Results of Operations

2005 ANNUAL REPORT

Corporate OfficeP.O. Box 202048 Gerrish StreetWindsor, NS B0N 2T0Canada

Phone: +01 (902) 798 9701Toll Free: +01 (877) 465 3674Fax: +01 (902) 798 9702

Email: [email protected]: www.etruscan.com

(EET:TSX)

Corporate OfficeP.O. Box 2020

48 Gerrish StreetWindsor, Nova Scotia

CANADA B0N 2T0Tel: +01 (902) 798 9701

Toll Free: +01 (877) 465 3674Fax: +01 (902) 798 9702


Tirisano Diamond MineEtruscan Diamonds (Pty) Ltd.

10 Roth StreetP.O. Box 46Ventersdorp

South Africa 2710Tel: +27 18 264 4627Fax: +27 18 264 5328

West African OfficesBurkina Faso

08 BP 11197Rue 13.26 porte 195

Ouagadougou 08 BURKINA FASO

Tel: +226 50 36 10 80Fax: +226 50 36 02 43

MaliBP E1519

Rue 882, Pte 746, Faladie SemaBamako

MALITel / Fax : +223 2 20 68 78

Côte D’Ivoire25 BP 603

Abidjan 25COTE D’IVOIRE

Tel / Fax : +225 20 30 29 33

Ontario OfficeP.O. Box 1749Niagara-on-the-LakeOntarioCANADA L0S 1J0Tel: +01 (905) 468 0130Fax:+01 (905) 468 8407

OfficersGerald McConnell Q.C.President & CEO

Donald Burton M.Sc.VP Exploration & COO

Glenn Holmes C.A.VP Finance & CFO

Janice Stairs LLB, M.B.A.VP, General Counsel & Corporate Secretary

Robert Harris, M.Sc. Eng., P.Eng.VP Operations

DirectorsEddie Lui Hong Kong

Gerald McConnellWindsor, Nova Scotia

Rick Van Nieuwenhuyse Vancouver, British Columbia

Joel D. SchneyerParker, Colorado

Walt Tyler Lakewood, Colorado

William Young Ottawa, Ontario

Stock ListingToronto Stock Exchange(Trading Symbol: EET)

Register and Transfer Agent

CIBC Mellon Trust CompanyHalifax, Nova Scotia

AuditorsPricewaterhouseCoopers LLP

Halifax, Nova Scotia

PricewaterhouseCoopers Inc.Cape Town, South Africa

Legal CounselMcInnis Cooper


BankersTD Canada Trust


NedbankJohannesburg, South Africa

Marie Rose Gateté Manager of Social Initiatives at John and Margaret Savage Health Centere in Touré, Niger

Delivery of school supplies to Bossey Bangou school close to the Samira Gold Mine in Niger

Classroom built by Etruscan at Bossey Bangou school close to the Samira Gold Mine in Niger

Bank of AfricaBurkina Faso, Côte d’Ivoire and

Mali, West Africa

Location of Projects in Africa

1The past year has been an exciting and productive one for Etruscan Resources Inc. During 2005, Etruscan continued with its strategy of moving Youga to production and acquiring dominant land positions within district scale gold and diamond belts in Africa. The Company presently has an interest in properties covering in excess of 8,200 km2 on proven gold belts in West Africa and a dominant land position in the Ventersdorp alluvial diamond district in South Africa. As the Company advances its various mining operations to production, there remains tremendous upside in the exploration potential of these properties.

Gold, West Africa Development is well underway at the Company’s 90% owned Youga Gold Project located in Burkina Faso. During 2005, the Company financed and carried out mine development work at Youga, including the upgrading of the 30 kilometer main access road from the Town of Zabre to the mine site, terracing and compaction of the mine site, surveying and clearing of the 11 kilometer water pipe line route from the site to the year round water supply at the Nakambe River and upgrading of camp and air strip infrastructure. Certain long lead items were also purchased or ordered, including an Allis Chalmers ball mill from the Louvicourt Mine in Val d’Or, Quebec. In January, 2006, the Company appointed GBM Projects Limited of the United Kingdom to complete the detailed design engineering of the Youga CIL plant and related facilities. Construction is anticipated to be completed in early 2007. The construction of Youga will be funded, in part, by a US$28.5 million project debt facility provided by the FirstRand Group of South Africa and Macquarie Bank of Australia. Etruscan controls over 1,000 km2 along an 80 kilometer strike length of the Youga Gold Belt in Burkina Faso. Regional exploration on the permits surrounding the Youga mining permit has already identified significant target areas at Zerbogo, Bougre and Bitou. Additional drill programs will be undertaken on these areas in 2006. Etruscan significantly expanded its property holdings along the Youga Gold Belt by moving across the border into Ghana. During the first quarter of 2006, Etruscan concluded an option agreement with Red Back Mining Inc. on a prospecting license and a reconnaissance license located on the southwestern extension of the Youga Gold Belt. These licenses cover 773 km2. Previous work carried out on one of the licenses confirmed the presence of ore grades and widths in trenches and drill holes, with the most significant drill intercept returning 41 meters at 5.2 grams per tonne gold. Etruscan’s objective is to develop a stand-alone mining operation in Ghana.

Mining operations at Samira Etruscan’s 40% owned Samira Hill Gold Mine produced 92,270 ounces of gold during the 12 months ended November 30, 2005 from the processing of 1.34 million tonnes of ore at an average grade of 2.36 grams per tonne and a cash cost of US$247 per ounce. The Samira Hill Mine is located on the 50 kilometer long Samira Gold Belt which is controlled by Etruscan and its partner, Semafo Inc. Historical exploration work by Etruscan identified a number of additional satellite deposits along the gold belt in the vicinity of the existing mill that could provide supplementary reserves to extend the feasibility study mine life of 6.3 years. In 2005, a significant drill program was carried out on the Boulon Djounga West deposit located 10 kilometers to the west of the Samira Hill Mine, where a total of 6,198 meters was completed in 61 RC holes together with five trenches totaling 532 meters. The results were highlighted by drill intercepts of 27 meters grading 4.11 grams per tonne and 25 meters grading 3.97 grams per tonne. Exploration activities during 2006 will target other satellite deposits along the Samira Horizon gold belt within easy trucking distance of the mill.

2 During 2005, the Company completed a 5,230 meter drilling program at its 85% owned Agbaou Gold Project located in southern Côte d'Ivoire. These drill results have confirmed the geological model, the orientation of the mineralized structures and the distribution of high-grade zones. Deeper drilling to a vertical depth of 150 meters has confirmed that the deposit remains open at depth. Further drilling is planned for the second quarter of 2006 for the purpose of establishing an updated resource estimation. Metallurgical and base line studies will also be undertaken for inclusion in the planned feasibility. Drilling activities in Mali Etruscan expects to allocate a higher priority to gold exploration in Côte d'Ivoire in 2006 as it considers the country to have significant potential for the discovery of new large gold deposits. Côte d'Ivoire has in excess of 300,000 km2 of highly prospective terrain which has not been subject to the extensive level of exploration seen in the neighboring countries of Mali, Ghana and Burkina Faso. Etruscan has recently applied for several exploration permits over areas it considers to be highly prospective for gold. Exploration efforts in Mali during the past year were rewarded with significant high-grade gold drilling results from the Finkolo Gold Project. Drilling completed by our joint venture partner, Resolute Mining, has confirmed the continuity of the main mineralized zone at Tabakoroni and the presence of high grade lodes. Continuity of this mineralized zone has now been confirmed over a strike length of 1.7 kilometers and remains open to the north, to the south and at depth. In light of the extremely encouraging drill results, it is anticipated that drilling will continue throughout 2006 to support an initial resource estimation. Metallurgical studies are also planned for 2006. Consistent with Etruscan’s exploration strategy, the Company seeks to expand its dominant land position along the Syama Gold Belt. Diamonds, South Africa Etruscan has maintained its position as the dominant land holder in the Ventersdorp alluvial mining district in South Africa. During 2005 the Company successfully applied for and was granted several exploration permits in accordance with the requirements of the new mining legislation including compliance with the Black Economic Empowerment Charter. The Company presently holds two mining permits and ten prospecting permits with an additional five prospecting permits under application. In June 2005, Etruscan Diamonds was granted a mining permit for the Klipgat Diamond Mine, located in the Mooi River Valley approximately 100 kilometers west of Johannesburg. Etruscan Diamond’s contract operator, Gothoma Diggings, is utilizing a recovery plant rated for production of 40,000 cubic meters of diamondiferous gravel per month and for the five month period ended November 30, 2005, a total of 243,000 cubic meters of gravel was processed through the mill and 5,698 carats were recovered. Diamond sales for 2005 averaged US$454 per carat. The Klipgat processing plant will continue to be used as a bulk sample test facility during 2006 to evaluate the economic viability of other gravel deposits along the Mooi River Valley. Effective June 6, 2005, Mvelaphanda Exploration (Pty) Ltd. met the requirements to earn a 50% interest in the Tirisano Diamond Mine and a 50/50 joint venture was formed between Mvelaphanda Exploration and Etruscan Diamonds. During the fourth quarter mining operations progressed into the deeper gravel packages. While the stripping ratio was higher than expected, the operation demonstrated that the clay gravels could be efficiently processed and that the grade of diamonds in the deeper

3yellow gravels is higher than the grades encountered in the shallower gravel units. During November the grade of diamonds recovered averaged 2.95 carats per 100 cubic meters exceeding the projected grade of 2.8 carats per 100 cubic meters. However, during the three months ended November 30, the overall carat production averaged 2.05 carats per 100 cubic meters, which was lower than projected. Consequently, the operation was placed on care and maintenance pending improvements in the foreign exchange rate ($US/Rand) and diamond values. Dewatering of the pits is continuing to enable the operation to restart quickly when favorable market conditions prevail.

Alluvial diamond mining operations in South Africa

Etruscan’s diamond interests are held through Etruscan Diamonds (Pty) Ltd., a company in which Etruscan has a 51% effective ownership interest. Management continues to assess strategic alternatives for enhancing shareholder value including the possible spin-off or disposition of the Company’s diamond assets. Social Commitment in Africa Since first stepping foot in Africa in the mid-1990’s, Etruscan has attempted to make a positive and lasting impact on the populations surrounding its exploration and development projects. These initiatives have focused primarily on the areas of health, education and farming. One of the first of these initiatives in 1996 was the renovation and construction of classrooms at the school at Bossey Bangou located approximately 10 kilometers from what is now the Samira Gold Mine. This project was carried out in partnership with Rotary International. From its modest beginnings of some 50 students the school now boasts an enrollment of just over 400 with almost half of the student population being female. Etruscan continues to provide support to students graduating from Bossey Bangou who are to continue formal education.

Etruscan’s Manager of Social Programs, Marie-Rose Gateté, at the Youga School in Burkina Faso

4During 2005 the social initiatives undertaken by the Company included donations of school supplies and the renovation and upgrading of the medical clinic in the village of Youga, repairs to water wells in the village of Finkolo as well as the continuation of several successful agricultural programs in South Africa. In September 2005, in response to the food crisis in Niger, the Company donated 37 tons of rice and millet to several villages in the regions surrounding the Samira Hill Gold Mine. In Closing The success of Etruscan over the past year would not have been possible without the dedication of our employees and the loyalty of our shareholders. We believe that 2006 is going to prove to be another exciting year for Etruscan and its shareholders and we look forward to reporting to you on the continuing successes of our Company. On behalf of the Board of Directors, Gerald J. McConnell Chairman of the Board and Chief Executive Officer April 5, 2006

ac ___________________________________________________________________________________ FOR THE YEAR ENDED NOVEMBER 30, 2005 COMPARED WITH 2004 and 2003

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General This Management Discussion and Analysis (MD&A) of Etruscan Resources Inc. (Etruscan or the Company) is dated February 24, 2006 and provides an analysis of the financial operating results for the year ended November 30, 2005 as compared with the previous two years. This MD&A should be read in conjunction with Etruscan’s 2005 audited consolidated financial statements, including the related note disclosure, all of which are prepared in accordance with generally accepted accounting principles in Canada. All amounts are in Canadian dollars unless otherwise specified. The financial statements and additional information, including the Company’s Annual Information Form, Certifications of Annual and Interim Filings and press releases, are available on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com. Gold Development and Exploration Samira Hill Gold Mine, Niger Commercial production at the Samira Hill Gold Mine in Niger (Samira Hill) commenced on October 1, 2004. Gold production for the year ended November 30, 2005 totaled 92,270 ounces at a cash cost of US$247 per ounce and gold sales of 95,753 ounces at an average price of US$386 per ounce for revenue of US$37.2 million. The Samira Hill deposit is believed to be one of a number of potentially significant gold deposits within what is recognized as a stratigraphically controlled emerging gold belt known as the Samira Horizon. By constructing a central mill processing facility at Samira Hill, future exploration will target the development of satellite gold deposits within trucking distance of the mill. In 2005 an exploration budget of US$500,000 was allocated for a program of trenching and reverse circulation drilling to further test and delineate additional gold resources along the Samira Horizon. During the first two quarters of 2005, exploration was conducted on the Boulon Djounga West satellite gold deposit including some trenching and a 61-hole (6,200-m) reverse-circulation drill program of infill holes. Work is underway to determine a preliminary geological resource and a possible reserve. Additional areas identified for future exploration include targets known as Long Dave, Long Tom North, Boundary and Libiri East. The Samira Hill Gold Mine is expected to produce 618,000 ounces of gold in its initial 6.3 years of operation, prior to additional satellite deposits being developed. From the inception of production through to December 31, 2005 a total of 1,810,000 tonnes of ore have been processed at the Samira Hill Gold Project with an average grade of 2.34 grams per tonne. Mill recoveries for this period averaged 88.3% yielding a total of 118,614 ounces. Forecast production for calendar year 2006 is 100,000 ounces of gold from the processing of 1.58 million tonnes of ore at an average grade of 2.3 grams per tonne gold. The Samira Hill Gold Project is owned by Société des Mines du Liptako (SML), which is owned 80% by African GeoMin Mining Development Corporation Limited (African GeoMin) and 20% by the State of Niger. African GeoMin is in turn beneficially owned 50% by Etruscan and 50% by Semafo Inc. (Semafo). In 2003, US$27 million of debt financing was arranged for the development of the Samira Hill Gold Project. Under the terms of the arrangement between Semafo and Etruscan, Semafo has provided all equity funding required to bring the Samira Hill Gold Mine into production. Semafo is also required to fund the ongoing working capital requirements of the Samira Hill Gold Project. Semafo is entitled to recover all of this funding from production cash flows on a preferential basis.

