FISCAL YEAR ENDED JUNE 30, 2011 – LETTER TO SHAREHOLDERS

Stephen J. Kay
President & Chief
Executive Officer

September 28, 2011
All currency amounts are in US Dollars unless indicated otherwise

Dear Fellow Shareholders,

The 2011 fiscal year ended June 30 saw the Company report record pre-tax earnings of $58.4 million and cash flow from operations (including dividends from our 40%-owned Pallancata silver mine in Peru) of $37.9 million. These numbers are 276% and 97% respectively higher than the equivalent numbers for the previous fiscal year.

The Pallancata underground silver mine in Peru continues to be a world-class operation (currently ranked number 5 in the world as a primary silver producer) and reported record profitability. The Company’s 40% share of production for the current fiscal year was 3.8 million ounces of silver and 13,800 ounces of gold at total cash costs, net of gold by-product credit, of $6.04 per ounce. During the twelve months ended June 30, 2011, the Company received dividends totalling $46 million from Pallancata. In addition, the Company received an additional $16 million in dividends in September, which brings the total dividends received since August 2009 to $85.6 million. This is a significant return on an original investment of less than $5 million.

At the Inmaculada gold-silver property, also in Peru (which was acquired in January 2010 as part of the Ventura Gold Corp takeover), in December 2010 the Company sold 11% of its 51% interest to Hochschild Mining. The Inmaculada project is now held 40% by the Company and 60% by Hochschild under the same corporate “umbrella” as the Pallancata Mine, which results in significant tax and other benefits for both projects. Hochschild will complete a feasibility study at Inmaculada in December and underground production is scheduled for December 2013.

We continue to make significant progress at our two open pit gold development projects in Nevada. At Converse we recently raised the total measured and indicated gold resources to 5.1 million ounces, an increase of 1.2 million ounces. We will complete a scoping study for a heap leach gold operation at Converse in December this year. At Goldfield we are on track to complete a feasibility study for a heap leach gold operation by the end of June 2012. Also in Nevada, the Company’s 3% royalty interest in Barrick’s Ruby Hill gold mine realized record gross revenue of $5.3 million for the fiscal year.

In Ecuador, our exploration and development activities continue to be minimal, pending the signing of a formal production contract with the Ecuadorian government for the construction of the Rio Blanco underground gold-silver project.

In summary, the Company holds interests in six gold-silver projects in three countries with attributable gold equivalent resource ounces of 12.3 million in the measured and indicated categories (including 1.0 million in the proven and probable reserve categories) and 3.5 million ounces in the inferred resource category. 94% of the total resource ounces are in gold and 6% are in silver.

The accompanying Management Discussion and Analysis (“MD&A) provides more details of the Company’s projects, including reserves and resources.

General Market Comments

The US economy continues to languish as the unemployment level, consumer confidence (or lack of it), the downgrade of the USA’s triple-A credit rating, and continuing duress in the domestic debt and mortgage markets remain as major problems, even with the various government bail-out and stimulus packages. There is no doubt that a double-dip recession continues to be a real threat in the US and in Europe, where the fate of the Euro is still debatable. Even the Chinese economy is starting to slow-down somewhat with a clamp-down on credit and lending by the Chinese Central Bank. The Asian economies, however, continue their rapid growth and are also major buyers of physical gold.

Gold and silver metal prices continued their strong run since 2007, but prices are currently very volatile. Although gold and silver prices (based on the London pm fix) have increased by only 19.5% and 9.2% respectively from January 1 to September 27, the range in prices during the year has been much wider – the gold price from a low of $1,319 per ounce in January to a high of $1,895 in early September and the silver price from a low of $26.68 in January to a high of $43.49 in late August.

Price volatility will no doubt continue in the precious metal markets into 2012, but the consensus opinion is for rising prices based primarily on the negative economic criteria discussed above, plus the lack of confidence in fiat currencies globally, a weakening US dollar, declining mine supply (even in this high metal price environment) and continuing rising investment demand for precious metals as the only true safe-haven investment. Currently more and more people are realizing that gold is actually money/currency, and one that can be more secure and stable than their highly volatile fiat currencies!

