EX-99.1 6 exhibit99-1.htm FINANCIALS

Filed by Automated Filing Services Inc. (604) 609-0244 - Taseko Mines Limited - Exhibit 99.1

CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED
SEPTEMBER 30, 2006, 2005 and 2004

(Expressed in Canadian Dollars)

	KPMG LLP	Telephone	(604) 691-3000
	Chartered Accountants	Fax	(604) 691-3031
	PO Box 10426 777 Dunsmuir Street	Internet	www.kpmg.ca
	Vancouver BC V7Y 1K3
	Canada

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Taseko Mines Limited

We have audited the accompanying consolidated balance sheets of Taseko Mines Limited (the “Company”) as of September 30, 2006 and 2005 and the related consolidated statements of operations, deficit and cash flows for each of the years in the three-year period ended September 30, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our audit opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2006 and 2005 and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2006 in conformity with Canadian generally accepted accounting principles.

As discussed in note 4 to the consolidated financial statements, the Company changed its method of accounting for convertible debt during the year ended September 30, 2006.

Canadian generally accepted accounting principles vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in note 19 to the consolidated financial statements.

/s/ KPMG LLP

Chartered Accountants

Vancouver, Canada
December 8, 2006, except for note 19 which is as of April 16, 2007

KPMG LLP, a Canadian limited liability partnership is the Canadian member firm of KPMG International, a Swiss cooperative.

TASEKO MINES LIMITED
Consolidated Balance Sheets
(Expressed in Canadian Dollars)

		September 30			September 30
		2006			2005
					(restated - note 4)
ASSETS
Current assets
Cash and equivalents	$	89,407,801		$	21,728,789
Accounts receivable		9,342,044			6,746,378
Inventory (note 5)		24,217,881			20,874,231
Prepaid expenses		1,221,297			1,914,214
Investment (note 6)		11,500,000			–
Current portion of future income taxes (note 15)		11,601,000			4,479,000
Current portion of promissory note (note 8(e))		2,156,719			2,637,499
		149,446,742			58,380,111
Restricted cash		–			5,000,000
Deferred financing costs		1,381,577			–
Mineral properties, plant and equipment (note 9)		43,444,943			9,916,992
Assets under capital leases (note 10)		–			20,794,000
Reclamation deposits (note 13)		32,004,138			18,281,420
Promissory note (note 8(e))		71,009,683			69,680,355
Future income taxes (note 15)		174,000			8,944,000
	$	297,461,083		$	190,996,878
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	21,960,232		$	13,082,146
Current portion of capital lease obligation (note 11)		–			2,092,334
Current portion of deferred revenue (notes 3(b) and 8(e))		19,759,131			14,748,000
Current portion of royalty obligation (note 8(e))		2,156,719			2,637,499
Income taxes (note 15)		3,985,296			19,645,000
		47,861,378			52,204,979
Capital lease obligation (note 11)		–			12,984,805
Income taxes (note 15)		21,058,378			–
Royalty obligation (note 8(e))		64,632,443			66,153,298
Deferred revenue (note 8(e))		1,225,000			1,400,000
Convertible debt (note 12)		42,774,663			11,830,241
Site closure and reclamation costs (note 13)		18,975,411			17,314,000
		196,527,273			161,887,323
Shareholders' equity
Share capital (note 14)		197,591,937			160,829,442
Equity component of convertible debt (note 12)		13,654,673			9,822,462
Tracking preferred shares (note 7)		26,641,948			26,641,948
Contributed surplus (note 14(e))		3,647,716			5,334,614
Deficit		(140,602,464	)		(173,518,911	)
		100,933,810			29,109,555
Subsequent event (note 18)
Commitments (note 8)
	$	297,461,083		$	190,996,878

See accompanying notes to consolidated financial statements.

Approved by the Board of Directors

/s/ Russell E. Hallbauer	/s/ Jeffrey R. Mason
Russell E. Hallbauer	Jeffrey R. Mason
Director	Director

TASEKO MINES LIMITED
Consolidated Statements of Operations
(Expressed in Canadian Dollars)

		Years ended September 30
		2006			2005			2004
					(restated - note 4)			(restated - note 4)
Revenue
Copper	$	140,340,929		$	71,945,925		$	–
Molybdenum		21,559,134			15,692,375			–
		161,900,063			87,638,300			–
Cost of sales		(103,627,678	)		(71,348,118	)		–
Depletion, depreciation and amortization		(3,412,048	)		(2,657,165	)		(17,296	)
Operating profit (loss)		54,860,337			13,633,017			(17,296	)
Expenses (income)
Accretion of reclamation obligation		1,732,000			1,574,000			1,431,000
Exploration		3,544,081			505,586			4,597,968
Foreign exchange		(288,801	)		34,080			–
Loss on sale of equipment		–			2,160,992			–
Loss on extinguishment of capital leases (note 11)		240,049			–			–
General and administration		5,286,039			2,411,688			2,693,067
Ledcor termination fee (note 8(a))		3,500,000			–			–
Interest and other income		(7,170,301	)		(10,547,609	)		(5,154,209	)
Interest expense		4,593,622			3,175,353			–
Interest accretion on convertible debt		1,280,099			1,075,478			977,705
Premium paid for acquisition of Gibraltar Reclamation
Trust Limited Partnership		–			–			5,095,249
Restart project		–			6,346,650			14,982,008
Stock-based compensation		3,182,102			1,129,026			5,172,244
Write down of mineral property acquisition costs (note 8(c))		–			–			28,810,296
		15,898,890			7,865,244			58,605,328
Earnings (loss) before income taxes		38,961,447			5,767,773			(58,622,624	)
Income tax recovery (expense) (note 15)		(4,397,000	)		4,099,000			(23,744,000	)
Future income tax recovery (expense) (note 15)		(1,648,000	)		13,423,000			–
Earnings (loss) for the year	$	32,916,447		$	23,289,773		$	(82,366,624	)
Earnings (loss) per share
Basic	$	0.29		$	0.23		$	(1.10	)
Diluted		0.26			0.21			(1.10	)
Weighted average number of common shares outstanding
Basic		113,553,556			100,021,655			75,113,426
Diluted		126,462,009			110,732,926			75,113,426

Consolidated Statements of Deficit
(Expressed in Canadian Dollars)

		Years ended September 30
		2006			2005			2004
Deficit, beginning of year	$	(173,518,911	)	$	(196,808,684	)	$	(114,442,060	)
Earnings (loss) for the year		32,916,447			23,289,773			(82,366,624	)
Deficit, end of year	$	(140,602,464	)	$	(173,518,911	)	$	(196,808,684	)

See accompanying notes to consolidated financial statements.

TASEKO MINES LIMITED
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)

		Years ended September 30
		2006			2005			2004
					(restated - note 4)			(restated - note 4)
Operating activities
Earnings (loss) for the year	$	32,916,447		$	23,289,773		$	(82,366,624	)
Items not involving cash
Accretion of reclamation obligation		1,732,000			1,574,000			1,431,000
Depreciation, depletion and amortization		3,412,048			2,657,165			17,296
Interest accretion on convertible debt		1,280,099			1,075,478			977,705
Loss on extinguishment of capital leases		240,049			–			–
Loss on sale of equipment		–			2,160,992			–
Stock-based compensation		3,182,102			1,129,026			5,172,244
Future income taxes		1,648,000			(13,423,000	)		–
Unrealized foreign exchange		48,901			–			–
Write down of mineral property acquisition costs		–			–			28,810,296
Premium paid for acquisition of Gibraltar Reclamation
Trust Limited Partnership		–			–			5,095,249
Shares issued for loan guarantee		–			–			450,000
Shares issued pursuant to farmout agreement		–			–			935,000
Changes in non-cash operating working capital
Accounts receivable		(2,595,666	)		(3,980,194	)		(1,792,899	)
Inventories		(3,343,650	)		(20,874,231	)		–
Prepaids		692,917			(1,704,199	)		–
Accrued interest income on promissory note		(4,311,069	)		(4,145,474	)		–
Accounts payable and accrued liabilities		8,878,086			(1,301,169	)		12,750,113
Deferred revenue		4,836,131			14,398,000			1,750,000
Accrued interest expense on royalty obligation		1,460,886			1,433,797			–
Income taxes		5,398,674			(4,099,000	)		23,744,000
Site closure and reclamation expenditures		(70,589	)		–			–
Cash provided by (used for) operating activities		55,405,366			(1,809,036	)		(3,026,620	)
Investing activities
Purchase of property, plant and equipment		(16,145,999	)		(8,263,188	)		(26,928,697	)
Proceeds received on sale of property, plant and equipment		–			22,067,711			–
Restricted cash		5,000,000			(5,000,000	)		–
Funds advanced on promissory note		–			–			(68,172,380	)
Reclamation deposits		(13,000,000	)		–			(401,311	)
Accrued interest income on reclamation deposits		(722,718	)		(634,364	)		(488,471	)
Investment in convertible promissory note		(11,500,000	)		–			–
Cash provided by (used for) investing activities		(36,368,717	)		8,170,159			(95,990,859	)
Financing activities
Principal repayments under capital lease obligation		(15,077,139	)		(7,273,554	)		–
Bank operating loan		–			(1,857,740	)		(135,656	)
Common shares issued for cash, net of issue costs		31,893,495			9,606,013			27,167,069
Proceeds on sale of royalty		–			–			67,357,000
Advances from Gibraltar Reclamation Trust Limited Partnership		–			–			17,097,792
Convertible bonds issued, net of issue costs		31,826,007			–			–
Cash provided by financing activities		48,642,363			474,719			111,486,205
Increase in cash and equivalents		67,679,012			6,835,842			12,468,726
Cash and equivalents, beginning of year		21,728,789			14,892,947			2,424,221
Cash and equivalents, end of year	$	89,407,801		$	21,728,789		$	14,892,947
Supplementary cash flow disclosures (note 16)