Youga Gold Project, Burkina Faso Etruscan’s next most advanced gold project is the Youga Gold Project located in Burkina Faso. This project was acquired from Ashanti Goldfields Company Limited and Echo Bay Mines Limited in December 2003 and is now fully permitted for mine development. The Youga Gold Project is owned 90% by Etruscan and 10% by the Government of Burkina Faso. The Company incurred $8.6 million on the acquisition of the Youga Gold Project and since acquisition has incurred an additional $9.2 million in exploration costs on the Youga Gold Project and surrounding exploration permits. Most of the Youga exploration expenditures were incurred in conjunction with the completion of an updated feasibility study for the project, including a detailed drilling program undertaken to update the reserve base. The Company has also incurred $222,000 on the acquisition and exploration of other properties in Burkina Faso. A positive feasibility study was completed in January 2005 which forecasts Youga will produce an average of 88,000 ounces of gold per year at a cash operating cost of US$255 per ounce over an initial 5.5 year mine life. The feasibility study is based on mineable reserves of 5.5 million tonnes of ore, with an average grade of 2.9 grams per tonne, calculated at an unhedged gold price of US$400 per ounce. The Company completed an updated reserve estimate during the second quarter 2005 which increased the mineable reserves to 6.6 million tonnes at 2.7 grams per tonne, increasing the project mine life to 6.5 years. Similar to the case at Samira Hill, the Company believes that by constructing a central mill processing facility, future exploration will target the development of satellite gold deposits within trucking distance of the mill, materially increasing the mine life and mineable reserves delineated in the feasibility study Initial capital costs were estimated in the January 2005 Feasibility Study to be US$34 million. This estimate assumes a contract miner and excludes working capital. The capital cost estimate is currently being reviewed in conjunction with the detailed engineering phase, which began in January 2006. As at November 30, 2005 the Company has also incurred $2.25 million in plant construction costs for the Youga gold deposit. Since November, the Company has incurred an additional $1.75 million in plant construction costs. During 2005, the Company financed and carried out development work on the Youga Gold Project, including the upgrading of the 30 kilometer main access road from the town of Zabre to the mine site, terracing and compaction of the plant site, surveying and clearing of the 11 kilometer long water pipeline route from the site to the year round water supply at the Nakambe River and upgrading of camp and air strip infrastructure. Certain long lead items were also purchased or ordered, including an Allis Chalmers grinding mill. The Company has also ordered certain heavy equipment to be used in the mining operations. Etruscan has appointed GBM Projects Limited of London, England to complete the detailed design engineering of the Youga CIL plant and related facilities. It is anticipated that construction will be completed in the second quarter of 2007. In January 2006, the Company received an offer of debt financing aggregating US$33.5 million from the First Rand Bank Group of South Africa, a specialist in the financing of mineral resource projects in Africa, and Macquarie Bank Limited of Australia to complete the construction of the Youga Gold Mine. The debt package is comprised of a US$28.5 million senior secured project loan and a US$5 million subordinated debt facility. On February 23, 2006 the Company accepted the offer of finance for a US$ 28.5 million senior secured project debt facility. The offer of finance contemplates that the debt facility will be structured as a limited recourse facility to the Company until technical completion conditions are achieved where after it becomes non-recourse project financing. Standard project finance security provisions apply to the offer of finance. The offer of


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finance is subject to the completion of the formal financing agreements, establishment of an options related gold price protection program that secures a minimum price of US$500 per ounce for approximately 453,000 ounces of gold to be produced over the first 5 years of production and satisfaction of the specified conditions precedent not later than March 23, 2006. The Company will supplement the debt financing with an equity or quasi-equity financing to fund the Youga Gold Project, as well as, the continuing exploration of the mining permit and the surrounding exploration permits. Initial gold production from the Youga Gold Project is targeted for the second quarter in 2007. The Company has completed regional and detailed mapping as well as airborne and ground geophysics identifying a number of exploration targets within the Youga mining permit and the surrounding exploration permits. Etruscan continues to evaluate these near-surface mineralized zones that can provide additional mine reserves. In order to test these targets the Company recently completed 4,317-m core drilling, 12,030-m RC drilling and 5,168-m RAB drilling. This current drilling program focused entirely on the Youga Mining Permit within a 3-kilometer radius of the Youga mill site. To date, six additional mineralized zones have been identified outside of the existing mineable reserve base including the Nanga Zone, the Leduc Zone, the A2 Village Zone, the Village Tail Zone, A2 West Zones 4 & 5, and the Zegoré Zone. The most advanced zone is the Nanga Zone where Etruscan has completed 4,600 meters of drilling and 1,700 meters of trenching. Continuity of gold mineralization has been confirmed over a strike length of 400 meters to a vertical depth of 60 meters. The mineralization remains open along strike and at depth. Average grades of 1 to 2 g/t over widths of 10 to 30 meters have been encountered through much of the zone. Higher grade intercepts within the this zone include 5 meters at 3.1 g/t, 13 meters at 3.9 g/t, 7 meters at 4.6 g/t and 15 meters at 7.0 g/t. Surrounding the mining permit area, Etruscan holds or has applied for renewal of an additional eight exploration permits comprising over 1,000 square kilometers, which cover an 80- kilometer strike length of the Youga gold belt. Regional exploration on these permits has identified significant target areas at Zerbogo (25 kilometers southwest of Youga), Bougre (13 kilometers southwest of Youga) and Bitou (25 kilometers northeast of Youga). In January 2006, Etruscan concluded an option agreement to acquire a 100% interest in a prospecting license and reconnaissance license located in Ghana, West Africa. The licenses cover 773 square kilometers contiguous with Etruscan’s land holdings in the Youga gold belt. Drill programs will be undertaken on these areas in 2006. Management believes that each of these areas has the potential for new gold discoveries. Etruscan continues to evaluate its other exploration permits in Burkina Faso. Results from the recently completed soil sampling on the exploration permits on the Banfora Belt have delineated a 20-kilometer long corridor of elevated arsenic with coincident gold anomalies. Additional detailed soil sampling and mapping are planned to identify drill targets. A compilation of existing work on the Soukoura permit, located on the Houndé greenstone belt, is complete and work will begin on designing and executing soil sampling grids over the most perspective areas of the permit. A reconnaissance program including mapping and selected soil sampling is planned for the Parboua permit located in eastern Burkina Faso. Agbaou Exploration Permit, Côte d’Ivoire The Agbaou Gold Project is located on the Agbaou gold belt in Côte d’Ivoire, approximately 200 kilometers northwest of the port city Abidjan. A Presidential Decree granted the Agbaou exploration permit to the

Company in late 2003. Continued political instability during much of 2004 and early 2005 prevented the Company from initiating a planned drilling program. During 2005, the Company incurred $1.1 million on its acquisition and exploration activities bringing the total investment in Agbaou project to $2.3 million. Under the terms of the permit, the Company agreed to reimburse SODEMI, a mining agency of the Government, for its deemed exploration expenditures. A portion thereof amounting to $489,660 was paid to SODEMI in February 2005. In the third quarter of 2005 the Company completed a 5,230 meter drilling program at the Agbaou Project. The program included both reverse-circulation and core drilling and focused on testing the updated geological model and extending a number of the mineralized zones. All assay results have now been received and the results indicate the high-grade intersections are repeatable and predictable. Work is underway to complete the geological model for the deposit and define drill targets outside of the current resources. Côte d’Ivoire has been under-explored historically relative to other West African countries and Etruscan is making applications for additional permits in the country. Exploration Permits, Mali During 2005, the Company incurred $1.5 million on its acquisition and exploration activities bringing the total investment in Mali to $4.7 million. In 2004, the Company incurred expenditures of $1.5 million on the Mali properties. Expenditures during 2004 and 2005 have been incurred on a countrywide assessment of the potential of the Mali properties held by Etruscan. This assessment included the use of regional soil geochemical surveys and auger drill sampling to identify gold anomalies for future exploration. In 2005, the Company also recognized expenses of $143,731 for the costs of two properties, which were abandoned. The Company’s most advanced exploration project in Mali is the Finkolo permit, located in Mali South. In 2003, the Company entered into an agreement with Resolute Mining Limited (Resolute) on the Finkolo permit, whereby Resolute can earn a 50% interest in the Finkolo Permit by expending US$2 million prior to October 1, 2006. Resolute has the right to earn an additional 10% interest by either expending an additional US$1 million or completing a feasibility study within two years following initial earn-in. Resolute is managing and funding the exploration program at Finkolo pursuant to this agreement. As at November 30, 2005, Resolute has incurred exploration expenditures in excess of US$1 million. The Finkolo Permit is contiguous with the Syama holdings of Resolute, which host the 6.4 million ounce Syama gold deposit. Detailed structural studies have been conducted at Finkolo and re-logging of all current and historical drill core has now been completed. Within the Finkolo Permt, drilling has confirmed the continuity of the main mineralized zone at Tabakoroni and the presence of high grade lodes. Continuity of this mineralized zone has now been confirmed over a strike length of 1.6 kilometers with the potential to extend to more than 2 kilometers. A total of 6,075 meters in 62 holes have been completed to the end of December 2005. Two meters of 465.2 g/t gold in hole TAC-083 represents the highest grade intercept drilled to date at Tabakoroni. Drilling will continue after a significant backlog of samples at the assay laboratory has been processed. Etruscan has significantly increased its property portfolio in Mali through a number of agreements with private Malian permit holders and with the granting of several exploration authorizations by the Ministry of Mines. In early 2005, Etruscan expanded its land holdings in Mali South by over 1,300 square kilometers. Regional geochemical surveys covered three of the target areas and over 5,300 samples were collected and analyzed for gold, base metals and a suite of pathfinder elements. Further sampling and


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selected auger drilling is warranted on some weak gold anomalies and stronger arsenic anomalies. In Mali West much of the Company's effort has been focused on advancing a number of regional targets to drill-status based on favourable soil sampling and auger drilling results. Over 4,900 regional samples have been collected over the Diba, Keniebandi and Kobokotosou target areas. This work has identified significant gold -in-soil anomalies over strike lengths of one to two kilometers. A total of 1,546 single sample auger holes were drilled which confirmed three of the major soil anomalies over 3 kilometers at Diba, 3.5 kilometers at Keniebandi and 2.5 kilometers at Kobokotosou. These targets will be further tested by deep multi-sample auger drilling to a vertical depth of 25 meters. Diamond Development and Exploration Through its 51% owned subsidiary, Etruscan Diamonds (Pty) Limited (Etruscan Diamonds), the Company is pursuing the exploration and development of alluvial diamond deposits in the Ventersdorp District of South Africa located approximately 150 kilometers west of Johannesburg, South Africa. Over the past three years, the Company has been securing strategic properties throughout the district. In order to maintain its mineral interests under the new mineral legislation that came into effect on May 1, 2004, the Company has been making the necessary filings within the timeframes provided in the new legislation, to convert its old order prospecting and mining rights to new order prospecting and mining rights, which includes meeting the requirements of the Black Economic Empowerment Charter. Etruscan Diamonds presently holds two mining permits and nine prospecting permits covering approximately 255 square kilometers in the Ventersdorp District with an additional eight prospecting permits under application. Etruscan Diamonds has two mines in the Ventersdorp district, the Klipgat Diamond Mine and the Tirisano Diamond Mine. These mines represent the first phase of development of the properties held by Etruscan Diamonds and will provide the key technical parameters for determining the location and size of other operations and other properties in the Ventersdorp district. Tirisano Diamond Mine The Tirisano Diamond Mine, located on the Nooitgedacht 131IP property, represents the first phase of development for the Ventersdorp group of properties. In May 2004, Etruscan Diamonds entered into an agreement with Mvelaphanda Exploration (Pty) Ltd. (Mvelaphanda Exploration) to facilitate the expansion of the Tirisano Diamond Mine. Mvelaphanda Exploration is jointly owned by Trans Hex Group Limited (Trans Hex), and Mvelaphanda Resources Limited, a broadly based black empowerment company focused on the South African mineral sector. Under the terms of the agreement, Mvelaphanda Exploration could earn a 50% interest in the Tirisano Diamond Mine and the Nooitgedacht 131IP property by funding a capital expansion of the plant at the Tirisano Diamond Mine to achieve a throughput capacity of 300 metric tons per hour. In accordance with the agreement, Mvelaphanda Exploration assumed responsibility for the cost of the Tirisano Diamond Mine capital expansion and the funding of ongoing working capital requirements. On June 6, 2005, Mvelaphanda Exploration completed its requirements to earn a 50% interest in the Tirisano Diamond Mine and a 50/50 joint venture between Etruscan Diamonds and Mvelaphanda Exploration was formed. Trans Hex is operating the joint venture on behalf of Mvelaphanda

Exploration, the operator, and reports to a joint management committee consisting of representation from each of Etruscan Diamonds and Mvelaphanda Exploration. Since the earn-in by Mvelaphanda Exploration, in excess of 6,000 carats have been recovered from the Tirisano operation. During the fall of 2005, mining progressed into the deeper gravel packages. While the stripping ratio was higher than expected, the operation showed that the clay gravels can be efficiently processed and that the grade of diamonds in the deeper gravels is higher than expected. During November 2005 the grade of diamonds recovered averaged 2.95 carats per hundred cubic meters exceeding the projected grade of 2.8 carats per hundred cubic meters. However, during the three-month quarter ended November 30, 2005, the overall carat production averaged 2.05 carats per hundred cubic meters, which was lower than projected. As a result, the Tirisano Diamond Mine has been placed on care and maintenance until improvements in the foreign exchange rate (U.S. dollar/Rand) and diamond values per carat. Dewatering of the pits is continuing during this period to enable the operation to restart quickly when favourable market conditions prevail. Klipgat Diamond Mine The Klipgat property is located in the Mooi River Valley approximately 40 kilometers to the east of the operations at the Tirisano Diamond Mine. On June 23, 2005, Etruscan Diamonds received the necessary mining permit from the South African Government to proceed with the development of the Klipgat alluvial diamond property and mining operations have recommenced on the property. This property was mined by the contract miner, Gothoma Diggings (Gothoma), from February 2002 to April 2004. During this period, Gothoma produced approximately 16,500 carats, which were sold for an average price of US$392 per carat generating in excess of US$6.4 million. Since recommencing mining operations in June 2005, Gothoma has sold 5,378 carats for an average price of US$454 generating US$2.4 million. Under the current agreement, which commenced in February 2002 and expires in February 2006, the Company has netted proceeds of approximately $450,000, which has been recorded as a recovery of costs incurred on the Klipgat mineral property. Diamond Exploration Permits Etruscan Diamonds completed a regional airborne gravity survey, which identified a number of potential large sinkhole features west and south of the existing Klipgat Diamond Mine. Large sinkhole features are known to be associated with diamondiferous gravels. The airborne anomalies are being confirmed by detailed ground geophysical surveys over the sinkhole targets. With the receipt of prospecting permits, the confirmed anomalies will now be drill tested to determine the volumes of prospective gravels in this area, followed by the extraction of bulk samples to determine the grade and quality of contained diamonds. Etruscan Diamonds is presently bulk sampling several areas along the Mooi River. The Company has incurred exploration costs of $2.6 million on diamond properties in South Africa, excluding the amount of $1.8 million incurred on the Nooitgedacht 131IP property and transferred to the cost of the equity investment in the Tirisano Diamond Mine Joint Venture. In 2005, the Company incurred exploration costs of $260,000. The Company incurred exploration costs of $1.4 million in 2004 and $910,000 in 2003. Expenditures in 2004 included the regional airborne gravity survey at a cost of $1.1 million. This survey commenced in late 2003 and was completed in 2004. In 2004, the Company also recognized expenses of $71,899 for the costs of two diamond properties, which were abandoned.


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Results of Operations Consolidated Statement of Operations - for the years ended November 30, 2005

($) 2004

($) 2003

($) Gain on sale of investments 34,337 399,361 6,160,105 Gain on sale of mineral property 175,000 - 336,122 Equipment rental 202,346 250,626 - Interest and other income 57,831 161,533 81,403 Total revenue 469,514 811,520 6,577,630 Total expenses (see breakdown) 4,069,012 5,558,979 3,297,034 (Loss) Income (3,599,498) (4,747,459) 3,280,596 Loss from equity investment in African GeoMin (1,000,000) (1,000,000) (400,000) Loss on disposition and

impairment of Tirisano Diamond Mine (11,800,000) - -

Loss from equity investment in the Tirisano Diamond Mine Joint Venture (520,000) - -

