Briggs Mine and the optioning, evaluation and subsequent release of the Hycroft property located in Nevada, compared to exploration spending of $0.5 million in 2004 which related primarily to holding costs on the Seven-Up Pete Venture and funding exploration spending for Gold Resources Corporation.

Increases in asset retirement obligations resulted in expense of $1.4 million and $5.4 million in 2005 and 2004, respectively. The expense in 2005 was the result of a combination of completion delays caused by continued gold production from the leach pad, initiation of a drilling program to determine the potential of further mining; addition of reclamation resulting from the repurchase of the Briggs crushing plant and higher fuel related costs at the Briggs Mine totaling $1.0 million and the establishment of the reclamation of drill holes and roads at the McDonald Gold Project totaling $0.4 million. In 2004, the Briggs Mine had decreased availabilities of equipment in the fourth quarter; adverse weather conditions during the fourth quarter (abnormal rainfall) which hindered access to the mine and slowed haul times for topsoil placement, and engineering changes to topsoil placement roads to provide safer access for haulage and dumping totaling $1.0 million. We held discussions with the Montana Department of Environmental Quality (DEQ) in 2004 concerning reclamation at the Kendall Mine. The discussion resulted in a modified reclamation plan to include items which had been developed by an engineering contractor to the DEQ to reflect the anticipated installation of a passive water treatment system. The changes resulted in an increase of the Kendall closure estimate by $4.4 million.

In March 2005, we induced the conversion to equity of a portion of our outstanding debenture liabilities, which resulted in the recording of $0.4 million of expense compared to nil in 2004.

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The approximately 2.9 million warrants that we issued in connection with our December 2, 2005 private placement were determined to be a liability with an initial estimated fair value of $0.6 million. At year-end, the fair value of warrant liability was estimated to be $0.4 million and the $0.2 million decrease in warrant liability was recorded as a gain on derivative instruments.

There was no current or deferred provision for income taxes during 2005 or 2004. Additionally, although we have significant deferred tax assets, principally in the form of operating loss carry forwards, we have recorded a full valuation allowance on our net deferred tax assets in 2005 and 2004.

Our costs for fuel increased significantly in 2005 compared to 2004 which is a significant operating and reclamation expense in 2005. We expect high fuel costs and increased costs of hiring and retaining qualified mining personnel with the required specialized skills to operate and manage a mining operation to have a potential significant impact on continuing operations in the future.

2004 Compared to 2003

We recorded a net loss of $17.4 million, or $0.62 per share, on revenues of $11.8 million in 2004. This compares to a net loss of $14.1 million, or $0.63 per share, on revenues of $13.0 million in 2003.

During 2004, we sold 29,515 ounces of gold and 8,700 ounces of silver at an average realized price of $400 per equivalent gold ounce. During 2003, we sold 37,506 ounces of gold and 13,943 ounces of silver at an average realized price of $347 per equivalent gold ounce. The New York Commodity Exchange (COMEX) daily closing gold prices averaged $409 per ounce in 2004 and $364 per ounce in 2003. All of our revenues in 2004 and 2003 were from domestic activities.

The following table summarizes our gold deliveries and revenues in 2004 and 2003.

	2004						2003
	Gold		Average Price		Revenue		Gold		Average Price		Revenue
	Ounces		Per Oz.		$000’s		Ounces		Per Oz.		$000’s
Deliveries
Forwards		3,820	$	378	$	1,442		15,380	$	341	$	5,243
Spot sales		25,695	$	401		10,316		22,126	$	356		7,872
Cash settlement of forwards		—		—		—		—		—		(173	)
Deferred income		—		—		—		—		—		—
		29,515	$	398		11,758		37,506	$	345		12,942
Other transactions
Silver proceeds		—		—		56		—		—		68
		29,515	$	400	$	11,814		37,506	$	347	$	13,010

Cost of sales was $10.7 million in 2004 compared to $14.1 million in 2003. These amounts include write downs of inventories at the Briggs Mine to net realizable value of $1.1 million in 2004 compared to $1.6 million in 2003. The large write-downs of inventories were a result of high unit costs of production resulting from lower production levels. In 2004 and 2003, cost of sales includes all direct and indirect costs of mining, crushing, processing, and overhead expenses of our production operations.

Depreciation, depletion, and amortization were higher in 2004 due to a greater number of recoverable ounces mined as we finished mining of the high grade North Briggs layback.

Selling, general, and administration expenses were higher in 2004 due to our participation in the funding of the I-147 campaign in Montana. For the twelve months ended December 31, 2004, we contributed $3.4 million to the I-147 campaign.

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Exploration and development costs were lower in 2004 due to our primary focus on the I-147 campaign in Montana.

During 2003, we determined that certain gold ounces contained in sulfide ores were no longer economic, and as such, decreased the reserves at the Briggs Mine. As a consequence, we recorded a write down of $3.4 million on the mine’s long-lived assets.

The following table summarizes gains on asset dispositions we recognized during 2004 and 2003:

	$000s
	2004			2003
Sale of Briggs equipment	$	295		$	—
Sales of mineral property interests		(1	)		85
	$	294		$	85

Our gains on derivative instruments related to our forward gold contracts of $0.1 million and $0.3 million in 2004 and 2003, respectively.

There was no current or deferred provision for income taxes during 2004 or 2003. Additionally, although we have significant deferred tax assets, principally in the form of operating loss carry forwards, we recorded a full valuation allowance on our net deferred tax assets in 2004 and 2003.

Inflation did not have a material impact on operations in 2005, 2004 or 2003.

LIQUIDITY & CAPITAL RESOURCES

Liquidity

It is expected that our basic cash requirements over the next 12 months can be funded through a combination of existing cash and revenue from operations, and cash raised from financing activities subsequent to year end. However, should we proceed with our plan to reopen the Briggs Mine, additional financing will be required including equipment purchase and repairs, waste stripping and other development costs. We do not have the capital resources sufficient to reopen and operate the Briggs Mine. In order to do so, we would need to seek funding from outside sources including equity, debt or both.

On December 2, 2005, we raised $2,373,009 through the sale of units, at $0.76 per unit, consisting of 3,300,004 shares of unregistered common stock, 1,650,003 Series A warrants with an exercise price of $1.30 per share, and 825,004 Series B warrants with an exercise price of $1.08 per share. Additionally, H.C. Wainwright & Co., Inc. acted as placement agent and received 115,500 Series A warrants, 57,750 Series B warrants, and 231,000 Series C warrants as part of its fee. The Series C warrants have an exercise price of $0.76 per share. The shares of common stock underlying the warrants were unregistered. In late December 2005, we filed an S-1 registration statement with the SEC to register the shares of common stock issued and the shares of common stock underlying the warrants.

On March 15, 2005, we raised $3,100,974 through the sale of units, at $0.721 per unit, consisting of 4,366,735 shares of registered common stock and 2,651,466 warrants. The shares of common stock were registered through a shelf registration statement declared effective by the SEC on February 27, 2004. The warrants are exercisable at a price of $1.03 per share of common stock from September 22, 2005 until March 14, 2008.

On March 1, 2005, our $2,424,000 convertible subordinated debentures became due. Debenture holders of $1,599,000 were paid the principal amounts of their notes in either cash or shares of common stock and warrants, and debenture holders of $825,000 agreed to extend the term of their debentures to March 1, 2011.

During 2004, debenture holders of $250,000 converted their principal amounts to 181,158 shares.

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Our gold production has been trending downwards from a high of 97,443 ounces in 2001 to 9,289 ounces in 2005. This downward trend is expected to continue during 2006 unless we successfully reopen the Briggs Mine in late 2006 or early 2007. Our long-term liquidity will be impacted by the ultimate re-start of the Briggs Mine and successfully producing gold at a profit. Additionally, we are continually evaluating business opportunities such as joint ventures and mergers or acquisitions with the objective of creating additional cash flow to sustain us, provide a future source of funds for growth. While we believe we will be able to finance our continuing activities, there are no assurances of success in this regard or in our ability to obtain additional financing through capital markets, joint ventures, or other arrangements in the future. If management’s plans are not successful, our ability to operate would be materially adversely impacted.

Summary of 2005 Cash Flows

Our cash and cash equivalents increased $1.0 million during 2005 to $5.6 million at year-end. The increase was a result of net cash used in operations of $3.2 million, $4.5 million of net cash provided by financing activities, and $0.3 million for the acquisition of properties.

Operating Activities

Operations used $3.2 million of cash in 2005 as compared to using $8.3 million of cash in 2004. During 2003, operations used $1.0 million. The increase in 2005 operating cash flow as compared to 2004 was a result of lower unit cost of sales due to continued recoveries from the Briggs Mine leach pad over projected inventories and the lower expenditures related to the I-147 campaign in 2004.

Investing Activities

Capital Expenditures

Capital expenditures in 2005 totaled $0.3 million due to the acquisition of the Converse uranium and Reward properties and the repurchase of the Briggs crusher for $50,000 in cash and 500,000 shares of common stock which was valued at fair value at the date of issuance.

Capital expenditures in 2004 totaled $0.4 million that were related to the development of the North Briggs layback at the Briggs Mine.

Capital expenditures in 2003 totaled $3.2 million that were related to the development of the North Briggs layback at the Briggs Mine.

Asset Dispositions

During 2005, asset sales were negligible.

During 2004, we received proceeds of approximately $0.5 million from the sale of Briggs Mine mobile equipment.

During 2003, we received proceeds of approximately $0.2 million in connection with the sales of certain mineral property interests in western Montana.

Financing Activities

Common Stock Issued for Cash

In March 2005, we issued 4,366,700 shares of common stock at a price of $0.721 in a private placement raising approximately $3.1 million.

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In December 2005, we issued 3,300,000 shares of common stock at a price of $0.76 per share raising approximately $2.4 million.

In 2005 we issued 10,000 shares of common stock from the exercise on employee stock options resulting in proceeds of $6,600.

In March 2004, we issued 1,631,000 shares of common stock under our shelf registration in a private placement at a price of $4.37 per share, raising approximately $7.1 million.

During the period March through September 2004, we issued 1,420,000 shares of common stock at a price of $1.67 per share, raising $2.4 million related to the exercise of warrants by holders of our August 2003 offering.

During the period February through October 2004, we issued 80,000 shares of common stock at a price of $1.98 per share, raising $0.2 million related to the exercise of warrants by holders of our September 2003 offering.

During 2004, exercise of director stock options resulted in proceeds of approximately $0.2 million and the issuing of 152,500 shares of our common stock.

In August 2003, we completed an exchange offer (“Offer”) with certain holders of outstanding warrants to purchase 1,602,800 shares of our common stock at a price of $1.67 per share. The Offer allowed, at the warrant holder’s option, the opportunity to exchange funds representing a new exercise price of $1.35 per share and the outstanding warrant in exchange for shares of common stock and a new warrant with an exercise price of $1.67 per share that expired on September 30, 2004. Warrants tendered to us in the Offer resulted in proceeds of approximately $1.9 million and our issuing 1,419,900 shares of our common stock and new warrants to purchase 1,419,900 shares of our common stock at an exercise price of $1.67 per share. Warrants not tendered in the Offer representing 182,900 shares of common stock were subsequently exercised at $1.67 per share resulting in proceeds of approximately $0.3 million and us issuing 182,900 shares of our common stock.

During the period September through October 2003, we issued 2,307,400 shares of common stock and warrants to purchase 2,307,400 shares of common stock in a private placement, raising approximately $4.1 million. The warrants have an expiration date of December 1, 2005, and are exercisable at a price of $1.98 per share through December 1, 2004, or at a price of $2.16 per share through December 1, 2005. As of December 31, 2003, warrants to purchase 27,800 shares of common stock had been exercised, resulting in proceeds of approximately $0.1 million.

During 2003, exercise of employee stock options resulted in proceeds of approximately $0.1 million and us issuing 109,200 shares of our common stock.

Debenture Sales

In March 2003, we completed a private placement financing of 6%, two year convertible debentures, raising approximately $3.3 million. The debentures require quarterly interest payments, and the holders have the right to convert principal to common stock, subject to certain adjustments, at any time at a conversion rate of $1.38 per share of common stock. During 2004 and 2003, approximately $0.3 million and $0.6 million were converted to 181,200 and 452,900 shares of common stock, respectively. In March 2005, our remaining $2,424,000 convertible subordinated debentures became due. Debenture holders of $1,599,000 were paid the principal amounts of their notes in either cash or shares of common stock and warrants, and debenture holders of $825,000 agreed to extend the term of their debenture to March 1, 2011.

Credit Arrangements

CR Briggs Loan Facility:

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On December 6, 1995, our wholly-owned subsidiary, CR Briggs Corporation, obtained a $34.0 million loan facility to finance the capital requirements of mine construction and working capital for the Briggs Mine. The outstanding balance on this facility ($1.2 million) was paid off on February 28, 2003 with proceeds from the aforementioned sale of debentures.

Equipment Lease Buyouts:

We have arranged from time-to-time to finance certain equipment lease buy-outs with Caterpillar Finance. In January 2003, we exercised a lease purchase option to buy the mining fleet at the Briggs Mine for approximately $1.6 million at an interest rate of 6.75%. During 2004 and 2003, principal payments of approximately $1.0 million and $0.6 million, respectively, were made in connection with the financing. There were no equipment lease payments during 2005.

Surety Bonds:

Certain bonds have been issued aggregating $4.0 million for the performance of reclamation obligations and other contingent events at the Briggs Mine. At December 31, 2005, the surety held the following collateral for such bonds: (1) cash in the amount of $156,500; (2) a bank Letter of Credit in the amount of $249,000 which is collateralized with cash; and (3) a security interest in 28,000 acres of real property mineral interests in Montana.

In 2000, we agreed to make additional cash deposits with the surety totaling $1.5 million over a three year period at the rate of $0.5 million per year, commencing June 30, 2001. We have not made any deposits to date, and have held discussions with the surety to reschedule the deposit requirements. If an acceptable rescheduling of the deposit requirements cannot be agreed to, the surety could seek to terminate the bonds which could result in us becoming liable for the principal amounts under our collateral agreement with the surety.

In 2005 we began evaluating the re-start of the Briggs Mine, and any re-start may require additional reclamation bonds.

Purchase of the McDonald Gold Project:

On September 25, 1997, we, together with our wholly-owned subsidiary CR Montana Corporation (CR Montana), purchased a 72.25% participating interest and underlying assets in the SPV from CR Montana’s partner in the SPV, Phelps Dodge Corporation (Phelps Dodge). We and our wholly-owned subsidiary now own 100% of the SPV. We made an initial payment of $5 million and is required to make a final payment of $10 million upon issuance of all permits required for construction of the McDonald Gold Project, or alternatively, one-third of any proceeds received from a takings lawsuit (See “Other Matters — McDonald Gold Project — Takings Suit”). The purchase payments are collateralized only by the 72.25% participating interest and underlying assets in the SPV transferred from Phelps Dodge to us and CR Montana in this transaction and the 50% co-tenancy interest in certain real property also transferred to us and CR Montana.

Contractual Obligations

Our contractual obligations are as follows:

			PAYMENTS DUE BY PERIOD
			Less than						More than
	Total		1 year		1 – 3 years		3 – 5 years		5 years
Long-term debt obligations (1)	$	825,000	$	—	$	—	$	—	$	825,000
Capital lease obligations		32,000		6,100		25,900		—		—
Operating lease obligations		134,200		84,000		50,200		—		—
Other long-term liabilities (2)		5,769,200		1,210,600		1,970,800		2,103,200		484,600
Total	$	6,760,400	$	1,300,700	$	2,046,900	$	2,103,200	$	1,309,600

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(1)	$825,000 of convertible debentures due March 1, 2011, which can be converted by the holder at any time to our common stock at a conversion rate of $1.38 per share of common stock.
(2)	Represents our asset retirement obligations for the Briggs Mine, Kendall reclamation property and the Seven-Up Pete Venture properties.

Off-Balance Sheet Arrangements

Not applicable.

Outlook

Operations

The Briggs Mine placed the last fresh ore on the heap leach pads in April 2004 due primarily to lack of mine development. It is expected that ore on the heap leach pad will be rinsed through May 2006 and result in production of approximately 1,700 ounces of gold in 2006. Reclamation of the waste dumps and leach pad began in 2004 and will continue through 2006. During 2006 we expect to spend approximately $0.3 million on Briggs Mine reclamation primarily to complete the reclamation of the existing leach pads which will not be used if the mine continues production. We are currently performing infill drilling between the Goldtooth and Briggs Main pits and have begun initial redevelopment activities at the Briggs Mine. It is expected that this data will result in a recalculation of ore reserves. Cost estimates for re-start of the operation will be prepared and we expect to finalize a new plan of operations for the Briggs Mine and processing facilities, utilizing mineralized material at Briggs, the satellite Cecil R deposit, and the nearby Reward deposit.

We expect to spend approximately $0.8 million on the Kendall Mine reclamation over the next twelve months.

We expect to spend approximately $0.2 million on the Seven-Up Pete Venture reclamation over the next twelve months.

Expenditures at the McDonald Gold Project for legal and land holding costs are expected to be approximately $0.1 million in 2006.

Financing

At December 31, 2005, we had outstanding warrants issued in connection with previous transactions as follows:

Expiration Date	Underlying Shares		Strike Price
June 1, 2006		2,199,836	$	2.16
December 1, 2006		882,754	$	1.08
August 31, 2007		50,000	$	0.80
March 14, 2008		2,651,466	$	1.03
December 1, 2008		1,765,503	$	1.30
December 1, 2008		231,000	$	0.76
Total Warrants		7,780,559	$	1.41	Weighted Average

Aggregate proceeds of approximately $10.9 million would be realized on exercise of these warrants.

Our 6% convertible debentures ($0.825 million and $2.4 million outstanding at year-end 2005 and 2004, respectively), are convertible by the holders to common stock at any time at a conversion rate of $1.38 per share of common stock. In March 2005, $1,599,000 of principal was either repaid or converted to common shares and $825,000 of the remaining debentures were extended to March 2011.

43

Other Matters

Federal Legislation

Legislation has been introduced in prior sessions of the U.S. Congress to modify the requirements applicable to mining claims on federal lands under the Mining Law of 1872. To date, no such legislation has been enacted. The timing and exact nature of any mining law changes cannot presently be predicted, however, we will continue our active role in industry efforts to work with Congress to achieve responsible changes to mining law.

Gold Prices, Price Protection Arrangements, and Associated Risks

Our revenues, earnings and cash flow are strongly influenced by world gold prices, which fluctuate widely and over which we have no control. Our past price protection strategy was to provide an acceptable floor price for a portion of our production in order to meet minimum coverage ratios as required by loan facilities while providing participation in potentially higher prices. We had no gold related derivatives outstanding as of year-end 2005 and all gold sold during 2005 was sold at spot prices.

The risks associated with price protection arrangements include opportunity risk by limiting unilateral participation in upward prices; production risk associated with the requirement to deliver physical ounces against a forward commitment; and credit risk associated with counterparties to the hedged transaction. As of December 31, 2005 we were not at risk related to gold related derivative instruments.

Recently Issued Accounting Standards

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This statement replaces APB Opinion No. 20 Accounting Changes and FASB Statement No. 3 Reporting Accounting Changes in Interim Financial Statements. SFAS No.154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a “restatement.” This statement is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption of this standard is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. The adoption of SFAS No. 154 will have no material impact on our financial reporting and disclosures.

In March 2005, the FASB issued FASB Interpretation No. 47 Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143 (FIN 47). FIN 47 clarifies the term conditional asset retirement obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” and requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. Any uncertainty about the amount and/or timing of future settlement of a conditional asset retirement obligation should be factored into the measurement of the liability where sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal years ending after December 15, 2005. We adopted FIN 47 effective in the fourth quarter of 2005, which resulted in an increase in our asset retirement liabilities of $0.1 million due to the repurchase of the Briggs crushing plant.

At the March 2005 meeting, the EITF of FASB discussed EITF Issue No. 04-6, Accounting for Stripping Costs Incurred during Production in the Mining Industry, and reached a consensus that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the cost of inventory produced during the period. At its March 30, 2005 meeting, the FASB ratified this consensus. In its June 15-16, 2005 meeting, the EITF agreed with the FASB staff’s recommendation this issue by including a clarification that “inventory produced,” as included in the consensus, means the same as “inventory extracted.” The consensus on

44

this Issue is effective for the first reporting period in fiscal years beginning after December 15, 2005. The adoption of EITF Issue No. 04-6 will have no material impact on our financial reporting and disclosures.

In December 2004, the FASB issued SFAS No. 123(R) revised 2004, Share-Based Payment. This Statement is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB No. 25, Accounting for Stock Issued to Employees. The Statement requires companies to recognize in the income statement the grant-date fair value of stock options and other equity based compensation issued to employees. This Statement is effective as of the beginning of the first interim or annual period that commences after December 15, 2005. The adoption of SFAS No. 123(R) is expected to increase compensation expense for employees and directors and the materiality of the impact will depend on the amount of stock options which vest and are granted in the future. The effect on net income from employee stock options issued in 2005 or earlier and vesting in 2006 is approximately $20,300.

Dividends

Since our inception, no cash dividends have been paid nor do we expect any to be paid for the foreseeable future.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Prices

Our earnings and cash flow are not expected to be significantly impacted by changes in the market price of gold during 2006 due to the limited gold production expected from the Briggs Mine that will result from rinsing the heap leach pads. Gold prices can fluctuate widely and are affected by numerous factors, such as demand, production levels, and economic policies of central banks, producer hedging, and the strength of the U.S. dollar relative to other currencies. During the last five years, the average annual market price has fluctuated between $271 per ounce and $445 per ounce. Gold is our primary product and, according to our estimates, a $10 change in the price of gold would result in a $17,000 change in pre-tax earnings and cash flows during 2006.

There is certain market risks associated with the forward gold contracts utilized in the past by us. If the contract counterparty fails to honor their contractual obligation, we may be exposed to market price risk by having to sell gold in the open market at prevailing prices. Similarly, if we fail to produce sufficient quantities of gold to meet our forward commitments, we would have to purchase the shortfall in the open market at prevailing prices. In addition, we could be subject to cash margin calls by counterparties if the market price of gold significantly exceeds the forward contract price which would create additional financial obligations. At December 31, 2005 and 2004, we had no outstanding forward gold contracts.

Interest Rates

At December 31, 2005, our convertible debentures balance was approximately $0.8 million at a fixed interest rate of 6%. Currently we believe our interest rate risk is minimal.

Foreign Currency

The price of gold is denominated in U.S. dollars, and our current gold production operations and significant properties are located primarily in the U.S. We own foreign mineral rights primarily in the form of royalties which may create foreign currency exposure in the future when, and if, these foreign properties are placed in production.

45

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants	47-48
Consolidated Balance Sheets	49
Consolidated Statements of Operations	50
Consolidated Statements of Changes in Stockholders’ Equity	51
Consolidated Statements of Cash Flows	52-53
Notes to Consolidated Financial Statements	54-72

46

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
of Canyon Resources Corporation
Golden, Colorado

We have audited the consolidated balance sheets of Canyon Resources Corporation as of December 31, 2005 and 2004, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting as of December 31, 2005. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Canyon Resources Corporation as of December 31, 2005, and 2004, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.

/s/ Ehrhardt Keefe Steiner & Hottman P.C.
Ehrhardt Keefe Steiner & Hottman P.C.

February 24, 2006
Denver, Colorado

47

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
Canyon Resources Corporation:

In our opinion, the accompanying consolidated balance sheet and the related statements of consolidated operations, of change in stockholders’ equity and of cash flows, present fairly, in all material respects, the financial position of Canyon Resources Corporation and its subsidiaries at December 31, 2003 and the result of their operations and their cash flows for each of the two years in the period ending December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

As discussed in Notes 3 and 4 to the Consolidated Financial Statements, the Company changed method of accounting for asset retirement obligations effective January 1, 2003 and its method of accounting for intangible assets, effective January 1, 2002.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Denver, Colorado March 19, 2004, except for Notes 17(a) and 17(b), which appear in the financial statements included in the Company’s Form 10-K Amendment No. 2 for the year ended December 31, 2003 and are not presented herein, as to which the dates are May 27, 2004 and October 25, 2004, respectively

48

CANYON RESOURCES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,			December 31,
	2005			2004
ASSETS
Cash and cash equivalents	$	5,649,200		$	4,638,300
Restricted cash		281,300			274,800
Accounts receivable		16,400			769,000
Metal inventories		65,900			1,906,400
Prepaid and other current assets		170,900			153,400
Total current assets		6,183,700			7,741,900
Property and equipment, at cost
Mining Claims and Leases		5,400,900			—
Producing properties		7,098,700			6,443,500
Other		610,000			643,100
		13,109,600			7,086,600
Accumulated depreciation and depletion		(7,832,900	)		(5,667,700	)
Net property and equipment		5,276,700			1,418,900
Undeveloped mineral claims, net		—			13,359,500
Restricted cash		2,939,900			2,847,300
Other noncurrent assets		246,400			247,400
Total Assets	$	14,646,700		$	25,615,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	474,100		$	446,300
Notes payable — current		—			2,412,700
Asset retirement obligations		1,210,600			2,007,700
Payroll liabilities		216,900			273,800
Other current liabilities		86,600			139,300
Total current liabilities		1,988,200			5,279,800
Notes payable — long term		825,000			—
Warrant liabilities		360,000			—
Capital leases — long term		25,900			—
Asset retirement obligations		4,558,600			4,231,200
Total liabilities		7,757,700			9,511,000
Commitments and contingencies (Note 11)
Common stock ($.01 par value) 100,000,000 shares authorized; issued and outstanding: 38,320,500 at December 31, 2005; and 29,207,600 at December 31, 2004		383,200			292,100
Capital in excess of par value		133,949,900			127,608,200
Retained deficit		(127,444,100	)		(111,796,300	)
Total Stockholders’ Equity		6,889,000			16,104,000
Total Liabilities and Stockholders’ Equity	$	14,646,700		$	25,615,000

The accompanying notes are an integral part of these consolidated financial statements.

49

CANYON RESOURCES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2005			2004			2003
REVENUE
Sales	$	4,140,300		$	11,813,900		$	13,010,100
EXPENSES
Cost of sales		3,214,400			10,651,400			14,067,900
Depreciation, depletion, and amortization		1,849,300			5,771,600			4,435,500
Selling, general and administrative		2,269,400			6,871,600			3,974,100
Exploration costs		1,619,900			507,700			1,368,500
Accretion expense		133,900			173,100			186,100
Impairment of long-lived assets		9,242,100			—			3,382,000
Asset retirement obligation		1,383,300			5,386,600			—
Debenture conversion expense		448,200			—			—
Gain on asset disposals		(7,000	)		(294,200	)		(85,300	)
		20,153,500			29,067,800			27,328,800
Operating loss		(16,013,200	)		(17,253,900	)		(14,318,700	)
OTHER INCOME (EXPENSE)
Interest income		215,500			106,700			52,300
Interest expense		(79,900	)		(246,400	)		(354,500	)
Gain on derivative instruments		195,400			147,200			340,400
Other		34,400			(140,000	)		150,000
		365,400			(132,500	)		188,200
Loss before cumulative effect of change in accounting principle		(15,647,800	)		(17,386,400	)		(14,130,500	)
Cumulative effect of change in accounting principle		—			—			(11,700	)
Net loss	($	15,647,800	)	($	17,386,400	)	($	14,142,200	)
Basic and diluted net loss per share:	($	0.46	)	($	0.62	)	($	0.63	)
Basic and diluted weighted average shares outstanding		33,881,200			28,023,700			22,487,100

The accompanying notes are an integral part of these consolidated financial statements.

50

CANYON RESOURCES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

	Common Stock				Capital								Total
	Number of		At Par		In Excess		Deferred			Retained			Stockholders’
	Shares		Value		of Par Value		Compensation			Deficit			Equity
Balances, December 31, 2002		18,853,400	$	188,500	$	105,011,400	($	6,500	)	($	80,267,700	)	$	24,925,700
Stock issued for cash		2,307,400		23,100		4,130,200		—			—			4,153,300
Stock issued in payment of goods and services		2,099,600		21,000		1,931,600		—			—			1,952,600
Other stock issued		140,700		1,400		194,000		—			—			195,400
Exercise of stock options		109,200		1,100		87,400		—			—			88,500
Exercise of warrants		1,630,600		16,300		2,261,100		—			—			2,277,400
Conversion of debentures		452,900		4,500		620,500		—			—			625,000
Beneficial conversion feature		—		—		155,700		—			—			155,700
Other equity changes		—		—		2,719,800		(257,700	)		—			2,462,100
Net loss		—		—		—		—			(14,142,200	)		(14,142,200	)
Balances, December 31, 2003		25,593,800	$	255,900	$	117,111,700	($	264,200	)	($	94,409,900	)	$	22,693,500
Stock issued for cash		1,631,000		16,300		7,111,000		—			—			7,127,300
Other stock issued		139,500		1,400		228,800		—			—			230,200
Exercise of stock options		162,500		1,600		178,600		—			—			180,200
Exercise of warrants		1,499,700		15,100		2,514,300		—			—			2,529,400
Conversion of debentures		181,100		1,800		248,200		—			—			250,000
Other equity changes		—		—		215,600		264,200			—			479,800
Net loss		—		—		—		—			(17,386,400	)		(17,386,400	)
Balances, December 31, 2004		29,207,600	$	292,100	$	127,608,200		—		($	111,796,300	)	$	16,104,000
Stock issued for cash, net of Issuance costs of $182,500		7,666,700		76,700		4,841,800		—			—			4,918,500
Exercise of stock options		10,000		100		6,500		—			—			6,600
Other stock issued(1)		500,000		5,000		365,000		—			—			370,000
Conversion of debentures		936,200		9,300		665,700		—			—			675,000
Other equity changes(2)		—		—		14,500		—			—			14,500
Debenture conversion expense		—		—		448,200		—			—			448,200
Net loss						—		—		($	15,647,800	)		(15,647,800	)
Balances, December 31, 2005		38,320,500	$	383,200	$	133,949,900		—		($	127,444,100	)	$	6,889,000

(1)	Stock issued for repurchase of Briggs crusher.
(2)	Fair value of warrants issued for investor relations contract.

51

CANYON RESOURCES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2005			2004			2003
Cash flows from operating activities:
Net loss	($	15,647,800	)	($	17,386,400	)	($	14,142,200	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion and amortization		1,849,300			5,771,700			4,435,500
Amortization of deferred financing costs		—			—			12,200
Amortization of beneficial conversion feature		11,300			63,700			80,700
Debenture conversion expense		448,200			—			—
Impairment of inventory		143,100			1,133,000			1,568,000
Impairment of long-lived assets		9,242,100			—			3,382,000
Cumulative effect of change in accounting principle		—			—			11,700
Gain on asset dispositions		(7,000	)		(294,200	)		(85,300	)
Gain on derivative instruments		—			(147,200	)		(340,400	)
Non-cash compensation expense		14,500			710,000			2,657,500
Provision for asset retirement obligation		1,383,300			5,386,600			—
Gain on mark to market of warrant liability		(195,400	)		—			—
Accretion of asset retirement obligation		133,900			173,100			186,100
Write off of prepaid auction expenses		—			151,000			—
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		672,600			(640,800	)		(121,400	)
Decrease in inventories		1,078,100			1,952,100			1,948,400
(Increase) decrease in prepaid and other assets		(16,500	)		66,400			107,200
(Decrease) increase in accounts payable and accrued liabilities		(55,500	)		(569,000	)		600,000
Decrease in asset retirement obligations		(2,144,600	)		(4,699,700	)		(855,100	)
(Increase) decrease in restricted cash		(99,100	)		4,900			(397,700	)
Total adjustments		12,458,300			9,061,600			13,189,400
Net cash used in operating activities		(3,189,500	)		(8,324,800	)		(952,800	)
Cash flows from investing activities:
Purchases and development of property and equipment		(334,400	)		(409,300	)		(3,232,500	)
Proceeds from asset dispositions		1,100			454,200			229,400
Earnest money received (applied)		—			—			(27,600	)
Increase in restricted cash		—			—			(59,500	)
Net cash (used in) provided by investing activities		(333,300	)		44,900			(3,090,200	)
Cash flows from financing activities:
Issuance of stock, net		5,480,500			9,836,900			6,519,200
Proceeds from sale of debentures		—			—			3,299,000
Payments on debt		(924,000	)		(1,037,400	)		(1,901,000	)
Payments on capital lease obligations		(22,800	)		(21,100	)		(165,200	)
Net cash provided by financing activities		4,533,700			8,778,400			7,752,000
Net increase in cash and cash equivalents		1,010,900			498,500			3,709,000
Cash and cash equivalents, beginning of year		4,638,300			4,139,800			430,800
Cash and cash equivalents, end of year	$	5,649,200		$	4,638,300		$	4,139,800

The accompanying notes are an integral part of these consolidated financial statements.

52

CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

Supplemental disclosures of cash flows information:

	2005		2004		2003
1. Interest paid	$	68,600	$	182,700	$	261,800
2. Income taxes paid	$	—	$	—	$	—

Supplemental schedule of non-cash investing and financing activities:

	2005		2004		2003
1. Warrants and shares issued to creditors for services :
Issued 2,099,600 shares	$	—	$	—	$	1,952,600
2. Issued shares to retire convertible debentures:
Issued 936,200 shares	$	675,000	$	—	$	—
Issued 181,200 shares	$	—	$	250,000	$	—
Issued 452,900 shares	$	—	$	—	$	625,000
3. Non cash to purchase plant and equipment
Issued 500,000 shares — recorded at fair value	$	370,000	$	—	$	—
Accounts Receivable foregiveness	$	80,000	$	—	$	—
4. Issued shares to employee as compensation for services:
Issued 139,500 shares	$	—	$	230,200	$	—
Issued 140,700 shares	$	—	$	—	$	195,400
5. Issued shares in connection with the exercise of stock options with exercise price paid by surrendering shares underlying the options:
Issued 10,000 shares	$	—	$	—	$	—
Issued 21,700 shares	$	—	$	—	$	—
6. Increase to property costs in connection with Statement of Financial Accounting Standards No. 143 for Asset Retirement Obligations:	$	157,700	$	—	$	2,095,900
7. Compensation expense under variable plan accounting:	$	—	$	479,800	$	2,462,100
8. Capital lease obligations incurred for equipment:	$	32,600	$	—	$	23,400
9. Financed equipment lease buy-out:	$	—	$	—	$	1,582,800

The accompanying notes are an integral part of these consolidated financial statements.

 53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operations and Liquidity:

Canyon Resources Corporation, a Delaware corporation, is a Colorado-based company, which was organized in 1979 to explore, acquire, develop, and mine precious metal and other mineral properties. References to “Canyon Resources”, “Canyon, and the “Company”, mean Canyon Resources Corporation and all of the wholly-owned and majority-owned subsidiaries of Canyon Resources Corporation, or any one or more of them, as the context requires. We are a reporting company on The American Stock Exchange.

The Company is involved in all phases of the mining business from early stage exploration, exploration drilling, development drilling, feasibility studies and permitting, through construction, operation and final closure of mining properties.

The Company has gold production operations in the western U.S., and conducts exploration activities in the search for additional valuable mineral properties primarily in the western U.S. Canyon’s exploration and development efforts emphasize precious metals (gold and silver). The Company has conducted a portion of its mineral exploration and development through joint ventures with other companies.

The Briggs Mine, located in southeastern California, produced 9,289 ounces of gold and 1,700 ounces of silver, which represents all of the Company’s production during 2005. Briggs is continuing reclamation activities on the leach pad but is currently in the process of redeveloping the mine facilities for possible re-start of mining operations in late 2006 or early 2007.

The Kendall Mine, located near Lewistown, Montana, continued with reclamation and closure activities, principally relating to collection, treatment and disposal of water contained in the process system and mine area, and in re-contouring the leach pads and pit areas.

Recent development activities included the acquisition and pre-feasibility study of the Reward property located in southwestern Nevada and the acquisition and subsequent joint venture of uranium properties located in east-central Wyoming. Exploration activities during 2005 included infill drilling around the Briggs Mine and the optioning, evaluation and subsequent release of the Hycroft property located in Nevada.

The Company believes that its cash requirements over the next 12 months can be funded through a combination of existing cash, revenue from operations, and cash raised from financing activities. The Company’s short-term liquidity may be negatively impacted by the decreasing residual gold production from rinsing the heap leach pads at the Briggs Mine, which is currently the only internal source of cash flow other than asset sales. However, the Company is currently conducting infill drilling at Briggs and has received Board approval in early 2006 to perform certain other redevelopment activities to prepare the mine for a possible re-start.