See accompanying notes to consolidated financial statements.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

1.	NATURE OF OPERATIONS
	Taseko Mines Limited ("Taseko" or the "Company") is a public company incorporated under the laws of the Province of British Columbia. At September 30, 2006, the Company's principal business activities related to the operations of the Gibraltar Copper Mine, and exploration on the surrounding properties as well as exploration on the Company’s 100% owned Prosperity Gold- Copper Property, and Harmony Gold Property. The Gibraltar property and the Prosperity gold property are located in south central British Columbia, Canada, near the City of Williams Lake. The Harmony gold property is located on Graham Island, Queen Charlotte Islands (also known as Haida Gwaii), British Columbia.
2.	BASIS OF PRESENTATION
	These financial statements have been prepared in accordance with Canadian generally accepted accounting principles. A reconciliation of material measurement differences between these principles and accounting principles generally accepted in the United States is shown in note 19. These consolidated financial statements include the accounts of the Company and all of its subsidiaries. All material intercompany accounts and transactions have been eliminated.
3.	SIGNIFICANT ACCOUNTING POLICIES

(a)	Cash and equivalents
	Cash and equivalents consist of cash and highly liquid investments, having maturity dates of three months or less from the date of acquisition, that are readily convertible to known amounts of cash. At September 30, 2006, of the $89.4 million cash and cash equivalents held by the Company, $81.6 million (US$73.0 million) were held in United States-dollar-denominated cash and equivalents (2005 – $21.1 million (US$18.2 million)).
(b)	Revenue recognition
	Revenue from the sales of metal in concentrate is recognized when persuasive evidence of a sales agreement exists, the title and risk is transferred to the customer, collection is reasonably assured, and the price is reasonably determinable. Revenue from the sales of metal may be subject to adjustment upon final settlement of shipment weights, assays and estimated metal prices. Adjustments to revenue for metal prices are recorded monthly and other adjustments are recorded on final settlement. Cash received in advance of meeting these revenue recognition criteria is recorded as deferred revenue. At September 30, 2006, the Company had deferred revenues of $19.6 million (2005 – $14.6 million) pertaining to cash received in advance of title and risk passing to the customer.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

(c)	Inventory
	Concentrate inventory consists of finished goods, work-in-process inventories and stockpiled ore. Concentrate inventory is valued based on the lower of average production cost or net realizable value. Production costs include the cost of raw materials, direct labour and mine-site overhead expenses and depreciation.
	The costs of removing waste material in the process of mining ore, referred to as "stripping costs", are considered costs of the extracted minerals and recognized as a component of concentrate inventory to be recognized in cost of sales in the same period as the revenue from the sale of the concentrate inventory.
	Supplies inventory is valued at the lower of average cost and replacement cost.
(d)	Investment
	Investment consists of a convertible promissory note with a maturity date of less than one year, which is carried at the lower of cost and estimated realizable value.
(e)	Deferred financing charges
	Deferred financing charges consist of expenses related to debt financing transactions and are amortized over the life of such debt facilities.
(f)	Plant and equipment
	Plant and equipment are stated at cost less accumulated amortization. Mining and milling assets are amortized using the units of production method based on tons mined and milled, respectively, divided by the estimated tonnage to be recovered in the mine plan. Amortization for all other assets is calculated using the declining balance method at rates ranging from 10% to 50% per annum. Repairs and maintenance expenditures are charged to operations as incurred. Major improvements and replacements which extend the useful life of the asset are capitalized as incurred.
	The costs of removing overburden material to access mineral deposits, referred to as "pre- stripping costs", are deferred and amortized using the units of production basis to cost of sales over the life of the mineral deposit accessed.
(g)	Mineral property interests
	The Company capitalizes mineral property acquisition costs on a property-by-property basis. Exploration expenditures and option payments incurred prior to the determination of the feasibility of mining operations are charged to operations as incurred. Exploration and development expenditures incurred subsequent to such determination, to increase production, or to extend the life of existing production are capitalized, except as noted below. Such acquisition costs and deferred exploration and development expenditures are amortized over the estimated

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

	life of the property, or written off to operations if the property is abandoned, allowed to lapse, or if there is little prospect of further work being carried out by the Company or its option or joint venture partners.
	All costs incurred by the Company during the standby care and maintenance period and restart at the Gibraltar mine were expensed as incurred, net of revenues earned during such period.
	Mineral property acquisition costs include the cash consideration and the fair market value of common shares, issued for mineral property interests, pursuant to the terms of the relevant agreement. Payments relating to a property acquired under an option or joint venture agreement, where such payments are made at the sole discretion of the Company, are recorded in the accounts upon payment.
	Costs related to feasibility work and the development of processing technology are expensed as incurred. Costs incurred subsequent to the determination of the feasibility of the processing technology will be capitalized and amortized over the life of the related plant.
	Administrative expenditures are expensed as incurred.
	The amount presented for mineral property interests represents costs incurred to date and accumulated acquisition costs, less write-downs, and does not necessarily reflect present or future values.
(h)	Site closure and reclamation costs
	The Company accounts for site closure and reclamation costs in accordance with Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3110, "Asset Retirement Obligations" ("HB 3110"). HB 3110 requires the recognition of any statutory, contractual or other legal obligation related to the retirement of tangible long-lived assets when such obligations are incurred, if a reasonable estimate of fair value can be made.
	These obligations are measured initially at fair value and the resulting costs are capitalized to the carrying value of the related asset. In subsequent periods, the liability is adjusted for the accretion of the discount and any changes in the amount or timing of the underlying future cash flows. The asset retirement cost is amortized to operations over the life of the asset. Changes resulting from revisions to the timing or the amount of the original estimate of undiscounted cash flows are recognized as an increase or a decrease in the carrying amount of the liability, and the related asset retirement cost is capitalized as part of the carrying amount of the related long-lived asset.
(i)	Impairment of long-lived assets
	Long-lived assets, including mineral properties, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

	comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount and the fair value less costs to sell, and are no longer amortized.
(j)	Share capital
	The Company records proceeds from share issuances net of issue costs. Shares issued for consideration other than cash are valued at the quoted market price on the date of issue.
	The proceeds, net of issue costs, from common shares issued pursuant to flow-through share financing agreements are credited to share capital and the tax benefits of these exploration expenditures are transferred to the purchaser of the shares.
(k)	Stock-based compensation
	The Company has a share option plan which is described in note 14(c). The Company records all stock-based payments granted on or after October 1, 2002 using the fair value method.
	Under the fair value method, stock-based payments are measured at the fair value of the consideration received or the fair value of the equity instruments issued or liabilities incurred, whichever is more reliably measurable, and are charged to operations over the vesting period. The offset is credited to contributed surplus.
	Consideration received on the exercise of stock options is recorded as share capital and the related contributed surplus is transferred to share capital.
(l)	Income taxes
	The Company uses the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are computed based on differences between the carrying amounts of assets and liabilities on the balance sheet and their corresponding tax values, generally using the substantively enacted or enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Future income tax assets also result from unused loss carry forwards, resource-related pools, and other deductions. Future tax assets are recognized to the extent that they are considered more likely than not to be realized. The valuation of future income tax assets is adjusted, if necessary, by the use of a valuation allowance to reflect the estimated realizable amount.
(m)	Earnings (loss) per common share
	Basic earnings (loss) per common share is based on the weighted average number of common shares outstanding during the period.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

