---



|CONSOLIDATED FINANCIAL STATEMENTS
|---------------------------------
|                                 
|For the years ended              
|December 31, 2015 and 2014       

---

INDEPENDENT AUDITORS REPORT

To the Shareholders of Timmins Gold Corp.

We have audited the accompanying consolidated financial
statements of Timmins Gold Corp., which comprise the consolidated statements of
financial position as at December 31, 2015 and December 31, 2014, and the
consolidated statements of (loss) earnings and total comprehensive (loss)
income, consolidated statements of changes in equity and consolidated statements
of cash flows for the years then ended, and a summary of significant accounting
policies and other explanatory information.

Management's Responsibility for the Consolidated Financial
Statements

Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as
management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to
fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the
consolidated financial statements.

We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our audit
opinion.

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Timmins Gold Corp.
as at December 31, 2015 and December 31, 2014, and its financial performance and
its cash flows for the years then ended in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 1 in
the consolidated financial statements which indicates that the Company incurred
a net loss of $190.3 million during the year ended December 31, 2015 and as at
December 31, 2015 has a working capital deficiency of $13.8 million. These
conditions, along with other matters as set forth in Note 1, indicate the
existence of a material uncertainty that may cast significant doubt about the
Company's ability to continue as a going concern.

/s/ Deloitte LLP

Chartered Professional Accountants

March 16, 2016 Vancouver, Canada

---

|TIMMINS GOLD CORP.                                                                       
|-----------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS AND TOTAL
      COMPREHENSIVE (LOSS) INCOME   
|For the years ended December 31, 2015 and 2014                                           
|(In thousands of
      United States dollars, except share numbers and per share amounts)

|                                                                         |  | Note |  |   | 2015        |   |   | 2014        |  
|------------------------------------------------------------------------ |  | ---- |  | - | ----------- | - | - | ----------- | -
|                                                                         |  |      |  |   |             |   |   |             |  
|                                                                         |  |      |  |   |             |   |   |             |  
|Metal revenues                                                           |  | 24   |  | $ | 109,192     |   | $ | 154,068     |  
|                                                                         |  |      |  |   |             |   |   |             |  
|Cost of sales (including depreciation and depletion)                     |  | 7a)  |  |   | 112,084     |   |   | 116,090     |  
|                                                                         |  |      |  |   |             |   |   |             |  
|(Loss) earnings from mine
      operations                               |  |      |  |   | (2,892      | ) |   | 37,978      |  
|                                                                         |  |      |  |   |             |   |   |             |  
|Corporate and administrative
      expenses                              |  | 7b)  |  |   | 10,519      |   |   | 14,003      |  
|Impairment of mineral properties and other assets                        |  | 6    |  |   | 228,367     |   |   | 1,808       |  
|                                                                         |  |      |  |   |             |   |   |             |  
|(Loss) earnings from operations                                          |  |      |  |   | (241,778    | ) |   | 22,167      |  
|                                                                         |  |      |  |   |             |   |   |             |  
|Other income (expense), net                                              |  |      |  |   | 679         |   |   | (131        | )
|Finance expense                                                          |  | 7c)  |  |   | (599        | ) |   | (1,894      | )
|Loss on debenture renegotiation                                          |  |      |  |   | (98         | ) |   | -           |  
|Foreign exchange gain (loss)                                             |  |      |  |   | 1,227       |   |   | (183        | )
|                                                                         |  |      |  |   |             |   |   |             |  
|(Loss) earnings before income taxes                                      |  |      |  |   | (240,569    | ) |   | 19,959      |  
|                                                                         |  |      |  |   |             |   |   |             |  
|Income taxes                                                             |  |      |  |   |             |   |   |             |  
|Current tax expense                                                      |  | 17   |  |   | 432         |   |   | 10,152      |  
|Deferred tax (recovery) expense                                          |  | 17   |  |   | (50,690     | ) |   | 620         |  
|                                                                         |  |      |  |   | (50,258     | ) |   | 10,772      |  
|                                                                         |  |      |  |   |             |   |   |             |  
|(Loss) earnings and total comprehensive (loss) income
      for the year |  |      |  | $ | (190,311    | ) | $ | 9,187       |  
|                                                                         |  |      |  |   |             |   |   |             |  
|Weighted average shares outstanding:                                     |  |      |  |   |             |   |   |             |  
|Basic                                                                    |  | 18   |  |   | 248,620,420 |   |   | 161,297,692 |  
|Diluted                                                                  |  | 18   |  |   | 248,620,420 |   |   | 162,005,161 |  
|                                                                         |  |      |  |   |             |   |   |             |  
|(Loss) earnings per share:                                               |  |      |  |   |             |   |   |             |  
|Basic                                                                    |  | 18   |  | $ | (0.77       | ) | $ | 0.06        |  
|Diluted                                                                  |  | 18   |  | $ | (0.77       | ) | $ | 0.06        |  

The accompanying notes are an integral part of these
consolidated financial statements.

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS         
|For the years ended December 31, 2015 and 2014
|(In thousands of
      United States dollars) 

|                                                                                          |  | Note |  |       | 2015         |       |   | 2014    |  
|----------------------------------------------------------------------------------------- |  | ---- |  | ----- | ------------ | ----- | - | ------- | -
|                                                                                          |  |      |  |       |              |       |   |         |  
|OPERATING ACTIVITIES                                                                      |  |      |  |       |              |       |   |         |  
|(Loss) earnings before income taxes                                                       |  |      |  | **$** | **(240,569** | **)** | $ | 19,959  |  
|Items not affecting cash:                                                                 |  |      |  |       |              |       |   |         |  
|Depletion and
      depreciation                                                          |  | 7a)  |  |       | 16,542       |       |   | 18,565  |  
|Impairment of mineral properties and other assets                                         |  | 6    |  |       | 228,367      |       |   | 1,808   |  
|Finance expense                                                                           |  | 7c)  |  |       | 599          |       |   | 1,894   |  
|Share-based payments                                                                      |  | 16b) |  |       | 1,573        |       |   | 1,411   |  
|Loss on debenture
      renegotiation                                                     |  |      |  |       | 98           |       |   | -       |  
|Unrealized foreign exchange gain                                                          |  |      |  |       | (1,499       | )     |   | (2,008  | )
|                                                                                          |  |      |  |       | 5,111        |       |   | 41,629  |  
|Changes in non-cash working
      capital items:                                          |  |      |  |       |              |       |   |         |  
|Trade and other
      receivables                                                         |  |      |  |       | 6,746        |       |   | (4,768  | )
|Inventories                                                                               |  |      |  |       | 420          |       |   | (2,877  | )
|Advances and prepaid
      expenses                                                       |  |      |  |       | 93           |       |   | 263     |  
|Trade payables and accrued liabilities                                                    |  |      |  |       | 920          |       |   | (1,193  | )
|Cash
      provided by operating activities                                               |  |      |  |       | 13,290       |       |   | 33,054  |  
|                                                                                          |  |      |  |       |              |       |   |         |  
|INVESTING ACTIVITIES                                                                      |  |      |  |       |              |       |   |         |  
|Expenditures on mineral
      properties, plant and equipment, exploration and evaluation |  | 10   |  |       | (31,989      | )     |   | (36,293 | )
|Acquisition of Newstrike, net of cash
      acquired                                      |  | 5a)  |  |       | 258          |       |   | -       |  
|Acquisition of Caballo Blanco                                                             |  | 5b)  |  |       | -            |       |   | (10,820 | )
|Cash
      used in investing activities                                                   |  |      |  |       | (31,731      | )     |   | (47,113 | )
|                                                                                          |  |      |  |       |              |       |   |         |  
|FINANCING ACTIVITIES                                                                      |  |      |  |       |              |       |   |         |  
|Interest paid                                                                             |  | 7c)  |  |       | (1,044       | )     |   | (1,319  | )
|Proceeds from equity financing, net of
      transaction costs                            |  | 16a) |  |       | 4,616        |       |   | 24,184  |  
|Repayment of principal on
      loan facility                                             |  | 13   |  |       | -            |       |   | (4,515  | )
|Issuance of shares on exercise of share options and warrants                              |  | 16a) |  |       | -            |       |   | 423     |  
|Cash provided by financing activities                                                     |  |      |  |       | 3,572        |       |   | 18,773  |  
|                                                                                          |  |      |  |       |              |       |   |         |  
|Effects of exchange rate
      changes on the balance of cash held in foreign currencies  |  |      |  |       | (584         | )     |   | (538    | )
|                                                                                          |  |      |  |       |              |       |   |         |  
|(Decrease) increase in cash and cash equivalents                                          |  |      |  |       | (15,453      | )     |   | 4,176   |  
|Cash and cash equivalents, beginning of year                                              |  |      |  |       | 26,952       |       |   | 22,776  |  
|Cash and cash equivalents including restricted
      cash, end of year                    |  |      |  | **$** | **11,499**   |       | $ | 26,952  |  

