10KSB

================================================================================


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   Form 10-KSB

(Mark One)

   |X|   Annual report under section 13 or 15(d) of the Securities Exchange
         Act of 1934 for the fiscal year ended December 31, 1997

   | |   Transition report under section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the transition period from _______ to _______

                        Commission file number 000-22731

                                MINERA ANDES INC.
                 (Name of small business issuer in its charter)

                                 Alberta, Canada
         (State or other jurisdiction of incorporation or organization)

                                      None
                      ( I.R.S. Employer Identification No.)

                3303 N. Sullivan Road, Spokane, Washington 99216
                    (Address of principal executive offices)

                                 (509) 921-7322
                           (Issuer's telephone number)


Securities registered under Section 12(b) of the Act:

Title of each class                   Name of each exchange on which registered:
Common shares without par value       The Alberta Stock Exchange

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


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes |X|
No | |

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. | |

State issuer's revenues for its most recent fiscal year:  Nil

The aggregate market value of the voting stock held by non-affiliates as of
February 27, 1998 was $12,435,020.

(Issuers involved in bankruptcy proceedings during the past five years) Check
whether the issuer has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes o No o

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of February 27, 1998, 19,216,050
common shares of the Registrant were outstanding.

Documents incorporated by reference. If the following documents are incorporated
by reference, briefly describe them and identify the part of the Form 10-KSB
(e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any
annual report to security holders; (2) any proxy or information statement; and
(3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of
1933 ("Securities Act").

                     Transitional Small Business Disclosure
                     Format (Check one:)     Yes | | No |X|

================================================================================

                                TABLE OF CONTENTS


PART I                                                                     Page
- ------                                                                     ----

     Item 1          Description of Business                                  2

     Item 2          Description of Properties                                9

     Item 3          Legal Proceedings                                       27

     Item 4          Submission of Matters to a Vote
                     of Security Holders                                     28

PART II

     Item 5          Market for Common Equity and Related
                     Shareholder Matters                                     28

     Item 6          Management's Discussion and Analysis
                     of Financial Condition and Results of Operations        28

     Item 7          Financial Statements                                    31

     Item 8          Changes in and Disagreements With Accountants
                     on Accounting and Financial Disclosure                  52

PART III

     Item 9          Directors, Executive Officers, Promoters and
                     Control Persons; Compliance with Section 16(a)
                     of the Exchange Act                                     52

     Item 10         Executive Compensation                                  54

     Item 11         Security Ownership of Certain Beneficial Owners
                     and Management                                          57

     Item 12         Certain Relationships and Related Transactions          59

     Item 13         Exhibits and Reports on Form 8-K                        59


                                        1

                                     PART I

Preliminary Note Regarding Forward-Looking Statements; Currency Disclosure

     The information set forth in this report in Item 1 - "Description of
Business" and in Item 6 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Certain factors that realistically could cause
results to differ materially from those projected in the forward-looking
statements are set forth in Item 1 - "Description of Business-Considerations
Related to Minera Andes' Business."

     All currency amounts in this report are stated in U.S. dollars unless
otherwise indicated. On March 24, 1998, the late New York trading rate of
exchange, as reported by The Wall Street Journal for conversion of United States
dollars into Canadian dollars was U.S. $1.00 = Cdn $1.42 or Cdn $1.00 = U.S.
$0.705.

ITEM 1. DESCRIPTION OF BUSINESS

     Minera Andes Inc. ("Minera Andes" or the "Corporation") is engaged in the
exploration and development of mineral properties located in the Republic of
Argentina. The Corporation's objective is to identify and acquire properties
with promising mineral potential, explore them to an advanced stage or to the
feasibility study stage, and then, if warranted, to pursue development of the
properties, typically through joint ventures or other collaborative arrangements
with partners that have expertise in mining operations.

     The Corporation's business grew out of a program begun by N.A. Degerstrom,
Inc., a contract mining company based in Spokane, Washington ("Degerstrom"), to
identify properties in Argentina that possessed promising mineral potential.
Based on the study of available remote sensing satellite data and experience
gained from drilling work performed by Degerstrom, beginning in 1991 Degerstrom
identified a number of areas which it believed had exploration potential and
began the process of filing applications for exploration concessions with the
provincial governments in Argentina and negotiating option agreements with
private landowners. Degerstrom conveyed these property interests to the
Corporation in 1995. See "Description of Properties - The Degerstrom Agreement"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

     The Corporation's current properties and projects consist of mineral rights
and applications for mineral rights covering approximately 225,736 hectares in
six provinces. The lands comprise option to purchase contracts, exploration and
mining agreements and direct interests through the Corporation's filings for
exploration concessions. The Corporation's properties are all early stage
exploration prospects. No proven or probable reserves have yet been identified.
See "Description of Properties." The Corporation has no employees, as it is
staffed by N.A. Degerstrom, Inc. personnel (4 persons) under the Operating
Agreement.

Operating Structure

     The Corporation is the product of an amalgamation in November 1995 of
Minera Andes and Scotia Prime Minerals, Incorporated, a then inactive Alberta
corporation which had previously had its Common Shares listed for trading on The
Alberta Stock Exchange ("ASE"). The Corporation's interests in its Argentina
properties are held through two Argentinean subsidiaries: Minera Andes S.A.
("MASA") and NAD S.A. ("NADSA"). MASA was incorporated under the laws of the
Republic of Argentina in September 1994. NADSA was incorporated under the laws
of the Republic of Argentina in July 1994.

                                       2

                            |----------------------|
                            |   Minera Andes Inc.  |
                            |----------------------|
                                        |
                        95%--------------------------91.6%
                         |                            |
                         |                            |
                    |---------|                       |
                    |  Minera |                  |-----------|
                    |  Andes  |                  | NAD S.A.  |
                    |  S.A.   |                  |-----------|
                    |---------|


     The Corporation holds 19 of the 20 issued and outstanding shares of MASA
and 11 of the 12 issued and outstanding shares of NADSA as well as an
irrevocable transferrable option to purchase the one remaining MASA share and an
irrevocable transferrable option to purchase the one remaining NADSA share. Each
of those single shares are held by a natural person shareholder as required by
local law.

     Degerstrom provides management services to the Corporation and acts as
operator of the Corporation's properties and projects pursuant to an operating
agreement entered into in March 1995 ("Operating Agreement"). Under the
Operating Agreement, Degerstrom operates and manages the exploration program on
all properties and provides related offsite administrative assistance as
required. This agreement allows the Corporation to minimize its overhead by
providing for reimbursement to Degerstrom of direct out of pocket and certain
allocated indirect costs and expenses and the payment of a management fee of
15%. See "Description of Properties - the Degerstrom Agreement" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

     Degerstrom is principally involved in contract mining and operates its own
independently owned mines and mines in joint venture with other mining
companies. Degerstrom provides a full range of contract services including
geological studies, site drilling, metallurgical analysis, and engineering of
pit, process and recovery systems.

     The Corporation's management office is 3303 North Sullivan Road, Spokane,
Washington, 99216, while the principal business address of the Corporation is
Coronel Moldes 837, (5500) Mendoza, Argentina. The registered address of the
Corporation is 1600, 407 2nd Street S.W., Calgary, Alberta, T2P 2Y3 Canada.

Considerations Related to Minera Andes' Business

     Ownership of the Corporation's Common Shares involves a high degree of
risk. Shareholders should consider, among other things, the following factors
relating to the Corporation's business and properties and its present stage of
development:

     Risks Inherent in Minerals Exploration. There are a number of uncertainties
inherent in any exploration or development program, including location of
economic ore bodies, the development of appropriate metallurgical processes, and
the receipt of necessary governmental permits. Substantial expenditures may be
required to pursue such exploration and, if warranted, development activities.
Assuming discovery of an economic ore body and depending on the type of mining
operation involved, several years may elapse from the initial stages of
development until commercial production is commenced. New projects frequently
experience unexpected problems during exploration and development stages and
frequently result in abandonment of the properties as

                                       3

potential development projects. Most exploration projects do not result in the
discovery of minable deposits of ore. There can be no assurance that the
Corporation's exploration efforts will yield reserves or result in any
commercial mining operations.

     Many of the properties that the Corporation intends to explore in Argentina
are the subject of applications for concessions, many of which have not yet been
granted. The filing of an application for concession grants the holder the
exclusive right to obtain the concession conditioned on the outcome of the
approval process. The approval process is an administrative procedure under the
authority of the province in which the property is located. The process includes
a public notice and approval procedure allowing third parties to give notice of
opposition or prior claim, if any, before the title to the concession is
granted. The approval process may take many months to complete. Although the
Corporation believes that it has taken all necessary steps with respect to the
application, approval and registration process for the property concessions it
has currently applied for and property transactions to which it is a party,
there is no assurance that any or all applications will result in issued
concessions or that the public registrations will be timely approved.

     Risks Inherent in the Mining Industry. Exploration, development and mining
operations are subject to a variety of laws and regulations relating to
exploration, development, employee safety and environmental protection; mining
activities are subject to substantial operating hazards including rock bursts,
cave-ins, fires and flooding, some of which are not insurable or may not be
insured for economic reasons. The Corporation currently has no insurance against
such risks. The Corporation may also incur liability as a result of pollution
and other casualties involved in the drilling and mining of ore. There may be
limited availability of water and power, which are essential to mining
operations; and interruptions may be caused by adverse weather conditions.

     The Corporation or joint venture or investment partners must obtain
necessary governmental approvals and make necessary capital expenditures before
production may commence on most of its projects. Significant capital
expenditures will also be required to bring them into production. The
Corporation may obtain funds for a portion of these capital expenditures from
joint venture or investment partners. However, there can be no assurance that
such joint venture or investment partners will provide such funds or that such
project financing will be available to the Corporation on acceptable terms. The
number of potential sources of third-party project financing for mining projects
is limited.

     Minera Andes is subject to additional risks, including that a large number
of companies, many of which are significantly larger and have greater financial
and technical resources than Minera Andes, compete in the acquisition,
exploration and development of mining properties; mining projects are highly
speculative and involve substantial risks, even when conducted on properties
known to contain significant quantities of mineralization.

     Need for Additional Capital. The exploration and, if warranted, development
of Minera Andes' properties will require substantial financing. The
Corporation's ability to obtain additional financing will depend, among other
things, on the price of gold, silver, copper and other metals and the industry's
perception of their future price. Therefore, availability of funding depends
largely on factors outside of the Corporation's control, and cannot be
accurately predicted. Failure to obtain sufficient financing could result in
delay or indefinite postponement of exploration, development or production on
any or all of Minera Andes' projects or loss of properties. For example, certain
of the agreements pursuant to which the Corporation has the right to conduct
exploration activities carry work commitments which, if not met, could result in
the Corporation losing its right to acquire an interest in the subject property.
There can be no assurance that additional capital or other types of financing
will be available when needed or that, if available, the terms of such financing
will be favorable to Minera Andes.

     Competitive Business Conditions. The exploration and development of mineral
properties in the Republic of Argentina is a highly competitive business. A
large number of companies compete with the Corporation in the acquisition,
exploration and development of mining properties. Many of these competing
companies are significantly larger than the Corporation and have substantially
greater economic and technical resources than the 

                                       4

Corporation. While the Corporation seeks to compete by identifying properties
for exploration, acquiring exclusive rights to conduct such exploration and
carrying out exploration and development of the properties with joint venture or
investment partners, there can be no assurance that the Corporation will be
successful in any of these efforts.

     Foreign Operations. All of Minera Andes' properties are located in
Argentina. Argentina has recently emerged from periods of political and economic
instability. While current indications are that such instability is diminishing,
there are no guarantees that this will continue. Foreign properties, operations
and investments may be adversely affected by local political and economic
developments, including nationalization, exchange controls, currency
fluctuations, taxation and laws or policies as well as by laws and policies of
the United States and Canada affecting foreign trade, investment and taxation.
It is important that the Corporation maintain good relationships with the
governments in Argentina. The Corporation may not be able to maintain such
relationships if the governments change. Argentina has and is developing new
bodies of law that will impact the conduct of business generally and mining
operations in particular. Future laws (including tax laws) could adversely
affect the conduct of business and mining operations.

     Difficulties in Developing Remote Areas. Many of the areas in which the
Corporation is conducting exploration and, if warranted, development activities
are in particularly remote and mountainous regions, with limited infrastructure
and limited access to essential resources. Exploration or development projects
in these areas may require the Corporation or its joint venture partners to
develop power sources, transportation systems and communications systems, and to
secure adequate supplies of fuel, machinery, equipment and spare parts.
Consequently, exploration and development in these areas is particularly
difficult, requiring significant capital expenditures, and may be subject to
cost over-runs or unanticipated delays.

     Fluctuation in the Price of Minerals. The market price of minerals is
volatile and beyond the control of the Corporation. If the price of a mineral
should drop dramatically, the value of the Corporation's properties which are
being explored or developed for that mineral could also drop dramatically and
the Corporation might not be able to recover its investment in those properties.
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. Price fluctuations between the time that such a
decision is made and the commencement of production can change completely the
economics of the mine. 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 generally which no
amount of planning or technical expertise can eliminate.

     Environmental and Other Laws and Regulations. Mining operations and
exploration activities in Argentina are subject to various federal, provincial
and local laws and regulations governing mineral rights, exploration,
development and mining, exports, taxes, labor, protection of the environment and
other matters. Compliance with such laws and regulations may necessitate
significant capital outlays, materially affect the economics of a given project,
or cause material changes or delays in the Corporation's intended activities.
Minera Andes has obtained or is in the process of obtaining authorizations
currently required to conduct its operations. New or different standards imposed
by governmental authorities in the future or amendments to current laws and
regulations governing operations and activities of mining companies or more
stringent implementation thereof could have an adverse impact on Minera Andes'
activities.

     Control by Single Shareholder; Conflicts of Interest. Degerstrom
beneficially owns approximately 26% of the outstanding voting securities of the
Corporation and therefore can exert significant influence in the election of the
Corporation's directors and have substantial voting power with respect to other
matters submitted to a vote of the shareholders. The interests of Degerstrom
with respect to any transaction involving actual or potential change in control
of the Corporation or other transactions may differ from those of the
Corporation's other shareholders.

                                       5

     Certain directors and officers of the Corporation are also directors,
officers or employees of the Corporation's majority shareholder, Degerstrom and
of other natural resource and mining companies. As a result, conflicts may arise
between the obligations of these directors to the Corporation and to these other
entities. Certain directors and officers of the Corporation have other full time
employment or other business or time restrictions placed on them and
accordingly, these directors and officers may not be able to devote full time to
the affairs of the Corporation.

     Transactions With Degerstrom; Dependence on Key Personnel. The Corporation
has entered into an Operating Agreement with Degerstrom. See "Description of
Properties - The Degerstrom Agreement." This agreement is not the result of
arm's-length negotiations between independent parties. There can be no assurance
that the Operating Agreement or any future agreements will be effected on terms
comparable to those that would have resulted from negotiations between
unaffiliated parties. Such agreements may be amended by the Corporation and
Degerstrom, by mutual agreement. Degerstrom is not required to devote its
personnel and resources exclusively to, or for the benefit of, the Corporation.
There can be no assurance that the services to be provided by Degerstrom will be
available to the Corporation at all times. Moreover, the Corporation's success
will be dependent upon the services of certain executive officers, including
Allen Ambrose and Brian Gavin, who are also employees of Degerstrom. Degerstrom
pays compensation and provides other benefits to these individuals. Minera Andes
does not have employment contracts with nor does it maintain key person life
insurance for Mr. Ambrose or Mr. Gavin.

     Liquidity; Limited Trading Market. There currently is a limited trading
market for the Corporation's securities. There is no assurance that an active
trading market will ever develop. Investment in the Corporation is not suitable
for any investor who may have to liquidate such investment on a timely basis and
should only be considered by investors who are able to make a long-term
investment in the Corporation.

Glossary of Geologic and Mining Terms; Statement of Abbreviations and Conversion
Factors

     "anomalous" means either a geophysical response that is higher or lower
than the average background or rock samples that return assay values greater
than the average background;

     "Bankable Feasibility Study" means the study, prepared to industry
standards, based upon which a bank or other lending institution may loan the
Corporation, MASA or NADSA funds for production development on the Claims;

     "breccia" means a course grained rock, composed of angular broken rock
fragments held together by a finer grained matrix;

     "Cateo" means an exploration concession for mineral rights granted to an
individual or company in the Republic of Argentina, as defined by the Republic
of Argentina Mining Code, as amended;

     "Claims" means the Cateos, Manifestacion de Descubrimiento, Mina, Estaca
Mina (as defined by the Republic of Argentina Mining Code, as amended) described
herein issued to NADSA, MASA or the Corporation by the
government of Argentina or any provincial government;

     "Estaca Mina" means areas granted to extend the area covered by existing
Minas;

     "grab sample" means one or more pieces of rock collected from a mineralized
zone that when analyzed do not represent a particular width of mineralization
nor necessarily the true mineral concentration of any larger portion of a
mineralized area;

     "igneous rock" means a rock formed by the cooling of molten rock either
underground or at the surface of the earth;

                                       6

     "intrusive rock" means an igneous rock that, when in the molten or
partially molten state, penetrated into or between other rocks, but cooled
beneath the surface.

     "Manifestacion de Descubrimiento" (literally, manifestation of discovery)
means the intermediate stage between the exploration phase and exploitation
phase of development;

     "metamorphic rock" means an igneous or sedimentary rock that has been
altered by exposure to heat and pressure (resulting from deep burial, contact
with igneous rocks, compression in mountain building zones or a combination of
these factors) but without complete melting. Metamorphosis typically results in
partial recrystallization and the growth of new minerals. "Metasediment" refers
to metamorphosed sedimentary rock. "Metavolcanics" refers to metamorphosed
volcanic rock;

     "Mina" means an exploitation grant based on Manifestacion de
Descubrimiento;

     "net smelter return royalty" is a form of royalty payable as a percentage
of the value of the final product of a mine, after deducting the costs of
transporting ore or concentrate to a smelter, insurance charges for such
transportation, and all charges or costs related to smelting the ore. Normally,
exploration, development and mining costs are not deducted in calculating a net
smelter return royalty. However, such royalties are established by contract or
statute (in the case of property owned by governments), and the specific terms
of such contracts or statutes govern the calculation of the royalty.

     "net profits royalty" is a form of royalty payable as a percentage of the
net profits of a mining operation. In contrast to net smelter return royalties,
costs relating to exploration, development and mining may be deducted from the
net proceeds of the operation in calculating the royalty. However, such
royalties are established by contract or statute (in the case of property owned
by governments), and the specific terms of such contracts or statutes govern the
calculation of the royalty.

     "porphyry" means an igneous rock of any composition that contains
conspicuous large mineral crystals in a fine-grained ground mass;

     "Underlying Royalty" means any royalties on the Claims that are part of the
lease, purchase or option of said Claim from the owner or any royalties that may
be imposed by the provincial government;

     "vein" means a mineral filling of a fault or fracture in the host rock,
typically in tabular or sheet-like form;

     "VLF-EM" means a very low frequency electromagnetic geophysical instrument
used in exploration to measure variances of conductivity in surficial sediments
and bedrock;

     "volcanic rock" (basalt, pillowed-flows, rhyolite) means an igneous rock
that has been poured out or ejected at or near the earth's surface;

     "volcanoclastic rock" (wacke, tuff, turbidite) means a sedimentary rock
derived from the transportation and deposition of volcanic rock fragments by air
(tuff) or water (wacke or turbidite)

     The following is a list of abbreviations used throughout this Report for
technical terms:

Ag                silver
Au                gold
As                arsenic
Cu                copper

                                       7

g/t Au            grams per tonne gold
g/t Ag            grams per tonne silver
g/t               grams per tonne
ha                hectare(s)
Hg                mercury
IP/RES            induced polarization and resistivity (survey)
kg                kilogram(s)
km                kilometer(s)
m                 meter(s)
Mo                molybdenum
NSR               Net Smelter Return
oz                ounce
Pb                lead
ppb               parts per billion
ppm               parts per million
Sb                antimony
sq.               square
VLF-EM            very low frequency electromagnetic (survey)
Zn                zinc

     The following table sets forth certain standard conversions from Standard
Imperial units to the International System of Units (or metric units).

To Convert From Imperial               To Metric               Multiply by
acres                                  hectares                0.404686
feet                                   meters                  0.30480
miles                                  kilometers              1.609344
tons                                   tonnes                  0.907185
ounces (troy)/ton                      grams/tonne               34.2857
1 mile = 1.609 kilometers
1 yard = 0.9144 meters
1 acre = 0.405 hectares
2,204.62 pounds = 1 metric ton = 1 tonne
2,000 pounds (1 short ton) = 0.907 tonnes
1 ounce (troy) = 31.103 grams
1 ounce (troy)/ton = 34.2857 grams/tonne


ITEM 2. DESCRIPTION OF PROPERTIES

     The principal business of the Corporation is the exploration and
development of mineral properties ("Claims") located in the Republic of
Argentina. The Corporation's interests in the Claims are held through MASA and
NADSA. MASA holds properties and is the company in which the daily business
operations are conducted. NADSA holds properties and drilling equipment under a
temporary importation permit. MASA and NADSA were formed and registered as
mining companies in order for the Corporation to receive the benefits of the new
mining laws in Argentina. The principal properties of the Corporation are
described under the heading "Principal Properties" below.

The Degerstrom Agreement

     A number of the Claims were originally held by Degerstrom. Pursuant to the
March 1995 Asset and Share Acquisition Agreement to which the Corporation, MASA,
NADSA and Degerstrom are parties (the "Degerstrom Agreement"), Degerstrom
transferred its interest in those Claims to NADSA and MASA in consideration for
a royalty. Degerstrom also conveyed the MASA and NADSA capital stock it held to
the Corporation. In consideration for those shares, Minera Andes (i) issued to
Degerstrom 4,000,000 Common Shares and the right to acquire an additional
1,213,409 Common Shares if any of the properties comprising the Claims became
the subject of a Bankable Feasibility Study, (ii) agreed to pay a royalty on any
existing or future properties held by 

                                       8

the Corporation or its affiliates as described below, and (iii) agreed to pay
the aggregate amount of the cost and expenses incurred by Degerstrom on behalf
of the Corporation from July 1, 1994 through March 15, 1995. Minera Andes also
acquired from Brian Gavin, an officer of the Corporation, the shares he held in
MASA.

     The royalty payable to Degerstrom by both NADSA and MASA will be a
percentage of the net smelter return earned on those Claims or any future Claims
acquired by those parties. The Claims are subject to a royalty equal to the
difference between 3 percent and the Underlying Royalty, subject to a maximum
royalty of 2 percent. If any party acquires all or part of the Underlying
Royalty, the royalty payable, if any, to Degerstrom will not increase. If
Degerstrom collects a royalty on any of the Claims held by the parties, each
party shall at any time have the option, upon giving notice to Degerstrom, to
repurchase up to one-half of the royalty payable to Degerstrom upon payment of
$1,500,000, for each one percent of the royalty repurchased.

     NADSA, MASA, Degerstrom and the Corporation also entered into an Operating
Agreement, appointing Degerstrom as operator of the Claims and any future Claims
acquired in Argentina. Under the terms of the Operating Agreement, Degerstrom
operates and manages the exploration program on all properties and provides
related offsite administrative assistance as required. In consideration for
these operating services, Degerstrom is entitled to reimbursement for its costs
of labor, materials and supplies incurred in connection with its services plus
an additional 15% of such costs as a management fee. Included in the Operating
Agreement are fixed rates for the equipment owned by Degerstrom. Degerstrom has
the right to terminate the Operating Agreement if the Corporation does not
maintain a program and budget in excess of Cdn $300,000 per year. If the
Corporation elects to develop a property and contract with a third party for
development or production, the Corporation must give notice to Degerstrom of the
terms and conditions of the proposed arrangement. Degerstrom has the right for a
period of 30 days to meet the contract bid by a third party.

                              PRINCIPAL PROPERTIES

Recent Mining and Economic History in Argentina

     Argentina is the second largest country in South America, over 2.7 million
square km in area. In 1983, Argentina returned to a multi-party democracy, which
brought to an end nearly a half century of military intervention and political
instability. The country then began to stabilize; however, it was not until
1989, with the election of the current government under president Carlos Menem,
that Argentina's economy began to improve. Menem initiated serious economic
reforms that included the privatization of many state companies and the
implementation of the Convertibility Plan, which fixed the Argentine peso to the
US dollar at par, fully backed by reserves of foreign exchange, gold and
dollar-denominated bonds of the Central Bank of Argentina. Results of the
reforms have been positive; Argentina's gross domestic product grew at up to 8%
per annum in the early 1990s and inflation has dropped to between 1 and 3% per
annum. However, Argentina is currently recovering from a recession. The
government is focused on diversifying the economy to increase exports and
decrease Argentina's dependency on imports. The country is encouraging foreign
investment.

     The government is actively revitalizing the mineral sector. In 1993, the
Mining Investments Act instituted a new system for mining investment to
encourage mineral exploration and foreign investment in Argentina. Key
incentives provided by the Act include: guaranteed tax stability for a 30 year
period, 100% income tax deductions on exploration costs, accelerated
amortization of investments in infrastructure, machinery and equipment, and the
exemption from import duties on capital goods, equipment and raw materials used
in mining and exploration. Repatriation of capital or transfer of profits are
unrestricted. Argentina's mineral resources, owned by its 23 provinces, are
subject to a provincial royalty capped at 3% of the "mouth of mine" value of
production, although provinces may opt to waive their royalties.

     Argentina's mineral potential is largely unknown, particularly in
comparison to that of its immediate neighbors. Until recently, Argentina has
been relatively under-explored and, as a consequence, there is a lack of

                                       9

information pertaining to the country's resource base. Copper and gold
mineralization discovered to date occurs predominantly in the southern Andean
copper belt which extends over 1,000 km through northwestern Argentina. Deposits
that are currently under development include the Bajo de la Alumbrera, Agua Rica
and El Pachon deposits. In addition, gold deposits are concentrated in the
Argentine portion of the Central Andes' Maricunga-El Indio gold belts and in the
newly discovered Santa Cruz gold belt in southern Patagonia.

     In 1989, fewer than a dozen foreign exploration companies had offices in
Argentina; currently there are approximately 60 such companies. Exploration
expenditures have grown from $5 million in 1991 to over $90 million in 1995.

     The Corporation initiated gold exploration in Argentina in 1991, in
conjunction with Degerstrom. As of December 1997, the Corporation had Argentine
land holdings totaling 225,736 ha in six Argentine provinces (Figure 1). The
Corporation's exploration efforts initially focused on evaluating prospects
generated by 1960's United Nations development exploration programs and on
targets generated by satellite image analysis. The Corporation developed
techniques of processing and interpreting satellite imagery to assist in
identifying promising exploration targets. Currently, the Corporation is
completing exploration work that includes geophysical surveys, mechanical
trenching and reverse-circulation drilling on the most advanced targets in their
property portfolio, and conducting grassroots exploration to evaluate their
other properties and to generate new targets.

Property And Title

     The laws, procedures and terminology regarding mineral title in Argentina
differ considerably from those in the United States and in Canada. Mineral
rights in Argentina are separate from surface ownership and are owned by the
federal government or the provinces, depending on the territory in which they
are located. Mineral rights are administered by the provinces. The following
summarizes some of the Argentinean mining law terminology in order to aid in
understanding the Corporation's land holdings in Argentina.

1. Cateo: A cateo is an exploration concession which does not permit mining but
gives the owner a preferential right to a mining concession for the same area.
Cateos are measured in 500 ha unit areas. A cateo cannot exceed 20 units (10,000
ha). No person may hold more than 400 units in a single province. The term of a
cateo is based on its area: 150 days for the first unit (500 ha) and an
additional 50 days for each unit thereafter. After a period of 300 days, 50% of
the area over 4 units (2,000 ha) must be dropped. At 700 days, 50% of the area
remaining must be dropped. Time extensions may be granted to allow for bad
weather, difficult access, etc. Cateos are identified by a file number or
"expediente" number.

     Cateos are awarded by the following process:

     (a)  Application for a cateo covering a designated area. The application
          describes a minimum work program for exploration;
     (b)  Approval by the province and formal placement on the official map or
          graphic register;
     (c)  Publication in the provincial official bulletin;
     (d)  A period following publication for third parties to oppose the claim.
     (e)  Awarding of the cateo.

     The length of this process varies depending on the province, and commonly
takes up to 2 years. Accordingly, cateo status is divided into those that are in
the application process and those that have been awarded. If two companies apply
for cateos on the same land, the first to apply has the superior right. During
the application period, the first applicant has rights to any mineral
discoveries made by third parties in the cateo without its prior consent. While
it is theoretically possible for a junior applicant to be awarded a cateo,
because applications can be denied, the Corporation knows of no instances where
this has happened.

                                       10

     Applicants for cateos may be allowed to explore on the land pending formal
award of the cateo, with the approval of the surface owner of the land. The time
periods after which the owner of a cateo must reduce the quantity of land held
does not begin to run until 30 days after a cateo is formally awarded. The
Corporation's goal is to determine whether its cateos contain commercial grade
ore deposits before portions of the cateos must be relinquished. The
Corporation's ability to do so is dependent upon adequate financing for
exploration activities. It is likely that several of the Corporation's cateos
will be relinquished after preliminary exploration because no promising mineral
deposits have been discovered.

     Until August 1995, a "canon fee", or tax, of $400 per unit was payable upon
the awarding of a cateo. A recent amendment to the mining act requires that this
canon fee be paid upon application for the cateo.

2. Mina: To convert an exploration concession to a mining concession, some or
all of the area of a cateo must be converted to a "mina". Minas are mining
concessions which permit mining on a commercial basis. The area of a mina is
measured in "pertenencias". Each mina may consist of two or more pertenencias.
"Common pertenencias" are six hectares in size and "disseminated pertenencias",
100 ha (relating to disseminated deposits of metals rather than discrete veins).
The mining authority may determine the number of pertenencias required to cover
the geologic extent of the mineral deposit in question. Once granted, minas have
an indefinite term assuming exploration development or mining is in progress. An
annual canon fee of $80 per pertenencia is payable to the province.

Minas are obtained by the following process:

     (a)  Declaration of manifestation of discovery ("MD"), in which a point
          within a cateo is nominated as a discovery point. The MD is used as a
          basis for location of pertenencias of the sizes described above. MD's
          do not have a definite area until pertenencias are proposed. Within a
          period following designation of an MD, the claimant may do further
          exploration, if necessary, to determine the size and shape of the
          orebody.

     (b)  Survey ("mensura") of the mina. Following a publication and opposition
          period and approval by the province, a formal survey of the
          pertenencias (together forming the mina) is completed before the
          granting of a mina. The status of a surveyed mina provides the highest
          degree of mineral land tenure and rights in Argentina.

3. Estaca Minas: These are six-hectare extensions to existing surveyed minas
that were granted under previous versions of the mining code. Estaca minas are
equivalent to minas. Estaca minas were eliminated from the mining
code in August 1996.

4. Provincial Reserve Areas: Provinces are allowed to withdraw areas from the
normal cateo/mina process. These lands may be held directly by the province or
assigned to provincial companies for study or exploration and development.

     All mineral rights described above are considered forms of real property
and can be sold, leased or assigned to third parties on a commercial basis.
Cateos and minas can be forfeited if minimum work requirements are not performed
or if annual payments are not made. Generally, notice and an opportunity to cure
defaults is provided to the owner of such rights.

     Grants of mining rights include water rights, subject to the rights of
prior users. Further, the mining code contains environmental and safety
provisions, administered by the provinces. Prior to conducting operations,
miners must submit an environmental impact report to the provincial government,
describing the proposed operation and the methods to be used to prevent undue
environmental damage. The environmental impact report 

                                       11

must be updated biennially, with a report on the results of the protection
measures taken. If protection measures are deemed inadequate, additional
environmental protection may be required. Mine operators are liable for
environmental damage. Violators of environmental standards may be caused to shut
down mining operations.

General Discussion of Andean Geology as it Relates to Mineral Deposits

     The Andes Mountain Range running along the western edge of South America,
including the western portions of Argentina, is a dynamic portion of the earth's
crust. Conditions there have been favorable for the formation of metal ore
deposits for the past 100 million years. Since the late 1960s geologists around
the world have realized that the continents and ocean floors of the earth's
crust consist of many individual plates which move against each other, more or
less "floating" on the next deeper layer of the earth, referred to as the
mantle. Where these crustal plates rub against each other, earthquakes are
common. Where one plate is overridden by another (referred to as a "subduction
zone"), the lower plate may partially melt, causing liquid rock to rise through
the plates.

     In particular, along the western edge of South America, the Pacific Ocean
floor is being overridden by South America, creating many folds and faults in
the edge of the continent, with attendant earthquakes. As the ocean floor is
pushed under the continent, parts of the slab (up to 70 km thick) are melted and
rise upward, intruding into the crust of South America. Some of this melted rock
cools underground, creating bodies of granite. The granite may later be exposed
by erosion of the mountain ranges. Other portions of the molten rock reach the
surface and form the volcanoes of the Andes. With the molten rock come
superheated fluids that carry sulphur and metals such as copper and gold. These
minerals are deposited in and around the intrusive and volcanic rocks.
Persistent hot springs, as in Yellowstone National Park, may concentrate
deposits of metals. Weathering of ore deposits can cause metals in the rock and
soil to dissolve and be concentrated at lower levels.

     There has been relatively continuous intrusive and volcanic activity along
the Andean chain for over 100 million years, creating a very good environment
for metal deposits. As explained above, while numerous gold and copper deposits
have been developed in the Andes Mountains in neighboring Chile, the similar
terrain in Argentina has only recently been opened to exploration. Minera Andes
was one of the first companies to obtain valuable exploration rights in
Argentina, and has a substantial number of promising properties which it is
systematically exploring for metal deposits.

Minera Andes Properties

     The sections that follow discuss certain of the properties that are or have
been the subject of joint venture agreements with third parties or which have
been more intensively explored by the Corporation.

                                    Figure 1

           [Map illustrating Minera Andes current projects and mines]

                                       13

A.   Santa Clara Project Summary

     1.      Santa Clara Project Location

     The Santa Clara Project area is located in northwest Mendoza Province,
approximately 63 km west of the city of Tupungato, at latitude 33(degree)12'00"S
and longitude 69(degree)7'00"W. Good road access exists to the project area.
Elevations at Santa Clara range from 2,500 m to 4,600 m with moderate to rugged
relief.

     2.      Santa Clara Project Geology

     The Santa Clara Project is located within metamorphic and intrusive rocks
of the Frontal Cordillera. Basement rocks at Santa Clara comprise metasediments
and igneous rocks and volcanic sediments ranging in age from billions of years
old to about 300 million years old. These rocks are intruded by granite and
other intrusive and volcanic rocks with ages ranging from 200 million years old
to the present.

     3.      Santa Clara Project Exploration

     The Santa Clara Project was first explored in the 1960s under the United
Nations-Argentine Government Plan Cordillerano. The property was recognized as
hosting porphyry copper potential and an exploration campaign consisting of
geological mapping, geochemical surveys (stream sediment, soil and rock chip)
and an induced polarization geophysical survey was completed. In addition,
diamond drilling was completed in 28 holes to depths ranging from 70 m to 110.
In 1982-83, Fabricaciones Militares explored a portion of the Santa Clara area
for molybdenum. The work consisted of geologic mapping, planimetric surveys, an
induced polarization geophysical survey and two drill holes.

     Since 1994, MASA has completed property-wide prospecting and stream
sediment sampling surveys which clearly defined a porphyry copper center at Tres
Quebradas . In addition, four areas of anomalous gold values were outlined; Tres
Quebradas (north of the copper zone), Quebrada del Norte, Quebrada del Azufre
and Arroyo Metales. Each of these targets was systematically explored by
detailed mapping and sampling in subsequent exploration programs.

      In 1997, prior to the termination of the joint venture, the Corporation's
partner, Cominco, constructed access roads and drilled four diamond drill holes
to explore the copper potential of the Quebrada del Azufre zone. The continued
focus of exploration at Santa Clara is the evaluation of the area's porphyry
copper potential. Minera Andes is currently offering the project for joint
venture with major mining companies.

     4.      Santa Clara Project Ownership

     The Santa Clara Project comprises at total of 26,580 ha in 8 cateos and 14
manifestations of discovery. All landholdings are currently held by MASA under
an option to purchase agreement, or directly.

     MASA is party to an option-to-purchase agreement with Messrs. Carotti and
Giustozzi, of the city of Mendoza. MASA can earn 100% interest in the property
by making payments totaling $1,950,000 by October, 1998. The property is subject
to a 0.5% net smelter return royalty to the owner or, in the case of their cateo
being superseded by a manifestation of discovery from an adjacent cateo
belonging to MASA, a 2.5% net smelter royalty on ore mined from their cateo
capped at the total option price. MASA may also exercise the Santa Clara option
at any time by paying the balance in five semi-annual payments from the date of
exercise.

     In 1995, the owners and the Corporation rescheduled the payments due under
the option to purchase contract. This was done because two of the seven cateos
and one of the twelve manifestations of discovery were pending in a provincial
park boundary dispute which could have affected a portion of the property. The
boundaries of the Volcan Tupungato Provincial Park were extended in April 1994
to cover sixty percent of the pre-existing mineral rights at Santa Clara. This
status would have prohibited mining. The provincial mining authorities confirmed
the validity of the mining rights at Santa Clara in January 1996, and permission
was received for continued exploration in March 1996. Provincial Law 6459 was
passed on January 2, 1997 to exclude existing mineral properties from the
provincial park.

                                       14

     Through December 31, 1997, option payments totaling $265,000 have been
made. Due to current conditions in the equity markets for junior exploration and
mining companies and metal prices, the Corporation is currently
renegotiating the contract with the landowners.

     Canon fees due on these Santa Clara properties in 1998 total $12,280. Mina
survey costs are estimated at $30,000 for 1998. Mendoza Province has waived its
rights to a royalty.

     The Corporation signed a Memorandum of Understanding in March 1996 with
Cominco providing for a joint venture on the Santa Clara and Pino Andino
properties. However, after compiling and evaluating data on the Santa Clara and
Pino Andino properties during the first six months of 1997, Cominco terminated
the Memorandum of Understanding with respect to Pino Andino in February 1997 and
with respect to Santa Clara in July 1997.

B.   Pino Andino Project Summary

     1.      Pino Andino Project Location

     The Pino Andino Project property package is located 250 km northwest of the
city of Neuquen, in Neuquen Province at latitude 38(0)02'00"S and longitude
70(0)29'00"W in an area that consists of gentle rolling hills; elevations
range from 900 m to 2,300 m.

     2.      Pino Andino Project Geology

     The Pino Andino Project area is principally underlain by Jurassic
sedimentary rocks that dip gently to the east into the Neuquen Basin. Cretaceous
diorite and granodiorite intrudes the Jurassic sequence in the western property
area. The stocks are part of an extensive north-south belt of intrusions. Late
Tertiary to Quaternary tuffs occur in the extreme west.

     3.      Pino Andino Project Exploration

     A number of old trenches, test pits and minor open cuts are evidence of
historical exploration of galena-bearing quartz veins. Similar evidence exists
at numerous copper carbonate (malachite) occurrences scattered throughout the
property.

     Following the acquisition of the property in 1994, MASA completed
property-scale and detailed exploration work at Pino Andino, including a 10-hole
reverse-circulation drill program in 1995 and ground geophysical surveys in 1996
which outlined a zone of gold mineralization and a potentially large zone of
porphyry copper
mineralization.

     In late 1995, a 10-hole, 1,005 m reverse-circulation drill program was
completed at Pino Andino. Eight of 10 holes returned significant intercepts of
copper and/or gold mineralization..

     In 1996, with Cominco as operator of the joint venture, an exploration
program including geophysical surveys and reverse-circulation drilling was
completed. Also in 1996, Cominco completed a campaign of reverse-circulation
drilling (10 holes totaling 2,000 m). Cominco concluded that within the drill
zone there is little possibility of encountering an open pittable economic
reserve. Work by Cominco did not include additional exploration of the gold
mineralization encountered in the 1995 drilling campaign Cominco terminated the
Memorandum of Understanding with respect to Pino Andino in February 1997.

     In April of 1997 the Corporation completed a nine hole reverse-circulation
drilling program to test gold targets left untested by the Cominco drilling.
This drilling failed to delineate gold or copper mineralization in economic
quantities.

                                       15

     4.      Pino Andino Project Ownership

     In December 1997, due to prevailing conditions in the junior mining equity
markets and low precious metal prices, the Pino Andino Project was abandoned and
all contracts with underlying landowners were terminated,
resulting in a write-off of deferred expenditures of $1,083,862.

C.   San Juan Project Summary

     1.      San Juan Project Location

     The San Juan Province Project comprises seven properties totaling 43,070 ha
in southwestern San Juan Province. Elevation ranges from 2,500 m to 5,500 m and
moderate to high relief.

     2.      San Juan Area Project Geology

     The project area extends from the western margin of the Cordillera Frontal
to the Cordillera Principal. The area is principally underlain by Permo-Triassic
Choiyo Group volcanic rocks, a multi-phase igneous sequence comprising volcanic
breccias, ignimbrites, tuffs and rhyolites, intruded by granites and overlain by
extrusive acidic volcanic rocks. Jurassic continental, marine and volcanic
derived sedimentary rocks unconformably overly Permo-Triassic rocks. The
youngest rocks in the project area comprise Tertiary volcanic and intrusive
rocks, which are common hosts of epithermal gold mineralization as evidenced by
deposits in the Chilean Andes.

     3.      San Juan Project Exploration

     No formal records of previous exploration in the project area exist.
Evidence of prospecting (small trenches or pits) exists on some of the cateos.
The area is currently active with predevelopment at the El Pachon copper deposit
and advanced exploration at the Araya (Cu), Los Piuquenes (Cu), Cenicero (Au)
and La Poposa (Au)
projects.