	Diluted earnings (loss) per share is calculated using the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding used for the calculation of diluted earnings per share includes the underlying common shares related to the tracking preferred shares and convertible debt on an if-converted basis and assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price of the common shares for the year.
	In periods of loss, under the treasury stock method, the basic and diluted loss per share are the same as the effect of common shares issuable upon the exercise of warrants and stock options of the Company would be anti-dilutive.
(n)	Variable interest entities
	The Company accounts for variable interest entities (“VIE”) in accordance with CICA Accounting Guideline 15, "Consolidation of Variable Interest Entities" ("AcG15"). AcG15 prescribes the application of consolidation principles for entities that meet the definition of a VIE. An enterprise holding other than a voting interest in a VIE could, subject to certain conditions, be required to consolidate the VIE if it is considered its primary beneficiary whereby it would absorb the majority of the VIE’s expected losses, receive the majority of its expected residual returns, or both.
(o)	Fair value of financial instruments
	The carrying amounts of cash and equivalents, accounts receivable, reclamation deposits, and accounts payable and accrued liabilities approximate their fair values due to their short term nature.
	The carrying values of the promissory note, convertible bonds (note 12(a)) and the royalty obligation approximate their fair values.
	The fair values of the Boliden convertible debenture (note 12(b)) and the tracking preferred shares are not readily determinable with sufficient reliability due to the difficulty in obtaining appropriate market information. It is not practicable to determine the fair value of the investment and advances from related parties because of the related party nature of such amounts and the absence of a secondary market for such instruments. Details of the terms of these financial instruments are disclosed in these notes to the consolidated financial statements.
(p)	Use of estimates
	The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting year. Significant areas requiring the use of management estimates relate to the impairment of mineral property interests and plant and equipment, the balances of

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

	reclamation liability and capital lease obligation, income taxes, valuation allowances for future income tax assets, rates for depletion, depreciation and amortization, the assumptions used in computing stock-based compensation, the fair value of the option to convert the debenture into common shares and future cash flows related thereto, receivables from sales of concentrate and valuation of concentrate inventory, and the determination of mineral reserves and mine life. Actual results could differ from these estimates.
(q)	Segment disclosures
	The Company operates in a single reportable operating segment, the exploration, development and operation of mineral property interests, within the geographic area of British Columbia, Canada.
(r)	Comparative figures
	Certain of the prior years' comparative figures have been restated to conform with the presentation adopted for the current year.

4.	CHANGE IN ACCOUNTING POLICY
	Effective October 1, 2005 the Company adopted certain new provisions of the CICA Handbook Section 3860, “Financial Instruments – Disclosure and Presentation”, which came into effect on that date. The standard requires that convertible debentures which may be settled in cash, or by a variable number of common shares of the Company at the Company's discretion, be presented as a liability. This change has been applied retroactively. The consolidated balance sheet as at September 30, 2005 has been amended to present the liability component and equity component separately on the balance sheet. The accretion charges that were previously recorded through deficit are now recorded as interest accretion on convertible debt in the consolidated statement of operations. For the year ended September 30, 2005, this amounted to $1,075,478 (2004 – $977,705). For the year ended September 30, 2006 this amounted to $1,183,024. This change had no effect on earnings (loss) per share.
5.	INVENTORY

			September 30			September 30
			2006			2005
	Copper concentrate	$	16,212,600		$	16,284,800
	Ore in process		2,114,200			–
	Materials and supplies		5,891,081			4,589,431
		$	24,217,881		$	20,874,231

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

6. INVESTMENT

			September 30			September 30
			2006			2005
	Continental Convertible Promissory Note	$	11,500,000		$	–

	On August 29, 2006 (“Closing”), the Company purchased from Continental Minerals Corporation (“Continental”), a related public company with certain directors in common with the Company, a one-year Convertible Secured Promissory Note of Continental (the “Note”) in the amount of $11.5 million.
	The Company has the right to convert any or the entire principal then outstanding under the Note, plus a 5% premium into Continental common shares at $2.05 per share if the Note is converted within the first six months or, at $2.25 per share if converted in the second six months after the Closing. In addition, upon conversion of the Note, the Company will acquire a right of first refusal (the “Pre-Emptive Right”) for up to five years, during which time the Company may purchase up to 50% of any equity or convertible securities, except certain normal course securities offerings and strategic alliances, offered by Continental in a subsequent financing until a maximum of 19.9% of Continental’s then outstanding shares on a fully diluted basis is held by the Company. If the Company fails to exercise the Pre-Emptive Right in regards to any offered securities under a future financing, the Pre-Emptive Right thereupon expires.
	The Note provides for interest at the rate of 16% per annum payable monthly. Interest is payable in cash, or at the Company’s election, in Continental common shares based upon the higher of the five day volume weighted average of the closing price of Continental’s common shares at the time the interest payment is due or at closing, being $1.55. The Note is secured by an indirect pledge of Continental’s 60% interest in the Xietongmen property, which security interest will be subordinated, if necessary, to any security interest granted by Continental in respect of senior debt of which none is outstanding at September 30, 2006. Continental retains the right to pre-pay the Note on 10 days notice, after 180 days from Closing.
7.	ARRANGEMENT AGREEMENT (TRACKING PREFERRED SHARES AND HARMONY GOLD PROPERTY)
	In October 2001, the Company and its subsidiary Gibraltar Mines Ltd. ("Gibraltar") completed the acquisition of the Harmony Gold Property and related assets from Continental, for 12,483,916 series "A" non-voting tracking preferred shares of Gibraltar and $2.23 million cash. The tracking preferred shares were recorded at $26,641,948 and are designed to track and capture the value of the Harmony Gold Property and will be redeemed for common shares of Taseko upon a realization event, such as a sale of the Harmony Gold Property to a third party or commercial production at the Harmony Gold Property or, at the option of Gibraltar, if a realization event has not occurred within ten years. Accordingly, the tracking preferred shares have been classified within shareholders’ equity on the consolidated balance sheet.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

As previously noted, the Gibraltar tracking preferred shares are redeemable for common shares of Taseko upon the occurrence of certain value realization events for the Harmony Gold Property. The tracking preferred shares are redeemable at specified prices per common share of Taseko starting at $3.39 and escalating by $0.25 per year, currently at $4.64 (as of September 30, 2006). If a realization event does not occur on or before October 16, 2011, Gibraltar has the right to redeem the tracking preferred shares for Taseko common shares at a deemed price equal to the greater of the then average 20 day trading price of the common shares of Taseko and $10.00. The Taseko common shares to be issued to Continental upon a realization event will in turn be distributed pro-rata, after adjustment for any taxes, to the holders of redeemable preferred shares of Continental that were issued to Continental shareholders at the time of the Arrangement Agreement.

8.

MINERAL PROPERTY INTERESTS

			September 30			September 30
			2006			2005
	Gibraltar Copper Mine (note 8(a))	$	2,626,000		$	1,000
	Prosperity Gold-Copper Property (note 8(b))		1,000			1,000
	Harmony Gold Property (note 8(c))		1,000			1,000
		$	2,628,000		$	3,000

(a)	Gibraltar Copper Mine
	In July 1999, the Company acquired a 100% interest in the Gibraltar Copper Mine mineral property, located near Williams Lake, British Columbia, Canada from Boliden Westmin (Canada) Limited ("BWCL") for $3.3 million. The acquisition of the Gibraltar mine, which had been on care and maintenance since 1998, included plant and equipment and supplies inventory of the Gibraltar mine, and $8 million of funds set aside for future reclamation. As part of its 1999 operating permits, the Company had agreed to incur a total of $4 million on reclamation and environmental programs during the six year period July 1999 to July 2005. The Gibraltar mine final reclamation and closure plan is updated every five years. The most recent reclamation plan and closure report was approved by the British Columbia Ministry of Energy and Mines in 2004. Pursuant to this approved closure plan, the Ministry agreed that the Company had satisfied the $4 million reclamation obligation required under the 1999 operating permits.
	The agreement contained certain indemnification clauses. The $8 million of funds set aside for future reclamation were considered a "Qualified Environmental Trust" for Canadian income tax purposes. During the year ended September 30, 2003, the Government of British Columbia released these funds from the Trust, which resulted in an income inclusion to the Company, and consequently resulted in the Company utilizing $3.57 million of tax pools otherwise available to it. The Company has made a claim to BWCL for this estimated tax liability under the indemnification terms of the agreement. No amount has been recognized in these consolidated financial statements related to this claim.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