Supplemental disclosure with respect to cash flows(note
19)

The accompanying notes are an integral part of these
consolidated financial statements.

---

|TIMMINS GOLD CORP.                           
|---------------------------------------------
|CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|(In thousands of
      United States dollars)

|                                                                          |  |         |  |   | December 31, |   |   | December 31, | 
|------------------------------------------------------------------------- |  | ------- |  | - | ------------ | - | - | ------------ | 
|                                                                          |  | Note    |  |   | 2015         |   |   | 2014         | 
|                                                                          |  |         |  |   |              |   |   |              | 
|ASSETS                                                                    |  |         |  |   |              |   |   |              | 
|Current                                                                   |  |         |  |   |              |   |   |              | 
|Cash and cash
      equivalents                                           |  |         |  | $ | 9,183        |   | $ | 26,952       | 
|Restricted cash                                                           |  | 10      |  |   | 2,316        |   |   | -            | 
|Trade and other
      receivables                                         |  | 8       |  |   | 10,876       |   |   | 15,423       | 
|Inventories                                                               |  | 9       |  |   | 8,904        |   |   | 46,693       | 
|Advances and prepaid expenses                                             |  |         |  |   | 856          |   |   | 728          | 
|Total current assets                                                      |  |         |  |   | 32,135       |   |   | 89,796       | 
|                                                                          |  |         |  |   |              |   |   |              | 
|Mineral properties, plant and equipment,
      exploration and evaluation |  | 10      |  |   | 120,702      |   |   | 215,973      | 
|Non-current unprocessed ore stockpile                                     |  | 9       |  |   | -            |   |   | 6,178        | 
|Total assets                                                              |  |         |  | $ | 152,837      |   | $ | 311,947      | 
|                                                                          |  |         |  |   |              |   |   |              | 
|LIABILITIES                                                               |  |         |  |   |              |   |   |              | 
|Current                                                                   |  |         |  |   |              |   |   |              | 
|Trade payables and accrued
      liabilities                              |  | 11      |  | $ | 32,451       |   | $ | 25,520       | 
|Loan facility                                                             |  | 13      |  |   | 10,019       |   |   | 11,070       | 
|Debenture                                                                 |  | 14      |  |   | 1,480        |   |   | -            | 
|Other provisions                                                          |  |         |  |   | 1,113        |   |   | -            | 
|Current portion of equipment financing                                    |  | 10      |  |   | 851          |   |   | 1,134        | 
|Total current liabilities                                                 |  |         |  |   | 45,914       |   |   | 37,724       | 
|                                                                          |  |         |  |   |              |   |   |              | 
|Deferred tax liabilities                                                  |  | 17d)    |  |   | 1,305        |   |   | 51,996       | 
|Long-term equipment financing                                             |  | 10      |  |   | 378          |   |   | 945          | 
|Provision for site
      reclamation and closure                          |  | 12      |  |   | 3,981        |   |   | 1,865        | 
|Provision for contingent payment                                          |  | 5b), 23 |  |   | 4,515        |   |   | 4,535        | 
|Warrant liability                                                         |  | 15      |  |   | 282          |   |   | -            | 
|Other provisions                                                          |  |         |  |   | -            |   |   | 1,105        | 
|Total liabilities                                                         |  |         |  |   | 56,375       |   |   | 98,170       | 
|                                                                          |  |         |  |   |              |   |   |              | 
|EQUITY                                                                    |  |         |  |   |              |   |   |              | 
|Issued capital                                                            |  | 16      |  |   | 198,649      |   |   | 128,735      | 
|Share-based payment reserve                                               |  |         |  |   | 17,480       |   |   | 14,398       | 
|(Deficit) retained earnings                                               |  |         |  |   | (119,667     | ) |   | 70,644       | 
|Total equity                                                              |  |         |  |   | 96,462       |   |   | 213,777      | 
|Total liabilities and equity                                              |  |         |  | $ | 152,837      |   | $ | 311,947      | 

Commitments and contingencies(note 23) Events
after the reporting period (note 25)

Approved by the Directors

|Mark
      Backens | Director |  | Paula Rogers | Director | 
|-------------------- | -------- |  | -------------- | -------- | 

The accompanying notes are an integral part of these
consolidated financial statements.