Non-controlling interest in loss of subsidiary 734,725 194,369 291,158 Net (loss) income (16,184,773) (5,553,090) 3,171,754 Basic net (loss) income per share (0.23) (0.09) 0.07 Fully diluted net (loss) income

per share (0.23) (0.09) 0.06 Total assets 43,569,818 57,123,697 41,728,368 Total long-term liabilities 1,347,766 4,100,476 4,206,277 Etruscan’s net loss for the year ended November 30, 2005 was $16,184,773 or $0.23 per share compared to a net loss of $5,553,090 or $0.09 in 2004 and a net income of $3,171,754 or $0.07 per share in 2003. In 2005, the Company realized a gain on the sale of investments of $34,337 as compared to $399,361 in 2004. The Company settled obligations for amounts outstanding to certain consultants and employees with the transfer of the Company’s shares held by the Company’s agent. These transactions resulted in a gain on the sale of investments of $34,337 in 2005 and $86,243 in 2004. In 2004, the Company also realized a gain on the sale of equipment of $25,914 and the remainder of the gain was realized on the sale of 30,000 shares of NovaGold Resources Inc. (NovaGold). In early 2005, the Company recorded an additional gain of $175,000 on the sale of the Hackett River property. Under the terms of the 2003 agreement of purchase and sale, the Company received 159,091 common shares and warrants of Sabina Resources Inc., the acquirer of the property. In 2003, the Company recognized a gain on the disposal of the Hackett River property of $336,122. The Company also has a capped net profits royalty should the property be developed. The improved operating results in 2003 resulted from the sale of shares of NovaGold and other assets realizing gains of $6,160,105. All of the Company’s gains on the sale of investments and mineral properties are sheltered for tax purposes by loss carry-forwards. Under the terms of the arrangement with Mvelaphanda Exploration, Mvelaphanda Exploration has funded the loan payments associated with certain capital assets at the Tirisano Diamond Mine and, as a result, this funding has been recorded as equipment rental revenue during the earn-in period. These payments amount to $202,346 in the first six months of 2005 and $250,626 for the last six months of 2004. As at June 6, 2005, these

assets were contributed to the Tirisano Diamond Mine Joint Venture with no further equipment rental revenue being recorded by Etruscan. The Company’s only other source of revenue has been interest income of $57,831 in 2005, $161,533 in 2004 and $81,403 in 2003. The interest revenue is earned on the funds raised by way of private placements and interest charges on employee loans. In April 2000, the Company concluded its agreement for the disposition of a 50% interest in its wholly owned subsidiary, African GeoMin, to Semafo and since that date the Company has recorded its share of losses in the amount of $4,386,846 with the corresponding reductions in the carrying value of its equity investment in African GeoMin. African GeoMin commenced commercial production at the Samira Hill Gold Project in October 2004. During 2004 and 2005, the Company’s loss from this equity investment amounted to $1,000,000 in each year as compared to a loss of $400,000 in 2003. In 2003, African GeoMin was in the construction phase and only administrative costs were being expensed. In 2003, the Company also recorded a cumulative translation adjustment (CTA) associated with its equity investment in African GeoMin. Using the current rate translation method gives rise to the CTA on converting the Company’s share of African GeoMin’s foreign currency exposure to the Canadian/US dollar exchange rate fluctuations. The amount of $1.5 million was recorded in 2003 and increased by $300,000 to $1.8 million in 2004 and reduced by $200,000 to $1.6 million in 2005. The CTA has been recorded as a separate component of shareholders’ equity and a corresponding reduction in the carrying value of the equity investment in African GeoMin. On June 6, 2005, Mvelaphanda Exploration earned its 50% interest in the Tirisano Diamond Mine. During the period from June 1, 2004 to June 6, 2005, Mvelaphanda Exploration incurred capital expenditures of $4.3 million and incurred operating costs of $9 million and earned revenue from recovered diamonds of $3.6 million. Mvelaphanda Exploration’s total investment in its 50% interest in the Tirisano Diamond Mine Joint Venture was approximately $10 million at June 6, 2005. Accordingly, the Company has adjusted the carrying value of its equity investment in the Tirisano Diamond Mine Joint Venture to $9.9 million. This results in a loss on the disposition of the 50% interest in the Tirisano Diamond Mine of $8.8 million. Since the formation of the Tirisano Diamond Mine Joint Venture, the operation has recovered in excess of 6,000 carats and generated a loss from operations of approximately $1.04 million. The Company has recorded its share of this loss, in the amount of $520,000, as a reduction of the carrying value of its equity investment in the Tirisano Diamond Mine Joint Venture. With the Tirisano Diamond Mine being placed on care and maintenance at the end of November, the Company has completed a fair value assessment of its interest in the Tirisano Diamond Mine. In completing its assessment, the Company assumed various mining scenarios for volumes of diamondiferous gravels ranging from 3.5 to 7.5 million cubic meters and strip ratios factors ranging from 0.5 to 1.0. The Company used the historical grade of 2.8 carats per 100 cubic meters and a value per carat of US$525. As required, under Canadian and International Accounting Standards the Company has applied the foreign currency exchange rates in effect at the end of its fiscal year. As a result of this fair value assessment, the Company has concluded that impairment exists and has written down its equity investment by an additional $3 million. This reduces the Company’s carrying value of its equity investment in the Tirisano Diamond Mine Joint Venture to $5.4 million. However, the Company believes that operations can be resumed at a profitable level with a modest increase in the foreign exchange rate and diamond value per carat.


9

A significant amount of the required stripping has now been completed exposing the higher-grade diamondiferous gravel packages. The Company has eliminated the balance in the non-controlling interest of Etruscan Diamonds for a portion of its share of the loss on the disposition. This results in a reduction of the loss on disposition by $727,196. The non-controlling interest share of the loss of Etruscan Diamonds was recorded at $194,369 in 2004 and $291,158 in 2003. These amounts were recorded as a reduction of the investment and advances from the non-controlling interest, which has been eliminated in 2005. Consolidated Statement of Expenses - for the years ended November 30, 2005

($) 2004

($) 2003

($) General and administrative

expenses

1,640,119

1,435,057

790,234 Wages and benefits 1,896,216 2,296,846 1,551,884 Provision for (gain) loss on

marketable securities

(519,409)

801,402

- Interest on long-term debt 353,253 325,547 62,719 Foreign currency (gain) loss (363,175) 12,716 578,961 Professional fees 811,602 451,722 297,861 Property investigation and

maintenance

106,575

73,460

15,375 Write-down of mineral properties 143,831 162,229 - Total expenses 4,069,012 5,558,979 3,297,034 General and administrative expenses increased to $1,640,119 in 2005 and $1,435,057 in 2004 from $790,234 in 2003. In the last two years Etruscan has incurred additional amounts on promotion and investor relations with its engagement of investor relations firms, and the registration and travel costs for several mining investment conferences. Promotional costs have increased to $355,134 compared with $264,714 in 2004 and $170,341 in 2003. Travel costs have also increased to $308,774 compared with $278,893 in 2004 and $162,628 in 2003. In 2005, the Company reinstated directors and officers’ liability insurance at a cost of $55,800 and incurred non-recurring customs duties of $30,000 relating to the import of a selection of diamonds produced at the Tirisano Diamond Mine. The Company maintains these diamonds for promotional purposes. In early 2004, the Company incurred interest costs for amounts due to South African suppliers of approximately $100,000. This interest has been recorded in general and administrative expenses. Prior to June 1, 2004, the Company capitalized most of the costs of its South African operations. Since then certain amounts have been expensed with Mvelaphanda Exploration assuming responsibility for operations at the Tirisano Diamond Mine. These amounts include various office costs such as rent, communications, telephone, insurance, travel and finance costs. 2005 contains a full year of these costs while 2004 contains only six months expensed to general and administrative expenses. In 2005, the Company has also incurred an additional $110,000 on costs associated with the Tirisano Diamond Mine for obligations, which existed when Mvelaphanda Exploration assumed responsibility for operations. Consistent with its corporate philosophy, Etruscan has funded various social initiatives in both South and West Africa. The Company’s social contributions increased to $133,237 in 2005 and $145,471 in 2004 from $93,003 in 2003. In September 2005, in response to the food crisis in Niger, the Company donated 37 tons of rice and millet worth $25,000 to several villages in the regions surrounding the Samira Hill Gold Project. In 2005, 45 students

were provided with two school uniforms, required school supplies and books and a cash amount to help with accommodation expenses and ensure a successful academic year. In 2005, Etruscan completed a refurbishment of the medical clinic in the village of Youga, located adjacent to the Company's Youga Gold Project in Burkina Faso. The Company also regularly provides the Youga school with stationary supplies. The Company constructed teachers’ residential quarters in the village of Agbaou near the Company’s Agbaou project in Côte d’Ivoire, to ensure the village school would have permanent qualified teaching staff. In 2003 and 2004 the social contributions in South Africa included the official opening of the health clinic in the Magopa village, adjacent to the Tirisano Diamond Mine. Other uplifting projects within the Magopa Community included computers for school programs and the implementation of an agricultural program. In West Africa, the Company’s contributions included funding the costs associated with the re-naming ceremony at the health clinic in Niger, the contribution towards the construction of two new classrooms and the renovation of four existing classrooms at the local school in the village of Bossey Bangou. The clinic and the school are located close to the Samira Hill Gold Project in Niger. Etruscan’s operations in South Africa are affected by the foreign currency exchange rates of the Canadian dollar against the South African rand. In 2005, the Company recorded a foreign currency exchange gain of $363,175, on its South African rand denominated amounts payable. This gain results from the strengthening Canadian dollar against the South African rand with the exchange rate improving from 4.7 to 5.4. These gains represent the reversal of previously recorded losses. In 2004, the foreign currency exchange rates remained fairly consistent and the Company recorded an exchange loss of $12,716. In 2003, the Company recorded a foreign currency exchange loss of $470,000 on South African rand denominated loans and trade payables of Etruscan Diamonds. In 2003 the South African rand strengthened from 5.9 early in the year to 4.9 at the end of the year. In 2003, the Company also incurred an additional $100,000 foreign exchange loss on its US$ position due to the weakening US$. Etruscan’s wages and benefits amounted to $1,896,216 in 2005, $2,296,846 in 2004 and $1,551,884 in 2003. In the last quarter of 2003, Etruscan negotiated a settlement of its expiring six-year employment contracts with senior management personnel, which contributed an additional $500,000 to the 2003 expense. In 2004, the Company settled the two remaining management contracts. In the second quarter of 2004, the Company negotiated a settlement of an employment arrangement with a former officer, which contributed an additional $150,000 to the salaries and benefits. In 2004, the independent Compensation Committee of the Board of Directors reviewed and approved salary increases for management of the Company. The total annual increase adjustment is approximately $400,000. The retroactive portion of this adjustment was recorded in the last two quarters of 2004. The Company has hired additional personnel during 2004 and 2005. Wages and benefits expense increased in the second quarter of 2005 with the recording of severance liabilities of $190,000. In 2004, the Company adopted the CICA’s new recommendations for accounting for stock options and has accounted for this on a retroactive basis to December 1, 2002. The recommendations now require the Company to apply the fair value based method of accounting for stock option grants. As a result of applying the Black-Scholes option-pricing model, the Company has recorded stock-based compensation of $120,000 for the second quarter of 2005 on the issuance of 120,000 stock options. In fourth quarter of 2004, the Company recorded stock based compensation of $700,000 and $120,000 was recorded on a retroactive basis in 2003. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that are fully transferable and have no vesting restrictions. The Company’s stock options are not transferable and


10

cannot be traded, thus the Black-Scholes model may overestimate the actual value of the options that the Company has granted. Further, the Black-Scholes model also requires an estimate of expected volatility. The Company uses historical volatility rates of the Company to arrive at an estimate of expected volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore do not necessarily provide a reliable measure of the fair value of the Company’s stock options.

The Company expensed interest on long-term debt of $248,645 in the last half of 2004 and has expensed $353,253 in 2005. In the last half of 2005, the Company has recorded one-half of the interest on the IDC debt in the amount of $46,000 as recoverable from Mvelaphanda Exploration. Professional fees have increased from $297,861 in 2003 to $451,722 in 2004 and $811,602 in 2005. Since 2003, the Company incurred increased legal fees associated with its new corporate structures and its property acquisition opportunities. The Company has incurred increased auditing fees in both South Africa and Canada as a result of complying with the new regulatory and filing requirements. Legal fees, including the corporate fees for Canadian and offshore registrations, have also increased. We would expect professional fees associated with fulfilling enhanced regulatory requirements to increase in the future at a rate higher than inflation. In the last half of 2005, the Company also incurred professional fees of approximately $275,000 associated with its corporate strategy of investigating merger and acquisition opportunities with a view of enhancing shareholder value including the spin-off and/or disposition of the Company’s diamond assets. Early in 2006, the Company retained CIBC World Markets Inc. to assist the Company in its merger and acquisition initiatives.

During the second quarter of 2004, Etruscan raised net proceeds of $21.4 million by way of private placement, the surplus of which was invested at Etruscan’s financial institution, earning an interest rate of 1.5%. In the third quarter of 2004, the Company invested $12 million of its surplus funds with the investment management firm of Seamark Asset Management. The Company experienced a decline in the value of its marketable securities to November 30, 2004 of $801,402. The Company continued to adjust the value of its investment to reflect the market value of its holdings and the value of the Company’s investment recovered by $519,409 in 2005 before the funds were fully withdrawn in October 2005. Total interest on long-term debt amounted $329,284 in 2003 and increased to $479,259 in 2004. The interest relates to loans from the Industrial Development Corporation of South Africa (IDC) for the development of the Tirisano Diamond Mine and additional financing of mine operational assets including vehicles and heavy equipment. The interest on long-term debt also includes interest on a mortgage for a residence in South Africa. The majority of these assets were acquired in the second half of 2003. Certain interest relating to the development of the Tirisano Diamond Mine was capitalized during the development period to May 31, 2004. The capitalized interest amounted to $266,565 in 2003 and $153,712 in 2004. The remaining interest of $62,719 in 2003 and $325,547 in 2004 has been expensed. Since May 31, 2004, the date when Mvelaphanda Exploration assumed responsibility for operations at Tirisano, all interest has been expensed.

The Company incurred property investigation costs of $106,575 in 2005, as compared to $73,460 in 2004 and $15,375 in 2003. In the past two years the Company incurred additional expenditures investigating new property acquisition targets in the West Africa countries of Mali, Côte d’Ivoire, Burkina Faso and Ghana. In 2005, the Company also incurred property investigation costs in the Southern African countries of Angola, Tanzania and Namibia, as well as, its continuing efforts in South Africa. At the end of 2005, during its year-end review of its mineral properties, the Company wrote-off its expenditures on the Walia property in Mali West and a few other minor properties in Mali for a total write-off of $143,841. In 2004, the Company decided to abandon two diamond properties in South Africa, writing off costs of $71,899. The Company also decided not to pursue its activities in Haiti and has written-off its associated investment of $90,330.


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Consolidated Statement of Operations – for the quarters ended

Nov 30, 2005 ($)

Aug 31, 2005 ($)

May 31, 2005 ($)

Feb 28, 2005 ($)

Nov 30, 2004 ($)

Aug 31, 2004($)

May 31, 2004($)

Feb 29, 2004 ($)

Equipment rental (147,284) 106,222 168,123 75,285 250,626 - - - Gain on sale of mineral property - - - 175,000 - - - - Gain on sale of investments 30,390 - 3,947 - 324,259 (7,693) 16,921 65,874 Interest and other income 24,845 12,575 7,685 12,726 5,446 45,908 71,129 39,050 Total revenue (92,049) 118,797 179,755 263,011 580,331 38,215 88,050 104,924 General and administrative expenses 449,530 396,236 416,301 378,052 379,863 383,525 396,684 274,984 Foreign currency (gain) loss (161,520) 80,246 (396,209) 114,308 143,287 (99,280) 99,108 (130,399) Interest on long-term debt 45,177 76,313 104,219 127,544 163,529 85,116 38,945 37,957 Professional fees 413,384 207,239 146,417 44,562 202,582 139,673 53,302 56,165 Wages and benefits 522,921 438,849 626,278 308,168 1,315,798 459,510 327,109 194,429 Loss (gain) on marketable securities 2,739 61,630 (65,405) (518,373) 17,259 784,143 - - Property investigation and maintenance 40,430 14,788 39,005 12,352

60,710

9,000

-

3,750

Write-off of mineral property 143,831 - - - 162,229 - - - Total expenses 1,456,492 1,275,301 870,606 466,613 2,445,257 1,761,687 915,148 436,886 Loss for the quarter (1,548,541) (1,156,504) (690,851) (203,602) (1,864,926) (1,723,472) (827,098) (331,962) Loss on disposition and impairment of the

Tirisano Diamond Mine (3,600,000) (8,200,000) - - - - - - Loss from equity investment in Tirisano

Diamond Mine Joint Venture (20,000) (500,000) - - - - - - Loss from equity investment in African

GeoMin (550,000) 200,000 400,000 (1,050,000)

(800,000)

(50,000)

(50,000)

(100,000) Non-controlling interest - 727,196 (81,797) 89,325 119,369 15,000 60,000 - Net loss (5,718,541) (8,929,308) (372,648) (1,164,277) (2,545,557) (1,758,472) (817,098) (431,962) Net loss per share (0.084) (0.123) (0.006) (0.017) (0.044) (0.026) (0.012) (0.006) Fourth Quarter Commentary Mvelaphanda Exploration’s funding of the mine equipment loan payments during the earn-in period has been recorded as equipment rental revenue. On the date of the formation of the Tirisano Diamond Mine Joint Venture (June 6, 2005) these assets, together with the associated debt, have been contributed to the joint venture and therefore the entry in the fourth quarter is reversing the equipment rental incorrectly reported in the third quarter. A few other adjustments result in total equipment rental for the first six months of 2005 being $202,346 compared with $250,626 for the last six months of 2004. During the earn-in period, the Company was responsible for 100% of the interest on the IDC debt and other equipment and vehicle loans. After Mvelaphanda Exploration’s earn-in this debt was transferred to the joint venture. While Mvelaphanda Exploration is refusing to fund its share of the IDC payment the Company has reduced the interest expense by 50% recording Mvelaphanda Exploration’s share of the interest as recoverable from amounts previously advanced to the Company by Mvelaphanda Exploration.