	During the year ended September 30, 2004, the Company commenced restart activities and entered into an agreement with Ledcor CMI Ltd. and Ledcor Mining Ltd. (together "Ledcor"), whereby Ledcor would finance certain equipment and commission, restart, and operate the Gibraltar mine. Ledcor’s primary responsibility was the commissioning and the operating of the mine in addition to other aspects of mine operations, including drilling, blasting, loading and hauling of ore and waste as well as the recruitment of personnel and the maintenance of equipment and facilities. Pursuant to the agreement, the Company is required to maintain a bank account with a balance of at least $5 million in a "product revenue account", for the purposes of providing a working capital reserve for operations and general administrative costs. The Company granted a general security agreement in favour of Ledcor in the amount of $5.8 million and a second charge on certain mine equipment with an appraised fair value of at least $5.8 million.
	In July 2006, the Company effected a notice of voluntary withdrawal from the agreement established with Ledcor. Under this notice and effective November 2006, the Company will assume responsibility as operator of the Gibraltar mine and will pay to Ledcor a termination fee of $3.5 million. This termination fee has been accrued for in the consolidated financial statements for the year ended September 30, 2006.
(b)	Prosperity Gold-Copper Property
	The Company owns 100% of the Prosperity Gold-Copper Property, consisting of 196 mineral claims covering the mineral rights for approximately 85 square km in the Clinton Mining Division in south central British Columbia, Canada. The $28.66 million cash and share consideration to acquire the Prosperity property was written down to a nominal $1,000 value in fiscal 2001, to reflect the extended depressed conditions in the metals markets at that time.
	In May 2005, the Company entered into an option agreement with Amarc Resources Ltd ("Amarc"), a public company with certain directors in common with Taseko, for Amarc to earn a 50% interest in the Wasp and Anvil properties currently held by Taseko, which are located approximately 15 kilometers southeast of the Company's Prosperity project. Amarc was the operator and could have acquired its interest by incurring $150,000 of exploration expenditures over a two year period. During the year ended September 30, 2006, Amarc terminated the option agreement on these properties.
(c)	Harmony Gold Property
	Under the terms of an arrangement agreement (note 7), the Company acquired a 100% interest in the Harmony Gold Property in fiscal 2002.
	The Company does not believe there has been a fundamental change in the nature of the Harmony Gold Property; however, as the Company had not conducted significant exploration or development on the property in the last several years the Harmony Gold Property was written down to a nominal value of $1,000 during the year ended September 30, 2004.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

(d)	Gibraltar Reclamation Trust Limited Partnership ("GRT Partnership")
	In December 2003, the GRT Partnership completed a private placement of limited partnership units for aggregate proceeds of $18.6 million, and entered into a joint venture arrangement with Gibraltar, with the purpose of restarting the Gibraltar mine with the funds raised. Gibraltar, as its contribution to the joint venture, was to contribute the use of its mine assets and fund the start-up expenses of the Gibraltar mine, and the GRT Partnership funded a qualifying environmental trust ("QET"), which consequently allowed Gibraltar to access other funds then held by the Government of British Columbia as a security for the mine’s environmental reclamation obligations. Under the joint venture agreement, the GRT Partnership was to be entitled to certain revenues or production share from the Gibraltar mine following the resumption of production.
	In March 2004, the Company issued 7,967,742 common shares at $2.79 per share for total consideration of $22.23 million to acquire all of the units of the GRT Partnership. In conjunction with this agreement, certain directors and officers of the Company personally guaranteed certain obligations to third parties on behalf of the Company to the extent of $4.5 million. In consideration for the guarantee, the Company issued 225,000 common shares at $2.00 per share to those directors and officers.
(e)	Royalty Agreement (promissory note and royalty obligation)
	In September 2004, the Company entered into agreements with an unrelated investment partnership, Red Mile Resources No. 2 Limited Partnership ("Red Mile"). Gibraltar sold to Red Mile a royalty for $67.357 million cash, which cash was received on September 29, 2004. These funds were subsequently loaned to a trust company (and a promissory note received) and the Company pledged the promissory note along with interest earned and to be earned thereon for a total of $70.2 million to secure its royalty obligations under the agreements.
	At September 30, 2006, the promissory note amounted to $73,166,402 (2005 – $72,317,854), of which $2,156,719 is current, while the royalty obligation amounted to $66,789,162 (2005 – $68,790,797) of which $2,156,719 is current.
	Pursuant to the agreements, the Company received an aggregate of $10.5 million in fees and interest for services performed in relation to the Red Mile transaction, of which $5.25 million was received in each of September and December of 2004, and included in interest and other income.
	The amount of $5.25 million received in September 2004 included $1.75 million for indemnifying an affiliate of Red Mile from any claims relating to a breach by Gibraltar under the royalty agreement. The funds received in respect of the indemnification are presented as deferred revenue, and are recognized over the expected remaining life of the royalty agreement, with $1,400,000 (2005 – $1,575,000) remaining as deferred as at September 30, 2006, of which $175,000 is classified as current.
	Annual royalties will be payable by Gibraltar to Red Mile at rates ranging from $0.01 per pound to $0.14 per pound of copper produced during the period from the commencement of commercial production (as defined in the agreement) to the later of (i) December 2014 and (ii) five years after

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

the end of commercial production from the mine. For the year ended September 30, 2006, Gibraltar paid a royalty of $0.0607 per pound of copper produced to Red Mile. Gibraltar is entitled to have released to it funds held under the promissory note and interest thereon to fund its royalty obligations to the extent of its royalty payment obligations.

The Company has a pre-emptive option to effectively purchase ("call") the royalty interest by acquiring the Red Mile partnership units at a future date in consideration of a payment which is (i) approximately equal to the funds received by the Company less royalty payments to date, or (ii) fair value, whichever is lower. Under certain circumstances, the investors in Red Mile also have a right to sell ("put") their Red Mile partnership units to the Company at fair value; however such right is subject to the Company's pre-emptive right to exercise the "call" in advance of any "put" being exercised and completed.

The Company has granted to Red Mile a net profits interest ("NPI"), which survives any "put" or "call" of the Red Mile units. The NPI is applicable for the years 2011 to 2014 and is 2% if the price of copper averages US$2.50 to US$2.74 per pound, 3% if the price of copper averages US$2.75 to US$2.99 per pound and 4% if the price of copper averages US$3.00 per pound or greater for any year during that period. The US-dollar pricing amounts specified above are based upon an exchange rate of US$0.75 for Cdn$1.00, and shall be adjusted from time to time by any variation of such exchange rates. No NPI is payable until the Company reaches a pre-determined aggregate level of revenues less defined operating costs and expenditures. No NPI is payable at September 30, 2006.

In accordance with AcG15, the Company has determined that the royalty agreement created certain variable interest entities for which the Company holds a variable interest. However, as the Company is not the primary beneficiary under the agreement, it is not required to consolidate any of such entities.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

9. MINERAL PROPERTIES, PLANT AND EQUIPMENT

	Plant and equipment - Gibraltar Mine
			September 30, 2006									September 30, 2005
						Accumulated			Net book						Accumulated			Net book
			Cost			Amortization			value			Cost			amortization			value
	Buildings and equipment	$	6,059,655		$	1,442,256		$	4,617,399		$	6,059,655		$	929,212		$	5,130,443
	Mine equipment (note 10)		35,679,559			7,493,428			28,186,131			11,259,369			3,237,581			8,021,788
	Plant and equipment		14,636,690			1,222,963			13,413,727			4,434,090			986,814			3,447,276
	Vehicles		992,245			498,480			493,765			916,288			311,281			605,007
	Computer equipment		1,765,921			915,385			850,536			1,057,681			384,467			673,214
	Land		152,230			–			152,230			–			–			–
	Deferred pre-stripping costs		285,426			–			285,426			–			–			–
	Total Gibraltar mine	$	59,571,726		$	11,572,512		$	47,999,214		$	23,727,083		$	5,849,355		$	17,877,728
	Mineral property interests (note 8)							$	2,628,000								$	3,000
	Net asset retirement obligation adjustment							$	(7,182,271	)							$	(7,963,736	)
	Mineral properties, plant and equipment							$	43,444,943								$	9,916,992

	As at September 30, 2006, approximately $8.6 million (2005 – nil) of plant and equipment is under construction and not being amortized.
10.	ASSETS UNDER CAPITAL LEASES

September 30, 2006

September 30, 2005

Accumulated

Net book

Accumulated

Net book

Cost

amortization

value

Cost

amortization

value

Mine equipment

$

–

$

–

$

–

$

22,350,693

$

1,556,693

$

20,794,000

In fiscal 2004, the Company purchased a mining shovel and five mine haul trucks for approximately $23.7 million. In October 2004, the Company sold the mining equipment for approximately $22.0 million, of which approximately $17.5 million was received, net of a 20% down payment (approximately $4.5 million) which was funded by the Company. The purchaser leased the mining equipment to a subsidiary of Ledcor, and this equipment was used at the Gibraltar mine. The Company accounted for this transaction as a sale-leaseback transaction, and recorded a loss on sale of approximately $2.2 million during the year ended September 30, 2005.

In April 2006, the Company re-acquired the mining shovel and five mine haul trucks for approximately $14.5 million and extinguished the lease obligations to which they relate (note11).

