a Groundbreaking year 2006 ANNUAL REPORT ANNUAL GENERAL MEETING The Annual General Meeting of the shareholders of Baja Mining Corp. will take place at 2:00pm on Thursday, May 24th in the Balmoral Room, the Hyatt Regency Hotel, 655 Burrard St., Vancouver, British Columbia, Canada. a Groundbreaking year Introduction 1 Corporate Profile 2 Letter to Shareholders 4 Groundbreaking Metallurgy 7 Groundbreaking Mining Methods 8 Groundbreaking Geology and Economics 10 Groundbreaking Leadership 12 Social and Environmental Responsibility 15 Management Discussion & Analysis 17 Consolidated Financial Statements 37 Corporate Information IBC 2006 was a year of groundbreaking developments for Baja. Thanks to the hard work of our people at every level in the organization, we are pleased to report that we have reached an unprecedented point in the hundred-year history of the Boléo site. With our Environmental Impact Manifest approved, an Updated Preliminary Economic Assessment recently released, and our Definitive Feasibility Study imminent, we’ve fixed our sights on the next stage—breaking ground on the construction of the Boléo mine and mill complex. 2 CORPORATE PROFILE BAJA MININg – 2006 ANNUal Report Tijuana U.S.A. San Diego GULF OF CALIFORNIA U.S.A. MEXICO Tijuana Ensenada Hermosillo Guaymas PACIFIC OCEAN Santa Rosalia Chihuahua Loreto Santa Rosalia Monterrey La Paz PACIFIC OCEAN MEXICO Guadalajara Mexico City Acapulco Oaxaca Baja Mining Corp. (“Baja”) owns a 100% interest in El Boléo Project, an advanced polymetallic (copper, cobalt, zinc, manganese) property located in Baja California Sur, Mexico. Baja has assembled an exceptional management team who are working towards developing Mexico’s largest copper-cobalt deposit. Baja Mining Corp. trades on the Toronto Stock Exchange under the symbol “BAJ”. 5-Year Copper Price History $4 US $/lb $3 $2 $1 $0 -02 -02 -03 -04 -05 -06 -07 -07 l l-03 l-04 l-05 l-06 r n n n n n n Ju Ju Ju Ju Ju Ja Ja Ja Ja Ja Ja Ap 2006–A GROUNDBREAKING YEAR CORPORATE PROFILE 3 BAJA MININg – 2006 ANNUal Report Progress 2007 2006 2005 Apr. 4: Updated Resource Model Dec. 14: Phase 2 test mine Oct. 19: Phase 1 test mine released successfully completed commenced Feb. 7: Updated Preliminary Dec. 12: Agreement executed with Sept. 13: Preliminary Economic Economic Assessment Commission for Natural Assessment released released Protected Areas, Bank Monex and Ecobana Apr. 7: Resource Estimate Feb. 7: Graduated to Toronto released Stock Exchange Dec. 7: Approval for Environmental Impact Jan. 30: 38,000+m of In-fill Drill Manifest received program completed Nov. 4: Phase 2 test mine Jan. 15: Form 20F registration commenced cleared by U.S. Securities & Exchange Commission Aug. 25: Tier 1 listing on TSX Venture Exchange Jul. 21: Phase 2 Pilot Plant program successfully completed Jul. 20: Phase 1 test mine successfully completed May 15: Environmental Impact Manifest filed 2006–A GROUNDBREAKING YEAR 4 LETTER TO SHAREHOLDERS BAJA MININg – 2006 ANNUal Report 2006 A Groundbreaking Year LETTER TO SHAREHOLDERS Undeniably, 2006 was a groundbreaking year. Global metal prices achieved historic highs. Copper surpassed US$4 per pound, cobalt reached US$32, and zinc achieved US$2. In 2007, prices corrected somewhat, and Privately, however, many producers I As a result of these shortages, equipment despite analysts’ predictions of a return spoke to expected long-term copper prices have escalated, as has the price to lower historic prices, the tide seems prices in the US$1.40 – $1.70 range, with of the metals used to manufacture the to have turned. Metal prices have jumped some suggesting a base price closer to equipment. Capital and operating costs back up, with copper at US$3.30 per US$1.00 – 1.25. I did not attend the 2007 have increased dramatically, for new and pound when this report is written. Price conference, but I note that many speakers existing mines, which supports elevated speculation continues, however. Some this year were expecting strong economic metal prices for the foreseeable future. predict the slowdown in the United States growth to continue in China, and housing market will result in a decline continued demand from other developing All of these factors bode well for the in copper prices, while others feel that nations, with metal prices continuing to Company and our shareholders. As we ongoing development in the so-called rise, potentially remaining at elevated look to the near future we move from a “BRIC” nations (Brazil, Russia, India, levels for several decades, signaling the groundbreaking year to one in which we and China) will continue to drive markets beginning of a so-called supercycle. will break new ground—literally—at the higher. The broad consensus is that Boléo Project. This report highlights current trends are driven by the “supply” While demand remains strong for the many achievements that lead to the side of the industry, as demand copper and other metals, the supply completion of the Definitive Feasibility remains robust. side continues to lag. Exploration