Corporate Update

In terms of the Company’s financial health, at fiscal year-end June 30, 2011 the Company continues to strengthen its balance sheet, with cash and equivalents at a record $86.1 million. Working capital increased to $52.2 million at June 30 compared to $30.4 at June 30, 2010.

Net earnings for fiscal year 2011 (before possible future tax liabilities of $4.5 million) were also a record $58.4 million, up 276% from $15.5 million in fiscal 2010.

Net earnings from our 40%-owned Pallancata silver-gold mine in Peru (reported as “Income from joint venture” in the accompanying June 30, 2011 Financial Statements) were $54.6 million for the 2011 fiscal year, up almost 100% from last year. As stated above, we have received $85.6 million as our share of dividends from Pallancata since August 2009, which is quite a return on our original pre-production investment of less than $5 million.

In calendar year 2010, Pallancata became the fifth largest primary silver mine in the world, with total production of 10.1 million ounces of silver and 36,000 ounces of gold, 40% for the account of the Company. We expect to receive higher dividend distributions during calendar year 2012 for our 40% ownership in Pallancata with continuing strong metal prices offsetting slightly lower silver production in calendar 2012.

Project Updates

A brief update on the Company’s key properties in Peru, the USA and Ecuador is provided below:

Pallancata Silver Mine, Peru (40% the Company)

The Pallancata Mine (40% the Company, 60% Hochschild, the operator) continues to be a great success story having become the fifth largest primary silver mine in the world in 2010 after only 3 years of production.

In calendar year 2010, Pallancata produced (100% project basis) 10.1 million ounces of silver and almost 36,000 ounces of gold at a low total cash cost per ounce of silver (net of gold credit) of $5.47. In calendar year 2011, the Company estimates that Pallancata’s production (100% basis) will be approximately 9.3 million ounces of silver and 37,000 ounces of gold at an estimated total cash cost per ounce of silver (net of gold credit) of approximately $7.00. Similar production estimates and costs are expected in calendar year 2012. The reason for the lower silver production for 2011 is that higher metal prices allow the mining and processing of lower grade ore than would not be profitable at lower metal prices. This scenario also prolongs the mine life.

In the first quarter of calendar 2012, Hochschild will report new reserve and resource estimates for the Pallancata Mine as of December 31, 2011, which the Company expects will show a continuing 4-year mine life based on reserves and an additional 3 years in resources (subject to these resources being converted to reserves), which is consistent with the previous December 2010 reserve and resource estimates.

Inmaculada Gold-Silver Project, Peru (40% the Company)

In September 2010, the Company reported the results of a NI 43-101 compliant independent preliminary economic assessment (or scoping study) based on $1,000 per ounce (“/oz”) gold and $17/oz silver and a 60:1 silver-to-gold equivalency ratio.
Below is a summary of the key parameters of the scoping study:

Conceptual mine production (after 5% mining losses and 20% mining dilution): 8.0 million tonnes (“Mt”) at an average grade of 3.8 grams per tonne (“g/t”) gold and 137 g/t silver (or an overall grade of 6.1 g/t gold equivalent).
Recovered ounces (“ozs”): 858,000 ozs gold and 29.3 million ozs silver or approximately 1.35 million ounces of gold equivalent (based on expected metallurgical recoveries of 88% for gold and 83% for silver).
Pre-tax cash flows: $660 million undiscounted, $434 million at 5% discount rate and $287 million at 10% discount rate.
Pre-tax Internal Rate of Return (”IRR”): 41%.
Total cash operating cost per tonne: $52.
Total cash operating cost per oz:
- Basis gold with silver credited as a by-product: negative $94 per oz of gold (indicating that silver by-product revenue is great than the total cash operating cost.)
- Basis gold equivalent: $311 per oz of gold equivalent.
Initial Capital: $168 million (including $32.9 million in contingency).
Total cash operating cost per oz, including capital:
Basis gold with silver credited as a by-product: $231 per oz.
Basis gold equivalent: $517 per oz
3,000 tonnes per day (“tpd”) underground mine using a long hole stoping mining method and conventional recovery process by flotation to produce a saleable gold-silver concentrate.