---

|TIMMINS GOLD CORP.                                                 
|-------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY                       
|(In thousands of
      United States dollars, except share numbers)

|                                                     |  |        |  |  |             |  |   |         |  |   | Share-  |  |   |            |   |   |          |  
|---------------------------------------------------- |  | ------ |  |  | ----------- |  | - | ------- |  | - | ------- |  | - | ---------- | - | - | -------- | -
|                                                     |  |        |  |  | Number of   |  |   |         |  |   | based   |  |   | (Deficit ) |   |   |          |  
|                                                     |  |        |  |  | common      |  |   | Issued  |  |   | payment |  |   | Retained   |   |   | Total    |  
|                                                     |  |        |  |  | shares      |  |   | capital |  |   | reserve |  |   | earnings   |   |   | equity   |  
|Balance at January 1, 2015                           |  | Note   |  |  | 179,877,379 |  | $ | 128,735 |  | $ | 14,398  |  | $ | 70,644     |   | $ | 213,777  |  
|Loss and total comprehensive loss for the
      year |  |        |  |  | -           |  |   | -       |  |   | -       |  |   | (190,311   | ) |   | (190,311 | )
|Share-based payments                                 |  | 16     |  |  | -           |  |   | -       |  |   | 1,573   |  |   | -          |   |   | 1,573    |  
|Issued to acquire Newstrike Capital
      Inc.       |  | 5a)    |  |  |             |  |   |         |  |   |         |  |   |            |   |   |          |  
|Shares, net of share issuance costs                  |  |        |  |  | 105,108,103 |  |   | 63,820  |  |   | -       |  |   | -          |   |   | 63,820   |  
|Share options                                        |  |        |  |  | -           |  |   | -       |  |   | 1,509   |  |   | -          |   |   | 1,509    |  
|Shares issued for private
      placement            |  | 10, 16 |  |  | 20,000,000  |  |   | 3,729   |  |   | -       |  |   | -          |   |   | 3,729    |  
|Shares issued for plant acquisition                  |  | 10, 16 |  |  | 10,000,000  |  |   | 2,291   |  |   | -       |  |   | -          |   |   | 2,291    |  
|Shares issued for debenture interest                 |  | 14, 16 |  |  | 346,708     |  |   | 74      |  |   | -       |  |   | -          |   |   | 74       |  
|Balance at December 31, 2015                         |  |        |  |  | 315,332,190 |  | $ | 198,649 |  | $ | 17,480  |  | $ | (119,667   | ) | $ | 96,462   |  

|Balance at January 1, 2014                                                   |  |        |   |  | 144,159,045 |  | $ | 89,653  |  | $ | 13,242 |   | $ | 61,457 |  | $ | 164,352 | 
|---------------------------------------------------------------------------- |  | ------ | - |  | ----------- |  | - | ------- |  | - | ------ | - | - | ------ |  | - | ------- | 
|Earnings and total comprehensive income for
      the year                   |  |        |   |  | -           |  |   | -       |  |   | -      |   |   | 9,187  |  |   | 9,187   | 
|Share-based payments                                                         |  | 16     |   |  | -           |  |   | -       |  |   | 1,411  |   |   | -      |  |   | 1,411   | 
|Shares issued on exercise of share options                                   |  | 16     |   |  | 433,334     |  |   | 423     |  |   | -      |   |   | -      |  |   | 423     | 
|Reclassification of grant
      date fair value on exercise of share options |  |        |   |  | -           |  |   | 255     |  |   | (255   | ) |   | -      |  |   | -       | 
|Shares issued for financing costs                                            |  | 13, 16 |   |  | 300,000     |  |   | 407     |  |   | -      |   |   | -      |  |   | 407     | 
|Shares issued for cash equity
      financing                                |  | 16     |   |  | 18,920,000  |  |   | 24,184  |  |   | -      |   |   | -      |  |   | 24,184  | 
|Shares issued to acquire Caballo Blanco                                      |  | 5b     | ) |  | 16,065,000  |  |   | 13,813  |  |   | -      |   |   | -      |  |   | 13,813  | 
|Balance at December 31, 2014                                                 |  |        |   |  | 179,877,379 |  | $ | 128,735 |  | $ | 14,398 |   | $ | 70,644 |  | $ | 213,777 | 

The accompanying notes are an integral part of these
consolidated financial statements.

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|1. | NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Timmins Gold Corp. (the Company) was incorporated on
      March 17, 2005 under the laws of the Province of British Columbia, Canada.
      The Company is in the business of acquiring, exploring, developing and
      operating mineral resource properties in Mexico, through its wholly-owned
      subsidiaries, Timmins Goldcorp Mexico, S.A. de C.V. and Molimentales del
      Noroeste, S.A. de C.V. (MdN) (collectively the subsidiaries). MdN owns
      the San Francisco Mine in Sonora, Mexico. MdN also owns the Caballo Blanco
      Property, an exploration and evaluation asset in Veracruz, Mexico,
      acquired on December 23, 2014. On May 26, 2015, Timmins acquired all the
      outstanding common shares of Newstrike Capital Inc. (Newstrike) (note
      5(a)). Through this acquisition, Timmins acquired Newstrikes wholly owned
      subsidiary Minera Aurea, S.A de C.V. which holds a 100% interest in the
      Ana Paula Property, an exploration and evaluation asset in Guerrero,
      Mexico. The Company is listed for trading on the Toronto Stock Exchange
      under the symbol TMM and the New York Stock Exchange MKT under the symbol
      TGD. The registered office of the Company is located at Suite 1900 - 570
      Granville Street, Vancouver, British Columbia, Canada, V6C 3P1.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | For properties other than the producing San Francisco
      Mine, the Company is in the process of mineral exploration and has yet to
      determine whether these properties contain reserves that are economically
      recoverable. The recoverability of the amount shown for these exploration
      properties is dependent upon the existence of economically recoverable
      reserves, the ability of the Company to obtain necessary permits and
      financing to complete development, and upon future profitable production
      or proceeds from the disposition of the mineral properties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Companys operations generated a loss of $190,311 for
      the year ended December 31, 2015 (December 31, 2014 - earnings of $9,187),
      and $13,290 cash from operating activities for the same period (December
      31, 2014 - $33,054). At December 31, 2015, the Company had a working
      capital deficiency of $13,779 (December 31, 2014 - working capital excess
      of $52,072) and an accumulated deficit of $119,667 (December 31, 2014 -
      retained earnings of $70,644). The Companys current liabilities include a
      $1,480 debenture and a $10,019 loan facility which are repayable on May
      31, 2016 and June 30, 2016, respectively. The Company is seeking
      opportunities to obtain funding to repay these liabilities as they come
      due and restructure the Companys capital structure.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | These consolidated financial statements are prepared on
      the basis that the Company will be successful in these efforts and
      continue as a going concern. The Companys ability to continue as a going
      concern and recover investment in property, plant, and equipment and
      mineral properties is dependent on its ability to generate positive cash
      flows and obtain additional financing in order to meet its planned
      business objectives. However, there can be no assurance that the Company
      will obtain additional financial resources, return to profitability or
      generate positive cash flows. If the Company is unable to generate
      positive cash flows or obtain adequate financing, the Company will need to
      further curtail operations and exploration activities. These conditions
      and matters indicate the existence of material uncertainties that cast
      significant doubt about the Companys ability to continue as a going
      concern. Failure to continue as a going concern would require that the
      Companys assets and liabilities be restated on a liquidation basis which
      would differ significantly from the going concern basis.                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2. | BASIS OF PREPARATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|a) | Statement of compliance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | These consolidated financial statements have been
      prepared in accordance with International Financial Reporting Standards as
      issued by the International Accounting Standards Board (IFRS).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | These consolidated financial statements were approved by
      the Board of Directors and authorized for issue on March 16, 2016.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