     The San Juan Province Project is a regional reconnaissance program,
focussed on epithermal gold and gold porphyry targets in the eastern cordillera.
Work during 1997 was divided into two categories: a) Work on lands controlled by
the Corporation; and, b) Generative work on lands being considered for
acquisition.

             a.    The Corporation Lands

     All of the lands in the project were acquired based on the results of
satellite image analysis. Preliminary field examination, including rock chip
sampling and property-wide stream sediment sampling, has been completed on all
properties

     Detailed work at Los Chonchones included reconnaissance scale geologic
mapping and geochemical surveys. Results returned a number of anomalous gold
and/or copper values in all sample types, scattered throughout the colour
anomalies and concentrating in the center of the southwest anomaly. Several
major mining companies are looking at Los Chonchones for a possible joint
venture.

             b.    Generative Program

     Due to the intense competitor activity in western San Juan Province
generative work is concentrated on evaluating available third-party properties.
A large number of property submittals are under review by the Corporation.

     Through December 31, 1997, the Corporation expended $367,431 on the San
Juan Project (net of write-offs for properties abandoned).

                                       16

     4.      San Juan Area Project Ownership

     The seven applications for cateos total 43,070 ha. At present, these lands
are not subject to a royalty, however, the government of San Juan has not waived
its rights to retain up to a 3% "mouth of mine" royalty from production.
Property canon fees for all properties are $34,240.

D.   Agua Blanca Project Summary

     1.      Agua Blanca Project Location

     The Agua Blanca Project is located approximately 220 km northwest of the
city of San Juan in San Juan Province, at latitude 30(degree)08'00"S, longitude
69(degree)45'00"W . The property (totaling 39,426 ha) lies in the southeastern
extension of the El Indio Gold Belt which hosts the El Indio, Tambo and Pascua
(Nevada) epithermal Au-Ag deposits. Agua Blanca is accessed by paved Provincial
Route 436 to the town of Las Flores, 180 km northwest of San Juan, and from
there by 25 km of gravel road to the base of the Quebrada Mondaca. A rough, four
wheel drive road continues 25 km up the quebrada to reach the center of the
property. The city of San Juan offers the most complete range of services and
camp supplies. Elevations on the property range from 3,300 m to 5,300 m, with
moderate relief that permits foot access to most areas of the property. Water is
plentiful and the climate consistent with semi-arid to arid Andean locations,
hot dry days and cool nights for much of the year. Winter months are snowy with
sub-zero temperatures.

     2.      Agua Blanca Project Geology

     The eastern portion of the property is underlain by Carboniferous age Agua
Blanca Formation sedimentary rocks and Permo-Triassic Colanguil Batholith
granitoids. To the west, volcanic rocks of probable Tertiary age predominate.
The sequence of volcanic rocks ranges in composition from andesite to rhyolite
and includes flows, tuffs and, possibly, volcaniclastic rocks. The stratigraphy
strikes northerly and dips gently to the east. A number of diorite plugs intrude
the volcanic package.

     Exploration to date has focussed on the Tertiary sequence in two main
areas, Quebrada Mondaca and Arroyo del Agua Blanca, where numerous zones of
intense hydrothermal alteration occur that are also visible on satellite images
of the area. Argillic (kaolinite) and sericitic alteration predominates in
volcanic rocks; intense potassic alteration occurs in diorite. Silicification
occurs locally in all rock types and magnetite veining to magnetite breccias
occur extensively throughout the dioritic unit. Weak, propylitic alteration is
widespread on the property. Disseminated pyrite mineralization occurs variably
throughout the zones of alteration. Minor chalcopyrite and arsenopyrite
mineralization occur locally, associated with potassic alteration and
silicification respectively.

     3.      Agua Blanca Project Exploration

     Between 1985 and 1994, a number of limited prospecting and sampling
excursions were conducted in the Agua Blanca property area by the Asociacion
Cooperadora Instituto de Investigaciones Mineras ("ACIIM") in conjunction with
the property owner, Adonis Cantoni. Their work succeeded in outlining zones of
intense hydrothermal alteration with anomalous values of gold and silver.

     Since 1994, MASA has completed three exploration programs at Agua Blanca to
explore the Quebrada Mondaca and Arroyo del Agua Blanca areas. In 1995, MASA
constructed a 25 km road to access the property from the head of Quebrada
Mondaca drainage. Exploration efforts have included property-scale geologic
mapping, prospecting and detailed sampling. Results indicated the presence of a
gold or copper- gold porphyry system in the area of the Quebrada Mondaca. A
total of 532 rock chip, talus and stream sediment samples have been collected on
the property.

                                       17

     The Corporation signed an agreement with Newcrest Resources, Inc. creating
a joint venture on the property in April 1996.

     During 1996 Newcrest, as operator of the joint venture, completed a work
program consisting of geologic mapping and rock chip sampling at Quebrada
Mondaca. Some 330 rock chip samples and 144 trench samples were collected.
Geologic and alteration mapping was done over 24 sq km. Geophysical surveys (IP,
resistivity and ground magnetics) indicated areas with magnetic signatures
indicative potassic alteration and quartz-magnetite stock work zones, while
chargeability anomalies flank the magnetic anomalies, and appear to correspond
in part to outcropping phyllic (quartz-sericite-pyrite) alteration, and in part
to propylitic assemblages which also contain some disseminated pyrite.

     In March 1997 Newcrest completed a 12-hole, 2,819-meter RC drilling
program, which showed the area to be widely mineralized in both gold and copper.
Gold mineralization is present in both potassically altered rock, and, at higher
concentrations, in zones of phyllic alteration. The grade tends to improve with
depth. Potassic alteration, including zones of quartz-magnetite stockwork, and
phyllic alteration, are mapped as scattered occurrences over an area in excess
of ten square km, and extend from the site of the current drilling in Quebrada
Mondaca into the adjacent Quebrada Agua Blanca drainage. Additional drilling,
particularly to target the phyllic alteration zones, appears to be warranted.

     As of December 31, 1997, the Corporation had spent $680,717 on Agua Blanca.
Newcrest paid all expenditures on the project between April 1996 and March 1997,
and incurred expenses of approximately $429,000 during that time.

     4.      Agua Blanca Project Ownership

     The Agua Blanca property package (39,426 ha) is currently held by MASA
under two agreements:

     a)   A four-year option-to-purchase with Adonis Cantoni dated June 21,
          1995. This option-to-purchase calls for option payments totaling
          $920,000 and a final buy out of $1,080,000 to earn 100% interest in
          the property claims. The property is subject to a net smelter royalty
          equal to the difference between 4.5% and the amount charged by the
          province, with a maximum of 3% to the owner. This agreement was
          renegotiated in December of 1997 resulting in extension of the option
          period to March 2001. Option payments for 1998 amount to $150,000.

     b)   A three-year option-to-purchase with Juan Lirio dated October 2, 1997.
          This agreement calls for payments of $225,000 over three years and a
          final purchase payment of $575,000.

     Under the agreement signed in April 1996, Newcrest was given the option to
earn a 51% interest in the joint venture by making exploration expenditures of
$3,800,000 over four years, paying all associated land and option payments, and
making cash payments totaling $350,000 during the first year. After conducting
the drilling program during 1996, Newcrest elected to return the property to the
Corporation in March 1997. The Corporation is now responding to expressions of
interest from other mining companies who wish to participate in exploration of
the property. Management believes that the results on the property to date
justify further exploration expenditures.

E.   Mendoza Project Summary

     1.      Mendoza Project Location

     The Mendoza Project consists of five properties totaling 32,080 ha and a
generative program targeting the 

                                       18

western or Andean part of Mendoza Province. Most of the properties are only
workable on a seasonal basis as they are located at elevations greater than
3,000 m in generally rugged terrain with limited water and minimal vegetation.

     2.      Mendoza Project Geology

     The Mendoza Project is focussed on those areas of Cordilleran Mendoza that
are underlain by a generally north-trending fold and thrust belt of Mesozoic
sedimentary rocks. These rocks host the numerous known skarn occurrences in
western Mendoza and are permissive for sediment-hosted epithermal gold deposits.

     The Mesozoic sediments overlie a basement of Paleozoic metasedimentary and
igneous rocks, and are intruded by Tertiary stocks, dykes, and sills. The
sediments are locally overlain by Tertiary volcanics that constitute
possible hosts for epithermal gold.

     3.      Mendoza Project Exploration

     The cordilleran part of Mendoza Province was explored in the late 1960s and
early 1970s under the Plan Cordillerano of the United Nations and the Argentine
government. That program identified skarn copper and iron occurrences as well as
several significant copper and/or molybdenum resources and prospects. Work to
date has consisted of evaluation of lands held by MASA and generative
exploration efforts.

             a.    MASA Properties

     Cateos held or controlled by MASA were selected on the basis of satellite
image anomalies, compilation of available geologic information, and/or the
presence of known alteration or mineralization. At the Palau Mahuida property
sampling identified an anomalous Au-As + Zn-Ag-Sb metal association with up to
230 ppb Au. A colour anomaly near the Chilean border is to be evaluated on the
Paso Pehuenche property. Work in late 1996 identified a large altered area and
led to staking the Diamante cateo.

             b.    Generative Work

     Generative work will continue in conjunction with evaluation of property
submittals. Periodic review of the land status in Cordilleran Mendoza will
enable identification of additional opportunities.

     Through December 31, 1997, the Corporation has expended a total of $343,788
on Mendoza (net of write-offs for properties abandoned).

     4.      Mendoza Project Ownership

     The Mendoza Project area properties are held as five applications for
cateos comprising 32,080 ha owned by MASA. Land holding costs for 1998 are
estimated at $25,160.

F.   Santa Cruz Project Summary

     1.      Santa Cruz Project Location

     MASA's properties are located in the Andean Cordillera, near the
Chilean-Argentine border and in the Deseado massif of north central Santa Cruz.
The Rio Late property (10,000 ha) is located 140 km southwest of Perito Moreno
in northwestern Santa Cruz and the contiguous El Pluma/Cerro Saavedra properties
(29,400 ha) are located 50 km east of Perito Moreno. Access to the properties
ranges from road access to El Pluma and Cerro Saavedra to mule or helicopter
access at Rio Late.

                                       19

     2.      Santa Cruz Project Geology

The Rio Late cateo is underlain by quartz-mica schists of the Paleozoic Rio
Lacteo Formation, silicic pyroclastic rocks of the Jurassic El Quemado
formation, and granodiorite of the Creteceous-Tertiary San Lorenzo complex
(Granodiorita Penitentes). The El Pluma and Cerro Saavedra cateos are underlain
by andesitic to rhyolitic pyroclastic rocks of the Jurassic Bahia Laura Group.
The Bahia Laura Group rocks host the Cerro Vanguardia epithermal gold deposit
and are the target of MASA's generative program in Santa Cruz Province.

     3.      Santa Cruz Project Exploration

     Santa Cruz is one of Argentina's lesser-explored provinces. The area was
under the Argentine government-United Nations' regional exploration Plan
Patagonia-Comahue in the 1970s. In the 1980s FOMICRUZ, S.E., a state owned
company, completed reconnaissance surveys in the province to delineate areas of
interest for mineral reserves. The recent discovery of the Cerro Vanguardia
epithermal gold deposit in eastern Santa Cruz and the commencement of production
at the Fachinal epithermal gold deposit located immediately over the border in
Chile, has attracted a great deal of exploration activity to the region.

     Reconnaissance exploration has been completed at Rio Late. Since MASA's
discovery of the El Pluma/Cerro Saavedra area in March of 1997 the Corporation
has completed reconnaissance and detailed geologic mapping, stream sediment
sampling, soil sampling and rock chip sampling. Additionally, ground magnetic
and CSAMT geophysical resistivity surveys have been completed. A 2000 m program
of reverse- circulation drilling commenced in January of 1998.

     The Corporation has expended approximately $239,753 through December 31,
1997, on the Santa Cruz Project and $335,704 on the El Pluma/Cerro Saavedra
properties.

     4.      Santa Cruz Project Ownership

     The Santa Cruz Project area is made up of eight applications for cateos
totaling 39,400 ha. Seven of these cover the El Pluma/Cerro Saavedra properties.
The cateos are located in the western half of the province of Santa
Cruz.

     All of the cateos are presently controlled 100% by MASA subject to the
Degerstrom Agreement and may be subject to a provincial royalty. Holding costs
for 1998 are $8,000.

G.   Chubut Project Property Summary

     1.      Chubut Project Location

     Minera Andes currently holds five applications for cateo on properties in
the Precordilleran region of Chubut. These properties are located at moderate
elevations (500 to 1500 m above sea level) in western Chubut Province in a belt
60 km north and 100 km south of the city of Esquel. Access to the properties is
by dirt road and trail.

     2.      Chubut Project Geology

     Jurassic-Cretaceous volcanic terranes have been the focus of exploration in
the southern Chilean Cordillera over the past decade. These rocks are potential
hosts of epithermal gold and gold rich replacement deposits attested to by the
discoveries, in Chile, at Fachinal (epithermal Au-Ag) and El Toque (base metal,
strata bound replacement deposit with a minor precious metal credit). In
Argentina, rocks of the same age and type occur in both Andean and extra-Andean
Patagonia which are relatively unexplored.

                                       20

     3.      Chubut Project Exploration

     Chubut was included in the United Nations and Argentina government's Plan
Patagonia-Comahue exploration program in the 1960s and 1970s. This campaign
delineated several prospects with weak to moderate base metal anomalies. The
samples were not analyzed for their precious metal content.

     In 1997 Minera completed reconnaissance surface sampling and mapping on
five properties in the western Chubut Province, Argentina. This work indicates
the potential for mineralized epithermal and porphyry or
intrusive-related systems.

     At the El Valle property the initial exploration located a north-northeast
trending zone of illitic alteration and mineralization about 1.5 km wide and
three km long. Numerous northwest and northeast trending veins, some up to five
meters wide and more than 500 m long, have also been located in tuffaceous rocks
within the zone of alteration. The zone is open to the west and south under
Quaternary alluvium in valleys, and open-ended to the north and east under
Quaternary alluvium and post-mineral Tertiary basalt.

     Results from the 40-sample reconnaissance program on this property show
gold values ranging from below detection limit to 7.9 g/t. Several high values,
above 3 g/t gold, are from outcrops and float from multi-stage epithermal quartz
veins. Some of the samples with low gold values show strongly anomalous
pathfinder elements such as mercury (in the low 2,000 to 13,000 ppb range) that
may indicate higher levels in the gold system.

     The Corporation has expended $127,256 through December 31, 1997, on the
Chubut Project.

     4.      Chubut Project Ownership

     The Corporation currently controls five applications (totaling 29,520 ha)
for cateos in Chubut Province.

H.   La Horqueta Project Summary

     1.      La Horqueta Project Location

     The La Horqueta Project is located in central Mendoza Province,
approximately 200 km south of the city of Mendoza, at latitude 34(degree)36'00"S
and longitude 68(degree)55'00"W. Access is provided to the project by paved road
from Mendoza to the city of San Rafael, and then by approximately 85 km of paved
and gravel roads. Elevations range from 1,150 m to 1,600 m.

     2.      La Horqueta Project Geology

     The project area is underlain by a Precambrian and Paleozoic sequence of
marine sediments and Carboniferous sedimentary and volcanic rocks and
pyroclastics in the San Rafael Block. The property straddles the contact between
Precambrian La Horqueta Formation metasediments (phyllites and schists) and
Carboniferous Lower Imperial Group sediments (feldspathic sandstones, argillites
and quartzites). A dacitic, quartz-feldspar phyric porphyry stock is exposed in
the central property area and has been assigned a Tertiary age, although the
stock may be as old as Permian.

     A westerly trending zone of intense argillic and(quartz) sericite-pyrite
alteration and mineralization approximately 400 m x 1,500 m in area occurs in
the porphyry in the central property area. Disseminated pyrite mineralization
occurs in variable amounts throughout the zone. Anomalous gold mineralization
trends westerly along N70(degree)E and N70(degree)W structures and occurs in
zones of intense fracturing associated with phyllic alteration and quartz-pyrite
veins and stock works.

                                       21

     3.      La Horqueta Project Exploration

     A number of very small adits and trench-like excavations are present on the
La Horqueta cateo which attest
to the historical exploitation of narrow fluorite veins.

     In 1995, the Corporation completed mapping and sampling programs to
evaluate the La Horqueta cateo property-wide and a detailed program that
focussed on the central area.

     In July 1996, a campaign of detailed structural mapping, induced
polarization and ground magnetic geophysical surveys and mechanical trenching
was completed over 45 line km of grid in the central area and dipole-dipole
induced polarization was conducted in areas of gradient array anomalies. Three
km of road access and 1.2 km of trenching were completed in the central basin
area between geophysical anomalies.

     In late 1996, a 17-hole reverse-circulation reconnaissance drilling program
totaling 2,260 m tested portions of the 1500 x 400 meter altered zone with
coincident geophysical and geochemical anomalies.

     4.      La Horqueta Project Ownership

     Following the equivocal results from the Corporation's drilling and
difficulty of attracting a joint venture partner to continue exploration work,
the La Horqueta properties were abandoned in December 1997, and mineral
properties and deferred exploration costs of $1,116,156 were written-off.

I.   Arroyo Nuevo Project Summary

     1.      Arroyo Nuevo Project Location

     The Arroyo Nuevo Project is located 35 km west of the town of Chos Malal,
in northwest Neuquen Province at latitude 37(degree)17'00"S, longitude
70(degree)40'00"W. Good road access is provided to the property area by a
combination of paved highway and gravel road. Local topography is of moderate
relief with elevation ranges from
900 m to 2,100 m.

     2.      Arroyo Nuevo Project Geology

     The area is underlain by a sequence of gently dipping Jurassic
volcano-sedimentary rocks intruded by small stocks of Cretaceous-Tertiary
porphyritic dacite. Tertiary andesite and basalt flows cap the sequence.
Jurassic rocks include tuffaceous sandstone, pyroclastic tuff breccias,
quartzite, shale and carbonate rocks. Steeply dipping, northeast trending faults
and structures predominate in the property area. In the area around the barite
mine, flat lying barite veins to 5 m in thickness occur along bedding-parallel
faults within a large zone of weakly silicified and pyritized sedimentary rocks.
Carbonate rocks are locally jasperoidal.

     3.      Arroyo Nuevo Project Exploration

     At the turn of the century, placer gold mining operations were working
drainages in the project area and numerous small trenches and old workings
attest to the historical exploitation of narrow, polymetallic veins. At Arroyo
Nuevo, a small barite mine has been in operation since the 1970s. Between 1993
and 1995, Placer Dome completed an exploration program over a large area of
reserve land leased from CORMINE S.E.P. that included the Arroyo Nuevo Project
area.

     In 1994, MASA investigated the Arroyo Nuevo project area in a regional
reconnaissance program. The program focussed on the barite mine area and
included 1:1250 scale mapping, rock chip sampling and soil sampling over a zone
of jasperoid in carbonate rocks over 1,000 m along strike, with a strong
multi-element (Au, Ag, Zn, As) soil anomaly. Several jasperoid rock samples
returned significant gold assays, including values of up to 3.0 g/t and 9.0 g/t
Au. A sample collected from Agua Mallin drainage returned a gold value of 291.4
g/t.

                                       22

     Detailed exploration in 1997 consisted of geologic mapping and stream
sediment sampling over 37 square km. The geochemical soil surveys, induced
polarization and ground magnetic geophysical surveys covered about nine square
km, and revealed anomalies in gold and mercury in both soils and rocks and areas
of silicification in
Mesozoic sediments intruded by younger igneous rocks.

     Also in 1997 the Corporation drilled 26 reverse-circulation holes totaling
1,220 m. Minor amounts of gold mineralization were encountered (up to 3.5 g/t
over five feet), with similar intercepts ranging up to eight percent lead and
one percent zinc. The Arroyo Nuevo property will likely be offered for joint
venture.

     4.      Arroyo Nuevo Project Ownership

     The Arroyo Nuevo Project comprised a total of 4,958 ha under two titles;
Cura Mallin, a provincial mineral reserve leased from CORMINE S.E.P.(Corporacion
Minera del Neuquen, Sociedad del Estado Provincial) and 13 minas held under a
option-to-purchase agreement with Sapag Hermanos S.A. of the city of Zapala.
Details pertinent to the project properties are outlined below. Neuquen Province
has waived its right to a net smelter return royalty.

             a.    Provincial Mining Reserve

     The Cura Mallin reserve area comprises 4,700 ha, acquired in 1997 under an
exploration contract, with a mining option, from CORMINE S.E.P. The contract
required MASA to make monthly exploration payments of $0.40 per hectare, cash
payments of $205,000 and a total of $1,075,000 in work expenditures over four
years.
 A
2% net smelter return royalty is payable to CORMINE upon production. Cash
payments to CORMINE are considered advance royalty payments.

             b.    Sapag Option

     On September 30, 1996, MASA entered an option-to-purchase agreement with
Sapag Hnos S.A. on 13 minas that comprise 258 ha within the Cura Mallin Reserve
Area. MASA could earn 100% interest in the minas by making quarterly payments
totaling $350,000 over four years with a final purchase price of $2,000,000. The
agreement is subject to a 2% net smelter return royalty.

             c.    Abandonment

     Following a review of late 1997 exploration results, the Corporation
elected to abandoned its interest in the Arroyo Nuevo project and to return the
property, resulting in a write-off of deferred expenditures of $558,674.

J.   Los Bueyes Project Summary

     1.      Los Bueyes Project Location

     The Los Bueyes Project is located 250 km northwest of the city of Neuquen
in Norquin department at 70(degree)24'W and 37(degree)43'S. Elevations range
from 1,300 to 2,248 m above sea level.

     2.      Los Bueyes Project Geology

     The Los Bueyes Project area is underlain by a thick section of Mesozoic
sediments intruded by Tertiary porphyritic sill and dykes. Hydrothermal
alteration/mineralization occurs over a 2.5 square kilometer zone of highly
fractured, pyritized, silicified, and argillized feldspathic sandstones. Barite
veins also occur in the region. Jasperoid bodies within altered sandstone are
some of the most strongly mineralized samples (Au up to 65 ppb, Cu up to 0.15%,
Zn up to 1,200 ppm, and As up to 9,000 ppm). Stream sediment sampling on a
portion of the 

                                       23

property have anomalous concentrations of Cu, Zn, As, and Sb. The main focus on
this project is an unexposed porphyry copper target.

     3.      Los Bueyes Project Previous Exploration

     Numerous small pits indicate minor historic prospecting at Los Bueyes.
Stream sediment, soil and rock chip geochemical sampling and geologic mapping
have been completed by MASA at Los Bueyes. Numerous stream sediment samples from
drainages at Los Bueyes are anomalous in gold (up to 1,036 ppb) and soil samples
range up to 145 ppb gold. Results of the soil surveys show a 200 m by 200 m zone
anomalous in copper at the 100 ppm level with values up to 14,240 ppm copper.

     4.      Los Bueyes Project Ownership

     The Los Bueyes Project consists of two manifestations of discovery (2,000
ha). Maintenance costs are currently $160 per year.

K.   Northwest Argentina Project Summary

     1.      Northwest Argentina Project Location

     The Northwest Argentina Project includes the provinces of La Rioja,
Catamarca, Salta, Jujuy and Tucuman. Located in northwestern Argentina these
provinces cover a variety of physiographic and geologic terrains ranging from
the high desert of the Puna region of Jujuy and Salta to the principal
cordillera of La Rioja. The region has a moderately good road access in the east
and a poorly developed network of roads in the more mountainous west.

     2.      Northwest Argentina Project Geology

     The westernmost geologic terrane, extending from northeastern Salta to
western La Rioja consists of the Andean Cordillera (up to 100 km wide). This
mountain range, formed by magmatism and uplift along a convergent plate margin
since Jurassic time, is product of subduction of the Nazca plate beneath the
South American continent. Igneous rocks of Permian to Triassic age form the
basement of this mountain chain. Average
elevation of the Andean Cordillera is 4,600 m.

     To the east of the Andean Cordillera is the Puna, the southern continuation
of the Bolivian Altiplano. The Puna is a coherent basement block studded with
active volcanoes. The plateau (average 4,000 m in elevation) is dissected by
young faults that form numerous closed basins and low mountain ranges with 300
to 400 m
relief.

     The Pre Cordillera flanks the Puna to the east and is a belt about 250 km
wide that is similar to the Basin and Range extensional regime in the western
United States. Extension-related Cenozoic volcanism is manifested as
numerous calc-alkaline to alkaline volcanic centers.

     To the east of the Pre Cordillera in Tucuman are the Pampean and
Transpampean ranges. These ranges are almost entirely composed of Precambrian
and Paleozoic granitic and metamorphic rocks, sparsely covered by
Paleozoic and Triassic continental sedimentary rocks.

     3.      Northwest Argentina Project Exploration

     Long a target for exploration, the region has received renewed interest in
recent years with the development of the Bajo de la Alumbrera copper-gold
deposit and the delineation of a significant copper-gold-molybdenum resource at
Agua Rica in Catamarca Province, and the discovery of new porphyry copper
targets at Taca Taca and Cerro Samenta in Salta Province. Additionally, the
frontier region of Catamarca and La Rioja Provinces shares a similar geologic
and metallogenic environment with Chile's Maricunga gold belt which hosts over
10 million ounces of gold.

                                       25

      The Corporation has initiated exploration in this region consisting of
generative reconnaissance exploration, satellite image analysis and evaluation
of airborne geophysical data and property submittals. Additional exploration is
contingent upon the recognition and availability for acquisition and subsequent
exploration of lands demonstrating reasonable indications of potentially
economic quantities and concentrations of gold and/or copper.

     4.      Northwest Argentina Project Ownership

     The Corporation neither currently owns nor controls land in the project
area.

L.   Arroyo Verde Project

     1.       Arroyo Verde Project Location

     Arroyo Verde, located in northeast Chubut Province 70 km north northeast of
the coastal town of Puerto Madryn is easily accessed by road at about 400 to 500
m above sea level.

     2.      Arroyo Verde Project Geology

     The project area is underlain by Jurassic rhyolitic volcanic and
volcaniclastic rocks of the Marifil Formation on the Northen Patagonian Massif.
These volcanic flows, flow breccias and pyroclastic rocks appear to be
associated with a rhyolite dome structure. Gold mineralization is hosted by
silicified quartz porphyries and controlled by high angle east-west striking
faults and, to a lesser extent, by subsidiary northeast striking
structures.
About 85 percent of the property is covered by colluvium of variable thickness
which mask undiscovered mineralization.

     3.      Arroyo Verde Project Exploration

     At Arroyo Verde, a grassroots discovery by Pegasus in 1994, an inferred
resource of 2 million tonnes has been identified based on 25 shallow,
reverse-circulation holes totaling 2,500 m drilled in 1996. Within the core
mineralized area, gold grade ranges between 3-8 g/t, and silver ranges between
10-80 g/t. The holes were drilled in a 700 meter by 700 meter area with
mineralization open at depth. In the area tested, the gold and silver
mineralization occurs in hydrothermal breccias, sheeted veins and stockwork
zones.

     In November of 1997, Minera Andes initiated a program of surface sampling
and mapping, as well as geophysical work in areas adjacent to the earlier
Pegasus work. A reconnaissance drilling program is planned for 1998.

     4.      Arroyo Verde Project Ownership

     In October 1997, the Corporation and Pegasus Gold International, Inc.
signed a definitive joint venture agreement on the Arroyo Verde Project. Under
terms of the agreement, Minera Andes, as the operator, is earning an 80 percent
interest in this epithermal gold/silver property by spending US$1.3 million over
four years, including US$200,000 in field evaluations in the first year. The
property package comprises 13,660 ha consisting of two cateo applications and
two manifestations of discovery. Land holding costs for 1998 are estimated at
$10,000.

M.   Rio Negro Project Summary

     1.      Rio Negro Project Location

                                       25

     A province-wide reconnaissance program encompasses both the Northern
Patagonian Massif and Cordilleran
Region.

     The Cordilleran Region encompasses the Andean mountain chain and its
eastern foothills and runs from approximately the city of Bariloche in Rio Negro
Province southward to the border with Chubut. The western-most portion of this
mountainous area shared with Chile consists of a rugged high relief terrain
(200-2,500 m) and the pre-cordilleran area consists of a basin and range type
topography. Access to most of the region is excellent, with the exception of the
area immediately adjacent to the Chilean border, which is largely roadless and
heavily vegetated.

     The North Patagonia Massif encompasses a major portion of the southern half
of Rio Negro Province, east of the Cordillera and is characterized by a
relatively high base level (900 m) above which rise isolated subdued
mountain ranges.  Vehicular access is generally good.

     2.      Rio Negro Project Geology

     Three distinct, mostly Mesozoic, volcanic terranes are the target of nearly
all gold exploration in the region. These are 1) The Lonco Trapial Formation and
equivalents of southernmost central Rio Negro, 2) The Marifil Formation of
eastern Rio Negro, and 3) The Los Menucos Formation of south-central Rio Negro.

     The Lonco Trapial Formation is comprised of Jurassic-age intermediate to
mafic-pyroclastic rocks with some intercalated sedimentary rocks. Gold is hosted
by epithermal quartz veins, stock works, and breccia fillings
emplaced within regionally extensive fault zones.

     The Marifil Formation is also Jurassic in age, but is comprised almost
exclusively of rhyolitic ignimbrite flows and subvolcanic intrusions. Gold is
hosted in epithermal quartz veins and silicified zones rhyolite domes and
caldera structures.

     The Los Menucos Formation is older than the above formations, with
estimated ages being Permo-Triassic to Triassic-Jurassic. The formation is
comprised of extrusive and intrusive silicic quartz porphyries.

     The geology of the cordillera of southern-most Rio Negro Provinces is
complex. Rocks range in age from Precambrian to Quaternary and consist of an
array of igneous, metamorphic, and sedimentary lithologies. The most important
host to known gold mineralization is the predominately silicic pyroclastic rocks
of the Jurassic
Lago La Plata Formation.

     3.      Rio Negro Project Exploration

     Some of the areas have had small scale prospecting by individuals. At
present, exploration in the province is being done by Pegasus Gold, Rio Tinto
Zinc and others who have focused their attention on the area's epithermal
gold potential.

     To date, work by the Corporation in the area has been restricted to
air-photo interpretation and compilation of geologic data and field evaluation
of cateos which were subsequently dropped due to negative results. A regional
reconnaissance program will continue in Rio Negro Province. This program would
include prospecting, regional mapping and stream sediment sampling. If targets
are generated, a campaign of geologic studies, mechanical trenching and
reverse-circulation drilling, will follow.

     Through December 31, 1997, the Corporation has spent $64,119 on the Rio
Negro Project.

     4.      Rio Negro Project Ownership

                                       26

     The Corporation currently neither owns nor controls land in the province of
Rio Negro.

ITEM 3.      LEGAL PROCEEDINGS

     The Corporation is not currently aware of any material legal proceeding,
actual, contemplated or threatened, to which the Corporation is party or of
which any of its property interests is subject.

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1997.

                                     PART II

ITEM 5.      MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     The Corporation's Common Shares are traded on the Alberta Stock Exchange
("ASE") under the trading symbol MAI and, since November 5, 1997, the Common
Shares have also been traded on the NASD over-the-counter market under the
trading symbol MNEAF.

     The high and low prices for the Common Shares reported by the ASE for each
of the quarters during the years ended December 31, 1996 and 1997 are set forth
in the table below:

                                                High ($Cdn)         Low($Cdn )

     1996    January - March                         3.15             1.35
             April - June                            3.75             2.45
             July - September                        2.90             1.90
             October - December                      2.95             1.75

     1997    January - March                         3.40             2.06
             April - June                            3.30             2.00
             July - September                        2.55             1.36
             October - December                      1.95             1.10

     The high and low prices for the Common Shares reported for the NASD
over-the-counter market for the period from November 5, 1997 to December 31,
1997 are set forth in the table below:

                                                High ($US)           Low ($US)

     November 5, 1997 - December 31, 1997           1.1875            0.76

     As of December 31, 1997 there were approximately 191 holders of Common
Shares of the Corporation. No dividends have ever been paid on the Common Shares
of the Corporation, and the Corporation intends to retain its earnings for use
in the business and does not expect to pay dividends in the foreseeable future.

ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with the
Corporation's audited consolidated financial statements for the years ended
December 31, 1997 and 1996 included elsewhere in this report. The Corporation's

                                       27

financial condition and results of operations are not necessarily indicative of
what may be expected in future years.


Overview

     The principal business of the Corporation is the locating, acquiring,
exploring, and, if warranted, developing mineral properties located in the
Republic of Argentina. The Corporation carries out its business by acquiring,
exploring, and evaluating mineral properties through its ongoing exploration
program, and either joint-venturing or developing these properties further, or
disposing of them if the properties do not meet the Corporation's requirements.

     The Corporation's current properties and projects consist of mineral rights
and applications for mineral rights covering approximately 225,000 hectares in
six Argentine provinces. The lands comprise option-to-purchase contracts,
exploration, and mining agreements and direct interests through the
Corporation's filings for exploration concessions. The Corporation's properties
are all early stage exploration prospects. No proven or probable reserves have
yet been identified. See "Description of Properties."

     The Corporation was incorporated in Alberta in July 1994. In November 1995,
the Corporation effected an amalgamation with Scotia Prime Minerals,
Incorporated, also an Alberta corporation, which at that time was an inactive
corporation that previously had been a reporting issuer under Alberta law and
its common shares traded on The Alberta Stock Exchange. The business combination
between Minera Andes and Scotia Prime Minerals was accounted for using the
purchase method of accounting, whereby Minera Andes is identified as the
acquiror. See "Note 2 to Notes to Consolidated Financial Statements."

Plan of Operations

     The Corporation has budgeted and plans to spend approximately $1.9 million
for mineral property and exploration activities on its properties in Argentina
through 1998. See "Description of Properties." The Corporation believes that its
existing funds and projected sources of funds will be sufficient to finance this
planned exploration and the related operating activities for this future period.
If the Corporation were to develop a property or a group of properties beyond
the exploration stage, substantial additional financing would be necessary. Such
financing would likely be in the form of equity, debt, or a combination of
equity and debt. The Corporation has no current plan to seek such financing and
there is no assurance that such financing, if necessary, would be available to
the Corporation on favorable terms.

Results of Operations

     1997 Compared to 1996

     The Corporation's net loss of $4.3 million in 1997, was $3.1 million more
than the net loss of $1.2 million in 1996. This was a net loss of 24 cents per
share in 1997 compared with 10 cents per share in 1996. The increase in net loss
was primarily a result of the write-off of mineral properties and deferred
exploration costs of $3.0
million in 1997, compared with a write-off of $0.5 million in 1996.

     General and administrative expenses increased from $0.75 million to $1.35
million mainly because of the increased activity of the Corporation during 1997.
Legal and office overhead costs increased as a result of the registration of the
Corporation's Common Stock under the Exchange Act, which allowed the Corporation
to list its shares on the NASD over-the-counter market, and the increased
investor relations activities. The Corporation also suffered a foreign exchange
loss of $0.2 million resulting from the fall in value of the Canadian dollar, in
which the Corporation had certain invested balances denominated.

                                       28

     At the end of 1997, the Corporation undertook a complete review of its
exploration properties and elected to write-off a total of $3.0 million in
deferred costs. The properties abandoned and returned to the underlying
landowners included the Pino Andino property ($1.1 million), La Horqueta ($1.1
million) and Arroyo Nuevo ($0.6 million). While these properties had
demonstrated some geological potential from exploration activities, they were
abandoned because they did not meet the Corporation's continuing investment
requirements. The Corporation's exploration program involves nearly continuous
prospecting, acquisition, exploration, and evaluation for further exploration of
property interests. If a property does not meet the Corporation's requirements,
costs associated with abandonment of the property will result in a charge to
operations. The Corporation expects to incur additional write-offs in future
periods, although the amounts of such write-offs are difficult to predict as
they will be determined by the results of future exploration activities.

     Mineral property and deferred exploration costs amounted to $2.7 million in
1997, up from $2.1 million in 1996. Geological expenses, assaying, and
analytical costs and travel expenses increased partly as a result of the
acquisition and early-stage exploration of additional property interests in the
southern provinces of Chubut and Santa Cruz. Property and mineral rights also
increased in 1997 ($0.5 million in 1997 compared with $0.1 million in 1996) with
new properties and the increases in holding costs for properties the Corporation
has held for several years. (Acquisition agreements usually provide for
escalating payments over the term of an agreement.) After the write-offs of
deferred expenditures described above, deferred expenditures for mineral
properties and exploration decreased from $3.4 million in 1996 to $3.2 million
in 1997.

     1996 Compared to 1995

     The Corporation had a net loss of $1.2 million in 1996 compared with a net
loss of $1.5 million in 1995. The reduction in the loss for the year was a
function of higher general and administrative expenditures, more than offset by
a reduced write-off of deferred expenditures in connection with the abandonment
of certain property
interests.
The write-off of mineral property and deferred exploration costs was $0.5
million in 1996, compared with $1.0 million in 1995.

     General and administrative expenses increased from $0.5 million to $0.75
million primarily because 1996 was the Corporation's first full year as a
Canadian reporting company. Legal and travel expenses in 1996 reflected the
financing activity undertaken during the year, which included two special
warrant financings. Office overhead costs also increased as a result of the
Corporation's leasing of additional office space in Mendoza, Argentina, printing
and copying expenses and the costs of preparing shareholder reports and investor
relations materials.

     Total mineral property costs and exploration costs were $2.1 million in
1996 and in 1995, but there were some significant differences within categories
of expenditure in 1996 compared to 1995. In 1996 the Corporation reached a more
advanced stage of work on several properties. As a result, the Corporation
incurred greater expenses in 1996 than in 1995 for construction, trenching, and
drilling, with the bulk of these expenses being incurred on the 100%-owned La
Horqueta property. Proceeds were received from mineral property options which
offset deferred acquisition and exploration costs. After the effect on
operations of the write-offs described above and the offsetting impact of option
payments, deferred expenditures related to mineral properties and exploration
increased from $2.5 million in 1995 to $3.4 million in 1996.

Liquidity and Capital Resources

     Due to the nature of the mining business, the acquisition, exploration, and
development of mineral properties requires significant expenditures prior to the
commencement of production. To date, the Corporation has financed its activities
through the sale of equity securities and joint venture arrangements. The
Corporation expects to use similar financing techniques in the future.

                                       29

     The Corporation's exploration and development activities and funding
opportunities, as well as those of its joint venture partners, may be materially
affected by precious and base metal price levels and changes in those levels.
The market prices of precious and base metals are determined in world markets
and are affected by numerous factors which are beyond the Corporation's control.

     At December 31, 1997 the Corporation had cash and cash equivalents of $4.0
million, compared to cash and cash equivalents of $6.7 million as of December
31, 1996. Working capital at December 31, 1997 was also $4.0 million.

     Net cash used in operating activities during 1997 was $1.4 million,
compared with $0.7 million in 1996. This change reflects the increased general
and administrative expenditures described above. Investing activities in 1997
used $2.9 million in cash, compared with $1.4 million in 1996. This increase
results from the higher level of mineral property and exploration costs during
1997, while 1996 also benefitted from $0.7 million received in mineral property
option proceeds.

     The principal financing activity during 1997 was the receipt of $1.8
million from the exercise of share purchase warrants. During 1996, the
Corporation had completed two equity private placements, a private placement to
Cominco Ltd. in conjunction with the property joint venture and the exercise of
share purchase warrants. The Corporation's working capital also improved during
1996 as a result of the satisfaction of the debt owing to Degerstrom in
connection with a private issuance of Common Shares to Degerstrom. See "Certain
Relationships and Related Transactions."

ITEM 7.      FINANCIAL STATEMENTS

     Index to Consolidated Financial Statements

                                                                            Page

     Auditor's Reports                                                        32

     Consolidated Balance Sheets at December 31, 1997 and 1996                34

     Consolidated Statements of Operations and Accumulated
     Deficit for the years ended December 31, 1997 and 1996
     and for the period July 1, 1994 (commencement) through
     December 31, 1997                                                        35

     Consolidated Statements of Mineral Properties and
     Deferred Exploration Costs for the years ended December
     31, 1997 and 1996 and for the period July 1, 1994
     (commencement) through December 31, 1997                                 36

     Consolidated Statements of Changes in Financial
     Position for the years ended December 31, 1997 and 1996
     and for the period July 1, 1994 (commencement) through
     December 31, 1997                                                        37

     Notes to Consolidated Financial Statements                               38

                                        30

                            COOPERS & LYBRAND L.L.P.


AUDITOR'S REPORT

To the Shareholders of Minera Andes Inc.

We have audited the consolidated balance sheet of Minera Andes Inc., as at
December 31, 1997 and the consolidated statements of operations and accumulated
deficit, mineral properties and deferred explorations costs and changes in
financial position for the year then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at December 31,
1997 and the results of its operations and the changes in its financial position
for the year then ended in accordance with generally accepted accounting
principles.