It should be noted that the above data, based on the September 2010 scoping study, are preliminary in nature and will be updated in detail in the upcoming feasibility study to be completed by year end.

In December 2010, the Company signed an agreement with Hochschild to fast-track development, permitting and production at Inmaculada. Inmaculada was originally 51% owned by the Company. Under the terms of the new agreement, the Company sold 11% of its 51% interest to Hochschild and now owns a 40% interest in Inmaculada, with Hochschild owning the remaining 60%.

The key parameters of this agreement are as follows:

Hochschild paid the Company $17.65 million in cash ($15 million plus an additional $2.65 million received in August).

Hochschild made an equity investment in IMZ of $20 million in the form of a private placement of 3.66 million common shares at a price of Can $5.525 per share. This private placement closed in November, 2010.

Hochschild will provide $100 million of initial funding required for the planning, development and construction of a mining operation at the Angela Vein deposit at Inmaculada. Any subsequent expenditure will be funded 60% by Hochschild and 40% by the Company.

The Company is no longer required to fund and complete a feasibility study at Inmaculada or to issue 200,000 common shares to Hochschild (which were originally scheduled to be issued on February 28, 2011).

Hochschild will commit to build a mining operation at the Angela Vein deposit at Inmaculada with a process capacity of 3,000 tonnes per day (“tpd”) by December 23, 2013, unless the parties agree that such process capacity is not optimal and subject to any unforeseen delays not within the control of Hochschild.

If Hochschild fails to achieve the process capacity by December 23, 2013, then Hochschild must make quarterly advance payments to the Company during the period of any delay based on the parties’ joint estimate of the Company’s 40% share of income/cash flows that would have been generated if production had started on schedule.

Hochschild will be operator of the project. Upon commencement of commercial production, Hochschild will receive a 7.0% management services fee from the joint venture.

The management fee previously charged by Hochschild for the Pallancata Mine was reduced from 10.0% to 7.0% effective January 1, 2011.

The Company and Hochschild have contributed to the Suyamarca joint venture their respective ownerships in: a) the Inmaculada Property (originally 51% the Company, 49% Hochschild), b) the Pacapausa property (originally 80% Hochschild, 20% the Company), located adjacent to the Pallancata Mine, and c) the Puquiopata property (originally 100% the Company), situated on the northern limit of the Inmaculada property. These contributions result in all of the properties currently being owned 60% by Hochschild and 40% by the Company as part of the Suyamarca joint venture company, which includes the Pallancata Mine.

A minimum of 20,000 meters of drilling per year for the first three years following the closing of the transaction must be carried out for evaluation of exploration targets outside of the main Angela Vein deposit. This exploration program will be funded 60% by Hochschild and 40% by the Company.

The current (as of February 24, 2011) mineral resource estimate (100% project basis) for the Angela Vein deposit on the Inmaculada property is:

Measured and Indicated Resources: 4.75Mt at an average grade of 5.2 g/t gold and 186 g/t silver containing approximately 795,000 ounces of gold and 28.3 million ounces of silver. 40% of these resources are attributable to the Company.
Inferred Resources: 2.65Mt at an average grade of 6.1 g/t gold and 247 g/t silver containing approximately 521,000 ounces of gold and 21.0 million ounces of silver. 40% of these resources are attributable to the Company.

Goldfield Gold Project, Nevada (100% the Company)

The Goldfield property (“Goldfield”) is located close to the historic mining town of Goldfield, Nevada, with reported historical production of over 4 million ounces of gold averaging 18 g/t gold, principally from the early 1900’s to the 1940’s.