During the fourth quarter of 2004, the Company settled certain obligations for amounts outstanding to consultants with the transfer of 25,000 of the Company’s shares held by the Company’s agent. These transactions resulted in a gain on the sale of investments of $30,390. During its year-end review of its mineral properties, the Company decided to abandon two gold properties in Mali. Upon final reconciliation of the accounting for the disposition of 50% of the Tirisano Diamond Mine, the Company recorded a loss of $600,000 in addition to its estimate of $8.2 million recorded in the third quarter. At the end of the year, the Tirisano Diamond Mine was placed on care and maintenance. The Company completed a fair value assessment of its interest in its equity investment in the Tirisano Diamond Mine Joint Venture and concluded that an impairment exists. The Company has written down the carrying cost of the equity investment in the Tirisano Diamond Mine Joint Venture by an additional $3 million.


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During the fourth quarter, the Tirisano Diamond Mine operated almost at break-even and Etruscan has recorded its share of the fourth quarter loss at $20,000. During the fourth quarter the Company’s loss from its equity investment in African GeoMin amounted to $550,000 and has been recorded as a reduction in its carrying value of the equity investment. Related Party Transactions The Company has recorded the following amounts due from employees and charges by (revenue from) related parties during the years ended November 30,

2005 ($)

2004 ($)

2003 ($)

Amount due from employees 220,355 253,399 344,832 Interest charged to employees (13,095) (13,578) (11,110) Business development expenses 33,600 31,500 31,500

The Company loaned amounts to certain employees in 1997 and 1998 to enable the employees to purchase the Company’s shares. The loans bear interest at the Canada Revenue Agency prescribed rate and 146,200 shares of the Company have been pledged as security for the loans. The Company has been collecting these amounts receivable on an annual basis and intends to collect the full amount of the advances. However, in 1998 it established a provision of $245,000 against the advances outstanding. The Company rents a fishing lodge, located in northern New Brunswick, for one week annually for business development purposes. An affiliate of Mr. Gerald McConnell, the President and CEO of Etruscan, owns a 20% interest in the fishing lodge. In early 2002, the Company completed its contractual obligations with Mountain Lake Resources Inc. to acquire a 75% interest in Etruscan Diamonds by arranging US$2 million of financing for Etruscan Diamonds. The financiers of US$1.5 million of this funding beneficially own 24% of Etruscan Diamonds. Of this 24%, employees of the Company hold 4.3 %. The initial financiers have not contributed any further funds to Etruscan Diamonds.

Liquidity and Capital Resources Etruscan has financed its acquisition, exploration and development of mineral properties and its ongoing operating costs with proceeds from equity subscriptions, debt financing, as well as funding arrangements with other companies. The Company’s working capital deficit was $1.6 million at the end of 2005, as compared with a surplus of $7.5 million at the end of 2004. At the end of 2005, the market value of the Company’s investment in marketable securities was $1,542,051. These marketable securities include 33,100 shares of NovaGold, 200,000 warrants of NovaGold allowing the Company to purchase one common share of NovaGold at a price of $12.10 until January 7, 2008, the right to proceeds from the sale of 251,976 shares of Etruscan and shares of PGM Ventures Corporation, Sabina Resources Inc. and Mountain Lake Resources Inc.

On January 10, 2006 the Company completed a private placement equity financing for net proceeds of $10.2 million. Pursuant to the private placement equity financing a total of 7,918,463 units were issued at a price of $1.35 per unit. Each unit consists of one common share and one common share purchase warrant with each warrant entitling the holder to acquire a common share at a price of $1.75 for a period of two years. In August 2005, the Company completed an equity private placement. A total of 3,351,110 units were issued, at a price of $1.35 per unit for net proceeds of $4,364,317. Each unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire a common share at a price of $1.75 before February 18, 2007. In 2005, the Company also issued 172,000 shares on the exercise of stock options for proceeds of $59,900. In March 2004, the Company entered into an agreement with a syndicate of underwriters, led by Sprott Securities Inc., pursuant to which the underwriters agreed to purchase 9,994,354 units at a price of $2.30 per unit for net proceeds to the Company of $21.4 million. Each unit consisted of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire a common share at a price of $3.25 before March 31, 2006. In 2004, the Company also issued 2,860,000 shares pursuant to warrant agreements and 361,000 shares on the exercise of stock options for total proceeds of $2,944,870. The Company is using the proceeds from these private placements to fund its ongoing exploration and development of the Youga Gold Project and gold exploration in Mali, Burkina Faso and Côte d’Ivoire. These proceeds are also being used for its diamond development, exploration and new property acquisitions in South Africa as well as general corporate purposes. In the first quarter of 2004, the Company paid $8.6 million to acquire the Youga Gold Project. The Company also acquired three exploration permits surrounding the Youga gold deposit - Zerbogo, Bitou and Bitou East. Since the last quarter of 2004, the Company acquired an additional 13 exploration permits in Burkina Faso. Six of the new permits provide strategic coverage over the Banfora greenstone belt and one permit is located in the Houndé greenstone belt, all located in western Burkina Faso. One of the new permits is located on the Yeataga belt in eastern Burkina Faso. Etruscan also consolidated its existing ground holdings around the Youga property with the acquisition of five new permits. To May 31, 2004, the Company continued its commissioning, plant modifications and various equipment purchases at the Tirisano Diamond Mine and had incurred a total amount of $15.6 million on the diamond plant and deferred development costs. This includes the cost of the Company’s operations net of diamond revenues. During the development period to May 31, 2004, the Company incurred operating costs of $13.2 million and earned revenue of $6.9 million. The net operating cost of $6.3 million was capitalized to the diamond plant and deferred development costs. The Company also incurred acquisition cost for the Nooitgedacht land of $383,636 and acquisition and exploration of $1.8 million on the Nooitgedacht property. These assets together with some machinery and equipment and corresponding debt have been transferred to the Company’s cost of its equity investment in the Tirisano Diamond Mine Joint Venture.


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As at November 30, 2005, the Company established a provision for reclamation costs in the amount of $850,000 for the Tirisano Diamond Mine. This provision represents the fair value of the Company’s share of the liability and estimated costs for the reclamation at the Tirisano Diamond Mine. The reclamation costs are the responsibility of the Tirisano Diamond Mine Joint Venture. Outstanding Share Data As at February 17, 2006, the Company had 80,077,593 (November 30, 2005 – 71,664,130) issued and outstanding common shares. Since year end the Company completed a private placement equity financing issuing 7,918,463 common shares and issued 485,000 common shares on the exercise of stock options. As at February 17, 2006, the Company has 15,190,856 common share purchase warrants outstanding:

Expiry Date Exercise price

$

February 17, 2006

March 31, 2006 3.25 4,997,177 March 31, 2006 2.30 599,661 February 18, 2007 1.75 1,675,555 December 2007 1.75 7,918,463

As at February 17, 2006, the Company also had 5,265,500 stock options outstanding at an average price of $1.04 with exercise prices ranging from $0.24 to $2.43 and a weighted average remaining contractual life of 4.3 years. Long-term Debt and other Financial Instruments The aggregate amount of principal repayments required in each of the next five years, based on November 30, 2005 exchange and interest rates to meet retirement provisions on long-term debt, is as follows:

$ Year ending November 30, 2006 736,648

2007 357,641 2008 184,344 2009 11,480 2010 11,480

These amounts relate to operations in South Africa and the development of the Tirisano Diamond Mine. Under the terms of the agreement with Mvelaphanda Exploration, during the option period, Mvelaphanda Exploration funded two interest and principal payments to the Industrial Development Corporation of South Africa Limited (IDC) and made a payment to one other larger supplier all on a loan basis to the Company for a total of $1,235,726 as at November 30, 2005. These amounts bear interest at the prevailing IDC interest rates and will be repaid to Mvelaphanda out of 75% of the Company’s Nooitgedacht project cashflows. This amount has been recorded as a reduction from the Company’s equity investment in the Tirisano Diamond Mine Joint Venture. Following the exercise of Mvelaphanda Exploration’s option to earn its interest, Etruscan Diamonds and Mvelaphanda Exploration are required to fund the joint venture on an equal basis. However, Etruscan Diamonds has the option, at its sole discretion, to elect to have Mvelaphanda Exploration advance its share of the funding, which it has done. Mvelaphanda Exploration will recover such advances from 75% of Etruscan Diamonds’ share of profits from the operations of the joint venture. These advances will bear interest at the South African prime rate (currently 10.5%). Under

the Agreement, there will be no equity dilution to Etruscan Diamonds by electing to have Mvelaphanda Exploration provide this funding. Due to the continuing dispute with Mvelaphanda Exploration on the interpretation of the Tirisano Diamond Mine Joint Venture agreement with regard to the responsibility for repayment of the loans to the IDC, the Company has not yet recognized the transfer of the amounts owing to the IDC to the Tirisano Diamond Mine Joint Venture. The Company has funded the amount due to the IDC of $450,166 due on July 1, 2005. Subsequent to year end, the Company has funded a further $452,853. The Company has recorded an amount recoverable from Mvelaphanda Exploration for its 50% share of the IDC payments as required under the Tirisano Joint Venture Agreement. The Company's initial acquisition agreement for its interest in Etruscan Diamonds, acquired from Mountain Lake Resources Inc. (Mountain Lake), provides for the payment of monthly advances of $8,000 per month to Mountain Lake until Etruscan Diamonds commences making dividend distributions to Mountain Lake of at least $96,000 per annum. These advances are being made and have been allocated to the cost of the equity investment in the Tirisano Diamond Mine Joint Venture. These advances will be repaid by Mountain Lake from eventual dividend distributions from Etruscan Diamonds. As a requirement of the financing of the Samira Hill Gold Project, a hedging program was put in place covering a total of 300,000 ounces. Half of this quantity has been hedged at a fixed price of US$360 per ounce and the remaining 150,000 ounces has been hedged at a minimum price of US$360 per ounce with an upside of US$30 per ounce. The hedging program accounts for 49% of the initial estimated life-of-mine recoverable reserves with the forward contracts being delivered into over a six-year period. The forward sales contracts have been structured such that there can be no margin calls to Etruscan. As of December 31, 2005, the project had delivered 101,676 ounces into the forward sales contracts leaving a balance of 198,324 ounces to be delivered on a monthly basis through June 2009. The mark-to-market value of the forward sales contracts was a negative US$31.5 million as at December 31, 2005. Evaluation of Disclosure Controls Management evaluated the effectiveness of the Company’s disclosure controls and procedures as of November 30, 2005, and concluded that, as at that date, the Company’s disclosure controls and procedures were effective.

Critical Accounting Estimates The Company’s most critical accounting principle, involving accounting estimates, is its accounting treatment of the costs relating to its exploration and development costs associated with its mineral properties, related deferred charges and property plant and equipment. Mineral Properties, Related Deferred Costs and Property Plant and Equipment The Company’s recorded amount of its mineral properties is accumulated based upon costs incurred to date, net of recoveries and provisions. This approach to recording mineral properties is consistent with industry standards and the Company believes that this represents its best estimate of the appropriate carrying amount for each property. The economic feasibility of each property is assessed regularly by management based upon current geological exploration and results thereof, independent geological reports, surrounding exploration and development activities, ongoing assessment of the political environment in the countries where


14

properties are held and the availability of funding. When a property is deemed economically unfeasible, the cost thereof is written off. Exploration and development costs relating to mineral properties are deferred until the properties are brought into commercial production, at which time they are amortized on the unit of production basis, or until the properties are abandoned or sold or management determines that the mineral property is not economically viable, at which time the deferred costs are written off. The Company has maintained title to certain properties that have been written off. Any proceeds relating to these properties will be recorded in income as received. The units-of-production amortization is calculated based on proven and probable reserves following commencement of commercial production. Management’s estimate of mineral prices, recoverable proven and probable reserves and operating and capital costs are subject to certain risks and uncertainties that may affect the recoverability of mineral properties and related deferred costs. Although management has made its best estimate of these factors, it is possible that material changes could occur which may adversely affect management’s estimate of the net cash flows to be generated from its properties. Although the Company has taken steps to verify title to mineral properties in which it has an interest, according to the industry standards for the current stage of exploration and development of such properties, these procedures do not guarantee the Company’s title. Such properties may be subject to prior undetected agreements or transfers and title may be affected by such defects. Equity Investments The Company is required to make significant judgements with regard to the accounting treatment and estimates associated with its equity investments including its accounting at the commencement of the business relationships, each with its own unique characteristics. Throughout the life of the investment, the Company continuously makes assessments relating to the recoverability of its equity investments. This is particularly relevant to the Company’s investments in the Tirisano Diamond Mine Joint Venture and African GeoMin and its assessment of impairment. The Company must also assess the cost and accounting treatment of any reclamation obligations associated with its investments. Actual results could differ from those reported. Changes in Accounting Principles including Initial Adoption Stock Options Effective December 1, 2002, the Company adopted the new recommendations for accounting for stock options as required by CICA Handbook Section 3870 stock-based compensation and other stock based payments. CICA 3870 establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. It applies to transactions, including non-reciprocal transactions, in which an enterprise grants shares of common stock, stock options, or other equity instruments, or incurs liabilities based on the price of common stock or other equity instruments. In 2004, the Company elected retroactive application for certain stock compensation awards as a charge to opening retained earnings without restatement of prior periods. The recommendations now require the company to apply the fair value based method of accounting for all awards granted. This method has been applied retroactively and has resulted in a

charge to income of $120,000 for the 2005, $700,000 for 2004 and a charge to opening retained earnings in 2004 of $120,000. The granting of stock options to non-employees and direct awards of stock to employees and non-employees must be accounted for using the fair value method of accounting. Consideration paid for shares on exercise of the options is credited to stock based compensation as a separate component of shareholders’ equity. Risk and Uncertainties Under Canadian reporting requirements, management of the Company is required to identify and comment on significant risks and uncertainties associated with its business activities. Management has identified the following potentially significant inherent risks and uncertainties that it considers to be particularly unique to its operations and business plans in the upcoming years. Exploration and Development The exploration and development of gold and diamond deposits involves significant risks, which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of a mineable deposit may result in substantial rewards, few properties, which are explored, are ultimately developed into producing mines. Major expenses may be required to establish ore reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that the current exploration programs planned by the Company will result in a profitable commercial mining operation, and significant capital investment is required to achieve commercial production from successful exploration efforts. There is no certainty that exploration expenditures made by the Company will result in discoveries of commercial mineable quantities. Exploration and development also requires qualified human resources to carry out these activities. The increase of mining related activities worldwide has also depleted the available pool of talent. There is no assurance that the Company will be successful in recruiting the required human resources. Additional Funding Requirements The Company will have to raise additional funds to further the exploration and development of its various mineral properties. This is dependent on the Company’s ability to obtain financing through debt, equity / quasi-equity or joint ventures and, while it has been successful in doing so in the past, there can be no assurance that it will be able to do so in the future. Mineral Reserve and Mineral Resource Estimates Mineral reserve and mineral resource estimates are imprecise and depend partially on statistical inference drawn from drilling and other data, which may prove to be unreliable. Future production could differ dramatically from mineral reserve estimates. With respect to diamonds, the random distribution of alluvial diamonds within the diamondiferous gravel deposits, by its very nature, is a risk. One of the greatest challenges facing any alluvial mining operation is to establish the grade of the resource. Because of the large volumes of gravel involved, it is not possible to accomplish this by traditional drilling and sampling methods. While the volume of gravel can be readily determined by drilling, the diamond grade cannot be readily determined. Increased Production Costs The cash cost of production at any particular mining location is frequently subject to great variation from one year to the next due to a number of


15

factors such as changing waste to ore ratios, ore grade, metallurgy, labour costs, and the cost of supplies and services, such as electricity and fuel. These variances can have a negative impact on the profitability of operations. Mining Risks The business of mining involves many risks and hazards, including environmental hazards, industrial accidents, labour force disruption, the unavailability of material and equipment, unusual or unexpected rock formations, pit slope failures, changes in regulatory environment, weather conditions and water conditions. Such occurrences could result in damage to mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. Political Risks The Company’s operations are exposed to various levels of political risks and uncertainties. The Company’s investments in mineral properties held by African GeoMin are located in Niger, West Africa, a country, which has experienced political unrest in past years. The Company’s Agbaou gold exploration permit is located in Côte d’Ivoire, which is currently experiencing a period of political unrest. Company management continues to believe that the current political situation in Côte d’Ivoire does not have a significant impact on the long-term recoverability of its investments in the Agbaou property; however, in the event the current political unrest should continue or worsen, it may have a negative effect on the recoverability of this investment. Operations may be affected to varying degrees by government regulations with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, income taxes, expropriation of property, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. The political situation in South Africa introduces a certain degree of risk with respect to the Company’s activities. The Government of South Africa exercises control over such matters as exploration and mining licensing, permitting, exporting and taxation, which may adversely impact on the Company’s ability to carry out exploration, development and mining activities. Mineral Legislation The Company’s most significant operations are carried on in Niger, Burkina Faso, Mali and South Africa. The legislative regimes of certain of these countries have undergone significant change in recent years. Most notable is the enactment in South Africa of the Mineral and Petroleum Resources Development Act No. 28 of 2002 (Act) on May 1, 2004. The Act legislates the abolition of private mineral rights in South Africa and replaces them with a system of state licensing. Holders of old order rights are required to apply for conversion of their old order rights into new order rights under the Act and all applications for new mineral rights must be made in accordance with the Act. In order to be able to convert old order rights to new order rights or obtain new mineral rights, an applicant must, among other things, give effect to the black economic empowerment and socio-economic objectives of the Act (BEE Requirements).

