Arian Silver Corporation
TSX VENTURE : AGQ
AIM : AGQ

Arian Silver Corporation

November 29, 2006 09:30 ET

Arian Silver Corporation Announces Third Quarter 2006 Results

LONDON, UNITED KINGDOM--(CCNMatthews - Nov. 29, 2006) - (TSX VENTURE:AGQ)(AIM:AGQ) -



ARIAN SILVER CORPORATION

Management's Discussion and Analysis

Of the Financial Condition and Results of Operations

For the Three Months and Nine Months Ended September 30, 2006
(in US Dollars)


DIRECTORS, MANAGEMENT & CORPORATE INFORMATION
---------------------------------------------

ANTHONY J. WILLIAMS, Chairman and Director

JAMES T. WILLIAMS, Chief Executive Officer and Director

JAMES S. CABLE, Chief Financial Officer and Director

THOMAS A. BAILEY, Director

J. MERFYN ROBERTS, Director

DAVID W. COHEN, Director

GRAHAM A. POTTS, Corporate Secretary


HEAD OFFICE
43 North Audley Street
London W1K 6WH
England
Telephone: +44 (0) 20 7529 7511
Facsimile: +44 (0) 20 7491 2244

REGISTERED OFFICE
Palm Grove House
P.O. Box 3190
Road Town, Tortola
British Virgin Islands

AUDITORS
PKF (UK) LLP
Chartered Accountants
Farringdon Place, 20 Farringdon Street
London EC1M 3AP
England

STOCK EXCHANGES
The AIM Market of the London Stock Exchange
TSX Venture Exchange

TRADING SYMBOLS
AIM: AGQ (stock is quoted in Pounds Sterling)
TSXV: AGQ (stock is quoted in Canadian Dollars)

WEBSITE
www.ariansilver.com

E-MAIL
info@ariansilver.com


This discussion and analysis ("MD&A") has been prepared based on information available to Arian Silver Corporation ("ASC" or the "Company") as at November 24, 2006. This MD&A should be read in conjunction with the Company's interim Consolidated Financial Statements and the related notes for the nine months ended September 30, 2006. The Company's Consolidated Financial information at September 30, 2006 and the related notes have been prepared in accordance with UK Generally Accepted Accounting Principles ("UK GAAP") and has been reconciled to Canadian GAAP in note 12.

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING AND CONTROLS

The Consolidated Financial Statements of the Company for the three and nine months ended September 30, 2006 have been prepared by management in accordance with UK Generally Accepted Accounting Principles ("UK GAAP") and have been approved by the Company's board of directors (the "Board"). The integrity and objectivity of these Consolidated Financial Statements are the responsibility of management. In addition, management is responsible for ensuring that the information contained in this MD&A is consistent, where appropriate, with the information contained in the Consolidated Financial Statements.

In support of this responsibility, the Company's management maintains a system of internal accounting and administrative controls to provide reasonable assurance that the financial information is relevant, reliable and accurate and that the Company's assets are appropriately accounted for and adequately safeguarded. When alternative accounting methods exist, management has chosen those methods it deems most appropriate in the circumstances. The Consolidated Financial Statements may contain certain amounts based on estimates and judgements. Management has determined such amounts on a reasonable basis to ensure that the Consolidated Financial Statements are presented fairly in all material respects.

The Board is responsible for ensuring that management fulfils its responsibilities for financial reporting and internal control. The Board carries out this responsibility principally through its audit committee. The audit committee is appointed by the Board and has several financial experts who are not involved in the Company's daily operations. The audit committee meets periodically with management and the external auditor to discuss internal controls over the financial reporting process, auditing matters and financial reporting issues, to satisfy itself that each party is properly discharging its responsibilities and to review the Consolidated Financial Statements with the external auditors.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the Company's Chief Executive Officer and Chief Financial Officer, on a timely basis so that appropriate decisions can be made regarding public disclosure. As at the end of the period covered by this MD&A, management of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as required by Canadian securities laws. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this MD&A, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the Company's annual filings and interim filings (as such terms are defined under Multilateral Instrument 52-109- Certification of Disclosure in Issuers' Annual and Interim Filings of the Canadian Securities Administrators) and other reports filed or submitted under Canadian securities laws is recorded, processed, summarized and reported within the time periods specified by those laws and that material information is accumulated and communicated to management of the Company, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

INTRODUCTION

The following discussion is management's assessment and analysis of the results and financial condition of the Company and should be read in conjunction with the accompanying unaudited Consolidated Financial Statements for the three and nine month period ended September 30, 2006, which are available on SEDAR at www.sedar.com. The Consolidated Financial Statements have been prepared in accordance with UK GAAP and have been reconciled to Canadian GAAP in note 12 of the financial statements. The functional currency of the business is the US dollar ("USD"). All monetary values are expressed in USD unless otherwise indicated.

The Company (formerly Hard Assets Inc.) was incorporated in the province of British Columbia, Canada, on May 4, 2004. On July 14, 2004, the Company was admitted to trading on the AIM Market of the London Stock Exchange ("AIM"). On May 24, 2006 the Company was continued to the British Virgin Islands in connection with its merger ("Merger") with Arian Silver Corporation Limited ("ASCL"), whereupon the Company changed its name to Arian Silver Corporation. On July 21, 2006, the Company's common shares were listed and commenced trading on the TSX Venture Exchange (the "TSXV").

The Merger has been accounted for in accordance with the reverse take over method of accounting. Under this method, ASCL has been identified as the acquirer and accordingly the consolidated entity is considered to be a continuation of ASCL.

The Company is engaged in the acquisition and exploitation of mineral resource properties.

OVERALL PERFORMANCE

In the nine month period to September 30, 2006, the Company lost $2.7 million after expensing the fair value of options granted of $0.9 million and before the extraordinary write off of goodwill arising on the acquisition of ASCL of $13.6 million. There was no income other than from interest from short term cash deposits of $56,000 and the Company continued to incur administrative costs in its Mexican operations and in respect of corporate overheads, which included costs incurred in connection with the admission to the AIM and TSXV stock exchanges.

In the nine months to September 30, 2006, intangible assets increased by $0.4 million to $0.6 million in respect of the Mexican projects and tangible assets increased by $0.1 million. Cash of $2.2 million was received as a result of share issues.



Selected Financial Information

The following is a summary of selected financial information for
the 9 months ended September 30, 2006 and 2005:

9 months to 9 months to
Sept. 2006 Sept. 2005
------------ -------------
$'000s $'000s

Total Revenues 56 7

Net Loss before discontinued
operations and extraordinary items 2,696 330

Net Loss for the period 16,331 330

Basic and diluted loss per share $(0.26) $(0.01)

Total Assets 2,552 1,780

Shareholders' equity 2,144 1,621

Cash dividends declared per share - -


OVERVIEW OF OPERATIONS

During the period, exploration work was carried out at the Calicanto, San Celso, Donovan 1, Donovan 2 and Africana properties in the Zacatecas State of Mexico. A new concession named "Misie" was acquired adjacent to the Calicanto concessions and an agreement was reached in principle to purchase the "Missie" concession which is adjacent to "Misie". In addition, property visits were undertaken to the Tepal project in Michoacan State, Mexico. Several tailings projects and new hard rock properties were also investigated.