The Company is continually evaluating business opportunities such as joint ventures and mergers and acquisitions with the objective of creating additional cash flow to sustain the corporation, and provide a future source of funds for growth. While the Company believes it will be able to finance its continuing activities and the possible re-start of Briggs, there are no assurances of success in this regard or in its ability to obtain additional financing through capital markets, joint ventures, or other arrangements in the future. If management’s plans are not successful, the Company’s ability to operate would be materially adversely impacted.

2. Basis of Presentation:

Management Estimates and Assumptions: Certain amounts included in or affecting the Company’s consolidated financial statements and related disclosures must be estimated, requiring that certain assumptions be made with respect to values or conditions which cannot be made with certainty at the time the consolidated financial statements are prepared. Therefore, the reported amounts of the Company’s assets and liabilities,

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

revenues and expenses, and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates. The Company evaluates these estimates on an ongoing basis, utilizing historical experience, consultation with experts, and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from The Company’s estimates. The most significant estimates relate to timing and amount of asset retirement obligations at the Briggs, Kendall, and Seven-Up Pete properties, the fair value of warrant liabilities and the realizable value of the Company’s long-lived assets.

Consolidation Principles: The Company’s consolidated financial statements include the accounts of Canyon and its significant active wholly-owned subsidiaries: CR Kendall Corporation; CR Briggs Corporation; CR Montana Corporation; CR International Corporation; Judith Gold Corporation; and Industrial Minerals Corporation. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

3. Summary of Significant Accounting Policies:

Cash and Cash Equivalents: Cash and cash equivalents include highly liquid investments with original maturities of three months or less at the date of purchase and which are not subject to significant risk from changes in interest rates. At December 31, 2005 and 2004, the Company maintained a significant portion of its cash in two financial institutions. See Note 12.

Restricted Cash: Cash held as collateral for reclamation bonds is classified based on the expected release or use of such collateral. Cash held in trust and restricted to specific use is classified as current when expected to be used in current operations or noncurrent when expected to be used in the acquisition, maintenance, or development of noncurrent assets.

Inventories: In-process and finished goods inventory are stated at the lower of average cost or net realizable value. In-process material includes the estimated recoverable ounces of gold contained in broken-ore under leach on the heap leach pad. Costs capitalized to inventory for in-process material include (1) the direct costs incurred in the mining and crushing of the rock and delivery of the ore onto the heap leach pad, (2) applicable depreciation, depletion and amortization, and (3) allocated indirect mine general and administrative overhead costs. Finished goods represent contained ounces of gold in unsold doré. Costs capitalized to inventory for finished goods include (1) all of the costs included in in-process materials, (2) all direct costs incurred in the leaching and refining processes, (3) applicable depreciation, depletion and amortization, and (4) allocated indirect mine general and administrative overhead costs. Materials and supplies are stated at cost.

Mining Claims and Leases:

Developed Mineral Interests: For new projects without established reserves, all costs, other than acquisition costs, are expensed prior to the establishment of proven and probable reserves. For mines with existing reserves or mines purchased with established reserves, costs are capitalized when the decision to begin redevelopment activities is approved by management or the Board of Directors. Reserves designated as proven and probable are supported by a final feasibility study, indicating that the reserves have had the requisite geologic, technical and economic work performed and are legally extractable at the time of reserve determination. Once proven and probable reserves are established, all development and other site specific costs are capitalized, including general and administrative charges for actual time and expenses incurred in connection with site supervision. If subsequent events or circumstances arise which would preclude further development of the reserves under then existing laws and regulations, additional costs are expensed until the impediments have been removed and the property would be subject to impairment review.

Undeveloped Mineral Interests: Due to the June 8, 2005 Montana Supreme Court decision, the Company wrote off its remaining $9.2 million carrying value of the McDonald mineral leases during the second quarter of 2005.

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

Also during the second quarter of 2005, the Company determined that the Seven-Up Pete property may have the potential to be economically developed using non-cyanide technologies in today’s gold market price environment. The carrying value was reclassified from intangibles to a separate component of property and equipment on the Company’s consolidated balance (See Note 7). Prior to the McDonald write down and the Seven-Up reclass, the properties were being amortized over an eight year period.

Producing Properties and Equipment: Capitalized acquisition and development costs associated with properties brought into production, including the costs necessary for constructing and readying a heap leach pad, are charged to operations using the units-of-production method based on the estimated gold which can be recovered from the ore reserves processed on the heap leach pad. Costs of certain post development start-up activities and on-going costs to maintain production are expensed as incurred. Production facilities and equipment are stated at cost and are amortized over the estimated proven and probable reserves which can be recovered from the related property. Vehicles and office equipment are stated at cost and are depreciated using the straight-line method over estimated useful lives of three to five years. Maintenance and repairs are charged to expense as incurred. Gains or losses on dispositions are included in operations. Depreciation is not allocated to cost of sales.

Impairments: The Company evaluates the carrying value of its producing properties and equipment when events or changes in circumstances indicate that the properties may be impaired. For these assets, an impairment loss is recognized when the estimated future cash flows (undiscounted and without interest) expected to result from the use of the asset are less than the carrying amount of the asset. Measurement of the impairment loss is based on discounted cash flows.

Undeveloped mineral interests are assessed for impairment at least annually or more frequently when changes in market conditions or other events occur. Impairments are measured based on a fair value basis. Fair value with respect to such mineral interests, pursuant to Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective January 1, 2002, would generally be assessed with reference to comparable property sales transactions in the market place.

Asset Retirement Obligations: On January 1, 2003, the Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Fair value is determined by estimating the retirement obligations in the period an asset is first placed in service and then adjusting the amount for estimated inflation and market risk contingencies to the projected settlement date of the liability. The result is then discounted to a present value from the projected settlement date to the date the asset was first placed in service. The present value of the asset retirement obligation is recorded as an additional property cost and as an asset retirement liability. The amortization of the additional property cost (using the units of production method) is included in depreciation, depletion and amortization expense and the accretion of the discounted liability is recorded as a separate operating expense in the Company’s Statement of Operations. The Company adjusted its asset retirement obligations estimate in 2005 for the Briggs Mine by $1.1 million, $0.1 million for the Kendall Mine and $0.4 million for the Seven-Up Pete Venture. (See Note 4)

When a mine is shut down and begins the final reclamation the Company may decide to record the reclamation liability on an undiscounted basis depending on the time frame and materiality of the expenditures. The asset retirement obligations of the Kendall mine and the Seven-Up Pete Venture are recorded on an undiscounted basis.

See Note 4 for additional discussion of the Company’s adoption of SFAS No. 143.

Revenue Recognition: Revenue from the sale of gold is recognized when delivery has occurred, title and risk of loss passes to the buyer, and collectability is reasonably assured. Gold sales are made in accordance with sales contracts where the price is fixed or determinable.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

Derivative Instruments: The Company has used derivative financial instruments in the past to manage well defined market risks associated with fluctuating gold prices. In past years the Company primarily entered into floating rate forward sales contracts on a portion of future gold production to hedge its exposure to falling gold prices. Contract prices on forward sales contracts have been recognized in product sales as the designated production is sold.

Under these contracts, the Company has had the option on maturity to deliver production, net financially settle in the marketplace, or roll the contract forward to a later maturity date and at new pricing terms. Consequently, the Company did not designate the contracts against specific future gold production and accordingly, these derivative instruments did not qualify for hedge accounting under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.

These derivative instruments were recognized as assets or liabilities at fair value and are measured at least quarterly. Changes in fair value were recorded in earnings. On settlement of a contract, against which the Company has delivered gold production, the contract price was recognized as revenue from the gold sale. If financially settled, the resulting gain or loss was included in revenue if the Company had sufficient gold production to otherwise settle the contract by delivery. Gains or losses resulting from all other financially settled contracts were recorded as other income (expense). As of December 31, 2005, the Company did not have any open derivative contracts.

Deferred Financing Costs: Costs incurred to obtain debt financing are capitalized and amortized to interest expense over the life of the debt facilities using the effective interest rate method.

Warranty Liability: Warrants issued in connection with financing activities are subject to the provisions of Emerging Issues Task Force (EITF) Issue 00-19: Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. EITF 00-19 describes which derivatives should be classified as either equity or liability. If the derivative is determined to be a liability, the liability is fair valued each reporting period with the changes recorded to the consolidated balance sheet and consolidated statement of operations.

The 2.9 million warrants issued in connection with the December 2, 2005 private placement were determined to be a liability with an initial estimated fair value of $0.6 million. At year-end the fair value of warrant liability was estimated to be $0.4 million and the $0.2 million decrease in warrant liability was recorded as a gain on derivative instruments in the consolidated statement of operations.

Earnings per Share: The Company computes earnings per share (EPS) by applying the provisions of SFAS No. 128, Earnings per Share. Basic EPS is computed by dividing income available to common shareholders (net income less any dividends declared on preferred stock and any dividends accumulated on cumulative preferred stock) by the weighted average number of common shares outstanding. Diluted EPS requires an adjustment to the denominator to include the number of additional common shares that would have been outstanding if potential dilutive common shares had been issued. The numerator is adjusted to add back any convertible preferred dividends and the after-tax amount of interest recognized with any convertible debt.

Stock-Based Compensation: In accordance with the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, the Company measures compensation cost using the intrinsic value based method prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations to account for its stock option plans. However, because the Company had allowed option holders to exercise options by surrendering shares of common stock underlying vested but unexercised options in payment of the exercise price of the options, the Company’s outstanding options are accounted for using variable plan accounting. As a result, while no compensation cost has been recognized at the grant date as the exercise price of all stock option grants was at least equal to 100% of the market price of the Company’s common stock as

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

of the date of grant, subsequent changes in the market price of the Company’s stock to the date of exercise or forfeiture result in a change in the measure of compensation cost for the award being recognized.

Effective July 1, 2004, the Company changed the manner in which payment of the exercise price of an option could be tendered, requiring payment in cash or tendering of shares of common stock that had been held for at least six months. As a result, the Company has applied fixed plan accounting for its stock option plans on a prospective basis, commencing July 1, 2004. Because deferred compensation in the amount of $264,200 had previously been recorded for in-the-money, unvested options at the time the Company changed from variable plan accounting to fixed plan accounting, this amount was amortized to expense as the options vested during the last half of 2004.

In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amendments to SFAS No. 123 are effective for financial statements for fiscal years ending after December 15, 2002. Had compensation cost been determined under the provisions of SFAS No. 123, the following pro forma net loss and per share amounts would have been recorded.

	2005			2004			2003
Net loss, as reported	($	15,647,800	)	($	17,386,400	)	($	14,142,200	)
Deduct: compensation expense determined under variable plan accounting		—			479,900			2,462,100
Add: compensation expense determined under fair value based method		(294,700	)		(351,300	)		(672,900	)
Pro forma net loss	($	15,942,500	)	($	17,257,800	)	($	12,353,000	)
Basic and diluted loss per share
• As reported	($	0.46	)	($	0.62	)	($	0.63	)
• Pro forma	($	0.47	)	($	0.62	)	($	0.55	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

The weighted average fair value for options granted in 2005, 2004, and 2003 was $0.39 per share, $1.14 per share, and $1.03 per share, respectively. The pro forma amounts were determined using the Black-Scholes model with the following assumptions:

	2005			2004			2003
Expected volatility
• Incentive Stock Options		50-75	%		79.9	%		49.8	%
• Non-Qualified Stock Options		67	%		78.0	%		52.4	%
Expected option term
• Incentive Stock Options	2.5-5 years			3 years			3 years
• Non-Qualified Stock Options	5 years			5 years			3.2 years
Weighted average risk-free interest rate
• Incentive Stock Options		4.0-4.4	%		3.2	%		2.4	%
• Non-Qualified Stock Options		3.7	%		3.7	%		2.3	%
Forfeiture rate
• Incentive Stock Options (1)		—			—			—
• Non-Qualified Stock Options (2)		—			—			0.5	%

(1) Most grants were immediately exercisable; some have a one year vesting period.

(2) These are primarily director options which have a one year vesting period.

Income Taxes: The Company computes deferred income taxes under the asset and liability method prescribed by SFAS No. 109, Accounting for Income Taxes. This method recognizes the tax consequences of temporary differences between the consolidated financial statement amounts and the tax bases of certain assets and liabilities by applying statutory rates in effect when the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized.

4. Adoption of New Accounting Standards:

On January 1, 2003, the Company became subject to the accounting and reporting requirements of SFAS No. 143. SFAS No. 143 establishes accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Fair value is determined by estimating the retirement obligations in the period an asset is first placed in service and then adjusting the amount for estimated inflation and market risk contingencies to the projected settlement date of the liability. The result is then discounted to a present value from the projected settlement date to the date the asset was first placed in service. The present value of the asset retirement obligation is recorded as an additional property cost and as an asset retirement liability. The amortization of the additional property cost (using the units of production method) is included in depreciation, depletion and amortization expense and the accretion of the discounted liability is recorded as a separate operating expense in the Company’s consolidated statements of operations.

Prior to adoption of SFAS No. 143, an accrual for the Company’s estimated asset retirement obligations (site specific reclamation costs for earthwork, revegetation, water treatment and dismantlement of facilities) was made using the units of production method over the life of the property and was included in cost of sales. Upon adoption, the Company recorded a loss of $11,700 as the cumulative effect of a change in accounting principle.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

The following provides a reconciliation of the Company’s beginning and ending carrying values for its asset retirement obligations in the current year:

Balance, December 31, 2004	$	6,238,900
Settlement of liabilities		(2,144,600	)
Change in estimate (1)		1,541,000
Accretion expense		133,900
Balance, December 31, 2005		5,769,200
Current portion		1,210,600
Noncurrent portion	$	4,558,600
Anticipated spending per year:
2006		1,210,600
2007		1,396,800
2008		469,200
2009		104,800
2010		1,303,000
Thereafter		1,284,800
Total	$	5,769,200

(1)	The reclamation forecast for the closure of the Briggs Mine was increased at December 31, 2005 by $1,080,500 as a result of a combination of completion delays caused by continued gold production from the leach pad, the initiation of a drilling program to determine the potential of further mining, the addition of reclamation for the repurchased crusher, and higher fuel related costs.
	The reclamation forecast for the closure at the Kendall Mine was increased at December 31, 2005 by $75,500 as a combination of completion delays and additional leach pad capping costs.
	A reclamation forecast of $385,000 to reclaim drill holes at the Seven-Up Pete Venture relating to the Montana state leases was set up at December 31, 2005

5. Restricted Cash:

Restricted cash consisted of the following at December 31:

	2005		2004
Collateral for Letter of Credit (a)	$	249,000	$	249,000
Collateral for reclamation bonds and other contingent events (b)		156,500		152,400
Kendall Mine reclamation (c)		2,007,500		1,945,900
McDonald Gold Project cash reclamation bond (d)		526,900		500,000
Net proceeds from property sales (e)		281,300		274,800
		3,221,200		3,122,100
Current portion		281,300		274,800
Noncurrent portion	$	2,939,900	$	2,847,300

(a) In connection with the issuance of certain bonds for the performance of reclamation obligations and other contingent events at the Briggs Mine, a bank Letter of Credit was provided in favor of the surety as partial collateral for such bond obligations. The Letter of Credit is fully collateralized

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

	with cash and will expire no earlier than December 31, 2006, and at the bank’s option, may be renewed for successive one-year periods.
(b)	Held directly by the surety as partial collateral for reclamation and other contingent events at the Briggs Mine.
(c)	Held directly by the Montana Department of Environmental Quality (DEQ) in an interest bearing account for use in continuing reclamation at the Kendall mine site.
(d)	Held directly by the Montana DEQ for reclamation at the McDonald Gold Property.
(e)	In connection with the auction of certain properties, cash has been sequestered by court order.

6. Metal Inventories:

Metal inventories consisted of the following at December 31:

	2005		2004
Broken ore under leach	$	—	$	1,805,700
Doré and gold in process		65,900		100,700
	$	65,900	$	1,906,400

The Company wrote down its metal inventory at the Briggs Mine to net realizable value by $143,100, $1,133,000, and $1,568,000 in 2005, 2004, and 2003, respectively. Inventory write downs are included in cost of sales in the consolidated statement of operations.

At December 31, 2005, approximately $37,200 of Briggs general and administrative expenses were included in inventory. At December 31, 2004, approximately $13,600 of Briggs general and administrative expenses were included in inventory.

7. Undeveloped Mineral Claims:

The carrying value of the Company’s undeveloped mineral claims and leases consists of the following components at December 31:

	2005									2004
				Seven-Up									Seven-Up
	McDonald			Pete			Total			McDonald			Pete			Total
Gross carrying value	$	16,200,200		$	5,175,000		$	21,375,200		$	16,200,200		$	5,175,000		$	21,375,200
Accumulated amortization (1)		(6,958,100	)		(2,210,200	)		(9,168,300	)		(6,075,000	)		(1,940,700	)		(8,015,700	)
Impairment(2)		(9,242,100	)		—			(9,242,100	)		—			—			—
Reclassification(3)		—			(2,964,800	)		(2,964,800	)		—			—			—
Net book value	$	—		$	—		$	—		$	10,125,200		$	3,234,300		$	13,359,500

(1)	Amortization of these properties commenced in 2002 at the rate of $2,671,900 per year. The properties were being amortized over eight years with no residual value. (See the following footnotes).
(2)	On June 8, 2005, the Montana Supreme court (i) upheld the anti-cyanide initiative, I-137, (ii) affirmed the conclusion of the Montana Department of Natural Resources and Conservation hearing examiner with respect to termination of the Company’s mineral leases with the State of Montana, and (iii) denied the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

Company’s takings compensation claim. Accordingly, the Company wrote off its carrying value for the McDonald mineral leases during the second quarter of 2005. (See Note 8).

(3)

During the second quarter of 2005, the Company determined that the Seven-Up Pete property may have the potential to be economically developed using non-cyanide technologies in today’s gold market price environment. Consistent with the provisions of EITF 04-02, the Company has (i) re-characterized the underlying mineral leases as tangible from intangible; (ii) re-classified their carrying value to a separate component of property and equipment on the Company’s consolidated balance sheet; and (iii) ceased amortizing their carrying value with effect as of June 1, 2005. Prior period carrying values have not been re-classified on the Company’s consolidated balance sheet because development of the property using cyanide technology was uncertain at the time of adoption of EITF 04-02 due to the pending litigation of matters relating to the anti-cyanide initiative, I-137.

8. Impairment of Long-lived Assets

The Company tests for impairment of its long-lived assets when changes in events or circumstances occur. In accordance with SFAS No. 144, Accounting for the Impairments and Disposal of Long-Lived Assets, the Company uses estimates of future cash flows to test the recoverability of the Briggs Mine’s long-lived assets which includes mine development expenditures and plant and equipment. The estimated future cash flows include the projected revenues from in-ground estimated reserves based on the Company’s estimate of future gold prices and all future expenditures necessary to produce those in-ground reserves. As mining progressed in the second quarter of 2003, the Briggs Mine encountered projected ore which contained lower gold grade and higher sulfide contents (with low gold recovery) than expected. The Company determined that these gold ounces were no longer economic, and, as such, decreased its reserves at the Briggs Mine. As a consequence, the Company recorded a write down of $3,382,000 of these long-lived assets to their estimated fair value of $4,634,300.

During the second quarter of 2005 in connection with the Montana Supreme Court decision affirming the termination of the McDonald Gold Project’s state mineral leases, the Company wrote off their carrying value of $9,242,100. Because the Company believed it held valid mineral leases prior to the Montana Supreme Court decision, the carrying value of the leases had previously been assessed for impairments using a probability weighted approach for potential property development. The Seven-Up Pete lands, owned directly by Canyon Resources or leased with private parties, were not affected by the Montana Supreme Court decision.

9. Notes Payable:

Notes payable consisted of the following at December 31:

	2005		2004
Debentures (a)	$	825,000	$	2,424,000
Less: discount		—		(11,300	)
		825,000		2,412,700
Current portion		—		2,412,700
Notes payable — Noncurrent	$	825,000	$	—

(a) In March 2003, the Company completed a private placement financing of 6%, two year convertible debentures, raising $3,299,000. The debentures require quarterly interest payments, and the holders have the right to convert principal to common stock of the Company, subject to certain adjustments, at any time, at a conversion rate of $1.38 per share of common stock. For certain investors, the common stock had a fair value at the commitment date in excess of the conversion price resulting in a beneficial conversion feature. The intrinsic value of the beneficial conversion was recorded as an addition to paid in capital and a discount on the debt with the discount then amortized to interest expense over the term of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

the debt using the effective interest method. The discount was fully accreted as of February 28, 2005. The Company’s stock price at the end of December 2005 was $0.73.

In March 2005, $924,000 of principal was repaid, $675,000 was converted into units consisting of common stock and warrants and $825,000 of the remaining debentures were extended to March 2011.

The $675,000 of debenture holders that converted were given 936,200 shares of common stock and 468,099 warrants based on a stock price of $0.721. The Company accounted for the conversion as an inducement and recorded the fair value of the incremental common shares and warrants issued as a debenture conversion expense of $448,200 in the consolidated statement of operations.

The $825,000 debentures which were extended to March 2011 were accounted for as a debt modification and therefore no gain or loss was recognized. The convertible feature in the modified convertible debenture was not considered an embedded derivative that required bifurcation and subsequent remeasurement at fair value. The debentures have an interest rate of 6% and are convertible to common stock at $1.38 per common share.

Interest expense for the debentures was approximately $77,900 and $219,200 for 2005 and 2004, respectively. Included in the above amounts is accretion of debt discount. Accretion of the debt discount included in interest expense was $11,300 and $63,700 for 2005 and 2004, respectively.

10. Warrant Liabilities:

In December 2005 the Company issued 2,879,257 warrants related to the equity issuance of 3,300,004 common shares. The warrants were comprised of the following:

Warrant Description	# of Warrants		Strike Price		Contract Life
Series A Warrants		1,765,503	$	1.30	3-Years
Series B Warrants		882,754	$	1.08	1-Year
Series C Warrants		231,000	$	0.76	3-Years
Total Warrants		2,879,257	$	1.19

These warrants are classified as a liability rather than equity because the Subscription Agreement provides for certain registration rights and uncapped liquidated damages payable in cash equal to 2% of the purchase price for the first 30 day period or portion thereof and 1% of the purchase price for each subsequent 30 day period or portion thereof from the date of event. The outstanding warrants are fair valued each reporting period and the warrant liability adjusted accordingly. At the date of warrant issuance the estimated fair value of $555,400 was recorded as a warrant liability on the consolidated balance sheet. At December 31, 2005 the fair value of warrant liability was estimated to be $360,000 and the $194,400 decrease in warrant liability was recorded as a gain on derivative instruments in the consolidated statement of operations. The $194,400 decrease in the warrant liability was due primarily to the decrease in the Company’s common share price from the date of issuance of $0.86 per common share to $0.73 per common share at December 31, 2005.

11. Commitments and Contingencies:

(a)	Kendall Mine Reclamation
	The Kendall Mine operates under permits granted by the Montana DEQ. In February 2002, the DEQ issued a decision that a comprehensive Environmental Impact Statement (EIS) is needed for completion of remaining reclamation at Kendall. The Company’s estimate to achieve mine closure could be impacted

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

	by the outcome of an agency decision following an EIS. The Company has $2,007,500 on deposit in an interest bearing account with the DEQ for reclamation at the Kendall Mine.
(b)	Briggs Mine Surety Bonds
	The Briggs Mine operates under permits granted by various agencies including the BLM, Inyo County, the California Department of Conservation, and the Lahontan Regional Water Quality Control Board (Lahontan). These agencies have jointly required the Company to post a reclamation bond in the amount of $3,030,000 to ensure appropriate reclamation.
	Additionally, the Company was required by Lahontan to post a $1,010,000 bond to ensure adequate funds to mitigate any “foreseeable release”, as defined, of pollutants to state waters. Both bonds are subject to annual review and adjustment.
	In 2000, in response to a demand for an increase in collateral by the surety who issued the above described bonds, the Company granted a security interest in 28,000 acres of mineral interests in Montana. In addition, the Company agreed to make cash deposits with the surety totaling $1.5 million over a three year period at the rate of $0.5 million per year, commencing June 30, 2001. The Company has not made any deposits to date, and has held discussions with the surety to reschedule the deposit requirements. If an acceptable rescheduling of the deposit requirements cannot be agreed to, the surety could seek to terminate the bonds which could result in the Company becoming liable for the principal amounts under its collateral agreement with the surety. In April 2004, the Company ceased active mining at Briggs due to lack of development and began reclamation activities. The Company has spent approximately $1.7 million on Briggs reclamation through the twelve months ended December 31, 2005.
	During 2005 the Company began exploring the possibility that additional reserves remain in and around the Briggs pits. Due to initial success in the infill drilling program on the Briggs property and the addition of the Reward property which could utilize the Briggs processing plant to process potential gold production, the Company is currently performing certain redevelopment activities at Briggs designed to bring the mine back into production as soon as possible.
(c)	Contingent Liability:
	On September 25, 1997, the Company, together with its wholly-owned subsidiary CR Montana Corporation (CR Montana), purchased a 72.25% participating interest and underlying assets in the SPV from CR Montana’s partner in the SPV, Phelps Dodge Corporation (Phelps Dodge). The Company and its wholly-owned subsidiary now own 100% of the SPV. The SPV includes the McDonald Gold Project near Lincoln, Montana. The Company made an initial payment of $5 million and is required to make a final payment of $10 million upon issuance of all permits required for construction of the McDonald Gold Project, or alternatively, one-third of any proceeds received from a takings lawsuit. The purchase payments are collateralized only by the 72.25% participating interest and underlying assets in the SPV transferred from Phelps Dodge to the Company and CR Montana in this transaction and the 50% co-tenancy interest in certain real property also transferred to the Company and CR Montana.
(d)	Kendall Mine Lawsuits
	In October 2001, a Plaintiff group including members of the Shammel Ruckman and Harrell families filed suit in Montana District Court against the Company and its wholly-owned subsidiary, CR Kendall Corporation. The Complaint alleges violation of water rights, property damage, trespass and negligence in connection with the operation of the Kendall Mine and seeks unspecified damages and punitive damages.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

	The Company has taken the position that the allegations are without merit and believes that it will prevail in this matter.
	In August 2002, a Preliminary Injunction was issued in Montana District Court on behalf of the Plaintiff group in connection with the Company’s auction of certain mineral rights and fee lands in western Montana. In October 2002, the Court issued a Supplemental Order which will sequester any proceeds realized from the auction until such time as the lawsuit is concluded. As of December 31, 2005, $281,300 is held by the Court as required by the Order.
	In March 2004, the Montana Environmental Information Center and Earthworks Mineral Policy Center brought civil action before the U.S. District Court for the District of Montana against CR Kendall Corporation and Canyon Resources Corporation claiming that the defendants have polluted waters of the U.S. with their operations at the Kendall Mine, near Lewistown, Montana. On February 2, 2006, a Senior U.S. District Judge for the U.S. District of Montana, Helena Division, dismissed this case without prejudice.
(e)	Assignment of Royalty Proceeds
	During 2005, 2004 and 2003, $57,300, $322,500 and nil, respectively was recorded as royalty expense. The current 3% net smelter return royalty expense will be applicable to all future Briggs gold production. No royalty expense was recorded in 2003 due to the buyout of the net smelter return royalty during that period.
(f)	Lease Commitments:
	The Company has entered into various operating leases for office space and equipment. At December 31, 2005, future minimum lease payments extending beyond one year under noncancellable leases were as follows:

2006	$	82,700
2007	$	49,000
2008	$	0

The Company has also entered into various mining lease arrangements for purposes of exploring, and if warranted, developing and producing minerals from the underlying leasehold interests. The lease arrangements typically require advance royalty payments during the pre-production phase and a production royalty upon commencement of production, with previously advanced payments credited against the production royalties otherwise payable. Advance royalty commitments will vary each year as the Company adds or deletes properties. Minimum advance royalty payments expensed total approximately $140,300 annually.

The Company is also required to pay an annual rental fee to the federal government for any unpatented mining claims, mill or tunnel site claims on federally owned lands at the rate of $125 per claim. The Company’s present inventory of claims would require approximately $24,000 in annual rental fees, however, this amount will vary as claims are added or dropped. The Company has submitted patent applications for specific Briggs claims; however, no assurances can be made that patents will be issued. The Company is also subject to lease payments to various other owners or lessors of property. Currently, payments to these parties total approximately $15,200 annually.

Lease costs included in cost of goods sold for the years ended December 31, 2005, 2004, and 2003 were $1,903, $169,000 and $23,800, respectively.

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

Rent expense included in selling, general and administrative expense for the years ended December 31, 2005, 2004, and 2003, was $78,900, $53,000, and $50,900, respectively. Property and equipment includes equipment with a cost and accumulated amortization of $1,541,900 and $1,509,874, respectively, at December 31, 2005 and cost and accumulated amortization of $1,544,400 and $1,544,400, respectively, at December 31, 2004, for leases that have been capitalized.

Future minimum lease obligations under capital leases are as follows:

2006	$	37,000
Less amounts representing interest		(5,000	)
Present value of minimum lease payments		32,000
Less current obligations		6,100
Long-term obligations under capital lease	$	25,900

12. Certain Concentrations and Concentrations of Credit Risk:

The Company is subject to concentrations of credit risk in connection with maintaining its cash primarily in two financial institutions for the amounts in excess of levels insured by the Federal Deposit Insurance Corporation. The Company considers the institutions to be financially strong and does not consider the underlying risk to be significant. To date, these concentrations of credit risk have not had a significant effect on the Company’s financial position or results of operations.

The Company sold its gold and silver production predominantly to one or two customers during the past three years. Given the marketability and liquidity of the precious metals being sold and because of the large pool of qualified buyers for gold and silver, the Company believes that the loss of either of its customers could be quickly replaced without any adverse affect.

Currently the Company has no gold related derivatives and therefore is not subject to counterparty credit risk.

13. Derivative Instruments and Price Protection Arrangements:

The Company had no gold forward sales contracts at December 31, 2005 or December 31, 2004. At December 31, 2003, the Company had 3,820 ounces outstanding on a gold forward sales contract at an average price of approximately $377 per ounce with a fair market value that was $147,200 less than the contractual amount. Net gains on the Company’s forward contracts resulting from year to year changes in the mark-to-market calculations are as follows:

2005	$	0
2004	$	147,200
2003	$	340,400

These net gains are shown as a separate line item in the other income (expense) section in the consolidated statements of operations.

14. Fair Value of Financial Instruments:

The estimated fair values of the Company’s financial instruments approximate carrying values at December 31, 2005, and December 31, 2004. The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and Cash Equivalents and Restricted Cash: Carrying amounts approximate fair value based on the short-term maturity of those instruments.

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

Long-term Debt: Carrying values approximate fair values based on discounted cash flows using the Company’s current rate of borrowing for a similar liability.

Warrant Liability: The warrant liability related to the financing on December 2, 2005 were recorded at fair value as of December 31, 2005 based on the Black-Scholes-Merton option pricing model using the following assumptions: volatility – 50%; risk-free interest rate of 4.4%; expected life equal to the contract life of between 0.9 and 2.9 years; and a weighted average exercise price of $1.19 per common share.

15. Income Taxes:

There was no current or deferred provision for income taxes for the years ended December 31, 2005, 2004, and 2003. The provision for income taxes differs from the amounts computed by applying the U.S. federal statutory rate as follows:

	2005						2004						2003
	Amount			Rate			Amount			Rate			Amount			Rate
Tax at statutory rate	($	5,320,300	)		34%		($	5,911,400	)		34%		($	4,808,300	)		34%
Net operating loss without tax benefit		5,320,300		(	34%	)		5,911,400		(	34%	)		4,808,300		(	34%	)
	$	—			—		$	—			—		$	—			—

Deferred tax assets were comprised of the following at December 31:

	2005			2004
Deferred Tax Assets
Reserve for mine reclamation	$	1,735,900		$	2,466,200
Inventories		10,900			577,700
Net PP&E and Other		6,189,100			5,462,000
Net operating loss carryforwards		35,302,300			34,388,000
Total gross deferred tax assets		43,238,200			42,893,900
Valuation allowance		(43,238,200	)		(42,893,900	)
Net deferred tax assets	$	—		$	—

Although the Company has significant deferred tax assets in the form of operating loss carryforwards, its ability to generate future taxable income to realize the benefit of these assets will depend primarily on bringing new mines into production. As commodity prices, capital, legal, and environmental uncertainties associated with that growth requirement are considerable, the Company applies a full valuation allowance to its deferred tax assets. During 2005, 2004, and 2003, the valuation allowance increased $344,300, $8,390,100, and $3,629,800, respectively. Changes in the valuation allowance are primarily due to changes in operating loss carryforwards and other temporary differences.

At December 31, 2005, the Company had net operating loss carryforwards for regular tax purposes of approximately $92,783,000 and approximately $91,915,800 of net loss carryforwards available for the alternative minimum tax. The net loss carryforwards will expire from 2006 through 2025.

16. Stock Options and Warrants:

The Company adopted an Incentive Stock Option Plan on April 12, 1982, which was amended and restated and approved by our shareholders on June 10, 2004 (the Plan), whereby options to purchase shares of its common stock may be granted to employees, including those who are also directors, or subsidiary corporations in which

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

the Company owns greater than a 50% interest. Exercise price for the options is at least equal to 100% of the market price of common stock at the date of grant for employees who own 10% or less of the total voting stock; and 110% of the market price of the Company’s common stock at the date of grant for employees who own more than 10% of its voting stock. Options granted can have a term no longer than 10 years and are first exercisable at dates determined at the discretion of the Company’s Board of Directors.

Incentive stock option activity during 2005, 2004, and 2003 was as follows:

	2005					2004					2003
				Weighted					Weighted					Weighted
				Average					Average					Average
	Amount			Price		Amount			Price		Amount			Price
Outstanding,
beginning of year		927,925		$	1.51		638,925		$	1.66		590,500		$	1.10
Grants		400,000		$	0.79		293,000		$	1.16		155,925		$	3.38
Exercises		(10,000	)	$	0.66		(3,000	)	$	1.04		(107,500	)	$	1.05
Forfeitures		—		$	—		(1,000	)	$	1.15		—			—
Expirations		(152,000	)	$	1.13		—			—		—			—
Outstanding, end of year		1,165,925		$	1.32		927,925		$	1.51		638,925		$	1.66
Exercisable, end of year		1,115,925		$	1.34		927,925		$	1.51		462,925		$	1.86

A summary of the outstanding incentive stock options as of December 31, 2005, follows:

Range of Exercise	Amount		Weighted Average	Weighted Average
Prices	Outstanding		Remaining Contractual Life	Exercise Price
$0.50-$1.00		390,000	4.7 years	$	0.79
$1.01-$1.50		620,000	2.7 years	$	1.13
$1.51-$3.38		155,925	2.9 years	$	3.38

At December 31, 2005, there were 1,013,453 shares of common stock were reserved for future issuance under the Plan.

On March 20, 1989, the Company’s Board of Directors approved the adoption of a Non-Qualified Stock Option Plan, which was amended and restated and approved by our shareholders on June 10, 2004 (the Non-Qualified Plan). Under the Non-Qualified Plan, the Board of Directors may award stock options to consultants, directors and key employees of the Company, and Canyon’s subsidiaries and affiliates, who are responsible for the Company’s growth and profitability. The Non-Qualified Plan does not provide criteria for determining the number of options an individual shall be awarded, or the term of such options, but confers broad discretion on the Board of Directors to make these decisions. Options granted under the Non-Qualified Plan may not have a term longer than 10 years or an exercise price less than 50 percent of the fair market value of the Company’s common stock at the time the option is granted.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

     Non-qualified stock option activity during 2005, 2004, and 2003 was as follows:

	2005					2004					2003
				Weighted					Weighted					Weighted
	Amount			Average Price		Amount			Average Price		Amount			Average Price
Outstanding,
beginning of year		571,601		$	2.81		704,101		$	2.09		320,000		$	1.32
Grants		80,000		$	0.79		80,000		$	4.72		411,601		$	2.63
Exercises		—			—		(162,500	)	$	1.17		(25,000	)	$	1.00
Forfeitures		—			—		—			—		—			—
Expirations		(60,000	)	$	1.70		(50,000	)	$	1.00		(2,500	)	$	3.24
Outstanding, end of year		591,601		$	2.65		571,601		$	2.81		704,101		$	2.09
Exercisable, end of year		511,601		$	2.94		491,601		$	2.50		664,101		$	2.13

A summary of the outstanding non-qualified stock options as of December 31, 2005, follows:

Range of Exercise	Amount		Weighted Average	Weighted Average
Prices	Outstanding		Remaining Contractual Life	Exercise Price
$0.50 - $2.00		259,526	2.1 years	$	1.39
$2.01 - $3.50		252,075	2.8 years	$	3.29
$3.51 - $5.00		80,000	3.5 years	$	4.72

At December 31, 2005, there were 1,595,899 shares of common stock were reserved for issuance under the Non-Qualified Plan.

