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URSA MAJOR MINERALS INCORPORATED 2004 Annual Report

Corporate Profile: URSA Major Minerals Incorporated is a Canadian public company with a focus on exploration for base and precious metals, particularly platinum group metals. URSA is developing a significant near-surface nickel, copper and platinum group metal resource at the Shakespeare project, west of Sudbury and has active exploration projects in the Sudbury area, Canada and in Wyoming, U.S.A. URSA’s strategy for growth is to build sustained shareholder value by advancing high quality exploration projects through strong technical management. In addition to exploration projects, URSA has an interest in Patricia Mining Corp., an Ontario based gold exploration company. URSA Major Minerals Incorporated was founded in 1992 and became a public company in August 2000, following the reorganization of URSA Major International Inc. Highlights for year ended January 31, 2004

• Completed an initial resource estimate on the Shakespeare east deposit, a near surface nickel, copper, precious metals discovery made by the Company in 2002;

• Earned a 75% interest in the Shakespeare property and is now the operator of the

project with Falconbridge Limited as joint venture participant;

• Increased our contiguous property position to a total of 502 claim units or 8,032 hectares (19,847 acres) in Shakespeare, Baldwin, Porter and Hyman Townships, Sudbury area, Ontario;

• Strengthened the Company’s financial position through successful completion of

private placements and a short form prospectus offering to raise gross proceeds of $5,371,890. Year-end working capital totaled $4,623,105;

• Subsequent to year-end the Company reported an increase in the in-pit Indicated

Resource for the Shakespeare deposit to 12.0 million tonnes grading 0.35% nickel, 0.36% copper, 0.02% cobalt, 0.19 g/t gold, 0.34 g/t platinum and 0.38 g/t palladium having a gross in-situ value of CDN$79.59 at an average cut-off value of CDN$43.65/tonne total in-situ metal based on 24-month average commodity prices.

Letter to Shareholders June 18, 2003 Dear Shareholders: URSA Major Minerals has completed a very active year of exploration that resulted in the definition of a significant new nickel, copper and platinum group metals deposit in the Sudbury area. As a result of our exploration success, we have earned our 75% interest in the Shakespeare project ahead of schedule and continued to expand our 100%-owned property position in this area through claim staking and option agreements. Driven by a new and successful exploration model, URSA has assembled a 19,800-acre land package in close proximity to the mining and mineral processing infrastructure of Sudbury. With a large, well-defined, in-pit resource at the Shakespeare deposit, our efforts will now focus on a technical and economic evaluation of an open pit mining operation on this property. We have recently initiated new metallurgical, geotechnical, environmental and engineering studies with the objective of completing assessment of the mining potential. In addition, we continue to drill and to extend the limits of the new mineralization. The current drilling will focus on a strongly conductive anomaly identified in bore hole and surface electromagnetic surveys. This anomaly appears to be an extension of a northeast plunging zone of higher grade mineralization encountered in a number of drill holes. Our discovery has resulted in a new exploration model in this area and we have acquired additional claims in which the Company has 100% ownership to the east of the Shakespeare deposit. These claims lie along a prospective structural and aeromagnetic trend toward the Sudbury Nickel Iruptive, which hosts the Sudbury deposits of Inco and Falconbridge. Drilling in early 2004 confirmed the presence of Shakespeare-type mineralization on this property. We plan to follow up with an airborne EM and magnetic survey of the entire property and will conduct further prospecting and mapping activities prior to further drilling. In addition to our Sudbury projects, URSA continues to hold a nickel, copper and platinum group metal project in Wyoming, U.S.A. and an investment in Patricia Mining Corp. (Patricia). Our exploration results have enabled the Company to successfully complete several financings and we are pleased to report further improvements in financial position over last year. In 2003, we completed several financings including a $1.65 million short-form offering, a $1.65 million private placement, and over $1.1 million in flow-through financings. The Company is well funded to meet its planned exploration needs. I am very pleased with the performance of Ursa Major in 2003 and confident of the prospects for the Company heading into 2004. It is my pleasure to thank our directors and staff for their efforts in the past year on behalf of the Company. I thank all of our shareholders for their support and I look forward to keeping you informed of progress in the coming year. On behalf of the board, Richard H. Sutcliffe President and Chief Executive Officer

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Technical Review Sudbury area URSA’s Sudbury area projects are located in Shakespeare, Porter, Baldwin and Hyman townships, approximately 50 kilometers west of Sudbury. The projects are close to the Sudbury igneous complex which hosts one of the world's largest copper, nickel, and PGM deposits. The Company's total land position in the Sudbury area is approximately 502 claim units totaling 8,032 hectares (19,847 acres). Of this, 73 claim units form the Shakespeare joint venture on which URSA has earned an interest from Falconbridge Limited. Exploration at the Shakespeare project is currently proceeding on the basis of a joint venture between URSA Major and Falconbridge Limited (Falconbridge) with URSA Major as the project operator. Subject to certain back-in rights held by Falconbridge, URSA Major has a 75% interest in the Shakespeare property. URSA has a 100% interest in an additional approximately 429 claim units that are contiguous with the Shakespeare property. These latter claims were acquired by staking or by option agreements and are 100% owned by URSA. Shakespeare Property – URSA made a significant near surface nickel, copper, PGM discovery on the Shakespeare property in 2002. Drilling to February 2004, on the property has resulted in an in-pit Indicated Resource of 12.0 million tonnes grading 0.35% nickel, 0.36% copper, 0.02% cobalt, 0.19 g/t gold, 0.34 g/t platinum and 0.38 g/t palladium at an average cut-off value of CDN$43.65/tonne total in-situ metal. Using 24-month average commodity prices, the mineralization has a gross in-situ value of CDN$79.59/tonne. The Indicated Resource includes the Shakespeare East deposit that was discovered by URSA Major in 2002 and Shakespeare West deposit that was previously drilled by Falconbridge Limited (Falconbridge). The following table presents tonnage and grades for the two deposits. A small amount of Inferred Resource is present in addition to the above Indicated Resource. The resource has been estimated by Micon International Limited (Micon).