Calicanto

Prospecting work at Calicanto commenced and the first phase of sampling was completed, with assay results obtained from laboratories in Mexico and Canada. Underground exploratory development work continued along strike of the vein. The tunnel itself averages approximately 4-5 m high and 5-6 m wide. The ramp was extended a further 10 m and significantly widened and deepened as material was excavated from high grade zones. Access was gained to historic mine workings to enable surveying and chip channel sampling. Surveying of the project was completed in preparation for the phase 1 drilling campaign. Two proposals by separate drilling contractors have been submitted. Environmental work has been carried out in order to obtain the environmental permit required for drilling.

Initial reconnaissance sampling was conducted on the newly acquired adjacent Misie property, and the property was surveyed, identifying a number of shafts, trenches and prospects on the Sorpresa structure(s). The assay results from these samples are still pending. A new ramp, along the San Buenaventura vein was initiated.



The following schedule shows project expenditures:

3 Months ended 9 months ended
September 30 September 30
------------------------------------------
2006 2005 2006 2005
------------------------------------------
$000's $000's $000's $000's
------------------------------------------
Calicanto

Mining & option rights 76 1 123 2
Drilling & exploration (3) 1 20 2
Geology - logging & sampling 8 - 16 -
Administration 16 1 21 2

Total 97 3 180 6


A two-phase budget totaling $1,666,320 has been proposed by Arian for the Calicanto Property. Phase one diamond drilling will focus on the highest priority target(s), leaving secondary targets for phase two. Remote sensing and ground geophysics are intended to develop, or further define, additional targets for the second phase of exploration. The first phase of work, totaling $650,000, includes 3,000 m of diamond drilling as well as the ground magnetics and remote sensing. Phase two exploration includes follow-up of phase one results on the primary target(s) as well as work on other known targets and targets resulting from phase one geophysics and remote sensing. This phase of work totals $1,111,695 and consists of 5,000 m of diamond drilling and a follow-up geophysical study (induced-polarization). Each phase of drilling is to be preceded by environmental permitting.

Expenditures described above are discretionary and not yet committed and will depend on the Company's ability to raise further funding.

San Celso

Rehabilitation and re-laddering of the San Celso shaft and underground workings continued in the period. Chip-channel samples were taken across the faces of the veins, foot walls, hanging walls and country rock areas throughout all accessible levels of the workings. Samples were passed for treatment to laboratories in Mexico and Canada. A small area of formerly inaccessible workings in the San Celso Mine was opened up and a number of chip-channel samples were taken from across the vein. Underground geological mapping was completed in the Las Cristinitas Mine. A number of new areas were accessed and sampled. A third shaft was accessed, laddered, sampled and mapped. The shaft is 80 m west of the San Celso workings and appears to access the lateral extension of the San Celso vein. Concurrently with the underground mapping, a small geochemical survey was conducted, with a number of soil and ant-hill samples taken from the property. Surface geological mapping was completed. A number of new shafts and prospects were discovered and exposed vein material was sampled. Surveying of the property was completed and a surface ownership map prepared. Fencing has been erected around the open shafts stopes and prospect pits on the properties. A surface ground magnetic program has been designed, and lines are being cut in preparation.



The following schedule shows project expenditures:

3 Months ended 9 months ended
September 30 September 30
----------------------------------------------
2006 2005 2006 2005
----------------------------------------------
$000's $000's $000's $000's
----------------------------------------------
San Celso

Mining & option rights 7 5 51 10
Drilling & exploration 25 1 28 2
Geology - logging & sampling 1 - 13 -
Administration (2) 1 9 2

Total 31 7 101 14


A two-phase budget totaling $1,495,600 has been proposed by Arian for the San Celso Property. Phase one diamond drilling will focus on the highest priority target(s), leaving secondary targets for phase two. Remote sensing and ground geophysics are intended to develop, or further define, additional targets for the second phase of exploration. The first phase of work, totaling $754,300, consists of 3,000 m of diamond drilling as well as the ground magnetics and remote sensing study. Phase two exploration includes follow-up of phase one results on the primary target(s) as well as work on other known targets and targets resulting from phase one geophysics and remote sensing. This phase of work, totaling $741,300, consists of 3,000 m of diamond drilling and follow-up ground magnetometry. Each phase of drilling is to be preceded by environmental permitting as is the ground geophysical programme. Arian plans to continue underground sampling and mapping during both phases of exploration.

Expenditures described above are discretionary and not yet committed and will depend on the Company's ability to raise further funding.

Other Properties

Tepal

On August 9, 2006, the Company announced that it had entered into an agreement to acquire the exclusive option over 100% of the Tepal polymetallic project in Michoacan State, Mexico. The option agreement is for a 5 year term. Assuming the option is exercised in full, the Company will pay Minera Tepal $5 million in installments and will grant Minera Tepal a Net Smelter Return of 2.5%. The Company has the right to withdraw from the option agreement at any time during the 5 year period without penalty.

Two property visits were undertaken to the Tepal property by Arian personnel in July. The objective of these trips was to locate new concessions and undertake geological and environmental reconnaissance work over the property. For Tepal all historical drill-hole data has now been entered into the Geosoft database. Phase 1 of the drilling programme is currently being planned

Donovan 1

Surface geological mapping was completed on the property and numerous prospect pits that explore mineralized structures were identified. These pits were mapped, sampled and surveyed. Fences were erected around the more substantial prospect pits. A regional reconnaissance survey was conducted and a surface geochemical (soil and ant-hill) sampling was completed. A ground magnetic program is proposed over the property and Arian is arranging access rights with the landowners. Surveying was completed and a surface ownership map prepared.

Donovan 2

A surface ownership map was prepared and surveying is ongoing. Preparations are underway for a soil sampling program on the property.

Africana

Underground sampling was completed, and all assay results have been received. Surface surveying and surface geochemical (soil and ant-hill) sampling of the property was completed. Environmental reconnaissance was carried out on the property in advance of preparations for surface trenching program. Fences were erected around a number of shafts on the property.

New Concession Investigations

The programme of investigating potential new concessions throughout Mexico with a view to making new acquisitions continued. Arian personnel visited a number of hard rock and tailings properties during the reporting period.

Exploration and Development Commitments as at September 30, 2006

The Company does not have any exploration and development expenditure commitments in respect of its projects. However, the following are the material payments that will need to be made in order to maintain certain properties in good standing:

(a) In order to maintain the Company's interest in the Calicanto property, the Company is required to pay, over the period to June 30, 2011, $380,000 in option payments.

(b) In order to maintain the recently acquired Tepal option agreement in good standing the Company is required to pay the vendor $5 million in instalments over the five-year period through to June 2011 and will also grant the vendor a Net Smelter Return of 2.5%. The Company has made the initial payment of $100,000 to the vendor.

The Company has the right to withdraw from the option agreements relating to Calicanto and Tepal at any time during the five-year term of each option without financial penalty.

Public Financing

On July 3, 2006, the Company issued 300,000 common shares in relation to the exercise of share options at Cdn$0.12 per share

On September 29, 2006, the Company issued 7,000 common shares in relation to the exercise of share warrants at US$0.175 per share.

The total amount raised in respect of the above issues was $33,000.

RESULTS OF OPERATIONS

The Company has not generated any operating revenues and losses have continued to incur throughout the Company's third quarter of 2006.

Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005

Losses of $0.7 million were incurred in the third quarter 2006 due to the cost of administering the Mexican operations and corporate overheads, compared to a loss of $0.2 million for the equivalent period in 2005. Costs in 2005 were at a relatively lower level as the Mexican operation was building up in this period.