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

11. CAPITAL LEASE OBLIGATION

			September 30			September 30
			2006			2005
	Total capital lease obligation	$	–		$	15,077,139
	Less: principal amounts due within one year		–			(2,092,334	)
	Capital lease obligation – long term	$	–		$	12,984,805

The Company had certain mining equipment which it acquired pursuant to a sale-leaseback arrangement in October 2004 (note 10). The associated capital leases were payable in US dollars at variable floating interest rates ranging from approximately 6% to 10%. These capital leases had terms of 48 months, and were secured by the mining equipment to which they relate. In April 2006, the Company agreed with the lessor to acquire the equipment for approximately $14.5 million and consequently, the remaining lease obligations were extinguished and the Company recorded a loss on the early lease extinguishment of $240,049.

12.

CONVERTIBLE DEBT

			September 30			September 30
			2006			2005
						(restated – note 4	)
	Liability Component
	Convertible Bonds – August 2006	$	29,761,398		$	–
	Convertible Debenture – Boliden		13,013,265			11,830,241
	Convertible Debt – Liability Component	$	42,774,663		$	11,830,241
	Equity Component
	Convertible Bonds – August 2006	$	3,832,211		$	–
	Convertible Debenture – Boliden		9,822,462			9,822,462
	Convertible Debt – Equity Component	$	13,654,673		$	9,822,462

(a)	Convertible Bonds – August 2006
	On August 29, 2006 (the “Closing”), the Company issued US$30 million in principal amount of five year convertible bonds due in 2011 (the "Bonds") to qualified institutional buyers. The Bonds are convertible into the Company’s common shares. The Bonds constitute direct, unsubordinated, unsecured, general and unconditional obligations of the Company.
	The Bonds were issued at 100% and, if not converted, will be redeemed at maturity at 101%. The Bonds carry coupon interest rates of 7.125% per annum. The Bonds are convertible at the holder’s option after 40 days from issuance until August 19, 2011 at a conversion price of

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

US$3.35 ($3.76), or up to 8,955,224 common shares of the Company, which is a premium of approximately 40% over the recent trading price of the Company’s shares at the time of Closing. At any time after September 12, 2008, the Company will have the right to call for the conversion of the Bond into the number of shares as set out above, so long as the Company’s shares trade at least 50% above the conversion price for at least 20 business days in any period of 30 consecutive business days. On August 29, 2009, the Bondholders have a one time right to redeem the Bonds at 100.60% . Debt issuance costs of $1.4 million were incurred upon closing of the transaction and are being amortized over the first redemption term of the Bonds.

For accounting purposes, the Bonds contain both a liability component and an equity component, being the holder’s conversion right, which have been separately presented in the consolidated balance sheets. The Company has allocated the US$30 million face value of the Bonds to the liability and equity components. At issuance, the Company estimated the fair value of the conversion option by deducting the present value of the future cash outflows of the Bonds from the face value of the principal of the Bonds. The fair value of the liability component was determined by discounting the stream of future payments of interest and principal at the estimated prevailing market rate of 10.5% for a comparable debt instrument that excluded any conversion privilege by the holder. The residual carrying value of the Bonds is required to be accreted to the redemption value of the Bonds to the first redemption date of the Bonds based on an effective annual interest rate of 12%. For the year ended September 30, 2006, interest and accretion relating to the debt totaled $296,165. The continuity of the Bond is as follows:

			Year ended
			September 30, 2006
	Present value of convertible bonds
	Beginning of period, August 29, 2006	$	29,398,789
	Unrealized foreign exchange loss		265,534
	Accretion for the year		97,075
	End of year, September 30, 2006		29,761,398
	Conversion right		3,832,211
	Convertible bonds	$	33,593,609

	Convertible Bonds		September 30, 2006
	Summary of the convertible bond terms
	Principal amount of convertible debenture		US $30,000,000
	Price per common share of the unexercised conversion right		US$ 3.35
	Number of common shares potentially issuable under
	unexercised conversion right		8,955,224

(b)

Convertible Debenture – Boliden

On July 21, 1999, in connection with the acquisition of the Gibraltar mine, the Company issued a $17 million interest-free debenture to BWCL, which is due on July 21, 2009, but is convertible into common shares of the Company over a 10 year period commencing at a price of $3.14 per share in year one and escalating by $0.25 per share per year thereafter ($4.89 per share as at September 30, 2006). BWCL’s purchase of the convertible debenture was receivable as to $4,000,000 in July 1999, $1,000,000 on October 19, 1999, $3,500,000 on July 21, 2000, and

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

$8,500,000 by December 31, 2000, all of which were received. BWCL has the right to convert, in part or in whole from time to time, the debenture into fully paid common shares of the Company from year one to year ten, but has not requested any conversions to date.

From the commencement of the sixth year to the tenth year, the Company has the right to automatically convert the debenture into common shares at the then-prevailing market price. The Company has the right and the intention to settle the convertible debenture through the issuance of common shares, notwithstanding the Company’s right to settle the debenture with cash.

Accounting standards in Canada for compound financial instruments require the Company to allocate the proceeds received from the convertible debenture between (i) the estimated fair value of the holder’s option to convert the debenture into common shares and (ii) the estimated fair value of the future cash outflows related to the debenture. At issuance, the Company estimated the fair value of the conversion option by deducting the present value of the future cash outflows of the convertible debenture, calculated using a risk-adjusted discount rate of 10%, from the face value of the principal of the convertible debenture. The residual carrying value of the convertible debenture is accreted to the face value of the convertible debenture over the life of the debenture by a charge to earnings. The continuity of the convertible debenture is as follows:

			Year ended			Year ended
			September 30			September 30
			2006			2005
	Present value of convertible debenture
	Beginning of period	$	11,830,241		$	10,754,763
	Accretion for the period		1,183,024			1,075,478
	End of period		13,013,265			11,830,241
	Conversion right		9,822,462			9,822,462
	Convertible debenture	$	22,835,727		$	21,652,703

	Boliden convertible debenture		September 30			September 30
			2006			2005
	Summary of the convertible debenture terms
	Principal amount of convertible debenture	$	17,000,000		$	17,000,000
	Price per common share of the unexercised conversion right	$	4.89		$	4.64
	Number of common shares potentially issuable under
	unexercised conversion right		3,476,482			3,663,793

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

13.	SITE CLOSURE AND RECLAMATION OBLIGATIONS
	The continuity of the provision for site closure and reclamation costs related to the Gibraltar mine is as follows:

	Balance, September 30, 2003	$	32,700,000
	Changes during fiscal 2004:
	Impact of adoption of new accounting policy		(18,391,000	)
	Accretion expense		1,431,000
	Balance, September 30, 2004		15,740,000
	Changes during fiscal 2005:
	Accretion expense		1,574,000
	Balance, September 30, 2005		17,314,000
	Changes during fiscal 2006:
	Reclamation incurred		(70,589	)
	Accretion expense		1,732,000
	Site closure and reclamation obligations, September 30, 2006	$	18,975,411

The estimated amount of the reclamation costs, adjusted for estimated inflation at 2.5% per year, in 2017 dollars, is $49.4 million (September 30, 2005 – $49.4 million) and is expected to be spent over a period of approximately three years beginning in 2017. The credit-adjusted risk free rate at which the estimated future cash flows have been discounted is 10%, to arrive at a net present value of $18,975,411 (2005 – $17,314,000). The accretion of $1,732,000 (2005 – $1,574,000) is charged to the statement of operations.

As required by regulatory authorities, at September 30, 2006, the Company had cash reclamation deposits totaling $32,004,138 (2005 – $18,281,420) comprised of $31,813,796 (2005 – $18,091,078) for the Gibraltar mine, $15,342 (2005 – $15,342) for the Prosperity project, and $175,000 (2005 – $175,000) for the Harmony project. These deposits are invested in government backed securities and bear interest at rates ranging from 3.89% to 4.54% per annum.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

14. SHARE CAPITAL

(a)	Authorized
	Authorized share capital of the Company consists of an unlimited number of common shares (2005 – 200,000,000) without par value.
(b)	Issued and outstanding

