Summary of WITS BASIN PRECIOUS MINERALS INC

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following management discussion and analysis of financial condition and results of operations should be read in connection with the accompanying unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this report and the audited consolidated financial statements and notes thereto included in the Company's Form 10-KSB for the fiscal year ended December 31, 2007.

OVERVIEW

We are a minerals exploration and development company based in Minneapolis, Minnesota. As of September 30, 2008, we own a past producing mine in Colorado (Bates-Hunter Mine) and hold interests in mineral exploration projects in South Africa (FSC) and Mexico (Vianey). The following is a summary of our projects:

On June 12, 2008, we completed the acquisition of the Bates-Hunter Mine, a prior producing gold mine located in Central City, Colorado, which included real property, mining claims, permits and equipment (the "Bates-Hunter"). We consummated the acquisition by transferring our right to purchase the Bates-Hunter to a newly created wholly owned subsidiary of ours, the Hunter Bates Mining Corp., pursuant to a formal asset purchase agreement dated September 20, 2006, in which we issued a limited recourse promissory note for $6,750,000 Canadian Dollars and issued 3,620,000 shares of our common stock. Through a defined work program, including the dewatering of the existing mine shaft, we utilized Canadian drilling contractors to perform over 4,300 feet in surface drilling, which has provided detailed data for the creation of a 3-D map of the Bates-Hunter region. As of the date of this Report, we have concluded the drilling program and management is working on a revised work program and will release details after its assessment has been completed.

We hold a 35 percent equity interest in Kwagga Gold (Barbados) Limited ("Kwagga Barbados"), which, through its wholly owned subsidiary Kwagga Gold (Proprietary) Limited, holds mineral exploration rights in South Africa. This project is referred to as the "FSC Project" and is located adjacent to the historic Witwatersrand Basin. The last completed drillhole on the FSC Project occurred in 2005. On December 12, 2007, we entered into an agreement with AfriOre International (Barbados) Limited ("AfriOre"), the holder of the other 65 percent of Kwagga Barbados, whereby we may acquire all of AfriOre's interest of Kwagga Barbados. On March 3, 2008, we entered into a letter of intent with Communications DVR Inc. ("DVR"), a capital pool company listed on the TSX Venture Exchange (TSXV: DVR.P), whereby it is anticipated that DVR will acquire the aforementioned 65 percent of Kwagga Barbados in exchange for 22 million common shares of DVR. Currently, no exploration activities are being conducted at the FSC Project.

On October 31, 2007, we executed an amendment to the formal joint venture agreement with Journey Resources Corp., a corporation formed under the laws of the Province of British Columbia ("Journey") and Minerales Jazz S.A. De C.V., a corporation duly organized pursuant to the laws of Mexico and a wholly owned subsidiary of Journey. Pursuant to the terms of the amendment, we own a 50 percent undivided beneficial interest in "located mineral claims" in the property known as the Vianey Mine Concession located in the State of Guerrero, Mexico ("Vianey"). In addition to located mineral claims, our interest includes all surface rights, personal property and permits associated with Vianey and all other claims, leases and interests in minerals acquired within two kilometers of the external perimeter of Vianey. All work being performed at Vianey is under the supervision of Journey, which mainly consists of cleaning the site for a future work program.

Additionally, we have advanced $6,850,000 related to two equity investments to acquire interests in the following mining projects located in the People's Republic of China (the "PRC"): (1) a nickel mining operation and (2) the iron ore mining properties of Nanjing Sudan Mining Co., Ltd, Xiaonanshan Mining Co., Ltd and Mannshan Zhao Yuan Mining Co. Ltd. On October 20, 2008, we received a $1.85 million refund as final payment for the termination of our interests held in the nickel mine.

As of September 30, 2008, we possess only a few pieces of equipment and we employ insufficient numbers of personnel necessary to actually explore and/or mine for minerals. Therefore, we are substantially dependent on the third party contractors we engage to perform such operations.

In the future, we will continue to seek new areas for exploration and the rights that would allow us to be either owners or participants. These rights may take the form of direct ownership of the mineral exploration property like the Bates-Hunter or, like our interest in Kwagga Barbados, these rights may take the form of ownership interests in entities holding exploration rights. Furthermore, although our initial focus was in gold exploration projects, future projects will involve other minerals.