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005

In comparison to the equivalent period in 2005, expenditure incurred in developing the Company's projects in Mexico and on administration was higher due to the general greater level of activities in the company, which established operations in early 2005 from which period it gradually expanded. The nine months to September 30, 2006 resulted in a loss of $2.7 million (2005: $0.3 million) after the cost of legal and professional fees of $1.2 million, which included costs incurred in connection with the admission to the AIM and TSXV stock exchanges, plus expensing the fair value of share options granted in the period of $0.9 million. There was no income other than from interest from short term cash deposits of $56,000. There was an exceptional loss related to the extraordinary write off of goodwill arising on the acquisition of ASCL of $13.6 million.



SUMMARY OF QUARTERLY RESULTS

---------------------------------------------------------------------------
Unaudited 2006 2006 2006 2005
3rd Quarter 2nd Quarter 1st Quarter 4th Quarter
$'000s $'000s $'000s $'000s
---------------------------------------------------------------------------
Total Revenues 25 20 11 2

Net loss before
discontinued operations
and extraordinary items 777 611 1,312 519
---------------------------------------------------------------------------
Basic and diluted loss
per share $(0.01) $(0.01) $(0.03) $(0.01)
---------------------------------------------------------------------------
Net loss for the period 777 14,276 1,278 519
---------------------------------------------------------------------------
Basic and diluted loss
per share $(0.01) $(0.22) $(0.03) $(0.01)
---------------------------------------------------------------------------


---------------------------------------------------------------
Unaudited 2005 2005
3rd Quarter 2nd Quarter
$'000s $'000s
---------------------------------------------------------------
Total Revenues 7 -

Net loss before discontinued
operations and extraordinary
items 182 148
---------------------------------------------------------------
Basic and diluted loss per share $(0.01) $(0.01)
---------------------------------------------------------------
Net loss for the period 182 148
---------------------------------------------------------------
Basic and diluted loss per share $(0.01) $(0.01)
---------------------------------------------------------------


Third Quarter 2006 vs. Second Quarter 2006

The decrease in the Shareholders' equity and cash over the previous quarter is a result of share issues arising from share options and warrant exercises in the period of $33,000 offset by administration and project expenditure.

Second Quarter 2006 vs. First Quarter 2006

The increase in Shareholders' equity and cash over the previous quarter is the result of the placement of $2 million of new common shares. The net loss increased as a result of costs associated with the Merger and re-listing on AIM. There was an exceptional loss resulting from the write off of goodwill of $13.6 million on the Merger in accordance with reverse take over accounting.

First Quarter 2006 vs. Fourth Quarter 2005

The decrease in the Shareholders' equity and cash over the previous quarter is a result of share placements in the period of $200,000 offset by administration and project expenditure.

Fourth Quarter 2005 vs. Third Quarter 2005

The increase in Shareholder's equity over the previous quarter is the result of share placements in the period. The increase in the net loss is attributable to increased administration costs resulting from the establishment of the Company's office and operations in Mexico, its corporate office in London and recruitment of key staff. Cash of $1.1 million was received from an exercise of warrants during the fourth quarter.

Third Quarter 2005 vs. Second Quarter 2005

The Company in Mexico was established at the end of the first quarter 2005 and expenditure there and in respect of corporate administration was at a low level, building during the second quarter and increasing further in the third quarter.

No financial statements have been prepared for earlier quarters.

LIQUIDITY AND CAPITAL RESOURCES

In management's view, the most meaningful information concerning the Company relates to its current liquidity and solvency since it is not currently generating any income from its mineral projects.

The Company raises capital for its operations through the issuance of securities of the Company, proceeds received from the exercise of share options and share purchase warrants. Although the Company has been successful in the past in raising finance, there can be no assurance that any funding required by the Company in the future will be made available to it and, if such funding is available, that it will be offered on reasonable terms or that the Company will be able to secure such funding through third party financing or joint ventures. Furthermore there is no assurance that the Company will be able to secure new mineral properties or projects or that they can be secured on competitive terms.

During the Three Months Ended September 30, 2006:

On July 3, 2006 the Company issued 300,000 common shares in relation to the exercise of share options at Cdn$0.12 per share. On September 29, 2006 the Company issued 7,000 common shares in relation to the exercise of warrants at US$0.175 per share.

The most significant asset at September 30, 2006 was cash of $1.7 million (December 31, 2005: $0.1 million, which excluded cash held by a shareholder to the Company's account of $1.3 million at that date). In addition, there were intangible assets of $0.6 million (December 31, 2005: $0.2 million).

During the Nine Months Ended September 30, 2006:

Cash raised from the placement of shares was $2.2 million during the nine months to September 30, 2006 (December 31, 2005: $2.3 million).

Expenditure on developing the Mexican projects, which is treated as an intangible asset, increased in the current period by $0.4 million due to the greater number of projects under development and increased exploration work. Cash raised from the placement of shares was $2.2 million during the nine months to September 30, 2006 compared to $1.1 million in the same period in 2005.

Working Capital:

As at September 30, 2006, the Company had working capital of $1.4 million (December 31, 2005: $1.3 million) which is sufficient to cover ongoing obligations as they become due.

Share Options and Share Purchase Warrants

On July 3, 2006 the Company issued 300,000 common shares in relation to the exercise of share options at Cdn$0.12 per share.

On September 29, 2006 the Company issued 7,000 common shares in relation to the exercise of warrants at US$0.175 per share.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

TRANSACTIONS WITH RELATED PARTIES

The Company entered into the following transactions involving related parties:

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005

Companies in the Dragon Group charged the Company a total of $319,030 (9 months to September 30, 2005: $155,185) in respect of the provision of staff, office facilities, general office overheads and re-charged costs incurred on behalf of the Company. A. J. Williams, Chairman and a director of the Company, beneficially owns the Dragon Group.

Endeavour Financial Limited ("EF") charged the Company a total of $23,348 (9 months to September 30, 2005: $51,424) in respect of the provision of office facilities incurred on behalf of the Company. Gordon Keep, a director of the Company up to the date of the Merger, is a director of EF.

Anfield Sujir Kennedy & Durno ("ASKD") charged the Company a total of $87,721 (9 months to September 30, 2005: nil) in respect of the provision of legal services incurred on behalf of the Company. Henry Jay Sujir, a director of the Company up to the date of the Merger, is a partner in ASKD.

These transactions, occurring in the normal course of operations, are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

POST BALANCE SHEET TRANSACTIONS

On November 15, 2006, the Company announced that it proposed to raise up to Cdn$3,515,000 by way of a private placement of up to 14,060,000 Units at Cdn$0.25 per Unit. Each Unit will consist of one common share and one share purchase warrant exercisable for a period of one year at Cdn$0.42 and subject to accelerated exercise conditions at the Company's option. As at November 24, 2006 this proposed funding had not closed.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with UK GAAP requires the Company to select from possible alternative accounting principles and to make estimates and assumptions that determine the reported amount of assets and liabilities at the balance sheet date and reported costs and expenditures during the reporting period. Estimates and assumptions may be revised as new information is obtained and are subject to change. The Company's accounting policies are considered appropriate in the circumstances, but are subject to judgements and uncertainties inherent in the financial reporting process.

Resource Properties, Deferred Exploration and Development Costs

All costs related to the exploration of mineral properties are capitalised until either the properties are brought into production, at which time they are depleted on a unit of production basis, or until the properties are sold, allowed to lapse or abandoned or determined not to be commercially viable, at which time they are charged to the profit and loss account.