A summary of the outstanding warrants as of December 31, 2005, follows:

	Shares
	Underlying
Range of Exercise	Warrants		Weighted Average	Weighted Average
Prices	Outstanding		Remaining Contractual Life	Exercise Price
$0.50-$1.00		281,000	2.7 years	$	0.77
$1.01-$1.50		5,299,723	2.2 years	$	1.13
$1.51-$2.16		2,199,836	0.4 years	$	2.16
Total		7,780,559	1.7 years	$	1.41

17. Earnings Per Share (EPS):

The Company computes EPS by applying the provisions of Financial Accounting Standards No. 128, Earnings per Share. As the Company reported net losses for all years presented, inclusion of common stock equivalents would have an antidilutive effect on per share amounts. Accordingly, the Company’s basic and diluted EPS computations are the same for all years presented. Common stock equivalents, which include stock options, warrants to purchase common stock and convertible debentures, in 2005, 2004, and 2003 that were not included in the computation of diluted EPS because the effect would be antidilutive were 6,813,600, 6,040,000, and 5,068,300, respectively.

18. Recently Issued Financial Accounting Standards:

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This statement replaces APB Opinion No. 20 Accounting Changes and FASB Statement No. 3 Reporting Accounting Changes in

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

Interim Financial Statements. SFAS No.154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a “restatement.” This statement is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption of this standard is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. The adoption of SFAS No. 154 will have no material impact on our financial reporting and disclosures.

In March 2005, the FASB issued FASB Interpretation No. 47 Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143 (FIN 47). FIN 47 clarifies the term conditional asset retirement obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” and requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. Any uncertainty about the amount and/or timing of future settlement of a conditional asset retirement obligation should be factored into the measurement of the liability where sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company adopted FIN 47 effective in the fourth quarter of 2005, which resulted in an increase in our asset retirement liabilities of $0.1 million due to the repurchase of the Briggs crushing plant.

At the March 2005 meeting, the EITF of FASB discussed EITF Issue No. 04-6, Accounting for Stripping Costs Incurred during Production in the Mining Industry, and reached a consensus that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the cost of inventory produced during the period. At its March 30, 2005 meeting, the FASB ratified this consensus. In its June 15-16, 2005 meeting, the EITF agreed with the FASB staff’s recommendation this issue by including a clarification that “inventory produced,” as included in the consensus, means the same as “inventory extracted.” The consensus on this Issue is effective for the first reporting period in fiscal years beginning after December 15, 2005. The adoption of EITF Issue No. 04-6 will have no material impact on our financial reporting and disclosures.

In December 2004, the FASB issued SFAS No. 123(R) revised 2004, Share-Based Payment. This Statement is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB No. 25, Accounting for Stock Issued to Employees. The Statement requires companies to recognize in the income statement the grant-date fair value of stock options and other equity based compensation issued to employees. This Statement is effective as of the beginning of the first interim or annual period that commences after December 15, 2005. The adoption of SFAS No. 123(R) is expected to increase compensation expense for employees and directors and the materiality of the impact will depend on the amount of stock options which vest and are granted in the future. The effect on net income from employee stock options issued in 2005 or earlier and vesting in 2006 is approximately $20,300.

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

19. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

	2005
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Sales	$	1,002,200		$	1,137,200		$	914,200		$	1,086,700
Operating loss (1) (2) (3) (4)	($	2,299,400	)	($	11,027,200	)	($	644,200	)	($	2,042,400	)
Net loss (1) (2) (3) (4)	($	2,307,900	)	($	10,977,100	)		(611,400	)	($	1,751,400	)
Net loss per share	($	0.08	)	($	0.32	)	($	0.02	)	($	0.04	)
Pro forma net loss per share (5)	($	0.08	)	($	0.32	)	($	0.02	)	($	0.05	)

	2004
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Sales	$	1,737,500		$	5,826,400		$	2,279,900		$	1,970,100
Operating loss (1) (2) (3)	($	3,976,200	)	($	2,214,600	)	($	3,438,800	)	($	7,624,300	)
Net loss (1) (2) (3)	($	3,876,500	)	($	2,402,700	)	($	3,468,300	)	($	7,638,900	)
Net loss per share	($	0.15	)	($	0.09	)	($	0.12	)	($	0.27	)
Pro forma net loss per share (5)	($	0.10	)	($	0.12	)	($	0.12	)	($	0.27	)

⁽¹⁾ Includes write downs of inventory to net realizable value as follows:

	2005		2004
First quarter	$	128,200	$	552,300
Second quarter	$	14,900	$	411,800
Third quarter	$	—	$	92,400
Fourth quarter	$	—	$	76,500

     The write downs of inventories in 2005 and 2004 were a result of high unit costs of production resulting from lower production levels.

(2)	Includes change in estimate for asset retirement obligation for the fourth quarter of 2005 of $1,383,300, second quarter of 2004 of $935,200 and the fourth quarter of 2004 of $4,451,400.
(3)	Includes the second quarter 2005 write down of the McDonald leases of $9,242,100.
(4)	Includes spending for I-147 for the first quarter of 2004 of $264,000, for the second quarter of 2004 of $658,500, for the third quarter of 2004 of $1,458,000 and for the fourth quarter of 2004 of $2,035,700.
(5)	As if the Company had determined compensation cost for its stock option plans under the provisions of SFAS No. 123.

20. Subsequent Events:

In the first quarter of 2006, the Company experienced turnover of its long-time senior financial officer and director and another long time director. The Vice President of Finance and Corporate Development and director resigned in late January to pursue other interests and another director resigned in early March due to personal reasons not related to the direction or the policies of the Company. The Company hired two new officers who began work in early 2006, David P. Suleski was named the Vice President and Chief Accounting Officer and James A. Matlock

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

was named the Vice President of Exploration. Both new officers were granted 100,000 stock options at the then closing price of the stock, half of the options vested immediately and remaining options vest after one year of employment. In addition, both entered into employment agreements with the Company which provided for certain change of control provisions related to their employment.

On January 24, 2006, the Company announced the formation of a joint venture with New Horizon Uranium Corporation of Golden, Colorado, relating to an area of known uranium occurrences in southeastern Wyoming. An exploration, development and operating agreement has been signed with New Horizon to form the Converse Joint Venture which covers portions of Converse and Niobrara counties, Wyoming. Included in the joint venture area are approximately 3,000 acres of mining claims and surface/mineral leases contributed by Canyon Resources.
Under terms of the joint venture, New Horizon may earn up to 70 percent interest in the joint venture by spending at least $2 million over a five year period. An additional five percent interest may be earned by New Horizon by funding the completion of a feasibility study for a uranium deposit on the lands under investigation.

On February 2, 2006, the Company disclosed the dismissal of a March 2004 lawsuit citing Clean Water Act violations in the case of the Montana Environmental Information Center, Inc. and Earthworks/Mineral Policy Center Inc., the Plaintiffs, vs. Canyon Resources Corporation and C.R. Kendall Corporation. Following a motion to dismiss by the Plaintiffs, the suit was dismissed without prejudice by the U.S. District Court of Montana.

On February 21, 2006, the Company disclosed that the U.S. Supreme Court denied grant of certiorari in the case of Seven-Up Pete Venture, et al. v The State of Montana. The Seven-Up Pete Venture, a wholly-owned subsidiary of Canyon Resources, filed the Petition for Writ of Certiorari on November 4, 2005. The Supreme Court repeatedly has stressed that a denial of certiorari does not in any way imply that the case was decided correctly by the lower courts. Accordingly, no federal court has yet reviewed the merits of the Venture’s federal constitutional challenges. Upon learning that the Supreme Court had declined to review the Montana Supreme Court decision, the Venture moved promptly to reinstate its federal lawsuit. The Venture filed a renewed motion to reopen its federal takings claim in the U.S. District Court for the District of Montana. On January 27, 2006, the District Court denied the motion to reopen the reserved federal takings claims due to the pending petition for certiorari to the Supreme Court, but stated the motion may be re-filed once the Supreme Court rendered a final non-appealable order. The parties previously have briefed the issues in this case and the federal court has not yet resolved them.

On March 3, 2006, the Company announced positive results from its infill drilling program at the Briggs Mine located in the Panamint Mountains of southern Inyo County, California. These results indicate the potential for expanding mineralization around the existing Briggs pits and also indicate the potential for continuity of mineralization between the existing Goldtooth and Briggs pits. Two RC drill rigs are on site to complete a 16,000 foot in-fill drilling program around the Briggs and Goldtooth pits over the next three months to use as a basis for reserve estimation. In addition to our drilling program, the Company is conducting a review of re-start costs for the site.

72

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

Not applicable.

ITEM 9A CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities and Exchange Act of 1934 is processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

In connection with previously identified internal control weaknesses, we have modified our disclosure controls and procedures to confirm that the financial information and related disclosures fairly presents our operating results and financial condition for the periods presented. Our Company’s Chief Executive Officer and Chief Accounting Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934) as of the end of the period covered by this Annual Report on Form 10-K, are effective based on their evaluation of these controls and procedures.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Effective for the reporting year ended December 31, 2005, we are not an accelerated filer and not required to provide a report of management on our internal control over financial reporting.

During the period ended December 31, 2005, we implemented enhancements to our internal controls to remediate previously reported material weaknesses in our internal control over financial reporting, including:

• increasing the involvement in the review and analysis by senior management of our financial statements;

• adding more rigorous policies and procedures regarding the review and approval process for complex calculations and transactions; and

• engaging outside consultants with accounting expertise regarding unusual and complex transactions.

Other than the foregoing, there have been no changes in our internal control over financial reporting for the period ended December 31, 2005 that have materially effected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

ITEM 9B OTHER INFORMATION

None.

73

PART III

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item appears under the captions “Officers and Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Code of Ethics” included in Proxy Statement for the 2006 Annual Meeting of Stockholders to be filed within 120 days after the end of the fiscal year and is incorporated by reference in this Annual Report on Form 10-K.

ITEM 11 EXECUTIVE COMPENSATION

The information required by this item appears under the captions “Compensation Committee Interlocks and Insider Participation,” “Compensation of Officers,” “Compensation of Directors,” and “Change in Control Arrangement” included in the Proxy Statement for the 2006 Annual Meeting of Stockholders to be filed within 120 days after the end of the fiscal year and is incorporated by reference in this Annual Report on Form 10-K.

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item appears under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized For Issuance Under Equity Compensation Plans” included in the Proxy Statement for the 2006 Annual Meeting of Stockholders to be filed within 120 days after the end of the fiscal year and is incorporated by reference in this Annual Report on Form 10-K.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item appears under the caption “Certain Relationships and Related Transactions” included in our Proxy Statement for the 2006 Annual Meeting of Stockholders to be filed within 120 days after the end of the fiscal year and is incorporated by reference in the Annual Report on Form 10-K.

ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item appears under the caption “Relationship with Independent Accountants” and “Audit Fees” included in the Proxy Statement for the 2006 Annual Meeting of Stockholders to be filed within 120 days after the end of the fiscal year and is incorporated by reference in this Annual Report on Form 10-K.

74

PART IV

ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following is a list of documents filed as part of this Report and are included herewith (*) or have been filed previously:

(1) Financial Statements (included in Item 8 of this Report)

• Report of Independent Accountants

• Consolidated Balance Sheets — December 31, 2005 and 2004

• Consolidated Statements of Operations — Years Ended December 31, 2005, 2004, and 2003

• Consolidated Statements of Changes in Stockholders’ Equity — Years Ended December 31, 2005, 2004, and 2003

• Consolidated Statements of Cash Flows — Years Ended December 31, 2005, 2004, and 2003

• Notes to Consolidated Financial Statements

(2)	Financial Statement Schedules: All Schedules are omitted because the information called for is not applicable, is not required, or because the financial information is set forth in the financial statements or notes thereto.
(3)	Exhibits:

EXHIBIT
NUMBER	DESCRIPTION
3.1	Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to Company’s Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-130692) on February 24, 2006, and incorporated herein by reference)
3.2	Amended and Restated Bylaws of the Company (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 001-11887), and incorporated herein by reference)
4.1	Specimen Common Stock Certificate (filed as Exhibit 4.1 to Company’s Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-130692) on February 24, 2006, and incorporated herein by reference)
4.2	Rights Agreement, dated March 20, 1997, between Canyon Resources Corporation and American Securities Transfer & Trust, Inc., as Rights Agent (filed as Exhibit 4 to the Company’s Current Report on Form 8-K (File No. 001-11887) on March 27, 1997, and incorporated by reference)
4.3	Form of Stock Purchase Warrant (filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K (File No. 001-11887) on March 16, 2005, and incorporated by reference)
4.4	Form of Series A Warrant to Purchase Common Stock (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No. 001-11887) on December 2, 2005, and incorporated by reference)
4.5	Form of Series B Warrant to Purchase Common Stock (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K (File No. 001-11887) on December 2, 2005, and incorporated by reference)
4.6	Form of Series C Warrant to Purchase Common Stock (filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K (File No. 001-11887) on December 2, 2005, and incorporated by reference)
4.7	Form of Subscription Agreement (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K (File No. 001-11887) on March 16, 2005, and incorporated by reference)

75

EXHIBIT
NUMBER		DESCRIPTION
	4.8	Form of Subscription Agreement (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-11887) on December 2, 2005, and incorporated by reference)
	4.9	Form of Convertible Subordinated Debenture (filed as Exhibit 4.5 to Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 001-11887), and incorporated herein by reference)
	10.1†	Change of Control Agreements, dated December 6, 1991, between Canyon Resources Corporation and Richard H. De Voto and Gary C. Huber (filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (File No. 001-11887), and incorporated herein by reference)
	10.2	Purchase Agreement dated September 25, 1997, between Phelps Dodge Corporation, acting through its division, Phelps Dodge Mining Company, and CR Montana Corporation and Canyon Resources Corporation (filed as Exhibit 2 to the Company’s Current Report on Form 8-K (File No. 001-11887) on October 9, 1997, and incorporated herein by reference)
	10.2.1	Second Amendment and Supplement to Purchase Agreement dated September 17, 1999, between Phelps Dodge Corporation, acting through its division, Phelps Dodge Mining Company, CR Montana Corporation and Canyon Resources Corporation, and Seven-Up Pete Joint Venture (filed as Exhibit 10.4.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 001-11887), and incorporated herein by reference)
	10.3	Assignment of Royalty Proceeds, effective as of April 1, 2001, between Canyon Resources Corporation and Franco-Nevada Mining Corporation, Inc. (filed as Exhibit 1.1 to the Company’s Current Report on Form 8-K (File No. 001-11887) on October 9, 2001, and incorporated herein by reference)
	10.4†	Form of Change of Control Agreements between Canyon Resources Corporation and certain of its Executive Officers and a Schedule of such Agreements (filed as Exhibit 10.4 to Company’s Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-130692) on February 24, 2006, and incorporated herein by reference)
	10.5†	Amended and Restated Incentive Stock Option Plan of Canyon Resources Corporation (filed as Exhibit 99.1 to Company’s Registration Statement on Form S-8 (File No. 333-120534) on November 16, 2004, and incorporated herein by reference)
	10.6†	Amended and Restated Non-Qualified Stock Option Plan of Canyon Resources Corporation (filed as Exhibit 99.2 to Company’s Registration Statement on Form S-8 (File No. 333-120534) on November 16, 2004, and incorporated herein by reference)
	10.7†	Form of Incentive Stock Option Agreement relating to Amended and Restated Incentive Stock Option Plan of Canyon Resources Corporation (filed as Exhibit 10.7 to Company’s Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-130692) on February 24, 2006, and incorporated herein by reference)
	10.8†	Form of Non-Qualified Stock Option Agreement relating to Amended and Restated Non-Qualified Stock Option Plan of Canyon Resources Corporation (filed as Exhibit 10.8 to Company’s Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-130692) on February 24, 2006, and incorporated herein by reference)
	10.9*	Converse Uranium Project, Exploration, Development and Mine Operating Agreement, effective as of January 23, 2006, between Canyon Resources Corporation and New Horizon Uranium Corporation
	14.1	Code of Business Conduct and Ethics (filed as Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A (File No. 001-11887) on April 29, 2004, and incorporated herein by reference)
	16.1	Letter regarding Changes in Registrant’s Certifying Accountants (filed as Exhibit 16.1 to the Company’s Current Report on Form 8-K (File No. 001-11887) on October 15, 2004, and incorporated herein by reference)
	21.1*	Subsidiaries of the Registrant
	23.1*	Consent of Ehrhardt Keefe Steiner & Hottman P.C.
	23.2*	Consent of PricewaterhouseCoopers LLP
	23.3*	Consent of Chlumsky, Armbrust & Meyer
	31.1*	Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2*	Certification of Chief Accounting Officer pursuant to Rule 13(a)-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1*	Certification of Chief Executive Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2*	Certification of Chief Accounting Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Filed herewith
†	Management contract or compensatory plan or arrangement

76

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CANYON RESOURCES CORPORATION
Date: March 27, 2006	By:	/s/ James K. B. Hesketh
		James K. B. Hesketh
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed on by the following persons in the capacities and on the dates indicated:

Signature	Capacity in Which Signed	Date
/s/ James K. B. Hesketh James K. B. Hesketh	President and Chief Executive Officer and Director (Principal Executive Officer)	March 27, 2006
/s/ David P. Suleski David P. Suleski	Vice President and Chief Accounting Officer (Principal Accounting Officer)	March 27, 2006
/s/ Richard H. De Voto Richard H. De Voto	Director	March 27, 2006
/s/ Leland O. Erdahl Leland O. Erdahl	Director	March 27, 2006
/s/ David K. Fagin David K. Fagin	Director	March 27, 2006
/s/ Ronald D. Parker Ronald D. Parker	Director	March 27, 2006

77

EXHIBIT INDEX

EXHIBIT
NUMBER		DESCRIPTION
	3.3	Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to Company’s Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-130692) on February 24, 2006, and incorporated herein by reference)
	3.4	Amended and Restated Bylaws of the Company (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 001-11887), and incorporated herein by reference)
	4.10	Specimen Common Stock Certificate (filed as Exhibit 4.1 to Company’s Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-130692) on February 24, 2006, and incorporated herein by reference)
	4.11	Rights Agreement, dated March 20, 1997, between Canyon Resources Corporation and American Securities Transfer & Trust, Inc., as Rights Agent (filed as Exhibit 4 to the Company’s Current Report on Form 8-K (File No. 001-11887) on March 27, 1997, and incorporated by reference)
	4.12	Form of Stock Purchase Warrant (filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K (File No. 001-11887) on March 16, 2005, and incorporated by reference)
	4.13	Form of Series A Warrant to Purchase Common Stock (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No. 001-11887) on December 2, 2005, and incorporated by reference)
	4.14	Form of Series B Warrant to Purchase Common Stock (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K (File No. 001-11887) on December 2, 2005, and incorporated by reference)
	4.15	Form of Series C Warrant to Purchase Common Stock (filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K (File No. 001-11887) on December 2, 2005, and incorporated by reference)
	4.16	Form of Subscription Agreement (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K (File No. 001-11887) on March 16, 2005, and incorporated by reference)
	4.17	Form of Subscription Agreement (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-11887) on December 2, 2005, and incorporated by reference)
	4.18	Form of Convertible Subordinated Debenture (filed as Exhibit 4.5 to Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 001-11887), and incorporated herein by reference)
	10.1†	Change of Control Agreements, dated December 6, 1991, between Canyon Resources Corporation and Richard H. De Voto and Gary C. Huber (filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (File No. 001-11887), and incorporated herein by reference)
	10.2	Purchase Agreement dated September 25, 1997, between Phelps Dodge Corporation, acting through its division, Phelps Dodge Mining Company, and CR Montana Corporation and Canyon Resources Corporation (filed as Exhibit 2 to the Company’s Current Report on Form 8-K (File No. 001-11887) on October 9, 1997, and incorporated herein by reference)
	10.2.1	Second Amendment and Supplement to Purchase Agreement dated September 17, 1999, between Phelps Dodge Corporation, acting through its division, Phelps Dodge Mining Company, CR Montana Corporation and Canyon Resources Corporation, and Seven-Up Pete Joint Venture (filed as Exhibit 10.4.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 001-11887), and incorporated herein by reference)
	10.3	Assignment of Royalty Proceeds, effective as of April 1, 2001, between Canyon Resources Corporation and Franco-Nevada Mining Corporation, Inc. (filed as Exhibit 1.1 to the Company’s Current Report on Form 8-K (File No. 001-11887) on October 9, 2001, and incorporated herein by reference)
	10.4†	Form of Change of Control Agreements between Canyon Resources Corporation and certain of its Executive Officers and a Schedule of such Agreements (filed as Exhibit 10.4 to Company’s Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-130692) on February 24, 2006, and incorporated herein by reference)
	10.5†	Amended and Restated Incentive Stock Option Plan of Canyon Resources Corporation (filed as Exhibit 99.1 to Company’s Registration Statement on Form S-8 (File No. 333-120534) on November 16, 2004, and incorporated herein by reference)
	10.6†	Amended and Restated Non-Qualified Stock Option Plan of Canyon Resources Corporation (filed as Exhibit 99.2 to Company’s Registration Statement on Form S-8 (File No. 333-120534) on November 16, 2004, and incorporated herein by reference)

EXHIBIT
NUMBER		DESCRIPTION
	10.7†	Form of Incentive Stock Option Agreement relating to Amended and Restated Incentive Stock Option Plan of Canyon Resources Corporation (filed as Exhibit 10.7 to Company’s Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-130692) on February 24, 2006, and incorporated herein by reference)
	10.8†	Form of Non-Qualified Stock Option Agreement relating to Amended and Restated Non-Qualified Stock Option Plan of Canyon Resources Corporation (filed as Exhibit 10.8 to Company’s Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-130692) on February 24, 2006, and incorporated herein by reference)
	10.9*	Converse Uranium Project, Exploration, Development and Mine Operating Agreement, effective as of January 23, 2006, between Canyon Resources Corporation and New Horizon Uranium Corporation
	14.1	Code of Business Conduct and Ethics (filed as Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A (File No. 001-11887) on April 29, 2004, and incorporated herein by reference)
	16.1	Letter regarding Changes in Registrant’s Certifying Accountants (filed as Exhibit 16.1 to the Company’s Current Report on Form 8-K (File No. 001-11887) on October 15, 2004, and incorporated herein by reference)
	21.1*	Subsidiaries of the Registrant
	23.1*	Consent of Ehrhardt Keefe Steiner & Hottman P.C.
	23.2*	Consent of PricewaterhouseCoopers LLP
	23.3*	Consent of Chlumsky, Armbrust & Meyer
	31.1*	Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2*	Certification of Chief Accounting Officer pursuant to Rule 13(a)-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1*	Certification of Chief Executive Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2*	Certification of Chief Accounting Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Filed herewith
†	Management contract or compensatory plan or arrangement

EX-10.9

Exhibit 10.9

CONVERSE URANIUM PROJECT
EXPLORATION, DEVELOPMENT AND
MINE OPERATING AGREEMENT

between

CANYON RESOURCES CORPORATION

and

NEW HORIZON URANIUM CORPORATION

EFFECTIVE DATE: January 23, 2006

TABLE OF CONTENTS

			Page
ARTICLE I	DEFINITIONS AND CROSS-REFERENCES			1
	1.1	Definitions		1
	1.2	Cross-References		1
ARTICLE II	NAME, PURPOSES AND TERM			1
	2.1	General		1
	2.2	Name		2
	2.3	Purposes		2
	2.4	Limitation		2
	2.5	Term		2
ARTICLE III	REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS; INDEMNITIES			3
	3.1	Representations and Warranties of Both Participants		3
	3.2	Representations and Warranties of Canyon		3
	3.3	Disclosures		5
	3.4	Record Title		5
	3.5	Loss of Title		5
	3.6	Royalties, Production Taxes and Other Payments Based on Production		6
	3.7	Indemnities/Limitation of Liability		6
ARTICLE IV	RELATIONSHIP OF THE PARTICIPANTS			8
	4.1	No Partnership		8
	4.2	Federal Tax Elections and Allocations		8
	4.3	State Income Tax		8
	4.4	Tax Returns		8
	4.5	Other Business Opportunities		8
	4.6	Waiver of Rights to Partition or Other Division of Assets		9
	4.7	Transfer or Termination of Rights to Properties		9
	4.8	Implied Covenants		9
	4.9	No Third Party Beneficiary Rights		9

- i -

			Page
ARTICLE V	CONTRIBUTIONS BY PARTICIPANTS			9
	5.1	Participants’ Initial Contributions		9
	5.2	Failure to Make Initial Contribution		11
	5.3	Additional Contributions		12
ARTICLE VI	INTERESTS OF PARTICIPANTS			13
	6.1	Initial Participating Interests		13
	6.2	Changes in Participating Interests		13
	6.3	Elimination of Minority Interest		14
	6.4	Continuing Liabilities Upon Adjustments of Participating Interests		15
	6.5	Documentation of Adjustments to Participating Interests		15
	6.6	Grant of Lien and Security Interest		16
	6.7	Subordination of Interests		16
ARTICLE VII	MANAGEMENT COMMITTEE			16
	7.1	Organization and Composition		16
	7.2	Decisions		17
	7.3	Meetings		17
	7.4	Action Without Meeting in Person		18
	7.5	Matters Requiring Approval		18
ARTICLE VIII	MANAGER			18
	8.1	Appointment		18
	8.2	Powers and Duties of Manager		19
	8.3	Standard of Care		23
	8.4	Resignation; Deemed Offer to Resign		24
	8.5	Payments To Manager		25
	8.6	Transactions With Affiliates		25
	8.7	Activities During Deadlock		25

- ii -

			Page
ARTICLE IX	PROGRAMS AND BUDGETS			25
	9.1	Initial Program and Budget		25
	9.2	Operations Pursuant to Programs and Budgets		25
	9.3	Presentation of Programs and Budgets		25
	9.4	Review and Adoption of Proposed Programs and Budgets		26
	9.5	Election to Participate		26
	9.6	Recalculation or Restoration of Reduced Interest Based on Actual Expenditures		27
	9.7	Pre-Feasibility Study Program and Budgets		28
	9.8	Completion of Pre-Feasibility Studies and Selection of Approved Alternatives		30
	9.9	Programs and Budgets for Feasibility Study		31
	9.10	Development Programs and Budgets; Project Financing		31
	9.11	Expansion or Modification Programs and Budgets		32
	9.12	Budget Overruns; Program Changes		32
	9.13	Emergency or Unexpected Expenditures		32
ARTICLE X	ACCOUNTS AND SETTLEMENTS			33
	10.1	Monthly Statements		33
	10.2	Cash Calls		33
	10.3	Failure to Meet Cash Calls		33
	10.4	Cover Payment		34
	10.5	Remedies		34
	10.6	Audits		35
ARTICLE XI	DISPOSITION OF PRODUCTION			36
	11.1	Taking In Kind		36
	11.2	Failure of Participant to Take In Kind		36
	11.3	Hedging		36

- iii -

			Page
ARTICLE XII	WITHDRAWAL AND TERMINATION			37
	12.1	Termination by Expiration or Agreement		37
	12.2	Termination by Deadlock		37
	12.3	Withdrawal		37
	12.4	Continuing Obligations and Environmental Liabilities		37
	12.5	Disposition of Assets on Termination		37
	12.6	Non-Compete Covenants		38
	12.7	Right to Data After Termination		38
	12.8	Continuing Authority		38
ARTICLE XIII	ACQUISITIONS WITHIN AREA OF INTEREST			39
	13.1	General		39
	13.2	Notice to Non-Acquiring Participant		39
	13.3	Option Exercised		39
	13.4	Option Not Exercised		40
ARTICLE XIV	ABANDONMENT AND SURRENDER OF PROPERTIES			40
ARTICLE XV	SUPPLEMENTAL BUSINESS AGREEMENT
	15.1	Supplemental Business Agreement		40
	15.2	Subdivided Area of Interest		41
ARTICLE XVI	TRANSFER OF INTEREST; PREEMPTIVE RIGHT			41
	16.1	General		41
	16.2	Limitations on Free Transferability		41
	16.3	Preemptive Right		43
ARTICLE XVII	DISPUTES			44
	17.1	Governing Law		44
	17.2	Venue		44
	17.3	Alternative Dispute Resolution		44
	17.4	Fees and Costs		45

- iv -

			Page
ARTICLE XVIII	CONFIDENTIALITY, OWNERSHIP, USE AND DISCLOSURE OF INFORMATION			45
	18.1	Business Information		45
	18.2	Participant Information		45
	18.3	Permitted Disclosure of Confidential Business Information		46
	18.4	Disclosure Required By Law		46
	18.5	Public Announcements		47
ARTICLE XIX	GENERAL PROVISIONS			47
	19.1	Notices		47
	19.2	Gender		48
	19.3	Currency		48
	19.4	Headings		48
	19.5	Waiver		48
	19.6	Modification		48
	19.7	Force Majeure		49
	19.8	Rule Against Perpetuities		49
	19.9	Further Assurances		49
	19.10	Entire Agreement; Successors and Assigns		50
	19.11	Memorandum		50
	19.12	Counterparts		50
EXHIBIT A	ASSETS AND AREA OF INTEREST
EXHIBIT B	ACCOUNTING PROCEDURES
EXHIBIT C	TAX MATTERS
EXHIBIT D	DEFINITIONS
EXHIBIT E	PRODUCTION ROYALTY
EXHIBIT F	INITIAL PROGRAM AND BUDGET

- v -

CONVERSE URANIUM PROJECT
EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

          This CONVERSE URANIUM PROJECT EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT (“Agreement”) is made as of January 23, 2006 (“ Effective Date”) between Canyon Resources Corporation, a Delaware corporation (“Canyon”), with an office located at 14142 Denver West Parkway, Suite 250, Golden, CO 80401 and New Horizon Uranium Corporation, a British Columbia corporation (“ Horizon”), with an office located at 2221 East Street, Suite 200, Golden, Colorado 80401.

RECITALS

          A. Canyon owns or controls certain Properties and other Assets located in or concerning Converse and Niobrara Counties, State of Wyoming, which Properties and other Assets are described further in Exhibit A and defined in Exhibit D.

          B. Horizon wishes to participate with Canyon in the exploration, evaluation and if justified the development and mining of mineral resources within the Properties, and Canyon is willing to grant such rights to Horizon.

          NOW THEREFORE, in consideration of the covenants and conditions contained herein, Canyon and Horizon agree as follows:

ARTICLE I
DEFINITIONS AND CROSS-REFERENCES

          1.1 Definitions. The terms defined in Exhibit D and elsewhere shall have the defined meaning wherever used in this Agreement, including in Exhibits.

          1.2 Cross-References. References to “Exhibits,” “Articles,” “Sections” and “Subsections” refer to Exhibits, Articles, Sections and Subsections of this Agreement. References to “Paragraphs” and “Subparagraphs” refer to paragraphs and subparagraphs of the referenced Exhibits.

ARTICLE II
NAME, PURPOSES AND TERM

          2.1 General. Canyon and Horizon hereby enter into this Agreement for the purposes hereinafter stated. All of the rights and obligations of the Participants in connection with the Assets or the Area of Interest and all Operations shall be subject to and governed by this Agreement.

1

          2.2 Name. The Assets shall be managed and operated by the Participants under the name of the “Converse Joint Venture”. The Manager shall accomplish any registration required by applicable assumed or fictitious name statutes and similar statutes.

          2.3 Purposes. This Agreement is entered into for the following purposes and for no others, and shall serve as the exclusive means by which each of the Participants accomplishes such purposes:

(a)	to conduct Exploration within the Area of Interest,
(b)	to acquire additional real property and other interests within the Area of Interest including contractual rights of access and use of land, water, and utilities,
(c)	to evaluate the possible Development and Mining of the Properties, and, if justified, to engage in Development and Mining,
(d)	to engage in Operations on the Properties,
(e)	to engage in marketing Products, to the extent provided by Article XI,
(f)	to complete and satisfy all Environmental Compliance obligations and Continuing Obligations affecting the Properties, and
(g)	to perform any other activity necessary, appropriate, or incidental to any of the foregoing.

          2.4 Limitation. Unless the Participants otherwise agree in writing, the Operations shall be limited to the purposes described in Section 2.3, and nothing in this Agreement shall be construed to enlarge such purposes or to change the relationships of the Participants as set forth in Article IV.

          2.5 Term. The term of this Agreement shall be for thirty (30) years from the Effective Date and for so long thereafter as Products are produced from the Properties on a continuous basis, and thereafter until all materials, supplies, equipment and infrastructure have been salvaged and disposed of, any required Environmental Compliance is completed and accepted and the Participants have agreed to a final accounting, unless the Business is earlier terminated as herein provided. For purposes hereof, Products shall be deemed to be produced from the Properties on a “continuous

2

basis” so long as production in commercial quantities is not halted for more than one year for reasons other than Force Majeure as provided for in Section 19.7.

ARTICLE III
REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS; INDEMNITIES

          3.1 Representations and Warranties of Both Participants. As of the Effective Date, each Participant warrants and represents to the other that:

               (a) it is a corporation duly organized and in good standing in its state or province of incorporation and it shall become qualified to do business and shall be in good standing in those states where necessary in order to carry out the purposes of this Agreement within thirty (30) calendar days following the Effective Date;

               (b) it has the capacity to enter into and perform this Agreement and all transactions contemplated herein and that all corporate, board of directors, shareholder, surface and mineral rights owner, lessor, lessee and other actions required to authorize it to enter into and perform this Agreement have been properly taken;

               (c) it will not breach any other agreement or arrangement by entering into or performing this Agreement;

               (d) it is not subject to any governmental order, judgment, decree, debarment, sanction or Laws that would preclude the permitting or implementation of Operations under this Agreement; and

               (e) this Agreement has been duly executed and delivered by it and is valid and binding upon it in accordance with its terms.

          3.2 Representations and Warranties of Canyon. As of the Effective Date, Canyon makes the following representations and warranties to Horizon:

               (a) Canyon does not own any of the Properties in fee simple.

               (b) With respect to those Properties in which Canyon holds an interest under leases or other contracts: (i) Canyon is in exclusive possession of such Properties; (ii) Canyon has not received any notice of default of any of the terms or provisions of such leases or other contracts; (iii) Canyon has the authority under such leases or other contracts to perform fully its obligations under this Agreement; (iv) to Canyon’s knowledge, such leases and other contracts are valid and are in good standing; (v) Canyon has no knowledge of any act or omission or any condition on the Properties which could be considered or construed as a default under any such lease or other

3

contract; and (vi) to Canyon’s knowledge, such Properties are free and clear of all Encumbrances or defects in title except for those specifically identified in Paragraph 1.1 of Exhibit A.

               (c) Canyon has delivered to or made available for inspection by Horizon all Existing Data in its possession or control, and true and correct copies of all leases or other contracts relating to the Properties.

               (d) With respect to unpatented mining claims located by Canyon that are included within the Properties, except as provided in Paragraph 1.1 of Exhibit A and subject to the paramount title of the United States: (i) the unpatented mining claims were properly laid out and monumented; (ii) all required location and validation work was properly performed; (iii) location notices and certificates were properly recorded and filed with appropriate governmental agencies; (iv) all assessment work required to hold the unpatented mining claims has been performed and all Governmental Fees have been paid in a manner consistent with that required of the Manager pursuant to Subsection 8.2(k) through the assessment year ending August 31, 2006; (v) all affidavits of assessment work, evidence of payment of Governmental Fees, and other filings required to maintain the claims in good standing have been properly and timely recorded or filed with appropriate governmental agencies; (vi) the claims are free and clear of Encumbrances or defects in title; and (vii) Canyon has no knowledge of conflicting mining claims. Nothing in this Subsection, however, shall be deemed to be a representation or a warranty that any of the unpatented mining claims contains a valuable mineral deposit.

               (e) The Properties do not include any unpatented mining claims not located by Canyon.

               (f) With respect to the Properties, to Canyon’s knowledge, there are no pending or threatened actions, suits, claims or proceedings, and there have been no previous transactions affecting its interests in the Properties which have not been for fair consideration.