Our principal office is located at 900 IDS Center, 80 South Eighth Street, Minneapolis, Minnesota 55402-8773. Our telephone number is (612) 349-5277 and our Internet address is www.witsbasin.com. Our securities trade on the Over-the-Counter Bulletin Board under the symbol "WITM."

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007.

Revenues

We had no revenues from continuing operations for the three and nine months ended September 30, 2008 and 2007. Furthermore, we do not anticipate having any future revenues until an economic mineral deposit is discovered or unless we make further acquisitions or complete other mergers or joint ventures with business models that produce such results.

Operating Expenses

General and administrative expenses were $2,225,700 for the three months ended September 30, 2008 as compared to $1,256,998 for the same period in 2007. Of the expenses reported in 2008, approximately $1,001,000 relates to our due diligence with respect to potential acquisitions of China mining properties (travel and visa requirements, site visits and significant costs with consultants), $466,000 relates to public relations services, consulting fees, shareowner services, and $424,000 relates to stock based compensation expenses. General and administrative expenses were $5,700,109 for the nine months ended September 30, 2008 as compared to $4,030,700 for the same period in 2007. Of the expenses reported in 2008, approximately $1,716,000 relate to our due diligence with respect to potential acquisitions of China mining properties (travel and visa requirements, site visits and significant costs with consultants), $1,641,000 relates to stock based compensation expenses, and $1,274,000 relates to public relations services, consulting fees, shareowner services. Of the expenses reported in 2007, the majority related primarily to our direct expenses relating to the Easyknit merger, the acquisition of China mining projects and consulting fees, which included direct mailing and emailing campaigns, minerals trade publications, research analysts, public relations, luncheons and special invite events and improvements to our website. We anticipate that our operating expenses will increase during the year due to our continued plans for exploration and acquisition financing.

Exploration expenses were $302,653 for the three months ended September 30, 2008 as compared to $519,391 for the same period in 2007. Exploration expenses were $1,785,178 for the nine months ended September 30, 2008 as compared to $1,795,512 for the same period in 2007. Exploration expenses for 2008 relate primarily to the expenditures at the Bates-Hunter Mine and the $150,000 loss we recorded relating to the Shanxi Hua Ze Nickel Smelting Co., a nickel mining operation, located in the PRC. We anticipate the rate of exploration spending will decrease during the remainder of 2008 since we have temporarily ceased the surface and under ground drilling programs at the Bates-Hunter and await further details for exploratory work at Vianey. Exploration expenses for 2007 relate to the expenditures on the Bates-Hunter and Vianey projects, which include the issuance of 2,100,000 shares of common stock valued at $560,000 to obtain the rights to the Vianey project.

Depreciation and amortization expenses were $26,431 for the three months ended September 30, 2008 as compared to $4,127 for the same period in 2007. Depreciation and amortization expenses were $38,711 for the nine months ended September 30, 2008 as compared to $11,923 for the same period in 2007. The increase in depreciation expense for the three months ended September 30, 2008, is mainly due to our closing on the Bates-Hunter Mine property in June 2008 and the associated increase of property, plant and equipment necessary to operate and work the project. We anticipate that depreciation expense will continue at the elevated rate for the near term until we can do a complete analysis of the assets acquired. Depreciation of these assets is calculated on a straight-line method.

For the nine months ended September 30, 2007, we had incurred $1,127,859 in costs for the uncompleted and terminated merger with Easyknit Enterprises Holdings Limited. These costs represented fees charged by our Hong Kong and US attorneys and various Hong Kong advisors. In November 2007, we terminated the merger and on December 18, 2007, we entered into a Settlement Agreement and General Release with Easyknit, whereby the parties agreed to dismiss with prejudice and release each other from all claims, counterclaims and defenses.

On September 19, 2007, we sold all of our rights and claims in the Canadian Holdsworth Project for $50,000 Canadian ($47,260 US).

For the nine months ended September 30, 2008, we recorded $12,362 in losses related to certain assets that became damaged and un-repairable, which were being utilized for de-watering the Bates-Hunter Mine site.