The amounts capitalised at any time represent costs to be charged to operations in future and do not necessarily reflect the present or future values of particular properties. The recoverability of the carrying values of exploration properties is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete development and future profitable production therefrom or alternatively upon the Company's ability to dispose of its interests on an advantageous basis.

Management is of the view that the current policy is appropriate for the Company at this time and is consistent with many other public exploration and development companies in the UK and Canada. Shareholders are advised that carrying values are not necessarily indicative of present or future values. The Company assesses whether impairment exists in any of its exploration projects and writes down that project to its estimated recoverable value when such impairment is found to exist. No writedowns were recorded in the financial statements for the period. A writedown would be recorded as an expense to the Company's profit and loss account.

Asset Retirement Obligations

The fair value of the liability for an asset retirement obligation is recorded when it is incurred and the corresponding increase to the asset is depreciated over the life of the asset. The liability is increased over time to reflect an accretion element considered in the initial measurement of fair value.

Financial Instruments and Other Instruments

The Company's financial instruments consist of cash and cash equivalents, debtors, creditors and accrued liabilities, some of which are denominated in Sterling, Mexican Peso and US dollars. These accounts are recorded at cost which approximates their fair value at each reporting period end in the reporting currency. The Company experiences financial gains or losses on these accounts as the result of foreign exchange movements against the reporting currency. The Company minimizes its foreign exchange risk by maintaining low Mexican Peso balances, to the extent possible. As exploration and mine development costs are incurred and purchase commitments made, the Company may acquire Mexican Pesos or use derivative instruments to lock in these costs in US dollar funds, if it believes it prudent to do so.

The Company has placed its cash and cash equivalents in short-term liquid deposits or investments which provide a rate of interest upon maturity.

OTHER INFORMATION

Additional Information:

Additional information relating to the Company may be accessed through SEDAR on the internet at www.sedar.com or the Company's website on www.ariansilver.com.



Disclosure of Outstanding Share Data

The following table sets forth information concerning the outstanding
securities of the Company as at November 24, 2006:

Common shares of no par value ("Shares") Number in issue

Shares 86,622,869
Share options(1) 6,180,000
Share purchase warrants(1) 3,100,933

(1) Each share option and share purchase warrant entitles the
holder thereof to purchase one Share.


RISKS AND UNCERTAINTIES

The Company is subject to a number of risk factors due to the nature of the mining business in which it is engaged, not least adverse are movements in commodity prices, which are impossible to forecast. The Company seeks to counter this risk as far as possible by selecting exploration areas on the basis of their recognized geological potential to host economic deposits.

Option Agreements in Relation to Certain Mining Concessions

There is no certainty that following completion of initial exploration work at the Calicanto project and the Tepal project that the Company will elect to proceed to exercise the options over the mining concessions for those areas. The sums paid and due to be paid under the option agreements are not repayable if the options are not exercised. The Company will not be able to exercise the option over the mining concessions at the Calicanto project until probate is granted in relation to the estate of Juan Mayorga Murillo's father and all of Juan Mayorga Murillo's interests in the concessions are registered with the Public Registry of Mines in Mexico.

In addition, in relation to concessions over which the Company has an option, the current concession holder may not be able to, or may voluntarily decide not to, comply, or may not have complied in all respects, with the concession requirements for some or all of its concessions. If the current concession holder fails to fulfill the specific terms of any of its concessions or operates in the concession areas in a manner that violates Mexican law, regulators may impose fines or suspend or revoke the concessions, any of which could have a material adverse effect on the Company's operations and proposed operations.

Requirement of Additional Financing

The exploration and development of the Company's concessions, including continuing exploration and development projects, and the construction of mining facilities and commencement of mining operations, will require substantial additional financing. Additional financing will also be required to pay the exercise price of the options held by the Company at the date of this document and any options which are subsequently acquired. The Company does not currently have sufficient funds to explore its concessions and in respect of the Tepal project maintain it. No assurance can be given that the Company will be able to raise the additional financing necessary to explore its concessions, or exercise its options (current or future). Failure to obtain sufficient financing for any projects will result in a delay or indefinite postponement of exploration, development or production on properties covered by the Company's concessions or even a loss of a concession. The only source of funds currently available to the Company is through the issue of equity capital, the sale of concessions, royalty interests or the entering into of joint ventures. In addition, the Company's ability to obtain further financing will depend in part on the price of silver and the industry's perception of its future price and other factors outside the Company's control. Additional financing may not be available when needed, or if available, the terms of such financing might not be favourable to the Company and might involve substantial dilution to shareholders.

Limited Operating History

The Company has no concessions producing revenue and its ultimate success will depend on its ability to generate cash flow from concessions in the future. The Company has not earned profits to date and there is no assurance that it will do so in the future. A major portion of the Company's activities will be directed to the search for and the development of new silver deposits. Significant capital investment will be required for exploration at the concessions and to achieve commercial production from the Company's existing projects and from successful exploration efforts. There is no assurance that the Company will be able to raise the required funds to continue these activities.

No Reserves or Resources

The Company does not hold any concessions, or currently have an interest in concessions pursuant to options, in respect of which reserves or resources estimates have been established that comply with CIM Standards and Guidelines or other similar recognized industry standards.

Reliance on Sub-Contractors in Mexico

The Company will rely on sub-contractors to build the Company's planned development programs. The failure of a sub-contractor to perform properly its services to the Company could delay or inconvenience mining operations, and have a materially adverse effect on the Company.

Key Personnel

The Company's business is dependent on retaining the services of a small number of key personnel of the appropriate calibre as the business develops. The Company has entered into employment agreements with certain key managers. The success of the Company is, and will continue to be to a significant extent, dependent on the expertise and experience of the directors and senior management and the loss of one or more could have a materially adverse effect on the Company. The Company does not currently have any insurance in place with respect to key personnel.

Environmental Factors

The Company's operations are subject to environmental regulation in the jurisdictions in which the Company operates. Such regulation covers a wide variety of matters, including, without limitation, prevention of waste, pollution and protection of the environment, labour regulations and health and safety. The Company may also be subject under such regulations to clean-up costs and liability for toxic or hazardous substances which may exist on or under any of the properties covered by its concessions or which may be produced as a result of its operations.

If the Company does not comply with environmental regulations or does not file environmental impact statements in relation to each of its concessions, it may be subject to penalties, its operations may be suspended or closed and/or its concessions may be revoked.

Environmental legislation and permit requirements are likely to evolve in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their directors and employees.

Nature of Mineral Exploration and Mining

Any exploration program entails risks relating to the location of economic orebodies, the development of appropriate metallurgical processes, the receipt of necessary governmental permits and the construction of mining and processing facilities. The Company's projects are not in production and no assurance can be given that any exploration program will result in any new commercial mining operation or in the discovery of new resources.

The exploration and development of mineral deposits involves significant financial risks over a prolonged period of time, which even a combination of careful evaluation, experience and knowledge may not eliminate. While discovery of a mineral structure may result in substantial rewards, few concessions which are explored are ultimately developed into producing mines. Major expenditure may be required to establish reserves by drilling and to construct mining and processing facilities at a site. It is impossible to ensure that preliminary feasibility studies or full feasibility studies on the Company's projects or the current or proposed exploration programs on any of the concessions in which the Company has rights or is negotiating rights will result in a profitable commercial mining operation.