               (g) Except as to matters otherwise disclosed in writing to Horizon prior to the Effective Date,

                    (i) to Canyon’s knowledge, the conditions existing on or with respect to the Properties and its ownership and operation of the Properties are not in violation of any Laws (including without limitation any Environmental Laws), nor causing or permitting any damage (including Environmental Damage, as defined below) or impairment to the health, safety, or enjoyment of any person at or on the Properties or in the general vicinity of the Properties;

4

                    (ii) to Canyon’s knowledge, there have been no past violations by it or by any of its predecessors in title of any Environmental Laws or other Laws affecting or pertaining to the Properties, nor any past creation of damage or threatened damage to the air, soil, surface waters, groundwater, flora, fauna, or other natural resources on, about or in the general vicinity of the Properties (“Environmental Damage”); and

                    (iii) Canyon has not received inquiry from or notice of a pending investigation from any governmental agency or of any administrative or judicial proceeding concerning the violation of any Laws.

               The representations and warranties set forth above shall survive the execution and delivery of any documents of Transfer provided under this Agreement. For a representation or warranty made to a Participant’s “knowledge,” the term “knowledge” shall mean actual knowledge on the part of the officers, employees, and agents of the representing Participant or of facts that would reasonably lead to the indicated conclusions.

          3.3 Disclosures. Each of the Participants represents and warrants that at the time this Agreement is entered into and as of the Effective Date, if different, it is unaware of any material facts or circumstances that have not been disclosed in this Agreement, which should be disclosed to the other Participant in order to prevent the representations and warranties in this Article from being materially misleading. Canyon has disclosed to Horizon all information it believes to be relevant concerning the Assets, including without limitation all information in its possession concerning Environmental Liabilities, and has provided to or made available for inspection by Horizon all such information, but does not make any representation or warranty, express or implied, as to the accuracy or completeness of the information (except as provided in Section 3.2) or as to the boundaries or value of the Assets. Each Participant represents to the other that in negotiating and entering into this Agreement it has relied solely on its own appraisals and estimates as to the value of the Assets and upon its own geologic and engineering interpretations related thereto.

          3.4 Record Title. Until directed otherwise by the Management Committee, title to the Assets shall be held by Canyon for Canyon and Horizon, as their Participating Interests are determined pursuant to this Agreement.

          3.5 Loss of Title. Any failure or loss of title to the Assets, and all costs of defending title, shall be charged to the Business Account, except that all costs and losses arising out of or resulting from breach of the representations and warranties of Canyon or Horizon as to title shall be charged to Canyon or Horizon, as the case may be.

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          3.6 Royalties, Production Taxes and Other Payments Based on Production. The Manager shall make all required payments of production royalties, taxes based on production of Products, and other payments out of production to private parties and governmental entities with such payments subject to timely reimbursement from each Participant in proportion to its Participating Interest. The Manager undertakes to make such payments timely and otherwise in accordance with applicable laws and agreements. The Manager may require each Participant to advance its proportionate share and each Participant shall timely advance such funds. The Manager shall record all funds received in the Business Account and maintain evidence of timely payment for all such required payments. In the event that either Participant fails to advance or reimburse its proportionate share of any such required payment, the other Participant shall have the right to advance such funds to cover such payment and shall thereby become subrogated to the rights of such third party; provided, however, that the reimbursement or advance of funds by the paying Participant to cover the share of the other Participant shall not constitute acceptance by the paying Participant of any liability to such third party for the underlying obligation.

          3.7 Indemnities/Limitation of Liability.

               (a) Each Participant shall indemnify the other Participant, its directors, officers, employees, agents and attorneys, or Affiliates (collectively “Indemnified Participant”) from and against the entire amount of any Material Loss. A “Material Loss” shall mean all costs, expenses, damages or liabilities, including attorneys’ fees and other costs of litigation (either threatened or pending) arising out of or based on a breach by a Participant (“Indemnifying Participant”) of any representation, warranty or covenant contained in this Agreement, including without limitation:

                    (i) any failure by a Participant to timely advance or reimburse funds to the Manager for the Participant’s proportionate share of required royalties, production taxes and other payments out of production due to third parties as required by Section 3.6;

                    (ii) any action taken for or obligation or responsibility assumed on behalf of the other Participant, its directors, officers, employees, agents and attorneys, or Affiliates by a Participant, any of its directors, officers, employees, agents and attorneys, or Affiliates, in violation of Section 4.1;

                    (iii) failure of a Participant or its Affiliates to comply with the non-compete or Area of Interest provisions of Section 12.6 or Article XIII;

                    (iv) any Transfer that causes termination of the tax partnership established by Section 4.2, against which the transferring Participant shall indemnify the non-transferring Participant as provided in Article V of Exhibit C; and

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                    (v) failure of a Participant or its Affiliates to comply with the preemptive right under Section 16.3.

               A Material Loss shall not be deemed to have occurred until, in the aggregate, an Indemnified Participant incurs losses, costs, damages or liabilities in excess of One Hundred Thousand Dollars ($100,000) relating to breaches of warranties, representations and covenants contained in this Agreement. Canyon’s aggregate liability to all Indemnified Participants under this Section for breaches of the representations in Subsection 3.2(g) shall not, however, exceed Five Hundred Thousand Dollars ($500,000).

               (b) If any claim or demand is asserted against an Indemnified Participant in respect of which such Indemnified Participant may be entitled to indemnification under this Agreement, written notice of such claim or demand shall promptly be given to the Indemnifying Participant. The Indemnifying Participant shall have the right, but not the obligation, by notifying the Indemnified Participant within thirty (30) days after its receipt of the notice of the claim or demand, to assume the entire control of (subject to the right of the Indemnified Participant to participate, at the Indemnified Participant’s expense and with counsel of the Indemnified Participant’s choice), the defense, compromise, or settlement of the matter, including, at the Indemnifying Participant’s expense, employment of counsel of the Indemnifying Participant’s choice. Any damages to the assets or business of the Indemnified Participant caused by a failure by the Indemnifying Participant to defend, compromise, or settle a claim or demand in a reasonable and expeditious manner requested by the Indemnified Participant, after the Indemnifying Participant has given notice that it will assume control of the defense, compromise, or settlement of the matter, shall be included in the damages for which the Indemnifying Participant shall be obligated to indemnify the Indemnified Participant. Any settlement or compromise of a matter by the Indemnifying Participant shall include a full release of claims against the Indemnified Participant which has arisen out of the indemnified claim or demand.

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ARTICLE IV
RELATIONSHIP OF THE PARTICIPANTS

          4.1 No Partnership. Nothing contained in this Agreement shall be deemed to constitute either Participant the partner of the other, or, except as otherwise herein expressly provided, to constitute either Participant the agent or legal representative of the other, or to create any fiduciary relationship between them. The Participants do not intend to create, and this Agreement shall not be construed to create, any mining, commercial or other partnership. Neither Participant, nor any of its directors, officers, employees, agents and attorneys, or Affiliates, shall act for or assume any obligation or responsibility on behalf of the other Participant, except as otherwise expressly provided herein, and any such action or assumption by a Participant’s directors, officers, employees, agents and attorneys, or Affiliates shall be a breach by such Participant of this Agreement. The rights, duties, obligations and liabilities of the Participants shall be several and not joint or collective. Each Participant shall be responsible only for its obligations as herein set out and shall be liable only for its share of the costs and expenses as provided herein, and it is the express purpose and intention of the Participants that their ownership of Assets and the rights acquired hereunder shall be as tenants in common.

          4.2 Federal Tax Elections and Allocations. Without changing the effect of Section 4.1, the relationship of the Participants shall constitute a tax partnership within the meaning of Section 761(a) of the United States Revenue Code of 1986. Tax elections and allocations shall be made as set forth in Exhibit C.

          4.3 State Income Tax. To the extent permissible under applicable law, the relationship of the Participants shall be treated for state income tax purposes in the same manner as it is for federal income tax purposes.

          4.4 Tax Returns. After approval of the Management Committee, any tax returns or other required tax forms shall be filed in accordance with Exhibit C.

          4.5 Other Business Opportunities. Except as expressly provided in this Agreement, each Participant shall have the right to engage in and receive full benefits from any independent business activities or operations, whether or not competitive with this Business, without consulting with, or obligation to, the other Participant. The doctrines of “corporate opportunity” or “business opportunity” shall not be applied to this Business nor to any other activity or operation of either Participant. Neither Participant shall have any obligation to the other with respect to any opportunity to acquire any property outside the Area of Interest at any time, or, except as otherwise provided in Section 12.6, within the Area of Interest after the termination of the Business. Unless otherwise agreed in writing, neither Participant shall have any obligation to process or otherwise treat any Products in any facility owned or controlled by such Participant.

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          4.6 Waiver of Rights to Partition or Other Division of Assets. The Participants hereby waive and release all rights of partition, or of sale in lieu thereof, or other division of Assets except as provided in Article XV, including any such rights provided by Law.

          4.7 Transfer or Termination of Rights to Properties. Except as otherwise provided in this Agreement or as expressly agreed to by the Participants in writing, neither Participant shall Transfer all or any part of its interest in the Assets or this Agreement or otherwise permit or cause such interests to terminate.

          4.8 Implied Covenants. There are no implied covenants contained in this Agreement other than those of good faith and fair dealing.

          4.9 No Third Party Beneficiary Rights. This Agreement shall be construed to benefit the Participants and their respective successors and assigns only, and shall not be construed to create third party beneficiary rights in any other party or in any governmental organization or agency, except to the extent required by Project Financing and as provided in Subsection 3.7(a).

ARTICLE V
CONTRIBUTIONS BY PARTICIPANTS

          5.1 Participants’ Initial Contributions.

               (a) Canyon, as its Initial Contribution, hereby contributes the Assets described in Exhibit A to the purposes of this Agreement. The amount of Two Million Dollars ($2,000,000) shall be credited to Canyon’s Equity Account on the Effective Date with respect to Canyon’s Initial Contribution.

               (b) Subject to Horizon’s right of withdrawal as set forth in Section 5.2, Horizon, as its Initial Contribution shall fund Operations under Subsection 5.1(e) totaling One Million Dollars ($1,000,000.00) on or before the third anniversary of the Effective Date, with Two Hundred Thousand Dollars ($200,000) of the Initial Contribution estimated as the minimum to be funded in the first year following the Effective Date, Three Hundred Thousand Dollars ($300,000) of the Initial Contribution estimated to be funded in the second year following the Effective Date, and the remaining Five Hundred Thousand Dollars ($500,000) of the Initial Contribution estimated to be funded in the third year following the Effective Date. All funding by Horizon in excess of the stated amount for each year shall be credited towards Horizon’s subsequent year(s) funding commitment. Horizon may elect, at any time during the period ending on the third anniversary of the Effective Date to complete the funding of the One Million Dollars ($1,000,000) Initial Contribution amount, including by lump sum payment made to the Business Account

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equal to the remaining unfunded portion of the One Million Dollar ($1,000,000) Initial Contribution amount. In determining whether Horizon’s funding obligation has been met, only costs that are properly chargeable to the Business Account under Exhibit B shall be included (“Qualifying Expenses”); provided, however, Horizon shall not be entitled to an Administrative Charge during the time it is making Qualifying Expenses. Upon completion of the Initial Contribution funding, such amount shall be credited to Horizon’s Equity Account.

          (c) Upon Horizon’s completion of its Initial Contribution under Subsection 5.1(b) and concurrent with Horizon’s earn-in of its Initial Participating Interest set forth in Section 6.1, Horizon shall tender to Canyon five hundred thousand (500,000) Horizon common shares for no additional consideration. Issuance of such common shares is subject to approval of Horizon’s listing of common shares on the TSX Venture Exchange or an alternate stock exchange solely at Horizon’s election of such exchange. Should Horizon not have such approval within one hundred eighty (180) days of the Effective Date, the common shares shall be issued from Horizon’s treasury shares.

          (d) Upon Horizon’s completion of its Initial Contribution under Subsection 5.1(b) and concurrent with Horizon’s earn-in of its Initial Participating Interest set forth in Section 6.1, Horizon shall also tender to Canyon a warrant for the acquisition of an additional five hundred thousand (500,000) Horizon common shares at a price equal to one hundred twenty five percent (125%) of the then current market price of Horizon stock. The “then current market price” shall be: i) if Horizon is a public company trading on any Canadian or United States stock exchange at the date of tender, the thirty (30) day trailing average price of Horizon common shares sold on the stock exchange on which Horizon is traded on the date five (5) business days prior to tender; or ii) if Horizon is not a publicly traded company at the date of tender, the price of the most recent private placement completed for ownership in Horizon.

          (e) Subject only to the provisions of Sections 9.1 and 7.2, until Horizon has completed its Initial Contribution, and if Horizon has elected to fund Additional Contribution(s) under Subsections 5.3(a) and (b) then for so long thereafter as Horizon bears all Qualifying Expenses for Operations, Horizon shall have the sole right to determine the nature, timing, scope, extent and method of all Operations without obtaining the approval or consent of Canyon or the Management Committee. In conducting such Operations, Horizon shall exercise the standard of care set forth in Section 8.3. Horizon has agreed to fulfill the Manager’s monthly reporting requirements set forth in Section 8.2(o) beginning as of the Effective Date. With the exception of Section 8.2(o), for so long as Horizon bears all Qualifying Expenses for Operations, Horizon shall be entitled, but shall not be obligated, to exercise any of the applicable powers of the Manager in Section 8.2, except that until Horizon has completed its Initial Contribution it shall not be entitled or required to perform the activities described in Subsections 8.2(g), (i), (l) and (s) that would otherwise require consent of the Management Committee or of

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Canyon. For all such Operations, Horizon shall provide for accrual of reasonably anticipated Environmental Compliance expenses, which shall constitute Qualifying Expenses, and upon completion of its Initial Contribution, Horizon shall transfer any accrued but unexpended amounts to the Environmental Compliance Fund established under Paragraph 2.14 of Exhibit B.

               (f) Canyon shall provide Horizon with written notice of any exceptions it may have to the statement of Qualifying Expenses submitted to it as provided above within three (3) months after receipt of the statement. Failure to provide such notice within the three (3) month period shall constitute acceptance by Canyon of the stated Qualifying Expenses, subject to audit provisions of Section 10.6.

          5.2 Failure to Make Initial Contribution.

               (a) Horizon’s failure to make its Initial Contribution in accordance with the provisions of this Article V, if not cured within thirty (30) days after notice by Canyon of such default, shall be deemed to be a withdrawal of Horizon from the Business, the termination of its Participating Interest hereunder and a transfer of its Participating Interest and Capital Account to Canyon. Upon such deemed withdrawal, Horizon shall have no further right, title or interest in the Assets and it shall take such actions as are necessary to ensure that all Assets are free and clear of any Encumbrances arising by, through or under it, except for such Encumbrances to which the Participants may have agreed. Subject to Subsection 5.2(b) below, Horizon’s withdrawal shall be effective upon such failure, but such withdrawal shall not relieve Horizon of its obligation to Canyon to fund Operations up to the amount of Horizon’s contractual obligations to third parties, nor shall such withdrawal relieve Horizon of its responsibility to fund and satisfy Horizon’s share of liabilities to third persons (regardless of whether such liabilities accrue before or after such withdrawal), including Environmental Liabilities, Continuing Obligations and Environmental Compliance, arising prior to Horizon’s withdrawal, which responsibility shall be based on Horizon’s initial Participating Interest.

               (b) Notwithstanding Subsection 5.2(a) above, Horizon shall have the right, within ninety (90) days after the Effective Date, to conduct an investigation and perform a baseline assessment of the environmental conditions of the Properties including sampling and analyses as Horizon deems advisable. Upon completion of such baseline assessment, Horizon shall promptly provide the report and any analytical results to Canyon. If Horizon determines that conditions may exist on the Properties which may, in Horizon’s judgment, result in violation of Environmental Laws, Horizon shall have the right to withdraw from the Business by giving written notice to Canyon of such withdrawal. Horizon’s withdrawal shall be effective upon receipt by Canyon of such notice, but such withdrawal shall not relieve Horizon of its obligation to fund Operations up to the amount of Horizon’s agreed contribution to the Initial Program and Budget. Such withdrawal shall, however, relieve Horizon of its responsibility to fund and satisfy

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Horizon’s share of liabilities to third parties (regardless of whether such liabilities accrue before or after such withdrawal), including Environmental Liabilities, Continuing Obligations and Environmental Compliance, other than those arising out of Operations conducted by Horizon after the Effective Date and prior to its withdrawal. Horizon shall fund and satisfy one hundred percent (100%) of such liabilities only until it has contributed the full amount of its agreed contribution to the Initial Program and Budget. Except as provided in this Subsection and except as may be otherwise expressly provided herein, Horizon’s withdrawal shall relieve Horizon from any other obligation to make contributions hereunder.

     5.3 Additional Contribution(s). At such time as Horizon has contributed the full amount of its Initial Contribution under Subsection
5.1(b), Horizon may elect to increase its Participating Interest by funding one or both Additional Contribution(s) described in Subsections 5.3(a) and(b) below.

          (a) Horizon may elect, at its sole discretion, by advance notice to Canyon within forty-five (45) days prior to the completion of its Initial Contribution, to solely fund the next One Million Dollars ($1,000,000) of Operations within the two (2) year period following completion of the funding of its Initial Contribution and thereby earn an additional twenty percent (20%) Participating Interest. During this period of sole funding by Horizon, Canyon shall have no obligation to fund its pro rata share of expenditures and Horizon shall have the sole right and control over Operations consistent with Subsection 5.1(e). Upon completion of Horizon’s Additional Contribution described within this Subsection, One Million Dollars ($1,000,000) shall be credited to Horizon’s Equity Account, Horizon’s Participating Interest shall be increased by twenty percent (20%) to a total of seventy percent (70%), and Canyon’s Participating Interest shall be decreased by twenty percent (20%) to a total of thirty percent (30%).

          (b) Horizon may elect, at its sole discretion and by advance notice to Canyon within forty-five (45) days prior to the completion of its funding of the second One Million Dollar ($1,000,000) contribution described in Subsection 5.3(a), to acquire an additional twenty percent (20%) Participating Interest, by funding a Feasibility Study prepared by a Feasibility Contractor and thereby earning an additional five percent (5%) Participating Interest, for a total of seventy-five percent (75%) Participating Interest at the time the Feasibility Study is completed and paid for. If Horizon elects to fund a Feasibility Study prepared by a Feasibility Contractor, Horizon shall proceed with reasonable diligence to complete the same within a reasonable time following completion of Horizon’s funding of the second One Million Dollar ($1,000,000) contribution. During this period of sole funding by Horizon, Canyon shall have no obligation to fund its pro rata share of expenditures and Horizon shall have the sole right and control over Operations consistent with Subsection 5.1(e). Upon completion of such funding, an amount equal to the cost of such Feasibility Study shall be credited to Horizon’s Equity Account, Horizon’s Participating Interest shall be increased by five percent (5%) to a total of seventy-five

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percent (75%), and Canyon’s Participating Interest shall be decreased by five percent (5%) to a total of twenty-five percent (25%).

          (c) Upon the Management Committee’s decision to construct a Mining facility based on the Feasibility Study and subject to applicable securities laws and regulations, Horizon shall tender to Canyon either the number of common shares of Horizon equal in value to Two Million Dollars ($2,000,000) if at that date Horizon is a publicly traded company, or a payment of Two Million Dollars ($2,000,000) if Horizon is not a publicly traded company. The price to be used for the determination of the number of such shares to be transferred to Canyon shall be consistent with the pricing mechanism set forth in Subsections 5.1(d)(i) and (ii).

          (d) If Horizon does not elect to increase its initial Participating Interest pursuant to Subsections 5.3(a) and (b), the Participants, subject to any election permitted by Subsection 9.5(a), shall be obligated to contribute funds to adopted Programs and Budgets in proportion to their respective initial Participating Interests set forth in Section 6.1.

ARTICLE VI
INTERESTS OF PARTICIPANTS

     6.1 Initial Participating Interests. Horizon’s initial Participating Interest set forth below shall become effective immediately once Horizon has fulfilled its Initial Contribution obligations set forth in Section 5.1. Once Horizon has earned its initial Participating Interest, the Participants shall have the following Participating Interests:

Canyon	50	%
Horizon	50	%

     6.2 Changes in Participating Interests. The Participating Interests shall be eliminated or changed as follows:

          (a) Upon withdrawal or deemed withdrawal as provided in Sections 5.2, 6.3, and Article XII;

          (b) Upon an election by a Participant pursuant to Section 9.5 to contribute more or less to an adopted Program and Budget than the percentage equal to its Participating Interest, or to contribute nothing to an adopted Program and Budget;

          (c) In the event of default by either Participant in making its agreed-upon contribution to an adopted Program and Budget, followed by an election by the other Participant to invoke any of the remedies in Section 10.5;

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          (d) Upon Transfer by either Participant of part or all of its Participating Interest in accordance with Article XVI; or

          (e) Upon acquisition by either Participant of part or all of the Participating Interest of the other Participant, including any elections by Horizon to increase its Participating Interest by completing Additional Contribution(s) in accordance with Section 5.3.

     6.3 Elimination of Minority Interest.

          (a) At such time as a Reduced Participant’s Recalculated Participating Interest drops to less than fifteen percent (15%), its Recalculated Participating Interest shall automatically be converted to a three percent (3%) production royalty as calculated in accordance with Exhibit E (“Production Royalty”). Once converted to a Production Royalty, the Reduced Participant shall be deemed to have relinquished its entire Participating Interest free and clear of any Encumbrances arising by, through or under the Reduced Participant, except any such Encumbrances listed in Paragraph 1.1 of Exhibit A or to which the Participants have agreed. Such relinquished Participating Interest shall be deemed to have accrued automatically to the other Participant. The Reduced Participant’s Capital Account shall be transferred to the remaining Participant. Upon conversion of its Recalculated Participating Interest to the Production Royalty, and subject to Section 6.4, the Reduced Participant shall thereafter have no other further right, title, or interest in the Assets or under this Agreement, and the tax partnership established by Exhibit C shall dissolve pursuant to Paragraph 4.2 of Exhibit C. In such event, the Reduced Participant shall execute and deliver an appropriate conveyance of all of its right, title and interest in the Assets to the remaining Participant in consideration of the other Participant’s execution and delivery of a royalty deed conveying the Production Royalty.

          (b) The relinquishment, withdrawal and entitlements for which this Section provides shall be effective as of the effective date of the recalculation under Sections 9.5 or 10.5. However, if the final adjustment provided under Section 9.6 for any recalculation under Section 9.5 results in a Recalculated Participating Interest of fifteen percent (15%) or more: (i) the Recalculated Participating Interest shall be deemed, effective retroactively as of the first day of the Program Period, to have automatically revested; (ii) the Reduced Participant shall be reinstated a Participant, with all of the rights and obligations pertaining thereto; (iii) the right to the Production Royalty under Subsection 6.3(a) shall terminate; and (iv) the Manager, on behalf of the Participants, shall make any necessary reimbursements, reallocations of Products, contributions and other adjustments as provided in Subsection 9.6(d). Similarly if such final adjustment under Section 9.6 results in a Recalculated Participating interest of less than fifteen percent (15%) for a Program Period as to which the provisional calculation under Section 9.5 had not resulted

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in a Participating Interest of less than fifteen percent (15%), then such Participant, at its election within thirty (30) days after notice of the final adjustment, may contribute an amount resulting in a revised final adjustment and resultant Recalculated Participating Interest of fifteen percent (15%). If no such election is made, such Participant shall be deemed to have withdrawn under the terms of Subsection 6.3(a) as of the beginning of such Program Period, and the Manager, on behalf of the Participants, shall make any necessary reimbursements, reallocations of Products, contributions, and other adjustments as provided in Subsection 9.6(d), to which such Participant may be entitled for such Program Period.

     6.4 Continuing Liabilities Upon Adjustments of Participating Interests. Any reduction or conversion of either Participant’s Participating Interest under Section 6.2 shall not relieve such Participant of its share of any liability, including, without limitation, Continuing Obligations, Environmental Liabilities and Environmental Compliance, whether arising, before or after such reduction or conversion, out of acts or omissions occurring or conditions existing prior to the Effective Date or out of Operations conducted during the term of this Agreement but prior to such reduction or conversion, regardless of when any funds may be expended to satisfy such liability. For purposes of this Section, such Participant’s share of such liability shall be equal to its Participating Interest at the time the act or omission giving rise to the liability occurred after first taking into account any reduction, readjustment and restoration of Participating Interests under Sections 6.3, 9.5, 9.6 and 10.5 (or, as to such liability arising out of acts or omissions occurring or conditions existing prior to the Effective Date, equal to such Participant’s initial Participating Interest). Should the cumulative cost of satisfying Continuing Obligations be in excess of cumulative amounts accrued or otherwise charged to the Environmental Compliance Fund as described in Exhibit B, each of the Participants shall be liable for its proportionate share (i.e., Participating Interest at the time of the act or omission giving rise to such liability occurred) after first taking into account any reduction, readjustment and restoration of Participating Interests under Sections 6.3, 9.5, 9.6 and 10.5, of the cost of satisfying such Continuing Obligations, notwithstanding that either Participant has previously withdrawn from the Business or that its Participating Interest has been reduced or converted to a Production Royalty pursuant to Subsection 6.3(a).

     6.5 Documentation of Adjustments to Participating Interests. Adjustments to the Participating Interests need not be evidenced during the term of this Agreement by the execution and recording of appropriate instruments, but each Participant’s Participating Interest and related Equity Account balance shall be shown in the accounting records of the Manager, and any adjustments thereto, including any reduction, readjustment, and restoration of Participating Interests under Sections 9.5, 9.6 and 10.5, shall be made monthly. However, either Participant, at any time upon the request of the other Participant, shall execute and acknowledge instruments necessary to evidence such adjustments in form sufficient for filing and recording in the jurisdiction where the Properties are located.

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     6.6 Grant of Lien and Security Interest.

          (a) Subject to Section 6.7, each Participant grants to the other Participant a lien upon and a security interest in its Participating Interest, including all of its right, title and interest in the Assets, whenever acquired or arising, and the proceeds from and accessions to the foregoing.

          (b) The liens and security interests granted by Subsection 6.6(a) shall secure every obligation or liability of the Participant granting such lien or security interest created under this Agreement, including the obligation to repay a Cover Payment in accordance with Section 10.4. Each Participant hereby agrees to take all action necessary to perfect such lien and security interest and hereby appoints the other Participant its attorney-in-fact to execute, file and record all financing statements and other documents necessary to perfect or maintain such lien and security interest.

     6.7 Subordination of Interests. Each Participant shall, from time to time, take all necessary actions, including execution of appropriate agreements, to pledge and subordinate its Participating Interest, any liens it may hold which are created under this Agreement including those created pursuant to Section 6.6 hereof, and any other right or interest it holds with respect to the Assets (other than any statutory lien of the Manager) to any secured borrowings for Operations approved by the Management Committee, including any secured borrowings relating to Project Financing, and any modifications or renewals thereof.

ARTICLE VII
MANAGEMENT COMMITTEE

     7.1 Organization and Composition. The Participants hereby establish a Management Committee to determine overall policies, objectives, procedures, methods and actions under this Agreement. The Management Committee shall consist of an equal number of member(s) appointed by Canyon and Horizon. Each Participant may appoint one or more alternates to act in the absence of a regular member. A Participant shall have at least one member until such time as its Participating Interest is converted to a Production Royalty pursuant to Section 6.3. Appointments by a Participant shall be made or changed by notice to the other members.

     7.2 Decisions. After Horizon has completed the funding of its Initial Contribution, each Participant, acting through its appointed member(s) in attendance at the meeting, shall have the votes on the Management Committee in proportion to its Participating Interest. Except for
super-majority voting matters identified herein or as otherwise provided in this Agreement, the vote of the Participant with a Participating

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Interest greater than fifty percent (50%) shall determine the decisions of the Management Committee. Unanimous consent of the Participants shall be required for the following matters designated as super-majority voting matters: (i) the sale or other disposition of Assets in accordance with Section 8.2(i) and Article XIV; (ii) the initiation of litigation against third parties in accordance with Section 8.2(g); (iii) liquidation or wind-up of the Business except in accordance with Article XII; (iv) changes to the Administrative Charge provided for in Exhibit B in accordance with Section 8.5; (v) disbursements from the Business Account or other distributions to the Manager except disbursements due the Manager Participant from its share of Products, other distributions made to all Participants, or otherwise as authorized by this Agreement; and (vi) disbursements from the Environmental Compliance Fund for any purpose other than ongoing Environmental Compliance conducted during Operations, mine closure, post-Operations Environmental Compliance or Continuing Obligations.

     7.3 Meetings.

          (a) Beginning as of the Effective Date, the Management Committee shall hold regular meetings at least quarterly in Golden, Colorado, or at other agreed places. The Manager shall give fourteen (14) days notice to the Participants of such meetings. Additionally, either Participant may call a special meeting upon seven (7) days notice to the other Participant. In case of an emergency, reasonable notice of a special meeting shall suffice. There shall be a quorum if at least one member representing each Participant is present; provided, however, that if a Participant fails to attend two consecutive properly called meetings, then a quorum shall exist at the second meeting if the other Participant is represented by at least one appointed member, and a vote of such Participant shall be considered the vote required for the purposes of the conduct of all business properly noticed even if such vote would otherwise require unanimity.

          (b) If business cannot be conducted at a regular or special meeting due to the lack of a quorum, either Participant may call the next meeting upon thirty (30) days notice to the other Participant.

          (c) Each notice of a meeting shall include an itemized agenda prepared by the Manager in the case of a regular meeting or by the Participant calling the meeting in the case of a special meeting, but either Participant may add matters to the agenda at least three (3) days before the meeting or with the consent of the other Participant. The Manager shall prepare and distribute minutes of all meetings to the other Participant within fifteen (15) days after the meeting. Either Participant may electronically record the proceedings of a meeting with the consent of the other Participant. The other Participant shall sign and return or object to the minutes prepared by the Manager within thirty (30) days after receipt, and failure to do either shall be deemed acceptance of the minutes as prepared by the Manager. The minutes, when signed or deemed accepted by both Participants, shall be the official record of the decisions made by the Management

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Committee. Decisions made at a Management Committee meeting shall be implemented in accordance with adopted Programs and Budgets. If a Participant timely objects to minutes proposed by the Manager, the members of the Management Committee shall seek, for a period not to exceed thirty (30) days from receipt by the Manager of notice of the objections, to agree upon minutes acceptable to both Participants. If the Management Committee does not reach agreement on the minutes of the meeting within such thirty (30) day period, the minutes of the meeting as prepared by the Manager together with the other Participant’s proposed changes shall collectively constitute the record of the meeting. If personnel employed in Operations are required to attend a Management Committee meeting, reasonable costs incurred in connection with such attendance shall be charged to the Business Account. All other costs shall be paid by the Participants individually.

     7.4 Action Without Meeting in Person. In lieu of meetings in person, the Management Committee may conduct meetings by telephone or video conference, so long as minutes of such meetings are prepared in accordance with Subsection 7.3(c). The Management Committee may also take actions in writing signed by all members.

     7.5 Matters Requiring Approval. Except as provided in Subsection 5.1(e) and as otherwise delegated to the Manager in Section 8.2, the Management Committee, acting in accordance with Section 7.2, shall have exclusive authority to determine all matters related to overall policies, objectives, procedures, methods and actions under this Agreement.

ARTICLE VIII
MANAGER

     8.1 Appointment. The Participants hereby appoint Horizon as the initial Manager with overall management responsibility for Operations. Horizon hereby agrees to serve until it resigns or has been deemed to resign as provided in Section 8.4. The Participants agree that notwithstanding Horizon’s appointment as Manager, for up to one (1) year from the Effective Date, Canyon shall continue to maintain all mining claims and lease rights and take all other actions to maintain the Properties until Horizon expressly assumes this responsibility. Horizon shall promptly reimburse expenses directly incurred by Canyon to maintain the Properties following receipt of invoice and reasonable supporting documentation.

     8.2 Powers and Duties of Manager. Subject to the terms and provisions of this Agreement, the Manager shall have the following powers and duties, which shall be discharged in accordance with adopted Programs and Budgets.

          (a) The Manager shall manage, direct and control Operations, and shall prepare and present to the Management Committee proposed Programs and Budgets as provided in Article IX.

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          (b) The Manager shall implement the decisions of the Management Committee, shall make all expenditures necessary to carry out adopted Programs, and shall promptly advise the Management Committee if it lacks sufficient funds to carry out its responsibilities under this Agreement.

          (c) The Manager shall use reasonable efforts to: (i) purchase or otherwise acquire all material, supplies, equipment, water, utility and transportation services required for Operations, such purchases and acquisitions to be made to the extent reasonably possible on the best terms available, taking into account all of the circumstances; (ii) obtain such customary warranties and guarantees as are available in connection with such purchases and acquisitions; and (iii) keep the Assets free and clear of all Encumbrances, except any such Encumbrances listed in Paragraph 1.1 of Exhibit A and those existing at the time of, or created concurrent with, the acquisition of such Assets, or mechanic’s or materialmen’s liens (which shall be contested, released or discharged in a diligent matter) or Encumbrances specifically approved by the Management Committee. The Manager shall use its best efforts to obtain bids from multiple third party suppliers for individual, or related aggregate, purchases or purchase commitments that exceed Fifty Thousand Dollars ($50,000).

          (d) The Manager shall conduct such title examinations of the Properties and cure such title defects pertaining to the Properties as may be advisable in its reasonable judgment.

          (e) Except as to be performed by Canyon under Section 8.1, the Manager shall: (i) make or arrange for all payments required by leases, licenses, permits, contracts and other agreements with third parties related to the Assets; (ii) pay all taxes, assessments and like charges on Operations and Assets except taxes determined or measured by a Participant’s sales revenue or net income, and shall otherwise promptly pay and discharge expenses incurred in Operations; provided, however, that the Manager shall have the right to contest (in the courts or otherwise) the validity or amount of any taxes, assessments or charges or take other reasonable steps or proceedings to seek a reduction or readjustment prior to payment but in no event shall the Manager permit or allow title to the Assets to be lost as the result of the nonpayment of any taxes, assessments or like charges; and (iii) do all other acts reasonably necessary to maintain the Assets.

          (f) The Manager shall: (i) apply for all necessary permits, licenses and approvals; (ii) comply with all Laws; (iii) notify promptly the Management Committee of any actual or alleged substantial violations thereof; and (iv) maintain records and prepare and file all reports or notices required for or as a result of Operations. The Manager shall not be in breach of this provision if a violation has occurred in spite of the Manager’s good faith efforts to comply consistent with its standard of care under Section 8.3. In the event of any such violation, the Manager shall timely cure or dispose of such

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violation on behalf of both Participants through performance, payment of fines and penalties, or both, and the cost thereof shall be charged to the Business Account.

          (g) The Manager shall prosecute and defend, but shall not initiate without unanimous consent of the Participants in accordance with Section 7.2, all litigation against third parties or administrative proceedings arising out of Operations. The non-managing Participant shall have the right to participate, at its own expense, in such litigation or administrative proceedings. The non-managing Participant shall approve in advance any settlement involving payments, commitments or obligations in excess of Fifty Thousand Dollars ($50,000) in cash or value.

          (h) The Manager shall provide insurance for the benefit of the Participants as follows or as may otherwise be determined from time to time by the Management Committee. The Manager shall, at all times while conducting Operations, comply fully with the applicable worker’s compensation laws and purchase, or provide protection for the Participants comparable to that provided under standard form insurance policies for the following risk categories: (i) comprehensive general liability and property damage with combined limits of not less than Two Million Dollars ($2,000,000) for bodily injury and property damage; (ii) automobile insurance with combined limits of not less than One Million Dollars ($1,000,000); and (iii) adequate and reasonable insurance against risk of fire and other risks ordinarily insured against in similar operations. Insurance coverage and limits shall be subject to annual review and approval by the Management Committee. Each Participant shall self-insure or purchase for its own account such additional insurance as it deems necessary.

          (i) Except as expressly authorized in Article XII, unanimous consent of both Participants in accordance with Section 7.2 is required before the Manager may: (i) abandon or surrender Properties as provided in Article XIV; (ii) dispose of Assets in any one transaction (or in any series of related transactions) having a value in excess of Fifty Thousand Dollars ($50,000); (iii) begin a liquidation or initiate wind up of the Business; or (iv) dispose of Assets necessary to achieve the purposes of the Business.