                                Coopers & Lybrand

Vancouver, B.C.
Canada                                                     Chartered Accountants
March 3, 1998

                                       31

                                MACKAY & PARTNERS


AUDITOR'S REPORT

INSERT OHLHAUSER'S REPORT HERE

                                       32



                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
                           CONSOLIDATED BALANCE SHEETS
                                 (U.S. Dollars)


                                                                              December 31,                  December 31,
                                                                                  1997                          1996
                                                                         ----------------------        ----------------------
                                     ASSETS
                                                                                                                    
Current:
          Cash and cash equivalents                                                $  4,003,519                   $ 6,660,633
          Receivables and prepaid expenses                                              212,533                       167,110
    
                                                                         ----------------------        ----------------------
                Total current assets                                                  4,216,052                     6,827,743
Mineral properties and deferred exploration costs (Note 5)                            3,226,856                     3,440,879
Capital assets, net (Note 6)                                                            220,981                        48,575
                                                                         ----------------------        ----------------------
                Total assets                                                       $  7,663,889                   $10,317,197
                                                                         ======================        ======================

                                   LIABILITIES
Current:
          Accounts payable and accruals                                           $      79,168                 $     147,474
          Due to related parties (Note 9)                                               118,273                        80,355
                                                                         ----------------------        ----------------------
                Total current liabilities                                               197,441                       227,829
                                                                         ----------------------        ----------------------
Commitments and contingencies (Note 8)

                              SHAREHOLDERS' EQUITY

Share capital (Note 7)
Preferred shares, no par value, unlimited number authorized, none
   issued
Common shares, no par value, unlimited number authorized

           Issued 1997--19,216,050 shares
           Issued 1996--14,499,336 shares                                            15,132,262                    13,365,014

Accumulated deficit                                                                  (7,665,814)                   (3,275,646)
                                                                         ----------------------        ----------------------
                Total shareholders' equity                                            7,466,448                    10,089,368
                                                                         ----------------------        ----------------------
                Total liabilities and shareholders' equity                         $  7,663,889                   $10,317,197
                                                                         ======================        ======================

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


                                       33



                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
          CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
                                 (U.S. Dollars)


                                                                                                                   Period from
                                                                          Years Ended                              July 1, 1994
                                                      ---------------------------------------------------         (commencement)
                                                           December 31,                December 31,                   through
                                                               1997                        1996                  December 31,1997
                                                      ---------------------        ----------------------     ---------------------
                                                                                                                       
Administration fees                                             $    33,154                  $     27,205                 $ 120,035

Audit and accounting                                                 49,930                        37,629                    97,310

Consulting fees                                                     167,540                       143,120                   440,360

Depreciation                                                          3,144                             0                     3,144

Equipment rental                                                      3,945                         1,192                     6,872

Foreign exchange (gain) loss                                        244,062                      (62,736)                   192,511

Insurance                                                            18,576                             0                    18,576

Legal                                                               133,830                        74,564                   243,416

Maintenance                                                             165                             0                       165

Materials and supplies                                                8,090                        13,559                    43,277

Office overhead                                                     487,266                       249,535                   765,332

Telephone                                                            59,735                        54,158                   187,372

Transfer agent                                                       16,365                        11,046                    49,155

Travel                                                               96,862                        91,696                   194,399

Wages and benefits                                                  215,339                       184,250                   501,806

Write-off of deferred expenditures                                2,956,001                       494,492                 4,484,648
                                                      ---------------------        ----------------------     ---------------------
Total expenses                                                    4,494,004                     1,319,710                 7,348,378

Interest income                                                   (187,107)                      (69,204)                 (260,911)
                                                      ---------------------        ----------------------     ---------------------
Net loss                                                          4,306,897                     1,250,506                 7,087,467

Accum. deficit, beginning of the period                           3,275,646                     1,798,026                         0

Share issue costs                                                    83,271                       227,114                   561,132

Deficiency on acquisition of subsidiary                                   0                             0                    17,215

                                                      ---------------------        ----------------------     ---------------------
Accumulated deficit, end of the period                           $7,665,814                    $3,275,646                $7,665,814
                                                      =====================        ======================     =====================

Net loss per common share                                        $     0.24                    $     0.10                $     0.62
                                                      =====================        ======================     =====================

Weighted average shares outstanding                              17,724,935                    12,722,871                11,483,718
                                                      =====================        ======================     =====================

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


                                       34



                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
                  CONSOLIDATED STATEMENTS OF MINERAL PROPERTIES
                         AND DEFERRED EXPLORATION COSTS
                                 (U.S. Dollars)


                                                                                                                   Period from
                                                                          Years Ended                              July 1, 1994
                                                      ---------------------------------------------------         (commencement)
                                                           December 31,                December 31,                   through
                                                               1997                        1996                  December 31,1997
                                                      ---------------------        ----------------------     ---------------------
                                                                                                                 
Administration fees                                       $     25,843              $    61,760                     $   282,719

Assays and analytical                                          235,524                  127,511                         571,902

Construction and trenching                                      57,718                  254,349                         466,693

Consulting fees                                                121,553                   70,175                         592,360

Depreciation                                                    44,503                   14,784                          59,287

Drilling                                                       112,348                  205,900                         337,593

Equipment rental                                                46,325                   63,242                         215,000

Geology                                                        821,870                  606,239                       1,984,005

Geophysics                                                     109,825                   75,536                         186,627

Insurance                                                       43,767                   38,327                         118,006

Legal                                                          110,706                   64,129                         379,339

Maintenance                                                     37,506                   37,347                          97,555

Materials and supplies                                          82,879                   89,692                         324,947

Project overhead                                                47,191                   38,811                         209,304

Property and mineral rights                                    452,036                  111,763                       1,018,452

Telephone                                                        9,066                    6,452                          34,023

Travel                                                         253,449                  120,773                         523,734

Wages and benefits                                             129,869                  113,611                         433,819
                                                  --------------------      -------------------           ---------------------

Costs incurred during the period                             2,741,978                2,100,401                       7,835,365

Deferred costs, beginning of the period                      3,440,879                2,534,970                               0

Deferred costs, acquired                                             0                        0                         576,139

Deferred costs written off                                 (2,956,001)                (494,492)                     (4,484,648)

Mineral property option proceeds                                     0                (700,000)                       (700,000)
                                                  --------------------      -------------------           ---------------------

Deferred costs, end of the period                          $ 3,226,856               $3,440,879                      $3,226,856
                                                  ====================      ===================           =====================

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


                                       35



                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
            CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
                                 (U.S. Dollars)


                                                                                                                     Period from
                                                                                  Years Ended                       July 1, 1994
                                                              ------------------------------------------------     (commencement)
                                                                   December 31,             December 31,               through
                                                                       1997                     1996              December 31,1997
                                                              ---------------------     ----------------------    ------------------
                                                                                                                   
Operating Activities
          Net loss for the period                                       $( 4,306,897)           $(1,250,506)           $(7,087,467)
          Non-cash items:
                 Write-off of incorporation costs                                  0                      0                    665
                 Write-off of deferred expenditures                        2,956,001                494,492              4,484,648
                 Depreciation                                                  3,144                      0                  3,144
                                                              ----------------------    -------------------      -----------------
                                                                          (1,347,752)              (754,184)            (2,599,010)
          Net changes in non-cash working capital items                      (75,811)                 30,401               (15,090)
                                                              ----------------------    -------------------      -----------------
          Cash used in operating activities                               (1,423,563)              (723,783)            (2,614,100)
                                                              ----------------------    -------------------      -----------------

Investing Activities
          Incorporation costs                                                      0                      0                   (665)
          Purchases of capital assets                                       (220,053)               (63,359)              (283,412)
          Mineral properties and deferred exploration                     (2,741,978)            (2,100,401)            (7,835,365)
          exploratio
          costs
          Non-cash item: depreciation                                         44,503                 14,784                 59,287
          Acquisition of subsidiaries                                              0                      0               (593,354)
          Mineral property option proceeds                                         0                700,000                700,000
                                                              ----------------------    -------------------      -----------------
          Cash used in investing activities                               (2,917,528)            (1,448,976)            (7,953,509)
                                                              ----------------------    -------------------      -----------------

Financing Activities
          Shares issued for cash                                           1,767,248              4,939,161              9,683,387
          Share subscription received                                              0              4,873,336              4,873,336
          Shares issued for subsidiaries                                           0                      0                575,537
          Advances from related parties                                            0            (1,278,181)                      0
          Share issue costs                                                  (83,271)              (227,114)              (561,132)
                                                              ----------------------    -------------------      -----------------
          Cash provided by financing activities                            1,683,977              8,307,202             14,571,128
                                                              ----------------------    -------------------      -----------------

Increase (decrease) in cash and cash equivalents                          (2,657,114)             6,132,613              4,003,519
Cash and cash equivalents, beginning of the period                         6,660,633                528,020                      0
                                                              ----------------------    -------------------      -----------------
Cash and cash equivalents, end of the period                             $ 4,003,519            $ 6,660,633            $ 4,003,519
                                                              ======================    ===================      =================

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


                                       36

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (U.S. Dollars)


1.   NATURE OF OPERATIONS

The Corporation is in the business of acquiring, exploring and evaluating
mineral properties, and either joint venturing or developing these properties
further or disposing of them when the evaluation is completed. At December 31,
1997, the Corporation was in the exploration stage and had interests in 25
properties in six provinces
in the Republic of Argentina.

The recoverability of amounts shown as mineral properties and deferred
exploration costs is dependent upon the existence of economically recoverable
reserves, the ability of the Corporation to obtain necessary financing to
complete their development, and future profitable production or disposition
thereof.

Although the Corporation has taken steps to verify title to mineral properties
in which it has an interest, in accordance with industry standards for the
current stage of exploration of such properties, these procedures do not
guarantee the Corporation's title. Property title may be subject to unregistered
prior agreements and non-compliance with regulatory requirements.

2.   ORGANIZATION

The Corporation, Minera Andes Inc., was incorporated in Alberta on July 19,
1994, although operations are considered to have commenced on July 1, 1994, the
effective date of the acquisition of the Argentine properties (see Note 4a). On
November 6, 1995, the amalgamation of Minera Andes Inc. with Scotia Prime
Minerals, Incorporated (Scotia), a reporting issuer, pursuant to section 186 of
the Business Corporations Act (Alberta), became effective. The business
combination was accounted for using the purchase method of accounting. Under
this method of accounting, Minera Andes Inc. has been identified as the acquiror
and accordingly, the comparative figures are those of Minera Andes Inc.

3.   SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada. The statements are expressed
in United States dollars because the majority of the Corporation's
exploration activities are incurred in U.S. dollars.

     a)   Consolidation/Reporting
          These consolidated financial statements include the accounts of Minera
          Andes Inc. and its wholly-owned subsidiaries (see Note 4a), Minera
          Andes S.A. (MASA) and NAD S.A. (NADSA), both Argentine corporations.
          All significant intercompany transactions and balances have been
          eliminated from the consolidated financial statements.

     b)   Foreign Currency Translation
          The Corporation's consolidated operations are integrated and balances
          denominated in currencies other than U.S. dollars are translated into
          U.S. dollars using the temporal method. This method translates
          monetary balances at the rate of exchange at the balance sheet date,
          non-monetary balances at historic exchange rates and revenues and
          expense items at average exchange rates. The resulting gains and
          losses are included in the statement of operations in the reporting
          period.

                                       37

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


     c)   Cash Equivalents
          The Corporation considers cash equivalents to consist of highly liquid
          investments with a remaining maturity of three months or less when
          purchased.

     d)   Mineral Properties and Deferred Exploration Costs
          Mineral properties consist of exploration and mining concessions,
          options and contracts. Acquisition and leasehold costs and exploration
          costs are capitalized and deferred until such time as the property is
          put into production or the properties are disposed of either through
          sale or abandonment. If put into production, the costs of acquisition
          and exploration will be written off over the life of the property,
          based on estimated economic reserves. Proceeds received from the sale
          of any interest in a property will first be credited against the
          carrying value of the property, with any excess included in operations
          for the period. If a property is abandoned, the property and deferred
          exploration costs will be written off to operations.

     e)   Capital Assets and Depreciation
          Capital assets are recorded at cost, and depreciation is provided on a
          declining balance basis over their estimated useful lives of up to
          five years at an annual rate of up to 40% to a residual value of 10%.

     f)   Share Issue Costs
          Commissions paid to underwriters on the issuance of the Corporation's
          shares are charged directly to share capital. Other share issue costs,
          such as legal, accounting, auditing and printing costs, are charged to
          accumulated deficit.

     g)   Loss per Share
          Net loss per common share is computed based on the weighted average
          number of common shares outstanding during each period. Due to the net
          losses incurred during each of the periods presented, common stock
          equivalents are anti-dilutive and have been excluded from the
          computation.

     h)   Estimates
          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amount of assets and
          liabilities and disclosure of contingent liabilities at the date of
          the financial statements, and the reported amounts of revenues and
          expenditures during the reporting period. Actual results could differ
          from those reported.

4.   ACQUISITION OF SUBSIDIARIES

     a)   Pursuant to an agreement dated March 8, 1995, the Corporation acquired
          on March 15, 1995, 95% (19 of the 20 shares issued) of MASA and 91.66%
          (11 of the 12 shares issued) of NADSA in exchange for the issue of
          4,000,000 shares, an additional bonus issue of shares payable if any
          of the properties reach bankable feasibility (which shall be 11% or
          1,213,409 shares of the issued and outstanding common shares of the
          Corporation after the amalgamation--see Note 2), a royalty on all
          existing and future properties equal to the difference between 3%of
          net smelter returns and any underlying royalties subject to a maximum
          of 2% of net smelter returns, and reimbursement of all property costs
          incurred from July 1, 1994 through the closing date March 15, 1995. An
          additional $602 was paid in cash to certain minority shareholders of
          MASA and NADSA. Concurrent with the agreement, the Corporation also
          entered into option agreements,

                                       38

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


          having an initial term of four years each and renewable every four
          years to acquire the remaining shares of MASA and of NADSA for an
          exercise price of $100 per share. For accounting and reporting
          purposes, MASA and NADSA are considered to be wholly-owned
          subsidiaries of the Corporation.

          MASA and NADSA have no assets or liabilities other than mineral
          property rights which had been purchased or directly staked. The
          deemed value of the 4,000,000 shares issued was equal to the
          accumulated property acquisition costs and exploration expenditures
          acquired by MASA and NADSA effective July 1, 1994, which totaled
          $575,537. The acquisition was accounted for using the purchase method
          with an effective date of July 1, 1994 through the closing date March
          15, 1995. being the date from which the Corporation agreed to
          reimburse the property costs incurred.

     b)   As disclosed in Note 2, the business combination of Minera Andes Inc.
          and Scotia, which was made effective November 6, 1995, has been
          accounted for using the purchase method whereby Minera Andes Inc.
          acquired all of the issued and outstanding shares of Scotia. The
          acquisition has been recorded as follows:

           Assets acquired                                            $   1,986
           Less: liabilities assumed                                     19,201
                                                                      ---------
           Net liabilities assumed                                      (17,215)
           Asset deficiency allocated to accumulated deficit             17,215
                                                                      ---------
           Purchase price                                             $       0
                                                                      =========

           Consideration given: 336,814 common shares                 $       0
                                                                      =========

          As a result of the acquisition (amalgamation), Minera Andes Inc.
          became a reporting issuer. All fees paid with respect to the
          amalgamation (legal, audit, accounting, printing) were considered to
          be share issue costs. Scotia was an inactive company which from
          December 31, 1994 to the date of acquisition had only the following
          transactions: general and administrative expenses of $6,248,
          forgiveness of indebtedness owed of $13,391 and the issue of shares to
          settle debts of $20,000.

5.   MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS

At December 31, 1997, the Corporation, through its subsidiaries, held interests
in a total of 225,736 hectares of mineral rights and mining lands in six
Argentine provinces: San Juan, Mendoza, Neuquen, Rio Negro, Chubut and Santa
Cruz. Under its present acquisition and exploration programs, the Corporation is
continually acquiring additional mineral property interests and exploring and
evaluating its properties. If, after evaluation, a property does not meet the
Corporation's requirements, then the property and deferred exploration costs are
written off to operations. All properties are subject to a royalty agreement as
disclosed in Note 8b. Mineral property costs and deferred exploration costs are
as follows:

                                       39

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)




Table 1 of 2
===========================================================================================
                                                   Exploration                             
                            Deferred  Acquisition          and                     Deferred
                            December        Costs     Overhead     Write-Offs      December
Province     Property       31, 1994         1995         1995           1995      31, 1995
===========================================================================================
                                                                      
San Juan     Agua Blanca  $        0  $   111,591  $   393,464    $         0    $  505,055
             ------------------------------------------------------------------------------
             Cateos          468,713       17,061      168,477       (402,932)      251,319
- -------------------------------------------------------------------------------------------
Mendoza      Santa Clara     348,444       37,479      173,683              0       559,606
             ------------------------------------------------------------------------------
             La Horqueta           0       20,732      194,595              0       215,327
             ------------------------------------------------------------------------------
             Cateos          425,996      101,382      181,262       (631,223)       77,417
- -------------------------------------------------------------------------------------------
Neuquen      Pino Andino     227,427       48,514      428,276              0       704,217
             ------------------------------------------------------------------------------
             Cateos                0            0            0              0             0
- -------------------------------------------------------------------------------------------
Santa Cruz   Cateos                0        1,349       69,185              0        70,534
- -------------------------------------------------------------------------------------------
Rio Negro    Cateos                0        2,915       15,475              0        18,390
- -------------------------------------------------------------------------------------------
Chubut       Cateos            2,487       13,560      117,058              0       133,105
- -------------------------------------------------------------------------------------------
Northern     Cateos                0            0            0              0             0
- -------------------------------------------------------------------------------------------
TOTAL                     $1,473,067  $   354,583   $1,741,475    $(1,034,155)   $2,534,970
===========================================================================================




Table 2 of 2
==========================================================================
                          Exploration                 Mineral
             Acquisition          and                  Option     Deferred
                   Costs     Overhead  Write-Offs    Proceeds     December
Province            1996         1996        1996        1996     31, 1996
==========================================================================
                                                        
San Juan     $         4  $    26,678  $        0   $(100,000)  $  431,737
             -------------------------------------------------------------
                  25,015      123,420    (164,647)          0      235,107
- --------------------------------------------------------------------------
Mendoza            1,201      280,702           0    (250,000)     591,509
             -------------------------------------------------------------
                  37,988      659,753           0           0      913,068
             -------------------------------------------------------------
                   7,207      166,156     (16,693)          0      234,087
- --------------------------------------------------------------------------
Neuquen            8,136      424,603           0    (350,000)     786,956
             -------------------------------------------------------------
                  20,000       58,080           0           0       78,080
- --------------------------------------------------------------------------
Santa Cruz           500      114,545     (97,012)          0       88,567
- --------------------------------------------------------------------------
Rio Negro          4,414       42,726     (25,333)          0       40,197
- --------------------------------------------------------------------------
Chubut             7,266       60,879    (190,807)          0       10,443
- --------------------------------------------------------------------------
Northern              32       31,096           0           0       31,128
- --------------------------------------------------------------------------
TOTAL        $   111,763  $ 1,988,638  $ (494,492)  $(700,000)  $3,440,879
==========================================================================


     a)   Agua Blanca Project
          The Agua Blanca project is located approximately 220 km northwest of
          the city of San Juan in San Juan Province. Agua Blanca is currently
          held by the Corporation under a four year option-to-purchase
          agreement, dated June 21, 1995, which calls for option payments
          totaling $920,000 and a final buy-out payment of $1,080,000 to earn a
          100% interest in the property claims.

                                       40

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


           The Corporation signed a letter agreement in 1996 with Newcrest
           Resources, Inc. with respect to a joint venture on the Agua Blanca
           property. Newcrest made a $100,000 cash payment to the Corporation
           upon formation of the joint venture. After conducting a drilling
           program during 1996, Newcrest elected
           to return the property to the Corporation in March 1997.

     b)    Santa Clara and Pino Andino Projects
           The Santa Clara project is located in northwest Mendoza Province,
           approximately 63 km west of the city of Tupungato. The bulk of the
           property is held by the Corporation under an option-to-purchase
           agreement, whereby the Corporation can earn a 100% interest in the
           property by making option payments totaling $1,950,000 by October
           1998. During 1995, the Corporation negotiated and received a four
           month extension of the option-to-purchase agreement to allow for
           resolution of the provincial park boundary dispute. Approximately 70%
           of the area of the optioned property lies within the disputed
           boundary of the park. The provincial mining authorities confirmed the
           validity of the mining rights at Santa Clara in January 1996, and in
           January 1997 a provincial law was passed excluding existing mineral
           properties from the provincial park.

           The Pino Andino project consisted of three contiguous properties
           approximately 250 km northwest of the city of Neuquen and 20 km east
           of the city of Loncopue in Neuquen Province. The individual
           properties included: a reserve area acquired under an exploration
           contract with a mining option from CORMINE S.E.P., a provincial
           corporation; a four-year option-to-purchase contract; and a cateo and
           manifestation of discovery owned by the Corporation.

           In March 1996, the Corporation signed a Memorandum of Understanding
           with Cominco Ltd. regarding a joint venture on the Santa Clara and
           Pino Andino properties. Under this agreement, Cominco could have
           earned a 51% interest in each of the properties by making cash
           payments and exploration expenditures of $5,000,000 at each property
           over four years, in addition to paying all associated option payments
           and land costs. Cominco made cash payments of $250,000 in the case of
           the Santa Clara property and $350,000 in the case of the Pino Andino
           property. The Memorandum of Understanding also included Cominco
           subscribing to a private placement of Cdn$3,000,003 in the
           Corporation. After exploration programs on both the Santa Clara and
           Pino Andino properties, Cominco terminated the Memorandum of
           Understanding with respect to Pino Andino in February 1997 and with
           respect to Santa Clara in July 1997.

           The Corporation evaluated the prospects for the Pino Andino property
           late in 1997, the property was abandoned and all underlying contracts
           with landowners were terminated, with a write-off to operations
           of $1,083,862.

     c)    La Horqueta Project
           The La Horqueta project is located 200 km south of the city of
           Mendoza and 95 km from the city of San Rafael in central Mendoza
           Province. The property comprised cateos wholly-owned by the
           Corporation in addition to two separate four-year options to
           purchase. Following exploration programs in 1995 and 1996, including
           a drilling program, the Corporation notified the landowners in late
           1997 that it was abandoning the property. The write-off to operations
           amounted to $1,116,156.

                                       41

                                MINERA ANDES INC.
                                        "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


     d)    Arroyo Nuevo Project
           The Arroyo Nuevo project is located in northwest Neuquen Province, 35
           km west of the town of Chos Malal. The property was held under two
           titles; Cura Mallin, a provincial mineral reserve leased from CORMINE
           S.E.P., and 13 minas held under an option-to-purchase agreement. The
           contract with CORMINE was terminated and the decision was made to
           abandon the property early in 1998, with a write-off to operations of
           $558,674.

     e)    El Pluma/Cerro Saavedra Project
           The contiguous El Pluma and Cerro Savvedra properties are located in
           north central Santa Cruz Province, 50 km east of the town of Perito
           Moreno. The properties, made up of seven applications for cateos,
           were located during the Corporation's regional exploration program.

     f)    Arroyo Verde Project
           The Arroyo Verde project is located in northeast Chubut Province, 70
           km northeast of the coastal town of Puerto Madryn. In October 1997,
           the Corporation and Pegasus Gold International, Inc. entered into a
           joint venture agreement whereby the Corporation, as operator, is
           earning into an 80% interest by spending $1,300,000 over four years,
           including $200,000 in the first year.

     g)    Write-Off of Mineral Property and Deferred Exploration Costs
           The Corporation has acquired exploration concessions, entered into
           option agreements and contracts, and carried out exploration on
           certain properties where it has determined that it would be unlikely
           that additional work would result in the discovery of economic ore
           reserves. Accordingly, any acquisition payments and the accumulated
           cost of exploration on those properties have been written off to
           operations. These write-offs totaled $2,956,001 in 1997 (including
           the amounts for Pino Andino, La Horqueta and Arroyo Nuevo as noted
           above) and $494,492 in 1996.

6.   CAPITAL ASSETS



                                December 31, 1997                                 December 31, 1996
                       ------------------------------------            --------------------------------------
                                    Accumulated                                     Accumulated
                           Cost    Depreciation         Net              Cost       Depreciation          Net
                       --------    ------------    --------            -------      ------------    ---------
                                                                                        
     Vehicles          $267,620         $59,287    $208,333            $63,359           $14,784      $48,575
     Office Eqpmt.       15,791           3,143      12,648                  0                 0            0
                       --------    ------------    --------            -------      ------------    ---------
                       $283,411         $62,430    $220,981            $63,359           $14,784      $48,575
                       ========    ============    ========            =======      ============      =======


7.   SHARE CAPITAL

     a)    Authorized
           The Corporation has authorized capital of an unlimited number of
           common shares, with no par value, and an unlimited number of
           preferred shares, with no par value.

                                       42

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


     b)    Issued, Allotted and/or Subscribed:



                                                                                          Number
                                                                                       of Shares                  Amount
                                                                                 ---------------          --------------
                                                                                                        
Common shares issued:

  Issued for cash on incorporation                                                             1          $            1

  Allotted for acquisition of subsidiaries

  (Issued March 15, 1995-see Note 4)                                                   4,000,000                 575,537

  Subscriptions received for private placement                                                 0                  57,069
                                                                                 ---------------          --------------
Balance, December 31, 1994                                                             4,000,001                 632,607

  Issued for cash (Cdn$0.10 each)                                                      1,000,000                  70,850

  Issued for cash (Cdn$0.40 each)                                                      2,345,094                 669,058

  Issued for cash (Cdn$1.00 each)                                                      3,031,000               2,237,071

  Issued for finder's fee                                                                150,000                       0

  Issued for services                                                                    168,000                       0

  Issued for subsidiary (see Note 4)                                                     336,814                       0

  Subscriptions applied                                                                        0                  57,069
                                                                                 ---------------          --------------
Balance, December 31, 1995                                                            11,030,909               3,552,517

  Issued for cash (Cdn$1.50 each)                                                      1,433,333               1,535,553

  Issued for broker special warrants                                                      90,400                       0

  Issued for cash (Cdn$3.42 each)                                                        877,194               2,174,388

  Issued to N.A. Degerstrom, Inc.

    For cash (Cdn$1.44 each)                                                             500,000                 514,608

    For cash on exercise of warrants (Cdn$1.75 each)                                     500,000                 625,392

  Issued for cash on exercise of warrants (Cdn$1.80 each)                                 67,500                  89,220

  Subscriptions received for private placement                                                 0               4,873,336
                                                                                 ---------------           -------------
Balance, December 31, 1996                                                            14,499,336              13,365,014

  Issued for cash on exercise of warrants (Cdn$1.80 each)                              1,271,233               1,689,102

  Issued for cash (private placement-Cdn$2.10 each)                                    3,370,481               4,873,336

  Subscriptions applied                                                                        0             (4,873,336)

  Issued for cash on exercise of warrants (Cdn$1.44 each)                                 75,000                  78,146
                                                                                    ------------          --------------
Balance, December 31, 1997                                                            19,216,050             $15,132,262
                                                                                    ============          ==============


          i)   In February 1996, the Corporation concluded a private placement
               of 1,433,333 special warrants at a price of Cdn$1.50 per special
               warrant for total gross proceeds of Cdn$2,150,000 (US$1,565,265).
               Each special warrant comprised a unit consisting of one common
               share and one share purchase warrant. Each warrant entitled the
               holder to purchase one additional common share at any time up to
               February 1997 at a price of Cdn$1.80 per 

                                       43

               share. The agents received 90,400 broker special warrants (each
               convertible into one common share and one share purchase
               warrant), cash commission of Cdn$25,650, Cdn$15,000 as a
               corporate finance fee, and a finder's fee of Cdn$16,500 was also
               paid.

          ii)  In May 1996, the Corporation concluded the Cominco private
               placement (see Note 5b) with the issuance of 877,194 common
               shares and 877,194 Cominco warrants at a price of Cdn$3.42 for
               gross proceeds of Cdn$3,000,003 (US$2,174,388). Two Cominco
               warrants entitled Cominco to acquire one additional common share
               at any time on or before May 10, 1997 at a price of Cdn$3.98 per
               share. In May 1997, the Corporation extended the date for the
               exercise of the Cominco warrants until May 10, 1998.

          iii) Following regulatory and shareholder approval, in July 1996 the
               Corporation issued 500,000 units under the Degerstrom
               Subscription Agreement (see Note 9b) at a price of Cdn$1.44 per
               unit. Each unit was comprised of one common share and one share
               purchase warrant. Each warrant entitled the holder, N. A.
               Degerstrom, Inc. (NAD), to purchase one additional common share
               for Cdn$1.75 at any time until January 11, 1998. The warrants
               were also exercised in July 1996.

          iv)  On December 13, 1996 and December 19, 1996, the Corporation
               raised gross proceeds of Cdn$7,078,010 (US$5,197,540) in
               aggregate by way of a private placement of special warrants at a
               price of Cdn$2.10 per unit. Each unit comprised one common share
               and one share purchase warrant. Two warrants will entitle the
               holder to purchase one additional common share at a price of
               Cdn$2.50 per share if exercised on or before December 13, 1997 or
               at a price of Cdn$2.88 if exercised before December 13, 1998. In
               connection with the private placement, the Corporation granted
               140,420 broker special warrants for commission, 200,000 broker
               special warrants for a corporate finance fee (with each broker
               special warrant convertible into a broker share purchase
               warrant), and cash commissions totaling Cdn$441,501. The
               Corporation filed a prospectus to qualify the shares and warrants
               on the exercise of the special warrants and the warrants on
               exercise of the broker special warrants and received final
               approval of the prospectus on May 8, 1997. Upon the exercise of
               the special warrants the Corporation issued 3,370,481 common
               shares. In December 1997, the Corporation amended the terms of
               the share purchase warrants to allow the first exercise of
               warrants at a price of Cdn$1.60 on or before February 27, 1998.
               Other terms of the warrants remain unchanged.

     c)    Stock Options
           As at December 31, 1997, there were options held by directors,
           officers and employees of the Corporation for the purchase of common
           shares as follows:

                                       44

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)




                Number of Shares       Exercise Price         Expiry Date
                ----------------       --------------         -----------
                                                        
                         205,000             Cdn$1.44         January 10, 1998
                         550,000             Cdn$2.18         August 16, 1999
                         500,000             Cdn$2.00         February 17, 2000
                         120,000             Cdn$1.73         August 29, 2000
                      ----------
                       1,375,000


     d)    Warrants
           As at December 31, 1997, the following warrants were outstanding:



             Number of Warrants        Exercise Price         Expiry Date
              -----------------        --------------         -----------
                                                        
                        877,194              Cdn$3.98*        May 10, 1998
                      3,710,901              Cdn$1.60*        February 28, 1998
                     ---------
                     4,588,095                                (or Cdn$2.88 expiring
                     =========                                 December 13, 1998)


          *    Two warrants entitle the holder to acquire one common share at
               this price.

     e)    Escrow
           As at December 31, 1997 there were 1,333,334 common shares held in
           escrow. These common shares will be released from escrow upon
           obtaining the consent of The Alberta Stock Exchange, at the earn-out
           rate of Cdn$0.375 per share of deferred expenditures as defined in
           the Escrow Agreement, with a maximum of one-third of the escrowed
           securities to be released in any one year.

8.   AGREEMENTS, COMMITMENTS AND CONTINGENCIES

     a)    Mineral rights in Argentina are owned by the federal government and
           administered by the provinces. The provinces can levy a maximum 3%
           "mouth of mine" (gross proceeds) royalty. The provinces of Mendoza
           and Neuquen have waived their right to a royalty. The provinces of
           Rio Negro, San Juan, Santa Clara and Chubut have not yet established
           a policy regarding the royalty.

     b)    While the operating agreement between the Corporation and NAD is in
           effect (see Note 9a), a net smelter royalty on all existing and
           future properties is payable to NAD equal to the difference between
           3% and any underlying royalties, subject to a maximum of 2% payable
           to NAD. The Corporation may purchase up to one half of the royalty
           upon payment of $1,500,000 per percent purchased.

     c)    Under the terms of the acquisition agreement disclosed in Note 4a,
           the Corporation may be obligated to issue additional common shares as
           consideration for the acquisition of its subsidiaries. The number of
           shares to be issued to NAD upon a property reaching bankable
           feasibility shall be 1,213,409 common shares of the Corporation.

                                       45

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


9.   RELATED PARTY TRANSACTIONS

     a)    Concurrent with the acquisition of the Corporation's wholly-owned
           subsidiaries as disclosed in Note 4a, the Corporation also entered
           into an operating agreement effective March 15, 1995 with the vendor,
           NAD. As a result of the acquisition agreement, NAD is currently the
           controlling shareholder of the Corporation. Under the terms of the
           operating agreement, NAD will operate and manage the exploration
           program on all properties and provide related off-site administrative
           assistance, as required. Consideration will be 15% of the costs
           incurred by NAD on behalf of the Corporation. Costs paid directly by
           the Corporation are not subject to the fee. Included in the agreement
           are fixed rental rates for equipment owned by NAD.

           During the years ended December 31, 1997 and 1996, administrative
           fees were paid to NAD of $58,997 and $65,646, on total costs incurred
           by the Corporation of $841,131 and $437,640, respectively. Equipment
           rentals of $50,270 and $67,060 were included in the total costs for
           1997 and 1996, respectively. During the year ended December 31, 1997,
           the Corporation acquired six vehicles in Argentina from NAD for
           $112,140.

     b)    On November 6, 1995, certain debt the Corporation had with NAD was
           formalized into a promissory note. Terms of payment to NAD called for
           $365,000 to be paid on November 15, 1995, and this payment was made
           as specified. The remainder of the debt, $1,140,000, was carried as a
           convertible interest bearing note. The Corporation and NAD entered
           into a Debt Settlement Agreement on January 11, 1996 and an amendment
           dated May 13, 1996, whereby a promissory note dated May 13, 1996
           replaced the earlier note. Under the May 13, 1996 promissory note,
           the Corporation agreed to make payments of Cdn$720,000 by July 15,
           1996 and Cdn$875,000 by August 15, 1996. As per Note 7b(iii) above,
           under the terms of the Degerstrom Subscription Agreement, in July
           1996, the Corporation issued 500,000 units to NAD and NAD exercised
           the 500,000 warrants it received. The funds received from NAD on the
           Degerstrom Private Placement were used to repay the debt outstanding,
           pursuant to the Debt Settlement Agreement, as amended.

     c)    During 1997, the Corporation incurred the following transaction with
           related parties: financial consulting to a director and officer
           totaling $51,330, and legal fees to a firm in which a director and
           officer is an associate, totaling $84,898.

10.  INCOME TAXES

Due to the losses incurred by the Corporation, there is no income tax provision
or benefit recorded for all periods presented. The Corporation has Canadian
non-capital losses available to carry forward to apply against future taxable
income of approximately Cdn$1.9 million expiring at various dates through the
year 2002.

11.  COMPARATIVE FIGURES

Certain financial statement line items from prior years have been reclassified
to conform with the current year's presentation.

                                       46

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


12.  SUBSEQUENT EVENTS

Subsequent to December 31, 1997, the following occurred:

     a)    Options to acquire 205,000 shares at Cdn$1.44 were extended to a new
           expiry date of January 10, 2001.

     b)    Options to acquire 550,000 shares (expiry date August 16, 1999),
           500,000 shares (expiry date February 17, 2000) and 120,000 shares
           (expiry date August 29, 2000) were repriced at Cdn$1.15, Cdn$1.15 and
           Cdn$1.55, respectively.

     c)    The Corporation granted options, subject to regulatory approval,
           whereby directors and employees can acquire up to 250,000 shares at
           Cdn$1.10 per share, up to March 2, 2003.


13.  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
     ACCOUNTING PRINCIPLES

As discussed in Note 3, these consolidated financial statements are prepared in
accordance with accounting principles generally accepted in Canada.

Differences in accounting principles as they pertain to these consolidated
financial statements are as follows:

     a)    Accounting for Share Issue Costs
           All costs related to the issuance of shares are offset against
           proceeds under U.S. generally accepted accounting principles (GAAP)
           and the net amount is credited to share capital.

     b)    Loss Per Share
           In February 1996, the United States Financial Accounting Standards
           Board ("FASB") issued Statement of Financial Accounting Standards
           ("SFAS") No.128, "Earnings per Share". For U.S. GAAP, SFAS 128
           simplified the existing standards and requires a basic and diluted
           earnings per share (EPS), unless the effect of including common stock
           equivalents is anti-dilutive. The application of this new standard
           does not have a material effect on the presentation of EPS for U.S.
           GAAP purposes, and the calculation of EPS under SFAS No.128 more
           closely approximates EPS under Canadian GAAP.

     c)    Non-Cash Issuance of Common Shares
           Under U.S. GAAP, value is assigned to issuances of common shares for
           non-cash consideration and the basis for valuing the consideration is
           stated.
                                       47

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


               i)   During 1995, the Corporation issued 150,000 common shares as
                    a finder's fee and 168,000 common for services, in
                    connection with a financing. Under U.S. GAAP, these
                    issuances would be valued at Cdn$1.00 per share or $110,710
                    and $123,995, respectively, being the fair market value of
                    the shares issued.

                ii) During 1996, the Corporation issued 90,400 common shares for
                    broker special warrants, in connection with a financing.
                    Under U.S. GAAP, these shares would be valued at Cdn$1.50
                    per share or $96,847, being the fair market value of the
                    shares issued.

               iii) These share issuance costs are offset against share proceeds
                    resulting in no net change to share capital.

     d)    Acquisition of Scotia
           During 1995, the Corporation issued 336,814 commons shares for the
           acquisition of Scotia (see note 4b). Under U.S. GAAP, these shares
           would be valued at $248,590, the fair market value of the shares
           issued. This value, plus the $17,215 of net liabilities of Scotia
           assumed by the Corporation, would have been recorded as goodwill and
           expensed immediately at the acquisition date under U.S. GAAP.

     e)    Compensation Expense Associated with Release of Shares from Escrow
           Under U.S. GAAP, stock compensation expense is recorded as shares
           held in escrow become eligible for release based upon the number of
           shares eligible for release and the market value of the shares at
           that time. Under Canadian GAAP, no value is attributed to such shares
           released and no compensation expense is recorded. Shares become
           eligible for release from escrow based on deferred exploration
           expenditure in accordance with the Degerstrom Agreement (see Note 4a)
           and with the consent of The Alberta Stock Exchange. During the years
           ended December 31, 1997 and 1996 and for the period from July 1, 1994
           (commencement) through December 31, 1997 the Corporation would have
           recorded compensation expense of $2,503,975, $2,403,613 and
           (cumulative) $6,324,914 respectively, under U.S. GAAP.

     f)    Mineral Properties and Deferred Exploration Costs
           In 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
           of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
           which requires that long-lived assets and associated intangibles be
           written down to fair value whenever an impairment review indicates
           that the carrying value cannot be recovered on an undiscounted
           cash-flow basis. Management believes that on the adoption of SFAS No.
           121 there would be no material difference in the consolidated
           financial statements as presented.

     g)    Stock-Based Compensation
           At December 31, 1997, the Corporation has one stock option plan.
           Under Canadian generally accepted accounting principles, the
           Corporation is not required to report, and has not reported, any
           stock-based compensation expense in the consolidated financial
           statements. Had compensation expense for the stock option plan been
           determined based on the fair market value based method, in accordance
           with the FASB SFAS No. 123, the Corporation's net loss for the year
           and net loss per common share would have been increased to the pro
           forma amounts below:

                                       48

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)




                                                                          1997             1996
                                                                          ----             ----
                                                                                   
           Net loss for the year               As reported          $4,306,897       $1,250,506
                                               Pro forma            $4,746,790       $1,857,570

           Net loss per common share           As reported          $   0.24         $     0.10
                                               Pro forma            $   0.27         $     0.15


           The fair value of each option grant is estimated on the date of grant
           using the Black-Scholes option-pricing model with the following
           weighted average assumptions used for grants in 1997 and 1996,
           respectively: dividend yield of 0% for both years; expected
           volatility of 52.0% and 53.1%; risk-free interest rates of 5.65% to
           6.65% and expected lives of two years.