In general, the BEE Requirements are embodied in the broad-based socio-economic empowerment charter which was signed by the Department of Mines and Energy, the South African Chamber of Mines and others on October 11, 2002 (Charter), and which was followed on February 18, 2003 by the release of the appendix to the Charter known as the Scorecard. The Charter is based on seven key principles, two of which are focused on ownership targets for historically disadvantaged South Africans (HDSAs) and beneficiation, and five of which are operationally oriented and cover areas focused on improving conditions for HDSAs. Regarding ownership targets, the Charter requires each mining company to achieve the following HDSA ownership targets for the purpose of qualifying for the grant of new order rights: 15% ownership by HDSAs by May 1, 2009, and 26% ownership by HDSAs by May 1, 2014. The Charter states that such transfers must take place in a transparent manner and for fair market value. The Company is actively engaged in discussions with officials and others to ensure that the Company fulfils the ownership and other requirements for conversion of its old order rights under the Act and to ensure that any applications for new order rights post May 1, 2004 are made in compliance with the Act and the Charter. The interpretation and application of the Act and the Charter is in its infancy and as a result, there is no assurance that State officials will interpret or apply the Act or Charter in a manner which will permit the conversion of old order rights and the grant of new order rights to the Company. In 2003, a draft of the proposed Mineral and Petroleum Royalty Bill (“Bill”) was introduced in the National Assembly, which provided for an 8% gross royalty to be paid to the State from diamond production with an effective date in 2009. This Bill is not in its final form and a further draft is expected to be presented in 2006. The final version of the royalty legislation may have a negative impact on the Company's projects in South Africa and may make some of the projects uneconomic to continue to explore and develop. Economic Risk including Foreign Currency Exchange Rates The profitability of the Company’s operations may be significantly affected by changes in the market price of gold and diamonds. The prices of gold and diamonds fluctuate, and are affected by numerous factors beyond the control of the Company. The level of interest rates, the rate of inflation, world supply of gold and diamonds and stability of exchange rates can all cause significant fluctuations in price. Such external economic factors are in turn influenced by changes in international investment patterns, monetary systems and geo-political developments. The prices of diamonds in recent years have been relatively stable; however, significant price changes could have a significant effect on the Company’s financial position and results of operations. The price of diamonds is denominated in United States dollars while the operating costs of the Company’s diamond operations are denominated in South African rand. Fluctuations in the South African rand and the United States dollar against the Canadian dollar could have a material effect on the Company’s financial results, which are denominated and reported in Canadian dollars.


16

Hedging and Commodity Prices Acquisitions The profitability of the Company is directly related to the market price of the commodities it produces. The Company can reduce price risk by using hedging tools for a portion or all of its production. The main hedging tools available to protect against price risk are forward contracts and call options. Various strategies are available using these tools. There can be no assurance that the Company will continue to use hedging tools or that, if they are used, the Company will be able to achieve realized prices for metals in excess of average London Metal Exchange prices as a result of its hedging activities.

The Company undertakes evaluations of opportunities to acquire additional assets and businesses. Any resultant acquisitions may be significant in size, may change the scale of the Company’s business and may expose the Company to new geographic, political, operating, financial and geological risks. The Company’s success in its acquisition activities depends on its ability to identify suitable acquisition candidates, acquire them on acceptable terms and integrate their operation successfully. Any acquisitions would be accompanied by risks such as an ore body proving to be below expectations, the difficulty of assimilating the operations and personnel of any acquired companies, and the potential of unknown liabilities associated with acquired assets and businesses. There can be no assurance that the Company will be successful in overcoming these risks or any other problems encountered in connection with such acquisitions.

Title to Mineral Holdings The validity of ownership of property holdings can be uncertain and may be contested. Although the Company has attempted to acquire satisfactory title to its properties, risk exists that some titles, particularly titles to undeveloped properties, may be defective.

Foreign Assets

Substantial portions of the assets of the Company are located in jurisdictions outside of Canada. As a result, it may be difficult for investors in Canada to enforce judgments obtained against the Company in Canada if the damages awarded exceed the reliable value of the Company’s Canadian assets.

Caution on Forward-Looking Statements This Management Discussion and Analysis contains certain forward-looking statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements may include statements regarding exploration results and budgets, mineral reserve and resource estimates, work programs, capital expenditures, mine operating costs, production targets and timetables, future commercial production, strategic plans, market price of precious metals or other statements that are not statements of fact. Although the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Various factors that may affect future results include, but are not limited to: fluctuations in market prices of precious metals; foreign currency exchange fluctuations; risks relating to mining exploration and development including reserve estimation and costs and timing of commercial production; requirements for additional financing; political and regulatory risks, and other risks and uncertainties. Accordingly, readers should not place undue reliance on forward-looking statements.

______________________________________________________________________________________________

17

Management’s Responsibility for Financial Reporting

The accompanying consolidated financial statements of the Company have been prepared by management in accordance with accounting principles generally accepted in Canada and contain estimates based on management’s judgement. Management maintains an appropriate system of internal controls to provide reasonable assurance that transactions are authorized, assets safeguarded and proper records maintained. The Audit Committee of the Board of Directors has met with the Company’s independent auditors to review the scope and results of the annual audit and to review the consolidated financial statements and related financial reporting matters prior to submitting the consolidated financial statements to the Board for approval. The Company’s independent auditors, PricewaterhouseCoopers LLP, are appointed by the shareholders to conduct an audit in accordance with Canadian generally accepted auditing standards and their report follows. G. J. McConnell G. A. Holmes President and Chief Financial Officer and Chief Executive Officer Treasurer February 24, 2006

Auditors’ Report

To the Shareholders of Etruscan Resources Incorporated

We have audited the consolidated balance sheets of Etruscan Resources Incorporated as at November 30, 2005 and 2004 and the consolidated statements of operations and deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. 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 Company as at November 30, 2005 and 2004 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. Chartered Accountants Halifax, Canada February 24, 2006

as at NOVEMBER 30, 2005 and 2004

18

Approved by the Board of Directors _________________________________Director _________________________________Director

2005

$ 2004

$ Assets Current assets Cash 887,717 674,993 Marketable securities - 9,698,598 Accounts receivable 209,983 311,085 Inventory of diamonds 254,654 254,654 Deposits and prepaid expenses 288,244 261,870 Other assets, market value as at November 30, 2005 - $1,542,051 (note 4) 757,859 299,173 2,398,457 11,500,373 Other assets (note 4) 130,000 418,383 Amounts receivable (note 5) 220,355 253,399 Investment in African GeoMin Mining Development Corporation Ltd. (note 6) 4,772,750 5,571,481 Investment in Tirisano Diamond Mine Joint Venture (note 7) 5,398,251 - Property, plant and equipment (notes 8 and 10) 2,787,454 17,069,073 Reclamation deposits 234,233 181,667 Mineral properties and related deferred costs (note 9) 27,628,318 22,129,321 43,569,818 57,123,697 Liabilities Current liabilities Accounts payable and accrued liabilities 3,218,886 2,694,774 Current portion of long-term debt (note 10) 736,648 1,272,717 3,955,534 3,967,491 Long-term debt (note 10) 611,118 2,827,759 Provision for reclamation (note 11) 850,000 - Non-controlling interest in subsidiary company (note 12) - 734,725 5,416,652 7,529,975 Commitments (note 13) Shareholders’ Equity Capital stock (note 14) 153,747,260 149,323,043 Stock-based compensation (note 14) 940,000 820,000 Cumulative translation adjustment (note 6) (1,600,000) (1,800,000) Deficit (114,934,094) (98,749,321) 38,153,166 49,593,722 43,569,818 57,123,697

For the years ending NOVEMBER 30, 2005 and 2004

19

2005

$ 2004

$

Income Equipment rental 202,346 250,626 Gain on sale of investments 34,337 399,361 Gain on sale of mineral properties 175,000 - Interest and other 57,831 161,533 469,514 811,520 Expenses General and administrative 1,640,119 1,435,057 Foreign currency (gain) loss (363,175) 12,716 Interest on long-term debt 353,253 325,547 Professional fees 811,602 451,722 Property investigation and maintenance 106,575 73,460 Provision for loss (gain) on marketable securities (519,409) 801,402 Wages and benefits 1,896,216 2,296,846 Write-down of mineral properties (note 9) 143,831 162,229 4,069,012 5,558,979 (3,599,498) (4,747,459) Loss from equity investment in African GeoMin (note 6) (1,000,000) (1,000,000) Loss on disposition and impairment of the Tirisano Diamond Mine (note 7) (11,800,000) - Loss from equity investment in the Tirisano Diamond Mine Joint Venture (note 7) (520,000) - Non-controlling interest in loss of subsidiary company (note 12) 734,725 194,369

Net loss for the years (16,184,773) (5,553,090) Deficit – Beginning of years (98,749,321) (93,196,231) Deficit – End of years (114,934,094) (98,749,321) Basic net loss per share (0.23) (0.09)

For the years ending NOVEMBER 30, 2005 and 2004

20

2005

$ 2004

$ Cash provided by (used in)

Operating activities Net loss for the years (16,184,773) (5,553,090)Charges (credits) to operations not affecting cash

Gain on sale of investments (34,337) (399,361)Gain on sale of mineral properties (175,000) - Gain on sale of property, plant and equipment - 14,428 Amortization 178,996 213,831 Write-down of mineral properties 143,831 162,229 Provision for loss (gain) on marketable securities (519,409) 801,402 Foreign exchange loss (gain) on revaluation of long-term debt (443,385) 71,920 Loss from equity investment in African GeoMin 1,000,000 1,000,000 Loss on disposition of 50% and impairment of the Tirisano Diamond Mine 11,800,000 - Loss from equity investment in Tirisano Diamond Mine Joint Venture 520,000 - Convertible charges to African GeoMin (1,269) 8,363 Non-controlling interest in loss of subsidiary company (734,725) (194,369)Stock-based compensation expense 120,000 700,000

(4,330,071) (3,174,647)Net change in non-cash working capital balances related to operations

Decrease (increase) in accounts receivable and deposits and prepaid expenses 107,772 306,337 Decrease (increase) in inventory of diamonds - 544,492 Increase (decrease) in accounts payable and accrued liabilities 572,013 (3,414,835)

(3,650,286) (5,738,653) Financing activities Proceeds from borrowings of long-term debt 447,676 919,240 Repayment of long-term debt (1,014,453) (1,061,939)Proceeds from issuance of capital stock, net of issuance costs 4,424,217 24,379,314 3,857,440 24,236,615 Investing activities Proceeds on sale of (purchase of) marketable securities 10,218,007 (10,500,000)Advances to Mountain Lake Resources Inc. (96,000) (119,600)Acquisition of other assets (297,250) (94,700)Proceeds from sale of other assets - 391,460 Proceeds on sale of property, plant and equipment - 67,979 Acquisition of property, plant and equipment (2,296,140) (3,469,933)Reclamation deposits (52,566) (11,687)Expenditures on mineral properties and related deferred costs – net (7,470,481) (16,274,403) 5,570 (30,010,884) Net change in cash during the years 212,724 (11,512,922) Cash – Beginning of years 674,993 12,187,915 Cash – End of years 887,717 674,993 Supplemental cash flow information (note 17)

for the years ended NOVEMBER 30, 2005 and 2004

21

1 Nature of operations

The Company is in the business of exploring and developing gold and diamond properties, primarily in Africa, through its subsidiaries, its investment in African GeoMin Mining Development Corporation Ltd. (African GeoMin) and its investment in the Tirisano Diamond Mine Joint Venture (Tirisano Joint Venture). The recoverability of the amounts shown for the investment in African GeoMin, the investment in the Tirisano Joint Venture, property, plant and equipment, and mineral properties and related deferred costs is, among other things, dependent upon the discovery of economically recoverable reserves, securing and maintaining title and beneficial interest in the properties, the ability of the companies to obtain necessary financing to complete the development and upon future profitable production or proceeds from the disposition thereof. The Company will periodically have to raise additional funds to complete exploration and development and, while it has been successful in doing so in the past, there can be no assurance that it will be able to do so in the future. The other shareholder of African GeoMin (note 6) has agreed to provide funding for the equity financing required for the Samira Hill Gold Project and is required to fund the ongoing working capital requirements of African GeoMin. Under the terms of the joint venture option agreement (note 7), Mvelaphanda Exploration (Pty) Ltd. (Mvelaphanda Exploration) has funded a capital expansion and is required to fund all working capital requirements at the Tirisano Joint Venture. The amounts shown as property, plant and equipment, mineral properties and related deferred costs and the underlying carrying amount for African GeoMin and the Tirisano Joint Venture represent costs net of recoveries to date, less amounts amortized and/or written off, and do not necessarily represent present or future values.

2 Significant accounting policies

Financial statement presentation These financial statements have been prepared in accordance with Canadian generally accepted accounting principles. Certain prior year’s amounts have been reclassified to conform with the current year presentation.

Consolidation These consolidated financial statements include the accounts of Etruscan Resources Incorporated and its subsidiaries, Cayman Burkina Mines Limited (100%), Burkina Mining Company (90%), Etruscan Resources Burkina Faso S.A. (100%), Etruscan Resources Côte d’Ivoire SARL (100%), Etruscan Resources Bermuda Ltd. (100%), Etruscan Resources Bermuda (Mali) Ltd. (100%), Etruscan Resources Mali SARL (100%), Etruscan Resources Namibia (Pty) Ltd. (100%), Etruscan Resources Ghana (Ltd.) (100%), Etruscan Diamonds Bermuda Ltd. (68%), Etruscan Diamonds (Pty) Ltd. (Etruscan Diamonds) (51%), Secor GeoMin Mining Development Corporation Incorporated (Secor GeoMin) (90%), Hackett River Resources Inc. (100% excluding 10 Class B non-voting shares), 2313057 Nova Scotia Limited (100%), 2454056 Nova Scotia Limited (100%), and 3001635 Nova Scotia Limited (100%). Management estimates The presentation 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 reported period. The more significant estimates that the Company was required to make relate to the recoverability of its investments in the Tirisano Diamond Mine Joint Venture and in African GeoMin, assessing impairment of its mineral properties, and in estimating reclamation obligations, and stock-based compensation expense. Actual results could differ from those reported. Equity investments The investment in African GeoMin (50%) is accounted for on the equity basis (see note 6). The investment in the Tirisano Diamond Mine Joint Venture (50%) is accounted for on the equity basis (see note 7). Other investments The Company’s other investments in companies not subject to significant influence and the rights to proceeds of shares are recorded at the lower of cost and market value, where there is a decline in value that is other than temporary.