          (j) The Manager shall have the right to carry out its responsibilities hereunder through agents, Affiliates or independent contractors subject to Section 8.6 and prior disclosure to the Management Committee of the scope of responsibilities to be carried out by agents, Affiliates or independent contractors.

          (k) Except as to be performed by Canyon under Section 8.1, the Manager shall perform or cause to be performed all assessment and other work, and shall pay all Governmental Fees required by Law in order to maintain the unpatented mining claims, mill sites and tunnel sites included within the Properties. The Manager shall have the right to perform the assessment work required hereunder pursuant to a common plan of exploration and continued actual occupancy of such claims and sites shall not be

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required. The Manager shall not be liable on account of any determination by any court or governmental agency that the work performed by the Manager does not constitute the required annual assessment work or occupancy for the purposes of preserving or maintaining ownership of the claims, provided that the work done is pursuant to an adopted Program and Budget and is performed in accordance with the Manager’s standard of care under Section 8.3. The Manager shall timely record with the appropriate county and file with the appropriate United States agency any required affidavits, notices of intent to hold and other documents in proper form attesting to the payment of Governmental Fees, the performance of assessment work or intent to hold the claims and sites, in each case in sufficient detail to reflect compliance with the requirements applicable to each claim and site. The Manager shall not be liable on account of any determination by any court or governmental agency that any such document submitted by the Manager does not comply with applicable requirements, provided that such document is prepared and recorded or filed in accordance with the Manager’s standard of care under Section 8.3.

          (l) If authorized by the Management Committee, the Manager may: (i) locate, amend or relocate any unpatented mining claim or mill site or tunnel site, (ii) locate any fractions resulting from such amendment or relocation, (iii) apply for patents or mining leases or other forms of mineral tenure for any such unpatented claims or sites, (iv) abandon any unpatented mining claims for the purpose of locating mill sites or otherwise acquiring from the United States rights to the ground covered thereby, (v) abandon any unpatented mill sites for the purpose of locating mining claims or otherwise acquiring from the United States rights to the ground covered thereby, (vi) exchange with or convey to the United States any of the Properties for the purpose of acquiring rights to the ground covered thereby or other adjacent ground, and (vii) convert any unpatented claims or mill sites into one or more leases or other forms of mineral tenure pursuant to any Law hereafter enacted.

          (m) The Manager shall keep and maintain all required accounting and financial records pursuant to the procedures described in Exhibit B and in accordance with generally accepted accounting principles used by companies based in the United States (“US GAAP”) as further described in Exhibit B, and shall ensure appropriate separation of accounts unless otherwise agreed by the Participants.

          (n) The Manager shall maintain Equity Accounts for each Participant. Each Participant’s Equity Account shall be credited with the value of such Participant’s contributions under Subsections 5.1(a), 5.1(b), 5.3(a), and 5.3(b) and shall be credited with amounts contributed by such Participant under Subsection 5.3(d). Each Participant’s Equity Account shall be charged with the cash and the fair market value of property distributed to such Participant (net of liabilities assumed by such Participant and liabilities to which such distributed property is subject). Contributions and distributions shall include all cash contributions or distributions plus the agreed value (expressed in dollars) of all in-kind contributions or distributions. Solely for purposes of determining

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the Equity Account balances of the Participants, the Manager shall reasonably estimate the fair market value of all Products distributed to the Participants, and such estimated value shall be used regardless of the actual amount received by each Participant upon disposition of such Products.

          (o) Subject to Section 8.3, the Manager shall keep the Management Committee advised of all Operations by submitting in writing to the members of the Management Committee: (i) monthly progress reports that include statements of expenditures and comparisons of such expenditures to the adopted Budget; (ii) periodic summaries of data acquired; (iii) copies of reports concerning Operations; (iv) a detailed final report within sixty (60) days after completion of each Program and Budget, which shall include comparisons between actual and budgeted expenditures and comparisons between the objectives and results of Programs; and (v) such other reports as any member of the Management Committee may reasonably request. Subject to Article XVIII, at all reasonable times and upon reasonable advance notice the Manager shall provide the Management Committee, or other authorized representative of a Participant access to, and the right to inspect and, at such Participant’s cost and expense, copies of the Existing Data and all maps, drill logs and other drilling data, core, pulps, reports, surveys, assays, analyses, production reports, operations, technical, accounting and financial records, and other Business Information, in the possession of the Manager, subject to Article XVIII. In addition, the Manager shall allow authorized representatives of the non-managing Participant, at the latter’s sole risk, cost and expense, and subject to reasonable safety regulations, to inspect the Assets and Operations at all reasonable times and upon reasonable advance notice, so long as the representative does not unreasonably interfere with Operations.

          (p) The Manager shall prepare an Environmental Compliance plan for all Operations consistent with applicable Laws or contractual obligations and shall include in each Program and Budget sufficient funding to implement the Environmental Compliance plan and to satisfy the financial assurance requirements of any applicable Law or contractual obligation pertaining to Environmental Compliance. To the extent practical, the Environmental Compliance plan shall incorporate concurrent reclamation of Properties disturbed by Operations.

          (q) The Manager shall undertake Continuing Obligations when and as economic and appropriate, whether before or after termination of the Business. As part of each Program and Budget submittal, the Manager shall specify the measures to be taken for performance of Continuing Obligations and the cost of such measures and shall describe the Manager’s efforts to discharge Continuing Obligations. Authorized representatives of each Participant upon reasonable advance notice shall have the right from time to time to enter the Properties to inspect work directed toward satisfaction of Continuing Obligations and audit books, records, and accounts related thereto.

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          (r) The Environmental Compliance Fund shall be maintained by the Manager as a separate, interest bearing cash management account, which may include, but is not limited to, money market investments and/or in longer term investments if approved by the Management Committee. Such funds shall be used solely for Environmental Compliance and Continuing Obligations, including the committing of such funds, interests in property, insurance or bond policies, or other security to meet financial assurance obligations for the reclamation or restoration of the Properties, and for other Environmental Compliance requirements.

          (s) If Participating Interests are adjusted in accordance with this Agreement the Manager shall propose from time to time one or more methods for fair pro rata allocation of costs for Continuing Obligations.

          (t) The Manager shall undertake all other activities reasonably necessary to fulfill the foregoing, and to implement the policies, objectives, procedures, methods and actions determined by the Management Committee pursuant to Section 7.1.

     8.3 Standard of Care. The Manager shall discharge its duties under Section 8.2 and conduct all Operations in a good, workmanlike and efficient manner, in accordance with sound mining and other applicable industry standards and practices, and in accordance with Laws and with the terms and provisions of leases, licenses, permits, contracts and other agreements pertaining to the Assets. Without limiting the generality of the foregoing, all statements, reports or compilations of factual, financial or other data, and summaries of such data presented by Manager to the Management Committee shall be prepared to at least the level of detail, care and attention as those statements, reports or compilations prepared by the Manager Participant for its own use. The Manager shall not be liable to the other Participant for any act or omission resulting in damage or loss except to the extent caused by or attributable to the Manager’s willful misconduct or gross negligence. The Manager shall not be in default of any of its duties under Section 8.2 if its inability or failure to perform results from the failure of the other Participant to perform acts or to contribute amounts required of it by this Agreement.

     8.4 Resignation; Deemed Offer to Resign. The Manager may resign upon not less than six (6) months’ prior notice to the other Participant, in which case the other Participant may elect to become the new Manager by notice to the resigning Participant within sixty (60) days after receipt of the notice of resignation. The Manager shall be deemed to have resigned upon the occurrence of the event described in each of the following Subsections, with the other Participant to appoint itself or a third party as the successor Manager at a subsequently called meeting of the Management Committee, at which the Manager shall not be entitled to vote.

          (a) The aggregate Participating Interest of the other Participant and its Affiliates becomes greater than fifty percent (50%);

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          (b) Except for conditions of Force Majeure, the Manager fails to perform a material obligation imposed upon it under this Agreement and such failure continues for a period of sixty (60) days after notice from the other Participant demanding performance;

          (c) The Manager fails to pay or contest in good faith its bills and Business debts as such obligations become due;

          (d) A receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for a substantial part of its assets is appointed and such appointment is neither made ineffective nor discharged within sixty (60) days after the making thereof, or such appointment is consented to, requested by, or acquiesced in by the Manager;

          (e) The Manager commences a voluntary case under any applicable bankruptcy, insolvency or similar law now or hereafter in effect; or consents to the entry of an order for relief in an involuntary case under any such law or to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or other similar official of any substantial part of its assets; or makes a general assignment for the benefit of creditors; or takes corporate or other action in furtherance of any of the foregoing; or

          (f) Entry is made against the Manager of a judgment, decree or order for relief affecting its ability to serve as Manager, or a substantial part of its Participating Interest or its other assets by a court of competent jurisdiction in an involuntary case commenced under any applicable bankruptcy, insolvency or other similar law of any jurisdiction now or hereafter in effect.

Under Subsections (d), (e) or (f) above, the appointment of a successor Manager shall be deemed to pre-date the event causing a deemed resignation.

     8.5 Payments To Manager. The Manager shall be compensated for its services and reimbursed for its costs hereunder in accordance with Exhibit B. Unanimous consent of both Participants is required to increase the Administrative Charge, described in Paragraph 2.13 of Exhibit B, due Manager under this Agreement. Except as specifically set out in this Agreement including Exhibit B or agreed to by unanimous consent of both Participants, the Manager may not collect additional costs, expenses, fees, charges, or other disbursements from the Business Account.

     8.6 Transactions With Affiliates. If the Manager engages Affiliates to provide services hereunder, it shall do so on terms no less favorable than would be the case in arm’s-length transactions with unrelated persons.

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     8.7 Activities During Deadlock. If the Management Committee for any reason fails to adopt a proposed Program or Budget, the Manager shall continue Operations at levels sufficient to maintain the then current Operations and Properties. Additionally, if Mining has already been established, the Manager shall continue Mining Operations at a level comparable with the last adopted Mining Program and Budget exclusive of capital items. All of the foregoing shall be subject to the contrary direction of the Management Committee and the receipt of necessary funds.

ARTICLE IX
PROGRAMS AND BUDGETS

     9.1 Initial Program and Budget. The Initial Program and Budget to which both Participants have agreed is hereby adopted and is attached as Exhibit F.

     9.2 Operations Pursuant to Programs and Budgets. Except as otherwise provided in Subsection 5.1(e), Section 9.13, and Article XIII, Operations shall be conducted, expenses shall be incurred, and Assets shall be acquired only pursuant to adopted Programs and Budgets. Every Program and Budget adopted pursuant to this Agreement shall provide for cash accrual of reasonably anticipated Environmental Compliance expenses for all Operations contemplated under the Program and Budget in accordance with Paragraph 2.14 of Exhibit B.

     9.3 Presentation of Programs and Budgets. Proposed Programs and Budgets shall be prepared by the Manager to encompass a period of one (1) year or any other period and broken out by quarterly periods as approved by the Management Committee, and shall be submitted to the Management Committee for review and consideration. All proposed Programs and Budgets may include Exploration, Pre-Feasibility Studies, Feasibility Study, Development, Mining and Expansion or Modification Operations components, or any combination thereof, and shall be reviewed and adopted upon a vote of the Management Committee in accordance with Sections 7.2 and 9.4. Each Program and Budget adopted by the Management Committee, shall be reviewed quarterly at a meeting of the Management Committee. At least three (3) months prior to the expiration of the then current annual Program and Budget, a proposed Program and Budget for the succeeding period shall be submitted to the Management Committee for review and consideration.

     9.4 Review and Adoption of Proposed Programs and Budgets. A Participant shall be deemed to have approved and voted to adopt a proposed Plan and Budget unless it submits in writing to the Management Committee, within thirty (30) days after receipt, its rejection of or proposed modification(s) to any or all of the components of the proposed Plan and Budget. If a Participant timely submits its rejection or proposed

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modification(s) to the Management Committee then the Manager working with the other Participant shall seek for a period of time not to exceed twenty (20) days to develop a complete Program and Budget acceptable to both Participants. The Manager shall then call a Management Committee meeting in accordance with Section 7.3 for purposes of reviewing and voting upon the proposed Program and Budget.

     9.5 Election to Participate.

          (a) By notice to the Management Committee within twenty (20) days after the final vote adopting a Program and Budget, and notwithstanding its vote concerning adoption of a Program and Budget, a Participant may elect to participate in the approved Program and Budget: (i) in proportion to its respective Participating Interest, (ii) in some lesser amount than its respective Participating Interest, (iii) not at all; or (iv) if a Reduced Participant, some greater amount than its Recalculated Participating Interest subject to Subsection 9.5(d). In case of an election under Subsection 9.5(a)(ii) or (iii), its Participating Interest shall be recalculated as provided in Subsection 9.5(b) below, with dilution effective as of the first day of the Program Period for the adopted Program and Budget. If a Participant fails to so notify the Management Committee of the extent to which it elects to participate, the Participant shall be deemed to have elected to contribute to such Program and Budget in proportion to its respective Participating Interest as of the beginning of the Program Period.

          (b) If a Participant elects to contribute to an adopted Program and Budget some lesser amount than in proportion to its respective Participating Interest, or not at all, and the other Participant elects to fund all or any portion of the deficiency, the Participating Interest of the Reduced Participant shall be provisionally recalculated by dividing: (A) the sum of (1) the amount credited to the Reduced Participant’s Equity Account with respect to its Initial Contribution under Section 5.1, (2) the total of all of the Reduced Participant’s contributions under Section 5.3, and (3) the amount, if any, the Reduced Participant elects to contribute to the adopted Program and Budget; by (B) the sum of (1), (2) and (3) above for both Participants; and then multiplying the result by one hundred. The Participating Interest of the other Participant shall be increased by the amount of the reduction in the Participating Interest of the Reduced Participant, and if the other Participant elects not to fund the entire deficiency, the Manager shall adjust the Program and Budget to reflect the funds available.

          (c) Whenever the Participating Interests are recalculated pursuant to this Section 9.5, (i) the Equity Accounts of both Participants shall be revised to bear the same ratio to each other as their recalculated Participating Interests; and (ii) the portion of Capital Account attributable to the reduced Participating Interest of the Reduced Participant shall be transferred to the other Participant.

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          (d) Until such time as a Reduced Participant’s Recalculated Participating Interest drops to less than fifteen percent (15%) and is converted to a Production Royalty in accordance with Section 6.3, a Reduced Participant may elect to restore its diluted Participating Interest by participating in an approved Program and Budget in an amount greater than in proportion to its Recalculated Participating Interest. At such time as the Reduced Participant has (i) funded its share of the current Program and Budget at least in proportion to its current Recalculated Participating Interest, as well as (ii) contributed funds to the Business Account equal to one hundred fifty percent (150%) or more of the amount the Reduced Participant should have contributed to any prior Program and Budget in order to maintain its Participating Interest in effect on the first day of the Program Period for such Program and Budget, the Reduced Participant’s Participating Interest shall be recalculated in accordance with Subsection 9.5(b) and shall be effective in accordance with Subsection 9.6(d).

     9.6 Recalculation or Restoration of Reduced Interest Based on Actual Expenditures.

          (a) If a Participant makes an election under Subsection 9.5(a)(ii) or (iii), then within thirty (30) days after the conclusion of such Program and Budget, the Manager shall report the total amount of money expended plus the total obligations incurred by the Manager for such Budget.

          (b) If the Manager expended or incurred obligations that were more or less than the adopted Budget, the Participating Interests shall be recalculated pursuant to Subsection 9.5(b) by substituting each Participant’s actual contribution to the adopted Budget for that Participant’s estimated contribution at the time of the Reduced Participant’s election under Subsection 9.5(a). Such recalculation shall take into account any payments or contributions made by a Reduced Participant pursuant to Subsection 9.5(d).

          (c) If the Manager expended or incurred obligations of less than eighty percent (80%) of the adopted Budget, within twenty (20) days of receiving the Manager’s report on expenditures, the Reduced Participant may reimburse the other Participant for the difference between any amount contributed by the Reduced Participant to such adopted Program and Budget and the Reduced Participant’s proportionate share (at the Reduced Participant’s former Participating Interest) of the actual amount expended or incurred for the Program, plus interest on the difference accruing at the rate described in Section 10.3 plus three (3) percentage points. Failure of the Reduced Participant to timely reimburse shall result in dilution occurring in accordance with this Article IX and shall bar the Reduced Participant from its rights under this Subsection 9.6(c) concerning the relevant adopted Program and Budget.

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          (d) All recalculations under this Article IX shall be effective as of the first day of the Program Period for the Program and Budget. The Manager, on behalf of both Participants, shall make such adjustments so that, to the extent possible, each Participant will be placed in the position it would have been in had its Participating Interests as recalculated under this Section been in effect as of the first day of the Program Period for such Program and Budget. If the Participants are required to make contributions, reimbursements or other adjustments pursuant to this Section, the Manager shall have the right to purchase or sell a Participant’s share of Products in the same manner as under Section 11.2 and to apply the proceeds of such sale to satisfy that Participant’s obligation to make such contributions, reimbursements or adjustments.

          (e) Whenever the Participating Interests are recalculated pursuant to this Section, (i) the Participants’ Equity Accounts shall be revised to bear the same ratio to each other as their Recalculated Participating Interests; and (ii) the portion of Capital Account attributable to the reduced Participating Interest of the Reduced Participant shall be transferred to the other Participant.

     9.7 Pre-Feasibility Study Program and Budgets.

          (a) At such time as either Participant is of the good faith and reasonable opinion that economically viable Mining Operations may be possible on the Properties, the Participant may propose by written notice to the other Participant that a Pre-Feasibility Study Program and Budget component be prepared. Such proposal shall reference the data upon which the proposing Participant bases its opinion, and shall call a meeting of the Management Committee pursuant to Section 7.3. If such proposal is adopted by the Management Committee, the Manager shall cause to have prepared a Pre- Feasibility Study Program and Budget component as approved by the Management Committee and shall submit the same to the Management Committee within thirty (30) days following adoption of the proposal.

          (b) Pre-Feasibility Studies may be conducted by the Manager, Feasibility Contractors, or both, or may be conducted by the Manager and audited by Feasibility Contractors, as the Management Committee determines. A Pre-Feasibility Study Program shall include the work approved in the proposal adopted by the Management Committee, which may include some or all of the following:

               (i) analyses of various alternatives for mining, processing and treating of Products;

               (ii) analyses of alternative rates of mining, processing and treating of Products;

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               (iii) analyses of alternative sites for placement of facilities (i.e., water supply facilities, transport facilities, reagent storage, offices, shops, warehouses, stock yards, explosives storage, handling facilities, housing, public facilities);

               (iv) analyses of alternatives for waste treatment and handling (including a description of each alternative of the method of tailings disposal and the location of the proposed disposal site);

               (v) estimates of recoverable proven and probable reserves of Products and of related substances, in terms of technical and economic constraints (extraction and treatment of Products), including the effect of grade, losses, and impurities, and the estimated mineral composition and content thereof, and review of mining rates commensurate with such reserves;

               (vi) analyses of environmental impacts of the various alternatives, including an analysis of the permitting, environmental liability and other Environmental Law implications of each alternative, and costs of Environmental Compliance for each alternative;

               (vii) tests to determine the efficiency of alternative extraction, recovery and processing techniques, including an estimate of water, power, and reagent consumption requirements;

               (viii) hydrologic studies related to any required use of water or dewatering; and

               (ix) other studies and analyses approved by the Management Committee.

          (c) If data results reasonably support a conclusion that further work would be unwarranted for a particular alternative, the Manager shall have no obligation to continue expenditures on other Pre-Feasibility Studies related solely to such alternative.

     9.8 Completion of Pre-Feasibility Studies and Selection of Approved Alternatives. As soon as reasonably practical following completion of all Pre-Feasibility Studies required to evaluate fully the alternatives studied, the Manager shall prepare a report summarizing all Pre-Feasibility Studies and shall submit the same to the Management Committee. Such report shall incorporate the following:

          (a) the results of the analyses of the alternatives and other matters evaluated by the Pre-Feasibility Programs;

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          (b) reasonable estimates of capital costs for the Development and start-up of the facilities required by the Development and Mining alternatives evaluated (based on flowsheets, piping and instrumentation diagrams, and other major engineering diagrams), which cost estimates shall include reasonable estimates of:

               (i) capitalized pre-stripping expenditures, if an open pit or surface mine is proposed;

               (ii) expenditures required to purchase, construct and install all machinery, equipment and other facilities and infrastructure (including contingencies) required to bring a mine into commercial production, including an analysis of costs of equipment or supply contracts in lieu of Development costs for each Development and Mining alternative evaluated;

               (iii) expenditures required to perform all other related work required to commence commercial production of Products and, if applicable, process Products (including reasonable estimates of working capital requirements); and

               (iv) all other direct and indirect costs and general and administrative expenses that may be required for a proper evaluation of the Development and Mining alternatives and annual production levels evaluated. The capital cost estimates shall include a schedule of the timing of the estimated capital requirements for each alternative;

          (c) a reasonable estimate of the monthly expenditures required for the first year of Operations after completion of the capital program described in Subsection 9.8(b) for each Development alternative evaluated, and for subsequent quarters of Operations, including estimates of annual production, processing, administrative, operating and maintenance expenditures, taxes (other than income taxes), working capital requirements, royalty and purchase obligations, equipment leasing or supply contract expenditures, work commitments, Environmental Compliance costs, post- Operations Environmental Compliance and Continuing Obligations funding requirements and all other anticipated costs of such Operations. This analysis shall also include an estimate of the number of workers required to conduct such Operations for each alternative;

          (d) a review of the nature, extent and rated capacity of the mine, machinery, equipment and other facilities preliminarily estimated to be required for the purpose of producing and marketing Products under each Development and Mining alternative analyzed;

          (e) an analysis (and sensitivity analyses reasonably requested by either Participant), based on various target rates of return and price assumptions requested

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by either Participant, of whether it is technically, environmentally, and economically feasible to place a prospective ore body or deposit within the Properties into commercial production for each of the Development and Mining alternatives analyzed (including a discounted cash flow rate of return investment analysis for each alternative and net present value estimate using various discount rates requested by either Participant); and

          (f) such other information as the Management Committee deems appropriate.

Within sixty (60) days after delivery of the Pre-Feasibility Study summary to the Participants, a Management Committee meeting shall be convened for the purposes of reviewing the Pre-Feasibility Study summary and selecting one or more Approved Alternatives, if any.

     9.9 Programs and Budgets for Feasibility Study. Within ninety (90) days following the selection of an Approved Alternative, the Manager shall submit to the Management Committee a Program and a Budget component, which shall include necessary Operations, for the preparation of a Feasibility Study. A Feasibility Study shall be prepared by Feasibility Contractors.

     9.10 Development Programs and Budgets; Project Financing.

          (a) Unless otherwise determined by the Management Committee, the Manager shall not submit to the Management Committee a Program and Budget component including Development of the mine described in a completed Feasibility Study until ninety (90) days following the receipt by Manager of a favorable Feasibility Study. The Program and Budget, which includes Development of the mine described in the completed Feasibility Study, shall be based on the estimated cost of Development described in the Feasibility Study for the Approved Alternative, unless otherwise directed by the Management Committee.

          (b) Promptly following adoption of the Program and Budget, which includes Development as described in a completed Feasibility Study the Manager shall submit to the Management Committee a report on material bids received for Development work (“Bid Report”). If bids described in the Bid Report result in the aggregate cost of Development work exceeding one hundred twenty percent (120%) of the Development cost estimates that formed the basis of the Development component of the adopted Program and Budget, the Program and Budget, which includes relevant Development, shall be deemed to have been resubmitted to the Management Committee based on the aggregate costs as described in the Bid Report on the date of receipt of the Bid Report and shall be reviewed and adopted in accordance with Sections 7.2 and 9.4.

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          (c) If the Management Committee approves the Development of the mine described in a Feasibility Study and also decides to seek Project Financing for such mine, each Participant shall, at its own cost, cooperate in seeking to obtain Project Financing for such mine; provided, however, that all fees, charges and costs (including attorneys and technical consultants fees) paid to the Project Financing lenders shall be borne by the Participants in proportion to their Participating Interests, unless such fees are capitalized as a part of the Project Financing.

     9.11 Expansion or Modification Programs and Budgets. Any Program and Budget proposed by the Manager involving Expansion or Modification shall be based on a Feasibility Study prepared by the Manager, Feasibility Contractors, or both, or prepared by the Manager and audited by Feasibility Contractors, as the Management Committee determines. The Program and Budget, which include Expansion or Modification, shall be submitted for review and approval by the Management Committee within ninety (90) days following receipt by the Manager of such Feasibility Study.

     9.12 Budget Overruns; Program Changes. For Programs and Budgets adopted after completion of Horizon’s Initial Contribution, the Manager shall immediately notify the Management Committee of any material departure from an adopted Program and Budget. If the Manager exceeds an adopted Budget by more than twenty percent (20%) in the aggregate, then the excess over ten percent (10%), except to the extent caused by a Force Majeure condition, emergency or unexpected expenditure made pursuant to Section 9.13 or unless otherwise authorized or ratified by the Management Committee, shall be for the sole account of the Manager and such excess shall not be included in the calculations of the Participating Interests nor deemed a contribution under this Agreement. Budget overruns of twenty percent (20%) or less in the aggregate shall be borne by the Participants in proportion to their respective Participating Interests.

     9.13 Emergency or Unexpected Expenditures. In case of emergency, the Manager may take any reasonable action it deems necessary to protect life or property, to protect the Assets or to comply with Laws. The Manager may make reasonable expenditures on behalf of the Participants for unexpected events that are beyond its reasonable control and that do not result from a breach by it of its standard of care. The Manager shall promptly notify the Participants of the emergency or unexpected expenditure, and the Manager shall be reimbursed for all resulting costs by the Participants in proportion to their respective Participating Interests.

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ARTICLE X
ACCOUNTS AND SETTLEMENTS

     10.1 Monthly Statements. The Manager shall promptly submit to the Management Committee monthly statements of account reflecting in reasonable detail the charges and credits to the Business Account during the preceding month in accordance with Section 8.3.

     10.2 Cash Calls. Following Horizon’s Initial Contribution under Subsection 5.1(b) and any Additional Contribution(s) it elects under Section 5.3, on the basis of each adopted Program and Budget, the Manager shall submit prior to the last day of each month a billing for estimated cash requirements for the next month. Within ten (10) days after receipt of each billing, or a billing made pursuant to Section 9.13 or 12.4, each Participant shall advance its proportionate share of such cash requirements. The Manager shall record all funds received in the Business Account. All funds received from a Participant in excess of the Participant’s pro rata cash requirement or other funding commitment under this Agreement, or in excess of actual Program expenditures shall be credited towards the Participant’s future pro rata cash requirement or other funding commitment. The Manager shall at all times maintain a cash balance approximately equal to the rate of disbursement for up to ninety (90) days. All funds in excess of immediate cash requirements shall be invested by the Manager for the benefit of the Business in cash management accounts and investments selected at the discretion of the Manager, which accounts may include, but are not limited to, money market investments and money market funds.

     10.3 Failure to Meet Cash Calls. A Participant that fails to meet cash calls in the amount and at the times specified in Section 10.2 shall be in default, and the amounts of the defaulted cash call shall bear interest from the date due at an annual rate equal to two (2) percentage points over the Prime Rate, but in no event shall the rate of interest exceed the maximum permitted by Law. Such interest shall accrue to the benefit of and be payable to the non-defaulting Participant, but shall not be deemed as amounts contributed by the non-defaulting Participant in the event dilution occurs in accordance with Article VI. In addition to any other rights and remedies available to it by Law, the non-defaulting Participant shall have those other rights, remedies, and elections specified in Sections 10.4 and 10.5.

     10.4 Cover Payment. If a Participant defaults in making a contribution or cash call required by an adopted Program and Budget, the non-defaulting Participant may, but shall not be obligated to, advance some portion or all of the amount in default on behalf of the defaulting Participant (a “Cover Payment”). Each and every Cover Payment shall constitute a demand loan bearing interest from the date of the advance at the rate provided in Section 10.3. If more than one Cover Payment is made, the Cover Payments shall be aggregated and the rights and remedies described herein pertaining to an

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individual Cover Payment shall apply to the aggregated Cover Payments. The failure to repay such loan upon demand shall be a default.

     10.5 Remedies. The Participants acknowledge that if either Participant defaults in making a contribution required by Article V or a cash call, or in repaying a loan, as required under Sections 10.2, 10.3 or 10.4, whether or not a Cover Payment is made, it will be difficult to measure the damages resulting from such default (it being hereby understood and agreed that the Participants have attempted to determine such damages in advance and determined that the calculation of such damages cannot be ascertained with reasonable certainty). Both Participants acknowledge and recognize that the damage to the non-defaulting Participant could be significant. In the event of such default, as reasonable liquidated damages, the non-defaulting Participant may, with respect to any such default not cured within thirty (30) days after notice to the defaulting Participant of such default, elect any of the following remedies by giving notice to the defaulting Participant. Such election may be made with respect to each failure to meet a cash call relating to a Program and Budget, regardless of the frequency of such cash calls, provided such cash calls are made in accordance with Section 10.2.

          (a) The defaulting Participant grants to the non-defaulting Participant a power of sale as to all or any portion of its interest in any Assets or in its Participating Interest that is subject to the lien and security interest granted in Section 6.6 (whether or not such lien and security interest has been perfected), upon a default under Sections 10.3 or 10.4. Such power shall be exercised in the manner provided by applicable Law or otherwise in a commercially reasonable manner and upon reasonable notice. If the non-defaulting Participant elects to enforce the lien or security interest pursuant to the terms of this Subsection, the defaulting Participant shall be deemed to have waived any available right of redemption, any required valuation or appraisal of the secured property prior to sale, any available right to stay execution or to require a marshaling of assets, and any required bond in the event a receiver is appointed, and the defaulting Participant shall be liable for any deficiency.

          (b) The non-defaulting Participant may elect to have the defaulting Participant’s Participating Interest diluted or eliminated. The Reduced Participant’s Participating Interest shall be recalculated by dividing: (X) the sum of (1) the value of the Reduced Participant’s Initial Contribution under Section 5.1, (2) the total of all of the Reduced Participant’s contributions under Section 5.3, and (3) the amount, if any, the Reduced Participant contributed to the adopted Program and Budget with respect to which the default occurred; by (Y) the sum of (1), (2) and (3) above for both Participants; and then multiplying the result by one hundred. Dilution under this Subsection 10.5(b) shall be effective as of the date of the original default, and Section 9.6 shall not apply. The amount of any Cover Payment under Section 10.4 and interest thereon, or any interest accrued in accordance with Section 10.3, shall be deemed to be amounts contributed by the non-defaulting Participant, and not as amounts contributed by the defaulting Participant.

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Whenever the Participating Interests are recalculated pursuant to this Subsection 10.5(b), (A) the Equity Accounts of both Participants shall be adjusted to bear the same ratio to each other as their recalculated Participating Interests; and (B) the portion of Capital Account attributable to the reduced Participating Interest of the Reduced Participant shall be transferred to the other Participant.

     10.6 Audits.

          (a) After completion of Horizon’s Initial Contribution, within six (6) months after the end of each calendar year, at the request of a Participant, an audit shall be completed by certified public accountants who are independent of the Manager and reasonably acceptable to both Participants. The audit shall be conducted in accordance with generally accepted auditing standards and shall cover all books and records maintained by the Manager pursuant to this Agreement, all Assets and Encumbrances, and all transactions and Operations conducted during such calendar year, including production and inventory records and all costs for which the Manager sought reimbursement under this Agreement, together with all other matters customarily included in such audits. All written exceptions to and claims upon the Manager for discrepancies disclosed by such audit shall be made not more than three (3) months after receipt of the audit report, unless either Participant elects to conduct an independent audit pursuant to Subsection 10.6(b) which is ongoing at the end of such three (3) month period, in which case such exceptions and claims may be made within the period provided in Subsection 10.6(b). Failure to make any such exception or claim within such period shall mean the audit is deemed to be correct and binding upon the Participants. The cost of all audits under this Subsection shall be charged to the Business Account.

          (b) Notwithstanding the annual audit conducted by certified public accountants selected by the Manager, each Participant shall have the right to have an independent audit of all Business books, records and accounts, including all charges to the Business Account. This audit shall review all issues raised by the requesting Participant, with all costs borne by the requesting Participant. The requesting Participant shall give the other Participant thirty (30) days prior notice of such audit. Any audit conducted on behalf of either Participant shall be made during the Manager’s normal business hours and shall not interfere with Operations. Neither Participant shall have the right to audit records and accounts of the Business relating to transactions or Operations more than twenty-four (24) months after the calendar year during which such transactions, or transactions related to such Operations, were charged to the Business Account. All written exceptions to and claims upon the Manager for discrepancies disclosed by such audit shall be made not more than three (3) months after completion and delivery of such audit, or they shall be deemed waived.

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ARTICLE XI
DISPOSITION OF PRODUCTION

     11.1 Taking In Kind. Each Participant shall take in kind or separately dispose of its share of all Products in proportion to its Participating Interest. Any extra expenditure incurred in the taking in kind or separate disposition by either Participant of its proportionate share of Products shall be borne by such Participant. Nothing in this Agreement shall be construed as providing, directly or indirectly, for any joint or cooperative marketing or selling of Products or permitting the processing of Products owned by any third party at any processing facilities constructed by the Participants pursuant to this Agreement. The Manager shall give notice in advance of the anticipated delivery date upon which Products will be available. Each Participant agrees to report promptly to the Manager the prices it receives for its share of Products to enable the Manager to pay taxes, royalties and other payments due third parties on a weighted average basis.

     11.2 Delegation of Authority to Sell Products Taken In Kind. Unless Participant expressly notifies the Manager that the Participant will sell its share of Products, a Participant will be deemed to have authorized the Manager to sell Participant’s share of Products taken in kind for Producer’s account and the Manager shall have the right, but not the obligation, for a period of time consistent with the minimum needs of the industry, but not to exceed one (1) year from the notice date described in Section 11.1, to purchase the Participant’s share for its own account or to sell such share as agent for the Participant at not less than the prevailing market price in the area. Subject to the terms of any such contracts of sale then outstanding, during any period that the Manager is purchasing or selling a Participant’s share of production, the Participant may elect by notice to the Manager to terminate its delegation of authority and sell all or part of its share of Products taken in kind. The Manager shall be entitled to deduct from proceeds of any sale by it for the account of a Participant reasonable expenses incurred in such a sale.

     11.3 Hedging. Neither Participant shall have any obligation to account to the other Participant for, nor have any interest or right of participation in any profits or proceeds nor have any obligation to share in any losses from, futures contracts, forward sales, trading in puts, calls, options or any similar hedging, price protection or marketing mechanism employed by a Participant with respect to its proportionate share of any Products produced or to be produced from the Properties.

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ARTICLE XII
WITHDRAWAL AND TERMINATION

     12.1 Termination by Expiration or Agreement. This Agreement shall terminate as expressly provided in Section 2.5, unless earlier terminated by written agreement.

     12.2 Termination by Deadlock. If the Management Committee fails to adopt a Program and Budget within twelve (12) months after the expiration of the latest adopted Program and Budget, either Participant may elect to terminate the Business by giving sixty (60) days notice of termination to the other Participant.

     12.3 Withdrawal. Horizon shall be deemed to have withdrawn from the Business if it fails to complete its Initial Contributions as required by Subsection 5.1(b). Either Participant may withdraw from the Business by giving notice to the other Participant of the effective date of withdrawal, which shall be the later of the end of the then current Program Period or thirty (30) days after the date of the notice. Upon such withdrawal, the Business shall terminate, and the withdrawing Participant shall be deemed to have transferred to the remaining Participant all of its Participating Interest, including all of its interest in the Assets, without cost and free and clear of all Encumbrances arising by, through or under such withdrawing Participant, except those described in Paragraph 1.1 of Exhibit A and those to which both Participants have agreed. The withdrawing Participant shall execute and deliver all instruments as may be necessary in the reasonable judgment of the other Participant to effect the transfer of its interests in the Assets to the other Participant. If within a sixty (60) day period both Participants elect to withdraw, then the Business shall instead be deemed to have been terminated by the consent of the Participants pursuant to Section 12.1.

     12.4 Continuing Obligations and Environmental Liabilities. On termination of the Business under Sections 12.1, 12.2 or 12.3, each Participant shall remain liable for its respective share of liabilities to third persons (whether such arises before or after such withdrawal), including Environmental Liabilities and Continuing Obligations. The withdrawing Participant’s share of such liabilities shall be equal to its Participating Interest at the time such liability was incurred, after first taking into account any reduction, readjustment, and restoration of Participating Interests under Sections 6.3, 9.5, 9.6 and 10.5 (or, as to liabilities arising prior to the Effective Date, its initial Participating Interest).