6

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|2. | BASIS OF PREPARATION (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|b) | Basis of measurement                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The consolidated financial statements have been prepared
      using the historical cost basis specified by IFRS for each type of asset,
      liability, income and expense as set out in the accounting policies below,
      except for certain financial assets and liabilities which are measured at
      fair value. In addition, these consolidated financial statements have been
      prepared using the accrual basis of accounting.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|c) | Functional currency and presentation
      currency                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The consolidated financial statements are presented in
      thousands of United States (US) dollars, except as otherwise noted,
      which is the functional currency of the Company and each of the Companys
      subsidiaries. References to C$ are to Canadian dollars, which are also
      stated in thousands.                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|d) | **Judgements**                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The critical judgements that the Companys management has
      made in the application of the accounting policies presented in note 3
      that have the most significant effect on the amounts recognized in these
      consolidated financial statements are as follows:                                                                                                                                                                   

| | i.   | Functional currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | The functional currency for each of the Companys
      subsidiaries is the currency of the primary economic environment in which
      the respective entity operates; the Company has determined the functional
      currency of each entity to be the US dollar. Such determination involves
      certain judgements to identify the primary economic environment. The
      Company reconsiders the functional currency of its subsidiaries if there
      is a change in events and/or conditions which determine the primary
      economic environment.                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ii.  | Business combination versus asset
    acquisition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | The Company considered the applicability of IFRS 3 -
      Business Combinations(IFRS 3) with respect to the acquisitions of
      Newstrike and Caballo Blanco (note 5). IFRS 3 defines a business as having
      a system where inputs enter a process to produce outputs. The Company has
      determined that Newstrike and Caballo Blanco do not meet the criteria for
      a business based on the indicators outlined by IFRS. As such, the Company
      has determined that the acquisitions of Newstrike and Caballo Blanco are
      not business combinations and accordingly they have been accounted for as
      asset acquisitions.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | iii. | Economic recoverability and probability of future
      economic benefits of exploration, evaluation and development
    costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | Management has determined that exploratory drilling,
      evaluation, development and related costs incurred which were capitalized
      as exploration and evaluation (note 10) have future economic benefits and
      are economically recoverable. Management uses several criteria in its
      assessments of economic recoverability and probability of future economic
      benefit which may include geologic and metallurgic information, history of
      conversion of mineral deposits to proven and probable reserves, scoping
      and feasibility studies, accessible facilities, existing permits and life
      of mine plans.    

7

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|2. | BASIS OF PREPARATION (Continued)                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|e) | Significant estimates and assumptions                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The preparation of the Companys consolidated financial
      statements in conformity with IFRS requires management to make estimates
      based on assumptions about future events that affect the reported amounts
      of assets and liabilities and disclosures of contingent assets and
      liabilities at the date of the financial statements and the reported
      amounts of revenues and expenses during the reporting period.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The estimates and associated assumptions are based on
      historical experience and various other factors that are believed to be
      reasonable under the circumstances, the results of which form the basis of
      making the judgements about carrying values of assets and liabilities that
      are not readily apparent from other sources. Actual results could differ
      from those estimates.                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The estimates and underlying assumptions are reviewed on
      an ongoing basis. Revisions to accounting estimates are recognized
      prospectively in the period in which the estimate is revised.                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Areas that require significant estimates and assumptions
      as the basis for determining the stated amounts include, but are not
      limited to, the following:                                                                                                                                                                                                                                                                          

| | i.  | Impairments (note 6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The Company assesses its mineral properties, plant and
      equipment assets and exploration and evaluation properties each reporting
      period to determine whether any indication of impairment exists. Where an
      indicator of impairment exists, a formal estimate of the recoverable
      amount is made, which is considered to be the higher of the fair value
      less costs of disposal and value in use.                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | In determining the recoverable amounts of the Companys
      mineral properties and plant and equipment assets, management makes
      estimates of the discounted future cash flows expected to be derived from
      the Companys mining properties, costs of disposal the mining properties
      and the appropriate discount rate. Reductions in metal price forecasts,
      increases in estimated future costs of production, increases in estimated
      future capital expenditures, reductions in the amount of recoverable
      reserves, resources, and exploration potential, and/or adverse current
      economics can result in an impairment of the carrying amounts of the
      Companys property, plant and equipment and/or mining interests.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ii. | Mineral reserves                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Proven and probable mineral reserves are the economically
      mineable parts of the Companys measured and indicated mineral resources
      demonstrated by at least a preliminary feasibility study.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The Company estimates its proven and probable reserves
      and measured and indicated and inferred mineral resources based on
      information compiled by appropriately qualified persons.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The information relating to the geological data on the
      size, depth and shape of the ore body requires complex geological
      judgements to interpret the data.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The estimation of future cash flows related to proven and
      probable reserves is based upon factors such as estimates of foreign
      exchange rates, commodity prices, future capital requirements and
      production costs along with geological assumptions and judgements made in
      estimating the recovery rate, size and grade of the ore body.                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Changes in the proven and probable reserves or measured
      and indicated and inferred mineral resources estimates may impact the
      carrying value of mineral properties, exploration and evaluation
      properties and plant and equipment (note 10), site reclamation and closure
      provisions (note 12), recognition of deferred tax amounts (note 17) and
      depreciation and depletion (note 10).                                                                                                                                                                                                                                                                                                                                                   

8

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|2. | BASIS OF PREPARATION
(Continued)
|-- | --------------------------------

| | iii. | Depreciation and depletion (note 10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | Plants and other facilities used directly in mining
      activities are depreciated using the units-of-production (UOP) method
      over a period not to exceed the estimated life of the ore body based on
      recoverable ounces to be mined from proven and probable reserves. Mobile
      and other equipment are depreciated, net of residual value, on a
      straight-line basis, over the useful life of the equipment to the extent
      that the useful life does not exceed the related estimated life of the
      mine based on proven and probable reserves.                                                                                                                                                    
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | The calculation of the UOP rate, and therefore the annual
      depreciation and depletion expense could be materially affected by changes
      in the underlying estimates. Changes in estimates can be the result of
      actual future production differing from current forecasts of future
      production, expansion of mineral reserves through exploration activities,
      differences between estimated and actual recovery rates and costs of
      mining and differences in gold price used in the estimation of mineral
      reserves.                                                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | Significant judgement is involved in the estimation of
      useful life and residual values for the computation of depreciation and
      depletion and no assurance can be given that actual useful lives and
      residual values will not differ significantly from current
    assumptions.                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | iv.  | Deferred stripping costs (note 10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | In determining whether stripping costs incurred during
      the production phase of a mining property relate to reserves and resources
      that will be mined in a future period and therefore should be capitalized,
      the Company makes estimates of the stripping activity over the life of the
      mining property (life of mine strip ratio). Changes in estimated life of
      mine strip ratios can result in a change to the future capitalization of
      stripping costs incurred.                                                                                                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | v.   | Inventories (note 9)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | Expenditures incurred, and depreciation and depletion of
      assets used in mining and processing activities are deferred and
      accumulated as the cost of ore in stockpiles, ore in process and finished
      metal inventory. These deferred amounts are carried at the lower of
      average cost or net realizable value (NRV) and are subject to
      significant measurement uncertainty.                                                                                                                                                                                                                                                                                                                             
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | Write-downs of ore in stockpiles, ore in process, and
      finished metal inventory resulting from NRV impairments are reported as a
      component of current period costs. The primary factors that influence the
      need to record write-downs include prevailing and long-term metal prices
      and prevailing costs for production inputs such as labour, fuel and
      energy, materials and supplies, as well as realized ore grades and actual
      production levels.                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | Costs are attributed to the ore in process based on
      current mining costs, including applicable depreciation and depletion
      relating to mining operations incurred up to the point of placing the ore
      on the leach pad. Costs are removed from ore in process based on the
      average cost per estimated recoverable ounce of gold on the leach pad as
      the gold is recovered. Estimates of recoverable gold on the leach pads are
      calculated from the quantities of ore placed on the pads, the grade of ore
      placed on the leach pads and an estimated percentage of recovery. Timing
      and ultimate recovery of gold contained on leach pads can vary
      significantly from the estimates.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | The quantities of recoverable gold placed on the leach
      pads are reconciled to the quantities of gold actually recovered
      (metallurgical balancing), by comparing the grades of ore placed on the
      leach pads to actual ounces recovered. The nature of the leaching process
      inherently limits the ability to precisely monitor inventory levels. As a
      result, the metallurgical balancing process is constantly monitored and
      the engineering estimates are refined based on actual results over time.
      The ultimate recovery of gold from a leach pad will not be known until the
      leaching process is completed.                                                                         