22

Cash and marketable securities In order to limit its exposure, the Company deposits these funds with large financial institutions and limits maturity dates to 30 days or less. Marketable securities are recorded at fair market value. Inventory of diamonds Inventory of diamonds is valued at the lower of cost and net realizable value. Property, plant and equipment Property, plant and equipment are recorded at cost less accumulated amortization. Amortization is calculated using the declining-balance method at the annual rates of 5% for buildings, 30% for motor vehicles and 20% for office equipment and leasehold improvements. Mineral properties and related deferred costs Exploration and development costs relating to mineral properties are deferred until the properties are brought into production, at which time they are amortized on the unit-of-production basis, or until the properties are abandoned or sold or management determines that the mineral property is not economically viable, at which time the deferred costs are written off. The Company has maintained title to certain properties that have been written off. Any proceeds relating to these properties will be recorded in income as received. The units-of-production amortization is calculated based on proven and probable reserves following commencement of production. Management’s estimate of mineral prices, recoverable proven and probable reserves and operating and capital costs are subject to certain risks and uncertainties that may affect the recoverability of mineral properties and related deferred costs. Although management has made its best estimate of these factors, it is possible that material changes could occur which may adversely affect management’s estimate of the net cash flows to be generated from its properties. Although the Company has taken steps to verify title to mineral properties in which it has an interest, according to the industry standards for the current stage of exploration and development of such properties, these procedures do not guarantee the Company’s title. Such properties may be subject to prior undetected agreements or transfers and title may be affected by such defects.

Reclamation costs for mineral properties In recent years, the Company’s activities have primarily focused on exploration directed toward the discovery of mineral resources and the evaluation phase relating to assessing the technical feasibility and commercial viability of discovered mineral resources. When it is determined that a future reclamation cost is likely, and the amount can be reasonably estimated, the costs are accrued. Income (loss) per common share Income (loss) per common share is calculated using the weighted-average number of common shares issued and outstanding during the year. Diluted income (loss) per share is presented using the treasury-stock method for options and warrants and is calculated by dividing the income (loss) per share applicable to common shares by the sum of the weighted-average number of common shares outstanding and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued and shares repurchased at the average market price prevailing, unless antidilutive. Income taxes

The Company uses the liability method of accounting for income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes. Future income tax assets are evaluated and if realization is not considered more likely than not, a valuation allowance is provided. Translation of foreign currencies Monetary assets and liabilities are translated at the exchange rate in effect at the balance sheet date and non-monetary assets and liabilities at the exchange rates in effect at the time of acquisition or issue. Revenues and expenses are translated at rates approximating exchange rates in effect at the time of the transactions. Exchange gains or losses, arising on translation, are included in income or loss for the year. For purposes of calculating the equity pick-up in African GeoMin, the Company follows the accounting guidelines for translation of self-sustaining foreign operations. Exchange gains and losses on shareholder advances and preferred shares that form part of the Company’s investment in African GeoMin are deferred and included in the cumulative translation adjustment in shareholders’ equity.


23

Financial instruments The fair value of the Company’s cash and short-term deposits, amounts receivable and accounts payable, accrued liabilities and long-term debt approximates their carrying values. Stock-based compensation The Company has a stock option plan which is outlined in note 14. Effective December 1, 2002, the Company adopted the new recommendations for accounting for stock options as required by CICA Handbook Section 3870 stock-based compensation and other stock based payments. CICA 3870 establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. It applies to transactions, including non-reciprocal transactions, in which an enterprise grants shares of common stock, stock options, or other equity instruments, or incurs liabilities based on the price of common stock or other equity instruments. The Company elected retroactive application for certain stock compensation awards as a charge to opening retained earnings without restatement of prior periods as allowed by the recommendations. The recommendations now require the Company to apply the fair value based method of accounting for all awards granted. This method has been applied retroactively and has resulted in a charge to income of $700,000 for the year ended November 30, 2004, a charge to opening deficit of $120,000 and $820,000 recorded as stock-based compensation reflected as a component of shareholders’ equity. For the year ended November 30, 2005, the Company recorded $120,000 of stocked-based compensation expense. The granting of stock options to non-employees and direct awards of stock to employees and non-employees must be accounted for using the fair value method of accounting. Consideration paid for shares on exercise of the options is credited to capital stock.

3 Acquisition of Youga Gold Project

On December 29, 2003, the Company completed the acquisition of the Youga Gold Deposit and the rights to three contiguous exploration permits in Burkina Faso, West Africa from Ashanti Goldfields Company Limited (Ashanti) and Echo Bay Mines Limited (Echo Bay) now part of Kinross Gold Corporation.

Etruscan paid US$6.5 million (CDN$8,534,425) to Ashanti and Echo Bay to acquire a 100% interest in Cayman Burkina Mines Limited (CBML), a Cayman Islands registered company, which holds a 90% interest in Burkina Mining Company (BMC), the Burkina Faso registered company that was granted the Exploitation Permit for the Youga Gold Deposit. The Government of Burkina Faso holds the remaining 10% in BMC. CBML, through its 100% owned subsidiary Etruscan Resources Burkina Faso SA (Etruscan BF), also had the rights to a 100% interest in the three surrounding exploration permits – Zerbogo, Bitou and Bitou East.

The acquisition of CBML has been accounted for using the purchase method and the accounts of these companies have been consolidated in these financial statements from the date of acquisition. The purchase price, including legal fees and acquisition costs, in the amount of $8,652,900, has been recorded as the initial mineral property acquisition cost of the Youga Gold Project.

Since acquisition, the Company has incurred an additional $9,153,418 in exploration costs on the Youga Gold Project and surrounding exploration permits. The Company has also incurred $2,250,193 in development costs of the Youga Gold Project. Most of the Youga exploration expenditures were incurred in conjunction with the completion of an updated definitive feasibility study for the project, including a detailed drilling program undertaken to update the reserve base.


24

4 Other assets Composition

2005

$ 2004

$ 33,100 shares of NovaGold Resources Inc. (NovaGold). Market value at

November 30, 2005 - $353,839 (2004 - $318,753). 21,515 21,515

200,000 warrants of NovaGold allowing the Company to purchase one common share of NovaGold at a price of $12.10 until January 7, 2008. Market value at November 30, 2005 - $460,000. 297,250 -

The Company has the right to the proceeds from the sale of 251,976 shares of

Etruscan Resources Incorporated. These shares are held by an agent and can be sold with the proceeds to be delivered to the Company. Market value at November 30, 2005 - $390,563 (2004 - 279,976 shares with a market value of $559,952). 122,067 135,631

206,210 shares of PGM Ventures Corporation, recorded at market value at

November 30, 2002. Market value as at November 30, 2005 - $131,974 (2004 - $100,012). 72,174 72,174

159,091 shares of Sabina Resources Inc. (Sabina), recorded at the 20-day

weighted average market value at January 12, 2005 and 159,091 warrants of Sabina allowing the Company to purchase one common share of Sabina at a price of $1.33 until January 12, 2007. Market value at November 30, 2005 - $140,000. 175,000 -

185,000 shares of Mountain Lake Resources Inc. (Mountain Lake). Market value

at November 30, 2005 - $65,675 (2004 - $148,000). 65,700 65,700

Shares of other companies 4,153 4,153 757,859 299,173 Amount receivable from Mountain Lake comprised of monthly advances of

$8,000. (transferred as a cost component of the equity investment in the Tirisano Diamond Mine Joint Venture – see note 7) - 288,383

Term deposit (see below) 130,000 130,000

130,000 418,383

887,859 717,556

Investments pledged as security

In 1990, the Company provided an irrevocable standby letter of credit to the Province of Ontario in the amount of $130,000 with respect to the Thierry Mine property, which was disposed of during 2001 to PGM Ventures Corporation. The letter of credit has been guaranteed by the Royal Bank of Canada. During 2004, the Company provided the Royal Bank of Canada with a term deposit of $85,000 in exchange for the release of the 40,000 common shares of NovaGold Resources

Inc. previously held as security along with a term deposit of $45,000. The term deposits of $130,000 have been pledged as security for the letter of credit. Under the terms of agreement of purchase and sale of the Thierry Mine property, PGM Ventures Corporation is required to replace all security items to release the security provided by the Company.


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5 Amounts receivable

This represents amounts receivable, net of provisions, from officers and employees, which bear interest at the Canada Revenue Agency prescribed rate. These loans were made in 1997 and 1998 to enable the employees to purchase the Company’s shares and are secured by 146,200 common shares of the Company, which have a market value at November 30, 2005 of $226,610 (2004 - $292,400). The Company has been collecting these amounts receivable on an annual basis and intends to collect the full amount of the advances but established a provision in 1998 in the amount of $245,000 against the advances outstanding.

6 Investment in African GeoMin Mining Development Corporation Ltd.

Agreement with Semafo Inc.

In 2000, the Company and Semafo Inc. (Semafo) concluded an agreement whereby Semafo acquired a 50% interest in the Company’s wholly-owned subsidiary, African GeoMin. Under the terms of the agreement, Semafo agreed to provide funding for the equity financing required to bring the Samira Hill Gold Project at African GeoMin’s Tiawa and Saoura properties in Niger, West Africa into production. Semafo is also required to fund the ongoing working capital requirements of African GeoMin. Semafo is providing the additional financing by subscribing to retractable preferred shares of African GeoMin. The retractable preferred shares carry an 8% dividend and are retractable based on 60% of the free cash flow, as defined, of African GeoMin after debt repayment. Composition of investment in African GeoMin

2005

$ 2004

$ Comprising a 50% interest

Cost of investment 3,692,650 3,692,650 Accumulated equity in loss –

Beginning of year (3,386,846) (2,386,846) Equity in loss for the year (1,000,000) (1,000,000) Accumulated equity in loss –

End of year (4,386,846) (3,386,846) Equity investment (694,196) 305,804 Advances to African GeoMin 6,805,387 6,805,387 Advances converted to

preference shares 261,559 260,290 Cumulative translation

adjustment (1,600,000) (1,800,000) 4,772,750 5,571,481

Samira Hill Gold Project On December 23, 1999, African GeoMin and the Republic of Niger established, under the Niger laws, a mining company to develop and mine the Samira Hill Gold Project. African GeoMin holds an 80% ownership interest in the mining company, Société des Mines du Liptako (S.M.L.) S.A. (SML) and the government of Niger holds the remaining 20%. SML has been granted the Samira mining permit, a large-scale gold exploitation permit, which was initially part of the Tiawa exploration permit. In 2002, the Samira mining permit was modified to include the Libiri deposit, which was initially part of the Saoura exploration permit. African GeoMin’s investment in the Samira Hill Gold Project exceeds US$70 million, including the capital cost of the gold processing facility. The initial gold pour at the Samira Hill mine occurred on September 25, 2004 and commercial production commenced on October 1, 2004. Exploration properties

The initial Tiawa and Saoura exploration permits expired on January 7, 2005. New exploration permit applications have been filed for 1,080 square kilometers and 1,409 square kilometers, respectively. These applications include proposed exploration expenditures of US$2.4 million and US$1.7 million, respectively, over the first three years of validity. The exploration permit applications are pending.


26

7 Tirisano Diamond Mine Equity Investment The Company commenced construction of the Tirisano Diamond Mine located on the Nooitgedacht 131 property in 2002 and continued its construction activities through to May 31, 2004 before entering into an agreement with Mvelaphanda Exploration (Pty) Limited (Mvelaphanda Exploration). The Company's capital and development costs of the Tirisano diamond plant totalled $9 million. During this start-up period, the Company also incurred operating costs of $13 million and earned revenue from recovered diamonds of $7 million. The resulting net cost of operations during the start-up period of $6 million was capitalized bringing the total investment in the Tirisano diamond plant and deferred development costs to $15 million. Since May 31, 2004, the Company has expensed all of its costs associated with the Tirisano Diamond Mine. The Company also incurred acquisition and exploration costs of $1.8 million on the Nooitgedacht 131 diamond property and mineral rights and land acquisition costs of $0.4 million. The Company has estimated the reclamation liability for its share of the existing disturbance at $0.85 million. The Company has made advance dividend payments to Mountain Lake Resources Inc. in the amount of $0.38 million. The Company's capital assets associated with the Tirisano Diamond Mine include a Komatsu loader, three vehicles and miscellaneous equipment with a combined net book value of $0.64 million, together with the associated vehicle and equipment financing totalling $0.55 million. These acquisition, exploration, development and reclamation costs together with the capital assets and associated debt totalling $18.7 million have been transferred to the Company's cost of its equity investment in the Tirisano Diamond Mine Joint Venture. Agreement with Mvelaphanda Exploration Etruscan Diamonds concluded an agreement with Mvelaphanda Exploration, with an effective date of June 1, 2004, whereby Mvelaphanda Exploration could earn a 50% interest in the Nooitgedacht 131 IP property where the Tirisano Diamond Mine is located by funding a major capital expansion of the mine. Mvelaphanda Exploration is jointly owned by Trans Hex Group Limited (Trans Hex), and Mvelaphanda Resources Limited, a broadly based black empowerment company focused on the South African mineral sector. Under the terms of the agreement, Mvelaphanda Exploration could earn a 50% interest in the Nooitgedacht property by, among other things, funding a capital expansion of the plant at the Tirisano Diamond Mine to achieve a design capacity of 300 metric tons per hour through put and operating the plant for a period of thirty operating days at an average effective utilization rate of not less than 72%. Mvelaphanda Exploration was also required to fund all working capital requirements of

the Tirisano Diamond Mine prior to the exercise of the option. During the period from June 1, 2004 to June 6, 2005, Mvelaphanda Exploration has reported that they incurred capital expenditures of $4.3 million. Mvelaphanda Exploration reported that they also incurred operating costs of $9 million and earned revenue from recovered diamonds of $3.6 million for this period. On June 6, 2005, Mvelaphanda Exploration completed its requirements to earn a 50% interest in the Tirisano Diamond Mine and a 50/50 joint venture between Etruscan Diamonds and Mvelaphanda Exploration was formed. The interest earned by Mvelaphanda Exploration also provided Black Economic Empowerment (BEE) to the project in compliance with South African legislation. Mvelaphanda Exploration's total investment in its 50% interest in the Tirisano Diamond Mine Joint Venture was approximately $10 million at June 6, 2005. As a result, the Company adjusted the carrying value of its equity investment in the Tirisano Diamond Mine Joint Venture to $9.9 million. This resulted in a loss on the disposition of the 50% interest in the Tirisano mining operations of $8.8 million. Tirisano Diamond Mine Joint Venture During the six month period ended November 30, 2005, the Tirisano Diamond Mine Joint Venture incurred an operating loss of approximately $1.04 million. The Company has recognized its proportionate share of loss of $520,000 as a reduction of the carrying value of its equity investment in the Tirisano Diamond Mine Joint Venture. Effective November 30, 2005, the operations at the Tirisano Diamond Mine were placed on care and maintenance pending improvements in the foreign currency exchange rate (US $ versus South African rand) and diamond value per carat. Mining operations and processing have ceased. The Company has completed a fair value assessment of its interest in the Tirisano Diamond Mine and concluded that an impairment exists and has written down its value by an additional $3 million. The Company has reduced its carrying value of its equity investment in the Tirisano Diamond Mine Joint Venture to $5.4 million. However, the Company believes that operations can be resumed at a profitable level with a modest increase in the foreign exchange rate and diamond value per carat. A significant amount of the required stripping has now been completed exposing the higher grade diamondiferous gravel packages.


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Composition of Equity Investment in Tirisano Diamond Mine Joint Venture

2005

$ Diamond plant and deferred development costs 15,199,325 Mineral property exploration costs 1,827,653 Land 383,636 Estimated reclamation cost 850,000 Advance dividends paid to Mountain Lake Resources Inc. comprised

of monthly advances of $8,000. The advances will be repaid from eventual dividend distributions from Etruscan Diamonds 384,383

Net book value of capital assets 640,943 Vehicle and equipment financing to be funded by the Tirisano

Diamond Mine Joint Venture (553,058) Total investment in the Tirisano Diamond Mine as at June 6, 2005 18,732,882 Loss on disposition of 50% of the Tirisano Diamond Mine (8,800,000) Adjusted cost of the equity investment in the Tirisano Diamond Mine Joint Venture 9,932,882 Loss from equity investments for the six months ended November 30, 2005 (520,000) Equity investment in the Tirisano Diamond Mine Joint Venture 9,412,882 Less: Amount due to (from) Mvelaphanda Exploration (Pty) Limited Amount due to Mvelaphanda Exploration (Pty) Limited (a) $ 1,235,726 Amounts paid to the IDC on behalf of Mvelaphanda Exploration (Pty) Limited (b) (221,095) (1,014,631) 8,398,251 Less: Fair value adjustment for impairment of the equity investment (3,000,000) 5,398,251 Amount due to Mvelaphanda Exploration (Pty) Limited

(a) Under the terms of the agreement with Mvelaphanda Exploration, during the option period, Mvelaphanda Exploration funded two interest and principal payments to the Industrial Development Corporation of South Africa Limited (IDC) and made a payment to one other larger supplier all on a loan basis to the Company for a total of $1,235,726 as at November 30, 2005. These amounts bear interest at the prevailing IDC interest rates and will be repaid to Mvelaphanda out of 75% of the Company’s Nooitgedacht project cashflows.