SHAKESPEARE DEPOSIT, MINERAL RESOURCE ESTIMATE (At a $CDN43.65 Average(i), and $CDN24.09 Incremental(ii), Contained

Metal Value Cutoff)

Category Tonnes (t) Ni

(%) Cu (%)

Co (%)

Au (g/t)

Pt (g/t)

Pd (g/t)

Contained Value/t ($CDN)

Shakespeare East Deposit Indicated 9,027,000 0.36 0.37 0.02 0.194 0.344 0.382 $82.33 Inferred 22,000 0.29 0.24 0.02 0.135 0.229 0.237 $49.52 Shakespeare West Deposit Indicated 2,978,000 0.29 0.33 0.02 0.185 0.341 0.373 $71.27 Inferred 93,000 0.27 0.31 0.02 0.172 0.330 0.353 $67.65 Grand Total Indicated 12,005,000 0.35 0.36 0.02 0.191 0.343 0.380 $79.59 Inferred 115,000 0.27 0.29 0.02 0.165 0.311 0.331 $64.20 (i) - Average cutoff grade from all blocks selected in Whittle optimized pit. (ii) – Marginal cutoff grade at the pit rim, which only has costs applied for haulage, G&A and processing.

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The mineral resource estimate is based on the following assumptions. The resources will be mined by open pit methods at 5,000 tonnes/day, milled at existing facilities and 66% of the contained metal value will be payable after concentrator losses and smelter charges. The resources were reported from a block model with Gemcom software and a pit shell optimized with Whittle 4X software using a $CDN1.75/tonne mining cost, 45o pit slope, $CDN10.50/tonne processing cost, $CDN1.00/tonne G&A and a $CDN4.40/tonne road haulage cost ($0.08/tonne-kilometre). No external dilution has been applied. Contained metal value was calculated using 24-month-average commodity prices (nickel $US4.21/lb, copper $US0.82/lb, cobalt $US10.48/lb, gold $US351.43/oz, platinum $US635.40/oz and palladium $US300.31/oz) and an 18-month-average Canadian dollar exchange rate of 0.7067. The preceding assumptions are preliminary and will require further evaluation in scoping and/or pre-feasibility studies. This mineral resource has been estimated using Whittle software to define a pit shell. The reported resource is entirely within the pit shell and represents a potential open pit resource. The stripping ratio is 6.38:1. The estimate used drill results that were obtained by URSA to February 2004, including 10,792 meters of drilling in 55 holes, as well as previous drilling by Falconbridge. This resource estimate used an average cut-off value of $CDN43.65/tonne total in-situ metal. The July 2003 estimate used a cut-off of CDN50/tonne, however, higher commodity prices and exchange rates were used in the current study. The average contained metal cut-off value of $CDN43.65 results from the inclusion of blocks that are above the incremental cut-off grade (marginal cut-off grade at the pit rim). The use of higher commodity prices and inclusion of blocks above the incremental cut-off has in part contributed to higher tonnage and lower grade than the previous resource. Estimation of the resource was conducted according to National Instrument (NI) 43-101 using the CIM definitions for mineral resources and reserves. The estimation was performed on two separate geological domains within each of the deposits utilizing ordinary kriging and inverse distance squared grade interpolation techniques. Grade was estimated into a block model with 5x5x5 meter blocks. A strong correlation of assay values within and between holes has resulted in a very high proportion of the resource being classified as Indicated Resource. Only one nickel assay needed to be top cut and only limited cutting of other assays was required. The resource estimate was conducted by Mr. Gene Puritch, P.Eng. and Mr. Terrence Hennessey, P.Geo. Mr. Puritch and Mr. Hennessey are Qualified Persons as defined by NI43-101. Dr. Richard Sutcliffe, P.Geo, supervised the drill program. On the Shakespeare project, an economic and technical assessment of mining potential of the current resource that will include further metallurgical, geotechnical and environmental test work with be carried out. The Company has recently initiated a 3,000-meter, 6-hole program that will primarily test a strongly conductive anomaly extending northeast from the Shakespeare East deposit. The conductor has been identified in both bore hole and surface time domain electromagnetic (TDEM) surveys and appears to be an extension of a northeast plunging higher-grade zone of mineralization identified in several recent drill holes. The planned drill holes will target the north dipping conductor between L1700E and L2900E, a distance of 1200 feet (366 meters)