9

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|2. | BASIS OF PREPARATION (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The allocation of costs to ore in stockpiles, ore in
      process, and finished metal inventory and the determination of NRV involve
      the use of estimates. There is a high degree of judgement in estimating
      future costs, future production level, gold prices, and the ultimate
      estimated recovery for ore in process. There can be no assurance that
      actual results will not differ significantly from estimates used in the
      determination of the carrying value of
inventories.

| | vi.   | Provision for site reclamation and closure (note
      12)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       | Site reclamation and closure provisions are recognized in
      the period in which they arise and are stated as the present value of
      estimated future costs. These estimates require extensive judgement about
      the nature, cost and timing of the work to be completed, and may change
      with future changes to costs, environmental laws and regulations and
      remediation practices. In view of uncertainties concerning environmental
      rehabilitation, the ultimate costs could be materially different from the
      amounts estimated.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       | It is possible that the Companys estimate of the site
      reclamation and closure liability could change as a result of change in
      regulations, the extent of environmental remediation required, the means
      and technology of reclamation activities or cost estimates. Any such
      changes could materially impact the estimated provision for site
      reclamation and closure. Changes in estimates are accounted for
      prospectively from the period the estimate is revised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | vii.  | Deferred taxes (note 17)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       | The Companys provision for income taxes is estimated
      based on the expected annual effective tax rate. The current and deferred
      components of income taxes are estimated based on forecasted movements in
      temporary differences. Changes to the expected annual effective tax rate
      and differences between the actual and expected effective tax rate and
      between actual and forecasted movements in temporary differences will
      result in adjustments to the Companys provision for income taxes in the
      period changes are made and/or differences are identified.                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       | In assessing the probability of realizing income tax
      assets recognized, management makes estimates related to expectations of
      future taxable income, applicable tax planning opportunities, expected
      timing of reversals of existing temporary differences and the likelihood
      that tax positions taken will be sustained upon examination by applicable
      tax authorities. In making its assessments, management gives additional
      weight to positive and negative evidence that can be objectively verified.
      Estimates of future taxable income are based on forecasted cash flows from
      operations and the application of existing tax laws in each jurisdiction.
      Forecasted cash flows from operations are based on life of mine
      projections internally developed and reviewed by management. Weight is
      attached to tax planning opportunities that are within the Companys
      control, and are feasible and implementable without significant
      obstacles.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       | The likelihood that tax positions taken will be sustained
      upon examination by applicable tax authorities is assessed based on
      individual facts and circumstances of the relevant tax position evaluated
      in light of all available evidence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       | Where applicable tax laws and regulations are either
      unclear or subject to ongoing varying interpretations, it is reasonably
      possible that changes in these estimates can occur that materially affect
      the amounts of income tax assets recognized. At the end of each reporting
      period, the Company reassesses unrecognized income tax assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | viii. | Share-based payments (note 16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       | Share-based payments are measured at fair value. Options
      and warrants are measured using the Black-Scholes option pricing model
      based on estimated fair values of all share-based awards at the date of
      grant and are expensed to earnings or loss from operations over each
      awards vesting period. The Black-Scholes option pricing model utilizes
      subjective assumptions such as expected price volatility and expected life
      of the option. Changes in these input assumptions can significantly affect
      the fair value estimate.                                                                                                                                                                                                                                                                                                                                                                                                                                                       

10

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|2. | BASIS OF PREPARATION
(Continued)
|-- | --------------------------------

| | ix. | Contingencies (note 23)                                                                                                                                                                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                          
| |     | Due to the nature of the Companys operations, various
      legal and tax matters can arise from time to time. In the event that
      managements estimate of the future resolution of these matters changes,
      the Company will recognize the effects of the changes in its consolidated
      financial statements for the period in which such changes
  occur.

|**3.** | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | The significant accounting policies used in the
      preparation of these consolidated financial statements are as
    follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|a)     | Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | These consolidated financial statements include the
      accounts of the Company and its wholly-owned subsidiaries disclosed in
      note 1. All inter-company balances, transactions, revenues and expenses
      have been eliminated on consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | Control exists where the parent entity is exposed, or has
      rights, to variable returns from its involvement with the investee and has
      the ability to affect those returns through its power over the investee.
      Subsidiaries are included in the consolidated financial statements from
      the date control commences until the date control ceases.                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|b)     | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | In preparing the financial statements of each individual
      group entity, transactions in currencies other than the entity's
      functional currency (foreign currencies) are translated at the rates of
      exchange prevailing at the dates of the transactions. At the end of each
      reporting period, monetary assets and liabilities denominated in foreign
      currencies are translated at the exchange rates prevailing at that date.
      Exchange gains and losses are recognized on a net basis in earnings or
      loss from operations for the period.                                                                                                                                 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|c)     | Cash and cash equivalents and restricted
    cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | Cash and cash equivalents and restricted cash in the
      statements of financial position are comprised of cash and highly liquid
      investments having maturity dates of three months or less from the date of
      purchase, which are readily convertible into known amounts of
  cash.                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|d)     | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | Metal revenues are earned from the sale of refined metal
      (primarily gold and silver by-product) and are recognized when significant
      risks and rewards of ownership have passed to the buyer, it is probable
      that economic benefits associated with the transaction will flow to the
      Company, the sale price can be measured reliably, the Company has no
      significant continuing involvement, and the costs incurred or to be
      incurred in respect of the transaction can be measured reliably. Metal
      revenues are subject to adjustment upon final settlement based upon metal
      prices, weights and assays. These adjustments are recorded within metal
      revenues.