There are three principal deposits at this time at Goldfield: the Gemfield, McMahon Ridge, and Goldfield Main deposits.

The current overall Goldfield mineral resource estimates (as of February 2011) are as follows:

Measured and Indicated Resources: 31.3Mt at an average grade of 1.2 g/t gold containing approximately 1.25 million ounces of gold.
Inferred Resources: 7.7Mt at an average grade of 1.6 g/t gold containing approximately 385,000 ounces of gold.

Metallurgical test work (column leaching) is underway to further evaluate the planned heap leach recovery process and to validate the previous metallurgical test work carried out by the previous owners of the property.

The Company intends to complete a feasibility study by the end of June 2012 for an open pit, heap leach operation at the Gemfield and McMahon Ridge deposits at Goldfield. Evaluation of a possible larger-scale milling operation, including the Goldfield Main deposit, continues to be evaluated by the Company. Heap leach gold production is estimated in the first half of calendar year 2014, subject to permitting and construction.

Converse Property, Nevada (100% the Company)

The Converse gold project (“Converse”) is located in the western part of the Battle Mountain Gold Belt, a mineralized belt that accounts for over 50 million ounces of reported cumulative gold production and mineral resources.

Converse has grown significantly this year and is now over 5 million ounces of gold, the majority in the highest category of resource (measured and indicated).
The current overall Converse mineral resource estimates (as of August 2011) are as follows:

Measured and Indicated Resources: 330.9Mt at an average grade of 0.48 g/t gold containing approximately 5.15 million ounces of gold.
Inferred Resources: 31.7Mt at an average grade of 0.44 g/t gold containing approximately 444,000 ounces of gold.

The Company is currently carrying out metallurgical test work (column leaching) to further evaluate the planned heap leach recovery process and to validate the previous metallurgical test work carried out by the previous owners of the property.

A Preliminary Economic Assessment (scoping study) for an open pit, heap leach operation at the Converse project is scheduled to be completed by the Company before the end of 2011.

Ruby Hill Mine Royalty, Nevada, USA

The Company owns a 3% Net Smelter Return royalty from Barrick’s Ruby Hill gold mine in Nevada. Gross income from the royalty was $5.3 million for the current fiscal year.

The Ruby Hill Mine is a low-cost, open-pit, heap leach mining operation that produced 81,000 ounces of gold at total cash costs of $702 per ounce in 2010. Proven and probable gold reserves reported by Barrick at December 31, 2010 were 1.1 million contained ounces, sufficient for at least an additional 7-8 years of production at current levels.

Rio Blanco Gold-Silver Project, Ecuador (100% the Company)

Early in 2011, the Company received approval from the Ecuadorian government to recommence exploration activities. The Company continues to work with the government to secure environmental, construction and operating permits by the end of 2011, pending the successful negotiation of a production contract as required under the Ecuadorian Mining Law (as discussed below).

Subject to issues required to be clarified under the new Mining Law, the targeted production date for the project is uncertain as it is dependent upon: a) further engineering work being required (due to a modified mine plan and plant and tailings locations); b) delivery times for critical capital purchases; c) production permits; and d) finalization of the details of the royalty and windfall revenue tax. The Company is hopeful, however, that production could commence in the first calendar quarter of 2014.

Projected average annual production at Rio Blanco is approximately 70,000 ounces of gold and 400,000 ounces of silver over a 7.5 year mine life, with expected cash costs of approximately $350 per ounce gold (net of silver by-product credit). The basic parameters used for the estimated production numbers were: (a) base-case gold price of $750 per ounce, (b) initial capital costs of approximately $120 million, (c) 800 tpd mine production, (d) cash operating cost of approximately $75 per tonne (mining, processing and G&A) and (e) currently estimated proven and probable reserves of approximately 600,000 ounces of gold and 4.3 million ounces of silver (2.1 Mt grading 8.8 g/t gold and 62 g/t silver at a cut-off grade of 4.0 g/t gold).