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from the current resource. The planned drill holes are all step-out holes that are outside of the current resource. Agnew Lake area properties - During the year ended January 31, 2004, URSA Major carried out grid cutting, geophysical surveys, prospecting, geological mapping and diamond drilling on the Company’s 100% owned property in the Agnew Lake area. This work has confirmed the presence of Shakespeare-style mineralization on the property. Drill hole U7-05, located over 6 km northeast of Shakespeare intersected 4.6 meters grading .09% nickel, 0.18% copper and 0.23 g/t precious metals. This mineralization is associated with disseminated chalcopyrite-pyrrhotite mineralization in melagabbro in a layered sill consisting of quartz diorite, gabbro and melagabbro. While not of economic grade, the intersection demonstrates that rocks with similar characteristics and style of mineralization to the Shakespeare deposit are present on the 100%-owned property. The Company will conduct mapping, prospecting, and geophysical surveys on 100%-owned properties that are contiguous with the Shakespeare Project. This work will follow up on drilling that has confirmed the presence of Shakespeare-style mineralization on the property. Wyoming properties URSA has a PGM exploration property, totalling approximately 30 claims (600 acres) in Carbon and Albany Counties, Wyoming. The claims are 100% owned by URSA and were acquired by staking. URSA's exploration program for PGM's in southern Wyoming is focused on a major geological fault structure along which Proterozoic mafic rocks intrude older rocks of the Archean Wyoming craton. Southern Wyoming contains a number of reported PGM occurrences and has geological similarities with highly prospective early Proterozoic rocks in the Sudbury area of Ontario. The Stillwater PGM deposit occurs on the northern margin of the Wyoming craton. URSA’s exploration targets in southern Wyoming include high-grade shear zone related mineralization on the West Rambler property and reef type mineralization in the Mullen Creek Complex, a major layered intrusion with pyroxenite, troctolite, and gabbroic rocks. The Company drilled 3 holes totaling approximately 500 meters on the West Rambler property in Wyoming, U.S.A. The drill holes tested several geophysical and geochemical targets but did not encounter significant mineralization. The Company will evaluate further exploration options for potential high-grade copper-PGM mineralization on the property. Interest in Patricia Mining Corp. URSA holds a 3.6% interest in Patricia Mining Corp. (Patricia), a publically traded company listed on the TSX Venture Exchange. Patricia's main asset is the Island Gold Project consisting of 123 leased and patented mineral claims and additional staked claims, located approximately 50 kilometres northeast of Wawa, Ontario. The property includes the past producing Kremzar mine with a modern fully permitted 650 tonnes per day carbon-in-pulp mill.

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Patricia has a NI43-101 compliant resource estimate for the property which indicates an Inferred Resource of 20.6 million tonnes grading 2.35 g/t gold for a total of 1,559,000 ounces of gold at a cut-off grade of 0.75 g/t gold. This estimate includes a higher-grade Inferred Resource of 2.03 million tonnes at a grade of 8.3 g/t gold for a total of 544,000 ounces of gold at a cut-off grade of 5.0 g/t gold. In addition, the past-producing Kremzar Mine has historical (pre NI43-101) Proven and Probable Reserves of 181,944 tonnes at 6.27 g/t gold and Possible Reserves of 85,952 tonnes at 8.67 g/t gold. In 2003, Richmont Mines Inc. was granted an option to earn a 55% undivided joint venture interest in Patricia's Island Gold Project by placing the project into production or by expending $10 million on the project. After vesting, and if further financing is required, Richmont has agreed to provide additional financing to the joint venture up to a maximum of $10 million. In September 2003, Patricia Mining completed a total of $3,737,500 in private placement financings with the proceeds to finance a $2.5 million surface and underground exploration program at the Island Gold Project. At the end of the program, Richmont may elect to exercise its option.

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Management Report The following is Management’s Discussion and Analysis of the financial condition of the Company, to enable a reader to assess material changes in financial condition and results of operations for the year January 31, 2004, compared to the prior year. This Management’s Discussion and Analysis has been prepared as of June 15, 2004. The Management’s Discussion and Analysis should be read in conjunction with both the audited financial statements for the year ended January 31, 2004, and the annual Management’s Discussion and Analysis included in the 2003 Annual Report. Liquidity and Capital Resources As of January 31, 2004 the Company had cash and cash equivalents in the amount of $4,623,105, marketable securities of $92,582 and a further $402,294 in long-term investments. This compares to $1,047,899 in cash and short-term investments and $402,294 in long-term investments for the year-end audited financial statements dated January 31, 2003. At this time, the Company has no operating revenues. The Company has raised funds in the past through equity financing and the exercise of options and warrants to finance its operations. During the year ended January 31, 2004, the Company raised $5,385,224 in cash from financing activities. This compares with $1,800,395 for the same period last year. Financings completed in the last fiscal year included a $1.65 million short form offering, a $1.65 million private placement, and over $1.1 million in flow-through financings. The Company has sufficient cash to meet its short-term working capital and exploration requirements, but may seek new funding for future exploration and development. Results of Operations During the year ended January 31, 2004, the Company reported no operating revenue. During the year, the Company had $607,264 in administrative and general expenses compared to $245,982 for the previous year. The increase in operating costs largely reflects increased financing activity, increased promotional activity, increased costs of compliance, and increased non-cash stock option based compensation. Stock based compensation of $135,800 (2003 - $27,300) is a non-cash item that reflects stock options granted to investor relations consultants of the company. In the year ended January 31, 2004, business development fees of $108,364 were paid to a business development consultant and an investor relations consultant. In the previous year fees of $26,559 were paid to a business development consultant. Increases in office and general fees of $90,505 and accounting and legal fees of $75,207 reflect an increase in business activity. Travel and promotion fees of $45,000 included participation in trade shows and property visits. Management fees of $45,000 were paid to the officer of the company and consulting fees of $28,552 were paid to a non-executive director of the company. Foreign exchange of $9,093 is a non-cash item that reflects the increased value of the CDN$ relative to the US$.