11

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|**3.** | SIGNIFICANT ACCOUNTING POLICIES
      (Continued)                                                                                                                                                                                                                                                                                                                         
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                           
|**e)** | Inventories                                                                                                                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                                                           
|       | The Company predominantly produces gold and silver
      by-product. Inventories consist of unprocessed ore stockpile, ore in
      process, finished metal inventory (doré), and operational supplies. Doré
      represents a bar containing predominantly gold by value which must be
      refined into its saleable metals.                                          
|       |                                                                                                                                                                                                                                                                                                                                                                           
|       | These inventories are valued at the lower of cost and NRV
      after consideration of additional processing, refining and transportation
      costs. NRV represents the estimated future sales price of the product
      based on prevailing and long-term metals prices, less the estimated costs
      to complete production and bring the product to saleable form.
|       |                                                                                                                                                                                                                                                                                                                                                                           
|       | Write-downs of inventory are recognized in earnings or
      loss from operations as incurred. The Company reverses write- downs in the
      event that there is a subsequent increase in NRV.                                                                                                                                                                           

| | i.   | Unprocessed ore stockpile                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |      | This represents ore that has been mined and is available
      for further processing. The NRV of the unprocessed ore stockpile is
      measured by estimating the number of tonnes added and removed from the
      stockpile, the number of contained ounces (based on assay data) and the
      estimated metallurgical recovery rates (based on the expected processing
      method). Stockpile ore tonnages are verified by periodic
surveys.                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |      | Costs are allocated to the stockpile based on the current
      mining cost per tonne incurred up to the point of stockpiling the ore,
      including applicable overhead and depletion and depreciation relating to
      mining operations, and are removed at the average cost per ounce. As the
      unprocessed ore stockpile is not expected to be processed under current
      economic conditions it was fully impaired during the year ended December
      31, 2015 (note 6).
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ii.  | Ore in process                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |      | The recovery of gold and silver from the ore is achieved
      through heap leaching processes. Costs are added to ore on leach pads
      based on current mining and processing costs, including applicable
      overhead, depletion and depreciation relating to mining operations. Costs
      are removed from ore on leach pads as ounces are recovered, based on the
      average cost per ounce of recoverable gold in ore in process
    inventory.                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | iii. | Finished metal inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |      | Finished metal inventory consists of doré bars containing
      gold and silver.                                                                                                                                                                                                                                                                                                                                                                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | iv.  | Supplies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |      | Supplies include consumables used in operations such as
      fuel, grinding material, chemicals, and spare parts. NRV is estimated as
      replacement cost.                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |      | Major spare parts and standby equipment are included in
      plant and equipment when they are expected to be used during more than one
      period and if they can only be used in connection with an item of plant
      and equipment.                                                                                                                                                                                                                                               

12

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (Continued)                        
|-- | -------------------------------------------------------------------------
|   |                                                                          
|f) | Mineral properties, plant and equipment,
      exploration and evaluation

| | i.  | Mineral property development costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Mineral property development costs, including
      reclassified mineral property acquisition costs and capitalized
      exploration and evaluation costs, are stated at cost less accumulated
      depreciation and accumulated impairment losses. Costs associated with the
      commissioning of new assets, net of incidental revenues, are capitalized
      as mineral property costs in the period before they are operating in the
      manner intended by management.                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | The Company capitalizes the cost of acquiring,
      maintaining, exploring, and developing mineral properties until such time
      as the properties are placed into production, abandoned, sold or
      considered to be impaired in value.                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Costs of producing properties are amortized using the UOP
      method based on estimated proven and probable reserves forecast to be
      extracted over the life of the mine and the costs of abandoned properties
      are written off in the period in which that decision is made by
      management.                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | The Company capitalizes the costs of developing mineral
      properties that are currently in production until such time that
      management can conclude the existence of additional proven and probable
      reserves resulting from the development activities. Upon determination of
      the additional proven and probable ounces, the development costs are
      amortized using the UOP method based on the total proven and probable
      reserves (previous remaining reserves plus new reserves).                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Proceeds received on the sale of interests in mineral
      properties are credited to the carrying value of the mineral properties,
      with any excess included in earnings or loss as incurred. Write-offs due
      to impairment in value are charged to earnings or loss as
  incurred.                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | In open pit mining operations, it is necessary to remove
      overburden and other waste in order to access the ore body. Stripping
      costs incurred prior to commercial production are capitalized and deferred
      as part of the cost of constructing the mine.                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Mining costs associated with stripping activities during
      the production phase of a mine are variable production costs that are
      included in the costs of the inventory during the period that the
      stripping costs are incurred, unless the stripping activity can be shown
      to represent future benefits to the mineral property, in which case
      stripping costs are capitalized.                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Future benefits to the mineral property are demonstrated
      when stripping activity results in either immediate usable ore to produce
      finished gold doré bar inventory or improved access to sources of gold
      reserves that will be produced in future periods that would otherwise not
      have been accessible. Stripping activity occurs on separately identifiable
      components of the open pit and the amount capitalized is calculated by
      multiplying the tonnes removed for stripping purposes from each
      identifiable component during the period by the mining cost per
    tonne.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | The Company previously included stripping costs in its
      production costs using a strip ratio based on tonnes of material removed
      compared to the estimated strip ratio per each separately identifiable
      component. Periods where the actual strip ratio for the identifiable
      component exceeded the average life of mine strip ratio for that component
      resulted in deferral of the excess stripping costs as an asset recorded
      within mineral properties (note 10). Commencing on October 1, 2015, all
      stripping costs are included in production costs.                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ii. | Plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Plant and equipment is measured at cost less accumulated
      depreciation and impairment losses. Cost includes the purchase price, any
      costs directly attributable to bringing plant and equipment to the
      location and condition necessary for it to be capable of operating in the
      manner intended by management and the estimated site reclamation and
      closure costs associated with removing the asset, and, where applicable,
      borrowing costs.                                                                                                                                        

13

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------

| |      | Upon sale or abandonment of any plant and equipment, the
      cost and related accumulated depreciation and impairment losses are
      written off and any gains or losses thereon are recognized in earnings or
      loss for the period. When the parts of an item of plant and equipment have
      different useful lives, they are accounted for as separate items (major
      components) of plant and equipment.                                                      
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | The cost of replacing or overhauling a component of an
      item of plant and equipment is recognized in the carrying amount of the
      item if it is probable that the future economic benefits embodied within
      the component will flow to the Company and its cost can be measured
      reliably. The carrying amount of the replaced component is derecognized.
      Maintenance and repairs of a routine nature are charged to earnings or
      loss as incurred.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | iii. | Exploration and evaluation costs                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | Acquisition costs for exploration and evaluation stage
      properties are capitalized. Exploration and evaluation expenditures
      incurred on a mineral property are capitalized where management determines
      there is sufficient evidence that the expenditure will result in a future
      economic benefit to the Company. All other exploration and evaluation
      expenditures are expensed as incurred.                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | Exploration and evaluation expenditures comprise costs
      that are directly attributable to:                                                                                                                                                                                                                                                                                                                                                                                  

| |  | researching and analyzing existing exploration
      data;                                                                           
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | conducting geological studies, exploratory
      drilling and sampling;                                                              
| |  | examining and testing extraction and treatment
      methods; and                                                                    
| |  | activities in relation to evaluating the
      technical feasibility and commercial viability of extracting a mineral
      resource.