           A summary of the status of the Corporation's stock option plan as of
           December 31, 1997 and 1996, and
           changes during the years ended on those dates is:



                                                    1997                                  1996
                                                    ----                                  ----
                                                              ($CDN)                             ($CDN)
                                                             Weighted                           Weighted
                                                               Ave.                               Ave.
                                                             Exercise                           Exercise
                                         Options              Price           Options            Price
                                       ---------              -----          --------           --------
                                                                                         
Outstanding and exercisable
at beginning of year                     895,000              $1.94                 0                  -

Granted                                  681,000              $1.95           895,000              $1.94

Exercised                                (75,000)             $1.44                 0                  -

Forfeited                               (126,000)             $2.06                 0                  -
                                       ---------                             --------
Outstanding and exercisable
at end of year                         1,375,000              $1.96           895,000              $1.94
                                       =========                             ========

Weighted average fair value                                   $1.95                                $1.94
of options granted during the
year


           The range of exercise prices is from Cdn$1.44 to Cdn$2.18 with a
           weighted average remaining contractual life of 1.66 years at December
           31, 1997.

     h)    Non-Cash Working Capital
           The following table sets forth the components of the net changes in
           non-cash working capital items related to operations as reflected in
           the consolidated statements of changes in financial position under
           U.S. GAAP:

                                       49

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)




                                                             Years Ended               July 1, 1994
                                                     -----------------------------         through
                                                     December 31,     December 31,     December 31,
                                                            1997             1996             1997
                                                     -----------      -----------      -----------
                                                                                       
Add (deduct) non-cash working capital items:
   Receivables and prepaid expenses                    $(45,423)        $(167,110)       $(212,533)
   Accounts payable and accruals                        (56,701)          117,156           90,773
   Due to related party                                  26,313            80,355          106,666
                                                       --------         ---------        ---------
                                                       $(75,811)        $  30,401        $ (15,090)
                                                       ========         =========        =========


     i)    Impact on Consolidated Financial Statements
           The impact of the above on the consolidated financial statements is
           as follows:



                                                             Years Ended
                                                     ----------------------------
                                                     December 31,     December 31,
                                                            1997             1996
                                                     -----------      -----------
                                                                        
Accumulated deficit, end of period per
Canadian GAAP                                          $ 7,665,814    $ 3,275,646
Adjustment for acquisition of Scotia                       248,590        248,590
Adjustment for compensation expense                      6,324,914      3,820,939
Adjustment for share issue costs                         (561,132)       (477,861)
                                                       -----------    -----------
Accumulated deficit, end of period,per U.S.            $13,678,186    $ 6,867,314
GAAP                                                   ===========    ===========





                                                       December 31,     December 31,
                                                              1997             1996
                                                       -----------      -----------
                                                                          
Share capital, per Canadian GAAP                       $15,132,262      $13,365,014
Adjustment for acquisition of Scotia                       248,590          248,590
Adjustment for compensation expense                      6,324,914        3,820,939
Adjustments for share issue costs                         (561,132)       (477,861)
                                                       -----------      -----------
Share capital, per U.S. GAAP                           $21,144,634      $16,956,682
                                                       ===========      ===========


                                       50



                                                                                                  Period from
                                                        Years Ended                              July 1, 1994
                                       ------------------------------------------------        (commencement)
                                                 December 31,               December 31,              through
                                                        1997                       1996      December 31,1997
                                       ---------------------     ----------------------    ------------------
                                                                                              
Net loss for the period, per
Canadian GAAP                                     $4,306,897                 $1,250,506          $  7,087,467

Adjustment for acquisition of
Scotia                                                     0                          0               248,590

Adjustment for compensation
expense                                            2,503,975                  2,403,613             6,324,914
                                                   ---------                  ---------          ------------
Net loss for the period, per U.S.
GAAP                                              $6,810,872                 $3,654,119          $ 13,660,971
                                                  ==========                 ==========          ============
Basis and diluted net loss per
common share, per U.S. GAAP                       $     0.38                 $     0.29          $       1.19
                                                  ==========                 ==========          ============



ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

     On recommendation of the Board of Directors and by resolution of the
Shareholders of the Corporation, dated June 19, 1997, the Corporation replaced
its auditors, MacKay & Partners, Chartered Accountants, of Vancouver, British
Columbia, with Coopers & Lybrand L.L.P., of Spokane, Washington, effective until
the next annual general meeting of the Shareholders of the Corporation or until
a successor is appointed. There have been no disagreements, or unresolved issues
on any matter of accounting principles or practices, financial statements,
disclosure or auditing scope or procedure during the period in which MacKay &
Partners have been auditing the financial statements of the Corporation. MacKay
& Partners were initially appointed auditors of the Corporation in November
1994.

                                    PART III

ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

     Information with respect to the directors, executive officers and
significant employees of the Corporation is set forth below.



     Name                    Age        Positions Held
     ----                    ---        --------------
                                  
Allen Ambrose                41         President and Director

                                       51

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


Brian Gavin                  44         Vice-President of Exploration and
                                        Director of MASA

Allan J. Marter              50         Chief Financial Officer and Director

Jorge Vargas                 56         Director and President of MASA & NADSA

Armand Hansen                62         Director

John Johnson Crabb           72         Director

A.D. (Darryl) Drummond       61         Director

Bonnie L. Kuhn               32         Director


     Allen Ambrose has been President and a Director of the Corporation since
November 1995. Mr. Ambrose also serves as an Exploration Manager/Geologist for
Degerstrom. He has 18 years of experience in the mining industry including
extensive experience in all phases of exploration, project evaluation and
project management. He has worked as a geologist consultant in the U.S.,
Venezuela and most recently Argentina. He holds a B.Sc. degree in Geology from
Eastern Washington University. Mr. Ambrose also is a member of the board of
directors of Cadre Resources Ltd., a company with mining interests in Venezuela.

     Brian Gavin has been the Vice President of Exploration and a director of
MASA since 1994. He has 18 years of experience in exploration geology, including
experience in all phases of exploration, project evaluation and project
management. Mr. Gavin has worked in the field as project manager and consultant
in the U.S., Mexico, Nigeria and most recently, in Argentina. He holds a B. Sc.
(Honours) degree in Geology from the University of London and an M.S. degree in
Geology and Geophysics from the University of Missouri. From 1991 to 1994, he
was a consultant with Ernst K. Lehman & Associates, which is a geological mining
consulting firm. Since 1994, he also has been employed by Degerstrom.

     Allan J. Marter has been Chief Financial Officer and a director of the
Corporation since June 1997. Mr. Marter has been a financial advisor in the
mining industry and Principal of Waiata Resources, from April 1996 to present
and has provided financial advisory services to the Corporation since April 30,
1996. Mr. Marter is a finance professional with 21 years of experience in the
mining industry. From 1992 through 1996, he was employed as a director of
Endeavor Financial Inc., a mining financial advisory firm. Mr. Marter also
serves as a Director of Addwest Minerals International, Ltd.

     Jorge Vargas has been the President and a director of NADSA and MASA since
July 1994 and September 1994, respectively. Mr. Vargas received his law degree
in 1967 from the National University of Buenos Aires, Argentina, and has been in
private practice since 1967. Mr. Vargas also studied mining law at the Law
Faculty of the University of Mendoza and was on the organizing committee of the
First International Water Rights Conference in Mendoza in 1968. Mr. Vargas is a
registered attorney in the provinces of Mendoza and San Juan, and at the Federal
level in Argentina.

     Armand Hansen has been a director of the Corporation since November 1995.
Mr Hansen has served as Vice-President of Operations for Mining Contracting for
Degerstrom for the past 16 years. His responsibilities include managing 350
employees at various job sites throughout the U.S. and Latin America. Mr. Hansen
has also served as Vice-President and a director of Aresco Inc., a manufacturing
company conducting speciality fabrication of mining equipment since 1989.

                                       53

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


     John Johnson Crabb has been a director of the Corporation since November
1995. From 1985 to November 1995, Mr. Crabb served as a mining executive and
geologist for and as a director of Inland Resources, Inc. From April 1995 to
March 1996, Mr. Crabb was a director of Cadre Resources Ltd. Mr Crabb was also a
director of Pegasus Gold Inc. from 1984 until 1991. Mr. Crabb graduated from the
University of British Columbia in 1951 with an M.Sc. in Geology.

     A.D. (Darryl) Drummond has been a director of the Corporation since June
1996. Since 1981 Dr. Drummond has been a principal and President of D.D.H.
Geomanagement, a mineral exploration firm concentrating on all aspects of
mineral deposit evaluation covering precious metal, base metal and industrial
mineral types in such countries as Argentina, Canada, Chile, China, Costa Rica,
Ecuador, Guyana, Mexico, Philippines, the U.S. and Venezuela. Dr. Drummond has
also served as a director of The Quinto Mining Corporation since September 1996,
of International All-North Resources Ltd. since July 1996, of All-North
Resources Ltd. from May 1995 to July 1996, and of Cadre Resources Ltd. from
November 1994 to February 1995. Dr. Drummond graduated from the University of
British Columbia with a B.A.Sc. in Geological Engineering in 1959 and with an
M.A.Sc. in 1961. He obtained his Ph.D. in 1966 from the University of California
at Berkeley. He is a member of the Society of Economic Geology and a member of
the Geology Section of the Canadian Institute of Mining and Metallurgy.

     Bonnie L. Kuhn has been a director of the Corporation since June 1997. She
has been a solicitor with the firm Ogilvie and Company, Barristers and
Solicitors, Calgary, Alberta, since January 1994. From August 1993 to December
1994, Ms. Kuhn was a Crown prosecutor with the Government of Alberta, Department
of Justice. From July 1990 to June 1993, Ms. Kuhn was an associate with Howard,
Mackie, Barristers and Solicitors. Ms. Kuhn is a member of the Law Society of
Alberta and the Canadian Bar Association. She obtained her LLB from the
University of Manitoba in 1989. Ms. Kuhn currently practices law in the areas of
natural resources, corporate and commercial and securities laws.

     The Corporation has six directors, three of whom are executive officers.
Directors serve terms of one year or until their successors are elected or
appointed. No remuneration of any kind has been paid to any director, in his
capacity as such, and there is no intention that they will be remunerated in
that capacity in the immediate future. Expenses incurred by directors in
connection with their activities on behalf of the Corporation are reimbursed by
the Corporation.

ITEM 10.        EXECUTIVE COMPENSATION

     Summary of Executive Compensation. The following table sets forth
compensation paid, directly or indirectly, by Minera Andes during the last
fiscal year for services rendered by Allen Ambrose, President, and for services
rendered by each other executive officer whose compensation in the last fiscal
year was $100,000 or more
("Named Executives").



                           Summary Compensation Table

                                    Annual Compensation                        Long Term Compensation
                         --------------------------------------------          ----------------------
                                                         Other Annual
                         Fiscal         Salary           Compensation           Securities Underlying
                          Year            ($)                ($)                     Options/SARs (#)
                          ----         -------           ------------           ---------------------
                                                                                      
Allen Ambrose (1)         1997          89,126             11,436 (2)                          80,000
Brian Gavin (1)           1997         117,510             13,762 (3)                          80,000


                                       53

Notes:

(1)    Allen Ambrose and Brian Gavin, as employees of Degerstrom, provided
       services under the Operating Agreement (See "Description of the
       Business") which services were invoiced to the Corporation under the
       Operating Agreement.

(2)    During the 1997 fiscal year, the following benefits were provided to Mr.
       Ambrose by Degerstrom and invoiced to the Corporation:
           401K Base                   5,292
           401K Match                  1,764
           Medical Insurance           4,380

(3)   During the 1997 fiscal year, the following benefits were provided to Mr.
      Gavin by Degerstrom and invoiced to the Corporation:
           401K Base                   7,036
           401K Match                  2,345
           Medical Insurance           4,380

     Stock Options Granted in 1997. The following table sets forth certain
information concerning individual stock options granted to the Named Executives
during the year ended December 31, 1997.



                      Option Grants in the Last Fiscal Year

                                                           Percentage of
                                                           Total Options
                                    Number of                Granted to          Exercise
                              Securities Underlying        Employees in           Price           Expiration
                               Options Granted (#)          Fiscal Year         (Cdn$/Sh)           Date
                              ---------------------        -------------        ---------      -----------------
                                                                                   
Allen Ambrose                        80,000                    11.7%            $2.00 (1)      February 17, 2000

Brian Gavin                          80,000                    11.7%            $2.00 (1)      February 17, 2000

Notes:

(1)   Subsequent to December 31, 1997, The Alberta Stock Exchange consented to
      these options being repriced at Cdn$1.15 per share.


     Aggregated Option Exercises. The following table sets forth certain
information concerning the number of shares covered by both exercisable and
unexercisable stock options as of December 31, 1997. Also reported are values of
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and the fair market value of the
Corporation's Common Shares as of December 31, 1997.

                                       54

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)




                          Fiscal Year-End Option Values

                                               Number of                        Value of Unexercised
                                         Unexercised Options                    In-the-Money Options
                                        at Fiscal Year-End (#)               at Fiscal Year-End ($)(1)(2)
                                   --------------------------------       --------------------------------
                                   Exercisable        Unexercisable       Exercisable        Unexercisable
                                   -----------        -------------       -----------        -------------
                                                                                        
Allen Ambrose                        240,000                0                 $0                    $0

Brian Gavin                          240,000                0                 $0                    $0

Notes:

(1)    The value of unexercised in-the-money options was calculated using the
       closing price of common shares on The Alberta Stock Exchange on December
       31, 1997, less the exercise price of in-the-money stock options. On
       December 31, 1997 the closing price of the Common Shares on The Alberta
       Stock Exchange
       was Cdn$1.20.

(2)    The currency exchange rate applied in calculating the value of
       unexercised in-the-money options was the late New York trading rate of
       exchange for December 31, 1997 as reported by the Wall Street Journal for
       conversion of United States dollars into Canadian dollars was U.S. $1.00
       = Cdn$1.43 or Cdn$1.00 = U.S. $0.70.


Stock Option Plan

     The Board of Directors has adopted a stock option plan (the "Plan") which
was approved with amendments by the shareholders of the Corporation at the
Annual and Special Meeting of Shareholders held on June 26, 1996. The purpose of
the Plan is to afford the persons who provide services to the Corporation or any
of its subsidiaries or affiliates, whether directors, officers or employees of
the Corporation or its subsidiaries or affiliates, an opportunity to obtain a
proprietary interest in the Corporation by permitting them to purchase Common
Shares of the Corporation and to aid in attracting, as well as retaining and
encouraging the continued involvement of such persons with the Corporation.
Under the terms of the Plan, the board of directors has full authority to
administer the Plan in accordance with the terms of the Plan and at any time
amend or revise the terms of the Plan provided, however, that no amendment or
revision shall alter the terms of options already granted. The aggregate number
of shares to be delivered upon exercise of all options granted under the Plan
shall not exceed 10% of the Corporation's issued and outstanding Common Shares
up to a maximum of 2,000,000 shares. No participant may be granted an option
under the Plan which exceeds the number of shares permitted to be granted
pursuant to rules or policies of any stock exchange on which the Common Shares
is then listed.

     Under the Plan, the exercise price of the shares covered by each option
shall be determined by the directors and shall be not less than the closing
price of the Corporation's shares on the stock exchange or stock exchanges on
which the shares are listed on the last trading day immediately preceding the
day on which the stock exchange is notified of the proposed issuance of option,
less any discounts permitted by the policy or policies of such stock exchange or
stock exchanges. If an option is granted within six months of a public
distribution of the Corporation's shares by way of prospectus, then the minimum
exercise price of such option shall, if the policy of such stock exchange or
stock exchanges requires, be the greater of the price determined pursuant to the
provisions of the Plan and the price per share paid by the investing public for
shares of the Corporation acquired by the public during such public
distribution, determined in accordance with the policy of such stock exchange or
stock

                                       55

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


exchanges. Options granted under the Plan will not be transferable and, if they
are not exercised, will expire one (1) year following the date the optionee
ceases to be director, officer, employee or consultant of the Corporation by
reason of death, or ninety (90) days after ceasing to be a director, officer,
employee or consultant of the
Corporation for any reason other than death.

     As of December 31, 1997, an aggregate of 1,576,000 stock options had been
granted under the Plan and 75,000 options granted under the Plan had been
exercised at an exercise price of Cdn$1.44 per share. In addition, 126,000
options had been forfeited, leaving 1,375,000 options outstanding and
exercisable at December 31, 1997.

ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth certain information regarding the beneficial
ownership, as of February 27, 1998 of the Common Shares by (i) each person known
by the Corporation to own beneficially more than 5% of the Common Shares, (ii)
each director of the Corporation, (iii) the Chief Executive Officer and each
other officer named in the Summary Compensation Table and (iv) all directors and
executive officers as a group. Except as otherwise noted, the Corporation
believes the persons listed below have sole investment and voting power with
respect to the Common Shares owned by them.



                                                           Shares
                                                        Beneficially              Percentage of
Name and Address                                          Owned (1)             Common Shares (1)
- ----------------                                          ---------             -----------------
                                                                                 
Named Executive Officers and Directors

Allen Ambrose                                             429,900 (2)                2.24%
3303 North Sullivan Road
Spokane, WA 99216

Armand Hansen                                             296,000 (3)                1.54%
3303 North Sullivan Road
Spokane, WA 99216

John Johnson Crabb                                        150,000 (3)                0.78%
3303 North Sullivan Road
Spokane, WA 99216

Brian Gavin                                               435,400 (2)                2.27%
3303 North Sullivan Road
Spokane, WA 99216

A.D. (Darryl) Drummond                                    100,000 (4)                0.52%
3303 North Sullivan Road
Spokane, WA 99216

                                       56

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


Bonnie L. Kuhn                                             61,000 (5)                           0.32%
1600 Canada Place
407 - 2nd Street S.W.
Calgary, Alberta
T2P 2Y3

Allan J. Marter                                           100,000 (4)                           0.52%
4828 W. Fair Place
Littleton, CO 80123

5% or Greater Shareholders
Neal A. and Joan L. Degerstrom                          5,000,000 (6)(7)                       26.02%
3303 North Sullivan Road
Spokane, WA 99216

Cominco Ltd.                                            1,315,791 (8)(9)                        6.85%
120 Adelaide St. W., Suite 2200
Toronto, Ontario
M5H 1T1

All directors and
  executive officers
  as a group (8 persons)                                1,572,300                               8.18%

Notes:

(1)   Shares which the person or group has the right to acquire within 60 days
      after December 31, 1997 are deemed to be outstanding in determining the
      beneficial ownership of he person or group and in calculating the
      percentage ownership of the person or group, but are not deemed to be
      outstanding as to any other person
      or group.

(2)   Includes stock options entitling the holder to acquire 50,000 shares upon
      payment of Cdn$1.44, 110,000 shares upon payment of Cdn$2.18, or 80,000
      shares upon payment of Cdn$2.00.

(3)   Includes stock options entitling the holder to acquire 20,000 shares upon
      payment of Cdn$1.44, 60,000 shares upon payment of Cdn$2.18, or 40,000
      shares upon payment of Cdn$2.00.

(4)   Includes stock options entitling the holder to acquire 60,000 shares upon
      payment of Cdn$2.18, or 40,000 shares upon payment of Cdn$2.00.

(5)   Includes stock options entitling the holder to acquire 60,000 shares upon
      payment of Cdn$1.73.

(6)   The Common Shares are owned beneficially by Mr. and Mrs. Degerstrom by
      virtue of their combined majority control of the record owner, N.A.
      Degerstrom, Inc.

(7)   Includes 1,333,334 Common Shares held in escrow at December 31, 1997. Does
      not include 1,213,409 Common Shares reserved for issuance to Degerstrom
      upon the satisfaction of certain performance criteria. See "Description of
      Properties - the Degerstrom Agreement."

                                       57

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


(8)   Includes 438,597 Common Shares reserved for issuance to Cominco upon the
      exercise of share purchase warrants at a price of Cdn$3.98.

(9)   The Chairman of the Board of Cominco Ltd. is Norman B. Keevil and the
      President and Chief Executive Officer is David A. Thompson. Cominco Ltd.
      is a public corporation.


ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Corporation, MASA, NADSA and Degerstrom are party to an Operating
Agreement whereby Degerstrom operates and manages the exploration program
relating to the Corporation Claims in return for a management fee and certain
other consideration. See "Description of Properties The Degerstrom Agreement."

     Allen Ambrose and Brian Gavin both serve as employees of Degerstrom and
receive all of their compensation for management services provided to the
Corporation under the Operating Agreement from Degerstrom. Neither Mr. Ambrose
nor Mr. Gavin perform any services as employees of Degerstrom other than in
their capacities as President and Vice President of Exploration of the
Corporation respectively. All of the compensation paid to Messrs. Ambrose and
Gavin has been invoiced back to the Corporation by Degerstrom. See "Description
of the Business Operating Structure" and "Executive Compensation."

     In 1996 the Corporation entered into a Debt Restructuring Agreement with
Degerstrom in connection with the issuance of Common Shares to Degerstrom in a
private placement. From June 30, 1994 through March 31, 1995, Degerstrom had
spent approximately $1,505,000 on Argentinean exploration on the Corporation's
behalf. Under the terms of a Debt Restructuring Agreement dated January 11,
1996, as amended on May 13, 1996, the Corporation agreed to repay the sum plus
interest. On January 11, 1996, the Corporation and Degerstrom also entered into
a subscription agreement whereby Degerstrom subscribed for 500,000 units of the
Corporation at a price of Cdn$1.44 per unit. Each unit consisted of one share of
the Corporation's Common Shares and a warrant to purchase an additional share at
a price of Cdn$1.75. On July 8, 1996, Degerstrom received 500,000 units from the
Corporation and exercised the 500,000 warrants. The funds received from
Degerstrom pursuant to the subscription and the exercise of the warrants were
used to retire the debt outstanding under the Debt Restructuring Agreement.

     During the years ended December 31, 1997 and 1996, administrative fees were
paid to NAD of $58,997 and $65,646, on total costs incurred by the Corporation
of $841,131 and $437,640, respectively. Equipment rentals of $50,270 and $67,060
were included in the total costs for 1997 and 1996, respectively. During the
year ended December 31, 1997 the Corporation acquired six vehicles in Argentina
from NAD for $112,140.

     During 1997, the Corporation incurred the following transaction with
related parties: financial consulting to a director and officer totaling
$51,330, and legal fees to a firm in which a director and officer is an
associate, totaling $84,898.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8K

     (a) Exhibits
         The Exhibits as indexed on pages 60 through 62 of this report are
         included as part of this Form 10-KSB.

     (b) Reports on Form 8K
         There were no reports on Form 8K filed in the quarter ended December
         31, 1997.

                                       58

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


                                INDEX TO EXHIBITS

Exhibit
Number     Description
- -------    -----------
2.1        Asset and Share Acquisition Agreement between MASA, NADSA, the
           Corporation Degerstrom, Brian Gavin, Jorge Vargas, and Enrique Rufino
           Marzari Elizalde, dated March 8, 1995, as amended on April 19, 1996
           (incorporated by reference to Exhibit 2.1 to the Corporation's
           Registration Statement on Form 10-SB, Commission File No. 000-22731
           (the "Form 10-SB")).

2.2        Arrangement between the Corporation and Scotia Prime Minerals, Inc.
           (incorporated by reference to Exhibit 2.2 to the Form 10-SB).

3.1        Articles of Incorporation (incorporated by reference to Exhibit 3.1
           to the Form 10-SB).

3.2        Bylaws (incorporated by reference to Exhibit 3.2 to the Form 10-SB).

4.1        Warrant Certificate describing the rights of Broker Special Warrants
           (incorporated by reference to Exhibit 4.1 to the Form 10-SB).

4.2        Warrant Certificate describing the rights of Cominco Warrants
           (incorporated by reference to Exhibit 4.2 to the Form 10-SB).

10.1       Conveyance Agreement between NADSA and N.A. Degerstrom, Inc., dated
           July 1, 1994 (incorporated by reference to Exhibit 10.1 to the Form
           10-SB).

10.2       Conveyance Agreement between NADSA and N.A. Degerstrom, Inc., dated
           July 1, 1994 (incorporated by reference to Exhibit 10.2 to the Form
           10-SB).

10.3       Operating Agreement between the Corporation and N.A. Degerstrom, Inc.
           dated March 15, 1995 (incorporated by reference to Exhibit 10.3 to
           the Form 10-SB).

10.4       Share Option Agreement between the Corporation and Jorge Vargas,
           dated March 15, 1995 (incorporated by the reference to Exhibit 10.4
           to the Form 10-SB).

10.5       Share Option Agreement between the Corporation and Enrique Rufino
           Marzari Elizalde, dated March 15, 1995 (incorporated by reference to
           Exhibit 10.5 to the Form 10-SB).

10.6       Option to Purchase (Santa Clara) between the N.A. Degerstrom, Inc.
           and Martin Antonio Carotti and Carlos Giustozzi, dated May 12, 1994,
           as amended on June 30, 1995 and again on December 13, 1995
           (incorporated by reference to Exhibit 10.7 to the Form 10-SB).

10.7       Letter Agreement (Agua Blanca) between the Corporation and Newcrest
           Minera Argentina S.A., dated April 4, 1996 (incorporated by reference
           to Exhibit 10.9 to the Form 10-SB).

10.8       Option to Purchase (Agua Blanca) between MASA and Adonis Cantoni,
           dated June 21, 1995 (incorporated by reference to Exhibit 10.10 to
           the Form 10-SB).

                                       59

                                MINERA ANDES INC.
                       "An Exploration Stage Corporation"
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
                                 (U.S. Dollars)


10.9       Debt Restructuring Agreement between the Corporation and N.A.
           Degerstrom, Inc., dated January 11, 1996, as amended May 13, 1996
           (incorporated by reference to Exhibit 10.15 to the Form 10-SB).

10.10      Escrow Agreement between the Corporation, N.A. Degerstrom, Inc. and
           Montreal Trust Company of Canada, dated November 30, 1995
           (incorporated by reference to Exhibit 10.16 to the Form 10-SB).

10.11      Agency Agreement between the Corporation, C.M. Oliver & Company
           Limited and Majendie Charlton Securities Ltd., dated November 22,
           1996 (incorporated by reference to Exhibit 10.17 to the Form 10-SB).

10.12      Special Warrant Indenture between the Corporation and Montreal Trust
           Company of Canada, dated December 13, 1996 (incorporated by reference
           to Exhibit 10.18 to the Form 10-SB).

10.13      Purchase Warrant Indenture between the Corporation and Montreal Trust
           Company of Canada, dated December 13, 1996 (incorporated by reference
           to Exhibit 10.19 to the Form 10-SB).

10.14      Agreement dated April 30, 1996 between the Corporation and Waiata
           Resources for the provision of financial advisory services
           (incorporated by reference to Exhibit 10.20 to the Form 10-SB).

10.15      Amended Stock Option Plan, dated June 26, 1996 (incorporated by
           reference to Exhibit 10.21 to the Form 10-SB).

10.16      Joint Venture Agreement (Arroyo Verde) dated October 23, 1997 between
           the Corporation and Pegasus Gold International, Inc.

11.1       Statement regarding the computation of per share loss.

21.1       Description of MASA and NADSA (incorporated by reference to Exhibit
           21.1 to the Form 10- SB).

23.1       Consent of Coopers & Lybrand.

27.1       Financial Data Schedule.

99.1       Letter of agreement of MacKay & Partners regarding disclosure of the
           change of the Corporation's auditors.

                                       60

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf be the undersigned, thereunto duly
authorized, effective March 27, 1998.

     MINERA ANDES INC.
     Registrant


By:  /s/  ALLEN V. AMBROSE             By: /s/ ALLAN J. MARTER
     -----------------------------         -----------------------------
     Allen V. Ambrose, President           Allan J. Marter, Chief
                                           Financial Officer


     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.


Date: March 27, 1998                   By:  /s/ ALLEN V. AMBROSE
      -----------------------------         -----------------------------
                                            Allen V. Ambrose, President


Date: March 27, 1998                   By:  /s/ JOHN JOHNSON CRABB
      -----------------------------         -----------------------------
                                            John Johnson (Jack) Crabb,
                                            Director


Date: March 27, 1998                   By:  /s/ A.D. DRUMMOND
      -----------------------------         -----------------------------
                                            A.D. (Darryl) Drummond, Director


Date: March 27, 1998                   By:  /s/ ARMAND G. HANSEN
      -----------------------------         -----------------------------
                                            Armand G. Hansen, Director


Date: March 27, 1998                   By:  /s/ BONNIE L. KUHN
      -----------------------------         -----------------------------
                                            Bonnie L. Kuhn, Director


Date: March 27, 1998                   By:  /s/ ALLAN J. MARTER
      -----------------------------         -----------------------------
                                            Allan J. Marter, Director

                                       61

EX-10.16

                       LIMITED LIABILITY COMPANY AGREEMENT

                        PEGASUS GOLD INTERNATIONAL, INC.

                                       AND

                                MINERA ANDES INC.

                                October 23, 1997




                                Table of Contents

                                                                           Page

ARTICLE 1.  DEFINITIONS....................................................-1-

    1.1     "Accounting Procedure".........................................-1-
    1.2     "Act"..........................................................-1-
    1.3     "Affiliate"....................................................-1-
    1.4     "Agreement"....................................................-1-
    1.5     "Area of Interest".............................................-1-
    1.6     "Assets".......................................................-2-
    1.7     "Authorized Person"............................................-2-
    1.8     "Budget".......................................................-2-
    1.9     "Certificate"..................................................-2-
    1.10    "Claims".......................................................-2-
    1.11    "Company"......................................................-2-
    1.13    "Construction Period"..........................................-2-
    1.14    "Continuing Obligations".......................................-2-
    1.15    "Contract Year"................................................-2-
    1.16    "Development"..................................................-2-
    1.17    "Development Area".............................................-2-
    1.18    "Dollars" and "$"..............................................-3-
    1.19    "Environmental Compliance".....................................-3-
    1.20    "Environmental Laws"...........................................-3-
    1.21    "Environmental Liabilities" ...................................-3-
    1.22    "Exploration"..................................................-3-
    1.23    "Exploration Period"...........................................-3-
    1.24    "Feasibility Study"............................................-3-
    1.25    "Initial Contribution".........................................-4-
    1.26    "Initial Contribution Period"..................................-4-
    1.27    "Law" or "Laws" ...............................................-4-
    1.28    "Management Committee".........................................-4-
    1.29    "Managers".....................................................-4-
    1.30    "Member".......................................................-4-
    1.31    "Mining".......................................................-4-
    1.32    "Mining Period"................................................-4-
    1.33    "Non-Operator".................................................-4-
    1.34    "Operations"...................................................-4-
    1.35    "Operator".....................................................-5-
    1.36    "Participating Interest".......................................-5-
    1.37    "Person".......................................................-5-
    1.38    "Production Royalty"...........................................-5-
    1.39    "Products".....................................................-5-

                                        i


    1.40    "Program"......................................................-5-
    1.41    "Property".....................................................-5-
    1.42    "Successor Company"............................................-5-

ARTICLE 2.  FORMATION OF THE COMPANY
            INFORMATION FOR CERTIFICATE....................................-5-
    2.1     Formation......................................................-5-
    2.2     Name and Principal Place of Business...........................-6-
    2.3     Purposes.......................................................-6-
    2.4     Limitations....................................................-7-
    2.5     Other Business Opportunities...................................-7-
    2.6     Effective Date and Term........................................-7-
    2.7     Termination of Rights to Assets................................-8-
    2.8     Registered Office..............................................-8-
    2.9     Agent for Service of Process...................................-8-

ARTICLE 3.  CONTRIBUTIONS BY MEMBERS.......................................-8-

    3.1     Members' Initial Contributions.................................-8-
            3.1.1     Pegasus' Contribution................................-8-
            3.1.2     Minera Andes' Contribution...........................-8-
                      (1)     Minimum Obligation...........................-8-
                      (2)     Nature of Qualifying Expenses................-9-
    3.2     Withdrawal During Initial Contribution Period..................-9-
            3.2.1     Elective Withdrawal..................................-9-
            3.2.2     Failure to Make Initial Contribution................-10-
    3.3     Additional Cash Contributions.................................-10-

ARTICLE 4.  INTERESTS OF MEMBERS..........................................-10-

    4.1     Initial Participating Interests...............................-10-
    4.2     Changes in Participating Interests............................-10-
    4.3     Voluntary Reduction in Participation..........................-11-
    4.4     Dilution......................................................-11-
    4.5     Rights of Nondiluting Member..................................-12-
    4.6     Adjustment for Actual Expenditures--Restoration of 
            Diluted Interests.............................................-12-
    4.7     Default in Making Contributions...............................-12-
    4.8     Conversion to Production Royalty..............................-13-
    4.9     Continuing Rights and Liabilities upon Adjustments of 
            Participating Interests.......................................-13-


                                       ii


ARTICLE 5.  MANAGEMENT COMMITTEE..........................................-13-

    5.1     Organization and Composition..................................-13-
    5.2     Decisions.....................................................-13-
    5.3     Meetings......................................................-13-
    5.4     Action Without Meeting........................................-14-
    5.5     Management Committee Duties...................................-14-
            5.5.1     Matters Requiring Approval..........................-14-
            5.5.2     Matters Requiring Unanimous Approval................-15-

ARTICLE 6.  OPERATOR......................................................-16-

    6.1     Appointment...................................................-16-
    6.2     Powers and Duties of Operator.................................-16-
    6.3     Transactions with Affiliates..................................-19-
    6.4     Standard of Care and Liability................................-19-
    6.5     Compensation of Operator......................................-19-
    6.6     Resignation, Removal or Change of Operator....................-19-
    6.7     Change of Operator--Development...............................-20-
    6.8     Operator's Default and Remedies of Non-Operator...............-20-
            6.8.1     Notice..............................................-20-
            6.8.2     Opportunity to Cure.................................-21-
            6.8.3     Rights of Non-Operator..............................-21-

ARTICLE 7.  PROGRAMS AND BUDGETS..........................................-22-

    7.1     In General....................................................-22-
            7.1.1     Operations Pursuant to Programs and Budgets.........-22-
            7.1.2     Content of Programs and Budgets.....................-22-
            7.1.3     Presentation of Programs and Budgets................-22-
            7.1.4     Budget Overruns; Program Changes....................-22-
            7.1.5     Emergency or Unexpected Expenditures................-23-
    7.2     Initial Contribution Period and Exploration Period............-23-
            7.2.1     Review and Approval.................................-23-
            7.2.2     Minera Andes' Vote Controls During Initial 
                      Contribution Period.................................-23-
            7.2.3     Activities During Deadlock--Exploration Period......-23-
            7.2.4     Election to Participate--Exploration Period.........-23-
    7.3     Feasibility Study and Development.............................-24-
            7.3.1     Preparation.........................................-24-
            7.3.2     Nonconsent Study....................................-24-
            7.3.3     Review..............................................-25-
            7.3.4     Notice of Development Proposal......................-25-
            7.3.5     Authorization of Development by Management 
                      Committee...........................................-25-

                                       iii


            7.3.6     Commitments upon Management Committee 
                      Authorization.......................................-25-
            7.3.7     Unilateral Development Commitment...................-26-
            7.3.8     Designation of Development Area.....................-27-
            7.3.9     Participation in Development Commitment.............-27-
            7.3.10    Adjustment of Participating Interests...............-27-
            7.3.11    Development Budget and Operations...................-28-
            7.3.12    Restoration of Participating Interest...............-28-
            7.3.13    Cost Increases and Price Declines...................-29-
    7.4     Mining and Operations.........................................-29-
            7.4.1     Review and Approval.................................-29-
            7.4.2     Activities During Deadlock--Mining Period...........-30-

ARTICLE 8.  ACCOUNTS AND SETTLEMENTS......................................-30-

    8.1     Monthly Cash Budget...........................................-30-
    8.2     Cash Calls....................................................-31-
    8.3     Failure to Meet Cash Calls....................................-31-
    8.4     Accounts......................................................-31-
    8.5     Audits........................................................-31-
    8.6     Annual Reports and Records....................................-32-
    8.7     Monthly Report................................................-32-
    8.8     Inspection and Access.........................................-33-
    8.9     Additional Information........................................-33-

ARTICLE 9.  DISPOSITION OF PRODUCTION.....................................-33-

    9.1     Disposition in General........................................-33-
    9.2     Taking in Kind................................................-34-
    9.3     Futures Contracts.............................................-34-

ARTICLE 10. REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS...............-34-

    10.1    Capacity of Members...........................................-34-
    10.2    Representations and Warranties of Each Member.................-35-
    10.3    Joint Loss of Title...........................................-36-
    10.4    Compliance with Agreements....................................-36-
    10.5    Review of Title...............................................-36-

ARTICLE 11. MEMBERS' DEFAULTS AND REMEDIES................................-37-

    11.1    Events of Default.............................................-37-
    11.2    Notice of Default.............................................-37-
    11.3    Opportunity to Cure...........................................-37-
    11.4    Rights upon Default...........................................-38-

                                       iv


            11.4.1    Loan................................................-38-
            11.4.2    Dilution............................................-38-
            11.4.3    Termination.........................................-38-
    11.5    Remedies Not Exclusive........................................-38-

ARTICLE 12. CONTRIBUTION TO LIABILITIES...................................-39-

    12.1    Contribution..................................................-39-
    12.2    Indemnification...............................................-39-

ARTICLE 13. TERMINATION...................................................-40-

    13.1    Termination...................................................-40-
            13.1.1    Termination by Agreement............................-40-
            13.1.2    Termination by Withdrawal...........................-40-
            13.1.3    Termination by Completion of Product Development....-40-
            13.1.4    Termination by Elimination of Participating Interest-40-
            13.1.5    Termination by Default..............................-41-
    13.2    Continuing Obligations........................................-41-
    13.3    Disposition of Assets on Termination..........................-41-
    13.4    Termination at Election of Minera Andes During 
            Initial Contribution Period...................................-41-
    13.5    Tax Consequences..............................................-41-
    13.6    Noncompete Covenants..........................................-41-
    13.7    Right to Data After Termination...............................-41-
    13.8    Continuing Authority..........................................-42-

ARTICLE 14. ACQUISITIONS WITHIN AREA OF INTEREST..........................-42-

    14.1    General.......................................................-42-
    14.2    Notice to Nonacquiring Member.................................-42-
    14.3    Option Exercised..............................................-42-
    14.4    Option Not Exercised..........................................-43-

ARTICLE 15. ABANDONMENT AND SURRENDER OF PROPERTY.........................-43-

    15.1    During Initial Contribution Period............................-43-
    15.2    Surrender or Abandonment of Property..........................-43-
    15.3    Reacquisition.................................................-43-


                                        v


ARTICLE 16. TRANSFER OF INTEREST..........................................-44-

    16.1    General.......................................................-44-
    16.2    Limitations on Free Transferability...........................-44-
    16.3    Preemptive Right..............................................-45-
    16.4    Exceptions to Preemptive Right................................-45-
    16.5    Insolvency....................................................-46-

ARTICLE 17. GENERAL PROVISIONS............................................-46-

    17.1    Notices......................................................-46-
    17.2    Waiver........................................................-47-
    17.3    Modification..................................................-47-
    17.4    Force Majeure.................................................-47-
    17.5    Contest of Governmental Regulation............................-48-
    17.6    Governing Law.................................................-48-
    17.7    Dispute Resolution............................................-48-
            17.7.1    Agreement to Arbitrate..............................-48-
            17.7.2    Submission to Arbitration and Selection 
                      of Arbitrators......................................-48-
            17.7.3    Arbitration Procedures..............................-49-
            17.7.4    Successor Arbitrators...............................-49-
            17.7.5    Status of Member-Appointed Arbitrators..............-49-
            17.7.6    Cost of Arbitration.................................-49-
    17.8    Further Assurances............................................-49-
    17.9    Survival of Terms and Conditions..............................-50-
    17.10   Confidentiality and Public Statements.........................-50-
    17.11   Entire Agreement; Successors and Assigns......................-51-



Exhibit A   The Property
Exhibit B   Accounting Procedure
Exhibit C   Tax Provisions
Exhibit D   Net Profits Royalty Deed

                                       vi


                       LIMITED LIABILITY COMPANY AGREEMENT


     THIS LIMITED LIABILITY COMPANY AGREEMENT is made as of the 23rd day of
October, 1997 (the "Effective Date") by and between PEGASUS GOLD INTERNATIONAL,
INC. ("Pegasus"), a Washington corporation authorized to transact business in
the Republic of Argentina ("Argentina"), and MINERA ANDES INC., an Alberta
corporation ("Minera Andes"), a corporation authorized to transact business in
Argentina.

                                    RECITALS

     A. Pegasus owns or leases certain mineral properties in Argentina, which
are described in the attached Exhibit A (the "Property").

     B. Minera Andes and Pegasus wish to form a Limited Liability Company to
explore, evaluate and develop mineral resources within the Property or any other
properties acquired pursuant to this Agreement.

     NOW, THEREFORE, in consideration of the covenants and agreements contained
in this Agreement, Pegasus and Minera Andes agree as follows:

                             ARTICLE 1. DEFINITIONS

     1.1 "Accounting Procedure" means the procedures set forth in Exhibit B.

       1.2 "Act" shall mean the Washington Limited Liability Company Act,
codified as Chapter 25.15 of the Revised Code of Washington, including any
amendments thereto that become effective after the date hereof.

     1.3 "Affiliate" means any person or entity related to a Member in such a
way that either the Member or such person or entity directly or indirectly
controls or is controlled by or is under common control with the other. For this
purpose, "control" means the power, direct or indirect, to direct or cause
direction of management and policies through ownership of voting securities,
contract, voting trust or otherwise.

     1.4 "Agreement" means this Limited Liability Company Agreement, as it may
be amended from time to time, together with all exhibits to it.

     1.5 "Area of Interest" means the area within one (1) kilometer from the
perimeter of any portion of the Property.

     1.6 "Assets" means the Property, Products and all other real and personal
property of the Limited Liability Company, tangible and intangible, held or
acquired for the benefit of the Company, including, without limitation, water
rights.



     1.7 "Authorized Person" means each of the Members and their authorized
representatives and designees, including but not limited to the lenders to a
Member or to an Affiliate.

     1.8 "Budget" means a detailed estimate of all costs to be incurred by the
Company with respect to a Program and a schedule of cash advances to be made.

     1.9 "Certificate" shall mean the Certificate of Formation described in
Section 2.1, including any amendment to such certificate.

     1.10 "Claims" means those exploration concessions and pending exploitation
concessions under the laws of Argentina identified on Exhibit A and any
subsequent amendments to that exhibit, including without limitation cateos,
manifestations of discovery, minas and estaca minas.

     1.11 "Company" shall mean Arroyo Verde, LLC, a Washington limited liability
company.

     1.12 "Company Account" means the account maintained in accordance with the
Accounting Procedure showing the charges and credits accruing to the Company.

     1.13 "Construction Period" means the period of time from the approval of a
Feasibility Study until completion of the Development activities described in
the approved study, as it may be modified from time to time under Section 7.3.

     1.14 "Continuing Obligations" means obligations or responsibilities that
are reasonably expected to continue or arise after Operations on a particular
area of the Property have ceased or are suspended, such as future monitoring,
stabilizing, or Environmental Compliance.

     1.15 "Contract Year" means the year, beginning July 1 and ending June 30.
- -------------

     1.16 "Development" means all preparation for the removal and recovery of
Products, including the construction, installation or expansion of a mine or
mill or any other improvements to be used for the Mining.

     1.17 "Development Area" means a portion of the Property identified by the
Management Committee under Section 7.3.4 as the area to be developed pursuant to
an approved Feasibility Study.

     1.18 "Dollars" and "$" means lawful currency of the United States of
America. ---------------

                                       -2-


     1.19 "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 Property or other
compliance with Environmental Laws.

     1.20 "Environmental Laws" means Laws aimed at reclamation or restoration of
the Property; 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.

     1.21 "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 Member, by any person or entity other than the
other Member, 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.

     1.22 "Exploration" means all activities directed toward ascertaining the
existence, location, quantity, quality or commercial value of deposits of
Products.