			Number
	Common shares		of Shares			Amount
	Balance, September 30, 2003		53,880,973			99,446,319
	Issued during the year
	Share purchase options at $0.50 per share		4,265,000			2,132,500
	Share purchase options at $0.40 per share		152,500			61,000
	Share purchase options at $0.25 per share		75,000			18,750
	Share purchase options at $0.55 per share		380,000			209,000
	Share purchase options at $0.65 per share		25,500			16,575
	Fair value of stock options allocated to shares issued on exercise					290,000
	Share purchase warrants at $0.58 per share		276,596			160,426
	Share purchase warrants at $0.55 per share		414,850			228,168
	Share purchase warrants at $0.40 per share		302,250			120,900
	Share purchase warrants at $0.50 per share		7,393,751			3,696,876
	Share purchase warrants at $0.75 per share		473,332			354,999
	Private placement at $0.60 per share, net of issue costs		6,700,000			3,910,728
	Private placement at $2.00 per share, net of issue costs		3,900,000			7,323,943
	Private placement at $1.25 per share, net of issue costs		8,000,000			8,933,206
	For acquisition of GRTLP at $2.79 per share, net of issue costs (note 8(d))		7,967,742			22,193,039
	Loan guarantee at $2.00 per share (note 8(d))		225,000			450,000
	Farmout agreement at $2.79 per share (note 8(e))		335,125			935,000
	Balance, September 30, 2004		94,767,619			150,481,429
	Issued during the year
	Share purchase options at $0.25 per share		50,000			12,500
	Share purchase options at $0.30 per share		100,000			30,000
	Share purchase options at $0.38 per share		20,000			7,600
	Share purchase options at $0.40 per share		22,500			9,000
	Share purchase options at $0.55 per share		610,000			335,500
	Share purchase options at $0.81 per share		45,000			36,450
	Share purchase options at $1.36 per share		270,000			367,200
	Share purchase options at $1.40 per share		44,500			62,300
	Share purchase options at $1.65 per share		10,000			16,500
	Fair value of stock options allocated to shares issued on exercise					742,000
	Share purchase warrants at $0.75 per share		2,313,336			1,735,002
	Private placement at $1.45 per share, net of issue costs		5,204,361			6,993,961
	Balance, September 30, 2005		103,457,316			160,829,442
	Issued during the year
	Share purchase options at $0.55 per share		1,500,000			825,000
	Share purchase options at $1.15 per share		451,833			519,608
	Share purchase options at $1.29 per share		60,000			77,400
	Share purchase options at $1.36 per share		1,970,000			2,679,200
	Share purchase options at $1.40 per share		3,405,500			4,767,700
	Share purchase options at $1.50 per share		10,000			15,000
	Share purchase options at $2.07 per share		33,333			68,999
	Share purchase options at $2.18 per share		7,500			16,350
	Fair value of stock options allocated to shares issued on exercise					4,869,000
	Share purchase warrants at $0.40 per share		375,000			150,000
	Share purchase warrants at $0.75 per share		3,913,332			2,934,999
	Share purchase warrants at $1.40 per share		8,000,000			11,200,000
	Share purchase warrants at $1.66 per share		5,204,361			8,639,239
	Balance, September 30, 2006		128,388,175		$	197,591,937

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

(c)	Share purchase option plan
	The Company has a share purchase option plan approved by the shareholders that allows it to grant a maximum of 10% of the issued and outstanding common shares of the Company at the time an option is granted, less common shares reserved or issued in the plan, subject to regulatory terms and approval, to its employees, officers, directors and consultants. The exercise price of each option may be set equal to or greater than the closing market price of the common shares on the TSX Exchange on the day prior to the date of the grant of the option, less any allowable discounts. Options have a maximum term of ten years and terminate 30 to 90 days following the termination of the optionee’s employment or term of engagement, except in the case of retirement or death. Vesting of options is at the discretion of the Board of Directors at the time the options are granted.
	The continuity of share purchase options is as follows:

		2006		2005		2004
		Number	Average	Number	Average	Number	Average
		of shares	Price	of shares	Price	of shares	Price
	Opening balance	9,280,500	$ 1.17	8,627,500	$ 1.13	4,685,000	$ 0.48
	Granted during the period	2,159,500	2.24	2,040,000	1.15	8,855,500	1.12
	Exercised during the period	(7,438,166)	1.21	(1,172,000)	0.75	(4,898,000)	0.50
	Expired/cancelled during period	(423,000)	0.91	(215,000)	1.47	(15,000)	1.36
	Closing balance	3,578,834	$ 1.78	9,280,500	$ 1.17	8,627,500	$ 1.13
	Average contractual remaining		3.70		1.69		1.93
	life (years)
	Range of exercise prices	$1.15 - $2.68		$0.55 - $1.50		$0.25 - $1.65

The following table summarizes information about share purchase options outstanding at September 30, 2006:

		Options outstanding				Options exercisable
		Number	Weighted	Weighted		Number	Weighted
		outstanding at	average	average		exercisable at	average
	Range of exercise	September 30	remaining	exercise		September 30	exercise
	prices	2006	contractual life	price		2006	price
	$1.15 to $1.29	1,643,167	3.60 years	$ 1.16		800,833	$ 1.16
	$2.07 to $2.18	1,328,167	3.67 years	$ 2.15		521,339	$ 2.15
	$2.63 to $2.68	607,500	4.04 years	$ 2.65		130,005	$ 2.63
		3,578,834	3.70 years	$ 1.78		1,452,177	$ 1.65

As at September 30, 2006, 1,452,177 (2005 – 8,053,834) of the options outstanding had vested with optionees and were exercisable.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

The exercise prices of all share purchase options granted during the year were equal to the market price at the grant date. The weighted average assumptions used to estimate the fair value of options during the years ended September 30, 2006, 2005, and 2004 were:

		2006	2005	2004
	Risk free interest rate	4%	3%	3%
	Expected life	3.93 years	2.75 years	2.4 years
	Volatility	71%	90%	95%
	Expected dividends	nil	nil	nil

(d)	Share purchase warrants
	The continuity of share purchase warrants during the year ended September 30, 2006 is as follows:

			Outstanding				Outstanding
		Exercise	September 30				September 30
	Expiry dates	price	2005	Issued	Exercised	Expired	2006
	January 8, 2006	$0.40	375,000	–	(375,000)	–	–
	December 31, 2005	$0.75	3,913,332	–	(3,913,322)	–	–
	September 28, 2006	$1.40	8,000,000	–	(8,000,000)	–	–
	September 18, 2006	$1.66	5,204,361	–	(5,204,361)	–	–
			17,492,693	–	(17,492,693)	–	–

The continuity of share purchase warrants during the year ended September 30, 2005 is as follows:

			Outstanding				Outstanding
		Exercise	September 30				September 30
	Expiry dates	price	2004	Issued	Exercised	Expired	2005
	January 8, 2006	$0.40	375,000	–	–	–	375,000
	December 31, 2005 (i)	$0.75	6,226,668	–	(2,313,336)	–	3,913,332
	March 10, 2005	$2.25	3,900,000	–	–	(3,900,000)	–
	September 28, 2006 (ii)	$1.40	8,000,000	–	–	–	8,000,000
	September 18, 2006	$1.66	–	5,204,361	–	–	5,204,361
			18,501,668	5,204,361	(2,313,336)	(3,900,000)	17,492,693

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

The continuity of share purchase warrants during the year ended September 30, 2004 is as follows:

			Outstanding			Outstanding
		Exercise	September 30			September 30
	Expiry dates	price	2003	Issued	Exercised	2004
	October 19, 2003	$0.58	276,596	–	(276,596)	–
	December 27, 2003	$0.55	414,850	–	(414,850)	–
	January 8, 2006	$0.40	375,000	–	–	375,000
	December 31, 2003	$0.40	302,250	–	(302,250)	–
	December 31, 2004	$0.50	7,393,751	–	(7,393,751)	–
	December 31, 2005	$0.75	–	6,700,000	(473,332)	6,226,668
	March 10, 2005	$2.25	–	3,900,000	–	3,900,000
	September 28, 2006	$1.40	–	8,000,000	–	8,000,000
			8,762,447	18,600,000	(8,860,779)	18,501,668

(e) Contributed surplus

	Contributed surplus, September 30, 2003	$	65,344
	Changes during fiscal 2004:
	Non-cash stock-based compensation		5,172,244
	Fair value of stock options allocated to shares issued on exercise		(290,000	)
	Contributed surplus, September 30, 2004		4,947,588
	Changes during fiscal 2005:
	Non-cash stock-based compensation		1,129,026
	Fair value of stock options allocated to shares issued on exercise		(742,000	)
	Contributed surplus, September 30, 2005		5,334,614
	Changes during fiscal 2006:
	Non-cash stock-based compensation		3,182,102
	Fair value of stock options allocated to shares issued on exercise		(4,869,000	)
	Contributed surplus, September 30, 2006	$	3,647,716

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

15.	INCOME TAXES
	Income tax expense (recovery) differs from the amount which would result from applying the statutory Canadian income tax rates (2006 – 36.6%, 2005 – 39.5%) for the following reasons:

			2006			2005
						(restated – note 4	)
	Earnings before income taxes	$	38,961,447		$	5,767,773
	Expected tax expense based on statutory rates		14,268,000			2,278,000
	Permanent differences		2,403,000			871,000
	Adjustment to tax reserve		2,028,000			–
	Deductions allowable for tax purposes		(1,360,000	)		(2,912,000	)
	Recognition of previously unrecognized tax assets		(12,172,000	)		(17,351,000	)
	Other		878,000			(408,000	)
	Tax expense (recovery) for the year	$	6,045,000		$	(17,522,000	)
	Presented as:
	Current income tax expense (recovery)	$	4,397,000		$	(4,099,000	)
	Future income tax expense (recovery)		1,648,000			(13,423,000	)
		$	6,045,000		$	(17,522,000	)