| |     | Subsequent to completion of a positive economic analysis
      on a mineral property, capitalized acquisition costs and exploration and
      evaluation expenditures are reclassified to mineral properties. The
      Company is in the process of exploring and developing many of its
      exploration and evaluation properties and has not yet determined the
      amount of reserves available.                                                                      
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Management reviews the carrying value of mineral
      properties at each reporting date and will recognize impairment in value
      based upon current exploration results, the prospect of further work being
      carried out by the Company, the assessment of future probability of
      profitable revenues from the property, or from the sale of the property.
      Amounts shown for properties represent costs incurred net of impairments
      and recoveries.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | iv. | Depletion and depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Mineral property costs, including deferred stripping
      costs, are depreciated when commercial production begins using the UOP
      method based on estimated proven and probable reserves.                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Plant and equipment, including major components, are
      depreciated using the following depreciation methods and rates for the
      nine months ended September 30, 2015 and the year ended December 31,
      2014:                                                                                                                                                                                                                                                      

| | Computer equipment             | 30% straight line method
| | ------------------------------ | ------------------------
| | Leasehold improvements         | 20% straight line method
| | Office furniture and equipment | 10% straight line method
| | Vehicles                       | 25% straight line method
| | Mine equipment and buildings   | UOP method              
| | Plant and equipment            | UOP method              

14

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------

Effective October 1, 2015, as a result
of the impairment (note 6), the expected life of plant and equipment at the San
Francisco Mine was revised to align to the updated mine plan the associated
depreciation rates were updated as follows, there were no changes in the
depreciation method:

| | Computer equipment             | 33% straight line method
| | ------------------------------ | ------------------------
| | Leasehold improvements         | 33% straight line method
| | Office furniture and equipment | 33% straight line method
| | Vehicles                       | 33% straight line method
| | Mine equipment and buildings   | UOP method              
| | Plant and equipment            | UOP method              

Depreciation commences on the date the
asset is available for use.

|g) | Provisions                                                                                                                                                                                                                                                               
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                          
|   | A provision is recognized if, as a result of a past
      event, the Company has a present legal or constructive obligation that can
      be estimated reliably and it is probable that an outflow of economic
      benefits will be required to settle the obligation.
|   |                                                                                                                                                                                                                                                                          
|   | Constructive obligations are obligations that derive from
      the Companys actions where:                                                                                                                                                                             

| |  | by an established pattern of past practice, published
      policies or a sufficiently specific current statement, the Company has
      indicated to other parties that it will accept certain responsibilities;
      and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | as a result, the Company has created a valid expectation
      on the part of those other parties that it will discharge those
      responsibilities.                                                                     

Provisions are reviewed at the end of
each reporting period and adjusted to reflect managements current best estimate
of the expenditure required to settle the present obligation at the end of the
reporting period. If it is no longer probable that an outflow of resources
embodying economic benefits will be required to settle the obligation, the
provision is reversed.

Provisions are reduced by actual
expenditures for which the provision was originally recognized. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate that
reflects the current market assessments of the time value of money and the risks
specific to the liability. The accretion of the discount is charged to earnings
or loss for the period.

15

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------

| | i.  | Provision for site reclamation and
  closure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Companys mining and exploration activities are
      subject to various laws and regulations governing the protection of the
      environment. The Company records the fair value of a provision for site
      reclamation and closure as a liability in the period in which it incurred
      a legal or constructive obligation associated with the reclamation of the
      mine site and the retirement of tangible long-lived assets that result
      from the acquisition, construction, development, and/or normal use of the
      assets.                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The obligation is measured initially at present value
      based on estimated future cash flows derived using internal information
      and third party reports. The estimated cost is capitalized and included in
      the carrying value of the related mineral properties and is depreciated
      using either the straight-line method or UOP method, as
  appropriate.                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The provision is initially discounted using a current
      market-based pre-tax discount rate and subsequently increased for the
      unwinding of the discount. The unwinding of the discount is charged to
      earnings or loss for the period.                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | At each reporting date, the Company reviews its provision
      for site reclamation and closure to reflect the current best estimate. The
      provision for site reclamation and closure is adjusted for changes in
      factors such as the amount or timing of the expected underlying cash
      flows, or the market-based pre-tax discount rate, with the offsetting
      amount recorded to the site reclamation and closure asset included in
      mineral properties which arises at the time of establishing the provision.
      The site reclamation and closure asset is depreciated on the same basis as
      the related asset.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ii. | Provision for contingent payment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Companys acquisition of Caballo Blanco includes a
      contingent payment of $5,000, if in the five years from the acquisition
      date of December 23, 2014, Caballo Blanco receives approval for its
      environmental permit or the Company undergoes a change of control. The
      Company currently estimates the permitting requirements will be met during
      the year ended December 31, 2017.                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The obligation was measured initially at present value
      based on estimated future cash flows discounted at a market based pre-tax
      discount rate. The estimated cost was capitalized and included in the
      carrying value of the related exploration and evaluation mineral
      properties.                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The provision was initially and subsequently increased
      for the unwinding of the discount over managements estimated period of
      two years. The unwinding of the discount is charged to earnings or loss
      for the period.                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | It is possible that the Companys estimate of the
      contingent payment liability could change as a result of change in the
      timing that mining permits are acquired or if the Company undergoes a
      change of control within the next four years or earlier. Any such changes
      could materially impact the estimated provision for contingent payment.
      Changes in estimates are accounted for prospectively from the period the
      estimate is revised and recorded in the consolidated statement of (loss)
      earnings and total comprehensive (loss)
income.                                                        

|h) | Share-based payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Certain employees and directors of the Company receive a
      portion of their remuneration in the form of share options. The fair value
      of the share options, determined at the date of the grant, is charged to
      earnings or loss, with an offsetting credit to share-based payment
      reserve, over the vesting period. If and when the share options are
      exercised, the applicable original amounts of share-based payment reserve
      are transferred to issued capital.