     1.23 "Exploration Period" means the period of time from the termination of
the Initial Contribution Period until approval or deemed approval of a
Feasibility Study.

     1.24 "Feasibility Study" means a report to ascertain whether minerals can
profitably be extracted, treated and sold in circumstances that would provide
long-term return to the Members with due regard to the profitable recovery of
low-grade minerals and in a form and level of detail acceptable to a recognized
major international bank. Such study shall report on the economic feasibility of
establishing a mine on and constructing facilities for removing and processing
deposits of Products and shall be prepared and adopted in accordance with
Section 7.3. Such study shall consider, but not be limited to, review of
geology, ore reserves, metallurgy, environmental considerations, mining methods,
mine capital and operating costs 

                                       -3-


estimates, process flow sheets, process plant capital and operating costs
estimates, refining alternatives, surface facilities specifications, surface
building requirements, surface utility requirements, surface transportation
requirements, surface facilities arrangements, surface mobile and miscellaneous
equipment requirements, surface and ancillary facilities capital and operating
costs estimates and general personnel requirements.

     1.25 "Initial Contribution" means the contribution each Member agrees to
make, or is deemed to have made, pursuant to Section 3.1.

     1.26 "Initial Contribution Period" means the time period from the Effective
Date through and including June 30, 2000 or through and including the date upon
which Minera Andes completes its Initial Contribution under Section 3.1.2,
whichever occurs first, unless this Agreement is sooner terminated.

     1.27 "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.

     1.28 "Management Committee" means the committee established under Article
5.

     1.29 "Managers" means the Persons designated as the Managers in Section 5.1
and any other person who may become a successor or substitute Manager as
provided in Section 5.1.

     1.30 "Member" means each Person who executes this Agreement, and is
admitted as a Member in accordance with the terms of this Agreement. Pegasus and
Minera Andes are the initial members of the Company.

     1.31 "Mining" means the mining, extracting, producing, handling, milling or
other processing of Products.

     1.32 "Mining Period" means the period of time after completion of the
Development activities described in an approved Feasibility Study during which
Mining occurs on the Property.

     1.33 "Non-Operator" means the Member of the Company, other than the
Operator.

     1.34 "Operations" means the activities carried out under this Agreement
within the Area of Interest, including Exploration, Development and Mining.

     1.35 "Operator" means the Member designated as Operator under Article 6 of
this Agreement, when acting in its capacity as Operator.

                                       -4-


     1.36 "Participating Interest" means the respective percentage ownership
interests of the Members in the Company as specified and determined under
Article 4. Participating Interests shall be calculated to three decimal places
and rounded to two. Decimals of .005 or more shall be rounded up to .01, and
decimals of less than .005 shall be rounded down.

     1.37 "Person" shall mean any individual, partnership, corporation, trust,
limited liability company or other entity.

     1.38 "Production Royalty" shall mean the 10 percent royalty determined and
distributed in accordance with the terms and conditions of the Royalty Deed
attached as Exhibit D.

     1.39 "Products" means all ores, dore, slag, bullion or refined material,
minerals and mineral resources produced from the Property under this Agreement.

     1.40 "Program" means a description in reasonable detail of Operations to be
conducted by the Operator for a designated period, which is adopted by the
Management Committee under Article 7.

     1.41 "Property" means those interests in real property, including but not
limited to the Claims, described in Exhibit A, and all other interests in real
property within the Area of Interest which are acquired or located under this
Agreement after the Effective Date.

     1.42 "Successor Company" shall mean a new limited liability company, formed
pursuant to an agreement substantially in the form of this Agreement, under
Section 7.3.4.

                       ARTICLE 2. FORMATION OF THE COMPANY
                           INFORMATION FOR CERTIFICATE

     2.1 Formation. Upon execution of this Agreement, Pegasus and Minera Andes
shall form the Company by filing a Certificate with the office of the Secretary
of State for the State of Washington for the limited purposes set forth in this
Agreement. Pegasus and Minera Andes shall organize the Company and shall conduct
the Company's business and affairs in a manner consistent with this Agreement,
the Act, and the Certificate. Prior to the expiration of the Initial
Contribution Period, the Property and Assets contributed to the Company may be
held in the name of the contributing Member but shall be held in trust for the
benefit of the Company. If the Company continues to conduct business after the
end of the Initial Contribution Period, all the Property within the Area of
Interest and Assets owned or controlled by the Company shall be held in the
Company name and not in the names of the individual Members. Neither Member
shall have any individual ownership in such Property except for its property
rights as a Member of the Company. All agreements, permits, and transactions
shall be executed and performed by the Company in its own name and not in the
names of the individual Members; provided, however, that pursuant to Section
6.2.4, all employees shall be employees of the 

                                       -5-


Operator or one of its Affiliates and not employees of the Company. The Company
shall operate in accordance with the terms and conditions of this Agreement.

     2.2 Name and Principal Place of Business. The name of the Company is Arroyo
Verde, LLC, and the Operator shall conduct the business of the Company under
this name. The principal place of business shall be at offices in the United
States as may be designated by the Operator (during the period Minera Andes is
the Operator, the offices shall be at the offices of Minera Andes in Spokane,
Washington). The principal place of business may be changed from time to time,
and other places of business may be established by actions taken in accordance
with the provisions of this Agreement governing management of the Company's
business and affairs. The Operator shall make any registration required by
applicable assumed or fictitious name statutes and similar statutes and qualify
and register the Company to do business in Argentina.

     2.3 Purposes. This Company is formed for the following limited purposes:

          2.3.1 To conduct Exploration within the Area of Interest;

          2.3.2 To acquire additional property within the Area of Interest;

          2.3.3 To evaluate and engage in Development and Mining of the
Property;

          2.3.4 To acquire by purchase, lease or otherwise all of the Assets
necessary to explore, develop and mine Property within the Area of Interest;

          2.3.5 To obtain all permits, licenses, consents and other
authorizations necessary or appropriate to carry out Operations;

          2.3.6 To enter into contracts for transportation, smelting, refining,
assaying and testing of Products;

          2.3.7 To dispose of Products produced from the Property, to the extent
permitted in Article 9;

          2.3.8 To engage in reclamation of the Property and to complete and
satisfy all Environmental Compliance obligations and Continuing Obligations
affecting the Property; and

          2.3.9 To perform any other Operations or activities necessary,
appropriate or incidental to the conduct of the Company as permitted by the Act
or the laws of any jurisdiction in which the Company may do business.

     2.4 Limitations. The Company shall have all powers provided for in the Act.
However, unless the Members otherwise agree in writing, Operations shall be
limited to the purposes stated in Section 2.3, and nothing in this Agreement
shall be construed:

                                       -6-


          2.4.1 To create a general partnership between the Members;

          2.4.2 To authorize either Member to act as agent for the other Member
except as provided in this Agreement;

          2.4.3 To permit either Member to undertake the development of any
other property on behalf of the other Member; or

          2.4.4 To permit either Member to undertake the conduct of any other
business on behalf of the other Member.

          Except as otherwise specifically provided in this Agreement, a Member
shall not have any authority to act for, or to assume any obligation or
responsibility on behalf of, the other Member or the Company. Neither Member
shall have the right to borrow money or incur obligations on behalf of the
Company, to use the credit of the other Member or of the Company for any
purpose, or to pledge, assign or otherwise encumber the Assets, except as herein
provided, without the prior written consent of the other Member. Each Member
shall be responsible only for its obligations under this Agreement and shall be
liable only for its share of the costs and expenses as provided in this
Agreement.

     2.5 Other Business Opportunities. Except as expressly provided in this
Agreement, each Member shall have the right to independently engage in and
receive full benefits from business activities, whether or not competitive with
Operations of the Company, without consulting the other. The doctrine of
"corporate opportunity" or "business opportunity" shall not be applied to any
other activity, venture or operation of either Member, and, except as otherwise
provided in Article 14, neither Member 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 within the Area of Interest after the termination of
this Agreement. Unless otherwise agreed in writing, neither Member shall have
any obligation to mill, beneficiate or otherwise treat any Products or the other
Member's share of Products in any facility owned or controlled by the other
Member.

     2.6 Effective Date and Term. The Effective Date of this Agreement shall be
the date first recited above. The term of this Agreement shall commence on the
Effective Date and shall continue for twenty (20) years, unless (a) Mining or
Environmental Compliance is ongoing, in which case the Agreement shall be
extended from year to year so long as Mining or Environmental Compliance
continues; or (b) the Agreement is earlier dissolved and terminated by the
occurrence of any one of the conditions described in Section 13.1, in which case
the Agreement shall continue in force only until all Assets have been salvaged
and disposed of and a final accounting has been made between the Parties as
provided in Section 13.3.

     2.7 Termination of Rights to Assets. Except as otherwise provided in this
Agreement, neither Member shall permit or cause all or any part of its interest
in the Assets or 

                                       -7-


the Company to be sold, exchanged, encumbered, surrendered, abandoned, or
otherwise terminated.

     2.8 Registered Office. The initial registered office of the Company is as
follows:

                     Minera Andes Inc.
                     3303 N. Sullivan Road
                     Spokane, WA 99216
                     Fax: (509) 921-7325
                     Phone: (509) 921-7322

     2.9 Agent for Service of Process. The name and address of the agent for
service of process of the Company shall be:

                     Jerry R. Fish
                     Stoel Rives LLP
                     One University Square
                     600 University Street, Suite 3600
                     Seattle, WA 98101-3197
                     Fax: (206) 386-7500
                     Phone: (206) 624-0900

                       ARTICLE 3. CONTRIBUTIONS BY MEMBERS

     3.1 Members' Initial Contributions.

          3.1.1 Pegasus' Contribution. Pegasus' Initial Contribution shall be
the contribution of its interest in the Property and all data about the Property
in Pegasus' possession. This contribution shall be deemed made upon execution of
this Agreement though Pegasus shall continue to hold legal title to the Property
in trust for the Company. The value of Pegasus' Initial Contribution shall be
deemed to be $ 325,000. During the Initial Contribution Period, Pegasus shall
have no obligation to make any additional contributions for Operations,
including but not limited to property acquisition.

          3.1.2 Minera Andes' Contribution.

               (1) Minimum Obligation. Minera Andes' Initial Contribution shall
be $ 1,300,000, which shall be contributed to the Company as follows:

                                       -8-





      Contract Year             Qualifying Expenditures             Cash
      -------------             -----------------------             ----
                                                           

       1997-1998                 $ 200,000                          $  50,000
       1998-1999                 $ 300,000                          $100,000
       1999-2000                 $ 400,000                          $250,000


Of the above amounts, the Company shall distribute cash payments to Pegasus in
the following amounts: (i) on the first anniversary of the Effective Date,
$50,000; (ii) on the second anniversary of the Effective Date, $100,000; (iii)
on the third anniversary of the Effective Date, $250,000. All other
contributions shall be in the form of qualifying expenditures (as described in
Section 3.1.2(2)). Qualifying expenditures made by Minera Andes during any
Contract Year in excess of the amount set forth above for such Contract Year
shall be carried over and credited toward satisfaction of Minera Andes' required
expenditures for subsequent Contract Years. If Minera Andes fails to make its
minimum contribution, as stated above, in any Contract Year, Minera Andes shall
be deemed to have withdrawn and this Agreement shall terminate, as provided in
Section 3.2.2.

               (2) Nature of Qualifying Expenses. Expenditures credited toward
Minera Andes' Initial Contribution requirement shall include all direct project
costs, leasehold payments and land-related costs, tax payments for cateos, if
any, made directly by Pegasus and reimbursed by Minera Andes, costs of locating
Claims within the Area of Interest, costs of acquiring any other interest in
real property within the Area of Interest that becomes a part of the Property
pursuant to Section 14.3 below, and all directly applicable personnel costs,
including salaries, benefits and travel costs, but in each case, only to the
extent such costs and expenditures are chargeable to the Joint Account in
accordance with the provisions of Exhibit B. "Qualifying expenses" shall include
any off-site administrative expenses, management fees and insurance costs
incurred or charged by Operator during the Initial Contribution Period and
subsequently provided that the amount of such expenses during the Initial
Contribution Period shall not exceed 5% of all other qualifying expenses during
the Initial Contribution Period.

     3.2 Withdrawal During Initial Contribution Period.

          3.2.1 Elective Withdrawal. During the Initial Contribution Period,
Minera Andes may elect to withdraw as a Member from the Company and terminate
the Agreement upon 30 days' written notice to Pegasus; provided, however, that
such elective withdrawal shall not relieve Minera Andes of its obligation to
fund and satisfy its share of liabilities to third persons arising out of the
Operations conducted prior to Minera Andes' withdrawal and shall not relieve
Minera Andes from 100% liability for all contracts unfulfilled at the time of
Minera Andes' withdrawal and that were entered into by Minera Andes. Minera
Andes shall return the property reclaimed in good condition and in compliance
with applicable laws and regulations. If Minera Andes has not incurred
qualifying expenditures of $200,000 as of the date of withdrawal, Minera Andes
shall pay any shortfall to Pegasus in cash; provided that Minera Andes shall
have no obligation to make such payment if Pegasus has breached its title
representations and warranties set forth in Section 10.2 and has not cured such
default within 

                                       -9-


the time allowed under Section 10.5. Upon withdrawal under this Section 3.2.1 or
under 3.2.2 below, Minera Andes shall convey to Pegasus any Assets held in
Minera Andes' name or in the name of the Company, including, without limitation,
Claims and water rights and all information relating to the Property. Minera
Andes' obligations under Article 12 and Section 17.10 shall survive withdrawal.

          3.2.2 Failure to Make Initial Contribution. If Minera Andes fails to
make its Initial Contribution for any Contract Year as required by Section 3.1,
Minera Andes shall be deemed to have withdrawn from the Company, and this
Agreement shall terminate. Upon such event, Minera Andes shall have no further
right, title or interest in the Assets of the Company. Minera Andes' withdrawal
shall be effective upon such failure, but such withdrawal shall not: (1) relieve
Minera Andes of its obligation to the Company to fund Operations in Contract
Year 1997-1998 to $ 200,000; or (2) relieve Minera Andes of its responsibility
to fund and satisfy its share of liabilities to third persons arising out of the
Operations conducted prior to Minera Andes' withdrawal; or (3) relieve Minera
Andes from 100% liability for all contracts unfilled at the time of Minera
Andes' withdrawal and that were entered into by Minera Andes; or (4) relieve
Minera Andes from its obligation to return the property reclaimed in good
condition and in compliance with applicable laws and regulations. If Minera
Andes has not incurred qualifying expenditures of $200,000 as of the date of
withdrawal, Minera Andes shall pay any shortfall to Pegasus in cash; provided
that Minera Andes shall have no obligation to make such payment if Pegasus has
breached its title representations and warranties set forth in Section 10.2 and
has not cured such default within the time allowed under Section 11.3.

          3.3 Additional Cash Contributions. After Minera Andes and Pegasus have
completed their Initial Contributions, at the call of the Operator and with the
approval of the Management Committee, if required by Section 5.5, the Members
shall contribute funds for approved Programs in proportion to their respective
Participating Interests, subject to the election permitted under Section 4.3.

                         ARTICLE 4. INTERESTS OF MEMBERS

          4.1 Initial Participating Interests. The Members shall have the
following initial Participating Interests:

              Minera Andes           80%
              Pegasus                20%

          4.2 Changes in Participating Interests. A Member's Participating
Interest may be changed as follows:

               4.2.1 After the completion of the Initial Contribution Period,
upon an election by a Member pursuant to Section 4.3 not to contribute or to
contribute less to an approved Program and Budget than the percentage reflected
by its Participating Interest; or

                                      -10-


               4.2.2 In the event of default by a Member in making its
agreed-upon contribution to an approved Program and Budget, followed by an
election by the other Member to invoke dilution as a remedy for default under
Section 11.4.2; or

               4.2.3 By conversion to a Production Royalty as provided in
Section 4.8; or

          4.3 Voluntary Reduction in Participation. After the completion of the
Initial Contribution Period, a Member may elect to limit its contributions to an
approved Program and Budget as follows:

               4.3.1 To some lesser amount than in proportion to its
Participating Interest; or

               4.3.2 To no contribution at all for that Contract Year.

               The Participating Interest of that Member electing either Section
4.3.1 or 4.3.2 above shall be adjusted effective July 1 of the Contract Year in
which the diluting Member will not make its full share of required
contributions. A Member must make its election not to contribute to the next
Contract Year's approved Program by written notice to the Operator within 60
days after the Program is approved by the Management Committee under Article 7.
Said notice shall describe the portion of the Program that the Member elects not
to fund. Failure to provide timely written notice shall be deemed an election to
contribute in proportion to the Member's Participating Interest.

          4.4 Dilution. If a Member elects not to contribute or to contribute a
lesser amount than in proportion to its Participating Interest, the
Participating Interest of that Member shall be adjusted to a percentage obtained
by dividing (A) by (B) where

          (A) is the sum of (x), the value of the diluting Member's Initial
     Contribution, plus (y), the total of the diluting Member's contributions
     under Section 3.2, plus (z), the amount the diluting Member elects to
     contribute to the approved Program; and

          (B) is the sum of (r), the value of all the Parties' Initial
     Contributions, plus (s), the total of all the Parties' contributions under
     Section 3.2, plus (t), the total Budget for the approved Program; and

         then multiplying the quotient by 100 percent.  That is:

         (A) x (100%) =  [(x) + (y) + (z)] x (100%) =    The diluting Member's
         ---              ---------------
         (B)             [(r) + (s) + (t)]               Adjusted Participating
                                                         Interest

The Participating Interest of the nondiluting Member shall then be the
difference between 100 percent and the diluting Member's adjusted Participating
Interest. The nondiluting Member shall 

                                      -11-


then have the options described in Section 4.5. If the Company expends or incurs
obligations of less than 80 percent of the Budget upon which the diluting Member
made the election, the diluting Member may restore its Participating Interest
pursuant to Section 4.6.

     4.5 Rights of Nondiluting Member. If a Member elects a voluntary reduction
in participation under Section 4.3, the nondiluting Member shall have 20 days
from the date it receives notice of the election to decide whether it will fund
all of the Program and Budget not funded by the diluting Member. The nondiluting
Member may choose to: (1) fund the diluting Member's share of the Program and
Budget, or (2) propose an alternative Program and Budget. Dilution under Section
4.4 shall occur only if the nondiluting Member chooses (1) above. No dilution
shall occur if the nondiluting Member chooses (2) above. Any alternative Program
and Budget proposed shall be considered a new program and budget subject to
approval under Article 7 and a noncontribution election under Section 4.3.

     4.6 Adjustment for Actual Expenditures--Restoration of Diluted Interests.
Within 30 days after the conclusion of a Program and Budget with respect to
which a Member's Participating Interest was diluted under Section 4.4, the
Operator shall report to the diluting Member the total amount of money expended
plus the total obligations incurred by the Operator for the Budget upon which
the diluting Member made the election under Section 4.3.

          4.6.1 If the Operator expended or incurred obligations of 80 percent
or more of the Budget, the Members' Participating Interests shall not be
readjusted.

          4.6.2 If the Operator expended or incurred obligations of less than 80
percent of the Budget, within 30 days of receiving the Operator's report on
expenditures, the diluting Member may notify the nondiluting Member of its
election to reimburse the nondiluting Member for the diluting Member's
proportionate share (at the diluting Member's former Participating Interest) of
the actual amount expended or incurred for the Program. The diluting Member
shall meet the nondiluting Member's cash calls in addition to its own under
Section 9.2 for the succeeding Contract Years' Programs and Budgets until an
amount of cash equivalent to the diluting Member's proportionate share (at the
diluting Member's former Participating Interest) of the actual amount expended
or incurred for the Program has been contributed. Such reimbursement shall
restore and maintain the Participating Interest of the diluting Member that
existed prior to the election under Section 4.3. Restoration of the diluting
Member's Participating Interest shall be effective as of the date provided in
Section 4.3. If the diluting Member does not elect to restore its Participating
Interest, the Members' Participating Interests shall be readjusted pursuant to
Section 4.6.1 above.

     4.7 Default in Making Contributions. Unless a Member makes a timely
election under Article 7 and Section 4.3 to not contribute funds to an approved
Program and Budget, such Member shall be in default if it fails to contribute
and the provisions of Article 11 shall apply.

                                      -12-


     4.8 Conversion to Production Royalty. Upon the reduction of its
Participating Interest to less than 20 percent, a Member shall be deemed to have
withdrawn as a Member from the Company and shall relinquish its entire
Participating Interest. Such relinquished Participating Interest shall be deemed
to have accrued automatically to the other Member. Upon such relinquishment of a
Member's Participating Interest, that Member shall promptly execute assignments
and documents to transfer its Participating Interest to the other Member and
shall receive a Royalty Deed from the Company substantially in the form attached
as Exhibit D. Once a Member's Participating Interest has been reduced to less
than 20 percent, that Member shall have no right to elect to reimburse the
nondiluting Member under Section 4.6.2 above.

     4.9 Continuing Rights and Liabilities upon Adjustments of Participating
Interests. Any reduction of a Member's Participating Interest under this Article
4 shall not relieve such Member of its share of any liability, whether said
liability accrues before or after such reduction, arising out of Operations
conducted prior to such reduction. For purposes of this Article 4, such Member's
share of such liability shall be equal to its Participating Interest at the time
such liability was incurred. The increased Participating Interest accruing to a
Member as a result of the reduction of the other Member's Participating Interest
shall be free of royalties, liens, or other encumbrances arising by, through or
under such other Member, other than those existing at the time the Property was
acquired or those to which both Members have given their written consent. Any
reduction of a Member's Participating Interest shall not affect such Member's
right, title, and interest in any work in process as of the date the reduction
in Participating Interest is effective.

                         ARTICLE 5. MANAGEMENT COMMITTEE

     5.1 Organization and Composition. The Members shall conduct the Company
through a Management Committee, which shall determine overall policies,
objectives, procedures, methods, and actions under this Agreement. The
Management Committee shall be composed of two Managers appointed by Pegasus and
two Managers appointed by Minera Andes. Each Member may appoint one or more
alternates to act in the absence of the regular Managers. Any alternate so
acting shall be deemed to be a Manager. Appointments shall be made or changed by
written notice to the other Member. Each Member may bring such technical and
other advisors as it deems appropriate to all Management Committee meetings.

     5.2 Decisions. Each Member, acting through its appointed members, shall
have a vote on the Management Committee equal to its Participating Interest,
unless otherwise provided in this Agreement. Each Member's vote may be exercised
by a Manager appointed by the Member or, in his absence, by his alternate.
Except as specifically provided below, decisions made by the Management
Committee shall be by majority vote.

     5.3 Meetings. The Management Committee shall hold regular meetings at least
semi-annually. Meetings shall be held at any mutually agreed place. The Operator
shall give 30 days' notice to the other Member of regular meetings. Either
Member may call a special meeting upon 10 days' notice to the other Member. In
case of emergency, reasonable notice of 

                                      -13-


a special meeting shall suffice. A quorum for any meeting shall consist of one
Manager representing each Member; except that if one Member fails to attend two
consecutive properly called meetings for the purpose of preventing any action
from being taken at such meeting, then a quorum shall consist of the members
representing the other Member, and such Member's vote shall be considered a
majority vote for the purposes of the conduct of all business properly noticed
and not requiring a unanimous vote. Each meeting notice shall include an
itemized agenda prepared by the Operator in the case of a regular meeting, or by
the Member calling the meeting in the case of a special meeting, but any matters
may be considered if either Member adds the matter to the agenda by notice to
the other Member at least 48 hours before the meeting. Each notice shall include
a copy of any document as to which action is to be taken. Supplemental
information may be requested by either Member. Notice may be waived by the
written consent of the Management Committee Managers. The Operator shall prepare
minutes of all meetings and shall distribute copies of the minutes to the
Members within 30 days after the meeting. Each Member shall return to the
Operator signed minutes or specific objections within 20 days of receipt. If the
Operator does not receive signed minutes or objections within such period,
approval shall be deemed. If an objection to the minutes is received and not
resolved by the Members within 30 days, a meeting of the Management Committee
shall be called at which time the minutes in dispute shall again be considered
and final minutes shall be agreed upon. The minutes, when signed by both
Members, shall be the official record of the decisions made by the Management
Committee and shall be binding on the Operator and the Members. If personnel
employed in Operations are required by the Management Committee to attend a
Management Committee meeting, reasonable costs incurred in connection with such
attendance shall be Company costs. All other costs shall be paid for by the
Members individually.

     5.4 Action Without Meeting. In lieu of meetings, the Management Committee
may hold telephone conferences, so long as minutes of such meetings are
immediately distributed to the Members and signed by the Managers on the
Management Committee. The Management Committee, in lieu of deciding any matter
at a meeting or by telephone conference, may act by instrument in writing signed
by each Manager on the Management Committee.

     5.5 Management Committee Duties.

          5.5.1 Matters Requiring Approval. Except as otherwise delegated to the
Operator in Section 6.2, the Management Committee shall have exclusive authority
to determine all management matters related to this Agreement, including but not
limited to approving Programs and Budgets and approving plans or standards for
distribution of Company cash and selection of the Operator, provided, however,
that if a transfer of the Operator's entire interest in the Company is made to
an Affiliate under Article 16, the Affiliate may become the Operator without the
approval of the Management Committee.

          5.5.2 Matters Requiring Unanimous Approval. The Management Committee
shall be responsible for approving the following actions by the Company, all of
which shall require the unanimous approval of all members of the Management
Committee:

                                      -14-


               (1) Acquisition or disposition of any asset of the Company, the
acquisition or disposition of which would materially impair or change the
conduct of the ordinary business of the Company as contemplated by this
Agreement.

               (2) Acquisition of any interest in real property outside of the
Area of Interest or disposition of any portion of the Property within the Area
of Interest. (3) Except as provided in Sections 6.2.3 and 6.2.12, a call for
contribution from the Members not previously approved as part of a Program and
Budget pursuant to Article 7 hereof.

               (4) Any settlement or adjustment of any suit or claim involving
Company Assets for an amount in excess of $25,000; provided, however, that a
Member withholding consent to any such settlement or adjustment shall be solely
responsible for all amounts subsequently paid in settlement, in adjustment or on
any judgment of such claim or suit in excess of the amount for which consent was
withheld, plus all attorneys' fees incurred by the Company because of such claim
or suit after the date consent was withheld.

               (5) Any subsequent changes in the definition of the authority and
responsibilities of the Operator described in Section 6.2.

               (6) Approval of any revisions in the Accounting Procedure set
forth in Exhibit B.

               (7) Except for Development authorized under Sections 7.3.5 or
7.3.7, the assumption, guarantee or approval of the incurrence of any obligation
for borrowed money on behalf of or in the name of the Company (including without
limitation (i) any obligation owed for all or any part of the purchase price of
property or other assets or for the cost of property or other assets constructed
or of improvements, other than accounts payable included in current liabilities
and incurred in respect of property purchased in the ordinary course of
business, and (ii) any obligation for borrowed money secured by any encumbrance
in respect of the Company, even though the Company has not assumed or become
liable for the payment of such obligation).

               (8) Except for Development authorized under Sections 7.3.5 or
7.3.7, entering into any lease of personal property on behalf of or in the name
of the Company having a term (including without limitation terms of renewal or
extension at the option of the lessor or lessee, whether or not such option has
been exercised) of more than two years or entering into any lease of property on
behalf of or in the name of the Company that in accordance with generally
accepted accounting principles should be capitalized on the balance sheet of the
Company.

                                      -15-


               (9) Making any investment not in the ordinary course of business,
whether by stock purchase, capital contribution, loan or advance or by purchase
of property or otherwise, on behalf of or in the name of the Company.

               (10) Selling any notes or accounts receivable of the Company with
recourse, at a discount or otherwise for less than the fair market value
thereof.

               (11) Except pursuant to a Member's right under Section 7.3.2,
undertaking a Feasibility Study.

               (12) Except pursuant to a Member's right under Section 7.3.7,
commencing Production.

                               ARTICLE 6. OPERATOR

     6.1 Appointment. The Members appoint Minera Andes as the Operator with
overall management responsibility for Operations. Minera Andes agrees to serve
until it resigns, is replaced, or is deemed to have resigned as provided in
Section 6.6. If Development is authorized under Section 7.3.5, Minera Andes
shall be appointed Operator for the designated Development Area under a
Successor Limited Liability Company Agreement pursuant to Section 7.3.4 and
Minera Andes shall remain the Operator of the Property that has not been
designated as a Development Area. If a unilateral Development commitment is
deemed approved as provided in Section 7.3.7, then the Member proposing such
commitment shall be the Operator for the Development Area designated in the
Feasibility Study upon which the commitment is based. If the Operator transfers
all or part of its interest in or to the Agreement pursuant to Section 16.1 and
following such transfer the Operator's Participating Interest is less than 50
percent (50%), then the Member that is not one of the parties to the transfer
shall become the Operator. The Members direct the Operator to perform, and the
Operator agrees to perform, the duties of Operator of the Company subject to the
terms and conditions of this Agreement. The Members agree that at all times the
Operator shall be the agent of the Company for conducting Operations on behalf
of the Company and for the performance of such other duties as are imposed on
the Operator by the Members under or pursuant to the provisions of this
Agreement. The Operator shall consult freely with the Management Committee.

     6.2 Powers and Duties of Operator. Subject to the terms and provisions of
this Agreement, and to the supervision and direction of the Management
Committee, the Operator shall have the powers and duties to:

          6.2.1 Manage, direct, and control all Operations in accordance with
approved Programs and Budgets and in accordance with the other provisions of
this Agreement.

          6.2.2 Take all actions, perform all duties and make or incur such
expenditures as are required to maintain the titles and interests of the Company
in and to the Property, including, without limitation, the payment of all taxes
(subject to the provisions of this 

                                      -16-


Agreement for payment of such taxes by Pegasus during the Initial Contribution
Period, with subsequent reimbursement by Minera Andes), royalties, rentals and
other amounts required to be paid with respect to the Property.

          6.2.3 Arrange for and carry out Operations on and with respect to the
Property, including but not limited to obtaining such competent consultants,
technicians, agents and independent contractors as may be required and
purchasing and selling such materials, supplies, equipment and services as may
be required in connection with Operations and entering into such contracts as
may be necessary in connection therewith. As to Operations conducted pursuant to
an approved Program and Budget, the Operator may not exceed an approved Budget
of less than $1,000,000 by an amount of more than ten percent nor an approved
Budget equal to or greater than $1,000,000 by an amount of more than five
percent without the prior approval of the Management Committee. Equipment shall
be sold by the Operator only if it meets all of the following criteria:

               (1) It is no longer required for Operations; and

               (2) It has a fair market value of $20,000 or less; and

               (3) The fair market value equals or exceeds the net book value of
the equipment.

Any other sales of equipment must be specifically approved by the Management
Committee as part of a Program and Budget.

          6.2.4 Hire, transfer, or discharge from its own personnel all
executive and other employees required for the Company. All employees shall be
employees of the Operator or one of its Affiliates and not employees of the
Company.

          6.2.5 Locate additional Claims (including without limitation federal
and provincial) and acquire additional prospecting sites and maintain and
protect the Claims and the Assets in connection with Operations and manage and
supervise work, services and other activities to maintain the Property in good
standing and, to the extent provided in a Program, perfect Mining rights,
including but not limited to acquiring access rights, surface rights, water
rights, Claims, leases of Claims, mineral rights and other appurtenant rights
and interests necessary for Operations and performing and filing all work
required to maintain all Claims under Argentinean (including without limitation
federal and provincial) legal requirements.

          6.2.6 Protect the interests of the Members in connection with the
valuation by public authorities for tax purposes of the Property and Assets.

          6.2.7 Prepare and file (or cause to be prepared and filed) with
governmental authorities all tax and other reports required by law to be filed
by either of the Members or the Company and disburse funds for all taxes and
other governmental charges, other than taxes on 

                                      -17-


or measured by net income, that are imposed on the Members by virtue of their
conduct of the Operations.

          6.2.8 Secure and maintain in full force and effect at all times in
financially sound and reputable insurers, for the benefit and at the expense of
the Company, (a) all workers' compensation or similar insurance as may be
required under the laws of any jurisdiction, (b) public liability insurance in
the amount of $2,000,000 for personal injury, death or property damage suffered
upon, in or about any premises owned or occupied by the Company or occurring as
a result of the ownership, maintenance or operation by the Company of any
automobile, truck or other vehicle, or as a result of the use of products
manufactured, constructed or sold by the Company, or services rendered by the
Company, and (c) such other insurance as required by the Management Committee.
Insurance specified in clauses (b) and (c) above shall be maintained in such
amounts (and with co-insurance and deductibles) as required by the Management
Committee. The Operator shall name the Non-Operator as an additional insured on
all policies and shall provide the Non-Operator with certificates of such
insurance on the Effective Date, annually thereafter, and at such other times as
may be reasonably requested by the Non-Operator.

          6.2.9 Conduct Operations in compliance with all applicable statutes,
regulations, and orders of Argentinean governmental bodies (including federal,
provincial, and local bodies), including but not limited to those relating to
safety requirements, working conditions, workers' compensation, employee
benefits, environmental protection and mine reclamation, and secure all
licenses, permits and approvals necessary for Operations. The Operator shall not
be in default of this provision during any period in which the Operator is in
good faith contesting an alleged violation so long as the violation occurred in
spite of the Operator's good faith efforts to comply and the Operator timely
cures through appropriate performance or payment of assessed fines or penalties.

          6.2.10 Keep full and accurate records and accounts of all transactions
entered into on behalf of the Members and of all Company costs and of all funds
disbursed by it or under its direction in accordance with the Accounting
Procedure.

          6.2.11 Prepare and distribute to each Member reports on Operations and
finances in accordance with Article 8.

          6.2.12 Prepare and maintain minutes of all Management Committee
meetings and related correspondence.

          6.2.13 In case of emergency, take any action the Operator deems
necessary to protect life, limb or property, to protect the Assets or to comply
with law or government regulation as provided in Section 7.1.5.

          6.2.14 Notify the Management Committee of any material event or action
affecting Operations as soon as possible following such event or action.

                                      -18-


          6.2.15 The Operator shall not be in default of its duties under this
Section 6.2 if its failure to perform is caused by the failure of the
Non-Operator to perform acts or make contributions required of it by this
Agreement.

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

     6.4 Standard of Care and Liability. The Operator shall conduct and manage
the Operations and perform all of its obligations as Operator in a workmanlike
and commercially reasonable manner in accordance with sound geological,
engineering, Mining and processing methods and practices using its prudent
business judgment for the benefit of both Members. The Operator shall indemnify
and hold each Member and the Company harmless from all losses, claims, damages
and liabilities, including attorneys' fees, arising out of any act or omission
related to the responsibilities of the Operator that is done or undertaken in
bad faith or that results from the willful misconduct or gross negligence of the
Operator or breach of this Agreement by the Operator; provided that such
indemnity shall not extend to any breach of this Agreement or other matter
arising out of an act or omission of the Operator, its employees, contractors or
other agents that is judged to be negligence but not gross negligence or willful
misconduct.

     6.5 Compensation of Operator. The Members agree that the Operator shall be
advanced funds or reimbursed for Company costs as provided in Article 8 and in
accordance with the Accounting Procedure (Exhibit B).

     6.6 Resignation, Removal or Change of Operator. The Operator shall be
deemed to have resigned from its duties and obligations upon the occurrence of
any of the following events:

          6.6.1 On the date 120 days after tender of written notice to the
Management Committee of its desire to resign as Operator;

          6.6.2 By transfer of all or part of the Operator's interest in the
Company to the Non-Operator or a third party, except as to a transfer to an
Affiliate permitted by Section 3.1, which shall not be deemed to be a
resignation;

          6.6.3 If the Operator defaults in any of its duties and obligations
under this Agreement and does not cure such default or begin to cure such
default in accordance with Section 6.8 after receipt of written notice of such
default from the Non-Operator;

          6.6.4 By the voluntary or involuntary liquidation, insolvency or
termination of the Operator's corporate existence;

                                      -19-


          6.6.5 By removal of the Operator by a majority vote of the Management
Committee;

          6.6.6 By the elimination under Section 4.8 of the Operator's
Participating Interest; or

          6.6.7 By a default of the Operator as a Member pursuant to Section
11.1 that is not cured or begun to be cured, to the extent cure is permitted by
this Agreement, in accordance with Section 11.3 after receipt of written notice
of such default under Section 11.2.

          In the event the Operator has been deemed to have resigned, the
Management Committee may select a new Operator; provided, however, that a
non-party to this Agreement may not serve as Operator without the unanimous
consent of all Managers on the Management Committee. If the Operator is in
default under Section 6.8 below or under Section 11.1, the Non-Operator shall
choose the Operator (which can include the Non-Operator itself). The resigning
Operator shall not be relieved of its duties sooner than 120 days from the date
of resignation, unless the Management Committee, by vote, not including the vote
of the Operator, waives this time period in writing.

          The Operator, upon ceasing to act as Operator, shall deliver to its
successor custody of all Assets, including but not limited to the real and
personal property records and books. A successor Operator shall have the rights
and obligations of the Operator pursuant to this Agreement.

     6.7 Change of Operator--Development. If a unilateral Development commitment
is made under Section 7.3.7, the Operator shall change as provided in Section
6.1. The existing Operator shall deliver to the new Operator all Assets,
including but not limited to the real and personal property records and books,
as they relate to the Development Area. The new Operator shall be responsible
for preparing the Development Program and Budget pursuant to Section 7.3.12.

     6.8 Operator's Default and Remedies of Non-Operator.

          6.8.1 Notice. Failure of the Operator to perform any material
obligation imposed upon it under this Article 6 shall constitute an event of
default by the Operator in its capacity as Operator. The Non-Operator shall have
the right to give the Operator a Notice of Default, which shall be in writing,
shall set forth the nature of the default, and shall, if the default is curable,
set forth the date by which such default must be cured or by which such cure
shall be initiated, which date shall be at least 30 days after receipt of Notice
of Default, except in the case of a failure to make payments to third parties,
in which case the date shall be 10 days after receipt of such Notice of Default
and except as to Sections 6.6.2, 6.6.4, and 6.6.6, as to which there will be no
cure period. Failure of the Non-Operator to give any such notice shall not
release the Operator from any of its obligations under this Agreement.

                                      -20-


          6.8.2 Opportunity to Cure. If within 30 days after receipt of the
Notice of Default (or 10 days if the default is a failure to make payments to
third parties) the Operator cures such default, or if the failure is one that
cannot be corrected within 30 days but can be corrected within a reasonable
period of time and the Operator begins correction of such failure to perform
within such 30 days and continues corrective efforts with reasonable diligence
until a cure is effected, the Notice of Default shall be inoperative, and the
Operator shall lose no rights hereunder. If, within such specified period, the
Operator does not cure such default, or if within such specified period the
Operator notifies the Non-Operator that it disputes the existence of the alleged
default and the Operator shall not have commenced correction of the default
within a specified period after a final nonappealable decision by a court of law
that the Operator was in default, the Non-Operator at the expiration of such
period, or upon notice where no cure period is allowed, shall have the rights
hereinafter specified.

          6.8.3 Rights of Non-Operator. If the Operator within said 30-day
period (or 10-day period) does not cure such default or begin to cure such
default, the Operator shall be deemed to have resigned pursuant to Section 6.6.3
and shall be replaced as provided in Section 6.6. The Non-Operator may seek to
recover any damages sustained as a result of the Operator's breach of its
obligations hereunder. The Operator shall be and remain liable for any and all
damages sustained by the Non-Operator as a result of any such breach of its
obligations hereunder, except that no default by the Operator shall affect its
rights and obligations hereunder as a Member (the Non-Operator may also seek any
other remedy now or hereafter provided at law or in equity including the right
to specific performance) and each and every power and remedy of the Non-Operator
may be exercised from time to time and simultaneously and as often and in such
order as the Non-Operator may deem expedient. All such powers and remedies shall
be cumulative, and the exercise of one shall not be deemed a waiver of the right
to exercise any other or others. No delay or omission in the exercise of any
such power or remedy shall impair any such power or remedy or shall be construed
to be a waiver of any default or an acquiescence in such default.

                         ARTICLE 7. PROGRAMS AND BUDGETS

     7.1 In General.

          7.1.1 Operations Pursuant to Programs and Budgets. Operations shall be
conducted, expenses shall be incurred, and Assets shall be acquired only
pursuant to approved Programs and Budgets.

          7.1.2 Content of Programs and Budgets. Each annual Program and Budget
shall describe in reasonable detail the full nature and extent of the proposed
Operations, including, if applicable to that Contract Year, geologic research
and reconnaissance to be undertaken; real property acquisition proposals;
proposed drilling activities; proposed regulatory permit applications; proposed
engineering studies and Mining and Construction plans; a long-range plan for the
Mining of all minable reserves that logically would be mined at the same time or
in sequence with the first scheduled mine under good mining practices; the kind
and capacity 

                                                      -21-


of any plant or milling facilities to be acquired or constructed; a plan for
refining of mineral concentrates; and the estimated period of time required to
complete the proposed Operations. The Program and Budget shall also include, if
applicable, all anticipated costs and expenses, including but not limited to
operation and maintenance expenditures, capital expenditures, working capital
requirements, a statement of expected cash calls and the annual and other
rentals, filing fees or other payments required to maintain the Property in good
standing during the Contract Year, and all anticipated distributions of
Products. Each request for funds to acquire capital items shall include a
detailed description of such items, including but not limited to equipment or
construction specifications. If applicable, each Program and Budget shall also
include monthly production schedules and forecasts, cost estimates and budgets
in sufficient detail to accord with industry standards. The Program and Budget
for the first year of the term of this Agreement is attached hereto as Exhibit
E.