As at September 30, 2006 and 2005, the estimated tax effect of the significant components within the Company’s future tax assets were as follows:

			2006			2005
	Mineral properties	$	4,907,000		$	4,513,000
	Loss carry forwards		154,000			154,000
	Royalty obligation		20,181,000			23,458,000
	BC mining taxes		9,850,000			9,062,000
	Other tax pools		720,000			2,388,000
			35,812,000			39,575,000
	Valuation allowance		(13,937,000	)		(23,709,000	)
	Future income tax assets		21,875,000			15,866,000
	Lease equipment and related lease obligation		–			(1,949,000	)
	Partnership deferral		(4,288,000	)		–
	Reclamation obligation		(4,286,000	)		(494,000	)
	Plant and equipment		(1,526,000	)		–
	Net future income tax asset	$	11,775,000		$	13,423,000
	Current portion	$	11,601,000		$	4,479,000
	Long term FIT liability		174,000			8,944,000
	Net future income tax asset	$	11,775,000		$	13,423,000

At September 30, 2006 the Company's tax attributes included capital losses totaling approximately $0.9 million (2005 – $0.9 million) which are available indefinitely to offset future

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

	taxable capital gains, and resource tax pools totaling approximately $16.8 million (2005 – $13.3 million) which are available indefinitely to offset future taxable income.
	The Company has accrued a tax provision of a subsidiary company of approximately $21.1 million (2005 – $19.6 million). This provision reflects an amount which management believes is less than likely of ever becoming payable. In addition, the subsidiary would exhaust all appeals if any taxes in connection with this accrual were actually assessed against the subsidiary. The amount represents a potential liability which has been recognized in a conservative manner in accordance with Canadian generally accepted accounting principles. It does not represent a payable amount based on any filed, or expected to be filed, tax return nor has any taxation authority assessed the amount or any portion thereof as payable.
16.	SUPPLEMENTARY CASH FLOW DISCLOSURES
	In addition to the non-cash operating, financing and investing activities primarily disclosed, the Company’s non-cash operating, financing and investing activities were as follows:

			September 30			September 30			September 30
			2006			2005			2004
	Issuance of common shares on acquisition of
	Gibraltar Reclamation Trust Limited
	Partnership (note 8(d))	$	–		$	–		$	22,230,000
	Acquisition of assets under capital lease (note 10)		–			(22,350,693	)		–
	Advances under capital lease (note 11)		–			22,350,693			–
	Issuance of common shares for loan guarantee
	(note 8(d))		–			–			450,000
	Fair value of stock options transferred to share
	capital from contributed surplus on exercise of
	options (note 14(e))		4,869,000			742,000			290,000

			September 30			September 30			September 30
			2006			2005			2004
	Supplemental cash flow information
	Cash paid during the year for
	Interest	$	1,557,034		$	1,046,568		$	49,294
	Taxes	$	1,188,436		$	554		$	45,352

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

17.	RELATED PARTY TRANSACTIONS AND ADVANCES
	Related party transactions not disclosed elsewhere in these consolidated financial statements are as follows:

			Years ended September 30,
	Transactions		2006			2005			2004
	Services rendered and expenses reimbursed
	Hunter Dickinson Inc. (a)	$	2,869,003		$	1,222,603		$	806,970
	Hunter Dickinson Group Inc. (b)		–			12,800			12,800

	Advances from related parties		September 30			September 30
			2006			2005
	Hunter Dickinson Inc. (a) (c)	$	26,430		$	105,067

	(a)	Hunter Dickinson Inc. ("HDI") is a private company owned equally by nine public companies, one of which is Taseko. HDI has certain directors in common with the Company and provides geological, corporate development, administrative and management services to, and incurs third party costs on behalf of, the Company and its subsidiaries on a full cost recovery basis pursuant to an agreement dated December 31, 1996. The liability is recorded in accounts payable and accrued liabilities.
	(b)	Hunter Dickinson Group Inc. is a private company with certain directors in common that provides consulting services to the Company.
	(c)	Advances are non-interest bearing and due on demand.

18.	SUBSEQUENT EVENT
	Subsequent to year-end in November 2006, the Company launched a C$1.05 per share take-over bid offer for all of the outstanding shares of bcMetals Corporation (“bcMetals”). bcMetals holds a 100% interest in the Red Chris copper-gold project in northern British Columbia.
	The Taseko bid is subject to a number of conditions, including that at least 66.66% of bcMetals shares are tendered to the bid, a conditional settlement agreement is reached with certain minority shareholders of bcMetals’ subsidiary, American Bullion Minerals Ltd., as well as rejection by bcMetals shareholders of bcMetals' Limited Purpose Shareholder Rights Plan and its proposed joint venture of the Red Chris project with Global International Jiangxi Copper Mining Company Limited.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

19.

DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GAAP

The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), which differ in certain material respects from those principles that the Company would have followed had its consolidated financial statements been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). Had the Company followed US GAAP, certain items on the statements of operations and deficit, and balance sheets would have been reported as follows:

			Year ended			Year ended			Year ended
			September 30,			September 30,			September 30,
			2006			2005			2004
	Consolidated Statements of Operations
	Earnings (loss) for the year under Canadian GAAP	$	32,916,447		$	23,289,773		$	(82,366,624	)
	Adjustments under US GAAP
	Interest accretion on convertible debt (a)		1,280,099			1,075,478			977,705
	Reclamation accretion expense (b)		–			–			483,727
	Amortization of flow-through share premium (c)		–			–			396,000
	Amortization of property, plant and equipment (b)		(407,531	)		(330,368	)		–
	Adjustment to write down of mineral properties (f)		–			–			16,362,978
	Change in fair value of investment (g)		(306,618	)		–			–
	Earnings (loss) for the year under US GAAP, being
	comprehensive income	$	33,482,397		$	24,034,883		$	(64,146,214	)
	Earnings (loss) per share for the year under US GAAP	$	0.29		$	0.24		$	(0.85	)
	Diluted earnings (loss) per share for the year under US
	GAAP	$	0.26		$	0.22		$	(0.85	)

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

			As at			As at
			September 30,			September 30,
			2006			2005
	Consolidated Balance Sheets
	Total assets under Canadian GAAP	$	297,461,083		$	190,996,878
	Adjustments under US GAAP
	Property, plant and equipment (b)		4,582,101			4,989,632
	Accumulated amortization of mineral claims,
	net of write downs (d), (e) and (f)		(200	)		(200	)
	Change in fair value of investment (g)		(306,618	)		–
	Total assets under US GAAP	$	301,736,366		$	195,986,310
	Total liabilities under Canadian GAAP	$	196,527,273		$	161,887,323
	Adjustments under US GAAP
	Convertible debenture presented as debt (a)		7,721,741			5,169,759
	Total liabilities under US GAAP	$	204,249,014		$	167,057,082
	Total shareholders' equity under Canadian GAAP	$	100,933,810		$	29,109,555
	Adjustments under US GAAP
	Convertible debenture presented as debt (a)		(7,721,741	)		(5,169,759	)
	Property, plant and equipment (b)		4,582,101			4,989,632
	Accumulated amortization of mineral claims (d)		(3,112,280	)		(3,112,280	)
	Adjustment to value allocated to tracking preferred shares upon
	acquisition of Harmony Project (e)		(13,250,898	)		(13,250,898	)
	Adjustment to accumulated write down of Harmony Project (f)		16,362,978			16,362,978
	Change in fair value of investment (g)		(306,618	)		–
	Total shareholders' equity under US GAAP	$	97,487,352		$	28,929,228

There are no material differences between Canadian GAAP and US GAAP to total operating, investing or financing cash flows in the consolidated statement of cash flows.