The Company's operations are subject to all of the hazards and risks normally incidental to exploration, development and the production of minerals, any of which could result in damage to or destruction of the Company's facilities, damage to life or property, environmental damage or pollution and possibly legal liability for any or all damage which could have a material adverse impact on the business, operations and financial performance of the Company. The Company's activities may be subject to prolonged disruptions due to weather conditions depending on the location of operations in which the Company has interests. Hazards, such as unusual or unexpected geological formations, rock falls, flooding or other climatic conditions may be encountered in the drilling and removal of material. Although precautions to minimize risk will be taken, even a combination of careful evaluation, experience and knowledge may not eliminate all of the hazards and risks.

Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of the deposit, such as its size and grade, proximity to infrastructure, financing costs and governmental regulations, including regulations relating to prices, taxes, royalties, infrastructure, land use, importing and exporting of silver and environmental protection. The effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital.

Political Risk

The Company is conducting its exploration and development activities in the Republic of Mexico. The Company may be adversely affected by changes in economical, political, judicial, administrative, taxation or other regulatory factors in the Republic of Mexico where the Company will operate and holds its major assets. The Republic of Mexico may have a more volatile political environment and/or more challenging trading conditions than in some other parts of the world. The Directors believe that the Government of Mexico supports the development of natural resources by foreign operators. There is no assurance that future political and economic conditions in Mexico will not result in the Government of Mexico adopting different policies in respect of foreign development and ownership of mineral resources. Any such changes in policy may result in changes in laws affecting ownership of assets, taxation, rates of exchange, environmental protection, labour relations, repatriation of income and return of capital, which may affect both the Company's ability to undertake exploration and development activities in respect of future properties in the manner currently contemplated, as well as its ability to continue to explore and develop those properties in respect of which it has obtained exploration and development rights to date.

Payment Obligations

Under the mining licences and certain other contractual agreements to which a member of the Company is or may in the future become a party, any such company is or may become subject to payment and other obligations. If such obligations are not complied with when due, in addition to any other remedies which may be available to other parties, this could result in dilution or forfeiture of interests held by such companies. The Company may not have, or be able to obtain, financing for all such obligations as they arise.

Regulatory Approvals

The operations of the Company require approvals, licenses and permits from various regulatory authorities, governmental and otherwise. The Board believes that the Company holds or will obtain all necessary approvals, licenses and permits under applicable laws and regulations in respect of its current projects. There can be no guarantee that the Company will be able to obtain or maintain all necessary approvals, licenses and permits that may be required to explore and develop its various projects and/or commence construction or operation of mining facilities that economically justify the cost.

Competition

The Company competes with numerous other companies and individuals in the search for and acquisition of mineral claims, leases and other mineral interests, as well as for the recruitment and retention of qualified employees. There is significant competition for the silver opportunities available and, as a result, the Company may be unable to acquire further silver concessions on terms it considers acceptable.

Conflicts of Interest

Certain of the directors and officers of the Company also serve as directors and/or officers of other companies involved in mineral exploration and development and consequently there exists the possibility for such directors and officers to be in a position of conflict. The Company expects that any such director shall disclose such interest in accordance with its articles of association and any decision made by any of such directors and officers involving the Company will be made in accordance with their duties and obligations to deal fairly and in good faith with a view to the best interests of the Company and its shareholders.

Forward Looking Statements

This MD&A contains certain "forward-looking statements". All statements, other than statements of historical fact, that address activities, events or developments that the Company believes, expects or anticipates will or may occur in the future (including, without limitation, statements regarding the estimation of mineral resources, potential mineralization and resources, and the Company's exploration and development plans) are forward-looking statements. These forward-looking statements reflect the current expectations or beliefs of the Company based on information currently available to the Company. Forward-looking statements are frequently characterized by words such as "plan," "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words or statements that certain events or conditions "may" or "will" occur, and include, without limitation, statements regarding potential mineralization and resources, exploration results and future plans and objectives of the Company. Forward-looking statements are subject to a number of risks and uncertainties that may cause the actual results of the Company to differ materially from those discussed in the forward-looking statements, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on the Company.

Factors that could cause actual results or events to differ materially from current expectations include, among other things, uncertainties relating to the availability and costs of financing needed in the future, changes in commodity prices, changes in equity markets, political developments in Mexico, changes to regulations affecting the Company's activities, delays in obtaining or failures to obtain required regulatory approvals, the uncertainties involved in interpreting drilling results and other geological data, and the other risks involved in the mineral exploration and development industry. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or results or otherwise. Although the Company believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein.



ARIAN SILVER CORPORATION

Interim Consolidated
Financial Statements
(Unaudited)

Third Quarter and Nine Months ended September 30, 2006
(In thousands of U.S. dollars)

ARIAN SILVER CORPORATION
43 North Audley Street, LONDON W1K 6WH
ENGLAND
Tel: +44 (0) 20 7529 7511
Fax: +44 (0) 20 7491 2244

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS


Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited interim financial statements of the Company have been prepared by and are the responsibility of the Company's management.

The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.



Arian Silver Corporation
Consolidated Balance Sheets (Unaudited)
As at September 30, 2006 and December 31, 2005
(In thousands of U.S. dollars)
-------------------------------------------------------------------
-------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------
ASSETS

Current assets
Cash (note 3) 1,674 98
Accounts receivable and prepaid expenses 134 1,390
---------------------

1,808 1,488
Fixed assets
Tangible assets (note 4) 113 50
Intangible assets (note 5) 631 242
---------------------
2,552 1,780
---------------------
LIABILITIES

Current liabilities
Accounts payable and accrued liabilities 408 159
---------------------
408 159
---------------------

---------------------
NET ASSETS
2,144 1,621
---------------------
---------------------
SHAREHOLDERS' EQUITY

Share capital (note 7(a)) 18,546 2,604
Contributed surplus (note 7(b)) 912 -
Deficit (17,314) (983)
---------------------
2,144 1,621
---------------------
---------------------

The accompanying notes are an integral part of these consolidated financial
statements.
These consolidated financial statements have been approved by
the Company's directors.


Arian Silver Corporation
Consolidated Statements of Operations and Deficit (Unaudited)
For the nine months ended September 30, 2006 and September 30, 2005
(In thousands of U.S. dollars except per share amounts)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

-------------------------------------------------
3 Months ended 9 months ended
September 30 September 30
-------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------

Income
Interest 25 7 56 7
-------------------------------------------------


-------------------------------------------------
Expenses
Administration 176 118 624 181
Legal and professional
fees 626 71 1,247 155
Stock-based compensation
(note 7(e)) 46 - 912 -
Foreign exchange
(gain)/loss (46) - (31) 1
-------------------------------------------------


-------------------------------------------------

Net loss for the period (777) (182) (2,696) (330)

Less exceptional gain/
(loss):
Goodwill on
acquisition of ASCL - - (13,671) -
Negative goodwill on
acquisition of subsidiary - - 36 -
------------------------------------------------

Net loss for the
period after
exceptional loss (777) (182) (16,331) (330)

Deficit at beginning
of period (16,537) (258) (983) (330)
--------------------------------------------------

Deficit at end
of period (17,314) (440) (17,314) -
--------------------------------------------------
--------------------------------------------------

Basic and diluted loss
per common share $(0.01) $(0.01) $(0.26) $(0.01)
--------------------------------------------------
--------------------------------------------------

Weighted average number
of shares ('000s) 86,606 31,300 63,272 28,958
--------------------------------------------------
--------------------------------------------------

There were no gains or losses during the period other than the above
reported loss.