          7.1.3 Presentation of Programs and Budgets. Proposed Programs and
Budgets shall be prepared by the Operator and shall be for one Contract Year
except that the Program and Budget for Development may extend over several
years.

          7.1.4 Budget Overruns; Program Changes. The Operator shall immediately
notify the Management Committee of any material departure from an approved
Program and Budget. If the Operator exceeds an approved Budget of less than
$1,000,000 by more than ten percent, or an approved Budget equal to or greater
than $1,000,000 by more than five percent, then the excess over such percentage,
unless directly caused by an emergency or unexpected expenditure made pursuant
to Section 7.1.5 or unless otherwise authorized by the Management Committee,
shall be for the sole account of the Operator and such excess shall not be
included in the calculation of the Participating Interests pursuant to Section
4.4. Budget overruns of less than the above percentages shall be borne by the
Company as of the beginning of the Contract Year covered by the then current
Program and Budget.

          7.1.5 Emergency or Unexpected Expenditures. In case of emergency, the
Operator may take any action it deems necessary to protect life, limb or
property, to protect the Assets, or to comply with law or government regulation.
In the case of an emergency, the Operator shall promptly notify the Members of
the emergency by telephone, telex, or other electronic communication, and the
Operator shall be reimbursed therefor by the Members in proportion to each
Member's respective Participating Interest as of the beginning of the Contract
Year covered by the then current Program and Budget.

     7.2 Initial Contribution Period and Exploration Period.

          7.2.1 Review and Approval. The Operator shall, on or before May 15 of
each year during the Initial Contribution Period and the Exploration Period,
submit in writing to each Manager on the Management Committee a proposed Program
for Operations during the next Contract Year. During the Exploration Period,
semi-annual Management Committee meetings shall be held during the first week of
September and the first week of April. Within 10 days after receipt of the
Operator's proposed Program and Budget, the Non-Operator may propose

                                      -22-


modifications to the Operator's proposal or alternatives to the proposed Program
and Budget. At the annual meeting, the Management Committee shall consider the
proposed Program and Budget and any suggested modifications or alternatives. If
the Non-Operator proposes a modification or alternative, then the Management
Committee shall seek to develop a Program and Budget acceptable to both Members.
The Management Committee shall then vote to approve or reject a Program and
Budget.

          7.2.2 Minera Andes' Vote Controls During Initial Contribution Period.
During the Initial Contribution Period, the vote of Minera Andes on Programs and
Budgets shall be controlling, subject to the provisions of Section 5.5.2 on
matters requiring unanimous approval; provided, that (a) if the Initial
Contribution will be completed before the Program and Budget for that Contract
Year is completed, Pegasus shall have full voting rights on any expenditures
beyond those required to complete the Initial Contribution; and (b) a Program
and Budget for the accomplishment of Development under an approved Feasibility
Study shall be approved only as set forth in Section 7.3.5.

          7.2.3 Activities During Deadlock--Exploration Period. If the
Management Committee for any reason fails to approve a Program and Budget on or
before July 1 of any Contract Year during the Exploration Period, the
then-proposed or alternative Program and Budget (whether submitted by the
Operator or another Member) proposing the larger Exploration Budget shall be
deemed to be approved.

          7.2.4 Election to Participate--Exploration Period. By notice to the
Management Committee within 30 days after the final vote approving a Program and
Budget by the Management Committee during the Exploration Period, a Member may
elect to contribute to such Program and Budget:

               (1) In proportion to its Participating Interest as of the
beginning of the Contract Year covered thereby; or

               (2) To some lesser extent than in proportion to its Participating
Interest; or

               (3) Not at all, as provided in Section 4.3.

If a Member elects (2) or (3) above, the Members' Participating Interests shall
be adjusted pursuant to Section 4.4.

          If within such 30-day period a Member fails to notify the Management
Committee in writing of an election not to contribute to a Program and Budget,
such Member shall be deemed to have agreed to contribute funds to such Program
and Budget in proportion to its Participating Interest.

     7.3 Feasibility Study and Development.

                                      -23-


          7.3.1 Preparation. At the request of the Management Committee, or at
the request of either Member and with the approval of the Management Committee,
the Operator shall conduct or have conducted a Feasibility Study as a part of an
approved Program and Budget and upon conclusion submit a written report to the
Management Committee evaluating the commercial potential of any mineral deposit
lying in one or more areas within the Property. A Feasibility Study will
conclude with a recommendation to commence Development, conduct further
Exploration, or take such other action as the preparer deems appropriate. The
cost of preparing such study shall be charged to the Company Account.

          7.3.2 Nonconsent Study. If either Member requests the Management
Committee to direct the Operator to prepare a Feasibility Study when, in the
reasonable, good faith opinion of such Member, sufficient geological and
metallurgical testing has been completed to justify preparation of a Feasibility
Study, and if the Management Committee fails or refuses to direct that such
study be prepared, then that Member may prepare and submit a Feasibility Study
to the Management Committee, which shall be referred to as a "nonconsent study."
The cost of preparing such study shall be for the account of the Member
preparing the study, unless the Development proposed by the study is
subsequently authorized by the Management Committee, in which event 150% of the
cost of preparing such study shall be paid to such Member and charged to the
Joint Account. If the other Member chooses not to contribute at all to
Operations under a nonconsent Feasibility Study that is authorized or deemed
authorized, 150% of the cost of preparing the Feasibility Study shall be added
to the denominator of the formula in Section 4.4 in calculating the
noncontributing Member's adjusted Participating Interest pursuant to Section
7.3.9(2).

          7.3.3 Review. The first Feasibility Study submitted shall be
designated the "initial Feasibility Study," whether prepared under Section 7.3.1
or 7.3.2. Within 90 days after submission of the initial Feasibility Study, the
Member that did not prepare it may prepare or have prepared an alternative
Feasibility Study, which shall be presented to the Management Committee within
such 90-day period. The cost of preparing such study shall be for the account of
the Member preparing the study, unless the Development proposed by the study is
subsequently authorized by the Management Committee, in which event 150% of the
cost of preparing such study shall be paid to such Member and charged to the
Joint Account. Any such alternative Feasibility Study shall be considered by the
Management Committee along with the initial Feasibility Study. The Management
Committee shall also have the right to direct the Operator to perform additional
work or to otherwise revise any Feasibility Study. If the initial Feasibility
Study or any alternative Feasibility Study recommends that Development commence,
the Management Committee will meet within 180 days after submission of the
initial Feasibility Study and consider whether to authorize such Development
pursuant to Section 7.3.6.

          7.3.4 Notice of Development Proposal. If a Feasibility Study or any
alternative Feasibility Study recommends that Development commence, any Member
may request the Management Committee to commence Development on a proposed
Development Area if:

                                      -24-


               (1) Notice of the request is furnished to each Member at least 45
days before the meeting of the Management Committee at which the request is to
be considered; and

               (2) If such Feasibility Study was completed more than one year
before the date of such meeting, an addendum, prepared as of a date not more
than 90 days before the date of such meeting, updating all information contained
in the Feasibility Study affected by the time delay has been distributed to all
Members.

          7.3.5 Authorization of Development by Management Committee. The
Management Committee will meet and consider any request made under Section 7.3.4
or any Feasibility Study recommending Development proposed under Section 7.3.3
and may, if Members holding not less than 75 percent of total Participating
Interests concur, authorize Development, provided that unless the Management
Committee otherwise determines, the Development so approved will require
commencement of construction within one year's time and will be based upon a
timetable for completion of Development within four years' time. Prompt notice
of such authorization will be given to each Member that did not vote in favor of
Development.

          7.3.6 Commitments upon Management Committee Authorization. Each Member
that votes in favor of commencing Development will be deemed to have committed
to participate in placing the Development Area into production at a rate of
participation not less than its Participating Interest plus, pro rata to its
share of the Participating Interests of the Members that joined in the
authorization, a proportionate amount of the Participating Interest of any
Member that, having voted against the Development authorized under Section
7.3.5, elects not to participate, or to participate at a reduced rate, but not
less, in any event, than a 20 percent Participating Interest.

          7.3.7 Unilateral Development Commitment. Any Member holding not less
than a 20 percent Participating Interest may commit to Development of a proposed
Development Area if:

               (1) Within six months before the date of the commitment,
authorization of Development on the proposed Development Area was considered by
the Management Committee pursuant to Section 7.3.5, but was not given;

               (2) The commitment contains (i) an undertaking by it, alone or
with one or more other Members, to commence Development within one year's time,
(ii) a timetable for completion of Development, which will be not more than four
years from the date of commitment, and (iii) the budget for such Development;

               (3) If any Feasibility Study that recommended Development
commence was completed more than one year before the date of such commitment, an
addendum thereto, prepared as of a date not more than 90 days before the date of
such commitment, updating all 

                                      -25-


information contained in the Feasibility Study affected by the time delay has
been distributed to all Members; and

               (4) There is furnished to all Members a commitment letter from
one or more banks confirming that on the basis of such Feasibility Study such
bank or banks will lend to the Members on a project finance basis, and at
prevailing interest rates for major construction projects in Argentina, amounts,
to be secured by first mortgage liens on the interests of the Members in the
Development Area, aggregating not less than 90 percent of the capital cost to
place the Property into production and that no deficiency or other guarantees
will be required except for completion guarantees providing for overrun
financing and timely completion of the project on terms customarily contained in
project finance completion guarantees.

               If more than one Member makes a unilateral commitment to
Development of a proposed Development Area, the commitment proposing the larger
budget shall be the commitment to which other Members subscribe, as provided
below.

               The commitment will be delivered to all Members, and upon
delivery each Member subscribing will, subject to Section 7.3.10, be obliged,
subject to force majeure, to place the proposed Development Area into production
in accordance with the Feasibility Study and the timetable for completion
submitted to the Members, but nothing will oblige any Member to borrow from or
give security to any person, including any bank referred to in subsection (d)
above.

          7.3.8 Designation of Development Area. If Development is authorized
under Section 7.3.5 or if Development is deemed to be authorized under Section
7.3.7, then the Management Committee shall designate part of the Property
covered by such study as a Development Area. If any Development Area is
designated that includes less than all of the Property, this Agreement shall be
modified to exclude the Development Area. After completion of the Initial
Contribution Period, each Development Area designated shall be transferred to a
Successor Company, the interests in which shall be distributed to the Members
according to their respective Participating Interests in this Agreement as of
the date of distribution. The Members shall execute, with respect to the
Successor Company, a limited liability company agreement substantially in the
form of this Agreement and agree upon a method of allocating the total income
and expenses under this Agreement between the Company and each Successor
Company. The Operator shall serve as operator for the Successor Company. If a
Development Area appears likely to be the only or the last Development Area to
be designated within the Area of Interest, it shall not be contributed to a
Successor Company but shall be developed under the terms of this Agreement.
Then, if another Development Area is later designated, it shall be contributed
to a Successor Company.

          7.3.9 Participation in Development Commitment. In case of

                                      -26-


               (1) Development authorized under Section 7.3.5, each Member that
did not vote in favor will, during a period of 120-days after the authorization;
or

               (2) A unilateral Development commitment under Section 7.3.7, each
Member other than Members referred to in subsection 7.3.7(2) will, during a
period of 120- days after delivery of such commitment;

have the right, subject to Section 7.3.10, to elect to participate in such
Development, either at the rate of its Participating Interest or at a reduced
rate, but not less, in any event, than a 20 percent Participating Interest. When
a reduced rate of participation is elected, the Member must contribute to all
expenditures in proportion to the Participating Interest then elected, but if
the Member's Participating Interest is reduced to less than 20 percent, Section
4.8 will apply. A Member that fails to make any timely election under this
Section 7.3.9 will be deemed to have elected not to participate in the proposed
Development.

          7.3.10 Adjustment of Participating Interests. If fewer than all
Members elect to participate in Development under Section 7.3.6 or 7.3.9, the
Members that voted in favor of Development under Section 7.3.5, or that joined
in the commitment pursuant to Section 7.3.7, as the case may be, will, pro rata
to their Participating Interests, increase their respective Participating
Interests in the Development Program and Budget for the implementation of the
Feasibility Study such that the Participating Interests in such Program and
Budget of all Members will total 100 percent.

          7.3.11 Development Budget and Operations. As soon as reasonably
practicable after Development is authorized or deemed authorized under Sections
7.3.6 or 7.3.9, and in no event later than 30 days prior to commencement of
Development work, the Operator shall submit to the Management Committee: (a) a
Program and Budget, based upon the Feasibility Study, for the accomplishment of
the Development together with a Program and Budget for the period commencing on
the date of such submission and ending on the next following June 30, and (b)
long-term projections with respect to development, construction, maintenance and
operation of the project. At any time prior to commencement of Development, the
Management Committee shall have the right, with unanimous consent and upon
consultation with the Operator, to make revisions in such Development Program
and Budget that are not at substantial variance with the Feasibility Study. At
the time of submission of the Program and Budget as provided above, the Operator
shall report on bids obtained for accomplishment of the Development work (i.e.,
plant construction, major equipment purchases, etc.).

          On or before April 25 of each year during the Construction Period, the
Operator shall submit to the Management Committee a proposed Program and Budget
for the following Contract Year, together with any necessary revisions to the
long-term projections with respect to development, construction, maintenance and
operation of the project. The Operator shall call a meeting of the Management
Committee not earlier than May 20 and no later than June 15 of each year for the
purpose of considering the Program and Budget. Such Program and Budget, as
modified and approved by the Management Committee, shall constitute the Program
and 

                                      -27-


Budget for the Company for the following Contract Year. All Members shall
contribute in proportion to their respective Participating Interest. As provided
in Sections 7.3.6 and 7.3.9, once a Member elects to participate in Development
to any extent, it shall be liable to contribute to all costs and obligations of
Development to the extent of its initial election with no further elections or
opportunity to reduce its Participating Interest until Mining commences, except
as provided in Section 7.3.13.

          7.3.12 Restoration of Participating Interest.

               (1) If one Member elects to reduce its participation in
Development under Section 7.3.6 or 7.3.9 and has its Participating Interest
adjusted pursuant to Section 4.4, and if the nondiluting Member has not
commenced Development consistent with the Feasibility Study within one year from
the effective date of the adjustment of the diluting Member's Participating
Interest, then the Participating Interest of the diluting Member shall be
restored to its level before the adjustment, effective as of the effective date
of the first adjustment. No further work shall be conducted, except to maintain
and protect the Property, until a new or revised Feasibility Study has been
prepared and Development has been authorized pursuant to this Section 7.3. As
used in this Section 7.3.12, the phrase "commence Development" shall mean
expending and contractually committing to expend either (i) 50 percent of the
first 12 months' Development Budget or (ii) ten percent of the total cost of
Development as projected in the approved Feasibility Study.

               (2) If the nondiluting Member timely commences Development but
later ceases Development prior to completion, and such cessation continues for
more than six months, exclusive of any period of cessation attributable to force
majeure, the nondiluting Member shall not resume Development, except to maintain
and protect the Property, until a new or revised Feasibility Study has been
prepared and Development has been authorized pursuant to this Section 7.3. The
diluting Member's Participating Interest shall be restored to its level prior to
the adjustment based on the Feasibility Study just abandoned.

               (3) If a new or revised Feasibility Study is prepared and
approved following a failure to commence or a cessation of Development under
Section 7.3.12(1) or 7.3.12(2) above, any amounts paid by the nondiluting Member
under the earlier Feasibility Study for Development prior to cessation that are
of benefit to the Operations under the new Feasibility Study as determined by
the Management Committee shall be credited to the nondiluting Member's account,
and that Member shall have no obligation to bear any further costs until the
amounts spent by the Members on all Development (under either Feasibility Study)
are in proportion to their Participating Interests.

          7.3.13 Cost Increases and Price Declines. If bids submitted for
Development work result in cost increases of more than 25 percent above the
approved Feasibility Study estimates, or if the spot price of the commodity
planned to be developed drops more than 25 percent below the previous Contract
Year's average price for a period of 180 days or more, the Operator shall
immediately notify the Management Committee in writing. The Management 

                                      -28-


Committee shall hold a meeting within 30 days of the Operator's notice and
decide by majority vote what action should be taken in response to the cost
increase or price decline. If the Management Committee decides to continue with
Development, each Member shall have the right, for a period of 45 days following
the Management Committee decision, to reconsider its participation under
Sections 7.3.6 or 7.3.9. Failure to elect one of the options under such sections
within such time shall bind the Member to participate at its Participating
Interest. No right to reconsider a Member's election shall exist once
Development is continued or commences, unless subsequent cumulative cost
increases by an additional 25 percent of the approved Feasibility Study
estimates or spot price declines an additional ten percent for a period of 180
days or more. If the Management Committee fails to approve continued
Development, then a Program and Budget sufficient to maintain the Members'
interest in the Agreement, and no more, shall be prepared by the Operator and
shall be deemed approved by the Management Committee for the next Contract Year.

     7.4 Mining and Operations.

          7.4.1 Review and Approval. As soon as practicable after completion of
the Development, the Operator shall submit to the Management Committee a
proposed Mining Program and Budget for the period commencing on the date of such
submission and ending on the next following June 30. On or before April 25 of
each year after the commencement of Mining, the Operator shall submit to the
Management Committee a proposed Program and Budget for the following Contract
Year. The Management Committee shall call a meeting of the Management Committee
for not earlier than May 20 and no later than May 25 of such Contract Year for
the purpose of considering such Program and Budget. Such Program and Budget, as
modified and approved by the Management Committee, shall constitute the Program
and Budget for the following Contract Year. All Members shall contribute in
proportion to their Participating Interests.

          If the Operator fails to submit a Program and Budget by May 25 of any
Contract Year during Mining Operations, or if the Management Committee fails to
approve a Program and Budget submitted by the Operator, then any Member holding
at least a 20 percent Participating Interest shall have the right to submit to
the Management Committee a Program and Budget on or before June 20 of such
Contract Year or within 30 days of any Management Committee rejection of the
Operator's proposed Program and Budget, whichever is later. If the Management
Committee approves any such Program and Budget, it shall become the Mining
Program for the following Contract Year.

          Unless otherwise agreed by the Management Committee, the rate of
production under the first Mining Program and Budget shall be the standard rate
of production set forth in the final Feasibility Study. The rate of production
for each subsequent Contract Year shall be determined by the Management
Committee at the time of approval of the annual Program and Budget for that
Contract Year.

                                      -29-


          7.4.2 Activities During Deadlock--Mining Period. If the Management
Committee fails to approve any Program and Budget by June 1 of any Contract
Year, then the proposed Program and Budget (whether submitted by the Operator or
another Member) proposing the larger Mining Budget shall be deemed to be
approved.

                       ARTICLE 8. ACCOUNTS AND SETTLEMENTS

     8.1 Monthly Cash Budget. The Operator shall promptly submit to the Members
monthly statements of account reflecting in reasonable detail the charges and
credits to the Company Account. The monthly statement shall show:

          8.1.1 The estimated amount that will be required to be contributed
during the succeeding calendar month (or such longer period as may be determined
by the Management Committee) for the approved Program and Budget;

          8.1.2 The extent, if any, to which said amount may be satisfied by
funds (in excess of a proper amount of Company working capital) previously
furnished to the Operator under this Agreement;

          8.1.3 Credits, if any, to the Company, including those arising from
adjustment of accruals to actual expenditures; and

          8.1.4 A summary of the Operator's activities and the results of such
activity.

          The monthly cash budget shall include an amount to cover the monthly
general expenses of the Operator, an amount to cover the anticipated
expenditures during the succeeding month for approved Operations and an amount
required to maintain working capital (in accordance with Section 8.2), all in
accordance with Exhibit B.

     8.2 Cash Calls. After the end of the Initial Contribution Period, the
Operator shall submit to each Member, prior to the last day of each month, a
billing for estimated cash requirements for the next month. The billings shall
be reconciled to the monthly statement provided for in Section 8.1. The billing
shall, if appropriate, include adjustments for any excess or deficiency arising
from any differences between estimated and actual costs. Within 15 days after
receipt of each billing, each Member shall advance to the Operator its
proportionate share of the estimated amount, based on Participating Interests.
Time is of the essence of payment of such billings. The Operator shall at all
times maintain a cash balance approximately equal to the rate of disbursement
for up to 45 days.

     8.3 Failure to Meet Cash Calls. A Member that fails to meet cash calls in
the amount and at the times specified in Section 8.2 shall be in default. The
nondefaulting Member shall have those rights, remedies and elections specified
in Section 4.5 and Article 11.

                                      -30-


     8.4 Accounts. The Operator shall maintain at its offices complete financial
books and records, on the accrual basis for financial reporting, in accordance
with the Accounting Procedure and generally accepted accounting principles,
showing all costs, expenditures, sales, receipts, disbursements, assets and
liabilities, and profits and losses. These accounts shall include general
ledgers and supporting and subsidiary journals, invoices, checks, and other
customary documentation. The Operator shall also maintain at such offices all
other records necessary, convenient or incidental to the recording of the
Company's affairs. The accounts shall be retained for the duration of the period
allowed the Members for audit or the period required by the Internal Revenue
Code or by the needs of either Member. All such books of account and other
records of the Company may be examined and copies thereof made by any Authorized
Person, all at such reasonable times as the Authorized Person may upon
reasonable notice request.

     8.5 Audits. Any Member and any Authorized Person may, upon reasonable
notice, at its sole expense and at reasonable times, inspect, examine and audit
the accounts and records of Operations under this Agreement. All written
exceptions to and claims upon the Operator for discrepancies disclosed by such
audit shall be made within the 12-month period after such an audit is made
available to the Members. Following the Exploration Period, the annual
accounting and financial records shall be audited within three months after the
end of each Contract Year by a firm of independent certified public accountants
of national reputation selected by the Operator. Upon prior written notice from
the Operator to the other Members, the Operator may use a firm of accountants
that is otherwise performing audit services for the Operator or its Affiliates
unless within 10 days after such notice is mailed by the Operator another Member
makes reasonable objection to the use of such accountants. The cost of such
audit shall be borne by the Company. Upon the request of the Non-Operator, the
Operator shall provide a detailed accounting reconciling beginning and ending
balances in any of the Company accounts. In addition, the Operator shall
promptly deliver to the Non-Operator a copy of any report as to material
inadequacies in accounting controls (including reports as to the absence of any
inadequacies) submitted by the independent public accountants in connection with
any audit of the Company. The Non-Operator may make written exception to and
claim upon the Operator for any discrepancies disclosed by such audit within a
reasonable time after the delivery of the audit report. The Operator shall
retain all documents and invoices pertaining to charges and credits to the
Company Account for a period of not less than 24 months after the end of the
Contract Year in which such charges and credits take place or until the
Non-Operator's exceptions have been satisfied, whichever is the longer. The
Non-Operator and any Authorized Person shall have the right to at any time meet
with and discuss the affairs, finances and accounts of the Company with the
independent public accountants conducting any such audit. Any disputes arising
out of audits shall be addressed promptly by the Management Committee at a
meeting called for such purpose. If the Management Committee fails to resolve
such dispute to the satisfaction of all Members, then they shall be left with
all of their remedies at law and equity and all of their remedies under the
Agreement.

     8.6 Annual Reports and Records. By May 15 of each Contract Year, the
Operator shall furnish to each of the Members a detailed report on the
activities of the Company during 

                                      -31-


that Contract Year, reporting the results of all Operations, including but not
limited to copies of all geologic maps, drill hole analysis data, assay reports,
and the Operator's recommended long-term and short-term plans. Within three
months after the end of each Contract Year, the Operator shall furnish to each
of the Members an annual Company financial statement, which shall include
statements of income, changes in financial position, and balance sheets for the
Contract Year then ended and any additional information that the Members may
reasonably require.

     8.7 Monthly Report. On or before the 20th day of each month, the Operator
shall prepare and submit to the Members a monthly report showing the actual
results of Operations for the preceding month in sufficient detail for
computation and monitoring of all phases of Operations, including but not
limited to, as applicable, the following: maintenance costs by unit, detailed
ore production reports, labor costs by category, drifting costs, costs per ton
of ore, costs per ton of waste, processing costs, work in process, summaries of
all geological results, including without limitation, and if applicable, copies
of all geological maps, drill hole analysis data, assay reports, and the
Operator's recommended long-term and short-term plans. The report shall also
include other information consistent with generally accepted accounting
principles and cost accounting procedures consistent with standards in the
industry. The monthly report shall include comparative actual to budget
information, anticipated Operations over the next six months with notations of
any material events, and explanation of any significant differences between
actual results and those budgeted or previously forecast.

     8.8 Inspection and Access. Both Members or any Authorized Person shall be
entitled to enter upon the Area of Interest at any and all reasonable times,
after reasonable advance notice, at the respective Member's sole risk and
expense, to inspect the Assets and Operations. The Members or any Authorized
Person shall also be permitted, at any and all reasonable times, to inspect and
copy the Operator's books, records and data pertaining to the Company.

     8.9 Additional Information. Each Company or its Authorized Person shall
have the right to discuss the affairs, finances, and accounts of the Company
with the officers and employees of the Operator. The Operator shall, in addition
to the foregoing, make available to the Non-Operator and its Authorized Person
such other information relating to the affairs of the Company (including such
information as may be within the knowledge of the Operator concerning the
Development, Construction, Operation and maintenance of the Company) as the
Member or any Authorized Person may from time to time reasonably request.

                      ARTICLE 9. DISPOSITION OF PRODUCTION

     9.1 Disposition in General. To the extent permitted by the laws of
Argentina in effect from time to time, the Company shall distribute Products in
kind to the Members, and, under extraordinary circumstances, in the discretion
of the Management Committee, the Company may distribute cash to the Members.
Products shall be distributed by the Operator as soon as possible after they
have been refined to the standards set forth below as to gold and silver or
otherwise processed into readily marketable form. (However, except as provided

                                      -32-


below, the Operator will not sell Products and distribute cash since all
Products shall be distributed in kind.) Except upon termination, the Operator
shall not distribute Company Assets (other than Products or cash) without the
consent of the Members.

          Gold and silver Products shall be distributed in kind at the refiner's
place of business as soon as, but only after, they have been refined to a final
gold and silver bullion standard of at least 99.9 percent pure silver and at
least 99.95 percent pure gold. The Operator shall direct the refiner to deposit
each Member's share of the refined Products in proportion to each Member's
Participating Interest as of the date of distribution into a separate
consignment account at the refinery in the Member's name. After such
distributions, all storage costs and risk of loss shall be borne by the Member
receiving the distribution.

          As to Products other than gold and silver, the Operator shall give the
Members notice at least 30 days in advance of the delivery date upon which their
respective shares of Products will be available. Such dispositions shall be made
only when such Products have been processed into readily marketable form. If a
Member fails to take such Products in kind, the Operator 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 year, to sell such share as agent for the
other Member 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 Operator is purchasing or selling a Member's share of production, the
Member may elect by notice to the Operator to take in kind. The Operator shall
be entitled to deduct from proceeds of any sale by it for the account of a
Member reasonable expenses incurred by the Operator in such a sale.

     9.2 Taking in Kind. Any extra expenditure incurred in the taking in kind or
separate disposition by either Member of its proportionate share of Products
shall be borne by such Member. Nothing in this Agreement shall be construed as
providing authority, directly or indirectly, for any marketing or selling of
Products.

     9.3 Futures Contracts. The Members agree that neither Member shall have any
obligation to account to the other Member nor have any interest or right of
participation in any profits or proceeds of futures contracts, forward sales,
hedging or any other similar marketing mechanism employed by the other Member
with respect to any minerals produced or to be produced from the Property.

           ARTICLE 10. REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS


     10.1 Capacity of Members. Each of the Members represents and warrants as
follows:

          10.1.1 That it is a corporation duly incorporated and in good standing
in its state of incorporation and that it is qualified to do business and is in
good standing in Argentina;

                                      -33-

 

          10.1.2 That it has the capacity to enter into and perform this
Agreement and all transactions contemplated in this Agreement and that all
corporate and other actions required to authorize it to enter into and perform
this Agreement have been properly taken;

          10.1.3 That it will not breach any other agreement or arrangement by
entering into or performing this Agreement and that this Agreement has been duly
executed and delivered by it and is valid and binding upon it in accordance with
its terms;

          10.1.4 That it has not engaged or employed any broker or finder in
connection with the negotiation, execution or delivery of this Agreement; and

          10.1.5 That it has not made any assignment for the benefit of
creditors, filed any petition in bankruptcy, been adjudicated insolvent or
bankrupt, petitioned or applied to any tribunal for any receiver, conservator or
trustee of it under any reorganization arrangement, readjustment of debt,
conservation, dissolution or liquidation law or statute of any jurisdiction, and
no such action or proceeding has been commenced against it by any creditor,
claimant, governmental agency, or other person.

     10.2 Representations and Warranties of Each Member.

          10.2.1 With respect to any portions of the Property in which Pegasus
held an interest under contracts or leases prior to the Effective Date, Pegasus
warrants and represents that Pegasus has not received any notice of default of
any of the terms or provisions of the contracts, and to the best of Pegasus'
knowledge and belief the contracts or leases are valid and are in good standing
and there are no pending or threatened actions, suits, claims, or proceedings
related to them.

          10.2.2 With respect to any portion of the Property comprised of
Claims, subject to the paramount title of Argentina and the Province of Chubut
and to the best of Pegasus' knowledge, Pegasus warrants and represents that:

               (1) All work required to be performed by Pegasus, and as far as
Pegasus is aware, all other work, payments or other actions required to hold
such Claims, have been performed or made when required;

               (2) The Claims are free and clear of defects, liens and
encumbrances arising by, through or under Pegasus; and

               (3) Except as may be disclosed at Exhibit A, Pegasus has no
knowledge of the existence of third party claims or property rights that
conflict with the Claims comprising the Property.

          10.2.3 Without limiting Minera Andes' right to rely on the
representations and warranties of Pegasus, Minera Andes represents and warrants
that (1) it has entered into the 

                                      -34-


Agreement based solely on its own due diligence as to the Property and Assets
and on its own geologic and engineering interpretations; (2) the Assets (if any
other than funds) contributed by Minera Andes are free and clear of defects,
liens and encumbrances arising by, through or under Minera Andes; and (3) Minera
Andes has no knowledge of the existence of third party claims or property rights
that conflict with its title to the Assets.

     Nothing in this Article, however, shall be deemed to be a representation or
warranty that each or any of the Claims has a discovery of minerals within its
boundaries. Pegasus disclaims any representation or warranty as to the value of
any minerals located on such claims or the ability to develop and recover the
same. The representations and warranties above shall apply only to the period
prior to the Effective Date but shall survive the Effective Date.

     Pegasus further warrants that it has not entered into any agreements,
either written or oral, with any other party obligating Pegasus to perform any
duty or convey or burden any interest in the Property, nor is the Property
subject to any rights of first offer or first refusal. Pegasus further warrants
that no action, suit, claim proceeding, arbitration or investigation is pending
or to its knowledge threatened against the Property at law or in equity. Pegasus
has provided all material data relevant to the Properties that is in possession
of Pegasus, but Pegasus makes no representation as to accuracy of such data
except that Pegasus is not aware that any of such data is materially false or
incorrect and Pegasus is not aware of any material adverse fact concerning the
Property which it has failed to disclose to Minera Andes. EXCEPT AS EXPLICITLY
SET FORTH IN THIS SECTION 10.2, PEGASUS DISCLAIMS ALL REPRESENTATIONS AND
WARRANTIES, WHETHER EXPRESS, IMPLIED, ARISING BY LAW, OR OTHERWISE.

     Each Member shall indemnify, protect, defend, save and hold harmless the
other Member from and against any and all damage, loss, liability, obligation,
claim, demand, cost, expense, or fees (including without limitation reasonable
attorneys' fees) arising from the activities of the first Member, its agents,
contractors, employees and representatives conducted on or for the benefit of
the Property or the Assets prior to the Effective Date.

     10.3 Joint Loss of Title. Any failure or loss of title to the Assets,
except for losses arising out of a breach of the representations and warranties
by Pegasus or Minera Andes, shall be charged to the Members in proportion to
their Participating Interests, and all costs of defending title (except costs
arising out of a breach of the representations and warranties by Pegasus) shall
be charged to the Company.

     10.4 Compliance with Agreements. Each Member agrees that it will comply
with all of the terms, conditions, and provisions on its part to be observed or
performed under any lease, agreement, or other instrument pursuant to which
Assets have been acquired, including but not limited to the leases and
agreements listed in Exhibit A, and that it will not terminate or cancel any
such lease, agreement or other instrument and will take all action requisite on
its part to prevent any termination or cancellation thereof, other than
termination by consent of both Members or termination for reasons beyond the
control of either Member. Each Member agrees 

                                      -35-


to notify the other Member promptly in writing if it receives notice of any
default or alleged default under such leases and agreements or notice of any
title defect or alleged title defect affecting property within the Area of
Interest.

     10.5 Review of Title. Minera Andes shall be entitled to review Pegasus'
title to the Property Pegasus has contributed to the Company during the Initial
Contribution Period. Pegasus agrees to provide all of its data about the
Property, including title opinions, if any, to Minera Andes, and Minera Andes
may undertake, at its sole expense, any additional title review and
investigation. If Minera Andes determines, that title to the Property is
unsatisfactory, it shall provide written notice of title defects to Pegasus,
along with Minera Andes' recommendations for title curative work. Within 30 days
after receipt of such report, Pegasus may elect to commence and diligently
complete title curative work at its sole expense. If Pegasus does not undertake
within 30 days to cure title defects, Minera Andes may either (a) cure such
title defects and credit all required expenditures to its initial contribution
to the Company, or (b) elect to withdraw from the Company and terminate this
Agreement under Section 13.1.2. Minera Andes shall be liable for its share of
liabilities arising out of Operations conducted prior to such withdrawal but
shall not be liable for any further payment to Pegasus.

                   ARTICLE 11. MEMBERS' DEFAULTS AND REMEDIES

     11.1 Events of Default. The following events shall constitute events of
default:

          11.1.1 Failure of a Member to meet a cash call pursuant to Section
8.2, or to contribute funds pursuant to Section 3.2, without having elected not
to contribute pursuant to Section 4.3 or, if the Member elected to contribute,
making contributions less than those it committed to make;

          11.1.2 Any transfer by a Member to its interest in the Company in
contravention of the provisions of Article 16;

          11.1.3 Failure of a Member to perform any other obligation imposed
upon such Member by this Agreement, including, without limitation, any
obligation it may have as Operator;

          11.1.4 Filing of a petition in bankruptcy by or against a Member if
such petition is not withdrawn or dismissed within 60 days after its filing;

          11.1.5 General assignment by a Member for the benefit of creditors; or

          11.1.6 Allowance by a Member of the appointment of a receiver or
trustee of all or any substantial part of its property if such receiver or
trustee is not discharged within 60 days after his appointment.

                                      -36-


          11.1.7 Any breach by a Member of any representation and warranty it
has made in this Agreement.

          Upon the occurrence of any such event, the Member failing to perform
shall be deemed to be in default hereunder and shall be referred to as the
"Defaulting Member," and the other Member shall be referred to as the
"Non-Defaulting Member."

     11.2 Notice of Default. The Non-Defaulting Member shall have the right to
give the Defaulting Member a Notice of Default, which shall be in writing, shall
set forth the nature of the event of default, and shall set forth the date by
which such default must be cured, which date shall be at least 30 days after
receipt of the Notice of Default, except in the case of a failure to advance
funds, in which case the date shall be 10 days after receipt of said Notice of
Default and except as to subsections 11.1.2, 11.1.4, 11.1.5 and 11.1.6, as to
which there will be no cure period. Failure of the Non-Defaulting Member to give
any such notice shall not release the Defaulting Member from any of its
obligations under this Agreement.

     11.3 Opportunity to Cure. If within such 30-day period (or 10-day period)
the Defaulting Member cures such default, or if the failure is one that cannot
in good faith be corrected within 30 days but is ultimately curable and the
Defaulting Member begins correction of such failure to perform within such 30
days and continues corrective efforts with reasonable diligence until a cure is
effected, the Notice of Default shall be inoperative, and the Defaulting Member
shall lose no rights under this Agreement. If, within such specified period, the
Defaulting Member does not cure such default, or if within such 30-day period
the Defaulting Member notifies the Non-Defaulting Member that it disputes the
existence of the alleged default and the Defaulting Member shall not have
commenced correction of the default within 30 days after a final nonappealable
decision by a court of law that the Defaulting Member was in default, the
Non-Defaulting Member at the expiration of such period, or upon notice where no
cure period is allowed, shall have the rights specified below.

     11.4 Rights upon Default. The Non-Defaulting Member, after providing notice
and an opportunity to cure as provided in Sections 11.2 and 11.3 above, shall be
entitled to (but not required to) exercise any of the following powers and
remedies:

          11.4.1 Loan. The Non-Defaulting Member may pay or assume the
obligations of the Defaulting Member and elect to treat it as a loan to the
Defaulting Member that shall be immediately due and payable and that shall bear
interest from the date due at an annual rate equal to five percentage points
over the publicly announced prime rate or reference rate for commercial loans in
effect from time to time quoted by Citibank, New York (or, if Citibank should
discontinue such rate, the publicly announced prime or reference rate of any
other U.S. commercial bank selected by the Non-Defaulting Member that is among
the 50 largest in the U.S., by assets) or at the maximum rate permitted by law,
whichever is less. Any such loan shall be secured by a security interest in the
Defaulting Member's interest in the Company, and by this Agreement each Member
grants to the other Member a security interest for that purpose, 

                                      -37-


and, additionally, any such loan shall create a separate contract right in favor
of the Non-Defaulting Member.

          11.4.2 Dilution. If the event of default occurs under Section 11.1.1,
the Non-Defaulting Member may, at its option, pay or assume the obligations of
the Defaulting Member. In such event, the Non-Defaulting Member's Participating
Interest shall be increased and the Defaulting Member's Participating Interest
shall be decreased in accordance with the provisions of Section 4.4 effective as
of the end of the month preceding the month in which the event of default
occurred. The Non-Defaulting Member shall be treated as the nondiluting Member
and the Defaulting Member shall be treated as the diluting Member thereunder,
the event of default being treated as an "election not to contribute" under
Section 4.3.

          11.4.3 Termination. The Non-Defaulting Member may terminate this
Agreement upon 10 days' written notice to the Defaulting Member of its intent to
do so.

     11.5 Remedies Not Exclusive. Except as otherwise expressly provided in this
Agreement, each and every power and remedy hereby specifically given to the
Non-Defaulting Member shall be in addition to every other power and remedy now
or hereafter exercised at law or in equity (including the right to specific
performance), and each and every power and remedy may be exercised from time to
time and as often and in such order as may be deemed expedient. All such powers
and remedies shall be cumulative, and the exercise of one shall not be deemed a
waiver of the right to exercise any other or others. No delay or omission in the
exercise of any such power or remedy and no renewal or extension of any payments
due hereunder shall impair any such power or remedy or shall be construed to be
a waiver of any default or an acquiescence therein.

          The Defaulting Member shall cease to have the right to participate in
the management of the Company beginning immediately after the period for cure
expires and continuing for so long as the default is continuing, and the
Defaulting Member during such period shall have no vote in Management Committee
decisions. In continuing to manage the Company, the Non-Defaulting Member shall
have absolute discretion and may remove and replace the Defaulting Member as
Operator and manage the Operations in conformity with Article 6 above, and no
action taken by it shall subject it to a claim for breach of duty, on the ground
of conflict of interest, negligence or any other theory, except fraud or gross
negligence.

                     ARTICLE 12. CONTRIBUTION TO LIABILITIES

     12.1 Contribution. If either Member pays any Company liability or
obligation, except where such payment requires the prior approval of the
Management Committee under the terms of this Agreement, in any manner other than
in accordance with its Participating Interest, that Member shall be entitled to
contribution from the other Member for such excess. This right of contribution
is in addition to any other right that might be provided by law or under this
Agreement. Any reduction in a Member's Participating Interest under Article 4
shall not relieve such Member of its share of any liability, whether it accrues
before or after such reduction, 

                                      -38-


arising out of Operations conducted prior to such reduction. For purposes of
this Article 12, such Member's share of such liability shall be in proportion to
its Participating Interest at the time such liability was incurred.

     12.2 Indemnification. Except (1) as otherwise provided in Section 12.1; and
(2) in cases in which the Operator failed to obtain the required insurance, each
Member agrees to and does hereby indemnify, defend, and hold harmless the other
Member, its directors, officers, employees, and agents and to the extent set
forth below each Affiliate of the other Member from and against all claims,
causes of action, liabilities, payments, obligations, expenses (including
without limitation reasonable fees of and disbursements of counsel) or losses
arising out of a Company liability or obligation to the extent necessary to
accomplish the result that neither Member or its Affiliates shall bear any
portion of a liability or obligation of the Company in any manner other than in
accordance with its Participating Interest; provided, however, that each Member
(other than the Operator in the course of its duties as Operator, as to which
liabilities and obligations the Members shall contribute in proportion to their
Participating Interests unless the Operator breaches its standard of care under
Section 6.4) shall indemnify the other and the Company from any claims of
personal injury to or death of that Member's agents, contractors, or employees
(or those of its Affiliates) unless due to the gross negligence, willful
misconduct of the other Member. Without limiting the generality of the
foregoing, a claim, loss or liability shall be deemed to arise out of a Company
liability or obligation if it arises out of, or is based upon, the conduct of
the business of the Company or the ownership or operation of the Company Assets.
The foregoing indemnification shall be available to an Affiliate of a Member
with respect to a claim, liability or loss arising out of a Company liability or
obligation that is paid by or incurred by such Affiliate solely as a result of
such Affiliate directly or indirectly owning or controlling a Member. The
foregoing shall not inure to the benefit of any Member or Affiliate in respect
of any claim, liability or loss that (1) arises out of, or is based upon, the
gross negligence or willful misconduct of such Member or Affiliate or out a
breach of such Member's or Affiliates obligations under this Agreement or (2) is
a tax, levy or similar law or governmental charge not imposed upon the Company
or upon its Assets. The foregoing indemnity shall apply only to a claim,
liability or loss to the extent that it is uninsured by the Company and shall
survive the dissolution or other termination of the Company.

