INTRODUCTION AND SUMMARY

It carries out its exploration and development activities through its subsidiary Minera Columbia de México S.A. de C.V.

Administrative services and certain personnel are provided for its operations in Mexico through its subsidiary Servicios Richmond York S.A. de C.V.

Its primary business activity at the present time is to bring to commercial production the Lluvia -Jojoba gold project in Sonora, Mexico.

Proposed Transactions

The Company has incorporated a new Canadian subsidiary, Maru Resources Inc. (“Maru”), and a new Mexican subsidiary, Minera Maxim S.A. de C.V. (“Maxim”), to hold the Company’s exploration properties separately from its production assets which include the Lluvia – Jojoba project and the related plant and equipment.

The non-core exploration properties in Mexico will be transferred to Maxim.

Shareholder approval was obtained at the June 17, 2010 annual meeting for a reduction in stated capital for ultimately spinning out Maru with the exploration assets on a tax effective basis to the existing shareholders of the Company.

If this were to occur, Maru would become a separate junior exploration company, shares of which would be owned by the shareholders of the Company.

OUTLOOK

• Gold prices have risen over the past several years to levels never seen before and for the quarter ended have held between $1,475 and $1,550 per ounce. Since the quarter end, we have seen a further rise to the $1,800 level with a spike as high as $1,900. On the other hand, shares of gold mining companies have not fully reflected this dramatic gold price increase. Uncertain outlooks in the world economy are likely to keep gold prices high for some time.

• Rising fuel and supplies costs, shortages of highly qualified personnel are partially offsetting the benefits of these high gold prices. The Company is confident that starting gold production at this time will be accretive to shareholders

• Based on progress to date, and realization of assumptions and targets outlined in this MD&A and in the Company’s press releases of April 27 and 28 and May 31, 2011 and the NI 43-101 technical report of July 2010, the following points summarize an outlook of expected developments.

• Production of gold should increase over time as additional new ore is placed under leach.

• Approximately 1,065 ounces of gold was produced by the end of June 2011 and 10,000 ounces or more will be produced by the end of 2011.

• Approximately 5 million tonnes containing over 100,000 ounces of gold will be stacked and under leach by the end of 2012, with approximately 50,000 ounces recovered.

• Expansion of the gold extraction circuits will proceed during the year as volume increases. The second train of carbon columns increasing capacity to 1600 GPM (363 cubic meters per hour) was brought on line during the first part of August 2012.

• Reserves at the Jojoba deposit will continue to be developed and will begin to contribute to production by the end of the first Quarter of 2012.

• Copper content at the Lluvia deposit is manageable and gold recovery is as anticipated.

LIQUIDITY

Working Capital

At June 30, 2011, the Company had cash and cash equivalents of $1,206,519 compared to $4,501,106 at December 31, 2010. The decrease is the net effect of receiving proceeds of warrant exercises offset by continued construction of Property, Plant and Equipment, addition of inventory of ore under leach and ongoing operational expenses.

Working capital at March 31, 2011 was $5,270,579 compared to $2,302,758 at December 31, 2010. The main factor leading to the improved working capital is the increase in current assets due to $5,444,986 for additional inventory consisting of ore under leach as well as increases in chemicals and spare parts, and an increase in sales taxes recoverable of $849,930.

The Company has had to rely on external financing, implementing private equity placements, incurring debt and arranging lease financing as well as considering any other financing alternative it had available to it to advance the Lluvia–Jojoba Project towards commercial production. It will not become self-sustaining until achieving positive cash flow from gold production.

Cash requirements for development work exceeded forecasts in recent years due to rising costs and delays in start-up of mining, so the Company has had to work diligently on constrained budgets and in conjunction with a variety of incremental financing initiatives.

Revenues from the leaching of new ore began in this, the second quarter and cash flow is expected to turn positive by the end of the third quarter.

The leach start-up delays experienced in the fourth quarter of 2011, a period of high capital construction and pre-operative expenditures, put additional pressure on the Company’s liquidity that necessitated new financing initiatives in 2011

regards

Hg

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