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As of January 31, 2004, $1,343,198 was spent on deferred exploration expenditures and mineral property acquisitions. This compares with $555,951 spent on mineral properties in the previous year. Capital assets of $19,918 were purchased during the year. These assets included computer equipment, field equipment and field vehicles. During the year ended January 31, 2004, most of the Company’s exploration activity was on the Shakespeare Property and the contiguous properties near Sudbury, Ontario. On these properties, the Company conducted grid cutting, prospecting, geological mapping, geophysical surveys, and diamond drilling. The most significant exploration expenditure was related to diamond drilling on the Shakespeare property and a substantial new nickel, copper and platinum group metal resource was delineated. The Company also carried out drilling on the West Rambler property in Wyoming, U.S.A. The Company acquired additional claims in Shakespeare, Baldwin and Porter Townships, Ontario by staking and by optioning the Stumpy Bay and D&H properties. For the year ended January 31, 2004, the Company paid management and consulting fees of $56,000 to a consulting corporation controlled by the President of the Company. The company paid consulting fees of $24,000 to a consulting corporation controlled by a director of the Company. Risk Factors The Company explores and develops properties for metals that have volatile market prices. In particular, a decline in the price of nickel and precious metals may adversely affect the Company’s ability to raise capital to explore and develop existing and new mineral properties. Other risk factors that could affect the Company’s outlook include, but are not limited to: problems related to geological, technical, environmental, mining, and processing issues; future results of exploration programs; land title issues; government regulations and environmental issues. Management's Responsibility The accompanying consolidated financial statements, the notes thereto and other financial information contained in this Annual Report have been prepared by, and are the responsibility of, the management of URSA Major Minerals Incorporated. These financial statements have been prepared in accordance with generally accepted accounting principles, using management’s best estimates and judgment’s where appropriate. The Board of Directors is responsible for financial reporting and internal controls. The Audit Committee, which is comprised of Directors, none of whom are employees or officers of the Company, meets with management, as well as external auditors, to satisfy itself that the management is properly discharging its financial reporting responsibilities and to review its consolidated financial statements and the report of the auditors thereon. It reports its findings to the Board of Directors, who approve the consolidated financial statements.

The Consolidated financial statements have been audited by McGovern, Hurley, Cunningham, the Company's independent auditors, in accordance with generally accepted auditing standards. The auditors have full and unrestricted access to the Audit Committee.

Richard H. Sutcliffe President and Chief Executive Officer June 15, 2004

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AUDITORS' REPORT To the Shareholders of URSA MAJOR MINERALS INCORPORATED We have audited the balance sheets of Ursa Major Minerals Incorporated as at January 31, 2004 and 2003 and the statements of operations and deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at January 31, 2004 and 2003 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

McGOVERN, HURLEY, CUNNINGHAM, LLP

Chartered Accountants

TORONTO, Canada March 31, 2004

URSA MAJOR MINERALS INCORPORATED BALANCE SHEETS

S AT JANUARY 31

A

11

2004

$

2003

$

ASSETS CURRENT

Cash and cash equivalents 4,577,821 1,047,899 Amounts receivable 33,698 35,386 Prepaid expenses 16,037 39,252 Marketable securities (market value - $104,736) 92,582 - 4,720,138 1,122,537 DUE FROM RELATED COMPANY (Note 6) 33,520 18,833 EQUIPMENT (Note 3) 20,908 4,260 LONG-TERM INVESTMENT (Note 4) 402,294 402,294 INTERESTS IN EXPLORATION PROPERTIES AND DEFERRED EXPLORATION EXPENDITURES (Note 5)

2,403,838

935,140

7,580,698 2,483,064 LIABILITIES CURRENT

Accounts payable and accrued liabilities 145,165 73,457 SHAREHOLDERS’ EQUITY

CAPITAL STOCK (Note 7(b)) 8,386,412 4,571,500 COMMON SHARES TO BE ISSUED - 372,800 SPECIAL WARRANTS - 365,000 SHARE PURCHASE WARRANTS (Note 7(d)) 1,925,295 83,640 SHARE PURCHASE WARRANTS TO BE ISSUED - 7,200 CONTRIBUTED SURPLUS (Note 7(e)) 164,000 27,300 DEFICIT (3,040,174) (3,017,833) 7,435,533 2,409,607 7,580,698 2,483,064 APPROVED ON BEHALF OF THE BOARD: Signed “RICHARD SUTCLIFFE” , Director Signed “ROBIN GOAD” , Director