The accompanying notes are an integral part of these consolidated financial
statements.
These consolidated financial statements have been approved
by the Company's directors.

Arian Silver Corporation
Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 2006 and September 30, 2005
(In thousands of U.S. dollars)


---------------------------------------------------------------------------
3 Months ended 9 months ended
September 30 September 30
----------------------------------
2006 2005 2006 2005
----------------------------------
Cash flow provided from (used in)

Operating activities
Net loss for the period (777) (184) (16,331) (330)
Adjustments to reconcile net loss to
cash flow from operating:
Stock-based compensation 46 - 912 -
Unrealized foreign exchange
(gains) / losses 2 - (50) (2)
Depreciation - - 10 -
Goodwill on acquisition of Hard
Assets Inc. - - 13,671 -
Goodwill on acquisition of subsidiary - - (36) -
Changes in non cash working capital:
(Increase)/decrease in accounts
receivable and prepaid expenses (51) (36) 1,256 (36)
Increase/(decrease) in accounts
payable and accrued liabilities 1 - 249 -
Costs settled through issue of shares - - (208) (70)
----------------------------------
Cash flow provided from (used in)
operating activities (779) (220) (527) (438)

Investing activities
Purchase of tangible assets (12) (15) (73) (25)
Purchase of intangible assets (155) (47) (389) (55)
Cash cost of acquisition of
Hard Assets Inc. - - (301) -
Cash acquired with Hard Assets Inc. - - 654 -
----------------------------------
Cash flow used for investing
activities (167) (62) (109) (80)
----------------------------------
----------------------------------
Management of liquid resources 651 - (850) -
----------------------------------

Financing activities
Common shares issued, net of issue
costs 33 - 2,234 1,103
Redemption of preference shares - - (22) -
----------------------------------
Cash flow provided from financing
activities 33 - 2,212 1,103
----------------------------------

(Decrease)/increase in cash and cash
equivalents (262) (282) 726 585

Cash at beginning of period 1,086 867 98 -
----------------------------------
Cash at end of the period 824 585 824 585
----------------------------------
----------------------------------
Funds in the balance sheet comprise:
Cash balances on deposit with bank 824 585 824 585
High-interest deposit accounts 850 - 850 -
----------------------------------
1,674 585 1,674 585
----------------------------------
----------------------------------

The accompanying notes are an integral part of these consolidated financial
statements.
These consolidated financial statements have been approved by the Company's
directors.


Arian Silver Corporation
Notes to Consolidated Financial Statements (Unaudited)
For the nine months ended September 30, 2006 and September 30, 2005
(In U.S. dollars)


1. Summary of Significant Accounting Policies

These interim unaudited consolidated financial statements for Arian Silver Corporation ("ASC" or the "Company") have been prepared in accordance with United Kingdom Generally Accepted Accounting Principles ("UK GAAP"), following the merger of the Company with Arian Silver Corporation Limited in May 2006. The 2005 audited accounting statements were prepared on the basis of Canadian Generally Accepted Accounting Principles ("Canadian GAAP"); any material differences in 2005 comparative statements due to the adoption of UK GAAP are shown in the notes to these statements.

Not all disclosures required by generally accepted accounting principles for annual financial statements are present, and accordingly, these interim consolidated financial statements should be read in conjunction with the Company's 2005 audited consolidated financial statements.

The group is at an early stage of development and in common with many mineral exploration and development companies it raises funds in discrete tranches. In the opinion of the directors, the Company has sufficient funds to meet its obligations over the next 12 months. Accordingly, the financial statements have been prepared on the going concern basis.

The current cash resources of the group will not be sufficient to bring the exploration and development projects into full production and, in due course, further funding will be required for these projects. In the event that the group is unable to secure further finance the group will not be able to fully develop these projects.

2. Merger of the Company and Arian Silver Corporation Ltd.

The Company was previously named Hard Assets Inc. until its merger with Arian Silver Corporation Limited ("ASCL") on May 24, 2006 whereupon it was renamed Arian Silver Corporation and re-admitted to the AIM market of the London Stock Exchange on May 25, 2006.

The merger of the Company with ASCL in May 2006 was accounted for in accordance with the reverse take over method of accounting. Under this method, ASCL has been identified as the acquirer and accordingly the consolidated entity is considered to be a continuation of ASCL and the historical financial information prior to the acquisition is that of ASCL only. For accounting purposes, the Company is thus deemed to have been acquired by ASCL.

This treatment represents a departure from the requirements of Financial Reporting Standard 6, "Mergers and acquisitions", ("FRS 6") which would require ASC to be treated as the acquirer of ASCL. In the opinion of the directors, following the requirements of FRS 6 would be misleading and the presentation adopted gives a more true and fair view of the activities of the group for the periods presented. If the requirements of FRS 6 were followed, historical information presented would be that of ASC only and include ASCL only from May 24, 2006.

Goodwill arising on acquisition is capitalized and shown within fixed assets. The goodwill has been reduced to a nil carrying value on the basis that it arose on the acquisition of Hard Assets Inc., a non-trading company.

On July 21, 2006 the Company was admitted to the Canadian TSX Venture Exchange in Toronto, Canada under the ticker AGQ.

3. Cash

Cash balances include cash and short-term deposits with banks or other financial institutions which may or may not be held in high interest bearing accounts that have an original maturity date of 90 days or less. Where the maturity date of deposits is greater than one day, balances are classified as liquid resources for cash flow purposes.



4. Tangible assets

Changes in tangible assets for the 9 months ended September 30, 2006
and the year ended December 31, 2005 are detailed in the following
table:

2006 2005
$000's $000's
----------------------

Opening balance 50 -
Additions for the period 73 52
Depreciation (10) (2)
----------------------
Closing balance 113 50
----------------------
----------------------
5. Intangible assets

Changes in resource assets for the 9 months ended September 30, 2006
and the year ended December 31, 2005 are detailed in the following
table:

2006 2005
$000's $000's
----------------------

Opening balance 242 -
Additions for the period 389 242
----------------------
Closing balance 631 242
----------------------
----------------------


6. Acquisition of Arian Silver Corporation (UK) Limited

On February 1, 2006, the Company purchased the ordinary share capital of Arian Silver Corporation (UK) Limited (formerly Arian Silver Corporation Plc) for cash consideration of Pounds Sterling 1. This resulted in negative goodwill of $36,000 representing the accumulated profit at that date. This has been credited to the income statement immediately.

7. Share capital

a) Authorised

The Company is authorized to issue unlimited common shares of no par value. Under the reverse take over method of accounting for the acquisition of ASCL, share capital and movements of ASCL are shown, together with movements in share capital of the Company following acquisition. Changes for the 9 months ended September 30, 2006 and the year ended December 31, 2005 are detailed in the following table:



Issued

---------------------------------------------------------------------------
2006 2006 2005 2005
---------------------------------------------------------------------------
Number of Number of
Shares Amount Shares Amount
(000's) ($000's) (000's) ($000's)
---------------------------------------------------------------------------

Opening balance 19,770 2,604 11,000 110
Common shares issued for cash 4,400 2,200 5,652 1,723
Issue costs of share issuance - (140) - (284)
Shares issued for consulting services 280 140 - -
----------------
ASCL shares at date of acquisition 24,450 4,804 - -
-------
ASC shares issued on reverse
take over 48,899 - - -
Common shares issued on reverse
take over of ASCL 37,000 13,471 - -
Common shares issued for
consulting services 417 234 118 60
Exercise of warrants 7 1 3,000 1,050
Commission payable on early warrant
exercise - - - (55)
Exercise of share options 300 32 - -
Exchange difference - 4 - -
---------------------------------------------------------------------------
Balance - end of Period 86,623 18,546 19,770 2,604
---------------------------------------------------------------------------

During the 9 months ended September 30, 2006 and the year ended December
31, 2005, the Company made the following share and warrant issues:


9 Months Ended September 30, 2006

On February 13, 2006, ASCL issued 400,000 common shares of US$0.01 each at a premium of US$0.49 per share to provide additional working capital.