Other Income and Expenses

Our other income and expense consists of interest income, interest expense and other expense. Interest income for the three months ended September 30, 2008 was $168 compared to $685 for the same period in 2007. Interest income for the nine months ended September 30, 2008 was $600 compared to $4,132 for the same period in 2007. During September 2007, we sold all of the shares of MacDonald Mines Exploration Ltd., we held. The sale of these marketable securities generated a gain of $65,580 for the three and nine months ended September 30, 2007. We expect that future interest income will be low during the next twelve months as our cash balances are low.

Interest expense for the three months ended September 30, 2008 was $793,759 compared to $391,671 for the same period in 2007. Interest expense for the nine months ended September 30, 2008 was $2,166,879 compared to $726,254 for the same period in 2007. Interest expense relates primarily to interest on significant new debt, amortization of discounts relating to warrants and beneficial conversion features, extensions to debt agreements and additional rights granted to the promissory note holders. We expect interest expense to continue to increase during 2008, at amounts greater than previously recorded due to our continued need for cash and with the consummation of certain mining properties in the PRC.

With the consummation of the Bates-Hunter Mine acquisition in June 2008, we are recording direct non-cash gains and losses due to our dealings with the recourse promissory note, which is payable in Canadian Dollars. We recorded a $109,392 gain due to the exchange rate between the US Dollar and the Canadian Dollar for the three months ended September 30, 2008. For the nine months ended September 30, 2008, we have recorded a net loss of $3,966.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of an entity's ability to secure enough cash to meet its contractual and operating needs as they arise. We have funded our operations and satisfied our capital requirements primarily through the sale of securities and debt financing. We do not anticipate generating sufficient net positive cash flows from our operations to fund the next twelve months unless we complete an acquisition of substance. For the nine months ended September 30, 2008 and 2007, we had net cash used in operating activities of $3,155,692 and $4,813,718, respectively.

We had a working capital deficit of $15,265,755 at September 30, 2008, compared to $11,393,352 at December 31, 2007. Cash and equivalents were $263,273 at September 30, 2008, representing an increase of $132,792 from the cash and equivalents of $130,481 at December 31, 2007.

On April 10, 2007, we entered into a Convertible Notes Purchase Agreement ("CNPA") with China Gold, LLC, a Kansas limited liability company ("China Gold"), whereby we issued and sold the initial convertible note in the amount of $3,000,000, with a purchase discount of $60,000 ("Note 1"). On May 7, 2007, we issued and sold an additional convertible note in the amount of $2,000,000, with a purchase discount of $40,000 ("Note 2"). On June 19, 2007, we entered into Amendment No. 1 to the CNPA, whereby, among other things, China Gold was entitled to a Purchase Right to acquire shares of our common stock at equivalent terms to its rights to otherwise convert the notes; and we issued and sold an additional convertible note in the amount of $4,000,000, with a purchase discount of $80,000 ("Note 3"). On July 9, 2007, we issued and sold an additional convertible note in the amount of $800,000, with a purchase discount of $16,000 ("Note 4" and collectively with Note 1, Note 2 and Note 3, the "Notes"). The Notes bore an initial interest rate of 8.25% per annum and were convertible at the option of China Gold into shares of our common stock, originally at a conversion price of $1.00 per share. As of September 30, 2008, the outstanding Notes principal balance was $9,800,000, of which we received net proceeds of $9,604,000, less $196,000 paid to an affiliate of China Gold in the form of loan discount fees and accrued interest of $1,329,657.

On October 31, 2007, we entered into a letter agreement with China Gold whereby the parties amended the maturity date on each of the Notes to February 29, 2008. As consideration for the Note extensions, we agreed to reduce the conversion price applicable to the Notes and to the Purchase Right from $1.00 to $0.50 per share. The letter agreement further gave us an option to obtain an extension of the maturity dates of the Notes to May 31, 2008 in consideration for a further reduction in the conversion price and the Purchase Right price from $0.50 to $0.25 per share, which we exercised in February 2008.

On May 14, 2008, we entered into an additional letter agreement with China Gold whereby the parties amended the maturity date of the Notes to July 14, 2008. As consideration for the Notes extensions, we agreed to increase the interest rate applicable to the Notes from 8.25% to 12.25% (effective May 14, 2008) and to reduce the purchase price relating to the Purchase Right from $0.25 to $0.18 per share. On May 14, 2008, the fair value of our common stock was $0.17, therefore, there was no additional charge required to be recorded for the reduction in the conversion price. We'd received an additional extension until September 12, 2008 without further compensation required by China Gold.