URSA MAJOR MINERALS INCORPORATED STATEMENTS OF OPERATIONS AND DEFICIT

OR THE YEARS ENDED JANUARY 31

F

12

2004

$

2003

$

ADMINISTRATIVE AND GENERAL EXPENSES Stock-based compensation 135,800 27,300 Business development 108,364 26,559 Office and general 90,502 46,843 Accounting and legal 75,207 56,145 Travel and promotion 72,037 33,706 Management fees 45,000 33,991 Stock exchange and transfer agent fees 30,529 8,158 Consulting fees 28,552 3,900 Foreign exchange 9,093 (763) Rent 7,085 7,188 Bank charges and interest (net) 1,825 2,203 Amortization 3,270 752 (Loss) before the undernoted (607,264) (245,982) Write down of exploration properties and deferred exploration expenditures - (14,169) (Loss) before income taxes (607,264) (260,151) Future income tax recovery 584,923 296,400 NET (LOSS) INCOME FOR THE YEAR (22,341) 36,249 DEFICIT, beginning of year (3,017,833) (3,054,082) DEFICIT, end of year (3,040,174) (3,017,833) (LOSS) EARNINGS PER SHARE Basic (0.00) 0.01 Diluted (0.00) 0.01

URSA MAJOR MINERALS INCORPORATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 31

13

2004

$

2003

$ CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income for the year (22,341) 36,249 Charges to income not involving cash: Amortization 3,270 752 Stock-based compensation 135,800 27,300 Future income tax recovery (584,923) (296,400) Write down of interests in exploration properties and deferred exploration expenditures

-

14,169

(468,194) (217,930)Changes in non-cash working capital balances: Decrease (increase) in amounts receivable 1,688 (35,386) Decrease (increase) in prepaid expenses 23,215 (39,252) (Increase) in marketable securities (92,582) - (Increase) in amounts due from related parties (14,687) (11,511) Increase (decrease) in accounts payable and accrued liabilities 71,708 34,643 (10,658) (51,506) Cash flows from operating activities (478,852) (269,436) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of interests in exploration properties and deferred exploration expenditures

(1,343,198)

(555,951)

Purchase of capital assets (19,918) (5,012) Cash flows from investing activities (1,363,116) (560,963) CASH FLOWS FROM FINANCING ACTIVITIES Common shares 2,688,536 896,755 Common shares to be issued - 372,800 Special warrants - 365,000 Share purchase warrants 1,897,595 83,640 Share purchase warrants to be issued - 7,200 Exercise of warrants 785,759 75,000 Cash flows from financing activities 5,371,890 1,800,395 Increase in cash and cash equivalents 3,529,922 969,996 Cash and cash equivalents, beginning of year 1,047,899 77,903 Cash and cash equivalents, end of year 4,577,821 1,047,899 SUPPLEMENTAL INFORMATION Shares issued for exploration properties 125,500 10,000 Income taxes paid - - Interest paid - -

URSA MAJOR MINERALS INCORPORATED NOTES TO THE FINANCIAL STATEMENTS JANUARY 31, 2004

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1. NATURE OF OPERATIONS

Ursa Major Minerals Incorporated (the “Company”) is a development stage enterprise and is in the process of exploring its properties for platinum metals group minerals, nickel, gold, copper and other resources and has not determined whether the properties contain economically recoverable reserves. The recovery of the amounts shown for the exploration properties and the related deferred expenditures is dependent upon the existence of economically recoverable reserves, confirmation of the Company's interest in the underlying mineral claims, the ability of the Company to obtain necessary financing to complete the development, and upon future profitable production.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies of the Company are in accordance with Canadian generally accepted accounting principles and their basis of application is consistent with that of the previous year. Outlined below are those policies considered particularly significant.

Long-term Investments:

Long-term investments are recorded at original cost. The carrying value of investments is written down below cost if there is a loss of value which is considered to be other than temporary.

Equipment and Amortization:

Equipment is stated at acquisition cost. Amortization is provided on the diminishing-balance basis at the following annual rates:

Equipment 20% Vehicles 30%

Foreign Currency Translation:

Accounts in foreign currencies have been translated into Canadian dollars using the "temporal" method. Under this method, monetary assets and liabilities have been translated at the year-end exchange rate. Non-monetary assets, which comprise equipment and interests in exploration properties and deferred exploration expenditures, have been translated at the historical rate of exchange prevailing at the date of acquisition. Charges for amortization and exploration expenditures written off have been translated at the same rate as the related assets. Revenue and expenses have been translated at the average rate of exchange during the year. Realized and unrealized foreign exchange gains and losses are included in operations.

Exploration Properties: Exploration property acquisition, exploration and development expenditures are deferred until the properties are placed into production, sold or abandoned. These deferred costs will be amortized over the estimated useful life of the properties following the commencement of production or written-off if the properties are allowed to lapse or abandoned.

Costs include the cash consideration and the fair market value of the shares issued for the acquisition of exploration properties. Properties acquired under option agreements or by joint ventures, whereby payments are made at the sole discretion of the Company, are recorded in the accounts at the time of payment.

Marketable Securities:

Marketable securities are recorded at the lower of cost and quoted market value.

General and Administrative Expenses: The Company charges all general and administrative expenses not directly related to exploration activities to operations as incurred.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Asset Retirement Obligations: During the course of acquiring and exploring potential mining properties, the Company must comply with government regulated environmental evaluation, updating and reclamation requirements. The costs of complying with these requirements are capitalized as incurred. The carrying value will be amortized over the life of the related assets on a unit-of-production basis and the related liabilities are accreted to the original value estimate. Asset retirement obligations, if any, cannot be determined at this time and no amount has been recorded in these financial statements. The present value of the reclamation liabilities may be subject to change based on management’s current estimates, changes in remediation technology or changes to the applicable laws and regulations by regulatory authorities, which affect the ultimate cost of remediation and reclamation. Such charges will be reflected in the accounts of the Company as they arise.