On April 7, 2006, ASCL issued 4,000,000 common shares of US$0.01 each at a premium of US$0.49 per share to provide additional working capital. In settlement of agent's commission in respect of this placement, the Company issued 280,000 common shares of US$0.01 each at a premium of US$0.49 per share.

On May 24, 2006 the Company issued 24,449,600 common shares in respect of the Merger with ASCL on basis of two shares for every one old share. Under the reverse acquisition method of accounting, it was deemed that 37,000,003 shares were issued in consideration for Hard Assets Inc, being its issued share capital immediately prior to the merger.

On May 25, 2006, upon admission to AIM, the Company issued 416,666 common shares at US$0.56 per share in settlement of a corporate finance fee.

On July 3, 2006 the Company issued 300,000 common shares in relation to the exercise of stock options at Cdn$0.12 per share.

On September 29, 2006 the Company issued 7,000 common shares in relation to the exercise of stock warrants at US$0.175 per share.

Year Ended December 31, 2005

On April 12, 2005, ASCL issued 37,800 common shares of US$0.01 each as consideration for investment services provided to the company of US$9,450. A premium of US$9,072 was recognised on the issue.

On April 19, 2005, ASCL issued 4,412,000 common shares of US$0.01 each at a premium of US$0.24 per share to provide additional working capital.

On October 4, 2005, ASCL issued 3,000,000 shares of US$0.01 each at a premium of US$0.34 under the terms of a share warrant agreement to provide additional working capital.

On November 22, 2005, ASCL issued 200,000 shares of US$0.01 each at a premium of US$0.49 per share to provide additional working capital.

On November 30, 2005, ASCL issued 1,040,000 shares of US$0.01 each at a premium of US $0.49 each to provide additional working capital.

On December 9, 2005, ASCL issued 79,800 shares of US$0.01 each at a premium of US $0.49 each in respect of commission on funding.

b) Contributed Surplus

A summary of the changes in the Company's contributed surplus for the 9 months ended September 30, 2006 and the year ended December 31, 2005, is set out below:



-----------------------------------------------------------
2006 2005
-----------------------------------------------------------
Amount Amount
($000's) ($000's)
------------------------
Opening balance - -
Incentive stock options vested 116 -
Incentive stock options
granted on Merger 796 -
-----------------------------------------------------------
Balance - end of period 912 -
-----------------------------------------------------------
-----------------------------------------------------------

c) Share Purchase Warrants

A summary of the changes in the Company's share purchase warrants for the 9
months ended September 30, 2006 and the year ended December 31, 2005, is
set out below:

2006 2006 2006 2005 2005 2005
------------------------------------------------------------------------
Weighted Weighted
Warrants average Warrants average
Value out- exercise Value out- exercise
assigned standing price assigned standing price
($000) (000's) ($) ($000) (000's) ($)
------------------------------------------------------------------------
Opening balance - 2,900 0.17 - - -
Exercised - (7) (0.17) - (6,000) 0.17
Issued - - - - 8,900 0.17
Issued to brokers - 208 0.56 - - -

------------------------------------------------------------------------
Balance -
end of period - 3,101 0.20 - 2,900 0.17
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Converted to US$. Actual exercise price is Pounds Sterling 0.30.


At the period end, there were 2,892,600 share warrants and 208,333 brokers' warrants in issue. These are exercisable at an issue price of US$0.175
before April 7, 2007 and Pounds Sterling 0.30 before the end May 25, 2007 respectively.

d) Incentive Stock Options

The Company currently has in place two incentive stock option plans (the "Plans") covering directors, officers, employees and consultants of the Company and its subsidiary companies. The exercise price of a future option grant will be determined by the Board of Directors on the basis of the closing market price of the Company's shares on the trading day prior to the date of issue of the option. Options may be granted for periods of up to ten years and the Board of Directors determines the vesting provisions of each option granted, which may vary. The aggregate number of shares which may be issued and sold under the Plans may not exceed 10% of issued share capital. As at September 30, 2006, a total of 2,482,286 options remained available for grant under the Plan

A summary of the Company's stock options (as adjusted to reflect the terms of the merger referred to in note 2) for the 9 months ended September 30, 2006 and the year ended December 31, 2005, is set out below:



------------------------------------------------------------------------
2006 2006 2006 2005 2005 2005
------------------------------------------------------------------------
Weighted Weighted
average average
Value Out- exercise Value Out- exercise
assigned standing price assigned standing price
($) (000's) ($) ($) (000's) ($)
------------------------------------------------------------------------
Opening balance - - - - - -
Options assumed
on acquisition
of Hard Assets
Inc. - 300 0.11 - - -
Issued on
acquisition of
ASCL(1) - 5,830 0.28 - - -
Issued - 350 0.50 - - -
Exercised - (300) (0.11) - - -
------------------------------------------------------------------------
Balance -end of
period - 6,180 0.29 - - -
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Converted to US$. Actual exercise price was Pounds Sterling 0.15.


e) Stock-Based Compensation

The fair value of stock options granted for the 9 months ended September 30, 2006 was $912,000 (same period in 2005 - nil) which was expensed in the statement of operations.

The fair value of stock options used to calculate compensation expense is estimated using the Black-Scholes option pricing model with the following assumptions:



----------------------------------------------------------------------
2006 2005
----------------------------------------------------------------------
Risk free interest rate 3.98% to 4.18% -
Expected dividend yield 0% -
Expected stock price volatility 80% -
Expected option life in years 2 to 3 years -
----------------------------------------------------------------------

Pricing models require the input of highly subjective assumptions,
including the expected price volatility. Changes in the subjective input
assumptions can materially affect the fair value estimate and, therefore,
the existing models do not necessarily provide a reliable single measure
of the fair value of units granted by the Company.


8. Related Party Transactions

These interim consolidated financial statements include balances and transactions with directors and officers of the Company and/or corporations related to them. All transactions have been recorded at the exchange amount which is the consideration established and agreed to between the related parties. Details are as follows:



------------------------------------------------------------------------
Amount
Transactions during the 6 months ended September 30, 2006: $(000)
-------
Administrative costs 430
-------
430
------------------------------------------------------------------------
------------------------------------------------------------------------


Related-party payables included in Accounts payable
and accrued liabilities 128

------------------------------------------------------------------------
------------------------------------------------------------------------


9. Income Taxes

No corporate or deferred tax charge or credit arises in respect of the nine months ended September 30 2006 and 2005. The loss arising in the period gives rise to tax losses that are equivalent to a potential tax asset of $0.5 million (nine months ended September 30, 2005 - $0.1 million). This asset has not been recognised in the financial statements because of the uncertainty as to the incidence and timing of future taxable income against which the asset can be recovered.