                             ARTICLE 13. TERMINATION

     13.1 Termination. This Agreement is subject to termination and the Company
is subject to dissolution as follows:

          13.1.1 Termination by Agreement. The Members may terminate this
Agreement and dissolve the Company at any time by written agreement.
Alternatively, one Member may agree to convey its Participating Interest in the
Company to the other.

          13.1.2 Termination by Withdrawal. During the Initial Contribution
Period, Minera Andes may withdraw or be deemed to have withdrawn pursuant to
Section 3.2 subject to the terms of Section 13.4. Any withdrawal under this
Section 13.1.2 shall not relieve the 

                                      -39-


withdrawing Member of its share of liabilities arising out of Operations
conducted prior to such withdrawal according to their respective Participating
Interests immediately prior to such withdrawal. Following the Initial
Contribution Period, a Member may elect to withdraw from this Company by giving
notice to the other Member of the effective date of withdrawal, which shall be
the later of the end of the then current Program and Budget or at least 30 days
after the date of the notice.

          13.1.3 Termination by Completion of Product Development. This
Agreement shall terminate and the Company shall dissolve automatically when the
Products within the Area of Interest have been economically developed and
exploited and all attendant legal responsibilities, including Environmental
Compliance, have been fulfilled and all Company facilities shall have been
disposed of and a final accounting made between the Members.

          13.1.4 Termination by Elimination of Participating Interest. The
Agreement shall terminate automatically upon elimination of a Member's
Participating Interest pursuant to Section 4.8.

          13.1.5 Termination by Default. This Agreement may be terminated and
the Company dissolved by the Non-Defaulting Member (as defined in Section 11.1)
in accordance with Section 11.4.3.

     13.2 Continuing Obligations. On termination of this Agreement and
dissolution of the Company, the Members shall remain liable according to their
respective Participating Interests immediately prior to termination for
continuing obligations under this Agreement until final settlement of all
accounts and for any liability, whether it arises before or after termination,
if it arises out of Operations during the term of the Agreement.

     13.3 Disposition of Assets on Termination. Promptly after termination, the
Operator shall take all action necessary to wind up the activities of the
Company, and all costs and expenses incurred in connection with the winding up
of the Company shall be expenses chargeable to the Company. The "Capital
Accounts" of the Members shall be closed as provided in Exhibit C. A Member
shall receive no distribution of any interest in Products or proceeds from their
sale if such Member's Participating Interest has been terminated pursuant to
Section 4.8.

     13.4 Termination at Election of Minera Andes During Initial Contribution
Period. If the Agreement is terminated and the Company dissolved by Minera Andes
in accordance with Section 3.2 and Section 13.1.2, all of the Property and all
Assets within the Area of Interest shall be deemed to be transferred to Pegasus,
without cost and free and clear of royalties, liens or other encumbrances
arising by, through or under Minera Andes, except those exceptions to title
described in Part 1 of Exhibit A and those to which both Members have given
their written consent after the date of this Agreement.

                                      -40-


     13.5 Tax Consequences. Exhibit C shall control the distribution and
application to the Members of the net proceeds of liquidation of the Company
Assets or, if applicable, the Company Assets themselves upon termination of this
Agreement and dissolution of the Company.

     13.6 Noncompete Covenants. A Member that withdraws pursuant to Section
13.1.2, or a Member that is deemed to have withdrawn pursuant to Section 4.8, or
Minera Andes in the event that it does not complete its Initial Contribution,
shall not directly or indirectly acquire any interest in property within the
Area of Interest for 24 months after the date of withdrawal, provided that the
foregoing restriction shall not apply to Property which the Company elected to
not acquire pursuant to the provisions of Section 10.4. If a withdrawing Member,
or the Affiliate of a withdrawing Member, breaches this Section 13.6, such
Member or Affiliate shall be obligated to offer to convey to the nonwithdrawing
Member, without cost, any such property or interest acquired in the Area of
Interest. Such offer shall be made in writing and can be accepted by the
nonwithdrawing Member at any time within 45 days after such offer is received by
the nonwithdrawing Member.

     13.7 Right to Data After Termination. After termination of this Agreement
pursuant to Section 13.1.1, 13.1.2, 13.1.3 or 13.1.4, each Member shall be
entitled to copies of all information acquired under this Agreement as of the
date of termination and not previously furnished to it; provided, however, that
the Non-Operator shall have only 18 months from the date of any such termination
to review and request copies of such information. The terminating or withdrawing
Member shall not be entitled to any such copies after any other termination or
any withdrawal.

     13.8 Continuing Authority. On termination of this Agreement under Section
13.1 or the deemed withdrawal of a Member pursuant to Section 4.8, the Operator
shall have the power and authority, subject to control of the Management
Committee, if any, to do all things on behalf of the Members that are reasonably
necessary or convenient to: (1) wind up operations and (2) 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 Operator 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 the Members and the Company, mortgage assets, and take any
other reasonable action in any manner with respect to which the former Members
continue to have, or appear or are alleged to have, a common interest or a
common liability.

                ARTICLE 14. ACQUISITIONS WITHIN AREA OF INTEREST

     14.1 General. Any interest or option to acquire any interest in real
property, including Claims, within the Area of Interest, owned on the Effective
Date or subsequently acquired during the term of this Agreement by or on behalf
of a Member or any Affiliate shall, except 

                                      -41-


as provided in this Article 14, be included in the Property and shall be subject
to the terms and provisions of this Agreement.

     14.2 Notice to Nonacquiring Member. Within 30 days after the acquisition of
any interest or the option to acquire any interest in real property, including
Claims, wholly or partially within the Area of Interest (except real property
acquired by the Operator pursuant to a Program), by a Member or its Affiliates,
the acquiring Member shall notify the other Member of such acquisition. The
acquiring Member's notice shall describe in detail the acquisition, the lands
and minerals covered thereby, the direct acquisition cost without consideration
for management fees or indirect costs, and the reasons why the acquiring Member
believes the acquisition of the interest is in the best interests of the
Company. In addition to such notice, the acquiring Member shall make any and all
information concerning the acquired interest available for inspection by the
other Member.

     14.3 Option Exercised. If, within 45 days after receiving the acquiring
Member's notice, the other Member notifies the acquiring Member of its election
to cause the Company to accept the acquired interest (or cause its Affiliates to
convey such interest), the acquiring Member shall convey such interest to the
Company by deed, assignment or other appropriate document. The acquired interest
shall become a part of the Property for all purposes of this Agreement
immediately upon the notice of such other Member's election to cause the Company
to accept the acquired interest. The other Member shall promptly pay to the
acquiring Member its proportionate share (based on Participating Interests) of
the latter's actual out-of-pocket acquisition costs and assume any acquisition
obligations.

     14.4 Option Not Exercised. If the other Member does not give its notice to
elect to cause the Company to accept such proportionate interest within the
45-day period set forth in Section 14.3, the Company shall have no interest in
the acquired interest, and the acquired interest shall not be a part of the
Property or be subject to this Agreement.

               ARTICLE 15. ABANDONMENT AND SURRENDER OF PROPERTY

     15.1 During Initial Contribution Period. As provided in Section 3.2, during
the Initial Contribution Period, Minera Andes may surrender part or all of its
interest in the Company to Pegasus. Upon Minera Andes' surrender, Minera Andes
shall promptly execute and deliver all appropriate documents to assign its
interest in the Company to Pegasus.

     15.2 Surrender or Abandonment of Property. The Management Committee may
authorize the Operator to surrender or abandon part or all of the Property. If
the Management Committee authorizes any such surrender or abandonment over the
objection of a Member, the Company shall assign to the objecting Member, by
appropriate documents, and without cost to the Company, all of the Company's
interest in the property to be abandoned or surrendered, and the abandoned or
surrendered property shall cease to be part of the Property. Provided, however,
the objecting Member shall assume all responsibility and liabilities arising
after such assignment, including but not limited to reclamation and restoration,
with regard to the 

                                      -42-


surrendered or abandoned property. Liabilities arising out of Operations prior
to such assignment shall remain the obligation of the Company.

     15.3 Reacquisition. If all or part of the Property is abandoned or
surrendered under the provisions of this Article 15 to a third party, then
unless this Agreement is earlier terminated, and except as provided for
assignment to an objecting Member in Section 15.2, neither Member nor any
Affiliate thereof shall acquire any interest in such Property for a period of
two years following the date of such abandonment or surrender. If a Member
reacquires the Property in violation of this Section 15.3, the other Member may
elect by notice to the reacquiring Member, within 45 days after it has actual
notice of such reacquisition, to have such properties made subject to the terms
of this Agreement. In the event such an election is made, the reacquired
properties will thereafter be treated as part of the Property, and the costs of
reacquisition shall be borne solely by the reacquiring Member and shall not be
included for purposes of calculating the Members' respective Participating
Interests.

                        ARTICLE 16. TRANSFER OF INTEREST

     16.1 General. A Member shall have the right, subject to the preemptive
right under Section 16.3 and the limitations below, to transfer, grant, assign,
encumber, pledge or otherwise commit or dispose of ("transfer") to any third
party all or part of its interest in or to this Agreement and its Participating
Interest in the Company; provided that no transferee of less than all of either
Pegasus' or Minera Andes' Participating Interest shall be entitled to a share of
the Production Royalty specified in Section 4.8. If a transferee of less than
all of Pegasus' or Minera Andes' Participating Interest is subsequently diluted
to a Participating Interest of less than 20 percent, that Member will be deemed
to have withdrawn from the Company, and its Participating Interest shall be
relinquished as provided in Section 4.8 and shall be divided among the remaining
Members in proportion to their Participating Interests. Neither Member shall
have any right to transfer its interest during the Initial Contribution Period
except as provided in Section 16.4.

     16.2 Limitations on Free Transferability. The transfer right of a Member in
Section 16.1 shall be subject to the following terms and conditions:

          16.2.1 No transferee of all of the Participating Interest of a Member
shall have the rights of a Member unless and until the transferring Member has
provided to the other Member notice of the transfer, and the transferee, as of
the effective date of the transfer, has committed in writing to be bound by this
Agreement to the same extent and nature as the transferring Member;

          16.2.2 No Member, without the consent of the other Member, shall make
a transfer that shall cause termination of the tax status of the Company. If
contrary to this Section 16.2.2 a transfer is made that causes such termination,
the transferring Member and the transferee shall indemnify, defend and hold
harmless the other Member from and against any and all loss, cost, expense or
damage arising from such termination;

                                      -43-


          16.2.3 No transfer permitted by this Article 16 shall relieve the
transferring Member of its share of any liability, whether accruing before or
after such transfer, that arises out of Operations conducted prior to such
transfer;

          16.2.4 The transferring Member and the transferee shall bear all tax
consequences of the transfer;

          16.2.5 If the transfer is the grant of a security interest by
mortgage, deed of trust, pledge, lien or other encumbrance of its interest in
this Agreement, to secure a loan or other indebtedness of a Member in a bona
fide transaction, such security interest shall be subordinate to the terms of
this Agreement and the rights and interests of the other Member hereunder. Upon
any foreclosure or other enforcement of rights in the security interest, the
acquiring third party shall be deemed to assume the position of the encumbering
Member with respect to this Agreement and the other Member, except that the
Non-Operator shall become the Operator and the acquiring third party shall not
become the Operator, and it shall comply with the terms and conditions of this
Article 16; and

          16.2.6 No Member may transfer any interest in this Agreement or the
Assets, other than Products, except by transfer of all or part of its
Participating Interest.

     16.3 Preemptive Right. Except as otherwise provided in Section 16.4, if a
Member desires to transfer all or part of its interest in this Agreement and its
Participating Interest in the Company, the other Member shall have a preemptive
right to acquire such interest as provided in this Section 16.3.

          16.3.1 A Member intending to transfer all or part of its interest in
this Agreement and its Participating Interest in the Company shall promptly
notify the other Member of its intentions. The notice shall state the price and
all other pertinent terms and conditions, including contingent payments and
royalties, if applicable, of the intended transfer, which shall be for a
monetary consideration only. The other Member shall have 30 days from the date
such notice is delivered to notify the transferring Member whether it elects to
acquire the offered interest at the same price and on the same terms and
conditions as set forth in the notice. If it does so elect, the transfer shall
be consummated within 60 days after notice of such election is delivered to the
transferring Member.

          16.3.2 If the other Member fails to so elect within the period
provided for in Section 16.3.1, the transferring Member shall have 90 days
following the expiration of such period to consummate the transfer to a third
party at an identical or greater price and on terms no less favorable to the
transferring party than those presented to the other Member and set forth in the
notice required in Section 16.3.1.

          16.3.3 If the transferring Member fails to consummate the transfer or
execute a binding agreement to transfer to a third party within the period set
forth in Section 16.3.2, or 

                                      -44-


upon change in the price or terms offered to the third party, the preemptive
right of the other Member 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 Section 16.3.

     16.4 Exceptions to Preemptive Right. Section 16.3 shall not apply to the
following transfers:

          16.4.1 Transfer by a Member of all or any part of its interest in this
Agreement and its Participating Interest in the Company to an Affiliate;
provided, however, that following such a Transfer, the assignor shall remain
jointly and severally liable with the assignee Affiliate for all obligations as
a Member or as Operator, regardless of whether such obligations arose before or
arise after the assignment.

          16.4.2 Corporate merger, consolidation, amalgamation or reorganization
of a Member 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, including those created by
this Agreement, of that Member;

          16.4.3 The grant by a Member of a security interest in its interest in
this Agreement and its Participating Interest in the Company by mortgage, deed
of trust, pledge, lien or other encumbrance; and

          16.4.4 A sale or other commitment or disposition of Products or
proceeds from sale of Products by a Member upon distribution to it pursuant to
Article 9.

     16.5 Insolvency. If either Member commences a voluntary case under the
federal bankruptcy laws or under any other applicable federal or state law
relating to insolvency, if an order for relief or similar determination is
entered in an involuntary case under the federal bankruptcy laws or any other
federal or state law relating to insolvency, or if a receiver, liquidator,
assignee, trustee, custodian or other similar person is appointed, voluntarily
or involuntarily, for the assets of either Member, then such Member (the
"Insolvent Member") shall cease to have the right to participate in the
management of the Company, and the Company thereafter shall be managed by the
other Member, who shall, if not theretofore serving as Operator, become the
Operator. In continuing to manage the Company, the other Member shall have
absolute discretion and no action taken by it shall subject it to a claim for
any breach of duty, on the ground of conflict of interest, negligence or any
other theory, except fraud, wilful misconduct, or gross negligence. Any
transfer, sale, assignment, pledge or other encumbrance or disposition of the
Insolvent Member's interest in the Company by a trustee, debtor-in-possession or
custodian shall be subject to the provisions of Section 16.3.

                                      -45-


                         ARTICLE 17. GENERAL PROVISIONS

     17.1 Notices. All notices, payments and other required communications
("Notices") to the Members shall be in writing and shall be addressed
respectively as follows:

          Minera Andes:    Minera Andes Inc.
                           3303 N. Sullivan Rd.
                           Spokane, WA 99216
                           Fax: (509) 921-7325
                           Phone: (509) 921-7322


          Pegasus:         Pegasus Gold International, Inc.
                           601 West First Avenue
                           Suite 1500
                           Spokane, WA  99204
                           Attn: Land/Legal Department
                           Fax:  (509) 838-8317
                           Phone: (509) 624-4653

     All Notices shall be given (1) by personal delivery to the Member, or (2)
by registered or certified mail, return receipt requested, or (3) by electronic
communication followed within 24 hours by acknowledgment of receipt from the
receiving Member via electronic communication. The term "electronic
communication" includes but is not limited to telex and facsimile communication.
All Notices shall be effective and shall be deemed delivered (a) if by personal
delivery, on the date of delivery, (b) if by electronic communication, on the
date the confirmation is delivered to the United States Postal Service as shown
on the actual receipt, and (c) if solely by mail, on the day delivered to the
United States Postal Service and as shown on the actual receipt. A Member may
change its address from time to time by Notice to the other Member. Notice to
the Management Committee shall be by notice to the Members as provided herein.

     17.2 Waiver. The failure of a Member 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 the Member's right thereafter to enforce any provision or exercise any
right.

     17.3 Modification. No modification of this Agreement shall be valid unless
made in writing and duly executed by the Members.

     17.4 Force Majeure. The obligations of a Member, other than (1) the payment
of money, or (2) the performance and timely filing of required exploration work
for any Claim included in the Property as required by provincial or federal law,
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 if the Member is making a good faith effort to 

                                      -46-


resolve or avoid such cause, including without limitation labor disputes
(however arising and whether or not employee demands are reasonable or within
the power of the Member to grant); acts of God, laws, regulations, orders,
proclamations, 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 federal, provisional or local environmental
standards; 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, sinkholes, 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; or any other cause whether similar or
dissimilar to the foregoing; provided that the affected Member shall give
written notice to the other Member within 30 days of the suspension of
performance, stating therein the nature of the suspension, the reasons therefor
and the expected duration thereof. The affected Member shall resume performance
as soon as reasonably possible. During the period of suspension, the obligations
of the Members to advance funds pursuant to Section 8.2 shall be reduced to
levels consistent with Operations.

     17.5 Contest of Governmental Regulation. Notwithstanding Section 17.4, in
the event the Company is or becomes subject, at any time, to environmental
regulations or governmental restrictions ("environmental regulations or
governmental restrictions" shall include any governmental law, rule, order,
regulation, policy, proposal, action or inaction, or restriction relating to air
pollution, water pollution, surface mining, surface effects of mining, land use
or hazardous or toxic materials) that prohibit or materially affect any
Operations, the Operator shall have the right to declare the existence of a
condition of force majeure during the period in which the Operator is making a
good faith effort to comply with, be exempted from, modify, obtain necessary
permits or licenses under, or prevent the enactment or promulgation of said
environmental regulations or governmental restrictions. To invoke this
provision, the Operator must give the other Member 30 days' advance written
notice.

     17.6 Governing Law. Except for matters of title to the Property or the
Claims, which shall be governed by the law of Argentina, this Agreement shall be
governed by and interpreted in accordance with the internal laws of the State of
Washington.

     17.7 Dispute Resolution

          17.7.1 Agreement to Arbitrate. Should any controversy arise under the
terms and provisions of this Agreement or arise out of or be in any way related
to operations of the Company or the conduct of the Members with respect the
Company or the Property as to which the Members are unable to effect a
satisfactory resolution, such controversy shall be submitted to arbitration in
accordance with the terms and provisions of this Section 17.7.1 and in
accordance with the provisions of the Federal Arbitration Act (Title 9 of the
United States 

                                      -47-


Code). The provisions of the Federal Arbitration Act and the Commercial
Arbitration Rules of American Arbitration Association, as from time to time
amended and in effect, will be followed to the extent they are not inconsistent
with the provisions of this Agreement. Any arbitration hearings conducted
pursuant to this Article shall be administered by the American Arbitration
Association and shall be conducted in Spokane, Washington at a mutually agreed
location.

          17.7.2 Submission to Arbitration and Selection of Arbitrators. A
Member desiring to submit to arbitration any such controversy shall furnish its
demand for arbitration in writing to the other Member, which demand shall
contain a brief statement of the matter in controversy, the amount involved, if
any, and the remedies sought. Within a period of ten (10) business days after
service of such demand, each Member shall name one arbitrator by written notice
to the other Member. Within twenty (20) days after the appointment of an
arbitrator by each party, the two arbitrators shall choose a third arbitrator.
If any Member fails to name an arbitrator within the specified 10-day period or
if two arbitrators chosen by the Members fail to select within the 20-day period
a third arbitrator, then the American Arbitration Association shall designate
such necessary additional arbitrators within twenty (20) days of application by
either Member. Each of the arbitrators chosen or appointed pursuant to this
Section 17.7.2 shall be an attorney or a person having at least ten (10) years'
experience in the United States in a calling related to the subject matter
involved in the dispute and shall not be a past or present officer, director, or
employee of any of the Members or their Affiliates.

          17.7.3 Arbitration Procedures. Each Member may furnish the arbitrators
with a written statement of matters it deems to be in controversy for purposes
of the arbitration procedures. The arbitrators shall allow for discovery
pursuant to the Federal Rules of Civil Procedure ("FRCP") and shall be entitled
to enforce sanctions for failure to make discovery pursuant to FRCP No. 37.
Following discovery, the arbitrators shall promptly hold hearings on the matters
in controversy and shall render their decision and award, upon the concurrence
of at least two of their number, as soon as possible but no later than ninety
(90) days after the conclusion of such hearings. Such decision and award shall
be in writing and counterpart copies of the decision shall be delivered to each
of the parties. Each Member agrees that judgment may be had on the decision and
award of the arbitrators so rendered.

          17.7.4 Successor Arbitrators. Notwithstanding the above, if any
arbitrator appointed by a Member dies, refuses to act, or becomes incapable of
acting, then such Member shall appoint a successor arbitrator within five (5)
days of such notice of disability. In the event such Member fails to appoint the
required successor within such time, the other Member may apply, on notice to
the other party, to the American Arbitration Association for the appointment of
such necessary arbitrator, and such appointment shall be made within twenty (20)
days of such application.

          17.7.5 Status of Member-Appointed Arbitrators. Member-appointed
arbitrators are expected to be nonneutral and to observe the ethical standards
applicable to 

                                      -48-


nonneutral arbitrators under canon VII of the Code of Ethics for Arbitrators in
Commercial Disputes of the American Arbitration Association then in effect.

          17.7.6 Cost of Arbitration. Each Member shall bear the expense of the
arbitrator appointed by or for such Member, its own counsel, experts, and
presentation of proof. The Members shall share equally the expense of the
additional arbitrator and all other expenses of the arbitration.

     17.8 Further Assurances. Each of the Members agrees that it shall take from
time to time such 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.

     17.9 Survival of Terms and Conditions. The provisions of this Agreement
shall survive its termination to the full extent necessary for their enforcement
and the protection of the Member in whose favor they run.

     17.10 Confidentiality and Public Statements. Except as otherwise provided
in this Section 17.10, the terms and conditions of this Agreement and all data,
reports, records and other information of any kind whatsoever developed or
acquired by any Member in connection with this Agreement shall be treated by the
Members as confidential (hereinafter "confidential information") and neither
Member shall reveal or otherwise disclose such confidential information to third
parties without the prior written consent of the other Member.

          The foregoing restrictions shall not apply to the disclosure of
confidential information to:

          17.10.1 Any Affiliate;

          17.10.2 Any Authorized Person;

          17.10.3 Any public or private financing agency or institution;

          17.10.4 Any contractors or subcontractors that the Members may engage;

          17.10.5 Employees and consultants of the Members;

          17.10.6 Any third party to which a Member contemplates the transfer,
sale, assignment, encumbrance or other disposition of all or part of its
Participating Interest pursuant to Article 16; provided, however, that in any
such case only such confidential information as such third party shall have a
legitimate business need to know shall be disclosed, and the third party shall
have agreed in writing supplied to, and enforceable by, the other Member 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 Section 17.10. Such writing shall not preclude parties
from discussing and completing a Transfer with the other Member. 

                                      -49-


The Member disclosing confidential information shall be responsible and liable
for any use or disclosure of the confidential information by such Members in
violation of this Agreement and such other writing;

          17.10.7 Confidential information that otherwise comes into the public
domain through no fault of the Members; or

          17.10.8 Confidential information that is required, in the opinion of
either Member's counsel, to be disclosed to any federal, state or local
government or appropriate agencies and departments thereof or that is required,
in the opinion of either Member's counsel, to be publicly announced, to the
extent required by law.

          The provisions of this Section 17.10 shall apply during the term of
this Agreement and shall continue to apply to any Member that forfeits,
surrenders, assigns, transfers or otherwise disposes of its Participating
Interest for the two-year period following the date of such occurrence.

          Except as otherwise provided in this Agreement or except as required
by law in the opinion of either Member's counsel, neither Member shall make any
public announcement or public disclosure with regard to the Company, including
confidential and nonconfidential information, without the prior written consent
of the other Member as to the content and timing of such announcement or
disclosure, which consent shall not be unreasonably withheld. In the event a
public announcement or disclosure is required by law, the Member making such
announcement or disclosure shall consult with the other Member as to the
contents of such announcement or disclosure prior to making it.

     17.11 Entire Agreement; Successors and Assigns. This Agreement, including
all attached Exhibits, contains the entire understanding of the Members and
supersedes all prior agreements and understandings between the Members related
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 Members.

          The Members have executed this Agreement as of the Effective Date.

PEGASUS GOLD                                    MINERA ANDES INC.
INTERNATIONAL, INC.

By: /s/ THOMAS BURKHART                 By: /s/ ALLEN V. AMBROSE
        -------------------------               -------------------------
        Thomas Burkhart                         Allen V. Ambrose
Its:    Vice President, Exploration     Its:    President


                                      -50-


                                    EXHIBIT B
                                    ---------

                              ACCOUNTING PROCEDURE
                              --------------------


     The financial and accounting procedures to be followed by the Operator and
the Members under the Agreement are set forth in this Exhibit. References in
this Accounting Procedure to Sections and Articles are to those located in this
Accounting Procedure unless it is expressly stated that they are references to
the Agreement. The purpose of this Accounting Procedure is to establish
equitable methods for determining charges and credits applicable to Operations
under this Agreement. The Operator and the Members intend that none of them
shall lose or profit by reason of the division of responsibility between the
Operator and the other Members, but that the Operator should be fully reimbursed
by the Members for its costs, expenses and overhead in carrying out the work of
the Company and reasonably compensated for its service. The Members shall meet
and in good faith endeavor to agree upon changes deemed necessary to correct any
unfairness or inequity. Terms that are used as defined terms in this Accounting
Procedure shall have the meaning given to them in the Agreement. If there is a
conflict between the provisions of the Accounting Procedure and those of the
Agreement, the provisions of the Agreement shall control. In accordance with
Section 3.2.2 of the Agreement, certain expenditures specified below shall not
be chargeable to the Company Account during the Initial Contribution Period.

                          ARTICLE 1. GENERAL PROVISIONS

     1.1 Accounting Records. The Operator shall maintain complete accounting
records in accordance with this Accounting Procedure, 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 reporting purposes. Such records shall be retained for the duration of
the period allowed the Members for audit and for the periods necessary to comply
with tax and other regulatory requirements. The records shall reflect all
obligations, advances and credits of the Members.

     1.2 Reports. Except as to income tax matters, each Member to the Agreement
is responsible for preparing its own accounting reports to meet the requirements
of any governmental authority having jurisdiction over such Member. Operator
shall cooperate in furnishing Non-Operator statements and billings in such form
as required to discharge such responsibilities.

     1.3 General Limitation. In addition to the other limitations of this
Exhibit B, if the Operator engages Affiliates to provide services, it shall do
so on terms no less favorable to the Company than would be the case with
unrelated persons providing services of an equivalent quality in arm's-length
transactions and the charges made by Operator to the Company Account for use of
personnel or supplies or equipment of Operator or its Affiliates at the Property
may be no higher than would be the case with such unrelated persons in
arm's-length transactions.

                                EXHIBIT B, PAGE 1


                      ARTICLE 2. CHARGES TO COMPANY ACCOUNT

     Subject to the limitations set forth below, Operator shall charge the
Company Account with the following:

     2.1 Rentals, Royalties and Other Payments. Property maintenance costs,
rentals, royalties, license fees, permit fees and other payments necessary to
acquire and maintain property, technology and equipment used in the Operations.

     2.2 Labor and Employee Benefits.

          2.2.1 Salaries and wages of the Operator's employees directly engaged
in Operations, including bonuses of employees assigned to full-time work on
Operations, and including salaries or wages of employees to the extent they are
temporarily assigned to the Operations and directly employed in Operations.

          2.2.2 The Operator'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, costs savings and other production factors,
and similar nonunion bonus plans customary in the industry or necessary to
attract competent employees, which bonus payments shall be considered salaries
and wages under Section 2.2.1 or 2.11, rather than employees' benefit plans) and
wages chargeable under Section 2.2.1 or 2.11, provided that the plans are
limited to the extent feasible to those customary in the industry.

          2.2.3 Costs of assessments imposed by governmental authority which
assessments are applicable to salaries and wages chargeable under Sections 2.2.1
and 2.11, including all penalties except those resulting from the willful
misconduct or gross negligence of the Operator or breaches by Operator of the
Agreement.

          2.2.4 Those costs in Section 2.2.2 and 2.2.3 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
Operator's cost experience, and it shall be periodically adjusted to ensure that
the total of such charges fairly approximates the actual cost of such charges to
the Operator.

          2.3 Assets. Costs of all Assets purchased or furnished (subject to
provisions below when furnished by a Member).

          2.4 Transportation. Reasonable transportation costs incurred in
connection with the transportation of employees, equipment, material and
supplies as required in the conduct of Operations and relocation costs of
employees permanently assigned and directly engaged in the

                                EXHIBIT B, PAGE 2


conduct of Operations, including transportation of employees' families and their
personal and household effects, all subject to the following limitations:

          2.4.1 If employees are transported to and from the property wholly or
partly by commercial airlines, economy, coach, business or tourist class rates
shall be charged if practicable unless the distance traveled is greater than
3,000 miles.

          2.4.2 If material is moved from the Operator's warehouse or other
properties, no charge shall be made greater than that which would be made by an
independent third party contractor from the nearest reliable supply store or
railway receiving point where such material is available.

          2.4.3 If surplus material is moved to the Operator's warehouse or
other storage point, no charge shall be made greater than that which would be
made by an independent third party contractor from the nearest reliable supply
store or railway receiving point where such material is available. Operator may
charge storage fees to such Joint Operation based on current market rates, if
material is stored in Operator's warehouse. No charges shall be made for moving
material to other properties belonging to Operator.

     2.5 Services.

          2.5.1 The cost of contract services, utilities and other services
procured from outside sources, other than services described in Section 2.7 and
2.12. If contract services are performed by an Affiliate of the Operator, the
cost charged to the Company Account shall not be greater than that for which
comparable services are available in the open market. The cost of professional
consultant services procured from outside sources shall not be charged to the
Company Account unless approved by the Management Committee, except during the
Initial Contribution Period.

          2.5.2 The direct costs of using the Operator's exclusively owned
facilities in support of Company activities, provided that the charges may not
exceed those currently prevailing in the vicinity.

     2.6 Insurance Premiums. Premiums paid or accrued for insurance acquired for
the protection of the Members pursuant to the Agreement.

     2.7 Damages and Losses. All costs in excess of insurance proceeds necessary
to repair or replace damages or losses to any Assets resulting from any cause
other than the willful misconduct or gross negligence of the Operator.

     2.8 Legal Expenses. All legal costs and expenses of litigation approved by
the Management Committee. Routine legal expenses are included under Section
2.12.

     2.9 Audit. Cost of annual audits under the Agreement.

                                EXHIBIT B, PAGE 3


     2.10 Taxes. All taxes (except income taxes) of every kind and nature
assessed or levied upon or in connection with the Assets, the production of
Products of Operations which have been paid by the Operator for the benefit of
the Members. Each Member is separately responsible for income taxes that are
attributable to its respective Participating Interest.

     2.11 District and Camp Expense (Field Supervision and Camp Expenses). A pro
rata portion of (i) the salaries and expenses of the Operator'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) the costs to Operator of all necessary camps,
including housing facilities for employees, used for Operations. The expense of
those facilities, less any revenue from the facilities, shall include
depreciation or a fair monthly rental in lieu of depreciation of the investment.
Such charges shall be apportioned for all Properties served by the employees and
facilities on an equitable basis consistent with the Operator's general
accounting practice and generally accepted accounting principles, all as further
approved by the Management Committee.

     2.12 Administrative Charge. Beginning on the Effective Date, the Operator
shall charge the Joint Account each month a sum as provided below, which shall
be a liquidated amount to reimburse the Operator for its actual home office
overhead and general and administrative expenses of its conduct of Operations,
and which shall be in lieu of any management fee: five percent (5%) of Allowable
Costs during the Exploration Period (including the Initial Contribution Period
but subject to the limits provided in Section 3.1.2(2) of the Limited Liability
Company Agreement and two percent (2%) of Allowable Costs during the Development
Period and the Mining Period. Under no circumstances shall the administrative
charge in any Contract Year exceed $1,000,000 and there shall be no "carry
forward" or "carry back" from one Contract Year to another.

          The term "Allowable Costs" as used in this Section 2.12 shall mean all
charges to the Company Account except: (i) the administrative charge defined in
this Section 2.12; (ii) depreciation, depletion or amortization of tangible or
intangible assets; (iii) charges for real property rentals and royalties; and
(iv) labor and labor overhead as referred to in Section 2.2.

          The following representative list of items comprising the Operator's
home office expenses are expressly covered by the administrative charge provided
in this Section 2.12 to the extent incurred for the necessary and proper conduct
of the Operations:

          2.12.1 Administrative supervision, which includes services rendered by
officers and directors of the Operator for Operations, except to the extent that
such services represent a direct charge to the Company Account, as provided for
in Section 2.2;

          2.12.2 Accounting, billing and record keeping in accordance with
governmental regulations and the provisions of the Agreement, and preparation of
reports;


                                EXHIBIT B, PAGE 4


          2.12.3 Handling of any tax matters, including any protests, except any
outside professional fees;

          2.12.4 Routine legal services by the Operator's legal staff (both
inside and outside); and

          2.12.5 Rentals and other charges for records and storage space,
telephone service and office supplies.

     2.13 Fines and Penalties. Fines, penalties, and other costs imposed for
violation of, or compliance with, federal, state, and local laws incurred in
connection with the conduct of operations, unless caused by the willful
misconduct or gross negligence of the Operator.

     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 a fund, which through successive proportionate
contributions during the term of this Agreement, 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.

     2.15 Other Expenditures. Any reasonable direct expenditure, other than
expenditures covered by the foregoing provisions, incurred by the Operator for
the necessary and proper conduct of Operations.

                 ARTICLE 3. BASIS OF CHARGES TO COMPANY ACCOUNT

     3.1 Purchases. Materials, equipment, machinery and supplies ("Materials")
purchased and services procured shall be charged at prices paid by the Operator
after deduction of all discounts actually received. The Operator shall maintain
reasonable inventory levels adequate to sustain Operations in accordance with
the guidelines set by the Management Committee.

     3.2 Material Furnished by the Operator. At its discretion, the Operator may
furnish Material from the Operator's stock under the following conditions:

          3.2.1 New Material (Condition"A"). New material transferred from the
Operator's properties shall be priced f.o.b. the nearest reputable supply store
or railway receiving point, where like Material is available, at current
replacement cost of the same kind of Material (hereafter "New Price").


                                EXHIBIT B, PAGE 5


          3.2.2 Used-Material (Condition "B").

               (1) Material in sound and serviceable condition and suitable for
reuse without reconditioning shall be classified as Condition "B" and priced at
fair market value.

               (2) All charges to the Company Account for used Material shall be
separately identified in sufficient detail to provide for reasonable review of
such items.

               (3) Charges to the Company Account for used Material in excess of
$25,000 (U.S.) per item shall be subject to prior review and approval by the
Management Committee.

     3.3 Premium Prices. Whenever Material is not readily obtainable at prices
specified in Sections 3.1 and 3.2, the Operator may charge the Company Account
for the required Material on the basis of the Operator's direct cost and
expenses incurred in procuring such Material; provided, however, that prior
notice of the proposed charge is given to the Management Committee, whereupon
any Member shall have the right, by notifying the Operator within 10 days of the
delivery of the notice from the Operator, to furnish at the usual receiving
point all or part of its share of Material suitable for use and acceptable to
the Operator. If a Member so furnishes Material in kind, the Operator shall make
appropriate credits to its account.

     3.4 Warranty of Material Furnished by the Operator and Members. Neither the
Operator nor any Member warrants the Material furnished beyond any dealer's or
manufacturer's warranty.

                         ARTICLE 4. DISPOSAL OF MATERIAL

     4.1 Disposition Generally. The Operator shall have no obligation to
purchase a Member's interest in Material. The Management Committee shall
determine the disposition of major items of surplus Material; provided, however,
that the Operator shall have the right to dispose of normal accumulations of
junk and scrap Material either by transfer to the Members as provided in Section
4.2 or by sale. The Operator shall credit the Members in proportion to their
Participating Interest for all Material sold under this Article 4.

     4.2 Division in Kind. Division of Material in kind between the Members
shall be in proportion of their respective Participating Interests, and
corresponding credits shall be made to the Company Account.

     4.3 Sales. Sales of Material to third parties shall be credited to the
Company Account at the net amount received. Any damages or claims by the
Purchaser shall be charged back to the Company Account if and when paid.


                                EXHIBIT B, PAGE 6


                      ARTICLE 5. BASIS OF PRICING MATERIAL
                        TRANSFERRED FROM COMPANY ACCOUNT

     5.1 New Price. The term "New Price" as used in this Article 5 shall have
the same --------- meaning given in Article 3.

     5.2 New Material. New Material (Condition "A") procured for the Company
Account but never used shall be priced at 100 percent of current New Price (plus
applicable transfer taxes, if any).

     5.3 Good Used Material. Good used Material (Condition "B") in sound and
serviceable condition, suitable for reuse without reconditioning shall be priced
at fair market value.

     5.4 Transfers to Operator. No Material shall be transferred to the Operator
without prior approval of the Management Committee.

     5.5 Major Transfers. Disposition of Material with a fair market value in
excess of $10,000 (US) shall be subject to prior approval of the Management
Committee.

                             ARTICLE 6. INVENTORIES

     6.1 Periodic Inventories. At reasonable intervals, but not less than once a
year, inventories shall be taken by the Operator, which shall include all such
Material as is ordinarily considered controllable by operators of mining
properties. A copy of each inventory shall be given to each Member within 30
days of completion.

     6.2 Reconciliation and Adjustment of Inventories. Within a reasonable time
after each inventory, Operator shall prepare a reconciliation of inventory with
charges to the Joint Account and a list of overages and shortages, and shall
submit the list to the Management Committee. Inventory adjustments shall be made
by the Operator to the Company Account for overages and shortages. The Operator
shall be held accountable to the Venture only for shortages due to Operator's
lack of reasonable diligence.


                                EXHIBIT B, PAGE 7


                                    EXHIBIT C
                                    ---------

                                 TAX PROVISIONS
                                 --------------



                          ARTICLE 1. TAX MATTERS MEMBER

     1.1 Designation. Each Member designates the Operator, as designated from
time to time pursuant to Article VI and other provisions of the Agreement, as
the Tax Matters Member for the purpose of Sections 6221 through 6232 of the
Internal Revenue Code of 1986, as amended (the "Code") and any similar state
statute. The Tax Matters Member shall prepare and file federal and state income
tax returns on behalf of the Partnership. The Operator shall act as Tax Matters
Member so long as that Member is the Operator or until replaced as Tax Matters
Member by unanimous vote of the Management Committee, whichever is earlier. In
the event of a change in the Tax Matters Member, the Member serving as Tax
Matters Member at the end of a taxable year shall continue as Tax Matters Member
with respect to all matters concerning such year.

     1.2 Information Submission and Review. Each Member agrees to timely furnish
to the Tax Matters Member such information as it may have that is required for
proper preparation of returns. The Tax Matters Member shall prepare and timely
file federal and state income tax returns for the Company and shall use its best
efforts in doing so. Prior to filing Company returns, the Tax Matters Member
shall submit to each Member for comment and approval a copy of the Company
return no later than 45 days before the due date, including any extensions of
time to file such return. Approval of the Company return shall not be withheld
without reasonable cause. Absence of a negative response within 30 days of
receipt by a Member shall conclusively be deemed to be consent by that Member to
the return as prepared. The Members shall furnish such information (including,
without limitation, information specified in Section 6230(e) of the Code) as the
Tax Matters Member may reasonably request to permit it to provide the Internal
Revenue Service sufficient information to allow proper notice to the Members in
accordance with Section 6223 of the Code. The Tax Matters Member shall keep each
Member informed of all administrative and judicial proceedings for adjustment at
the Company level of Company items in accordance with Section 6223(g) of the
Code.

     1.3 Inconsistent Treatment. Unless otherwise agreed in writing by the
Management Committee, no Member shall file a statement identifying an
inconsistency in the treatment on its return with the treatment of a Company
item on the Company return or elect to have Section 6222(b)(2) of the Code
apply. Each Member shall give prompt notice to the other Member of any
correspondence or communication to or from taxing authorities regarding any
aspect of the Company or its Operations.

     1.4 Extensions. The Tax Matters Member shall not agree to an extension of
the period of limitation for making assessments as provided under Section
6229(b)(1)(B) of the Code

                                EXHIBIT C, PAGE 1


without first obtaining the written consent of the other Member. Any Member,
with respect to itself only, may agree to an extension of the period of
limitation for making assessments as provided under Section 6229(b)(1)(A) of the
Code.

     1.5 Request for Administrative Adjustments. No Member shall file, pursuant
to Section 6227 of the Code, a request for administrative adjustment of Company
items for any taxable year without first notifying all other Members. If all
other Members agree with the requested adjustment, the Tax Matters Member shall
file a request for administrative adjustment on behalf of the Company. If
unanimous consent is not obtained within 30 days, or within the period required
to timely file the request for administrative adjustment, if shorter, any
Member, including the Tax Matters Member, may file a request for administrative
adjustment on its own behalf.

     1.6 Judicial Proceedings. Any Member intending to file a petition under
Sections 6226, 6228 or other sections of the Code with respect to any Company
item or other tax matters involving the Company, shall notify the other Members
of such intention and the nature of the contemplated proceeding. If the Tax
Matters Member is the Member intending to file such petition, the notice shall
be given within a reasonable time to allow the other Members to participate in
choosing the forum in which such petition will be filed. If the Members do not
agree on the appropriate forum, it shall be decided by majority vote. Each
Member shall have a vote in accordance with its Participating Interest. If a
majority cannot agree, the Tax Matters Member shall choose the forum. If any
Member intends to seek review of any court decision rendered as a result of a
proceeding instituted under the preceding part of this Section 1.6, such Member
shall notify the other Members of its intended action.