     12.5 Disposition of Assets on Termination. Promptly after termination under Sections 12.1 or 12.2, the Manager shall take all action necessary to wind up the activities of the Business, in accordance with Exhibit C. All costs and expenses incurred in connection with the termination of the Business shall be expenses chargeable to the Business Account.

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     12.6 Non-Compete Covenants. Neither a Participant that withdraws pursuant to Section 12.3, or is deemed to have withdrawn pursuant to Sections 5.2, 6.3 or 10.5, nor any Affiliate of such a Participant, shall directly or indirectly acquire any interest or right to explore or mine, or both, on any property any part of which is within the Area of Interest for twelve (12) months after the effective date of withdrawal. If a withdrawing Participant, or the Affiliate of a withdrawing Participant, breaches this Section 12.6, such Participant shall be obligated to offer to convey to the non-withdrawing Participant, without cost, any such property or interest so acquired (or ensure its Affiliate offers to convey the property or interest to the non-withdrawing Participant, if the acquiring party is the withdrawing Participant’s Affiliate). Such offer shall be made in writing and can be accepted by the non-withdrawing Participant at any time within ten (10) days after the offer is received by such non-withdrawing Participant. Failure of a Participant’s Affiliate to comply with this Section 12.6 shall be a breach by such Participant of this Agreement.

     12.7 Right to Data After Termination. After termination of the Business pursuant to Sections 12.1 or 12.2, each Participant shall be entitled to make copies of all applicable information acquired hereunder before the effective date of termination not previously furnished to it, but a terminating or withdrawing Participant shall not be entitled to any such copies after any other termination or withdrawal.

     12.8 Continuing Authority. On termination of the Business under Sections 12.1, 12.2 or 12.3 or the deemed withdrawal of either Participant pursuant to Sections 5.2 or 10.5, the Participant which was the Manager prior to such termination or withdrawal (or the other Participant in the event of a withdrawal by the Manager) shall have the power and authority to do all things on behalf of both Participants which are reasonably necessary or convenient to: (a) wind up Operations and (b) complete any transaction and satisfy any obligation, unfinished or unsatisfied, at the time of such termination or withdrawal, if the transaction or obligation arises out of Operations prior to such termination or withdrawal. The Manager shall have the power and authority to grant or receive extensions of time or change the method of payment of an already existing liability or obligation, prosecute and defend actions on behalf of both Participants and the Business, encumber Assets, and take any other reasonable action in any matter with respect to which the former Participants continue to have, or appear or are alleged to have, a common interest or a common liability.

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ARTICLE XIII
ACQUISITIONS WITHIN AREA OF INTEREST

     13.1 General. Any interest or right to acquire any interest in real property or water rights related thereto within the Area of Interest either acquired or proposed to be acquired during the term of this Agreement by or on behalf of either Participant (“Acquiring Participant”) or any Affiliate of such Participant shall be subject to the terms and provisions of this Agreement. Canyon and Horizon and their respective Affiliates for their separate account shall be free to acquire lands and interests in lands outside the Area of Interest and to locate mining claims outside the Area of Interest. Failure of any Affiliate of either Participant to comply with this Article XIII shall be a breach by such Participant of this Agreement.

     13.2 Notice to Non-Acquiring Participant. Within thirty (30) days after the acquisition or proposed acquisition, as the case may be, of any interest or the right to acquire any interest in real property or water rights wholly or partially within the Area of Interest (except real property acquired by the Manager pursuant to a Program), the Acquiring Participant shall notify the other Participant of such acquisition by it or its Affiliate; provided further that if the acquisition of any interest or right to acquire any interest pertains to real property or water rights partially within the Area of Interest, then all such real property (i.e., the part within the Area of Interest and the part outside the Area of Interest) shall be subject to this Article XIII. The Acquiring Participant’s notice shall describe in detail the acquisition, the acquiring party if that party is an Affiliate, the lands and minerals covered thereby, any water rights related thereto, the cost thereof, and the reasons why the Acquiring Participant believes that the acquisition (or proposed acquisition) of the interest is in the best interests of the Participants under this Agreement. In addition to such notice, the Acquiring Participant shall make any and all information concerning the relevant interest available for inspection by the other Participant.

     13.3 Option Exercised. Within forty-five (45) days after receiving the Acquiring Participant’s notice, the other Participant may notify the Acquiring Participant of its election to accept a proportionate interest in the acquired interest equal to its Participating Interest. Promptly upon such notice, the Acquiring Participant shall convey or cause its Affiliate to convey to the Participants, in proportion to their respective Participating Interests, by special warranty deed with title held as described in Section 3.4, all of the Acquiring Participant’s (or its Affiliate’s) interest in such acquired interest, free and clear of all Encumbrances arising by, through or under the Acquiring Participant (or its Affiliate) other than those to which both Participants have agreed. The acquired interests shall become a part of the Properties for all purposes of this Agreement immediately upon such notice. The other Participant shall promptly pay to the Acquiring Participant its proportionate share of the latter’s actual out-of-pocket acquisition costs.

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     13.4 Option Not Exercised. If the other Participant does not give such notice within the forty-five (45) day period set forth in Section 13.3, it shall have no interest in the acquired interests, and the acquired interests shall not be a part of the Assets or continue to be subject to this Agreement.

ARTICLE XIV
ABANDONMENT AND SURRENDER OF PROPERTIES

     In accordance with Sections 7.2 and 8.2(i), unanimous consent of both Participants is required to authorize the Manager to surrender or abandon part or all of the Properties. If the Management Committee does not authorize such surrender or abandonment, the Participant that desires to surrender or abandon shall assign to the objecting Participant, by special warranty deed and without cost to the objecting Participant, all of the abandoning Participant’s interest in the Properties sought to be abandoned or surrendered, free and clear of all Encumbrances created by, through, or under the abandoning Participant other than those to which both Participants have agreed. Upon the assignment, such properties shall cease to be part of the Properties. The Participant that desires to abandon or surrender shall remain liable for its share (determined by its Participating Interest as of the date of such abandonment, after first taking into account any reduction, readjustment, and restoration of Participating Interests under Sections 6.3, 9.5, 9.6 and 10.5) of any liability with respect to such Properties, including, without limitation Continuing Obligations, Environmental Liabilities and Environmental Compliance, whether accruing before or after such abandonment, arising out of activities prior to the Effective Date and out of Operations conducted prior to the date of such abandonment, regardless of when any funds may be expended to satisfy such liability.

ARTICLE XV
SUPPLEMENTAL BUSINESS AGREEMENT

     15.1 Supplemental Business Agreement. At any time during the term of this Agreement, the Management Committee may determine by unanimous vote of both Participants after Horizon’s Initial Contribution obligations have been fully satisfied that it is appropriate to segregate the Area of Interest into areas subject to separate Programs and Budgets for purposes of conducting further Exploration, Pre-Feasibility or Feasibility Studies, Development, or Mining. At such time, the Management Committee shall designate which portion of the Properties will comprise an area of interest under a separate business arrangement (“Supplemental Business”), and the Participants shall enter into a new agreement (“Supplemental Business Agreement”) for the purpose of further exploring, analyzing, developing, and mining such portion of the Properties. The Supplemental Business Agreement shall be in substantially the same form as this Agreement, with the Participants agreeing to new Capital and Equity Accounts. Upon its

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execution, the Supplemental Business Agreement shall govern the Properties covered by the Supplemental Business Agreement.

     15.2 Subdivided Area of Interest. Following the completion and delivery of any Pre-Feasibility Study or Feasibility Study, if one Participant desires to proceed with further Studies or Development and the other Participant does not, the Participants agree to take the actions necessary to subdivide or otherwise carve-out the Area of Interest and Business and enter into a Supplemental Business Agreement that will govern the new Supplemental Business in accordance with Section 15.1. Upon the effective date of the Supplemental Business Agreement, the Participants’ initial Participating Interests in the Supplemental Business shall be equal to their then current respective Participating Interests under this Agreement. However, the Participants’ respective Participating Interests shall be recalculated as a Participant contributes a lesser amount than in proportion to its respective Participating Interest consistent with the dilution and Account recalculation mechanisms described in Subsections 9.5(b) and (c). Until such time as a Reduced Participant’s Recalculated Participating Interest drops to less than fifteen percent (15%) and is converted to a Production Royalty in accordance with Section 6.3, a Reduced Participant may take actions to restore its diluted Participating Interest, but only in accordance with Subsection 9.5(d).

ARTICLE XVI
TRANSFER OF INTEREST; PREEMPTIVE RIGHT

     16.1 General. A Participant shall have the right to Transfer to a third party an interest in its Participating Interest, including an interest in this Agreement or the Assets, solely as provided in this Article XVI.

     16.2 Limitations on Free Transferability. Any Transfer by either Participant under Section 16.1 shall be subject to the following limitations:

          (a) Neither Participant shall Transfer any interest in this Agreement or the Assets (including, but not limited to, any royalty, profits, or other interest in the Products) except in conjunction with the Transfer of part or all of its Participating Interest;

          (b) No transferee of all or any part of a Participant’s Participating Interest shall have the rights of a Participant unless and until the transferring Participant has provided to the other Participant notice of the Transfer, and, except as provided in Subsections 16.2(g) and 16.2(h), the transferee, as of the effective date of the Transfer, has committed in writing to assume and be bound by this Agreement to the same extent as the transferring Participant;

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          (c) Neither Participant, without the consent of the other Participant, shall make a Transfer that shall violate any Law, or result in the cancellation of any permits, licenses, or other similar authorization;

          (d) No Transfer permitted by this Article XVI shall relieve the transferring Participant of its share of any liability, whether accruing before or after such Transfer, which arises out of Operations conducted prior to such Transfer or exists on the Effective Date;

          (e) [Intentionally Omitted]

          (f) In the event of a Transfer of less than all of a Participating Interest, the transferring Participant and its transferee shall act and be treated as one Participant by notifying the non-transferring Participant of their designated Agent to act on their behalf with respect to all matters pertaining to this Agreement and the Business. The transferring Participant and its transferee may change the Agent (but such replacement must be one of them) by giving notice to the other Participant. Such notices must conform to Subsection 16.2(f)(ii).

          (g) If the Transfer is the grant of an Encumbrance in a Participating Interest to secure a loan or other indebtedness of either Participant in a bona fide transaction, other than a transaction approved unanimously by the Management Committee or Project Financing approved by the Management Committee, such Encumbrance shall be granted only in connection with such Participant’s financing payment or performance of that Participant’s obligations under this Agreement and shall be subject to the terms of this Agreement and the rights and interests of the other Participant hereunder (including without limitation under Section 6.7). Any such Encumbrance shall be further subject to the condition that the holder of such Encumbrance (“Chargee”) first enter into a written agreement with the other Participant in form satisfactory to the other Participant, acting reasonably, binding upon the Chargee, to the effect that:

               (i) the Chargee shall not enter into possession or institute any proceedings for foreclosure or partition of the encumbering Participant’s Participating Interest and that such Encumbrance shall be subject to the provisions of this Agreement;

               (ii) the Chargee’s remedies under the Encumbrance shall be limited to the sale of the whole (but only of the whole) of the encumbering Participant’s Participating Interest to the other Participant, or, failing such a sale, at a public auction to be held at least ten (10) days after prior notice to the other Participant, such sale to be subject to the purchaser entering into a written agreement with the other Participant whereby such purchaser assumes all obligations of the encumbering Participant under the terms of this Agreement. The price of any preemptive sale to the other Participant shall be

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the remaining principal amount of the loan plus accrued interest and related expenses, and such preemptive sale shall occur within sixty (60) days of the Chargee’s notice to the other Participant of its intent to sell the encumbering Participant’s Participating Interest. Failure of a sale to the other Participant to close by the end of such period, unless failure is caused by the encumbering Participant or by the Chargee, shall permit the Chargee to sell the encumbering Participant’s Participating Interest at a public sale; and

               (iii) the charge shall be subordinate to any then-existing debt, including Project Financing previously approved by the Management Committee, encumbering the transferring Participant’s Participating Interest;

          (h) If a sale or other commitment or disposition of Products or proceeds from the sale of Products by either Participant upon distribution to it pursuant to Article XI creates in a third party a security interest by Encumbrance in Products or proceeds therefrom prior to such distribution, such sales, commitment or disposition shall be subject to the terms and conditions of this Agreement including, without limitation, Section 6.7.

     16.3 Preemptive Right. Any Transfer by either Participant under Section 16.1 and any Transfer by an Affiliate of Control of either Participant shall be subject to a preemptive right of the other Participant as described below.

          (a) If either Participant intends to Transfer all or any part of its Participating Interest, or an Affiliate of either Participant intends to Transfer Control of such Participant (“Transferring Entity”), such Participant shall promptly notify the other Participant of such intent. The notice shall state the price and all other pertinent terms and conditions of the intended Transfer, and shall be accompanied by a copy of the offer or the contract for sale. If the consideration for the intended transfer is, in whole or in part, other than monetary, the notice shall describe such consideration and its monetary equivalent (based upon the fair market value of the non-monetary consideration and stated in terms of cash or currency).

          (b) The other Participant shall have ninety (90) days from the date such notice is received to notify the Transferring Entity whether it elects to acquire the offered interest at the same price (or its monetary equivalent in cash or currency) and on the same terms and conditions as set forth in the notice. If it does so elect, the acquisition by the other Participant shall be consummated promptly after notice of such election is delivered.

          (c) If the other Participant fails to so elect within the period provided for above, the Transferring Entity shall have one hundred eighty (180) days following the expiration of such period to consummate the Transfer to the third party at a price and on terms no less favorable to the Transferring Entity than those offered. If the Transferring

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Entity fails to consummate the Transfer to a third party within the period set forth above, the preemptive right of the other Participant in such offered interest shall be deemed to be revived. Any subsequent proposal to Transfer such interest shall be conducted in accordance with all of the procedures set forth in this Subsection.

          (d) These procedures shall not apply to the following:

               (i) Transfer by either Participant of all or any part of its Participating Interest to an Affiliate; pursuant to an incorporation, or corporate consolidation or reorganization of a Participant by which the surviving entity shall possess substantially all of the stock or all of the property rights and interests, and be subject to substantially all of the liabilities and obligations of that Participant; or corporate merger or amalgamation by which the surviving entity or amalgamated company shall possess all of the stock or all of the property rights and interests, and be subject to substantially all of the liabilities and obligations of that Participant.

               (ii) Subject to Subsection 16.2(g) of the Agreement, the grant by either Participant of a security interest in its Participating Interest by Encumbrance.

               (iii) the creation by any Affiliate of either Participant of an Encumbrance affecting its Control of such Participant.

               (iv) a sale or other commitment or disposition of Products or proceeds from sale of Products by either Participant upon distribution to it pursuant to Article XI of the Agreement.

          (e) Failure of a Participant’s Affiliate to comply with this Article XVI shall be a breach by such Participant of this Agreement.

ARTICLE XVII
DISPUTES

     17.1 Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Colorado, without regard for any conflict of laws or choice of laws principles that would permit or require the application of the laws of any other jurisdiction.

     17.2 Venue. The Participants agree that the location for any arbitration proceeding shall be Golden, Colorado.

     17.3 Alternative Dispute Resolution. The Participants prefer to attempt to settle and resolve any controversy or claim relating to this Agreement informally

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through good faith face to face negotiations between executive representatives of each Participant having the authority to settle. The Participants’ representatives agree to meet within sixty (60) days of a Participant’s written notice to the other of a dispute requiring resolution. If the Participants have not reached a mutually agreeable resolution to such dispute within thirty (30) days of the meeting, either Participant may seek resolution via binding arbitration pursuant to the American Arbitration Association rules of arbitration.

     17.4 Fees and Costs. All disputes arising under or in connection with this Agreement which cannot be resolved by agreement between the Participants shall be resolved in accordance with applicable Law. If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, the successful or substantially prevailing Participant shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled.

ARTICLE XVIII
CONFIDENTIALITY, OWNERSHIP, USE AND DISCLOSURE OF INFORMATION

     18.1 Business Information. All Business Information shall be owned jointly by the Participants as their Participating Interests are determined pursuant to this Agreement. Except as provided in Sections 18.3 and 18.4, or with the prior written consent of the other Participant, each Participant shall keep confidential and not disclose to any third party or the public any portion of the Business Information that constitutes Confidential Information.

     18.2 Participant Information. In performing its obligations under this Agreement, neither Participant shall be obligated to disclose any Participant Information. If a Participant elects to disclose Participant Information in performing its obligations under this Agreement, such Participant Information, together with all improvements, enhancements, refinements and incremental additions to such Participant Information that are developed, conceived, originated or obtained by either Participant in performing its obligations under this Agreement (“Enhancements”), shall be owned exclusively by the Participant that originally developed, conceived, originated or obtained such Participant Information. Each Participant may use and enjoy the benefits of such Participant Information and Enhancements in the conduct of the Business hereunder, but the Participant that did not originally develop, conceive, originate or obtain such Participant Information may not use such Participant Information and Enhancements for any other purpose. Except as provided in Section 18.4, or with the prior written consent of the other Participant, which consent may be withheld in such Participant’s sole discretion, each Participant shall keep confidential and not disclose to any third party or the public any

45

portion of Participant Information and Enhancements owned by the other Participant that constitutes Confidential Information.

     18.3 Permitted Disclosure of Confidential Business Information. Either Participant may disclose Business Information that is Confidential Information: (a) to a Participant’s officers, directors, partners, members, employees, Affiliates, shareholders, agents, attorneys, accountants, consultants, contractors, subcontractors or advisors, for the sole purpose of such Participant’s performance of its obligations under this Agreement; (b) to any bona fide potential transferee to whom the disclosing Participant contemplates a Transfer of all or any part of its Participating Interest, for the sole purpose of evaluating the proposed Transfer; (c) to any actual or potential lender, underwriter or investor for the sole purpose of evaluating whether to make a loan to or investment in the disclosing Participant; or (d) to a third party with whom the disclosing Participant contemplates any independent business activity or operation.

          The Participant disclosing Confidential Information pursuant to this Section 18.3, shall disclose such Confidential Information to only those parties who have a bona fide need to have access to such Confidential Information for the purpose for which disclosure to such parties is permitted under this Section 18.3 and who have agreed in writing supplied to, and enforceable by, the other Participant to protect the Confidential Information from further disclosure, to use such Confidential Information solely for such purpose and to otherwise be bound by the provisions of this Article XVIII. Such writing shall not preclude parties described in Subsection 18.3(b) from discussing and completing a Transfer with the other Participant. The Participant disclosing Confidential Information shall be responsible and liable for any use or disclosure of the Confidential Information by such parties in violation of this Agreement and such other writing.

     18.4 Disclosure Required By Law. Notwithstanding anything contained in this Article XVIII, a Participant may disclose any Confidential Information if, in the opinion of the disclosing Participant’s legal counsel: (a) such disclosure is legally required to be made in a judicial, administrative or governmental proceeding pursuant to a valid subpoena or other applicable order; or (b) such disclosure is legally required to be made pursuant to the rules or regulations of a stock exchange or similar trading market applicable to the disclosing Participant.

          Prior to any disclosure of Confidential Information under this Section 18.4, the disclosing Participant shall give the other Participant at least ten (10) days prior written notice (unless less time is required by such rules, regulations or proceeding) and, in making such disclosure, the disclosing Participant shall disclose only that portion of Confidential Information required to be disclosed and shall take all reasonable steps to preserve the confidentiality thereof, including, without limitation, obtaining protective orders and supporting the other Participant in intervention in any such proceeding.

46

     18.5 Public Announcements. Prior to making or issuing any press release or other public announcement or disclosure of Business Information that is not Confidential Information, a Participant shall first consult with the other Participant as to the content and timing of such announcement or disclosure, unless in the good faith judgment of such Participant, there is not sufficient time to consult with the other Participant before such announcement or disclosure must be made under applicable Laws; but in such event, the disclosing Participant shall notify the other Participant, as soon as possible, of the pendency of such announcement or disclosure, and it shall notify the other Participant before such announcement or disclosure is made if at all reasonably possible. Any press release or other public announcement or disclosure to be issued by either Participant relating to this Business shall also identify the other Participant.

ARTICLE XIX
GENERAL PROVISIONS

     19.1 Notices. All notices, payments and other required or permitted communications (“Notices”) to either Participant shall be in writing, and shall be addressed respectively as follows:

If to Canyon:		14142 Denver West Parkway
		Suite 250
		Golden, CO 80401
	Attention:	James K. B. Hesketh
	Telephone:	(303) 278-8464
	Facsimile:	(303) 279-3772
With a Copy to:		Bruce C. Kirchhoff
		Carver Kirchhoff Schwarz
		McNab & Bailey, LLC
		Hudson’s Bay Centre
		1600 Stout Street, Suite 1700
		Denver, Colorado 80202
	Telephone:	(303) 531-6482
	Facsimile:	(303) 592-7680

47

If to Horizon:		2221 East Street
		Suite 200
		Golden, CO 80401
	Attention:	William R. Wilson
	Telephone:	(303) 422-7803
	Facsimile:	(303) 940-9572
With a Copy to:		Paul C. Jones
		2221 East Street, Suite 200
		Golden CO 80401
	Telephone:	(303) 277-1222
	Facsimile:	(303) 277-0006

          All Notices shall be given (a) by personal delivery to the Participant, (b) by electronic communication, capable of producing a printed transmission, (c) by registered or certified mail return receipt requested; or (d) by overnight or other express courier service. All Notices shall be effective and shall be deemed given on the date of receipt at the principal address if received during normal business hours, and, if not received during normal business hours, on the next business day following receipt, or if by electronic communication, on the date of such communication. Either Participant may change its address by Notice to the other Participant.

     19.2 Gender. The singular shall include the plural, and the plural the singular wherever the context so requires, and the masculine, the feminine, and the neuter genders shall be mutually inclusive.

     19.3 Currency. All references to “dollars” or “$” herein shall mean lawful currency of the United States of America.

     19.4 Headings. The subject headings of the Sections and Subsections of this Agreement and the Paragraphs and Subparagraphs of the Exhibits to this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions.

     19.5 Waiver. The failure of either Participant to insist on the strict performance of any provision of this Agreement or to exercise any right, power or remedy upon a breach hereof shall not constitute a waiver of any provision of this Agreement or limit such Participant’s right thereafter to enforce any provision or exercise any right.

     19.6 Modification. No modification of this Agreement shall be valid unless made in writing and duly executed by both Participants.

48

     19.7 Force Majeure. Except for the obligation to make payments when due hereunder, the obligations of a Participant shall be suspended to the extent and for the period that performance is prevented by any cause, whether foreseeable or unforeseeable, beyond its reasonable control, including, without limitation, labor disputes (however arising and whether or not employee demands are reasonable or within the power of the Participant to grant); acts of God; Laws, instructions or requests of any government or governmental entity; judgments or orders of any court; inability to obtain on reasonably acceptable terms any public or private license, permit or other authorization; curtailment or suspension of activities to remedy or avoid an actual or alleged, present or prospective violation of Environmental Laws; action or inaction by any federal, state or local agency that delays or prevents the issuance or granting of any approval or authorization required to conduct Operations beyond the reasonable expectations of the Participant seeking the approval or authorization; acts of war or conditions arising out of or attributable to war, whether declared or undeclared; riot, civil strife, insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink holes, drought or other adverse weather condition; delay or failure by suppliers or transporters of materials, parts, supplies, services or equipment or by contractors’ or subcontractors’ shortage of, or inability to obtain, labor, transportation, materials, machinery, equipment, supplies, utilities or services; accidents; breakdown of equipment, machinery or facilities; actions by native rights groups, environmental groups, or other similar special interest groups; or any other cause whether similar or dissimilar to the foregoing. The affected Participant shall promptly give notice to the other Participant of the suspension of performance, stating therein the nature of the suspension, the reasons therefore, and the expected duration thereof. The affected Participant shall resume performance as soon as reasonably possible. During the period of suspension the obligations of both Participants to advance funds pursuant to Section 10.2 shall be reduced to levels consistent with then current Operations.

     19.8 Rule Against Perpetuities. The Participants do not intend that there shall be any violation of the Rule Against Perpetuities, the Rule Against Unreasonable Restraints on the Alienation of Property, or any similar rule. Accordingly, if any right or option to acquire any interest in the Properties, in a Participating Interest, in the Assets, or in any real property exists under this Agreement, such right or option must be exercised, if at all, so as to vest such interest within time periods permitted by applicable rules. If, however, any such violation should inadvertently occur, the Participants hereby agree that a court shall reform that provision in such a way as to approximate most closely the intent of the Participants within the limits permissible under such rules.

     19.9 Further Assurances. Each of the Participants shall take, from time to time and without additional consideration, such further actions and execute such additional instruments as may be reasonably necessary or convenient to implement and carry out the intent and purpose of this Agreement or as may be reasonably required by lenders in connection with Project Financing.

49

     19.10 Entire Agreement; Successors and Assigns. This Agreement contains the entire understanding of the Participants and supersedes all prior agreements and understandings between the Participants relating to the subject matter hereof. This Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the Participants.

     19.11 Memorandum. At the request of either Participant, a Memorandum or short form of this Agreement, or a Financing Statement(s) (to which copies of the Memorandum or short form of this Agreement shall be attached) shall be prepared by the Manager, executed and acknowledged by both Participants, and delivered to the Manager for recording and filing in those appropriate recording districts and Uniform Commercial Code filing offices as may be necessary to provide constructive notice of this Agreement and the rights and obligations of the Participants hereunder. The Manager shall record and file in the proper recording districts, county recording offices and Uniform Commercial Code filing offices, all such documents delivered to it by the Participants. Unless both Participants agree, this Agreement shall not be recorded.

     19.12 Counterparts. This Agreement may be executed in any number of counterparts, and it shall not be necessary that the signatures of both Participants be contained on any counterpart. Each counterpart shall be deemed an original, but all counterparts together shall constitute one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

Canyon

     By       /s/ James K. B. Hesketh                                                 

                     James K. B. Hesketh

     Its            President

Horizon

     By       /s/ Paul C. Jones                                                             

                     Paul C. Jones

     Its            Executive Vice President and Chief Operating Officer

50

EXHIBIT A
To
CONVERSE URANIUM PROJECT

EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
By And Between
Canyon Resources Corporation
And
New Horizon Uranium Corporation

ASSETS AND AREA OF INTEREST

1.1 PROPERTIES AND TITLE EXCEPTIONS

List of Mining Claims and Leases

     CONVERSE PROJECT

	BLM
CLAIMS	WMC #	WIDTH		LENGTH		AREA		ACRES
Scott Ranch Area
BC-1	WMC 268577		50		1,450		72,500		1.66	1
BC-2	WMC 268578		50		1,450		72,500		1.66	2
BC-3	WMC 268579		600		1,450		870,000		19.97	3
BC-4	WMC 268580		600		1,450		870,000		19.97	4
BC-5	WMC 268581		600		1,450		870,000		19.97	5
BC-6	WMC 268582		600		1,450		870,000		19.97	6
BC-7	WMC 268583		600		1,450		870,000		19.97	7
BC-8	WMC 268584		600		1,450		870,000		19.97	8
BC-9	WMC 268585		600		1,450		870,000		19.97	9
BC-10	WMC 268586		600		1,450		870,000		19.97	10
BC-11	WMC 268587		600		1,450		870,000		19.97	11
BC-12	WMC 268588		600		1,450		870,000		19.97	12
BC-13	WMC 268589		600		1,450		870,000		19.97	13
BC-14	WMC 268590		600		1,450		870,000		19.97	14
BC-15	WMC 268591		600		1,450		870,000		19.97	15
BC-16	WMC 268592		600		1,450		870,000		19.97	16
BC-17	WMC 268593		600		1,450		870,000		19.97	17
BC-18	WMC 268594		600		1,450		870,000		19.97	18
BC-19	WMC 268595		600		1,450		870,000		19.97	19
BC-20	WMC 268596		600		1,450		870,000		19.97	20
BC-21	WMC 268597		600		1,360		816,000		18.73	21

EXHIBIT A
Page 1 of 9

	BLM
CLAIMS	WMC #	WIDTH		LENGTH		AREA		ACRES
BC-22	WMC 268598		600		1,360		816,000		18.73	22
BC-23	WMC 268599		600		1,360		816,000		18.73	23
BC-24	WMC 268600		600		1,360		816,000		18.73	24
BC-25	WMC 268601		600		1,360		816,000		18.73	25
BC-26	WMC 268602		600		1,360		816,000		18.73	26
BC-27	WMC 268603		600		1,360		816,000		18.73	27
BC-28	WMC 268604		600		1,360		816,000		18.73	28
BC-29	WMC 268605		600		1,360		816,000		18.73	29
BC-30	WMC 268606		600		1,360		816,000		18.73	30
BC-31	WMC 268607		600		1,360		816,000		18.73	31
BC-32	WMC 268608		600		1,360		816,000		18.73	32
BC-33	WMC 268609		380		1,360		516,800		11.86	33
BC-34	WMC 268610		600		1,360		816,000		18.73	34
BC-35	WMC 268611		600		1,430		858,000		19.70	35
BC-36	WMC 268612		600		1,430		858,000		19.70	36
BC-37	WMC 268613		600		1,430		858,000		19.70	37
BC-38	WMC 268614		600		1,430		858,000		19.70	38
BC-39	WMC 268615		600		1,430		858,000		19.70	39
BC-40	WMC 268616		600		1,430		858,000		19.70	40
BC-41	WMC 268617		600		1,430		858,000		19.70	41
BC-42	WMC 268618		600		1,430		858,000		19.70	42
BC-43	WMC 268619		600		1,430		858,000		19.70	43
BC-44	WMC 268620		600		1,430		858,000		19.70	44
BC-45	WMC 268621		600		1,430		858,000		19.70	45
BC-46	WMC 268622		600		1,430		858,000		19.70	46
BC-47	WMC 268623		600		1,430		858,000		19.70	47
BC-48	WMC 268624		600		1,430		858,000		19.70	48
BC-49	WMC 268625		600		1,360		816,000		18.73	49
BC-50	WMC 268626		600		1,360		816,000		18.73	50
BC-51	WMC 268627		600		1,360		816,000		18.73	51
BC-52	WMC 268628		600		1,360		816,000		18.73	52
BC-53	WMC 268629		600		1,360		816,000		18.73	53
BC-54	WMC 268630		600		1,360		816,000		18.73	54
BC-55	WMC 268631		600		1,360		816,000		18.73	55
BC-56	WMC 268632		600		1,360		816,000		18.73	56
BC-57	WMC 268633		520		1,360		707,200		16.24	57
BC-58	WMC 268634		600		1,360		816,000		18.73	58
BC-59	WMC 268635		520		1,360		707,200		16.24	59
BC-61	WMC 268636		600		1,500		900,000		20.66	60
BC-62	WMC 268637		600		1,500		900,000		20.66	61
BC-63	WMC 268638		600		1,500		900,000		20.66	62
BC-64	WMC 268639		600		1,500		900,000		20.66	63
BC-65	WMC 268640		600		1,500		900,000		20.66	64
BC-66	WMC 268641		600		1,500		900,000		20.66	65
BC-67	WMC 268642		600		1,500		900,000		20.66	66
BC-68	WMC 268643		600		1,500		900,000		20.66	67
BC-69	WMC 268644		600		1,500		900,000		20.66	68

EXHIBIT A
Page 2 of 9

	BLM
CLAIMS	WMC #	WIDTH		LENGTH		AREA		ACRES
BC-70	WMC 268645		600		1,500		900,000		20.66	69
BC-71	WMC 268646		600		1,320		792,000		18.18	70
BC-72	WMC 268647		600		1,320		792,000		18.18	71
BC-73	WMC 268648		600		1,320		792,000		18.18	72
BC-74	WMC 268649		600		1,320		792,000		18.18	73
BC-75	WMC 268650		390		1,320		514,800		11.82	74
BC-76	WMC 268651		150		1,500		225,000		5.17	75
BC-77	WMC 268652		600		1,500		900,000		20.66	76
BC-78	WMC 268653		600		1,500		900,000		20.66	77
BC-79	WMC 268654		600		1,500		900,000		20.66	78
BC-80	WMC 268655		600		1,500		900,000		20.66	79
BC-81	WMC 268656		600		1,500		900,000		20.66	80
BC-82	WMC 268657		600		1,500		900,000		20.66	81
BC-83	WMC 268658		600		1,500		900,000		20.66	82
BC-84	WMC 268659		600		1,500		900,000		20.66	83
BC-85	WMC 268660		600		1,500		900,000		20.66	84
BC-86	WMC 268661		600		1,500		900,000		20.66	85
BC-87	WMC 268662		160		1,500		240,000		5.51	86
BC-88	WMC 268663		160		1,500		240,000		5.51	87
BC-89	WMC 268664		600		1,500		900,000		20.66	88
BC-90	WMC 268665		600		1,500		900,000		20.66	89
BC-91	WMC 268666		83		1,200		99,600		2.29	90
BC-92	WMC 268667		83		1,350		112,050		2.57	91
							Acres		1655.18
S. Douglas Area
SD-9	WMC 268767		600		1,320		792,000		18.18	1
SD-10	WMC 268768		600		1,370		822,000		18.87	2
SD-11	WMC 268769		600		1,320		792,000		18.18	3
SD-12	WMC 268770		600		1,370		822,000		18.87	4
SD-13	WMC 268771		600		1,320		792,000		18.18	5
SD-14	WMC 268772		600		1,370		822,000		18.87	6
SD-15	WMC 268773		600		1,320		792,000		18.18	7
SD-16	WMC 268774		600		1,370		822,000		18.87	8
SD-17	WMC 268775		600		1,320		792,000		18.18	9
SD-18	WMC 268776		600		1,370		822,000		18.87	10
SD-19	WMC 268777		600		1,320		792,000		18.18	11
SD-20	WMC 268778		600		1,370		822,000		18.87	12
SD-21	WMC 268779		600		1,320		792,000		18.18	13
SD-22	WMC 268780		600		1,370		822,000		18.87	14
SD-23	WMC 268781		600		1,320		792,000		18.18	15
SD-24	WMC 268782		600		1,370		822,000		18.87	16
SD-25	WMC 268783		400		1,320		528,000		12.12	17
SD-26	WMC 268784		400		1,370		548,000		12.58	18
SD-27	WMC 268785		600		1,320		792,000		18.18	19
SD-28	WMC 268786		600		1,320		792,000		18.18	20
SD-29	WMC 268787		220		1,320		290,400		6.67	21
SD-30	WMC 268788		150		1,500		225,000		5.17	22

EXHIBIT A
Page 3 of 9

	BLM
CLAIMS	WMC #	WIDTH		LENGTH		AREA		ACRES
SD-31	WMC 268789		600		1,500		900,000		20.66	23
SD-32	WMC 268790		600		1,500		900,000		20.66	24
SD-33	WMC 268791		600		1,500		900,000		20.66	25
SD-34	WMC 268792		600		1,500		900,000		20.66	26
SD-35	WMC 268793		600		1,500		900,000		20.66	27
SD-36	WMC 268794		600		1,500		900,000		20.66	28
SD-37	WMC 268795		600		1,500		900,000		20.66	29
SD-38	WMC 268796		600		1,500		900,000		20.66	30
SD-39	WMC 268797		600		1,500		900,000		20.66	31
SD-40	WMC 268798		600		1,500		900,000		20.66	32
SD-41	WMC 268799		350		1,500		525,000		12.05	33
SD-42	WMC 268800		350		1,500		525,000		12.05	34
SD-45	WMC 268801		600		1,500		900,000		20.66	35
SD-46	WMC 268802		600		1,500		900,000		20.66	36
SD-47	WMC 268803		600		1,500		900,000		20.66	37
SD-48	WMC 268804		600		1,500		900,000		20.66	38
SD-49	WMC 268805		300		1,500		450,000		10.33	39
SD-57	WMC 268806		600		1,445		867,000		19.90	40
SD-59	WMC 268807		600		1,445		867,000		19.90	41
SD-60	WMC 268808		600		1,200		720,000		16.53	42
SD-62	WMC 268809		600		1,200		720,000		16.53	43
SD-100	WMC 268810		600		1,395		837,000		19.21	44
SD-101	WMC 268811		600		1,395		837,000		19.21	45
							Acres		804.30
Shawnee Area
SH-1	WMC 268668		600		1,400		840,000		19.28	1
SH-2	WMC 268669		600		1,400		840,000		19.28	2
SH-3	WMC 268670		600		1,400		840,000		19.28	3
SH-4	WMC 268671		600		1,400		840,000		19.28	4
SH-5	WMC 268672		600		1,400		840,000		19.28	5
SH-6	WMC 268673		600		1,400		840,000		19.28	6
SH-7	WMC 268674		460		1,400		644,000		14.78	7
SH-8	WMC 268675		600		1,400		840,000		19.28	8
SH-9	WMC 268676		600		1,400		840,000		19.28	9
SH-10	WMC 268677		600		1,400		840,000		19.28	10
SH-11	WMC 268678		600		1,400		840,000		19.28	11
SH-12	WMC 268679		600		1,400		840,000		19.28	12
SH-13	WMC 268680		600		1,400		840,000		19.28	13
SH-14	WMC 268681		600		1,400		840,000		19.28	14
SH-15	WMC 268682		600		1,400		840,000		19.28	15
SH-16	WMC 268683		600		1,400		840,000		19.28	16
SH-17	WMC 268684		600		1,400		840,000		19.28	17
SH-18	WMC 268685		600		1,400		840,000		19.28	18
SH-19	WMC 268686		600		1,400		840,000		19.28	19
SH-20	WMC 268687		460		1,400		644,000		14.78	20
SH-21	WMC 268688		460		1,400		644,000		14.78	21

EXHIBIT A
Page 4 of 9

	BLM
CLAIMS	WMC #	WIDTH		LENGTH		AREA		ACRES
SH-25	WMC 268689		600		1,500		900,000		20.66	22
SH-26	WMC 268690		600		1,500		900,000		20.66	23
SH-27	WMC 268691		600		1,500		900,000		20.66	24
SH-28	WMC 268692		600		1,500		900,000		20.66	25
SH-29	WMC 268693		440		1,500		660,000		15.15	26
SH-30	WMC 268694		600		1,500		900,000		20.66	27
SH-31	WMC 268695		600		1,500		900,000		20.66	28
SH-32	WMC 268696		270		1,500		405,000		9.30	29
SH-33	WMC 268697		600		1,500		900,000		20.66	30
SH-34	WMC 268698		600		1,500		900,000		20.66	31
SH-35	WMC 268699		300		1,500		450,000		10.33	32
							Acres		591.53
									3,051.0
				TOTAL ACRES					1

AGREEMENTS

South Douglas Prospect

1.	Surface Use Agreement dated 7/7/2005 with Fellows, Tim & Lori for 72.66 acres in Township 32N, Range 71W, Sections 19 and 20.
2.	Surface Use Agreement dated 7/8/2005 with Arnbrister, Tom & Mary E. for 19.35 acres in Township 32N, Range 71W, Section 19.
3.	Surface Use Agreement dated 7/15/2005 with Philbrick Ranch, L.L.C. for 350.14 acres in Township 32N, Range 71W, Sections 31 and 32.