On October 23, 2008, we paid $1,441,000 of accrued interest to China Gold from the proceeds of the $1.85 million Shaanxi Hua Ze Nickel refund. On November 10, 2008, the parties entered into Amendment No. 2 to the CNPA, whereby the Notes were cancelled and we issued to China Gold an Amended and Restated Promissory Note (the "Amended Note") in the aggregate principal amount of $9,800,000, which amongst other amendments to the terms of the Notes, terminated the conversion feature of the Notes and terminated the Purchase Rights. In consideration thereof, we have issued China Gold a five-year warrant to purchase up to 39,200,000 shares of the our common stock at an exercise price of $0.15 per share. The Amended Note interest rate is 12.25% per annum. The principal and unpaid interest is due and payable at the earlier of (1) China Gold's demand at any time on or after December 31, 2008 or (2) to the extent funds are available, upon the closing of our proposed acquisition of the Sudan and XNS iron ore properties.

From September to December 2007, we entered into three short-term notes payable transactions and borrowed an aggregate of $260,000 from the three lenders. We entered into amendments with two of the lenders providing them with reductions in the exercise price of the securities issued to them. Pacific Dawn Capital, LLC received two price reductions on its right-to-purchase of 1,000,000 shares, from $0.20 to $.15 to $0.10 per share. Donald Stoica, who became a director in April 2008, is an officer, director and member of Pacific Dawn. Additionally, Nancy White received a reduction of her warrant to purchase 100,000 shares from $0.27 to $0.20 per share. Mrs. White is the mother of H. Vance White, our Chairman. We retired these two notes as of March 31, 2008 and on June 5, 2008, we retired the final principal ($10,000) and accrued interest ($3,364) due under the third note by issuing 76,190 shares of our common stock, valued at $16,000, in lieu of a cash payment.

From September to December 2007: (i) through a private placement of units of our unregistered securities (each unit consisting of one share of our unregistered common stock and a five-year warrant to purchase one share of common stock at an exercise price of $0.25 per share) we sold 2,400,000 units at a price per unit of $0.25, resulting in gross proceeds of $600,000, and (ii) through a private placement of our securities, we sold 2,193,334 shares of our common stock at $0.15 per share, resulting in gross proceeds of $329,001.

In December 2007, through a private placement offering, we received net proceeds of $100,000 and issued a convertible promissory note in the principal amount of $110,000. The promissory note had an original maturity date of March 31, 2008, and bears interest at a rate of 10% per annum. We have secured a maturity date extension until December 31, 2008. The note holder has the right to convert any portion of the principal or interest of the outstanding note into shares of our common stock based on a conversion rate equal to $0.20 per share.

On February 13, 2008, we entered into a Note and Warrant Purchase Agreement (the "Platinum Agreement") dated February 11, 2008 with Platinum Long Term Growth V, LLC, a Delaware limited liability company ("Platinum"), pursuant to which we issued to Platinum a 10% Senior Secured Convertible Promissory Note in the principal amount of $1,020,000 (the "Platinum Note"). The Platinum Note has a maturity date of February 11, 2009. Platinum has the option to convert the Platinum Note at any time into shares of our common stock at an initial conversion price of $0.18 per share or at any time after August 11, 2008, if the seven trailing trading day volume-weighted average price ("VWAP") of our common stock is less than $0.30 per share, Platinum shall have the option to convert into common stock at a conversion price equal to the lesser of the then-applicable conversion price or 85% of the lowest VWAP for the 10 trading days preceding such demand. On August 27, 2008, Platinum gave notice to convert $50,000 of the principal balance into 538,184 shares of our common stock. Pursuant to the terms of the Platinum Note, accrued interest is payable on a quarterly basis and as of September 30, 2008, there remains $25,391 of accrued interest due for the months of July, August and September. Furthermore, on September 30, 2008, we entered into a single agreement (which addressed both this Platinum Note and their 90-day 10% Senior Secured Promissory Note) whereby we received an extension on the payment of the $25,391 interest and are required to pay a one-time fee of $10,000 along with the accrued interest on December 8, 2008. As of September 30, 2008, the principal balance is $970,000.

In May 2008, through a private placement of units of our unregistered securities (each unit consisting of one share of our unregistered common stock and a five-year warrant to purchase one share of common stock at an exercise price of $0.25 per share) we sold 1,200,000 units at a price per unit of $0.25, resulting in gross proceeds of $300,000.