Flow-Through Shares:

The Company has financed a portion of its exploration activities through the issue of flow-through shares, which transfer the tax deductibility of exploration expenditures to the investor. Proceeds received on the issue of such shares have been credited to capital stock and the related exploration costs have been charged to interests in exploration properties and deferred exploration expenditures.

Resource expenditure deductions for income tax purposes related to exploration and development activities funded by flow-through share arrangements are renounced to investors in accordance with income tax legislation. When these expenditures are renounced, temporary taxable differences created by the renunciation will reduce share capital.

Use of Estimates:

The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those reported. Management believes that the estimates are reasonable.

(Loss) Earnings Per Share:

Basic loss per share is calculated using the weighted average number of shares outstanding. Diluted loss per share is calculated using the treasury stock method. In order to determine diluted loss per share, the treasury stock method assumes that any proceeds from the exercise of dilutive stock options and warrants would be used to repurchase common shares at the average market price during the period, with the incremental number of shares being included in the denominator of the diluted loss per share calculation. The diluted loss per share calculation excludes any potential conversion of options and warrants that would increase earnings per share or decrease loss per share. Basic earnings (loss) from operations per common share is based on the weighted average number of shares outstanding during the year of 12,802,883 (2003 - 6,730,723). Diluted earnings per share is based on the diluted weighted average number of shares of 12,802,883 (2003 - 6,777,005).

Cash and Cash Equivalents:

Cash and cash equivalents represent investments in Guaranteed Investment Certificates, which are stated at cost plus accrued interest. The carrying amounts approximate fair value as they mature in less than ninety days from the date of purchase.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock-based Compensation Plan: Effective February 1, 2002, the Company adopted the recommendations of CICA Handbook Section 3870, Stock-based Compensation and Other Stock-based Payments. This Section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. These recommendations require that compensation for all awards made to non-employees and certain awards made to employees be measured and recorded in the financial statements at fair value. This Section also sets out a fair value based method of accounting for stock options issued to employees and applies to awards granted on or after February 1, 2002.

The Company, as permitted by Section 3870, has chosen to continue its existing policy of recording no compensation cost on the grant of stock options to employees. Any consideration paid by employees on exercise of stock options is credited to capital stock. This plan is described in Notes 7(e) and 7(f). These financial statements omit the effect of stock options granted before February 1, 2002.

Income Taxes:

The Company accounts for and measures future tax asset and liabilities in accordance with the asset and liability method. Under this method, future tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment of the change.

When the future realization of income tax assets does not meet the test of being more likely than not to occur, a

valuation allowance in the amount of the potential future benefit is taken and no net asset is recognized. 3. EQUIPMENT

Cost

$

Accumulated Amortization

$

Net 2004

$

Net 2003

$ Equipment 19,918 1,992 17,926 - Vehicles 5,012 2,030 2,982 4,260 24,930 4,022 20,908 4,260

4. LONG-TERM INVESTMENT

The Company owns approximately 3.6% of Patricia Mining Corp. (“Patricia”) (2003 – 7.2%), a public company that trades on the TSX Venture Exchange (“TSXV”).

The approximate market value of the investment at March 31, 2004 was $381,700 (2003 - $274,800).

The President and a director are also the former President and a director of Patricia Mining Corp.

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5. INTERESTS IN EXPLORATION PROPERTIES AND DEFERRED EXPLORATION EXPENDITURES

Description

Percentage Interest

%

Opening Balance

$

Additions

$

Write Downs/ Receipts

$

Closing Balance

$

CANADA

Sudbury, Ontario

D & H Option (a) 100 28,331 35,356 - 63,687 Shakespeare Township (b) 75 598,112 769,049 - 1,367,161 Stumpy Bay (c) 100 84,167 366,125 - 450,292 Agnew Lake (d) 100 - 205,311 - 205,311 U.S.A.

Wyoming

Carbon and Albany Counties (e)

100 244,306 98,447 - 342,753

954,916 1,474,288 - 2,429,204 Interest income (19,776) - (5,590) (25,366) 935,140 1,474,288 (5,590) 2,403,838

CANADA (a) D & H Option, Sudbury, Ontario

Within the Porter Township area of interest the Company has entered into an agreement dated July 21, 2003 to acquire three additional claims. The consideration for this option is as follows:

$17,000 Cash payment on signing (paid) $20,000 Cash payment on July 21, 2004 $20,000 Cash payment on July 21, 2005 20,000 Common shares on signing (issued) 20,000 Common shares on July 21, 2004 20,000 Common shares on July 21, 2005

The Company must also complete $130,000 of exploration expenditures prior to July 21, 2005. The optionor has retained a royalty equal to 2% of the Raw Mine Value of Product removed from the property. The Company has the right to purchase one-half of the royalty for $750,000.

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5. INTERESTS IN MINERAL PROPERTIES AND DEFERRED EXPLORATION EXPENDITURES (Continued)

(b) Shakespeare Township, Sudbury, Ontario

The Company has entered into an option and joint venture agreement with Falconbridge Limited (“Falconbridge”) to earn an interest in the Shakespeare nickel, copper, platinum group metal deposit located in Shakespeare Township, 60 kilometres west of Sudbury, Ontario. The property consists of 28 leased and patented claims plus additional staked claims now included under the joint venture. The Company has earned a 75% interest in the Shakespeare property by issuing 350,000 common shares and completing $1,200,000 in exploration expenditures. The Company and Falconbridge have formed a joint venture to continue further exploration and development. Falconbridge will retain certain back-in and mineral processing rights.