Gaby Gold Project, Ecuador (approximately 60% the Company)

The Gaby deposit is one of the largest undeveloped, open-pittable gold deposits in South America and offers our shareholders significant leverage to higher gold prices.

Based on a January 2009 optimization study update of a February 2008 preliminary feasibility study, measured and indicated resources (on a 100% project basis) totaled 356 million tonnes at an average grade of 0.61 g/t gold, containing approximately 6.9 million ounces of gold at a cut-off grade of 0.4 g/t gold. The Company controls approximately 60% of these ounces or approximately 4.2 million gold ounces.

The Company has elected not to proceed at this time with a final feasibility study at Gaby due to other company priorities and also pending clarification of the important components of the new mining law (as described below).

The technical information discussed in this Shareholder Letter has been reviewed by the respective Qualified Persons of the Company: Nick Appleyard, VP Corporate Development and Mark Cannuli, Exploration Manager.

Ecuador

In Ecuador, the development of the mining industry is finally seeing some progress following the suspension by the Ecuadorian government of all exploration activities in March 2008.

The new mining law was approved in January 2009, the regulations specifying the details of the mining law were implemented on November 4, 2009, and many of the exploration companies in Ecuador have now recommenced exploration activities on their properties. The Company, however, is still awaiting official government approval to re-start its activities at the Gaby project as it is located in a so-called environmental “protected area” (Bosques Protector) and so additional approvals are required.

Two of the key considerations in the new mining law are the details of the production contract that is required for all mining projects and which includes a proposed government production royalty (minimum 5%), an advanced royalty payment (as yet unknown) and the impact of a 70% windfall revenue tax. All of these issues could severely limit the upside potential of project economics related to future metal price increases and still require clarification by the Ecuadorian government.

Please see the accompanying MD&A for the 2011 fiscal year for a detailed discussion of these and other issues related to the new mining law in Ecuador.

Calendar Year 2012 – Corporate Objectives

During the 2012 calendar and fiscal year, the Company's exploration and development efforts are expected to focus primarily on:

At the Pallancata Silver Mine in Peru:

Working with our joint venture partner Hochschild to continue production at the 3,000 tpd mining rate to produce approximately 9.3 million ounces of silver and 36,500 ounces of gold (the Company’s estimate on a 100% project basis).
Increasing mineral resources and reserves to extend the existing mine life (approximately a 4 year mine life based on current reserves).

At the Inmaculada gold-silver project in Peru, working with Hochschild to continue with the aggressive exploration and development program and completing feasibility study by the end of 2011 in order to move the project into production as scheduled by the end of 2013.

At the Goldfield gold project in Nevada completing feasibility study, including commencing an Environmental Impact Study by mid 2012, with the goal of commencing heap leach production in 2015.

At the Converse gold project in Nevada, completing a scoping study by the end of calendar year 2011 and commencing a final feasibility study in 2012.

At the Rio Blanco gold-silver project in Ecuador, commencing construction of a mine, following permit approvals and the negotiation of a production contract in 2011, which will include clarification of certain tax, royalty and foreign investment issues related to the 2009 Mining Law.

Subject to the successful conclusion of a mining contract for Rio Blanco, advancing the development of the Gaby gold project with the commencement of a feasibility study.

Enhancing cash flow by acquiring a new producing asset in a low-risk political and environmental jurisdiction in the Americas.

Continuing to seek additional strategic joint venture alliances, such as that with Hochschild at Pallancata and Inmaculada, in order to fast-track projects to production and to reduce future cash outlays by the Company.

On behalf of the Board of Directors and senior management of the Company, I want to thank the Company’s employees and consultants for all their efforts in making 2011 the most successful year in the Company’s 18-year history and also to thank the Company’s shareholders for their continuing support and belief in the long-term success of the Company.

Sincerely,

Stephen J. Kay
Präsident and Chief Executive Officer (CEO)