10. Segmented Reporting

The Company has one operating segment, the exploration of natural resource properties. All capital assets of the Company are held in Mexico. Short-term deposit interest, which is the Company's only regular source of income, is generally earned in the United Kingdom.

11. Subsequent Events

On November 15, 2006 the Company announced that it proposed to raise up to Cdn$3,515,000 by way of a private placement of up to 14,060,000 Units at Cdn$0.25 per Unit. Each Unit will consist of one common share and one share purchase warrant exercisable for a period of one year at Cdn$0.42 and subject to accelerated exercise conditions at the Company's option. As at November 24, 2006 this proposed funding had not closed.

12. Reconciliation to Canadian GAAP

a) Reconciliation of assets, liabilities, equity and cash flows

The consolidated financial statements of the Company have been prepared in accordance with UK Generally Accepted Accounting Principles "UK GAAP" which differ, in certain material respects, from Canadian GAAP.

Had the Company prepared the consolidated financial statements in accordance with Canadian GAAP, certain items on the consolidated balance sheets, statements of operations and deficit, and statements of cash flows would have been reported as follows:



9 months ended
$000's, except per share amounts September 30,
-------------------------
2006 2005
-------------------------
Consolidated statements of operations
As reported in accordance with UK GAAP (16,331) (330)
Add Goodwill write off 13,635 -
-------------------------
Net loss under Canadian GAAP (2,696) (330)
-------------------------
-------------------------
Basic and diluted loss per common share
under Canadian GAAP (0.04) (0.01)

Cash flows for the period
Under UK GAAP 726 585
Liquid resources classified as cash equivalents 850 -
-------------------------
Under Canadian GAAP 1,576 585
-------------------------

September 30, December 31,
$000's, except per share amounts 2006 2005

Consolidated balance sheet
Total assets
Under UK GAAP 2,552 1,780
Adjustments to Canadian GAAP - -
-------------------------
Under Canadian GAAP 2,552 1,780
-------------------------
-------------------------

Total liabilities
Under UK GAAP 408 159
Adjustments to Canadian GAAP - -
-------------------------
Under Canadian GAAP 408 159
-------------------------

Total shareholders' equity
Under UK GAAP 2,144 1,621
Adjustments to Canadian GAAP - -
-------------------------
Total shareholder's equity under Canadian
GAAP 2,144 1,621
-------------------------
Total liabilities and equity per Canadian GAAP 2,552 1,780
-------------------------
-------------------------


Under Canadian GAAP, goodwill arising from a reverse takeover transaction that does not constitute a business combination is immediately written off to retained earnings.

Under Canadian GAAP, stock-based awards made to non-employees and employees are measured and recognized using a fair value based method. Accordingly, the fair value of options at the date of grant is accrued and charged to operations, with an offsetting credit to contributed surplus, on a straight-line basis over the vesting period. If the stock options are ultimately exercised, the applicable amounts of contributed surplus are transferred to share capital. Under UK GAAP, share options that vested before January 1, 2006, the date of adoption of FRS 20, "Share based payments", are not required to be measured and recognised using a fair value based method.

Under UK GAAP, short term deposits with an original maturity of more than one day are classified as liquid resources for cash flow purposes and movements in these assets are reflected in the cash flow statement. Under Canadian GAAP, such balances would fall to be treated as cash equivalents.



b) Statement of Changes in Shareholders' Equity

------------------------------------------------------------------------

------------------------------------------------------------------------
Warrants/ Warrants/
share share
Shares Amount options options Deficit Total
(000's) ($000's) (000's) ($000's) ($000) ($000's)
------------------------------------------------------------------------
Opening
balance 11,000 110 - - - 110
Shares issued 5,770 1,783 - - - 1,783
Warrants issued - - 4,450 - - -
Warrants
exercised 3,000 1,050 (3,000) - - 1,050
Share issue
costs (339) (339)
------------------------------------------------------------------------
Net loss - - - - (983) (983)
------------------------------------------------------------------------
December 31,
2005 19,770 2,604 1,450 - (983) 1,621
------------------------------------------------------------------------
------------------------------------------------------------------------
Shares issued 4,680 2,340 - - - 2,340
------------------------------------------------------------------------
Share issue
costs - (140) - - - (140)
------------------------------------------------------------------------
Shares/warrants
split on
acquisition 24,449 - 1,450 - - -
------------------------------------------------------------------------
Shares/options
issued on
reverse take
over 37,000 13,471 300 - - 13,471
------------------------------------------------------------------------
Shares issued 417 234 - - - 234
------------------------------------------------------------------------
Fair value of
share options - - 6,180 912 - 912
------------------------------------------------------------------------
Goodwill
written off - - - - (13,665) (13,665)
------------------------------------------------------------------------
Warrants issued - - 208 - - -
------------------------------------------------------------------------
Options exercised 300 32 (300) - - 32
------------------------------------------------------------------------
Warrants exercised 7 1 (7) - - 1
------------------------------------------------------------------------
Exchange difference - 4 - - - 4
------------------------------------------------------------------------
Net loss - - - - (2,696) (2,696)
------------------------------------------------------------------------
Balance end of
period 86,623 18,546 9,281 912 (17,314) 2,144
------------------------------------------------------------------------
------------------------------------------------------------------------


c) Income Tax Losses

3 Months ended 9 months ended
September 30 September 30
----------------------------------
2006 2005 2006 2005
----------------------------------
($000's) ($000's) ($000's) ($000's)
----------------------------------
Income tax benefit computed at UK
statutory rates (616) (55) (4,899) (99)
Permanent differences 376 - 4,443 14
Unrecognised tax losses 240 55 456 85
-----------------------------------
Total - - - -
-----------------------------------


The components of future income tax assets for the 9 months ended
September 30, 2006 and the year ended December 31, 2005, is set out below:

2006 2005
($000's) ($000's)
--------------------

Future income tax assets:
Non-capital loss carry-forwards for UK tax purposes 2,480 1,143
Tax rate 30% 30%
Income tax asset 744 343
Less: Valuation allowance (744) (343)
--------------------
Closing balance - -
--------------------
--------------------

The valuation allowance reflects the Company's estimate that the tax
assets, more likely than not, will not be realized.

The Company has available non-capital losses that may be carried forward to
apply against future years' income for United Kingdom income tax purposes.
The losses have no fixed expiry date.


d) Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method of tax allocation, future income tax assets and liabilities are determined based on differences between the financial statement carrying values and their respective income tax basis (temporary differences). Future income tax assets and liabilities are measured using the tax rates expected to be in effect when the temporary differences are likely to reverse. The effect on future income tax assets and liabilities of a change in tax rates is included in operations in the period in which the change is enacted or substantially assured. The amount of future income tax assets recognized is limited to the amount of the benefit that is more likely than not to be realized.

e) Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the short-term to maturity of these financial instruments.

It is management's opinion that the Company is not exposed to interest, or credit risk arising from these financial instruments. The Company is exposed to foreign currency fluctuations to the extent certain expenditures incurred are not in US dollars.

No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained in this release.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • In London:
    Arian Silver Corporation
    Jim Williams / James Cable
    +44 (0)20 7529 7511
    or
    Canaccord Adams Limited
    Mike Jones / Ryan Gaffney
    +44 (0)20 7050 6500
    or
    In Vancouver:
    Vanguard Shareholder Solutions
    Paul Lathigee
    +1 (604) 608-0824
    0800: 800 898 0825