(c) Stumpy Bay, Sudbury, Ontario The Company entered into an option agreement dated March 21, 2003 to acquire four mineral claims known as the Stumpy Bay Property located in Shakespeare and Baldwin Townships. Consideration for this option is as follows:

$15,000 Cash payment on signing (paid) $20,000 Cash payment on March 21, 2005 $20,000 Cash payment on March 21, 2006 30,000 Common shares on signing (issued) 30,000 Common shares on March 21, 2005 30,000 Common shares on March 21, 2006

The optionor has retained a 2% Net Returns Royalty. Advance royalty payments of $30,000 per year commence March 21, 2006. The Company has the right to purchase one-half of the royalty for $750,000.

(d) Agnew Lake, Sudbury, Ontario

The Company has staked approximately 200 claims in the Agnew Lake area that are contiguous with the Shakespeare property noted in (b) above and are 100% owned by the Company.

U.S.A.

(e) Carbon and Albany Counties, Wyoming In 2002, the Company acquired a 100% interest in 58 claims in the Carbon and Albany Counties, by staking claims at a cost of $15,700. This property is a platinum group metal prospect.

6. DUE FROM RELATED COMPANY

The amount due from related company is unsecured, non-interest bearing with no fixed terms of repayment.

Two directors of the Company are also directors of the debtor corporation.

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7. CAPITAL STOCK (a) Authorized Unlimited number of common shares (b) Issued 18,920,245 Common shares $8,386,412 Transactions are as follows:

Shares#

Amount$

Balance, January 31, 2002 5,732,945 3,886,145 Shares issued for exploration properties 50,000 10,000 Common shares 1,500,000 682,500 Flow-through common shares 900,000 325,000 Exercise of flow-through warrants 250,000 75,000 Share issue costs - (110,745) Tax effects of issuing flow-through common shares - (296,400) Balance, January 31, 2003 8,432,945 4,571,500 Shares issued for properties 250,000 125,500 Common shares 6,440,328 2,683,036 Flow-through common shares 2,258,590 1,399,842 Exercise of warrants 1,538,382 878,897 Share issue costs - (687,440) Tax effects of issuing flow-through common shares - (584,923)Balance, January 31, 2004 18,920,245 8,386,412

(c) Financings During the year, the Company completed several financings as follows: (i) Private placement of 1,200,000 flow-through common shares for gross proceeds of

$600,000.

(ii) Private placement of 350,000 units for gross proceeds of $175,000. Each unit consists of one common share and one-half common share purchase warrant. Each full common share purchase warrant entitles the holder to purchase one common share on or before June 19, 2004 at a price of $0.65.

(iii) Private placement of 1,941,000 units for gross proceeds of $1,649,850. Each unit

consists of one common share and one common share purchase warrant. Each common share purchase warrant entitles the holder to purchase one common share on or before April 28, 2005 at an exercise price of $0.85.

(iv) Private placement of 470,590 flow-through units for gross proceeds of $400,001. Each

unit consists of one flow-through common share and one-half common share purchase warrant. Each full common share purchase warrant entitles the holder to purchase one common share on or before May 14, 2005 at a price of $1.10.

(v) Pursuant to a short-form prospectus, the Company issued 1,941,000 units for gross

proceeds of $1,699,850. Each unit consists of one common share and one common share purchase warrant. Each common share purchase warrant entitles the holder to purchase one common share on or before May 14, 2005 at an exercise price of $1.10.

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7. CAPITAL STOCK (Continued)

(vi) Private placement of 588,000 flow-through units for gross proceeds of 499,800. Each unit consists of one flow-through common share and one-half common share purchase warrant. Each full common share purchase warrant entitles the holder to purchase one common share on or before May 14, 2005 at a price of $1.10.

(d) Share Purchase Warrants

As at January 31, 2004, the following share purchase warrants were outstanding:

Exercise Price$

Shares#

Value $

Expiry Date

0.65 30,000 2,700 February 6, 2004 0.35 166,667 25,000 April 11, 2005 0.50 84,000 15,960 June 19, 2004 0.65 175,000 26,250 June 19, 2004 0.85 2,364,837 945,923 April 28, 2005 1.10 2,582,877 882,884 May 14, 2005 0.85 58,800 26,578 December 14, 2005

5,462,181 1,925,295

The warrants were valued using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%, average expected volatility of 100%, average risk-free interest rate of 2.3% and an expected average life of 1.5 years.

Warrant activity for the years ended January 31, 2004 and 2003 is summarized as follows:

Warrants

#

Weighted Average Exercise Price

$ Balance, January 31, 2002 - - Issued 918,800 0.60 Balance, January 31, 2003 918,800 0.60 Expired (10,000) 0.65 Issued 6,050,603 0.89 Exercised (1,497,222) 0.52 Balance, January 31, 2004 5,462,181 0.94

(e) Stock-Based Compensation

The Company does not record compensation cost on the grant of stock options to employees, as described in Note 2. Had compensation cost for the Company’s stock-based compensation plan been determined based on the fair value at the grant dates for awards under the plan for options awarded on or after February 1, 2002, the Company’s net income and earings per share would have been decreased to the pro forma amounts indicated below:

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7. CAPITAL STOCK (Continued) 2004

2003

$ Net (loss) income As reported (22,341) 36,249 Unrecorded stock option compensation adjustment (68,400) (62,300) Pro forma (90,741) (26,051) Basic (loss) earnings per share

As reported - basic and diluted (0.00) 0.01

Pro forma - basic and diluted (0.01) (0.00) For the purpose of pro forma disclosure above, the following assumptions were used under the Black-Scholes option pricing model: expected dividend yield of 0% (2003 - 0%), expected volatility of 100% (2003 - 272%) risk-free interest rate of 2.3% (2003 - 3.5%), and an expected average life of 5 years (2003 - 5 years).