     1.7 Settlements. The Tax Matters Member shall not bind any other Member to
a settlement agreement without first obtaining the written concurrence of any
such Member. Any other Member who enters into a settlement agreement with
respect to any Company items, as defined by Section 6231(a)(3) of the Code,
shall notify the other Members of such settlement agreement and its terms within
90 days after the settlement.

     1.8 Fees and Expenses. Any Member may engage legal counsel, certified
public accountants, or others on 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, that the
Tax Matters Member incurs on behalf of the Company in connection with any
return, audit, assessment, litigation, or other proceeding regarding any Company
item shall constitute proper charges to the Company Account and shall be borne
by the Members as any other direct charge to the Company Account pursuant to the
Agreement; provided, however, that the foregoing is subject to such approvals of
the Management Committee and budget requirements as are required in the
Agreement.

     1.9 Survival. The provisions of this Article 1, including but not limited
to the obligation to pay fees and expenses contained in Section 1.8, shall
survive dissolution of the Company or termination of any Member's interest in
the Company and shall remain binding on

                                EXHIBIT C, PAGE 2


the Members for a period of time necessary to resolve with the Internal Revenue
Service, the Department of the Treasury and any state agency any and all matters
regarding federal or state income taxation of the Company for the tax year(s) in
which such Member was a member in the Company

                            ARTICLE 2. TAX ELECTIONS

     2.1 Entity Created for Tax Purposes. The Members recognize and intend that
the Agreement creates a limited liability company for federal and state income
tax purposes, and no Member shall elect to be, or to have the arrangement
evidenced by the Agreement and this Exhibit, excluded from application of any
provisions of Subchapter K of the Code, or any equivalent state income tax
provision.

     2.2 Tax Matters Member's Elective Authority. The Tax Matters Member shall
make the following elections on behalf of the Company under the Code and the
regulations adopted thereunder and any similar state statutes:

          2.2.1 To adopt the calendar year as the annual accounting period and
taxable year pursuant to Section 706(b)(1) of the Code.

          2.2.2 To adopt the accrual method of accounting;

          2.2.3 To deduct currently all development costs to the maximum lawful
extent as provided in Section 616 of the Code, subject to the provisions of
Section 291 of the Code;

          2.2.4 To compute cost recovery deductions using the most rapid
permissible method;

          2.2.5 To amortize start-up expenditures, if any, over a 60-month
period in accordance with Section 195(c) of the Code and any similar state
statutes;

          2.2.6 To treat advance royalties as deductions from gross income for
the year paid or accrued to the extent permitted by law;

          2.2.7 To apply, under Section 754 of the Code, the special basis
adjustment rules of Sections 734(b) and 743(b) of the Code, if a Member requests
that such an election be made. Such election shall be filed with the first
return for any taxable year in which there has been a transfer of all or a
portion of a Member's interest in the Company; and

          2.2.8 To make additional elections as may be approved by the
Management Committee that will provide accuracy in the returns or minimize the
tax liability of one Member without increasing the tax liability of the other
Member.


                                EXHIBIT C, PAGE 3


                           ARTICLE 3. CAPITAL ACCOUNTS

     3.1 Capital Accounts. A separate account shall be established and
maintained for each Member in accordance with Treas Reg ss. 1.704-1(b)(2)(iv) (a
"Capital Account"). Such Capital Account shall be increased by (i) the amount of
money contributed by the Member to the Company, (ii) the fair market value (as
agreed upon by the Members) of property contributed by the Member to the Company
(net of liabilities secured by such contributed property that the Company is
considered to assume or take subject to pursuant to the provisions of Section
752 of the Code), and (iii) allocations to the Member of Company income and gain
(or items of income and gain), including income and gain exempt from tax, and
shall be decreased by (iv) the amount of money distributed to the Member by the
Company, (v) the fair market value of property distributed to the Member by the
Company (net of liabilities secured by such distributed property that the Member
is considered to assume or take subject to pursuant to the provisions of Section
752 of the Code), (vi) allocations to the Member of expenditures of the Company
not deductible in computing its taxable income and not properly chargeable to a
capital account, and (vii) allocations to the Member of Company loss and
deduction (or items of loss and deduction), 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 (taking into account the
provisions of Section 3.2 below).

     3.2 Revaluations. The Capital Accounts of the Members shall reflect the
fair market value of property in all events in which reflection of such value is
permissible or required under Treas Reg ss. 1.704-1(b)(2)(iv)(d) or (f). In the
event that the Capital Accounts of the Members are, in accordance with the
preceding sentence, computed with reference to a book value of any Asset that
differs from its adjusted tax basis 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 Treas Reg ss.
1.704-1(b)(2)(iv)(g). Revaluation shall be computed using the procedure
described in the last sentence of Section 5.1.

     3.3 Transfer of Interest. If any interest in the Company is transferred in
accordance with the terms of the 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 Treas Reg ss. 1.704-1(b)(2)(iv)(1).

     3.4 Compliance with Regulations. The foregoing provisions, and other
provisions of this Exhibit relating to maintenance of Capital Accounts and
allocation of income, gain, loss, deduction, and credit, are intended to comply
with Treas Reg ss. 1.704-1(b), and shall be interpreted and applied in a manner
consistent with that Regulation. If the Management Committee determines by
unanimous vote that it is prudent to modify the manner in which Capital
Accounts, or any debits or credits thereto, are computed in order to comply with
Treas Reg ss. 1.704-1(b), the Management Committee may make such modification,
provided that the modification is not likely to have a material effect on the
amount distributable to any Member upon liquidation of the Company pursuant to
Article 5.


                                EXHIBIT C, PAGE 4


                             ARTICLE 4. ALLOCATIONS

     The Members further agree that all items of income, gain, loss, deduction
and credit shall, subject to Article 5, be allocated as follows:

     4.1 Expenditures, Costs and Expenses. Expenditures (but not expenditures
that are reflected in improvements subject to allowances for depreciation under
Section 167 of the Code) and all other classes of costs and expenses (including
delay or other rentals, royalties, bonuses and other payments attributable to
the Company that are necessary to acquire and maintain any interest in property)
of the Company, including expenditures of the Company described in Section
705(a)(2)(B) of the Code, shall be allocated to each Member in accordance with
its respective contribution to such costs, expenses and expenditures.

     4.2 Depreciation and Loss. Except as provided in Section 4.10, depreciation
and loss with respect to a depreciable Asset shall be allocated among the
Members in accordance with their respective contributions to the original basis
of the Asset that gives rise to the depreciation or loss deduction and to the
original basis of any improvement to any such Asset.

     4.3 Depletion and Loss. Except as provided in Section 4.10, cost depletion
and any loss with respect to a depletable property (as defined in Section 614 of
the Code) shall be allocated to the Members in accordance with their respective
contributions to the adjusted basis of the depletable property. Percentage
depletion under Section 613 of the Code shall be allocated (i) in the same
manner as cost depletion to the extent it does not exceed cost depletion and
(ii) to the extent percentage depletion exceeds cost depletion, to the Members
in the same proportion as their distributive share of gross income from-the
depletable property (as determined under Section 613(c) of the Code) for the
year in which such depletion is allowable.

     4.4 Other Deductions and Losses. Except as provided in Section 4.10, all
deductions and losses not described in Sections 4.1 through 4.3 above shall be
allocated among the Members in accordance with their respective contributions to
the costs producing each such deduction or to the adjusted basis of the Asset
producing each such loss.

     4.5 Distributed Property. All unrealized income, gain, deduction or loss
associated with Products or other property distributed in kind to any Member
shall be reflected in the Capital Accounts of the Members as if such Products or
other property had been sold by the Company for fair market value, as agreed by
the Members.

     4.6 Gain on Depreciable Assets. Except as provided in Section 4.10, any
gain recognized on sale or other disposition of a depreciable Asset shall be
allocated (i) to the extent such gain does not exceed the amount of depreciation
claimed with respect to such Asset, to the Members in proportion to the amount
of such depreciation previously allocated to, or claimed by, them, and (ii) to
the extent of any remaining gain to the Members in accordance with their
Participating Interests.


                                EXHIBIT C, PAGE 5


     4.7 Exploration Recapture and Depletion Disallowances. Any recapture of
exploration expenses under Section 617(b)(1)(A) of the Code, and any increase in
taxable income realized by reason of the disallowance of depletion under Section
617(b)(1)(B) of the Code, shall be allocated to the Members in the same manner
as the related exploration expenses or depletion deductions were allocated.

     4.8 Other Income and Gain. Except as provided in Section 4.10, all other
items of income and gain (including any unrealized income or gain from
distribution of Products) shall be allocated to the Members in accordance with
their Participating Interests; provided however, that if, after allocations
required by Sections 4.1 through 4.7 and 4.10, the Capital Accounts of the
Members do not bear the same relationship to each other as do their
Participating Interests, then gain and income (other than any unrealized income
or gain from distribution of Products) shall be allocated to the deficient
Member as necessary to cause the Capital Accounts of the Members to bear the
same relationship to each other as do their Participating Interests.

     4.9 Credits. All tax credits shall be allocated to the Members in
proportion to their Participating Interests at the time the credit is allowed.
Any credit recapture shall be allocated to the Members in the same proportion as
the related credit was allocated.

     4.10 Section 704(c) of the Code. In accordance with Section 704(c) of the
Code, income, gain, loss and deductions with respect to property contributed to
the Company by a Member or with respect to property reflected in Capital
Accounts pursuant to Section 3.2 at a value other than its adjusted basis for
tax purposes shall, solely for tax purposes, be allocated among the Members so
as to take account of the variation between the basis of the property to the
Company and its fair market value at the time of contribution or revaluation.

     4.11 Respective Contributions. In determining a Member's respective
contribution to a cost or expense in any year, all Members shall be considered
to contribute to each class of cost or expense in the same proportion that the
funds contributed by a Member for that year bear to the funds contributed by all
Members for that year. Payments made with income of the Company shall be
considered as funded with contributions by each Member equal to the product of
its Participating Interest and such payments. Costs or expenses paid with
proceeds of Company borrowing shall be considered as funded with contributions
by each Member equal to the product of the amount of the borrowing and that
Member's Participating Interest at the time of the borrowing.

     4.12 Minimum Gain Chargeback. Notwithstanding anything in Article 4 of this
Exhibit C to the contrary, if there is a net decrease in Company minimum gain
for a Company taxable year, then each Member shall be allocated items of income
and gain for such year (and if necessary for subsequent years) in proportion to,
and to the extent of, an amount equal to the greater of (i) the portion of such
Member's share of the net decrease in Company minimum gain during such year that
is allocable to the disposition of Company property subject to one or more
nonrecourse liabilities of the Company, or (ii) the deficit balance in such
Member's capital account at the end of such year. Further, if there is a net
decrease during a Company taxable

                               EXHIBIT C, PAGE 6


year in the minimum gain attributable to a Member's nonrecourse debt, then any
Member with a share of the minimum gain attributable to such debt at the
beginning of such year shall be allocated items of income and gain in accordance
with Treas Reg 1.704-1T(b)(4)(iv)(h)(4). This Paragraph 4.12 is intended to
comply with the minimum gain chargeback requirement of Treas. Reg.
1.704-1T(b)(4)(iv)(e) and (h) and shall be interpreted consistently therewith.

     4.13 Curative Allocations. The allocation set forth in Paragraph 4.12 is
intended to comply with certain requirements of Treas. Reg. 1.704-1T(b)(4).
Paragraph 4.12 may not be consistent with the manner in which the Members intend
to divide Company distributions. Accordingly, the Operator is authorized by this
Paragraph 4.13 to divide other allocations of profits, losses, and other items
among the Members so as to prevent Paragraph 4.12 from distorting the manner in
which Company distributions will be divided among the Members pursuant to this
Exhibit C. In general, the Members anticipate that this will be accomplished by
specifically allocating other profits, losses, and items of income, gain, loss,
and deduction among the Members so that the net amount of the allocations
pursuant to Paragraph 4.12 and such special allocations to each Member is zero.
However, the Operator shall have discretion to accomplish this result in any
reasonable manner.

                        ARTICLE 5. TERMINATION PROCEDURE

     If the Company or a Member's interest in the Company is "liquidated" within
the meaning of Treas Reg ss. 1.704-1(b)(2)(ii)(g) then, notwithstanding any
other provision of this Exhibit to the contrary, the following steps shall be
taken:

     5.1 Actual and Hypothetical Gain or Loss. The Capital Accounts of the
Members shall be adjusted to reflect any gain or loss realized by the Company or
that would be realized by the Company if the Assets had been sold at their fair
market value at the time of liquidation as follows: If the Capital Accounts of
the Members do not bear the same relationship to each other as do their
Participating Interests, then (i) income and gain shall be allocated to
deficient Members as necessary to cause the Capital Accounts of the Members to
bear the same relationship to each other as do their Participating Interests;
and (ii) any remaining gain or income and all losses shall be allocated to the
Members in accordance with Participating Interests. The fair market value of the
Assets shall be determined by the Members; provided, however, that if the
Members fail to agree on the fair market value of any Asset, its fair market
value shall be determined in accordance with Section 6.2. Notwithstanding the
foregoing, if the liquidation occurs during the Initial Contribution Period, and
there is a distribution of property to Pegasus pursuant to Section 3.2 and
Section 13.4, then any unrealized gain or loss arising by reason of such
transfer and subject to Section 4.5 of this Exhibit C (taking into account the
provisions of Section 3.2 of this Exhibit C) shall be allocated to Pegasus and
reflected in its Capital Account. For purposes of this Section 5.1, allocations
shall be considered to be made first from actual income or gain to the extent of
such income or gain and then from hypothetical income or gain to the extent of
such income or gain.


                                EXHIBIT C, PAGE 7


     5.2 Deficit Restoration. Following the adjustments described in Section
5.1, any Member with a negative balance in its Capital Account or, in the case
of liquidation of the interest of a Member without liquidating the Company, that
Member, shall contribute the amount of cash to the Company necessary to
eliminate any deficit balance in its Capital Account. Such contribution shall be
made by the end of the taxable year in which the liquidation occurs (or, if
later, within 90 days after the date of such liquidation).

     5.3 Liquidations After the Initial Contribution Period. Following the
adjustments described in Sections 5.1 and 5.2, if the liquidation occurs after
the Initial Contribution Period and Capital Account balance of any Member
(stated as a percentage of the Capital Account balances of all Members) is not
equal to the Member's Participating Interest, then any Member whose Capital
Account balance is less than its Participating Interest shall have the option,
but not the obligation, exercisable within 30 days after determination of final
Capital Account balances and before distribution of Assets in kind, to
contribute a sufficient amount of cash to the Company to cause its Capital
Account balance and Participating Interest to be in parity.

     5.4 Distribution of Assets. After making the foregoing adjustments and
contributions, in the case of actual liquidation of the Company, the net
proceeds of liquidation of the Assets or, if applicable, the Assets themselves
shall be distributed and applied by the Company in the following order of
priority:

          5.4.1 To payment of debts and liabilities of the Company other than
debts to the Members;

          5.4.2 To payment of debts and liabilities of the Company to the
Members;

          5.4.3 To payment of expenses of liquidation;

          5.4.4 To establishment of any reserves that the Members may agree are
reasonably necessary for any contingent or unforeseen liabilities or obligations
of the Company; and

          5.4.5 To the Members to the extent of any positive balances in their
Capital Accounts, in accordance with Treas Reg ss. 1.704-1(b).

     In the case of liquidation of the interest of a Member without liquidating
the Company, after making the adjustments and contributions required by Sections
5.1 and 5.2 and allowed by Section 5.3, Assets or the net proceeds of
liquidation of Assets shall be distributed to the liquidated Member in an amount
equal to that Member's positive Capital Account balance, if any, in accordance
with Treas Reg ss. 1.704-1(b). Assets distributed to the Members pursuant to
this Section 5.4 shall be deemed to have a fair market value equal to the value
assigned to them pursuant to Section 5.1. In case of actual liquidation of the
Company, unless the Members expressly agree otherwise, each Member shall receive
an undivided interest in each and every

                                EXHIBIT C, PAGE 8


Asset determined by the ratio of the amount of that Member's Capital Account to
the total of all Members' Capital Accounts.

                              ARTICLE 6. CONFLICTS

     6.1 Conflicts with Agreement. In the event of a conflict or inconsistency,
whether it be direct or indirect, between the terms and conditions of this
Exhibit and the terms and conditions of any other Article of the Agreement or
any Exhibit attached thereto, the terms and conditions of this Exhibit shall
govern and control.

     6.2 Fair Market Value. If the Members are unable to agree upon the fair
market value of Assets for any purpose of this Exhibit, then they shall select a
qualified appraiser who shall determine fair market value. If the Members are
unable to agree upon an appraiser for this purpose, then each shall choose an
appraiser and the chosen appraisers shall agree upon a third, who shall
determine fair market value for purposes of this Exhibit.

                            ARTICLE 7. DEFINED TERMS

     7.1 Meaning of Capitalized Terms. Capitalized terms used in this Exhibit
that are not defined in this Exhibit shall have the meaning given such terms in
the Agreement to which this Exhibit is attached.


                                EXHIBIT C, PAGE 9


                                   EXHIBIT "D"

            TO THE LIMITED LIABILITY COMPANY AGREEMENT ("Agreement")
                                DATED _____, 1997
                                 BY AND BETWEEN
                  PEGASUS GOLD INTERNATIONAL, INC. ("Pegasus")
                                       AND
                          MINERA ANDES ("Minera Andes")

                            Net Profits Royalty Deed
                            ------------------------


     THIS DEED (the "Deed") is entered into and made effective this ____ day of
_______, 199__ (the "Effective Date"), by Arroyo Verde Company, a Washington
limited liability company (the "Company"), and ________________________, a
______________ corporation ("Grantee").

     1. Conveyance of Royalty Interest. Pursuant to Section 4.7 of the Limited
Liability Company Agreement dated ____________, 19__ (the "Agreement"), and in
consideration of Grantee's relinquishment of its Participating Interest in the
Company, the Company grants and conveys unto Grantee a Net Profits Royalty as
more particularly described below. Capitalized terms not otherwise defined in
this Deed shall have the meanings assigned to them in the Agreement.

     2. No Covenant to Explore or Produce. The nature, location, conduct and
extent of the Company's investigation, exploration, examination, development,
working, mining, milling or other beneficiation operations on the Property, if
any, and the cessation and resumption of such activities, shall be at the sole
discretion of the Company. The Members agree that the valuable consideration
given for this Deed is in lieu of any express or implied covenant of diligent
development or any other implied covenant applicable to this Deed. A default by
the Company in payment of the Net Profits Royalty shall not work a rescission of
this Deed.

     3. Net Profits Royalty.

          3.1 Net Profits Royalty. The Company agrees to pay Grantee a
production royalty equal to ten percent (10%) of the Net Profits (the "Net
Profits Royalty") from the Sale or Deemed Sale of Mineral Products mined and
sold from the Property. All gold and silver ore mined and removed from the
Property may be processed first into dore' by heap leaching, milling or any
other method generally accepted in the mining industry now or in the future, or
may be sold to any third party as raw ore or concentrates. If gold and silver
dore' are produced by the Company, then the dore' shall be processed into
Refined Material either in the Company's own facilities or through any
commercially reasonable custom refining contract. The Net Profits Royalty on
Mineral Products other than gold and silver that are processed into

                                EXHIBIT D, PAGE 1


Refined Material before sale (including without limitation gold or silver ore
sold raw or as concentrates) shall be based upon Payments received by the
Company for the Sale of such Mineral Product. The Net Profits Royalty on gold
and silver processed into Refined Material shall be based upon the Deemed
Payments received for the Deemed Sale of Refined Material. The Net Profits
Royalty shall not apply to any Mineral that is used or consumed on the Property.

          3.2 Definitions. For the purpose of calculating the Net Profits
Royalty:

               (a) "Deductions" shall mean:

                    (1) All costs and expenses mining and processing Mineral
Products including without limitation the capital cost of production facilities
and the cost of replacing, expanding, modifying, altering or changing such
facilities from time to time at the discretion of the Company. Costs and
expenses of improvements (such as haulage ways or mill facilities) that are also
used in connection with workings other than the Properties shall be charged to
the Properties only in the proportion that their use in connection with the
Properties bears to their total use.

                    (2) ad valorem real property and personal property taxes,
and all taxes, other than income taxes, applicable to the Assets and the
Operations, including without limitation all mining taxes, sale taxes,
employment taxes, severance taxes, royalties, license fees and governmental
levies of a similar nature.

                    (3) all expenses incurred relative to the sale of Mineral
Products, including without limitation ore treatment costs, charges, penalties,
or refining charges and all umpire charges, whether such charges or penalties
are made by the Company, the purchaser of the Product or a third party; all
transportation, storage and insurance costs incurred in connection with the
transportation of the Mineral Products from the mine to a mill or other
treatment facility and from such facility to the place and time of a final Sale
or Deemed Sale, and any commissions paid on the Sale of such Mineral Products.

                    (4) all amounts payable to the Operator of the Company as
compensation for services.

                    (5) the actual cost of investment incurred by the
nonwithdrawing Member prior to the beginning of Mining which shall include all
expenditures for Exploration and Development of the Property incurred by the
nonwithdrawing Member subsequent to the withdrawing Participant acquiring a Net
Profits Royalty interest.

                    (6) interest on moneys borrowed or advanced (the term
"advanced" shall also include internal funds utilized by the Company in lieu of
borrowed funds) for costs and expenses subsequent to the withdrawing Participant
acquiring this Net Profits Royalty, at an annual rate equal to five (5)
percentage points over the prime rate in effect from

                                EXHIBIT D, PAGE 2


time to time for commercial loans quoted by the Bank of America, at its main
branch in San Francisco, California, to its most creditworthy customers, but in
no event in excess of the maximum permitted by law.

                    (7) an allowance for reasonable working capital and
inventory.

                    (8) an allowance for reasonably anticipated reclamation
costs.

                    (9) an allowance for overhead expenditures in accordance
with generally accepted accounting procedures.

     It is intended that the nonwithdrawing Member shall recoup from net cash
flow all of its contributions for Exploration, Development, Mining, and
marketing Mineral Products before any Net Profits Royalty are distributed to any
person holding a Net Profits Royalty interest. No deduction shall be made for
income taxes, depreciation, amortization or depletion. If in any year after the
beginning of Mining an operating loss relative is incurred, the amount of such
operating loss shall be considered as and be included with outstanding costs and
expenses and carried forward in determining Net Profits Royalty for subsequent
periods. If the Company Operator causes any processing, refining, handling or
sales of Mineral Products to be performed by an Affiliate of the Operator, the
cost of such services, for the purpose of calculating Deductions shall not be
more than Operator would have paid a nonaffiliated third party for such
services.

               (b) "Deemed Payments" shall mean the Fair Market Value of Refined
Material upon a Deemed Sale of refined gold and silver mined from and
attributable to the Property;

               (c) A "Deemed Sale" shall occur upon the deposit of Refined
Material mined from and attributable to the Property into the Company's
consignment account by a refiner;

               (d) "Fair Market Value" of Refined Material mined from and
attributable to the Property shall be determined on a unit basis as follows:

                    (i) Refined gold bullion shall be valued on the basis of the
     average of the daily London Bullion Brokers Second Gold Fixing for the five
     (5) business days prior to the deposit of the bullion into the Company's
     account at the refiner's place of business;

                    (ii) Refined silver bullion shall be valued on the basis of
     the average of the daily Handy & Harman Noon Silver Quotation for the five
     (5) business days prior to the deposit of the bullion into the Company's
     account at the refiner's place of business.


                                EXHIBIT D, PAGE 3


               (e) "Minerals" means all minerals and mineral resources of any
kind or nature.

               (f) "Mineral Products" means all materials and ores on or in the
Property which contain Minerals and which are sold, processed or refined for
their Mineral content and all products derived from such processing or refining
including without limitation dore bullion, precipitates and concentrates of
Minerals.

               (g) "Net Profits" shall mean Payments plus Deemed Payments minus
Deductions;

               (h) "Payments" shall mean the gross amount of payments received
by the Company from the Sale of Mineral Products mined and Sold from and
attributable to the Property other than Refined Material (excluding profits or
proceeds of futures contracts, forward sales, hedging or any other similar
marketing mechanism);

               (i) "Refined Material" shall mean gold and silver mined and
removed from and attributable to the Property and refined to final gold and
silver bullion standards of at least 99.95 percent pure gold and 99.9 percent
pure silver; and

               (j) A "Sale" of Mineral Products, other than Refined Material,
shall occur upon the passing of title from the Company in conjunction with the
physical delivery of the Mineral Products to a buyer.

          3.3 Payment. The Net Profits Royalty shall be paid to Grantee
quarterly within 30 days after the end of each calendar quarter in which the
relevant Net Profits are realized. Payments or tenders of royalties may be made
by mailing or delivering cash, or the Company's bank draft or wire transfer, to
Grantee's agent on or before the date for payment. Payment shall be accompanied
by a settlement sheet indicating the calculation of the Net Profits Royalty by
the Company, and stating the number of units of Mineral Products Sold, or Deemed
Sold, the Payments or Deemed Payments received and the amount of Deductions.
Each settlement sheet provided by the Company shall be deemed correct and
binding upon Grantee unless the Company receives a written objection from
Grantee within one year after the Company's payment under this Section 3.3.

          3.4 Futures Contracts. The Company shall have no duty to account to
Grantee, and Grantee shall have no interest or right of participation in, any
profits or proceeds of futures contracts, forward sales, hedging or any other
similar marketing mechanism employed by the Company or its affiliates with
respect to any Minerals produced from the Property. The Net Profits Royalty
shall be based solely on the Payments or Deemed Payments received for Mineral
Products produced and sold from and attributable to the Property. The Company
shall have no duty to fulfill any futures contracts, forward sales, hedging or
other contracts that the Company or any of its affiliates may hold with Mineral
Products from the Property.


                                EXHIBIT D, PAGE 4


          3.5 Payment in Kind. The Company shall have the right to pay any Net
Profits Royalty due to Grantee in kind by directing a refiner to deposit into a
separate consignment account, in Grantee's name, an amount of refined gold or
silver equal in value to the Net Profits Royalty owed. The value of gold or
silver shall be Fair Market Value as of the date of payment.

          3.6 Sampling. No Net Profits Royalty will be due on any Minerals
extracted or removed from the Property for the purposes of sampling, testing,
analysis or evaluation in order to determine Mineral values and metallurgical
properties of such Minerals.

          3.7 Payment. Payments shall be made directly to the Member in
question.

          3.8 The Company's Taxpayer I.D. Nos. For the purposes of reporting to
the Internal Revenue Service payments made by the Company to Grantee, Grantee's
Taxpayer I.D. or Social Security No. is as follows:
_____________________________________ ------------------------------.

          3.9 No Obligation to Produce. The Company shall have no obligation,
express or implied, to explore for or to produce any Mineral Product from the
Property, nor, if the Company is producing gold and silver, to sell or save any
substance other than gold and silver; provided, however, that the Company shall
not receive any Payment or Deemed Payment from the Sale or Deemed Sale of any
Mineral Product removed from the Property without payment to Grantee of
royalties contemplated by this Deed. If the Company stockpiles upon other lands
any Minerals produced from and attributable to the Property, the rights and
liens of Grantee in and to such Minerals stockpiled on other lands shall not be
divested, but shall be the same in all respects as though such materials have
been stockpiled on the Property. If the other lands are not owned by the
Company, the Company shall obtain from the owners of the other lands a properly
executed instrument under which the owners of the other lands recognize the
interests and liens Grantee in and to ore and Minerals produced from the
Property prior to any such stockpiling.

          3.10 Sales to Affiliates. If Mineral Products other than Refined
Materials mined from and attributable to the Property are Sold to any Affiliate
of the Company, then the Payments received by the Company shall be deemed to be
no less than the Fair Market Value of such Mineral Products.

          3.11 Commingling. The Company may commingle ore from the Property with
ore from property owned by third persons, provided that commingling occurs only
after the Company has measured and sampled the ore in accordance with sound
mining and metallurgical practices for moisture and gross recoverable mineral or
metal content and assayed the samples to determine the percentage of recoverable
Mineral content or other methods consistent with generally accepted industry
standards. The Company shall keep accurate records showing weights, percentage
of moisture and gross recoverable Mineral content of the ore or other records
consistent with generally accepted industry standards. Mineral value shall be

                                EXHIBIT D, PAGE 5


allocated between the Grantee's ore and other ore on the basis of gross
recoverable Mineral content or other allocations consistent with generally
accepted industry standards. The Company may use any procedures acceptable in
the mining and metallurgical industry which the Company believes to be accurate
and cost-effective for the type of mining and processing activity being
conducted, and the Company's choice of such procedures shall be final and
binding on Grantee. In addition, comparable procedures may be used by the
Company to apportion among the commingled ores any penalty charges imposed by
the refiner on commingled ores or concen trates.

          3.12 Assignment of Royalty. Grantee agrees that it will not make or
accept any bona fide offer to sell or otherwise assign or transfer any interest
in the royalty interest described in this Deed without first offering to sell or
otherwise assign or transfer such rights to the Company on the same terms and
conditions or on cash-equivalent terms and conditions. Grantee will give notice
of any such offer to the Company in writing identifying the proposed purchaser
and specifying the terms of the offer in full, and Grantee will keep such offer
open for acceptance by the Company for at least 30 days from its receipt by the
Company. If the Company fails to give notice of its acceptance of the offer
within such 30-day period, Grantee will be free to make or accept such offer (or
any like offer more favorably to Grantee) to such identified purchaser for a
period of 90 days. Any proposed assignment or transfer after such 90-day period
shall once again be subject to the rights of the Company as specified in this
paragraph.

     4. Inspection. The Company agrees to keep full, true and accurate accounts
showing the tonnages and all shipments and Sales or Deemed Sales of all Mineral
Products mined from and attributable to the Property and all receipts in
connection with such Sales or Deemed Sales. Said accounts and receipts may be
inspected by Grantee once annually at any reasonable time, and in a reasonable
manner so as to not unreasonably interfere with the Company's operations after
Grantee has given the Company five (5) days written notice of the date of such
inspection. In addition, Grantee may visit and inspect the Property at any
reasonable time after five (5) business days written notice of the date of such
inspection, at Grantee's sole risk and expense, in a reasonable manner so as to
not unreasonably interfere with the Company's operations. The Company may
require Grantee's representatives to execute waivers releasing the Company from
liability for personal injury while on the Property. Grantee shall indemnify and
hold the Company, its Members, and their respective owners, directors, officers,
employees and agents harmless for all damages arising out of any death, personal
injury or property damage sustained by Grantee, its officers, directors,
employees or other agents while in or upon the Property, unless such death,
injury or damage arises solely as a result of the Company's gross negligence or
willful misconduct.

     5. Lesser Interest. If it is determined by a court of competent
jurisdiction or by binding agreement that the Company owned, on the date of this
Deed a lesser interest in the Property or in the Minerals and Mineral Products
contained in any portion of the Property than the interest shown on attached
Appendix I for reasons other than the gross negligence or willful misconduct of
a Member of the Company other than the Grantee, then each and every sum

                                EXHIBIT D, PAGE 6


otherwise payable to Grantee under the Net Profits Royalty provisions above
shall be multiplied by a fraction, the numerator of which is the percentage
interest in the Property or in the Minerals and Mineral Products owned by the
Company and the denominator of which is the percentage interest in such portion
of the Property or in the Minerals and Mineral Products from such portion of the
Property shown on attached Appendix I. Failure of the Company to timely reduce
any royalties or payments shall not impair the Company's right to subsequently
make such reductions.

     6. Notices. All notices provided for in this Deed shall be in writing and
delivered personally or by courier, or by electronic transmission or by
certified mail, and shall be deemed given upon actual receipt by the addressee,
as shown by certified mail or courier receipt or electronic confirmation of
transmission, to the following addresses (unless otherwise changed by written
notice of the parties):

To the Company:


To the Grantee:

     7. Notice of Assignment. No change in ownership of Grantee's royalty
interest shall be binding on the Company until after the Company has been given
notice consisting of certified copies or documents necessary to establish a
complete chain of title from Grantee in compliance with Argentinean law. No
other type of notice, whether actual or constructive, shall be binding on the
Company, and the Company may continue to make payments as if no change had
occurred. No present or future division of Grantee's ownership as to all or any
part of said lands shall enlarge the obligations or diminish the rights of
Grantee, and the Company may disregard any such division.

     8. Further Assurances. Grantee agrees to execute, or provide such further
assurances as may be reasonably requested by the Company, whenever requested to
do so by the Company.

     9. Applicable Law. This Deed shall be construed in accordance with and
governed by the laws of the State of Washington and the United States.



                                EXHIBIT D, PAGE 7


          The Members have executed this instrument, by duly authorized officer,
as of the Effective Date.

                                       The Company:





                                       By:_________________________________



                                       Grantee



                                       By:_________________________________


[acknowledgments]

                                EXHIBIT D, PAGE 8


                                    EXHIBIT E

                     ARROYO VERDE PROJECT, CHUBUT ARGENTINA
                         EXPLORATION PROGRAM AND BUDGET
                              YEAR ONE (1997-1998)


     The first year planned exploration program at Arroyo Verde comprises a
systematic evaluation in three phases. Allowances for flexibility in the work
plan are assumed depending upon the results and interpretations developed in
each phase. Work totaling $397,725 is planned as outlined below:

PHASE I

Detailed geologic mapping, re-logging drill cuttings and orientation geophysical
and geochemical studies.
Duration: 3 months
Projected expenditure: $48,300

PHASE II

Grid survey, geophysical and geochemical surveys.
Duration: 2 months
Projected expenditure: $119,300

PHASE III

2,000 meter reverse-circulation drilling program
Duration: 2.5 months
Projected expenditure: $230,125


                                EXHIBIT E, PAGE 1





                 PHASE I: DETAILED MAPPING, ORIENTATION SURVEYS

- -------------------------------------------------------------------------------
   Description                    Rate          Amount        Cost
   -----------                    ----          ------        ----
- -------------------------------------------------------------------------------
                                                     

Geologist                      $275/day        75 days       $20,625
- -------------------------------------------------------------------------------
4WD Vehicle                   1,100/month     2.5 months       2,750
- -------------------------------------------------------------------------------
Fuel                           $0.25/km        5,000 km        1,250
- -------------------------------------------------------------------------------
Food/Supplies                   $15/day        75 days         1,125
- -------------------------------------------------------------------------------
Lodging/Food                    $70/day        75 days         5,250
- -------------------------------------------------------------------------------
Field Supplies                                                   800
- -------------------------------------------------------------------------------
Phone, Miscellaneous                                             500
- -------------------------------------------------------------------------------
Maps, Reproduction                                             2,000
- -------------------------------------------------------------------------------
Geophysics Orientation Survey                                  8,000
- -------------------------------------------------------------------------------
Geochemistry Orientation Survey                                4,000
- -------------------------------------------------------------------------------
Land and Legal                                                 2,000
- -------------------------------------------------------------------------------
PHASE 1 TOTAL                                                $48,300
- -------------------------------------------------------------------------------




                                EXHIBIT E, PAGE 2





           PHASE II: GRID SURVEYS, GEOPHYSICAL AND GEOCHEMICAL SURVEYS

- -------------------------------------------------------------------------------
   Description                    Rate          Amount        Cost
   -----------                    ----          ------        ----
- -------------------------------------------------------------------------------
                                                      
Geologist                       $275/day         50 days       $13,750
- -------------------------------------------------------------------------------
2 Samplers                      $75/day          40 days         3,000
- -------------------------------------------------------------------------------
Surveying                                        1,500 ha       10,000
- -------------------------------------------------------------------------------
Two 4WD Vehicles              $1,100/month       2 months        4,400
- -------------------------------------------------------------------------------
Fuel                            $0.25/km         5,000 km        1,250
- -------------------------------------------------------------------------------
Food/Lodging                    $75/day          200 days       15,000
- -------------------------------------------------------------------------------
Field Supplies                                                   1,000
- -------------------------------------------------------------------------------
Phone, Misc.                                                       500
- -------------------------------------------------------------------------------
Maps, Reproduction                                               2,000
- -------------------------------------------------------------------------------
Geophysics (method to be                                        50,000
decided)
- -------------------------------------------------------------------------------
Biogeochemistry                $21/sample      400 samples       8,400
- -------------------------------------------------------------------------------
Enzyme Leach                   $25/sample      400 samples      10,000
- -------------------------------------------------------------------------------
Land and Legal                                                   5,000
- -------------------------------------------------------------------------------
PHASE II TOTAL                                                $119,300
- -------------------------------------------------------------------------------


                                EXHIBIT E, PAGE 3






                        PHASE III: DRILLING--2,000 METERS

- -------------------------------------------------------------------------------
   Description                    Rate          Amount        Cost
   -----------                    ----          ------        ----
- -------------------------------------------------------------------------------
                                                        
Geologist                       $275/day           75 days       $20,625
- -------------------------------------------------------------------------------
Jr. Geologist                   $100/day           60 days         6,000
- -------------------------------------------------------------------------------
Drilling                       $50/meter         2,000 meters    100,000
- -------------------------------------------------------------------------------
Two 4WD Vehicles              $1,100/month        2.5 months       5,500
- -------------------------------------------------------------------------------
Fuel                            $0.25/km         6,000 km X 2      3,000
- -------------------------------------------------------------------------------
Food/Lodging                    $75/day          6 X 60 days      27,000
- -------------------------------------------------------------------------------
Drill Supplies                                                     2,000
- -------------------------------------------------------------------------------
Assays                         $25/sample       1,400 samples     35,000
- -------------------------------------------------------------------------------
Dozer                                                             10,000
- -------------------------------------------------------------------------------
Mobe/Demobe                                                        6,000
- -------------------------------------------------------------------------------
Environmental Report                                               5,000
- -------------------------------------------------------------------------------
Land and Legal                                                    10,000
- -------------------------------------------------------------------------------
PHASE III TOTAL                                                 $230,125
- -------------------------------------------------------------------------------


                                         TOTAL FOR 1997 - 1998: $397,725


                                EXHIBIT E, PAGE 4

EX-11.1

                                  Exhibit 11.1
                          Computation of Loss Per Share


                                                                              Period from
                                                                             July 1, 1994
                                                        Years Ended        (commencement)
                                    December 31,       December 31,               through
                                           1997               1996      December 31, 1997
                                   ------------      -------------      -----------------
                                                                             
Loss for the period                $  4,306,897      $   1,250,506           $  7,087,467
                                   ============      =============           ============
Shares used in computing
loss per share:
    Weighted average shares
    outstanding (Note 1)             17,724,935         12,722,871             11,483,718
                                   ============      =============           ============
Loss per share                     $       0.24      $        0.10           $       0.62
                                   ============      =============           ============


Note 1:  Due to the net losses incurred during each of the periods presented,
         common share equivalents are anti-dilutive and have been excluded from
         the computation.

EX-23.1

                                  Exhibit 23.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS


     We consent to the incorporation by reference in the Form S-8 (File No.
333-34023) of Minera Andes Inc. of our report dated March 3, 1998, on our audit
of the consolidated financial statements of Minera Andes Inc. as of December 31,
1997 and for the year then ended, which report is included in this Annual Report
on Form 10-KSB.


                                  Coopers & Lybrand

Vancouver, B.C.
March 27, 1998

EX-27

 

<ARTICLE>                     5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidated financial statements of Minera Andes Inc. for the year ended
December 31, 1997 and is qualified in its entirety by reference to such
financial statements.

       
                           
<PERIOD-TYPE>                 YEAR
<FISCAL-YEAR-END>                              DEC-31-1997
<PERIOD-END>                                   DEC-31-1997
<CASH>                                           4,003,519
<SECURITIES>                                             0
<RECEIVABLES>                                      212,533
<ALLOWANCES>                                             0
<INVENTORY>                                              0
<CURRENT-ASSETS>                                 4,216,052
<PP&E>                                           3,510,267
<DEPRECIATION>                                      62,430
<TOTAL-ASSETS>                                   7,663,889
<CURRENT-LIABILITIES>                              197,441
<BONDS>                                                  0
<PREFERRED-MANDATORY>                                    0
<PREFERRED>                                              0
<COMMON>                                        15,132,262
<OTHER-SE>                                     (7,665,814)
<TOTAL-LIABILITY-AND-EQUITY>                     7,663,889
<SALES>                                                  0
<TOTAL-REVENUES>                                         0
<CGS>                                                    0
<TOTAL-COSTS>                                            0
<OTHER-EXPENSES>                                 4,306,897
<LOSS-PROVISION>                                         0
<INTEREST-EXPENSE>                                       0
<INCOME-PRETAX>                                (4,306,897)
<INCOME-TAX>                                             0
<INCOME-CONTINUING>                            (4,306,897)
<DISCONTINUED>                                           0
<EXTRAORDINARY>                                          0
<CHANGES>                                                0
<NET-INCOME>                                   (4,306,897)
<EPS-PRIMARY>                                       (0.24)
<EPS-DILUTED>                                            0
        

 

EX-99.1

March 27, 1998                                             Our File No. 20427160
                                                           ---------------------


Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
U.S.A.

Re:  MINERA ANDES INC.

Dear Sirs:

We have reviewed the disclosure regarding change of accountants to be included
in Part II, Item 8 of Form 10-KSB of Minera Andes Inc. for the fiscal year ended
December 31, 1997. We agree with the statements made by Minera Andes Inc. in
this disclosure.

Yours truly,

MacKay & Partners




Glenn Ohlhauser, C.A.