(b) Following the exercise of its option to earn its interest, Mvelaphanda Exploration and the Company are required to contribute on a 50/50 basis in respect of the payments to the IDC with Etruscan Diamonds having the right to elect to have Mvelaphanda Exploration fund its 50% contributions, which Etruscan Diamonds has done. Mvelaphanda Exploration and the Company disagree on the interpretation of the joint venture agreement as it relates to the obligation to make the IDC payments. As a result, Etruscan Diamonds funded the payments to the IDC for the amounts due on July 1, 2005 and January 1, 2006. Mvelaphanda Exploration’s share of the July 1, 2005 payment has been recorded as a reduction in the amount owed to Mvelaphanda Exploration.


28

8 Property, plant and equipment

2005 2004

Cost

$

Accumulated amortization

$ Net

$ Net

$

Youga Gold Project plant costs under construction 2,250,193 - 2,250,193 -

Buildings 269,358 34,004 235,354 248,005 Land 25,590 - 25,590 409,226 Motor vehicles 126,179 71,015 55,164 188,146 Office equipment 877,927 656,774 221,153 232,017 Leasehold improvements 58,817 58,817 - 8,554 Diamond plant and deferred

development costs - - - 15,374,187 Heavy equipment - - - 608,938

3,608,064 820,610 2,787,454 17,069,073

9 Mineral properties and related deferred costs

For the year ended November 30, 2005

Property description

Balance – November 30,

2004 $

Acquisitions and expenditures

during the year $

Transfer to equity

investment and write down

$

Balance –November 30,

2005 $

Gold properties, West Africa Burkina Faso Youga Gold Project and gold

exploration permits 13,558,259 4,248,059 - 17,806,318 Burkina Faso gold exploration permits 6,825 215,148 - 221,973 Côte d’Ivoire Agbaou gold exploration permit 1,241,986 1,059,587 - 2,301,573 Mali Djelimangara, Kolomba and Sanoukou

gold exploration permits 1,395,092 657,496 - 2,052,588 Mali West gold exploration initiatives 49,347 602,373 (143,431) 508,289 Finkolo gold exploration permit 1,726,300 (169,911) - 1,556,389 Mali South gold exploration initiatives 74,068 386,574 (400) 460,242 Other gold exploration - 145,344 - 145,344 Diamond properties, South Africa Various diamond properties 2,317,842 257,760 - 2,575,602 Nooitgedacht 131 IP diamond

property 1,759,602 68,051 (1,827,653) - 22,129,321 7,470,481 (1,971,484) 27,628,318


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For the year ended November 30, 2004

Property description

Balance – November 30,

2003 $

Acquisitions and expenditures

during the year $

Write down $

Balance –November 30,

2004 $

Gold properties, West Africa Burkina Faso Youga Gold Project and gold

exploration permits 585,665 12,972,594 - 13,558,259 Burkina Faso gold exploration permits - 6,825 - 6,825 Côte d’Ivoire Agbaou gold exploration permit 1,080,085 161,901 - 1,241,986 Mali Djelimangara, Kolomba and Sanoukou

gold exploration permits 807,276 587,816 - 1,395,092 Mali West gold exploration initiatives - 49,347 - 49,347 Finkolo gold exploration permit 883,458 842,842 - 1,726,300 Mali South gold exploration initiatives 12,743 61,325 - 74,068 Other gold exploration 67,934 22,396 (90,330) - Diamond properties, South Africa Various diamond properties 971,884 1,417,857 (71,899) 2,317,842 Nooitgedacht 131 IP diamond

property 1,608,102 151,500 - 1,759,602 6,017,147 16,274,403 (162,229) 22,129,321

Carrying value of mineral properties

The Company’s recorded amount of its mineral properties is accumulated based upon costs incurred to date, net of recoveries and provisions. This approach to recording mineral properties is consistent with industry standards and the Company believes that this represents its best estimate of the appropriate carrying amount for each property. The economic feasibility of each property is assessed regularly by management based upon current geological exploration results, independent geological reports, surrounding exploration and development activities, ongoing assessment of the political environment in the countries where properties are held and the availability of funding. When a property is deemed economically unfeasible, the cost thereof is written off. The Company’s investments in the Agbaou property are located in Côte d’Ivoire, a country which has experienced increased political unrest in recent years. Company management continues to believe that the current political situation in Côte d’Ivoire does not have a significant impact on the long-term recoverability of its investments in the Agbaou property however in the event the current political unrest should continue or worsen, it may have a negative effect on the recoverability of the investment in the Agbaou property.

Gold properties, Burkina Faso, West Africa Youga Gold Project The Youga Gold Project is situated in Burkina Faso, West Africa about 180 kilometers southeast of Ouagadougou, the capital city and four kilometers north of the border of Ghana. In April 2003, the Government of Burkina Faso granted a mining permit for Youga covering 29 square kilometers. This mining permit is valid for 20 years and renewable for additional 5-year periods. The Government of Burkina Faso holds a 10% interest in Burkina Mining Company, the company that holds the mining permit. Youga gold exploration permits The Company holds, or has applied for renewal of, an additional eight contiguous exploration permits surrounding the Youga Gold Project, all of which are located on the Youga gold belt. Zerbogo, Bitou and Bitou Est cover 365 square kilometers. The Zerbogo and Bitou permits will expire on February 21, 2006 and May 17, 2006, respectively. The Zerbogo permit may be renewed for one more three-year period. This is the final validity period for the Bitou permit. The Bitou Est permit expired in December, 2004. A renewal application for the Zerbogo and Bitou Est permits has been filed and renewal is pending.


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The remaining five exploration permits - Bitou Nord, Bitou Sud, Bitou Est-Est, Zerbogo Est and Zerbogo Nord - were granted in late 2004. These permits cover 681 square kilometers and are valid for an initial three-year period and may be renewed for two additional three year periods. Exploration permit holders must incur a minimum of 270,000 cfa ($567) of exploration expenditures per square kilometers per year. Burkina Faso gold exploration permits

In late 2004, the Company was granted seven exploration permits in western Burkina Faso. These exploration permits - Finkéré, Tiafora,, Kangounadeni, Kaouradeni, Sokoura, Komoe and Tondoura – are located in the Banfora gold belt and cover 1622 square kilometers. In December, 2003, the Company was granted the Parboua exploration permit in eastern Burkina Faso which covers 233 square kilometers. These permits are valid for an initial three year periods and may be renewed for two additional three year periods. Exploration permit holders must incur a minimum of 270,000 cfa ($567) of exploration expenditures per square kilometre per year. Agbaou gold exploration permit, Côte d’Ivoire, West Africa The Agbaou gold exploration permit, which covers 939 square kilometers, is situated approximately 200 kilometers northwest of Abidjan. The Agbaou gold exploration permit was issued to the Company in November, 2003. The permit is valid for three years and the Company has an obligation to incur $4,000,000 of exploration and development expenditures during this period. Gold properties, Mali, West Africa Gold Exploration Permits, Mali West In 2001, the Company was granted three exploration permits - Djelimangara, Kolomba and Sanoukou. A non-related third party is entitled to a 10% interest, at no additional cost, in the subsidiary that holds these three permits. The Djelimangara exploration permit, with a reduced area of 110 square kilometers, was renewed in July of 2004 for three years and can be renewed once more for a three-year term. The Djelimangara permit is located immediately south of the Sadiola Hill gold mine. An application for the abandoned area is pending. The Kolomba and Sanoukou exploration permits, with a reduced area of 75 square kilometers and 50 square kilometers, respectively, were renewed in July, 2004 for three years and can be renewed once more for a three-year period. An application for the abandoned area has been made for Kolomba only and is pending.

The Company also held two exploration authorizations in western Mali for which it has exercised its exclusive right to apply for exploration permits covering 370 square kilometers. Applications have been filed and the exploration permits are pending. The Company has also signed a number of option agreements with exploration permit holders to acquire an interest in other exploration properties in western Mali covering 504 square kilometers. Gold Exploration Permits, Mali South The Finkolo exploration permit was granted to Bagoé National Corporation SARL (Bagoé) in July, 2001. The permit, with a reduced area of 160 square kilometers, was renewed in July, 2004 for three years and can be renewed once more for a three-year period. An application for the abandoned area is pending. In July 2004, the Company exercised its option to acquire the Finkolo exploration permit from Bagoé. Under the terms of the option agreement, Bagoé will hold a 5% participation in any mining company established to exploit Finkolo. A non-related third party is entitled to a 2% net smelter royalty if a deposit on the Finkolo exploration permit is mined. In November 2003, the Company entered into an option and joint venture agreement with Resolute Mining Limited (Resolute) granting Resolute the right to earn up to a 60% interest in Etruscan’s interest in the Finkolo exploration permit. Under the terms of the Resolute option agreement, Resolute has the option to earn a 50% interest in Etruscan’s interest in the permit by contributing US$2,000,000 to expenditures on the permit prior to October 1, 2006. A joint venture will be formed once Resolute has earned its 50% interest. Resolute will have the right to earn an additional 10% interest by either contributing a further US$1,000,000 to expenditures on the permit or completing a feasibility study within two years following its initial earn-in. If Resolute earns a 60% interest prior to completing a feasibility study then Resolute will fund Etruscan’s share of the feasibility study preparation costs and Etruscan will repay Resolute from one half of Etruscan’s production cash flow arising from any mining operation on the permit. The Company holds four exploration authorizations in southern Mali covering 894 square kilometers. These authorizations are valid for a period of 90 days and may be renewed once for 90 days during which the holder is granted the exclusive right to apply for an exploration permit. The Company also held two exploration authorizations for which it is in various stages of exercising its exclusive right to apply for exploration permits covering 500 square kilometers.


31

The Company has also signed a number of option agreements with exploration permit holders to acquire an interest in other exploration properties in southern Mali covering 493 square kilometers. Diamonds properties in South Africa On May 1, 2004, new mineral legislation came into effect in South Africa. The new legislation abolished private mineral rights in South Africa in favour of State ownership with a system of State licensing. As a result, in order to maintain its mineral interests, the Company is required to make the necessary filings within the time frames provided in the new legislation to convert its old order prospecting and mining rights to prospecting and mining rights under the new legislation, failing which the old order rights will lapse. In addition, the Company is required to amend any applications for mineral rights filed prior to May 1, 2004 to conform with the requirements for issuance of mineral rights under the new legislation. In order to convert old order rights to new order rights, a holder must, among other things, give effect to the black economic empowerment and social economic objectives of the new mining legislation which are embodied in the broad based socio-economic empowerment charter of South Africa (Charter). Among other things, the Charter requires each mining company to achieve certain ownership targets for historically disadvantaged South Africans (HDSA) for the purposes of qualifying for the grant of new order rights namely, 15% ownership by HDSA by May 1, 2009 and 26% ownership by HDSA by May 1, 2014. In 2003, a draft of the proposed Mineral and Petroleum Royalty Bill (Bill) was introduced in the National Assembly, which provided for an 8% gross royalty on diamonds to be paid to the State and an effective date in 2009. This Bill is not in its final form and a further draft is expected to be presented in 2006. The final version of the royalty legislation may have a negative impact on the Company’s projects in South Africa and may make some of the projects uneconomic to continue to explore and develop. Ventersdorp Alluvial Diamond District Etruscan Diamonds has been acquiring properties throughout the Ventersdorp district and presently holds two mining permits and nine prospecting permits covering approximately 255 square kilometers with an additional 8 prospecting permits under application. Etruscan Diamonds has two mines in the Ventersdorp district, the Klipgat Diamond Mine and Tirisano Diamond Mine. Klipgat Diamond Mine The Klipgat Diamond Mine is located on the Farm Klipgat 18 IQ, which is located approximately 100 kilometers west of Johannesburg.

The mineral rights associated with the remaining extent of farm Klipgat 18 IQ (Farm Klipgat 18 IQ), which covers 873 hectares, were acquired by Etruscan Diamonds prior to enactment of the new mining legislation. Pursuant to a sale agreement with Solveigh (Pty) Ltd. concluded in April, 2004, Etruscan Diamonds acquired the mineral rights associated with the Farm Klipgat 18 IQ, together with the mineral rights associated with Farms Bovenste Oog Van Mooi River 68 IQ and Klerkskraal 65 IQ in consideration of a 5% royalty on the gross proceeds from the sale of diamonds from the farms to a maximum of US$2,250,000.

Pursuant to underlying contracts related to the Farm Klipgat 18 IQ, Southern Cross Diamond Ventures (Pty) Ltd. is entitled to receive a 5% royalty on gross proceeds from the sale of diamonds from the property to a maximum of US$750,000 from the Farms Klipgat 18 IQ, Bovenste Oog Van Mooi River 68 IQ and Klerkskraal 65 IQ.

In March, 2005 Etruscan Diamonds signed a black economic empowerment agreement with Basson Delwery CC and the Bakwena Ba Mare A Phogole Community (Community) granting the Community a 26% interest in the mineral rights relating to the remaining extent of Klipgat 18, 11% of which will be purchased by the Community at fair market value and such purchase price will be paid from the Community’s share of the profits from the sale of the diamonds from the property. In addition, the Community will not be required to make any contribution to costs for the development of a mine on the property. In June, 2005, Etruscan Diamonds was granted a mining right under the new mineral legislation over the Farm Klipgat 18 IQ. This mining right is valid for seven years.

Also in June, 2005, Etruscan Diamonds was granted a prospecting right over the Bovenste Oog Van Mooi River 68 IQ and Klerkskraal 65 IQ valid for three years. In September, 2005, a prospecting right was granted over the Nooitgedacht 69 IQ property valid for two years. These farms are adjacent or near the Klipgat mining permit. Tirisano Diamond Mine The Tirisano Diamond Mine is located on the Farm Nooitgedacht No. 131, Registration Division I.P. (Farm Nooitgedacht 131 IP), which is located 22 kilometers north of the town of Ventersdorp, in the North West Province, South Africa. Ventersdorp is located 150 kilometers west of Johannesburg. The mineral rights associated with Farm Nooitgedacht 131 IP were acquired by Etruscan Diamonds by way of agreements of purchase and sale with a number of individual mineral rights holders. On April 18, 2002, the Director of Mineral Development of South Africa (Director) issued Etruscan Diamonds a mining permit over the entire property (3,796 hectares) except the deproclaimed areas (114 hectares). The mining permit expires on April 15, 2012. Etruscan Diamonds has until May 1, 2009, to complete the


32

necessary filings to convert this permit to a mining right under the new mineral legislation. The work on the Farm Nooitgedacht 131 has been on portions 8 and 9. Etruscan Diamonds has acquired title to the lands encompassing portion 8 on July 16, 2003 and has been granted the right to access the surface land encompassing portion 9 through a surface rights agreement with the surface owner. Other Prospecting Permits Zwartplaat properties The Zwartplaat properties comprise three properties – Zwartplaat 179 IP, Bruidegomskraal 179 IP and Appeldraai 182 IP, which cover 2,889 hectares. These properties are located 15 kilometers north-east of the town of Ventersdorp. In October, 2005, Etruscan Diamonds was granted a prospecting permit over the Bruidegomskraal 179 IP property valid for two years and in September, 2005 a

prospecting permit over the Appeldraai 182 IP property valid for five years. Etruscan Diamonds has applied for a prospecting permit for the Zwartplaat 179 IP property and the application is pending. Polka properties The Polka properties comprises 5 properties – Grootbos 149 IP, Speculatie 150 IP, Vogelstruispan 151 IP, Schaapplaats 126 IP and the Polka 164 IP property and cover a total of 1,220 hectares. In October, 2005, Etruscan Diamonds was granted prospecting permits over the Grootbos 149 IP, Speculatie 150 IP, Vogelstruispan 151 IP, Schaapplaats 26 IP and Polka 164 IP properties valid for two years. Other properties Etruscan has seven other prospecting applications pending on other properties covering 50,590 hectares in the Ventersdorp alluvial diamond district.