Stock options were also granted to non-employees of the Company. The fair value of these options at the date of grant was estimated to be $135,800 using the Black-Scholes option-pricing model above, and was credited to contributed surplus.

(f) Stock Options

The Company has granted options for the purchase of common shares to its directors, officers and certain consultants. These options are valid for a maximum of 5 years from the date of issue. Vesting terms and conditions are determined by the Board of Directors at the time of the grant. The exercise price of each option equals the market price prevailing at the date of the grant. As at January 31, 2004, the Company had stock options outstanding as follows:

Stock Options

# Exercise Price

$ Expiry Date

258,000 0.28 January 17, 2006 320,000 0.55 November 19, 2007 340,000 0.50 May 13, 2008

100,000 1.00 January 9, 2009 1,018,000

. Stock option activity for the years ended January 31, 2004 and 2003 is summarized as follows:

Stock Options#

Weighted Average Exercise Price

$ Balance, January 31, 2002 358,000 0.28 Cancelled (100,000) 0.28 Issued 320,000 0.55 Balance, January 31, 2003 578,000 0.40 Issued 440,000 0.84 Balance, January 31, 2004 1,018,000 0.59

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8. RELATED PARTY TRANSACTIONS During the year, $56,000 (2003 - $46,000) was paid or accrued to a consulting corporation controlled by the President of the Company. Also during the year, $24,000 (2003 - $2,000) was paid to a consulting corporation controlled by a director of the Company. These fees are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

See Notes 4 and 6. 9. FINANCIAL INSTRUMENTS Fair Value:

Canadian generally accepted accounting principles require that the Company disclose information about the fair value of its financial assets and liabilities. Fair value estimates are made at the balance sheet date, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties in significant matters of judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

The carrying amounts for cash and cash equivalents, marketable securities, amounts receivable, due from related company and accounts payable and accrued liabilities on the balance sheet approximate fair value because of the limited term of these instruments.

Foreign exchange risk:

Certain of the Company's expenses are incurred in United States dollars and are therefore subject to gains or losses due to fluctuations in this currency.

Commodity Price Risk: The ability of the Company to develop its properties and the future profitability of the Company is directly related to the market price of certain minerals.

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10. INCOME TAXES

(a) The provision for (recovery of) income taxes differs from the amount that would have resulted by applying Canadian federal and provincial statutory tax rates of 39% (2003 - 39%).

2004$

2003$

(Loss) income before taxes (22,341) 36,249 Expected (benefit) income tax based on statutory rate

(8,713) 14,137

Increase (decrease) resulting from: Write down of interest in exploration properties and deferred exploration expenditures

-

5,526

Stock-based compensation 52,962 - Share issue costs (44,154) (14,999) Future tax assets not previously recognized (585,018) (301,064) (584,923) (296,400)

(b) The tax effects of temporary differences that give rise to future income tax assets (liabilities) as

at January 31, 2004 are as follows:

2004$

2003$

Future tax assets (liabilities) - Long-term portion Resource properties (442,322) 500,863 Share issue costs 155,256 47,274 Non-capital losses 503,721 276,971 216,655 825,108 Valuation allowance (216,655) (825,108) Total - -

(c) At January 31, 2004, approximate non-capital losses of the Company amounted to $1,291,600.

Of the amount, $245,000 expires in 2005, $10,400 expires in 2007, $171,300 expires in 2009, $283,500 expires in 2010 and $581,400 expires in 2011. These losses may be used to reduce taxable income of future years.

The Company has approximately $218,000 of Canadian development expenditures, $1,051,600 of foreign exploration expenditures as at January 31, 2004 which, under certain circumstances, may be utilized to reduce taxable income of future years.

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Directors and Senior Management Richard H. Sutcliffe, Ph.D., P.Geo., President, CEO and Director C. Nigel Lees, Director Robin E. Goad, M.Sc., P.Geo., Director George D. Faught, C.A., Director Donald Ross, Proposed Director Corporate Information Corporate Address: URSA Major Minerals Incorporated Suite 1300, 8 King Street East Toronto, Ontario, Canada, M5C 1B5 Phone: 416-864-0615 Fax: 416-864-0620 Exchange: TSX Venture Exchange Symbol: UMJ Transfer Agent: Equity Transfer Services Inc. Suite 800, 120 Adelaide Street West, Toronto, Ontario, Canada, M5H 3V1 Auditor: McGovern, Hurley, Cunningham

2005 Sheppard Avenue East, Suite 503 North York, Ontario, M2J 5B4

Shares Outstanding: 18,920,245 (January 31, 2004) Incorporation: June 1, 1992, incorporated under the Business

Corporations Act (Province of Ontario) Web Site: www.ursamajorminerals.com

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