On June 12, 2008, we assigned our rights (to purchase the Bates-Hunter Mine) of that certain Asset Purchase Agreement dated September 20, 2006, to Hunter Bates Mining Corp. (a Minnesota corporation and a wholly owned subsidiary of ours) and consummated the acquisition by issuing a limited recourse promissory note from Hunter Bates payable to George E. Otten (a Colorado resident and one of the sellers) in the principal amount of $6,750,000 Canadian dollars and issuing 3,620,000 unregistered shares of our common stock. The note requires Hunter Bates to pay to Mr. Otten $250,000 Canadian on or before December 1, 2008 and commencing on April 1, 2010, a quarterly installment of accrued interest plus a Production Revenue Payment (as defined in the note). In order for Hunter Bates to be obligated to make a Production Revenue Payment, production at the mine would need to be achieved in order to make a profit. At this time, management has not determined the timeframe in which it believes that the mine can be put into production. The note is interest-free until January 1, 2010, and from such date shall bear interest at a rate of 6% per annum, with a maturity date of December 31, 2015. Hunter Bates' payment of the Note is secured by a deed of trust relating to the all of the property acquired in favor of Gilpin County Public Trustee for the benefit of Mr. Otten. If an event of default occurs under the deed of trust, Hunter Bates and Wits Basin shall be jointly and severally liable solely for a limited recourse amount of $2,000,000 Canadian dollars less the aggregate of (i) all payments of principal and interest under the note, (ii) any cash proceeds received by or on behalf of Mr. Otten from the cash sale, prior to such default, of any of the 3,620,000 shares of common stock (calculated on the basis of $0.5525 Canadian dollars per share) and (iii) any deemed proceeds resulting from the in specie disposition of any of the 3,620,000 shares of common stock by Mr. Otten to any of the selling parties (calculated on the basis of $0.5525 Canadian dollars per share). Mr. Otten's sole recourse for any amounts due upon default of the note that are over and above the limited recourse amount set forth above shall be the secured property described in the deed of trust.

During the nine months ended September 30, 2008:

(1) we received $200,000 (less $1,500 in fees) from the exercise of warrants:
$10,000 from Platinum for the exercise of 1 million at $0.01 per share; three private placement shareholders exercised an aggregate of 1,000,000 at a reduced price of $0.15 per share for $150,000; and $40,000 from a consultant for the exercise of 4 million at $0.01 per share;

(2) through a private placement of our securities, we've sold 7,781,666 shares of our common stock at $0.15 per share, resulting in net proceeds of $1,225,242;

(3) we reduced an obligation with the issuance of 172,321 shares of our common stock (valued at $42,908, based on the trading price our common stock, which was negotiated in March 2008, at $0.224 per share) in lieu of a $38,600 cash payment to a consultant;

(4) we issued Platinum 260,268 shares in lieu of its interest payment due on June 30, 2008 under its senior secured convertible promissory note (valued at $52,053);

(5) Platinum converted $50,000 of its senior secured convertible promissory note into 538,184 shares; and

(6) we entered into eight short-term notes payable transactions and borrowed net proceeds of $2,275,000 from the five lenders.

Summary

Our existing sources of liquidity will not provide cash to fund operations for the next twelve months. As of the date of this Form 10-Q, we have estimated our cash needs over the next twelve months to be approximately $61,000,000 (which includes approximately $11,900,000 due under our short-term convertible promissory notes (assuming some or all of such notes are not converted into equity prior to maturity); approximately $440,000 for other short-term notes payable; $200,000 for Bates-Hunter, $100,000 for Vianey; $150,000 for FSC and an estimated $45,000,000 due in order to complete the acquisition of the PRC iron ore mining assets during the fourth quarter of 2008). We will continue our attempt to raise additional capital. Some of the possibilities available to us are through private equity transactions, to develop a credit facility with a lender or the exercise of options and warrants. However, such additional capital may not be available to us at acceptable terms or at all. In the event that we are unable to obtain additional capital, we would be forced to reduce operating expenditures and/or cease operations altogether.

OFF BALANCE SHEET ARRANGEMENTS

During the nine months ended September 30, 2008, we did not engage in any off balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.