10 Long-term debt

Note 2005

$ 2004

$ Industrial Development Corporation of South Africa Limited (a & c) 351,973 801,066 Industrial Development Corporation of South Africa Limited (b & c) 868,651 1,383,896 Nedbank Limited (d) 27,468 118,857 Nedbank Limited (e) 99,675 123,648 Komatfin Wesbank, a division of Firstrand Bank Limited - 675,913 Equipment financing - 98,712 Amount owing to Mvelaphanda Exploration (Pty) Limited - 898,384

1,347,766 4,100,476

Less: Current portion of long-term debt 736,648 1,272,717 611,118 2,827,759

a) Industrial Development Corporation of South Africa Limited loan in the amount of R1,950,000 bears interest at South African prime (10.5% as at November 30, 2005) plus 2% and is repayable in semi-annual instalments of R975,000 ($176,000) plus interest on January 1st and July 1st. The loan is secured by a notarial bond over the Tirisano Diamond Plant as well as a pledge of the shares of Etruscan Diamonds by the Company and Mountain Lake. The Company and Mountain Lake have also guaranteed the loan. b) Industrial Development Corporation of South Africa Limited loan in the amount of R4,812,500 bears interest at South African prime and is repayable in semi-annual instalments of R962,500 ($174,000) plus interest on January 1st and July 1st. The loan is secured by a notarial bond over the Tirisano Diamond Plant as well as a pledge of the shares of Etruscan Diamonds by the Company and Mountain Lake. The Company and Mountain Lake have also guaranteed the loan.

c) Due to the continuing dispute with Mvelaphanda Exploration on the interpretation of the Tirisano Diamond Mine Joint Venture agreement with regard to the responsibility for repayment of the loans to the IDC, the Company has not yet recognized the transfer of the amounts owing to the IDC to the Tirisano Diamond Mine Joint Venture. The Company has funded the amount due to the IDC of $450,166 due on July 1, 2005. Subsequent to year end, the Company has funded a further $452,853. The Company has recorded an amount recoverable from Mvelaphanda Exploration for its 50% share of the IDC payments as required under the Tirisano Joint Venture Agreement (see note 7).


33

d) Nedbank Limited loans totalling R152,175 bear interest at South African prime and are repayable over an average of 14 months with blended monthly payments ranging from R3,422 to R9,530 (CDN$618 to $1,720). Motor vehicles have been pledged as security for these loans. e) Nedbank Limited loan in the amount of R552,220 bears interest at South African prime less 1%, repayable over thirteen years with blended monthly instalments of R8,885 (CDN$1,604) and is secured by a first mortgage bond over land and buildings. f) The aggregate amount of principal repayments required in each of the next five years, based on November 30, 2005 exchange and interest rates, to meet retirement provisions is as follows:

$

Year ending November 30, 2006 736,648 2007 357,641 2008 184,344 2009 11,480 2010 11,480

11 Provision for reclamation obligation

A provision for reclamation costs in the amount of $850,000 for the Tirisano Diamond Mine has been accrued at November 30, 2005. This provision represents the fair value of the Company’s share of the liability and estimated costs for the reclamation at the Tirisano Diamond Mine. The reclamation costs are the responsibility of the Tirisano Diamond Mine Joint Venture.

12 Acquisition of subsidiary company and non-controlling interest

The Company has a 51% interest in Etruscan Diamonds. The non-controlling interests have equity investments in and advances to Etruscan Diamonds. The advances are considered part of the non-controlling interests’ investment in Etruscan Diamonds and are reduced by the non-controlling interests’ share of losses in Etruscan Diamonds. The financiers of the initial development of the Tirisano Diamond Mine hold 24% of Etruscan Diamonds and the remaining 25% is held by Mountain Lake. The Company’s initial acquisition agreement of its interest in Etruscan Diamonds, acquired from Mountain Lake, provides for the payment of monthly advances of $8,000 until Etruscan Diamonds commences making dividend distributions to Mountain Lake of at least $96,000 per annum. These advances are being made and are included in non-current other assets (notes 4 and 7). These advances will be repaid by Mountain Lake from eventual dividend distributions from Etruscan Diamonds.

Composition of non-controlling interest The composition of the non-controlling interest in Etruscan Diamonds is as follows:

2005

$ 2004

$

Equity investment in Etruscan Diamonds 126,362 126,362

Amounts owing to Mountain Lake 1,220,252 1,220,252

1,346,614 1,346,614 Accumulated non-controlling

interest in loss – Beginning of year (611,889) (417,520)

Non-controlling interest in loss for the year (734,725) (194,369)

Accumulated non-controlling

interest in loss – End of year (1,346,614) (611,889)

Non-controlling interest - 734,725 The amount owing to Mountain Lake has no fixed terms of repayment. Interest on this loan is as agreed upon from time-to-time.

13 Executive employment arrangements

The Company has an employment arrangement with the President and CEO of the Company which provides that, in the event of a sale of at least 50% in fair market value of all assets of the Company to an arms length third party or the acquisition by a party of 25% or more of the outstanding shares of the Company (change in control) then the President may elect to terminate his employment with the Company in which event the Company is required to pay the President a lump sum payment equal to three times his annual salary. The Company also has employment arrangements with other officers and employees of the Company which provide that, in the event of a change of control of the Company and if, among other things, there is a change in job responsibilities, location or remuneration then such officer or employee may elect to terminate their employment with the Company in which event the Company is required to pay such officer or employee a lump sum payment equal to their annual salary.


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14 Capital stock

Authorized capital stock 250,000,000 common shares without nominal or par value. Issuance of common shares

Number of shares

Ascribed value

$

Balance – November 30, 2003 54,925,666 124,943,729

Issued in 2004 For cash, net of issue costs 9,994,354 21,434,444 For cash pursuant to warrant

agreements 2,860,000 2,632,500 For cash pursuant to stock

option plan 361,000 312,370

Balance – November 30, 2004 68,141,020 149,323,043 Issued in 2005

For cash, net of issue costs 3,351,110 4,364,317 For cash pursuant to stock

option plan 172,000 59,900

Balance – November 30, 2005 71,664,130 153,747,260 Warrants A summary of the Company’s common share purchase warrants outstanding at November 30, 2005 and 2004 is as follows:

Expiry Date

Exercise price

$ 2005 2004

March 31, 2006 3.25 4,997,177 4,997,177 March 31, 2006 2.30 599,661 599,661 February 18, 2007 1.75 1,675,555 - Balance 7,272,393

5,596,838

Stock options The Company has a stock option plan providing for the issuance of up to 8,000,000 options, whereby the Company may grant options to its directors, officers, employees and service providers. The exercise price of each option cannot be lower than the market price of the shares at the date of grant of the option. The number of shares optioned to any optionee may not exceed 5% of the issued and outstanding shares at the date of grant. The options are exercisable immediately for a ten-year period from the date of grant.

A summary of the Company’s stock option plan at November 30, 2005 and 2004, and changes during the years then ended are as follows:

2005

Number

Weighted average

exercise price $

Opening balance 5,812,500 1.00 Granted during the year 120,000 1.48 Exercised during the year (172,000) .30

5,760,500 1.03

2004

Number

Weighted average

exercise price $

Opening balance 5,988,500 0.92 Granted during the year 635,000 1.72 Exercised during the year (361,000) 0.87 Expired during the year (450,000) 1.05

5,812,500 1.00 The following table summarizes information about the stock options outstanding and exercisable at November 30, 2005:

Range of

prices $

Number outstanding

Weighted average

remaining contractual

life (years)

Weighted average exercise

price $

0.24 – 0.50 1,394,000 4.6 0.33 0.51 – 0.75 304,500 4.4 0.68 0.76 – 1.24 475,000 6.9 1.00

1.25 2,832,000 3.1 1.25 1.48 – 2.43 755,000 8.7 1.68 5,760,500 4.5 1.03

The fair value of options recognized in the consolidated statements of operations and deficit, have been estimated at the grant date using the Black-Scholes option pricing model. Assumptions used in the pricing model for the year, are as follows:

2005 2004

Risk free interest rate 5% 5% Expected life 5 years 5 years Expected volatility 75% 75% Expected dividend yield Nil Nil Option pricing models require the input of highly subjective assumptions regarding the expected volatility. Changes in assumptions can significantly affect the fair value estimate, and therefore, the existing models do not necessarily provide a reliable measure of the fair value of the Company’s stock options.


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15 Related party transactions

The Company recorded the following charges by (revenue from) affiliated companies, employees and directors and business interests thereof:

2005

$ 2004

$

Net interest charged to employees (13,095) (13,578)Business development expenses 33,600 31,500

16 Income taxes

The Company has accumulated losses for Canadian tax purposes of approximately $17.4 million which may be carried forward and used to reduce taxable income in future years. These losses may be claimed no later than: Year ending November 30, 2006 2,300,000

2007 3,500,000 2008 4,300,000 2009 1,500,000 2011 2,400,000 2012 3,400,000

In addition, the Company has incurred resource expenditures of approximately $22 million in foreign countries, which may be carried forward indefinitely and used to reduce taxable income in future years in these foreign countries. The potential tax benefits of these items have not been recognized in these accounts as realization is not considered more likely than not.

17 Supplemental cash flow information

During the year ended November 30, 2005, the Company also recorded a decrease to the cumulative translation adjustment of $200,000 (2004 – increase of $300,000) relating to its equity investment in African GeoMin. During the year ended November 30, 2005, the Company settled commitments of $47,900 (2004 - $115,890) with other assets. During the year ended November 30, 2005, the Company also acquired an investment for $175,000 related to proceeds on the disposition of a mineral property. During the year ended November 30, 2004, the Company capitalized amortization expense of $115,917 to property, plant and equipment and to mineral properties and related deferred costs. These items are non-cash transactions and have been excluded from the statements of cash flows.

18 Subsequent events

Private placement

On January 10, 2006 the Company completed a $10.7 million private placement equity financing for net proceeds of $10.2 million. Pursuant to the private placement equity financing, a total of 7,918,463 units were issued with each unit consisting of one common share and one common share purchase warrant. Each warrant entitles the holder to acquire a common share at a price of $1.75 for a period of two years. Youga Gold Project subordinated debt facility On February 23, 2006 the Company accepted an offer of finance for a US$ 28.5 million senior secured project debt facility for the Youga Gold Project together with an un-margined hedge facility from the FirstRand Bank Group of South Africa and Macquarie Bank Limited of Australia. The offer of finance contemplates that the debt facility will be structured as a limited recourse facility to the Company until technical completion conditions are achieved where after it becomes non-recourse project financing. Standard project finance security provisions apply to the offer of finance. The offer of finance is subject to the completion of the formal financing agreements, establishment of an options related gold price protection program that secures a minimum price of US$500 per ounce for approximately 453,000 ounces of gold to be produced over the first 5 years of production and satisfaction of the specified conditions precedent not later than March 23, 2006. Shareholder rights plan On January 13, 2006, the Company adopted a shareholder rights plan (Rights Plan). The Rights Plan has been adopted to ensure the fair treatment of shareholders in connection with any take-over offer for the Company and is not intended to prevent take-over bids that treat shareholders fairly. The Rights Plan will also provide the Board with more time to fully consider any unsolicited take-over bid and to pursue, if appropriate, other alternatives to maximize shareholder value in the event of a takeover bid. The Rights Plan was not being adopted in response to any proposal to acquire control of the Company. Under the Rights Plan, those bids that meet certain requirements intended to protect the interests of all shareholders are deemed to be “Permitted Bids”. Permitted Bids must be made by way of a take-over circular prepared in compliance with applicable securities laws and, among other conditions, must remain open for sixty days. In the event a take-over bid does not meet the Permitted Bid requirements of the Rights Plan, the rights will entitle shareholders, other than any shareholder or shareholders making the take-over bid, to purchase additional common shares of the Company at a substantial discount to the market value at the time.


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The Rights Plan will be presented for ratification by the shareholders at Etruscan’s 2006 Annual General Meeting. If approved by the shareholders, the Rights Plan will have an initial term of three years.

19 Segmented information

The Company’s two main operating segments are diamond and gold property exploration and development. The Company’s geographic segments are as follows:

2005

Revenue

$ Mining assets

$ Diamond exploration and

development in South Africa

Investment in the Tirisano Diamond Mine Joint Venture 202,346 5,398,251

Buildings - 235,354 Land - 25,590 Motor vehicles - 55,164 Mineral properties and

related deferred costs - 2,575,602

Gold exploration and development

Canada Mineral properties and

related deferred costs 267,168 - Office equipment - 221,153

Niger, West Africa - 4,772,750 Mali, West Africa - 4,577,508 Côte d’Ivoire, West Africa - 2,301,573 Burkina Faso, West Africa - 20,278,484 Other - 145,344

469,514 40,586,773

2004

Revenue

$ Mining assets

$ Diamond exploration and

development in South Africa

Diamond plant and deferred development costs - 15,628,841

Buildings - 248,005 Land - 409,226 Motor vehicles - 188,146 Heavy equipment - 608,938 Mineral properties and

related deferred costs 259,387 4,077,444

Gold exploration and development

Canada Mineral properties and

related deferred costs 552,133 - Office equipment - 232,017 Leasehold improvements - 8,554

Niger, West Africa - 5,571,481 Mali, West Africa - 3,244,807 Côte d’Ivoire, West Africa - 1,241,986 Burkina Faso, West Africa - 13,565,084

811,520 45,024,529

Corporate OfficeP.O. Box 2020

48 Gerrish StreetWindsor, Nova Scotia

CANADA B0N 2T0Tel: +01 (902) 798 9701

Toll Free: +01 (877) 465 3674Fax: +01 (902) 798 9702


Tirisano Diamond MineEtruscan Diamonds (Pty) Ltd.

10 Roth StreetP.O. Box 46Ventersdorp

South Africa 2710Tel: +27 18 264 4627Fax: +27 18 264 5328

West African OfficesBurkina Faso

08 BP 11197Rue 13.26 porte 195

Ouagadougou 08 BURKINA FASO

Tel: +226 50 36 10 80Fax: +226 50 36 02 43

MaliBP E1519

Rue 882, Pte 746, Faladie SemaBamako

MALITel / Fax : +223 2 20 68 78

Côte D’Ivoire25 BP 603

Abidjan 25COTE D’IVOIRE

Tel / Fax : +225 20 30 29 33

Ontario OfficeP.O. Box 1749Niagara-on-the-LakeOntarioCANADA L0S 1J0Tel: +01 (905) 468 0130Fax:+01 (905) 468 8407

OfficersGerald McConnell Q.C.President & CEO

Donald Burton M.Sc.VP Exploration & COO

Glenn Holmes C.A.VP Finance & CFO

Janice Stairs LLB, M.B.A.VP, General Counsel & Corporate Secretary

Robert Harris, M.Sc. Eng., P.Eng.VP Operations

DirectorsEddie Lui Hong Kong

Gerald McConnellWindsor, Nova Scotia

Rick Van Nieuwenhuyse Vancouver, British Columbia

Joel D. SchneyerParker, Colorado

Walt Tyler Lakewood, Colorado

William Young Ottawa, Ontario

Stock ListingToronto Stock Exchange(Trading Symbol: EET)

Register and Transfer Agent

CIBC Mellon Trust CompanyHalifax, Nova Scotia

AuditorsPricewaterhouseCoopers LLP


PricewaterhouseCoopers Inc.Cape Town, South Africa

Legal CounselMcInnis Cooper


BankersTD Canada Trust


NedbankJohannesburg, South Africa

Marie Rose Gateté Manager of Social Initiatives at John and Margaret Savage Health Centere in Touré, Niger

Delivery of school supplies to Bossey Bangou school close to the Samira Gold Mine in Niger

Classroom built by Etruscan at Bossey Bangou school close to the Samira Gold Mine in Niger

Bank of AfricaBurkina Faso, Côte d’Ivoire and

Mali, West Africa

Location of Projects in Africa

2005 ANNUAL REPORT

Corporate OfficeP.O. Box 202048 Gerrish StreetWindsor, NS B0N 2T0Canada

Phone: +01 (902) 798 9701Toll Free: +01 (877) 465 3674Fax: +01 (902) 798 9702


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