	(a)	Convertible debt
		Pursuant to Canadian GAAP, the convertible instrument disclosed in note 12 requires the bifurcation of the convertible instrument between its equity and debt components whereas under US GAAP, there would be no requirement to bifurcate the instrument. Therefore, under US GAAP, the value attributed to the equity component would be considered debt.
		Under Canadian GAAP, the accretion of the debt component of the convertible instrument to the face value of the convertible instrument over the life of the instrument is charged to operations. Under US GAAP, no such accretion would be required.
		Accordingly, $13,654,673 (2005 – $9,822,462) of the equity component of the instrument would be classified to debt. However, this amount is offset by $5,932,932 (2005 – $4,652,703) of accumulated accretion to December 31, 2006. Additionally, for the year ended December 31, 2006, $1,280,099 (2005 – $1,075,478; 2004 – $977,705) of accretion expense recorded under Canadian GAAP has been reversed for US GAAP purposes.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

	(b)	Asset retirement obligation
		In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). SFAS 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The Company also records a corresponding asset which is amortized over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time (accretion expense) and changes in the estimated future cash flows underlying the obligation (asset retirement cost). For purposes of the reconciliation, the Company adopted SFAS 143 effective October 1, 2002.
		Under US GAAP, on adoption of SFAS 143 on October 1, 2002, the Company would have recorded income of $11,651,262 as the cumulative effect of the change in accounting principles, a net decrease of $2,282,954 to inventories, a net decrease of $10,154,214 to property, plant and equipment, and a decrease in the provision for site closure and reclamation of $24,088,430 to reflect the effect of this change in the method of accounting for asset retirement obligations compared to the amounts previously recorded in the Company’s consolidated financial statements prepared under Canadian and US GAAP.
		Effective October 1, 2004, the Company adopted the new Canadian accounting standard for asset retirement obligations, which is substantively the same as SFAS 143. On adoption of the Canadian standard, the amount of the adjustment to site closure and reclamation was measured retroactively and recognized on October 1, 2004.
		There were certain changes in the Company’s estimate of future cash flows underlying the obligation during fiscal 2005 and 2004 which have been incorporated into the Company’s retroactive adoption of the Canadian standard on October 1, 2004. However, pursuant to US GAAP, and due to the earlier adoption of SFAS 143 in fiscal 2003, changes in estimates of future cash flows underlying the obligation are recognized on a prospective basis. Accordingly, under US GAAP, property, plant and equipment (net of amortization) would increase for the year ended September 30, 2006 by $4,582,101 (2005 – $4,989,632).
	(c)	Flow through shares
		Under Canadian income tax legislation, a company is permitted to issue shares whereby the company agrees to incur qualifying expenditures and renounce the related income tax deductions to the investors. Under Canadian GAAP, the Company has accounted for the issue of flow-through shares by crediting share capital for the amount of the proceeds received when renounced.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

		For US GAAP, the premium paid in excess of the fair value of non-flow-through shares is credited to other liabilities and included in operations over the period in which the Company incurs the qualified expenditures.
		Also, notwithstanding whether there is a specific requirement to segregate the funds, the flow-through funds which were unexpended at the consolidated balance sheet dates are considered to be restricted and are not considered to be cash and cash equivalents under US GAAP. At September 30, 2006 and 2005 there were no unexpended flow-through funds.
	(d)	Mineral property interests
		Under US GAAP, through to March 31, 2004, mineral properties without proven and probable reserves were classified as intangible assets, subject to amortization over the earlier of their useful life or the expiry of the mineral claim (without consideration of any renewal periods). Accordingly, the Harmony Property and the Prosperity Property were being amortized over ten years. This resulted in additional amortization expense of $1,556,140 in 2003 being recorded under US GAAP. Effective April 1, 2004, pursuant to EITF 04-2 “Whether Mineral Rights are Tangible or Intangible Assets”, the Company reclassified its mineral properties as tangible assets and ceased amortizing them.
		Under Canadian GAAP, mineral properties may be classified as capital assets and amortized once the mineral property is put into operation, or written off to operations when the property is abandoned or allowed to lapse, when the carrying value exceeds its fair value, or if there is little prospect of further exploration work being carried out. As such, for Canadian GAAP, no amortization of mineral properties was recorded for any year presented.
	(e)	Exploration costs
		US GAAP requires mineral property exploration and land use costs to be expensed as incurred until commercially recoverable deposits are determined to exist within a particular property, as cash flows cannot be reasonably estimated prior to such determination. For all periods presented, the Company has expensed all mineral property exploration and land use costs for both Canadian and US GAAP purposes. However, in fiscal 2001 and prior years, mineral property exploration costs were capitalized for Canadian GAAP purposes. As a result of the Company capitalizing mineral property exploration costs for Canadian GAAP purposes, $13,250,898 of mineral property exploration costs included in the book value of the Harmony Gold Property at the date of its purchase by Taseko in fiscal 2001 would have been previously expensed for US GAAP purposes. Accordingly, for US GAAP purposes, these costs would have been excluded from the value allocated to the tracking preferred shares of the Company (note 4) upon the acquisition of the Harmony Gold Property.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

	(f)	Long-lived assets
		In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS 144 also broadens the definition of discontinued operations to include all distinguishable components of an entity that will be eliminated from ongoing operations. The Company adopted SFAS 144 on October 1, 2002, on a prospective basis, and there are no material differences between the treatment under Canadian and US GAAP.
		As the Company had not conducted significant exploration or development on the Harmony Gold Property in the last several years the property was written down to a nominal value of $1,000 during the year ended September 30, 2004. Although the treatment for the impairment of long-lived assets is the same for Canadian and US GAAP, as a result of a lower initial carrying value, and the accumulated amortization of the Harmony Gold Property for US GAAP purposes, the Harmony Gold Property had different carrying values for Canadian and US GAAP prior to its impairment. Consequently, the write down of the Harmony Gold Property was $12,447,318 in 2004 for US GAAP purposes. For Canadian GAAP the write down was $28,810,296 in 2004.
	(g)	Fair value of investments
		Under Canadian GAAP, the Company’s investment in Continental is carried at the lower of cost and estimated realizable value. Under US GAAP, the Company’s investment in Continental contains an embedded derivative financial instrument which would be required to be seperated and measured at fair value. Consequently, a mark-to-market loss of $306,618 was recorded at September 30, 2006 with a corresponding reduction to the originally recorded amount of $695,936..
	(h)	Impact of recent United States accounting pronouncements:

(i) In December 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 153, “Exchanges of Non-Monetary Assets - An Amendment of APB Opinion No. 29” ("SFAS 153"). The guidance in APB No. 29, “Accounting for Non- Monetary Transactions” is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. SFAS 153 amends APB No. 29 to eliminate the exception for exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

		SFAS 153 was effective for the Company’s 2006 fiscal year. The adoption of SFAS 153 had no impact the Company’s financial position, results of operations or cash flows.
	(ii)	In March 2005, the EITF issued EITF 04-6, “Accounting for Stripping Costs in the Mining Industry”. The consensus indicated that costs of removing overburden and waste materials ("stripping costs") after production begins, represent variable production costs and should be considered a component of mineral inventory cost subject to the guidance in Chapter 4 of Accounting Research Bulletin No. 43, "Restatement and Revision of Accounting Research Bulletins". EITF 04-6 is effective for fiscal years beginning after December 15, 2005 and upon adoption, can be applied by either retroactively restating prior periods or using a cumulative catch-up adjustment. The adoption of this Statement had no impact the Company’s financial position, results of operations or cash flows.
	(iii)	In June 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”, a replacement of APB Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”. SFAS 154 requires retrospective application to prior periods’ financial statements of a change in accounting principle unless it is impracticable to do so. This is a change from the existing practice that requires most accounting changes to be accounted for by including in net income in the period of the change the cumulative effect of changing to the new accounting principle. SFAS 154 will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The impact of SFAS 154 cannot be determined until such time as the Company makes a change in accounting policy.
	(iv)	In June 2006, FASB issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - An Interpretation of SFAS Statement No. 109”. This interpretation provides guidance on recognition and measurement of uncertainties in income taxes and is effective for the Company’s 2008 fiscal year end. The Company does not expect the adoption of this interpretation to have a significant effect on the Company’s results of operations or financial position.
	(v)	In September 2006, the US Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 which provides guidance on the consideration of the effects of prior year misstatements in quantifying misstatements in current year financial statements. This guidance is applicable for annual statements ending after November 15, 2006 and the Company does not expect the adoption of this interpretation to have an impact on the Company’s financial position, results of operations or cash flows.
	(vi)	During the year, FASB issued SFAS No. 157 “Fair Value Measurements”. The statement defines fair value, establishes a framework for measuring fair value and expands disclosures currently required by other accounting standards. The standard is effective for fiscal years beginning after November 15, 2007 and is not expected to have a material effect to the Company.
	(vii)	In December 2004, FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which is a revision of SFAS 123. SFAS 123(R) supercedes APB

TASEKO MINES LIMITED

Notes to Consolidated Financial Statements

For the years ended September 30, 2006, 2005, and 2004

(Expressed in Canadian Dollars, unless stated otherwise)

Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. In calculating compensation to be recognized, SFAS 123(R) requires the Company to estimate forfeitures. Prior to adoption of SFAS 123(R), accounting for stock based compensation for US GAAP purposes was consistent with that used for Canadian GAAP. For Canadian GAAP purposes, the Company currently uses the fair value method to account for all stock option grants but accounts for forfeitures as they occur as permitted by Canadian GAAP. However, based on its historical forfeiture rates, the Company has determined that this difference does not have a material impact on stock-based compensation expense that would be recognized for US GAAP purposes.