Scott Ranch Prospect

1.	Surface Use Agreement dated 7/13/2005 with Johnson, Sam & Robin for 36 acres in Township 32N, Range 70W, Section 19.
2.	Surface Use Agreement dated 7/27/2005 with Markwardt, David & Lois for 55.92 in Township 32N, Range 70W, Section 19.
3.	Surface Use Agreement dated 10/11/2005 with Scott Ranches, L.L.C. for 1,280 acres in Township 32N, Range 70W, Sections 19-21 and 30.

1.2 PERSONAL PROPERTY

Index of Converse Project Files
Canyon Resources Corporation
Converse County,Wyoming

Prepared November 18, 2005 by Steven R. Davis

REPORTS/PUBLICATIONS

Bauer, J. et. al., 1982, Shawnee Project, Converse County, Wyoming — Results of the 1981 Drilling Campaign (Elf Aquitaine), Cross-Sections. Binder w/o index contains plate 8 through 16 (9)

EXHIBIT A
Page 5 of 9

of cross-sections on program drill holes.

Bauer J. et. al., 1982, Shawnee Project, Converse County, Wyoming — Results of the 1981 Drilling Campaign (Elf Aquitaine), Maps. Binder w/o index contains six folded maps (plates 1-6) of geology, land status, drill hole locations and structural contour maps on geologic horizons (3).

Bauer, J., Marcus, Donald L., 1982, Results of 1982 Shawnee Exploration Program (Elf Aquitaine), 30 pages text, four section Appendix (A – D), and “Plates and Figures” — including Figures 1-8 and Plates Ia, II through VII (Roman) and Plate 7.

Bauer, J., 1981, Greater Shawnee Project (Morton Ranch Area), Converse County, Wyoming; Results of the 1981 Drilling Campaign (Elf Aquitaine Mining Corporation — Canyon Resources Joint Venture). Includes 4 figures and two plates, plus a number of drill hole radiometric logs (oil/gas and uranium drill holes). Two Copies.

Canyon Resources, et. al., March 1981, Shawnee Uranium Project, Southern Powder River Basin, Wyoming. 39 pages, includes 12 figures and 3 appendices (5 copies).

Canyon Resources, et. al., October 1983, Shawnee Uranium Project Summary Report, Converse County, Wyoming, 18 pages (includes14figures).

Collings, Stephen P., Knode, Ralph H., 1982, Crow Butte Uranium Project (Deposit), Wyoming Fuel Company. 10 pages, including 3 figures. (kept inside First Exploration Company 1982 Annual Report.)

Denson, N.M., Horn, G.H., 1976, Geologic and Structure Map of the Southern Part of the Powder River Basin, Converse, Niobrara and Natrona Counties, Wyoming. 1:125,000, USGS Miscellaneous Investigations Series Map I-877 (2 sheets).

First Exploration Company, 1982 Annual Report, 9 pages plus Appendix of NUEXCO Monthly Report on the Nuclear Fuel Market #175, March 1983.

Mueller, Joseph W., 1976, Geology and Ore Controls of Uranium Deposits in Oligocene and Miocene Sediments, Northern Hartville Uplift, Wyoming, Masters Thesis, Colorado School of Mines

Love, J.D., Christiansen, Ann Coe, Sever, C.K., 1978, Preliminary Geological Map of the Torrington 1º x 2º Quadrangle, 1:250,000, USGS Open File Report 78-535

EXHIBIT A
Page 6 of 9

Love, J.D., Christiansen, Ann Coe, Sever, C.K., 1980, The Torrington 1º x 2º Quadrangle, Southeastern Wyoming and Western Nebraska, 1:250,000, USGS Miscellaneous Field Studies Map MF-1184.

Mueller, Joseph W., 1976, Geology and Ore Controls of Uranium Deposits in Oligocene and Miocene Sediments, Northern Hartville Uplift, Wyoming, Masters Thesis, Colorado School of Mines.

MAP FILES

Sabine GT Map File, 1978-1981, Land Status Map, Correspondence, Joint Venture Proposal and three GT maps for the A, B &C Sands (horizons) at 1” = 1,000’.

Oil Well Data, Converse Project map file. Has five (?) oil well logs (copies), two maps and eight pages of hand written research notes regarding oil/gas wells in the project area.

Aquitaine Mining, Converse Project map file (some correspondence included). Isopach map of Shawnee Project Tertiary sediments (1” = 2mi ±), Thickness (Isopach) main basal sand interval (Chadron Sand), White River fm, Shawnee Project 1” = 2,000’. Table of Shawnee Project 1981 drilling, 5 pages, and map of greater project area (Shawnee) with the area of properties held/subject to the agreement. Five pages handwritten notes.

Analytical Results, Converse Project (not a map file). Bondar-Clegg results on what appears to be water samples only (results in ppb), two pages 35 sample results (three copies of the second page).

High Plains Uranium, Converse Project (file). A three-page summary of the company’s management and directors with a “Strategy Statement.” A 19 page Power Point presentation w/cover letter — sent to Gary Huber by Ted Wilton (May 18, 2005).

Shawnee Report 10/1983, Converse Project. A loose (unbound) copy of the Canyon Resources Corporation Summary Report on the Shawnee Project, dated October, 1983.

BLM Land Maps, Converse Project. Folded 1:100,000 scale standard (feet) and metric maps of the Douglas, Wyoming 30’ x 60’ quadrangle (std. 1995, metric 1981), one copy of each. Includes a four piece Xerox mosaic of the project area of this map, and two 8 1/2” x 11” copies of immediate Douglas (Sabine) and Shawnee areas.

Shawnee Report 03/01/1981, Converse Project. A clipped, but unbound copy of the Canyon Resources Corporation report on the

EXHIBIT A
Page 7 of 9

Shawnee Uranium Project, dated March 1, 1981.

Topographic Maps file, Converse Project. Includes eight 7 ¹/2” USGS Topographic maps from in or near the area of the Converse Project (two are partial/cutoff, individual names of maps not noted).

Miscellaneous Maps, Converse Project (Folder). Niobrara County Map, 1953, (1:63,360) w/oil/gas well pre-Tertiary or TD rock type noted by stickers and hand notes; Niobrara County Map, 1953, (1:63,360) w/hand drawn geology in area 2 to 13 miles south of the small village of Redbird; Subcrop map of Northern Hartville Uplift, Converse and Niobrara Counties, Wyoming, 1/15/1975, Geology by J. Mueller; Geology of Northern Hartville Uplift, Converse and Niobrara Counties, Wyoming, 01/15/1975, Modified after Denson (1972) by J. Mueller. Plate 10A. — Contours on the Base of the Pre-Oligocene Surface and Pre-Oligocene Geologic Map, Compiled by David L. Macke and Norman M. Denson, USGS.

Sabine Maps, Converse Project (Folder), Eight detailed maps and a number of drill logs (examined very briefly, no details).

Converse Project Map File, Earth Sciences Corporation, Several varied maps from early Earth Sciences work in the area — not examined in detail (time).

Drill hole logs, Converse Project, full size probe logs and a few “mini-logs” from the early 1980’s drilling programs — not examined in detail (time).

1.3 AREA OF INTEREST

The Plat on the next page identifies the Converse Project Boundary, encompassing lands in both Converse and Niobrara Counties, Wyoming.

EXHIBIT A
Page 8 of 9

EXHIBIT A — Page 9 of 9
Converse Uranium Project, Area of Interest

EXHIBIT B
To
CONVERSE URANIUM PROJECT
EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
By And Between
Canyon Resources Corporation
And
New Horizon Uranium Corporation

ACCOUNTING PROCEDURES

     The financing and accounting procedures to be followed by the Manager and the Participants under the Agreement are set forth below. All capitalized terms in these Accounting Procedures shall have the definition attributed to them in the Agreement, unless defined otherwise herein.

     The purpose of these Accounting Procedures is to establish equitable methods for determining charges and credits applicable to Operations. It is the intent of the Participants that neither of them shall lose or profit by reason of the designation of one of them to exercise the duties and responsibilities of the Manager. The Participants shall meet and in good faith endeavor to agree upon changes deemed necessary to correct any unfairness or inequity. In the event of a conflict between the provisions of these Accounting Procedures and those of the Agreement, the provisions of the Agreement shall control.

ARTICLE I
GENERAL PROVISIONS

     1. General Accounting Records. The Manager shall maintain detailed and comprehensive cost accounting records in accordance with generally accepted accounting principles used by companies based in the United States (“US GAAP”). For purposes of this Agreement, US GAAP shall mean the written opinions, standards, interpretations, and bulletins developed by the Financial Accounting Standards Board (“FASB”), the accounting profession (“AICP”), and the Security and Exchange Commission (“SEC”). Cost accounting records maintained under these Accounting Procedures, shall including general ledgers, supporting and subsidiary journals, invoices, checks and other customary documentation, sufficient to provide a record of revenues and expenditures and periodic statements of financial position and the results of Operations for managerial, tax, regulatory or other financial, regulatory, or legal reporting purposes related to the Business. Such records shall be retained for the duration of the period allowed the Participants for audit or the period necessary to comply with tax or other

EXHIBIT B
Page 1 of 9

regulatory requirements. The records shall reflect all obligations, advances and credits of the Participants.

     2. Cash Management Accounts. The Manager shall maintain one or more separate cash management accounts for the payment of all expenses and the deposit of all cash receipts for the Business.

     3. Statements and Billings. The Manager shall prepare statements and bill the Participants as provided in Article X of the Agreement. Payment of any such billings by either Participant, including the Manager, shall not prejudice such Participant’s right to protest or question the correctness thereof for a period not to exceed twenty-four (24) months following the calendar year during which such billings were received by such Participant. All written exceptions to and claims upon the Manager for incorrect charges, billings or statements shall be made upon the Manager within such twenty-four (24) month period. The time period permitted for adjustments hereunder shall not apply to adjustments resulting from periodic inventories as provided in Paragraphs 5.1 and 5.2.

ARTICLE II
CHARGES TO BUSINESS ACCOUNT

     Subject to the limitations hereinafter set forth, the Manager shall charge the Business Account with the following:

     2.1 Property Acquisition Costs, Rentals, Royalties and Other Payments. All property acquisition and holding costs, including Governmental Fees, filing fees, license fees, costs of permits and assessment work, delay rentals, production royalties, including any required advances, and all other payments made by the Manager which are necessary to acquire or maintain title to the Assets.

     2.2 Labor and Employee Benefits

          2.2.1 Salaries and wages of the Manager’s employees directly engaged in Operations, including salaries or wages of employees who are temporarily assigned to and directly employed by same.

          2.2.2 The Manager’s cost of holiday, vacation, sickness and disability benefits, and other customary allowances applicable to the salaries and wages chargeable under Subparagraph 2.2.1 and Paragraph 2.12. Such costs may be charged on a “when and as paid basis” or by “percentage assessment” on the amount of salaries and wages. If percentage assessment is used, the rate shall be applied to wages or salaries excluding overtime and bonuses. Such rate shall be based on the Manager’s cost experience consistent with the current range of rates within the industry and it shall be periodically

EXHIBIT B
Page 2 of 9

reviewed, and adjusted if needed, at least annually to ensure that the total of such charges does not exceed the actual cost thereof to the Manager.

          2.2.3 The Manager’s actual cost of established plans for employees’ group life insurance, hospitalization, pension, retirement, stock purchase, thrift, bonus (except production or incentive bonus plans under a union contract based on actual rates of production, cost savings and other production factors, and similar non-union bonus plans customary in the industry or necessary to attract competent employees, which bonus payments shall be considered salaries and wages under Subparagraph 2.2.1 or Paragraph 2.12 rather than employees’ benefit plans) and other benefit plans of a like nature applicable to salaries and wages chargeable under Subparagraphs 2.2.1 or Paragraph 2.12, provided that the plans are limited to the extent feasible to those customary in the industry.

          2.2.4 Cost of assessments imposed by governmental authority that are applicable to salaries and wages chargeable under Subparagraph 2.2(a) and Paragraph 2.12, including all penalties except those resulting from the willful misconduct or gross negligence of the Manager.

     2.3 Materials, Equipment and Supplies. The cost of materials, equipment and supplies (herein called “Material”) purchased from unaffiliated third parties or furnished by either Participant as provided in Paragraph 3.1. The Manager shall purchase or furnish only so much Material as may be required for immediate use in efficient and economical Operations. The Manager shall also maintain inventory levels of Material at reasonable levels to avoid unnecessary accumulation of surplus stock or disruption of Operations.

     2.4 Equipment and Facilities Furnished by Manager. The cost of machinery, equipment and facilities owned by the Manager and used in Operations or used to provide support or utility services to Operations charged at rates commensurate with the actual costs of ownership and operation of such machinery, equipment and facilities. Such rates shall include costs of maintenance, repairs, other operating expenses, insurance, taxes, depreciation and interest at a rate not to exceed Prime Rate plus three percent (3%) per annum. Such rates shall not exceed the average commercial rates currently prevailing in the vicinity of the Operations.

     2.5 Transportation. Reasonable transportation costs incurred in connection with the transportation of employees and material necessary for Operations.

     2.6 Contract Services and Utilities. The cost of contract services and utilities procured from outside sources, other than services described in Paragraphs 2.9 and 2.13. If contract services are performed by the Manager or an Affiliate thereof, the cost charged to the Business Account shall not be greater than that for which comparable services and utilities are available in the open market within the vicinity of Operations.

EXHIBIT B
Page 3 of 9

The cost of professional consultant services procured from outside sources in excess of Twenty-Five Thousand Dollars ($25,000.00) per annum per contract shall not be charged to the Business Account unless approved by the Management Committee.

     2.7 Insurance Premiums. Net premiums paid for insurance required to be carried for Operations for the protection of the Participants. When Operations are conducted in an area where the Manager may self-insure for Worker’s Compensation and/or Employer’s Liability under state law, the Manager may elect to include such risks in its self-insurance program and shall charge its costs of self-insuring such risks to the Business Account provided that such charges shall not exceed published manual rates.

     2.8 Damages and Losses. All costs in excess of insurance proceeds necessary to repair or replace damage or losses to any Assets resulting from any cause other than the willful misconduct or gross negligence of the Manager. The Manager shall furnish the Management Committee with written notice of damages or losses as soon as practicable after a report thereof has been received by the Manager.

     2.9 Legal and Regulatory Expense. Except as otherwise provided in Paragraph 2.13, all legal and regulatory costs and expenses incurred in or resulting from Operations or necessary to protect or recover the Assets of the Business, including costs of title investigation and title curative services. All attorneys fees and other legal costs to handle, investigate and settle litigation or claims, and amounts paid in settlement of such litigation or claims in excess of Twenty-Five Thousand Dollars ($25,000.00) per annum shall not be charged to the Business Account unless approved by the Management Committee.

     2.10 Audit. Cost of annual audits under Subsection 10.6(a).

     2.11 Taxes. All taxes, assessments and like charges on Operations and Assets which have been paid by the Manager for the benefit of the Participants. Each Participant is separately responsible for taxes determined or measured by a Participant’s sales revenue or net income.

     2.12 District and Camp Expense (Field Supervision and Camp Expenses). A pro rata portion of: (i) the salaries and expenses of the Manager’s superintendent and other employees serving Operations whose time is not allocated directly to such Operations, and (ii) the costs of maintaining and operating an office and any necessary suboffice, and (iii) all necessary camps, including housing facilities for employees, used for Operations. The expense of those facilities, less any revenue therefrom, shall include depreciation or a fair monthly rental in lieu of depreciation of the investment. The total of such charges for all Properties served by the Manager’s employees and facilities shall be apportioned to the Business Account on the basis of a ratio to be approved by the Management Committee.

EXHIBIT B
Page 4 of 9

     2.13 Administrative Charge.

          2.13.1 Each month, the Manager shall charge the Business Account a sum for each phase of Operations as provided below, which shall be a liquidated amount to reimburse the Manager for its home office overhead and general and administrative expenses to conduct each phase of Operations, and which shall be in lieu of any management fee and for taxes based on production of Products:

               2.13.1.1 Exploration Phase — Five percent (5%) of Allowable Costs up to and including Five Thousand Dollars ($5000), and two percent (2%) of Allowable Costs over Five Thousand Dollars ($5000).

               2.13.1.2 Development Phase — Five percent (5%) of Allowable Costs up to and including Ten Thousand Dollars ($10,000), and two percent (2%) of Allowable Costs over Ten Thousand Dollars ($10,000).

               2.13.1.3 Major Construction Phase — Ten percent (10%) of Allowable Costs up to and including Twenty-Five Thousand Dollars ($25,000), and two percent (2%) of Allowable Costs over Twenty-Five Thousand Dollars ($25,000).

               2.13.1.4 Mining Phase — One and one half percent (1.5%) of Allowable Costs.

          2.13.2 The term “Allowable Costs” as used in this Paragraph for a particular phase of Operations shall mean all charges to the Business Account excluding: (i) the administrative charge referred to herein; (ii) depreciation, depletion or amortization of tangible or intangible Assets; (iii) amounts charged in accordance with Paragraphs 2.1 and 2.9, and (iv) marketing costs. The Manager shall attribute such Allowable Costs to a particular phase of Operations by applying the following guidelines:

               (A) The Exploration Phase shall cover those Operations conducted to ascertain the existence, location, extent or quantity of any deposit of ore or mineral.

               (B) The Development Phase shall cover those Operations, including Pre-Feasibility and Feasibility Study Operations, conducted to assess a commercially feasible ore body or to extend production of an existing ore body, and to construct or install related fixed Assets.

               (C) The Major Construction Phase shall include all Operations involved in the construction of treatment or processing facilities.

EXHIBIT B
Page 5 of 9

               (D) The Mining Phase shall include all other Operations activities not otherwise covered above, including activities conducted after Mining Operations have ceased.

          (c) Various phases of Operations may be conducted concurrently, in which event the administrative charge shall be calculated separately for Allowable Costs attributable to each phase.

          (d) The monthly administration charge determined for each phase of Operations shall be a liquidated amount to reimburse Manager for its home office overhead and general and administrative expenses for its conduct of Operations, and shall be equitably apportioned among all of the properties served during such monthly period on the basis of a ratio approved by the Management Committee.

          (e) The following is a representative list of items that constitute the Manager’s principal business office expenses that are expressly covered by the administrative charge provided in this Paragraph, except to the extent that such items are directly chargeable to the Business Account under other provisions of this Article II:

               2.13.2.1 Administrative supervision, which includes all services rendered by managers, department supervisors, officers and directors of the Manager for Operations.

               2.13.2.2 Accounting, data processing, personnel administration, billing and record keeping in accordance with governmental regulations and the provisions of the Agreement, and preparation of reports;

               2.13.2.3 The services of tax counsel and tax administration employees for all tax matters, including any protests, except any outside professional fees which the Management Committee may approve as a direct charge to the Business Account;

               2.13.2.4 Routine legal services rendered by outside sources and the Manager’s legal staff not otherwise charged to the Business Account under Paragraph 2.9, including property acquisition, attorney management and oversight, and support services provided by Manager’s legal staff concerning any litigation; and

               2.13.2.5 Rentals and other charges for office and records storage space, telephone service, office equipment and supplies.

          (f) The Management Committee shall annually review the administrative charges and shall amend the methodology or rates used to determine such charges if they are found to be insufficient or excessive based on the principles that the

EXHIBIT B
Page 6 of 9

Manager shall not make a profit or suffer a loss and that it should be fairly and adequately compensated for its costs and expenses.

     2.14 Environmental Compliance Fund. Costs of reasonably anticipated Environmental Compliance which, on a Program basis, shall be determined by the Management Committee and shall be based on proportionate contributions in an amount sufficient to establish an Environmental Compliance Fund, which through successive proportionate contributions during the life of the Business, will pay for ongoing Environmental Compliance conducted during Operations and which will aggregate the reasonably anticipated costs of mine closure, post-Operations Environmental Compliance and Continuing Obligations. The Manager shall invest such amounts on behalf of the Participants as provided in Subsection 8.2(r).

     2.15 Other Expenditures. Any reasonable direct expenditure, other than expenditures which are covered by the foregoing provisions, incurred by the Manager for the necessary and proper conduct of Operations.

ARTICLE III
BASIS OF CHARGES TO BUSINESS ACCOUNT

     3.1 Purchases. Material purchased and services procured from third parties shall be charged to the Business Account by the Manager at invoiced cost, including applicable transfer taxes, less all discounts taken. If any Material is determined to be defective or is returned to a vendor for any other reason, the Manager shall credit the Business Account when an adjustment is received from the vendor.

     3.2 Material Furnished by a Participant for Use in the Business. Any Material furnished by either Participant for use in the Business or distributed to either Participant by the Manager shall be priced on the following basis:

          (a) New Material: New Material furnished by either Participant shall be priced F.O.B. the nearest reputable supply store or railway receiving point, where like Material is available, at the current replacement cost of the same kind of Material, exclusive of any available cash discounts, at the time it is furnished (herein called “New Price”).

          (b) Used Material.

               (i) Used Material in sound and serviceable condition and suitable for reuse without reconditioning shall be priced as follows:

                    (a) Used Material furnished by either Participant shall be priced at seventy-five percent (75%) of the New Price;

EXHIBIT B
Page 7 of 9

                    (b) Used Material distributed to either Participant shall be priced (i) at seventy-five percent (75%) of the New Price if such Material was originally charged to the Business Account as new Material, or (ii) at sixty-five percent (65%) of the New Price if such Material was originally charged to the Business Account as good used Material at seventy-five percent (75%) of the New Price.

               (ii) Other used Material that, after reconditioning, will be further serviceable for original function as good secondhand Material, or that is serviceable for original function but not substantially suitable for reconditioning, shall be priced at fifty percent (50%) of New Price. The cost of any reconditioning shall be borne by the transferee.

               (iii) Bad-Order Material which is no longer usable for its original purpose without excessive repair cost but further usable for some other purpose shall be priced on a basis comparable with items normally used for that purpose.

               (iv) All other Material, including junk, shall be priced at a value commensurate with its use or at prevailing prices.

          (c) Obsolete Material. Any Material that is serviceable and usable for its original function, but its condition is not equivalent to that which would justify a price as provided above, shall be priced by the Management Committee. Such price shall be set at a level that will result in a charge to the Business Account equal to the value of the service to be rendered by such Material.

     3.3 Premium Prices. Whenever Material is not readily obtainable at published or listed prices because of national emergencies, strikes or other unusual circumstances over which the Manager has no control, the Manager may charge the Business Account for the required Material on the basis of the Manager’s direct cost and expenses incurred in procuring such Material and making it suitable for use. The Manager shall give written notice of the proposed charge to the Participants prior to the time when such charge is to be billed, whereupon either Participant shall have the right, by notifying the Manager within ten (10) days of the delivery of the notice from the Manager, to furnish at the usual receiving point all or part of its share of Material suitable for use and acceptable to the Manager.

     3.4 Warranty of Material Furnished by the Manager or Participants. Neither Participant warrants any Material furnished beyond any dealer’s or manufacturer’s warranty and no credits shall be made to the Business Account for defective Material until adjustments are received by the Manager from the dealer, manufacturer or their respective agents.

EXHIBIT B
Page 8 of 9

ARTICLE IV
DISPOSAL OF MATERIAL

          4.1 Disposition Generally. The Manager shall have no obligation to purchase either Participant’s interest in Material. The Management Committee shall determine the disposition of major items of surplus Material, provided the Manager shall have the right to dispose of normal accumulations of junk and scrap Material either by sale or by transfer to the Participants as provided in Paragraph 4.2.

          4.2 Distribution to Participants. Any Material to be distributed to the Participants shall be made in proportion to their respective Participating Interests, and corresponding credits shall be made to the Business Account on the basis provided in Paragraph 3.2.

          4.3 Sales. Sales of Material to third parties shall be credited to the Business Account at the net amount received. Any damages or claims by the Purchaser shall be charged back to the Business Account if and when paid.

ARTICLE V
INVENTORIES

          5.1 Periodic Inventories, Notice and Representations. At reasonable intervals, inventories shall be taken by the Manager, which shall include all such Material as is ordinarily considered controllable by operators of mining properties, and the expense of conducting such periodic inventories shall be charged to the Business Account. The Manager shall give written notice to the Participants of its intent to take any inventory at least thirty (30) days before such inventory is scheduled to take place. A Participant shall be deemed to have accepted the results of any inventory taken by the Manager if the Participant fails to be represented at such inventory.

          5.2 Reconciliation and Adjustment of Inventories. Reconciliation of inventory with charges to the Business Account shall be made, and a list of overages and shortages shall be furnished to the Management Committee within six (6) months after the inventory is taken. Inventory adjustments shall be made by the Manager to the Business Account for overages and shortages, but the Manager shall be held accountable to the Business only for shortages due to lack of reasonable diligence.

EXHIBIT B
Page 9 of 9

EXHIBIT C

To
CONVERSE URANIUM PROJECT
EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
By And Between
Canyon Resources Corporation
And
New Horizon Uranium Corporation

TAX MATTERS

ARTICLE I
EFFECT OF THIS EXHIBIT

          This Exhibit shall govern the relationship of the Participants with respect to tax matters and the other matters addressed herein. Except as otherwise indicated, capitalized terms used in this Exhibit shall have the meanings given to them in the Agreement. In the event of a conflict between this Exhibit and the other provisions of the Agreement, the terms of this Exhibit shall control.

ARTICLE II
TAX MATTERS PARTNER

          2.1 Designation of Tax Matters Partner. The Manager is hereby designated the tax matters partner (hereinafter “TMP”) as defined in Section 6231(a)(7) of the Internal Revenue Code of 1986 (“the Code”) and shall be responsible for, make elections for, and prepare and file any federal and state tax returns or other required tax forms following approval of the Management Committee. In the event of any change in Manager, the Participant serving as Manager at the end of a taxable year shall continue as TMP with respect to all matters concerning such year unless the TMP for that year is required to be changed pursuant to applicable Treasury Regulations. The TMP and the other Participant shall use reasonable best efforts to comply with the responsibilities outlined in this Article II and in Sections 6221 through 6233 of the Code (including any Treasury regulations promulgated thereunder) and in doing so shall incur no liability to any other party.

          2.2 Notice. Each Participant shall furnish the TMP with such information (including information specified in Section 6230(e) of the Code) as it may reasonably request to permit it to provide the Internal Revenue Service with sufficient information to allow proper notice to the Participants in accordance with Section 6223 of the Code. The TMP shall keep each Participant informed of all administrative and judicial proceedings

EXHIBIT C
Page 1 of 11

for the adjustment at the partnership level of partnership items in accordance with Section 6223(g) of the Code.

          2.3 Inconsistent Treatment of Partnership Item. If an administrative proceeding contemplated under Section 6223 of the Code has begun, and the TMP so requests, each Participant shall notify the TMP of its treatment of any partnership item on its federal income tax return that is inconsistent with the treatment of that item on the partnership return.

          2.4 Extensions of Limitation Periods. The TMP shall not enter into any extension of the period of limitations as provided under Section 6229 of the Code without first giving reasonable advance notice to the other Participant of such intended action.

          2.5 Requests for Administrative Adjustments. Neither Participant shall file, pursuant to Section 6227 of the Code, a request for an administrative adjustment of partnership items for any partnership taxable year without first notifying the other Participant. If the other Participant agrees with the requested adjustment, the TMP shall file the request for administrative adjustment on behalf of the partnership. If consent is not obtained within thirty (30) days after notice from the proposing Participant, or within the period required to timely file the request for administrative adjustment, if shorter, either Participant, including the TMP, may file that request for administrative adjustment on its own behalf.

          2.6 Judicial Proceedings. Either Participant intending to file a petition under Section 6226, 6228 or other sections of the Code with respect to any partnership item, or other tax matters involving the tax partnership, shall notify the other Participant of such intention and the nature of the contemplated proceeding. If the TMP is the Participant intending to file such petition, such notice shall be given within a reasonable time to allow the other Participant to participate in the choosing of the forum in which such petition will be filed. If both Participants do not agree on the appropriate forum, then the appropriate forum shall be decided in accordance with Section 7.2. If a deadlock results, the TMP shall choose the forum. If either Participant intends to seek review of any court decision rendered as a result of a proceeding instituted under the preceding part of this Paragraph, such Participant shall notify the other Participant of such intended action.

          2.7 Settlements. The TMP shall not bind the other Participant to a settlement agreement without first obtaining the written consent of any such Participant. Either Participant who enters into a settlement agreement for its own account with respect to any partnership items, as defined by Section 6231(a)(3) of the Code, shall notify the other Participant of such settlement agreement and its terms within ninety (90) days from the date of settlement.

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          2.8 Fees and Expenses. The TMP shall not engage legal counsel, certified public accountants, or others without the prior consent of the Management Committee. Either Participant may engage legal counsel, certified public accountants, or others in its own behalf and at its sole cost and expense. Any reasonable item of expense, including but not limited to fees and expenses for legal counsel, certified public accountants, and others which the TMP incurs (after proper consent by the Management Committee as provided above) in connection with any audit, assessment, litigation, or other proceeding regarding any partnership item, shall constitute proper charges to the Business Account and shall be borne by the Participants as any other item which constitutes a direct charge to the Business Account pursuant to the Agreement.

          2.9 Survival. The provisions of the foregoing paragraphs, including but not limited to the obligation to pay fees and expenses contained in Paragraph 2.8, shall survive the termination of the tax partnership or the termination of either Participant’s interest in the tax partnership and shall remain binding on the Participants for a period of time necessary to resolve with the Internal Revenue Service or the Department of the Treasury any and all matters regarding the federal income taxation of the tax partnership for the applicable tax year(s).

ARTICLE III
TAX ELECTIONS AND ALLOCATIONS

          3.1 Tax Partnership Election. It is understood and agreed that the Participants intend to create a partnership for United States federal and state income tax purposes, and, unless otherwise agreed to hereafter by both Participants, neither Participant shall make an election to be, or have the arrangement evidenced hereby, excluded from the application of any provisions of Subchapter K of the Code, or any equivalent state income tax provision. It is understood and agreed that the Participants intend to create a partnership for federal and state income tax purposes only (a “tax partnership”). The Manager shall file with the appropriate office of the Internal Revenue Service a partnership income tax return covering the Operations. The Participants recognize that this Agreement may be subject to state income tax statutes. The Manager shall file with the appropriate offices of the state agencies any required partnership state income tax returns. Each Participant agrees to furnish to the Manager any information it may have relating to Operations as shall be required for proper preparation of such returns. The Manager shall furnish to the other Participant for its review a copy of each proposed income tax return at least two weeks prior to the date the return is filed.

          3.2 Tax Elections. The tax partnership shall make the following elections for purposes of all partnership income tax returns:

               (a) To use the accrual method of accounting.

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               (b) Pursuant to the provisions at Section 706(b)(1) of the Code, to use as its taxable year the year ended December 31. In this connection, Canyon represents that its taxable year is the year ending December 31 and Horizon represents that its taxable year is the year ending December 31.

               (c) To deduct currently all development expenses to the extent possible under Section 616 of the Code.

               (d) Unless the Participants unanimously agree otherwise, to compute the allowance for depreciation in respect of all depreciable Assets using the maximum accelerated tax depreciation method and the shortest life permissible or, at the election of the Manager, using the units of production method of depreciation.

               (e) To treat advance royalties as deductions from gross income for the year paid or accrued to the extent permitted by law.

               (f) To adjust the basis of tax partnership property under Section 754 of the Code at the request of either Participant;

               (g) To amortize over the shortest permissible period all organizational expenditures and business start-up expenses under Sections 195 and 709 of the Code;

          Any other election required or permitted to be made by the tax partnership under the Code or any state tax law shall be made as determined by the Management Committee.

          Each Participant shall elect under Section 617(a) of the Code to deduct currently all exploration expenses. Each Participant reserves the right to capitalize its share of development and/or exploration expenses of the tax partnership in accordance with Section 59(e) of the Code, provided that a Participant’s election to capitalize all or any portion of such expenses shall not affect the Participant’s Capital Account.

          3.3 Allocations to Participants. Allocations for Capital Account purposes shall be in accordance with the following:

               (a) The Participants recognize the provision for taking production in kind, as provided elsewhere in the Agreement, as each Participant’s right to determine a market for the sale of a proportionate share of production subject to Subparagraph 3.3(h) below. All items of income, gain, deduction, loss, credit or tax attribute arising from the sale and marketing of such production shall be allocated to the Participant who designated such market.

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               (b) Exploration expenses and development cost deductions shall be allocated among the Participants in accordance with their respective contributions to such expenses and costs.

               (c) Depreciation and amortization deductions with respect to a depreciable Asset shall be allocated among the Participants in accordance with their respective contributions to the adjusted basis of the Asset which gives rise to the depreciation, amortization or loss deduction.

               (d) Production and operating cost deductions shall be allocated among the Participants in accordance with their respective contributions to such costs.

               (e) Deductions for depletion (to the extent of the amount of such deductions that would have been determined for Capital Account purposes if only cost depletion were allowable for federal income tax purposes) shall be allocated to the Participants in accordance with their respective contributions to the adjusted basis of the depletable property. Any remaining depletion deductions shall be allocated to the Participants so that, to the extent possible, the Participants receive the same total amounts of percentage depletion as they would have received if percentage depletion were allocated to the Participants in proportion to their respective shares of the gross income used as the basis for calculating the federal income tax deduction for percentage depletion.

               (f) Subject to Subparagraph 3.3(h) below, gross income on the sale of production shall be allocated in accordance with the Participants’ rights to share in the proceeds of such sale.

               (g) Except as provided in Subparagraph 3.3(h) below, gain or loss on the sale of a depreciable or depletable asset shall be allocated so that, to the extent possible, the net amount reflected in the Participants’ Capital Account with respect to such property (taking into account the cost of such property, depreciation, amortization, depletion or other cost recovery deductions and gain or loss) most closely reflects the Participants’ Participating Interests.