Study, which will be delivered in 2007. expenditures are escalating, but most of While we are optimistic of continued At the time when copper prices were the major discoveries in this cycle have highs in metal prices, we have also seen reaching groundbreaking prices in 2006, been in politically challenging countries, the project’s capital costs escalate (for I attended an annual conference for where the necessary infrastructure is many of the reasons above). copper producers in Santiago, Chile. lacking. This results in capital-intensive I found it interesting to compare the projects in high-risk jurisdictions. These Notwithstanding those costs, the Boléo private vs the published opinions of many issues are compounded by the shortage Project continues to demonstrate robust producers. In print, many expected prices of skilled personnel in most areas of economics at the conservative metal to remain at elevated levels through 2006, the industry; a shortage of equipment, prices required by lenders. We have but in 2007 and beyond they expected particularly large open-pit trucks and commenced discussions with the majority supply and demand to come closer to a large diameter tires; and long lead times of lenders involved in the resource balance, with lower prices going forward. for many items. sector, and we expect to issue a private 2006–A GROUNDBREAKING YEAR LETTER TO SHAREHOLDERS 5 BAJA MININg – 2006 ANNUal Report Raul Morales and John Greenslade at the Boléo underground test mine. information memorandum to solicit head office, and Michel will be based pay off construction financing on an expressions of interest by May 2007. in Mexico, initially in our Mexico City accelerated basis, in order for you, our A private information memorandum has office and thereafter at the project site shareholders, to reap the rewards of already been issued to potential off-take at Santa Rosalia. While we tend to higher prices, and justify your support candidates, and due diligence visits focus on our head office staff, I want to to date. to the project site have commenced. recognize the excellent team we have We have commenced discussions in Mexico, led by Tawn Albinson, who It is an exciting time to be in the mining with our engineering consultants to is our Managing Director, Assistant industry and an exciting time for Baja finalize contracts to proceed with base Project Manager and an extremely Mining. I invite you all to attend the line engineering, which will lead to fine geologist. Tawn is joined by annual general meeting to meet your detailed engineering for construction. Ing. Manuel Moreno, a Chemical management team and join us in We have elicited the support of a major Engineer and our chief environmental celebrating the groundbreaking year construction contractor to assist in the consultant; Ing. Raul (Sammy) Morales, that has just passed, to breaking new next stage of engineering, leading to a Mining Engineer of distinction in ground in the year that lies ahead. the commencement of construction. Mexico and a former President of the Security fencing of the plant area Asociacion de Ingenieros Mineros, at Boléo will be undertaken in the Metalurgistas y Geologos de Mexico immediate future, and shortly thereafter (AIMMGM); Ing. Eduardo Cabrera, we expect to break ground for site a metallurgist with a breadth of preparation for plant construction. experience in smelter operations and We have now completed the purchase hydrometallurgical plants; and Ing. John W. Greenslade of the four 2.5 megawatts (10MW total) Julio Corona, a metallurgical engineer President & Director diesel generators we optioned in 2006 with extensive operational experience in Baja Mining Corp. and expect these to be moved to site hydrometallurgical plants in Mexico and this summer. the United States. We are endeavoring to maintain As we move from the year that was an early-to mid-2009 start date for 2006, we understand that 2007 will be commissioning of copper production. a time of planning and construction that will lead to eventual production As we move forward, our operational at Boléo. We are using conservative team continues to expand. We recently metal prices with lending institutions welcomed Terry Hodson, P. Geo., as for construction financing, with General Manager Geology, and Michel the optimism that once production LaFlamme as Director, Supply Chain. begins, prices will be significantly Terry will be based in our Vancouver higher. This, we hope, will allow us to 2006–A GROUNDBREAKING YEAR Roofbolting at the phase 1 underground mine trial at Boléo. GROUNDBREAKING METALLURGY 7 BAJA MININg – 2006 ANNUal Report Groundbreaking metallurgy Copper Consumption Innovative metallurgical processes delivered 10% the results: in tests, a revised processing 12% 40% strategy can recover the desired metals with 13% reduced costs. 25% In the mid 1990s, treatment strategies In an effort to simplify the process, for the polymetallic mixed oxide/ Baja’s metallurgical staff and Bateman Building construction sulphide ore were studied.