               (h) Gains and losses on the sale of all or substantially all the Assets of the tax partnership shall be allocated so that, to the extent possible, the Participants’ resulting Capital Account balances are in the same ratio as their Participating Interests at the time of such sale.

               (i) {Intentionally Omitted.]

               (j) All deductions and losses that are not otherwise allocated in this Paragraph shall be allocated among the Participants in accordance with their

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respective contributions to the costs producing each such deduction or to the adjusted basis of the Asset producing each such loss.

               (k) Any recapture of exploration expenses under Section 617(b)(1)(A) of the Code, and any disallowance of depletion under Section 617(b)(1)(B) of the Code, shall be borne by the Participants in the same manner as the related exploration expenses were allocated to, or claimed by, them.

               (l) All other items of income and gain shall be allocated to the Participants in accordance with their Participating Interests.

               (m) If a reduced Participating Interest is restored pursuant to Section 9.6, the Manager shall endeavor to allocate items of income, gain, loss, and deduction (in the same year as the restoration of such Participating Interest or, if necessary, in subsequent years) so as to cause the Capital Account balances of the Participants to be the same as they would have been if the restored Participating Interest had never been reduced.

               (n) If the Participants’ Participating Interests change during any taxable year of the tax partnership, the distributive share of items of income, gain, loss and deduction of each Participant shall be determined in any manner (1) permitted by Section 706 of the Code, and (2) agreed on by both Participants. If the Participants cannot agree on a method, the method shall be determined by the Manager in consultation with the tax partnership’s tax advisers, with preference given to the interim closing-of-the-books method except where application of that method would result in undue administrative expense in relationship to the amount of the items to be allocated.

               (o) “Nonrecourse deductions,” as defined by Treas. Reg. Section 1.704-2(b)(1) shall be allocated between the Participants in proportion to their Participating Interests.

          3.4 Regulatory Allocations. Notwithstanding the provisions of Paragraph 3.3 to the contrary, the following special allocations shall be given effect for purposes of maintaining the Participants’ Capital Accounts.

               (a) If either Participant unexpectedly receives any adjustments, allocations, or distributions described in Treas. Reg. Sections 1.704-1(b)(2)(ii)(d)(4), 1.704- 1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), which result in a deficit Capital Account balance, items of income and gain shall be specially allocated to each such Participant in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Capital Account deficit of such Participant as quickly as possible. For the purposes of this Paragraph, each Participant’s Capital Account balances shall be increased by the sum of (i) the amount such Participant is obligated to restore pursuant to any provision of the

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Agreement, and (ii) the amount such Participant is deemed to be obligated to restore pursuant to the penultimate sentences of Treas. Reg. Sections 1.704-2(g)(1) and 1.704-2(i)(5).

               (b) The “minimum gain chargeback” and “partner minimum gain chargeback” provisions of Treas. Reg. Sections 1.704-2(f) and 1.704-2(i)(4), respectively, are incorporated herein by reference and shall be given effect. In accordance with Treas. Reg. Section 1.704-2(i)(1), deductions attributable to a “partner nonrecourse liability” shall be allocated to the Participant that bears the economic risk of loss for such liability.

               (c) If the allocation of deductions to either Participant would cause such Participant to have a deficit Capital Account balance at the end of any taxable year of the tax partnership (after all other allocations provided for in this Article III have been made and after giving effect to the adjustments described in Subparagraph 3.4(a)), such deductions shall instead be allocated to the other Participant.

          3.5 Curative Allocations. The allocations set forth in Paragraph 3.4 (the “Regulatory Allocations”) are intended to comply with certain requirements of the Treasury Regulations. It is the intent of the Participants that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of income, gain, loss or deduction pursuant to this Paragraph. Therefore, notwithstanding any other provisions of this Article III (other than the Regulatory Allocations), the Manager shall make such offsetting special allocations of income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Participant’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Participant would have had if the Regulatory Allocations were not part of this Agreement and all items were allocated pursuant to Paragraph 3.3 without regard to Paragraph 3.4.

          3.6 Tax Allocations. Except as otherwise provided in this Paragraph, items of taxable income, deduction, gain and loss shall be allocated in the same manner as the corresponding item is allocated for book purposes under Paragraphs 3.3, 3.4 and 3.5 of the corresponding item determined for Capital Account purposes.

               (a) Recapture of tax deductions arising out of a disposition of property shall, to the extent consistent with the allocations for tax purposes of the gain or amount realized giving rise to such recapture, be allocated to the Participants in the same proportions as the recaptured deductions were originally allocated or claimed.

               (b) To the extent required by Section 704(c) of the Code, income, gain, loss, and deduction with respect to property contributed to the tax partnership by a Participant shall be shared among both Participants so as to take account of the variation between the basis of the property to the tax partnership and its fair market value at the time of contribution. The Participants intend that Section 704(c) shall effect no allocations

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of tax items that are different from the allocations under Paragraphs 3.3, 3.4 and 3.5 of the corresponding items for Capital Account purposes. However, to the extent that allocations of tax items are required pursuant to Section 704(c) of the Code to be made other than in accordance with the allocations under Paragraphs 3.3, 3.4 and 3.5 of the corresponding items for Capital Account purposes, Section 704(c) shall be applied in accordance with the “traditional method without curative allocations” under Treas. Reg. Section 1.704-3(b).

               (c) Depletion deductions with respect to contributed property shall be determined without regard to any portion of the property’s basis that is attributable to precontribution expenditures by Canyon that were capitalized under Code Sections 616(b), 59(e) and 291(b). Deductions attributable to precontribution expenditures by Canyon shall be calculated under such Code Sections as if Canyon continued to own the depletable property to which such deductions are attributable, and such deductions shall be reported by the tax partnership and shall be allocated solely to Canyon.

               (d) The Participants understand the allocations of tax items set forth in this Paragraph, and agree to report consistently with such allocations for federal and state tax purposes.

ARTICLE IV
CAPITAL ACCOUNTS; LIQUIDATION

          4.1 Capital Accounts.

               (a) A separate Capital Account shall be established and maintained by the TMP for each Participant. Such Capital Account shall be increased by (i) the amount of money contributed by the Participant to the tax partnership, (ii) the fair market value of property contributed by the Participant to the tax partnership (net of liabilities secured by such contributed property that the partnership is considered to assume or take subject to under Code Section 752) and (iii) allocations to the Participant under Paragraphs 3.3, 3.4 and 3.5 of tax partnership income and gain (or items thereof), including income and gain exempt from tax; and shall be decreased by (iv) the amount of money distributed to the Participant by the tax partnership, (v) the fair market value of property distributed to the Participant by the tax partnership (net of liabilities secured by such distributed property and that the Participant is considered to assume or take subject to under Code Section 752), (vi) allocations to the Participant under Paragraphs 3.3, 3.4 and 3.5 of expenditures of the tax partnership not deductible in computing its taxable income and not properly chargeable to a Capital Account, and (vii) allocations of tax partnership loss and deduction (or items thereof), excluding items described in (vi) above and percentage depletion to the extent it exceeds the adjusted tax basis of the depletable property to which it is attributable. The Participants agree that the net fair market value of the property contributed by Canyon to the tax partnership pursuant to Section 5.1(a) of the Agreement is Two Million Dollars ($2,000,000).

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               (b) In the event that the Capital Accounts of the Participants are computed with reference to the book value of any Asset which differs from the adjusted tax basis of such Asset, then the Capital Accounts shall be adjusted for depreciation, depletion, amortization and gain or loss as computed for book purposes with respect to such Asset in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(g).

               (c) In the event any interest in the tax partnership is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest, except as provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(1).

               (d) In the event property, other than money, is distributed to a Participant, the Capital Accounts of the Participants shall be adjusted to reflect the manner in which the unrealized income, gain, loss and deduction inherent in such property (that has not been reflected in the Capital Accounts previously) would be allocated among the Participants if there was a taxable disposition of such property for the fair market value of such property (taking Section 7701(g) of the Code into account) on the date of distribution. For this purpose the fair market value of the property shall be determined as set forth in Paragraph 4.2(a) below.

               (e) In the event the Management Committee designates a Supplemental Business Agreement area within the Area of Interest as described in Article XV of the Agreement, the Management Committee shall appropriately segregate Capital Accounts to reflect that designation and shall make such other modifications to the Agreement as are appropriate to reflect the manner of administering Capital Accounts in accordance with the terms of this Exhibit C.

               (f) Canyon is contributing to the Agreement certain depletable properties with respect to which Canyon currently has an adjusted tax basis which may consist in part of depletable expenditures and in part of expenditures capitalized under Code Sections 616(b), 291(b) and/or 59(e). For purposes of maintaining the Capital Accounts, the tax partnership’s deductions with respect to contributed property in each year for (i) depletion, (ii) deferred development expenditures under Section 616(b) attributable to pre-contribution expenditures, (iii) amortization under Section 291(b) attributable to pre-contribution expenditures, and (iv) amortization under Section 59(e) attributable to pre-contribution expenditures shall be the amount of the corresponding item determined for tax purposes pursuant to Subparagraph 3.6(c) multiplied by the ratio of (A) the book value at which the contributed property is recorded in the Capital Accounts to (B) the adjusted tax basis of the contributed property (including basis resulting from capitalization of pre-contribution development expenditures under Sections 616(b), 291(b), and 59(e)).

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               (g) The foregoing provisions, and the other provisions of the Agreement relating to the maintenance of Capital Accounts and the allocations of income, gain, loss, deduction and credit, are intended to comply with Treasury Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Management Committee shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto, are computed in order to comply with such Regulations, the Management Committee may make such modification, provided that it is not likely to have a material effect on the amount distributable to either Participant upon liquidation of the tax partnership pursuant to Paragraph 4.2.

               (h) If the Participants so agree, upon the occurrence of an event described in Treas. Reg. Section 1.704-1(b)(2)(iv)(5), the Capital Accounts shall be restated in accordance with Treas. Reg. Section 1.704-1(b)(2)(iv)(f) to reflect the manner in which unrealized income, gain, loss or deduction inherent in the assets of the tax partnership (that has not been reflected in the Capital Accounts previously) would be allocated among the Participants if there were a taxable disposition of such assets for their fair market values, as determined in accordance with Section 4.2(a). For purposes of Paragraph 3.3, a Participant shall be treated as contributing the portion of the book value of any property that is credited to the Participant’s Capital Account pursuant to the preceding sentence. Following a revaluation pursuant to this Subparagraph 4.1(h), the Participants’ shares of depreciation, depletion, amortization and gain or loss, as computed for tax purposes, with respect to property that has been revalued pursuant to this Subparagraph 4.1(h) shall be determined in accordance with the principles of Code Section 704(c) as applied pursuant to the final sentence of Subparagraph 3.6(b).

          4.2 Liquidation. In the event the partnership is “liquidated” within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g) then, notwithstanding any other provision of the Agreement to the contrary, the following steps shall be taken (after taking into account any transfers of Capital Accounts pursuant to Sections 5.2(a), 6.3(a) or 12.3 of the Agreement):

               (a) The Capital Accounts of the Participants shall be adjusted to reflect any gain or loss which would be realized by the partnership and allocated to the Participants pursuant to the provisions of Article III of this Exhibit C if the Assets had been sold at their fair market value at the time of liquidation. The fair market value of the Assets shall be determined by agreement of both Participants; provided, however, that in the event that the Participants fail to agree on the fair market value of any Asset, its fair market value shall be determined by a nationally recognized independent engineering firm or other qualified independent party approved by both Participants.

               (b) After making the foregoing adjustments and/or contributions, all remaining Assets shall be distributed to the Participants in accordance with the balances

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in their Capital Accounts (after taking into account all allocations under Article III, including Subparagraph 3.3(h)). Unless otherwise expressly agreed on by both Participants, each Participant shall receive an undivided interest in each and every Asset determined by the ratio of the amount in each Participant’s Capital Account to the total of both of the Participants’ Capital Accounts. Assets distributed to the Participants shall be deemed to have a fair market value equal to the value assigned to them pursuant to Subparagraph 4.2(a) above.

               (c) All distributions to the Participants in respect of their Capital Accounts shall be made in accordance with the time requirements of Treasury Regulation Sections 1.704-1(b)(2)(ii)(b)(2) and (3).

          4.3 Deemed Terminations. Notwithstanding the provisions of Paragraph 4.2, if the “liquidation” of the tax partnership results from a deemed termination under Section 708(b)(1)(B) of the Code, then (i) Subparagraphs 4.2(a) and (b) shall not apply, (ii) the tax partnership shall be deemed to have distributed its Assets in accordance with the relative Capital Account balances of the Participants as adjusted pursuant to Subparagraph 4.2(a), (iii) the Participants shall be deemed for tax purposes to have contributed those Assets to a new partnership pursuant to the terms of this Exhibit, and (iv) the new tax partnership shall continue pursuant to the terms of this Agreement and this Exhibit.

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EXHIBIT D
To
CONVERSE URANIUM PROJECT
EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
By And Between
Canyon Resources Corporation
And
New Horizon Uranium Corporation

DEFINITIONS

     “Affiliate” means any person, partnership, limited liability company, joint venture, corporation, or other form of enterprise which Controls, is Controlled by, or is under common Control with a Participant.

     “Agreement” means this Converse Uranium Project Exploration, Development and Mine Operating Agreement, including all amendments and modifications, and all schedules and exhibits, all of which are incorporated by this reference.

     “Approved Alternative” means a Development and Mining alternative selected by the Management Committee from various Development and Mining alternatives analyzed in the Pre-Feasibility Studies.

     “Area of Interest” means the area described in Paragraph 1.3 of Exhibit A.

     “Assets” means the Properties, Products, Business Information, and all other real and personal property, tangible and intangible, including existing or after-acquired properties and all contract rights held for the benefit of the Participants hereunder.

     “Budget” means a detailed estimate of all costs to be incurred and a schedule of cash advances to be made by the Participants with respect to a Program.

     “Business” means the contractual relationship of the Participants under this Agreement.

     “Business Account” means the account maintained by the Manager for the Business in accordance with Exhibit B.

     “Business Information” means the terms of this Agreement, and any other agreement relating to the Business, the Existing Data, and all information, data, knowledge

EXHIBIT D
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and know-how, in whatever form and however communicated (including, without limitation, Confidential Information), developed, conceived, originated or obtained by either Participant in performing its obligations under this Agreement. The term “Business Information” shall not include any improvements, enhancements, refinements or incremental additions to Participant Information that are developed, conceived, originated or obtained by either Participant in performing its obligations under this Agreement.

     “Capital Account” means the account maintained for each Participant in accordance with Exhibit C.

     “Confidential Information” means all information, data, knowledge and know-how (including, but not limited to, formulas, patterns, compilations, programs, devices, methods, techniques and processes) that derives independent economic value, actual or potential, as a result of not being generally known to, or readily ascertainable by, third parties and which is the subject of efforts that are reasonable under the circumstances to maintain its secrecy, including without limitation all analyses, interpretations, compilations, studies and evaluations of such information, data, knowledge and know-how generated or prepared by or on behalf of either Participant. Confidential Information does not include information within the public domain through no fault or action taken of any party after the Effective Date of this Agreement.

     “Continuing Obligations” mean obligations or responsibilities that are reasonably expected to continue or arise after Operations on a particular area of the Properties have ceased or are suspended, such as future monitoring, stabilization, or Environmental Compliance.

     “Control” used as a verb means, when used with respect to an entity, the ability, directly or indirectly through one or more intermediaries, to direct or cause the direction of the management and policies of such entity through (i) the legal or beneficial ownership of voting securities or membership interests; (ii) the right to appoint managers, directors or corporate management; (iii) contract; (iv) operating agreement; (v) voting trust; or otherwise; and, when used with respect to a person, means the actual or legal ability to control the actions of another, through family relationship, agency, contract or otherwise; and “Control” used as a noun means an interest which gives the holder the ability to exercise any of the foregoing powers.

     “Cover Payment” shall have the meaning as set forth in Section 10.4 of the Agreement.

     “Development” means all preparation (other than Exploration) for the removal and recovery of Products, including pilot or test projects and installation or construction of improvements to be used for Mining, and all related Environmental Compliance.

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     “Effective Date” means the date set forth in the preamble to this Agreement.

     “Encumbrance” or “Encumbrances” means mortgages, deeds of trust, security interests, pledges, liens, net profits interests, royalties or overriding royalty interests, other payments out of production, or other burdens of any nature.

     “Environmental Compliance” means actions performed during or after Operations to comply with the requirements of all Environmental Laws or contractual commitments related to reclamation of the Properties or other compliance with Environmental Laws.

     “Environmental Laws” means Laws aimed at reclamation or restoration of the Properties; abatement of pollution; protection of the environment; protection of wildlife, including endangered species; ensuring public safety from environmental hazards; protection of cultural or historic resources; management, storage or control of hazardous materials and substances; releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances as wastes into the environment, including without limitation, ambient air, surface water and groundwater; and all other Laws relating to the manufacturing, processing, distribution, use, treatment, storage, disposal, handling or transport of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes.

     “Environmental Liabilities” means any and all claims, actions, causes of action, damages, losses, liabilities, obligations, penalties, judgments, amounts paid in settlement, assessments, costs, disbursements, or expenses (including, without limitation, attorneys’ fees and costs, experts’ fees and costs, and consultants’ fees and costs) of any kind or of any nature whatsoever that are asserted against either Participant, by any person or entity other than the other Participant, alleging liability (including, without limitation, liability for studies, testing or investigatory costs, cleanup costs, response costs, removal costs, remediation costs, containment costs, restoration costs, corrective action costs, closure costs, reclamation costs, natural resource damages, property damages, business losses, personal injuries, penalties or fines) arising out of, based on or resulting from (i) the presence, release, threatened release, discharge or emission into the environment of any hazardous materials or substances existing or arising on, beneath or above the Properties and/or emanating or migrating and/or threatening to emanate or migrate from the Properties to off-site properties; (ii) physical disturbance of the environment; or (iii) the violation or alleged violation of any Environmental Laws.

     “Equity Account” means the account maintained for each Participant by the Manager in accordance with Subsection 8.2(n) of the Agreement.

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     “Existing Data” means maps, drill logs and other drilling data, core tests, pulps, reports, surveys, assays, analyses, production reports, operations, technical, accounting and financial records, and other material information developed in operations on the Properties prior to the Effective Date.

     “Expansion” or “Modification” means (i) a material increase in mining or production capacity; (ii) a material change in the recovery process; or (iii) a material change in waste or tailings disposal methods. An increase or change shall be deemed “material” if it is anticipated to cost more than ten percent (10%) of original capital costs attributable to the Development of the mining or production capacity, recovery process or waste or tailings disposal facility to be expanded or modified.

     “Exploration” means all activities directed toward ascertaining the existence, location, magnitude and extent, quantity, quality or commercial value of deposits of Products, including but not limited to additional drilling required after to evaluate potentially commercial mineralization, and including related Environmental Compliance.

     “Feasibility Contractors” means one or more engineering firms approved by the Management Committee for purposes of preparing or auditing any Pre-Feasibility Study or Feasibility Study.

     “Feasibility Study” means a report to be prepared following selection by the Management Committee of one or more Approved Alternatives. The Feasibility Study shall include a review of information presented in any Pre-Feasibility Studies concerning the Approved Alternative(s). The Feasibility Study shall be in a form, of a scope, and at a level of accuracy generally acceptable to reputable financial institutions that provide financing to the mining industry.

     “Governmental Fees” means all location fees, mining claim rental fees, mining claim maintenance payments and similar payments required by Law to locate and hold mining claims or leases.

     “Initial Contribution” means that contribution each Participant has made or agrees to make pursuant to Section 5.1 of the Agreement.

     “Law” or “Laws” means all applicable federal, state and local laws (statutory or common), rules, ordinances, regulations, grants, concessions, franchises, licenses, orders, directives, judgments, decrees, and other governmental restrictions, including permits and other similar requirements, whether legislative, municipal, administrative or judicial in nature.

     “Management Committee” means the committee established under Article VII of the Agreement.

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     “Manager” means the Participant appointed under Article VIII of the Agreement to manage Operations, or any successor Manager.

     “Mining” means the mining whether by surface, underground, or in-situ methods, extracting, producing, treating, handling, processing, removal and stockpiling of Products.

     “Operations” means the activities carried out under this Agreement.

     “Participant” means Canyon or Horizon, or any permitted successor or assign of Canyon or Horizon under the Agreement.

     “Participant Information” means all information, data, knowledge and know-how, in whatever form and however communicated (including, without limitation, Confidential Information but excluding the Existing Data), which, as shown by written records, was developed, conceived, originated or obtained by a Participant: (a) prior to entering into this Agreement, or (b) independent of its performance under the terms of this Agreement.

     “Participating Interest” means the percentage interest representing the ownership interest of a Participant in the Assets, and all other rights and obligations arising under this Agreement, as such interest may from time to time be adjusted hereunder. Participating Interests shall be calculated to three decimal places and rounded to two decimal places as follows: Decimals of .005 or more shall be rounded up (e.g., 1.519% rounded to 1.52%); decimals of less than .005 shall be rounded down (e.g., 1.514% rounded to 1.51%). The initial Participating Interests of the Participants are set forth in Section 6.1 of the Agreement.

     “Payout” means the date on which the Equity Account balance of each of the Participants has become zero or a negative number, regardless of whether the Equity Account balance of either or both Participants subsequently becomes a positive number. If one Participant’s Equity Account balance becomes zero or a negative number before the other Participant’s, Payout shall not occur until the date that the other Participant’s Equity Account balance first becomes zero or a negative number.

     “Pre-Feasibility Studies” means one or more studies prepared to analyze whether economically viable Mining Operations may be possible on the Properties, as described in Section 9.8.

     “Prime Rate” means the interest rate quoted and published as “Prime” as published in The Wall Street Journal, under the heading “Money Rate,” as the rate may change from day to day.

EXHIBIT D
Page 5 of 6

     “Products” means all ores, minerals and mineral resources produced from the Properties, including but not limited to all uranium, vanadium, other fissionable source materials, other spatially associated minerals, and all forms of U₃O₈ in resins, solutions, concentrates, or yellowcake, but shall not include any oil, gas, associated liquid hydrocarbons or coal.

     “Program” means a description in reasonable detail of Operations to be conducted and objectives to be accomplished by the Manager for a period determined by the Management Committee.

     “Program Period” means the time period covered by an adopted Program and Budget.

     “Project Financing” means any financing approved by the Management Committee and obtained by the Participants for the purpose of placing a mineral deposit situated on the Properties into commercial production, but shall not include any such financing obtained individually by either Participant to finance payment or performance of its obligations under the Agreement.

     “Properties” means those interests in real property described in Paragraph 1.1 of Exhibit A and all other interests in real property within the Area of Interest that are acquired and held subject to the Agreement.

     “Recalculated Participating Interest” means the reduced Participating Interest of a Participant as recalculated under Sections 9.5, 9.6 or 10.5 of the Agreement.

     “Reduced Participant” means a Participant whose Participating Interest is reduced under Sections 9.5 or 10.5 of the Agreement.

     “Transfer” means, when used as a verb, to sell, grant, assign, create an Encumbrance, pledge or otherwise convey, or dispose of or commit to do any of the foregoing, or to arrange for substitute performance by an Affiliate or third party (except as permitted under Subsection 8.2(j) and Section 8.6 of the Agreement), either directly or indirectly; and, when used as a noun, means such a sale, grant, assignment, Encumbrance, pledge or other conveyance or disposition, or such an arrangement.

EXHIBIT D
Page 6 of 6

EXHIBIT E
To
CONVERSE URANIUM PROJECT
EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
By And Between
Canyon Resources Corporation
And
New Horizon Uranium Corporation

PRODUCTION ROYALTY

Production Royalty, as defined in Section 6.3(a) of the Agreement to which this Exhibit E is attached, shall be determined and paid in accordance with the following terms and conditions, which terms and conditions shall be set forth in any royalty deed delivered pursuant to Section 6.3(a). For purposes of this Exhibit E: (a) the term “Grantor” shall mean the Participant that is responsible for paying Production Royalty; (b) the term “Grantee” shall mean the person or entity to whom the Production Royalty is granted and paid; and (c) all other defined terms shall have the meaning given to them in the Agreement or in Exhibit D attached to the Agreement.

     1. Reservation of Production Royalty. Upon Grantee’s conversion to a Production Royalty and Grantee’s conveyance of all of its right, title and interest in the Assets to Grantor in accordance with Section 6.3(a), Grantee shall reserve a royalty in the amount of three percent (3%) of the Net Returns from the sale or other disposition of all Products mined or produced from the Properties.

     2. Computation of Production Royalty. Grantor shall calculate the Net Returns realized on the sale of all Products mined or produced from the Properties and sold or otherwise disposed of (with or without sale) by or for Grantor by subtracting Allowable Deductions from Gross Sales Revenue. The Production Royalty payable to Grantee shall be the amount of the Net Returns so calculated multiplied by three percent (3%). Grantee shall have no right whatsoever to take Products “in kind.”

     3. Definitions. For purposes of this Exhibit E:

a.	“Allowable Deductions” has the meaning given to it in Paragraph 4, below;
b.	“Gross Sales Revenue” shall mean the gross revenue received by or on behalf of Grantor from the sale or other disposition (with or without sale) of Products. Gross Sales Revenue shall be determined on a weighted average basis when Grantor receives more than one

EXHIBIT E
Page 1 of 5

	price for Products sold or otherwise disposed of during the period for which Production Royalty is payable;
c.	“Net Returns” means an amount determined by subtracting Allowable Deductions from Gross Sales Revenue; and
d.	“Products” means all ores, minerals and mineral resources produced from the Properties, including but not limited to all uranium, vanadium, other fissionable source materials, other spatially associated minerals, and all forms of U3O8 in resins, solutions, concentrates, or yellowcake, but shall not include any oil, gas, associated liquid hydrocarbons or coal.

     4. Allowable Deductions.

          a. For Products that are uranium-bearing, “Allowable Deductions” shall mean and include all of the following:

     i. all costs, expenses and charges of any nature whatsoever that are paid or incurred by Grantor for or in connection with the transportation of Products away from the Properties to the point of treatment, recovery, processing, storage or sale;

     ii. all deductions made by the purchaser or processor for moisture, impurities, sampling, assaying, penalties, and treatment or tolling charges or fees;

     iii. all costs, expenses and charges of any nature whatsoever that are paid or incurred by Grantor for or in connection with insurance, storage, representation at a treatment, recovery, processing plant, or for consignment sale or sales brokerage costs or fees;

     iv. all rentals and royalties of any kind payable to surface or mineral interest owners or to the United States; and

     v. all federal, state and local sales, use, severance, net proceeds of mine, excise, privilege and any other taxes, except income tax paid or incurred by Grantor, which is levied on, measured by, or applicable to mineral production or the value of Products produced from the Properties.

          b. For Products that are not uranium-bearing, “Allowable Deductions” shall mean and include all of the following:

EXHIBIT E
Page 2 of 5

     i. all costs, expenses and charges of any nature whatsoever that are paid or incurred by Grantor for or in connection with the transportation of Products away from the Properties to a mill, smelter, refinery, recovery plant or other point of treatment, recover, processing, storage or sale;

     ii. all costs, expenses and charges of any nature whatsoever that are paid or incurred by Grantor for or in connection with mineral concentration, treatment, smelting, refining or other beneficiation processes or procedures (whether or not currently known) which are undertaken off of the Properties, including without limitation costs, expenses and charges paid or incurred for or in connection with moisture, impurities, sampling, assaying, penalties, umpire services and other processor deductions;

     iii. all costs, expenses and charges of any nature whatsoever that are paid or incurred by Grantor for or in connection with insurance, storage, representation at a mill, smelter, refinery, recovery or treatment plant, or for consignment sale or sales brokerage costs or fees;

     iv. all rentals and royalties of any kind payable to surface or mineral interest owners or to the United States; and

     v. all federal, state and local sales, use, severance, net proceeds of mine, excise, privilege and any other taxes, except income tax paid or incurred by Grantor, which is levied on, measured by, or applicable to mineral production or the value of Products produced from the Properties.

     5. Treatment and Sale. Grantor shall have the right to concentrate, mill, smelt, refine, upgrade or otherwise recover, treat, process or beneficiate Products mined from the Properties at locations on or off the Properties. In the event that Products are concentrated, milled, smelted, refined, upgraded or otherwise recovered, treated, processed or beneficiated in facilities owned or controlled by Grantor (whether on or off the Properties), then Allowable Deductions shall not exceed Allowable Deductions that would have been paid or incurred by Grantor if the facilities were owned or controlled by an independent party. No Production Royalty shall be payable to Grantee for or with respect to reasonable quantities of Products that are not sold by Grantor but are used by Grantor for assaying, treatment amenability, metallurgical or other analytical processes or procedures.

     6. Statements and Payments. (a) Payment of Production Royalty shall be made by wire transfer within thirty (30) calendar days after the calendar quarter in which Gross Sales Revenue is received by or on behalf of Grantor. Payment shall be

EXHIBIT E
Page 3 of 5

made to an account for the credit of Grantee at a bank designated from time to time in writing by Grantee. At the time of each payment of Production Royalty, Grantor shall deliver to Grantee a statement setting forth in detail all pertinent facts and figures relevant to and supporting the calculation and payment of Production Royalty, including without limitation: (i) the form, weight and analysis of all Products for which Gross Sales Revenue was received during the period for which payment of Production Royalty is made; (ii) the price received for all Products from all purchasers thereof during such period; and (iii) an itemized statement of all Allowable Deductions, such that Grantee may verify the accuracy of the amount of the payment.

          (b) All statements provided to Grantee by Grantor shall be conclusively presumed to be true and correct after twenty-four (24) months following the calendar year during which such statement was received by Grantee, unless Grantee submits a written exception to Grantor within such twenty-four (24) month period. All written exceptions and claims upon Grantor for incorrect payments of Production Royalty shall be made within such twenty-four (24) month period or shall be deemed waived.

     7. Audits. Grantee shall have the right to an independent audit of all books, records and accounts relating to the calculation and payment of Production Royalty. Such audit shall review all issues raised by Grantee in any notice given by Grantee pursuant to Paragraph 7(a) above. All costs of such audit shall be borne by Grantee. Grantee shall give Grantor thirty (30) days prior notice of such audit. Any audit conducted on behalf of Grantee shall be made during Grantor’s normal business hours and shall not interfere with the business and operations of Grantor. Grantee shall not have the right to audit the books, records and accounts of Grantor relating to the calculation and payment of Production Royalty more than twenty-four (24) months after the calendar year during which the payment of Production Royalty (or the statement provided by Grantor in connection with such payment) was received. All written exceptions to and claims upon Grantor for discrepancies disclosed by such audit shall be made by Grantee not more than three (3) months after completion and delivery of such audit, or they shall be deemed waived.

     8. Adjustments. The amounts of any charges, costs or expenses or any adjustments which are actually made and given to Grantor by a purchaser, shipper, processor or other creditor that were not taken into account in a statement to Grantee which accompanied a preceding payment of Production Royalty shall be taken into account in determining the amount of the next Production Royalty payment, but no such charges or adjustments shall otherwise affect the conclusiveness of preceding statements or payments.

     9. Lesser Interest. If it is finally determined that Grantor owns an interest in the Properties which is less than the entire and undivided mineral estate therein,

EXHIBIT E
Page 4 of 5

whether or not such lesser interest is referred to herein, then the Production Royalty provided for herein shall be paid to Grantee only in the proportion to which Grantor’s interest bears to the whole and undivided mineral estate. Grantee shall be entitled to retain only that portion of the Production Royalty previously paid to Grantee hereunder as Grantor’s actual interest in the mineral estate bears to the whole and undivided mineral estate. In no case shall Grantee be required to refund or return any Production Royalty previously paid to it which exceeds the amount of Production Royalty to which Grantee was actually entitled. Instead, Grantor’s sole remedy shall be to offset all moneys previously paid Grantee that exceeded the actual amounts due Grantee against future Production Royalty which later becomes due and payable to Grantee, if any. With respect to any portion of the Properties in which Grantee owns no right, title, or interest in the Products, Grantor is under no obligation to pay, and Grantee has no right to receive, any Production Royalty.

EXHIBIT E
Page 5 of 5

EXHIBIT F
To
CONVERSE URANIUM PROJECT
EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
By And Between
Canyon Resources Corporation
And
New Horizon Uranium Corporation

INITIAL PROGRAM AND BUDGET

2006
Item	$
Initial 43-101 Property Report		10,000
Landman, acquisition of private fee land		20,000
Environmental Assessment		15,000
Exploration permit including reclamation bonding		25,000
Environmental Compliance Fund		25,000
Drilling — 30 holes to 750 ft avg. – total 22,500 ft		225,000
Drilling results analysis		10,000
Drilling Report (43-101 compliant by 3rd party)		25,000
2006 Total		355,000

*  All rotary drilling @$10.00 per ft.

EXHIBIT F
Page 1 of 1

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF THE REGISTRANT

	Date of		Place of	Ownership
	Incorporation		Incorporation	%
CR Minerals Corporation		10-02-87	Colorado, U.S.A.		100
CR Kendall Corporation		03-24-88	Colorado, U.S.A.		100
CR Montana Corporation		04-23-90	Colorado, U.S.A.		100
CR Briggs Corporation		07-25-90	Colorado, U.S.A.		100
CR International Corporation		10-06-93	Colorado, U.S.A.		100
Judith Gold Corporation		12-04-63	Montana, U.S.A.		100

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement of Form S-8 (File No. 33-37306) and Form S-1 (File No. 333-130692) of Canyon Resources Corporation of our report dated February 24, 2006, appearing in this Annual Report on Form 10-K of Canyon Resources Corporation for the year ended December 31, 2005.

/s/ Ehrhardt Keefe Steiner & Hottman P.C.

Ehrhardt Keefe Steiner & Hottman P.C.

Denver, Colorado
March 27, 2006

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-110252), Form S-8 (File No. 333-120534) and Form S-1 (File No. 333-130692) of Canyon Resources Corporation of our report dated March 19, 2004, except Note 17(a) and 17(b), which appear in the financial statements included in the Company’s Form 10-K Amendment No. 2 for the year ended December 31, 2003 and are not presented herein, as to which the dates are May 27, 2004 and October 25, 2004, respectively, relating to the financial statements, which appear in this Form 10-K for the year ended December 31, 2005. We also consent to the reference to us under the heading of “Experts” in such Form S-1 and Form S-3.

 
/s/ PricewaterhouseCoopers LLP  
PricewaterhouseCoopers LLP

Denver, Colorado
March 27, 2006

EX-23.3

EXHIBIT 23.3

March 10, 2006

Canyon Resources Corporation
14142 Denver West Parkway, Suite 250
Golden, Co. 80401

Gentlemen:

Chlumsky, Armbrust & Meyer, LLC (“CAM”) does hereby consent to the use of our report on the Pre-Feasibility Study of the Reward Gold Project dated January 26, 2005 (the “Report”), by Canyon Resources Corporation (the “Company”), as the Report appears in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005. CAM further consents to the incorporation by reference of our Report in the Company’s Registration Statement on Form S-8 (No. 333-120534), and the Company’s Registration Statement of Form S-1 (No. 333-130692).

Sincerely,

CHLUMSKY, ARMBRUST & MEYER LLC

Gregory F. Chlumsky

Principal

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13(a)-14(a)/15d-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, James K. B. Hesketh, certify that:

1. I have reviewed this annual report on Form 10-K of Canyon Resources Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 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 registrant’s fourth quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’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 registrant’s internal control over financial reporting.

/s/ James K. B. Hesketh	Date: March 27, 2006
James K. B. Hesketh, Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF ACCOUNTING OFFICER PURSUANT TO RULE 13(a)-14(a)/15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, David P. Suleski, certify that:

1. I have reviewed this annual report on Form 10-K of Canyon Resources Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 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 registrant’s fourth quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’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 registrant’s internal control over financial reporting.

/s/ David P. Suleski	Date: March 27, 2006
David P. Suleski, Chief Accounting Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

I, James K. B. Hesketh, the Chief Executive Officer of Canyon Resources Corporation (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1)	the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2005, filed on the date hereof with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 27, 2006	/s/ James K. B. Hesketh
	James K. B. Hesketh
	Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification of Chief Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

I, David P. Suleski, the Chief Accounting Officer of Canyon Resources Corporation (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1)	the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2005, filed on the date hereof with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 27, 2006	/s/ David P. Suleski
	David P. Suleski
	Chief Accounting Officer