16

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|3. | **SIGNIFICANT ACCOUNTING POLICIES
      (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The fair value of a share-based payment is determined at
      the date of the grant. The estimated fair value of share options is
      measured using the Black-Scholes option pricing model. The Black-Scholes
      option pricing model requires the input of subjective assumptions,
      including the expected term of the option and share price volatility. The
      expected term of options granted is determined based on historical data on
      the average hold period before exercise, expiry or cancellation. Expected
      volatility is estimated with reference to the historical volatility of the
      share price of the Company.                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | These estimates involve inherent uncertainties and the
      application of managements judgement. The costs of share-based payments
      are recognized over the vesting period of the option. The total amount
      recognized as an expense is adjusted to reflect the number of options
      expected to vest at each reporting date. At each reporting date prior to
      vesting, the cumulative compensation expense representing the extent to
      which the vesting period has passed and managements best estimate of the
      share options that are ultimately expected to vest is computed. The
      movement in cumulative expense is recognized in earnings or loss with a
      corresponding entry to share-based payment reserve.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Share-based payments to non-employees are measured at the
      fair value of the goods or services received or the fair value of the
      equity instruments issued if it is determined that the fair value of the
      goods or services cannot be reliably measured, and are recorded at the
      date the goods or services are received.                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | No expense is recognized for share options that do not
      ultimately vest. Charges for share options that are forfeited before
      vesting are reversed from share-based payment reserve and credited to
      earnings or loss. For those share options that expire unexercised after
      vesting, the recorded value remains in share-based payment reserve.                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|i) | Warrant liability                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Share purchase warrants are classified as a warrant
      liability under the principles of IAS 39 - Financial Instruments:
      Recognition and Measurement. As the exercise price of the share
      purchase warrant is fixed in Canadian dollars (C$) and the functional
      currency of the Company is the US dollar, the share purchase warrants are
      considered a derivative liability in accordance with IAS 32 - Financial
      Instruments: Presentationas a variable amount of cash in the
      Companys functional currency will be received upon exercise.                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | These types of share purchase warrants are recognized at
      fair value using the Black-Scholes option pricing model at the date of
      issue. Share purchase warrants are initially recorded as a liability at
      fair value with any subsequent changes in fair value recognized in
      earnings or loss as finance expense.                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Upon exercise of the share purchase warrants with
      exercise prices in a currency other than the Companys functional
      currency, the share purchase warrants are revalued at the date of exercise
      and the total fair value of the exercised share purchase warrants is
      reallocated to equity. The proceeds generated from the payment of the
      exercise price are also allocated to equity.                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|j) | Issued capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Common shares are classified as issued capital. Costs
      directly attributable to the issue of common shares are recognized as a
      deduction from issued capital, net of any tax effects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|k) | Financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Financial assets, other than derivatives which are part
      of effective hedging arrangements, are classified as held to maturity,
      available-for-sale, loans and receivables or fair value through earnings
      or loss (FVTPL).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Financial assets classified as available-for-sale are
      measured initially at fair value plus transaction costs and subsequently
      at fair value with unrealized gains and losses recognized in other
      comprehensive income except for financial assets that are considered to be
      impaired, in which case the impairment loss is charged to earnings or
      loss. The Company has not classified any assets as available-for-sale for
      any period presented.                                                                                                                                                                                                                                                                       

17

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|**3.** | SIGNIFICANT ACCOUNTING POLICIES
      (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       | Financial assets classified as loans and receivables are
      measured initially at fair value plus transaction costs and subsequently
      at amortized cost using the effective interest method. The effective
      interest method is a method of calculating the amortized cost of a
      financial asset and allocating the interest expense over the relevant
      period. The effective interest rate is the rate that exactly discounts
      estimated future cash payments through the expected life of the financial
      asset, or, where appropriate, a shorter period. The Companys cash and
      cash equivalents, restricted cash, and trade and other receivables are
      classified as loans and receivables.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       | Financial assets classified as FVTPL are measured on
      initial recognition and subsequently at fair value with unrealized gains
      and losses recognized in earnings or loss. Transaction costs are expensed
      for assets classified as FVTPL. The Company has not classified any assets
      as FVTPL for any period presented.                                                                                                                                                                                                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|**l)** | Financial liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       | Financial liabilities, which are trade payables and
      accrued liabilities, vendor loan, equipment financing, and loan facility
      are initially recognized at fair value less directly attributable
      transaction costs. Subsequently, financial liabilities are measured at
      amortized cost using the effective interest method.                                                                                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       | Financial liabilities classified as FVTPL include
      financial liabilities held for trading and financial liabilities
      designated upon recognition as FVTPL. Fair value changes on these
      liabilities are recognized in earnings or loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|**m)** | Impairment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| | i. | Impairment of financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | At each reporting date, the Company assesses whether
      there is any objective evidence that a financial asset or a group of
      financial assets, other than financial assets classified as FVTPL, is
      impaired. A financial asset or a group of financial assets is impaired if
      there is objective evidence that the estimated future cash flows of the
      financial asset or the group of financial assets have been negatively
      impacted, and the impact can be reliably measured.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | Objective evidence of impairment could include the
      following:                                                                                                                                                                                                                                                                                                                                                                                                                                           

| |  | significant financial difficulty of the issuer
      or counterparty;                            
| | - | -------------------------------------------------------------------------------------------------
| |  | default or delinquency in interest or principal
      payments; or                               
| |  | it has become probable that the borrower will
      enter bankruptcy or financial reorganization.

An impairment loss in respect of a
financial asset measured at amortized cost is calculated as the difference
between its carrying amount and the present value of the estimated future cash
flows discounted at the assets original effective interest rate. Losses are
recognized in earnings or loss and reflected in an allowance account against
trade and other receivables. Interest on the impaired asset continues to be
recognized through the unwinding of the discount.

With the exception of
available-for-sale equity instruments, if, in a subsequent period, the amount of
the impairment loss decreases, the previously recognized impairment loss is
reversed through earnings or loss to the extent that the carrying amount of the
impaired financial asset at the date the impairment is reversed does not exceed
what the amortized cost would have been had the impairment not been recognized.
In respect to available-for-sale equity instruments, impairment losses
previously recognized in earnings or loss are not reversed through earnings or
loss. Any increase in fair value subsequent to an impairment loss is recognized
in other comprehensive income.

18

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------

| | ii. | Impairment of non-financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | At each reporting date, the Company reviews the carrying
      amounts of its non-financial assets to determine whether there are any
      indications of impairment. If any such indication exists such as decreases
      in metal prices, an increase in operating costs, a decrease in mineable
      reserves or a change in foreign exchange rate, the recoverable amount of
      the asset is estimated in order to determine the extent of the impairment,
      if any. In determining the recoverable amount, the Company also considers
      the net carrying amount of the asset, the ongoing costs required to
      maintain and operate the asset, and the use, value and condition of the
      asset.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Where the asset does not generate cash inflows that are
      independent with other assets, the Company estimates the recoverable
      amount of the cash-generating unit (CGU) to which the asset belongs. A
      CGU is the smallest identifiable group of assets that generates cash
      inflows that are largely independent of the cash inflows from other assets
      or group of assets. This generally results in the Company evaluating its
      non-financial assets on a property by property basis.                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The recoverable amount is determined as the higher of
      fair value less costs of disposal and the assets value in use. Fair value
      is determined with reference to discounted estimated future cash flow
      analysis or to recent transactions involving dispositions of similar
      properties. In assessing value in use, the estimated future cash flows are
      discounted to their present value.                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The pre-tax discount rate applied to the estimated future
      cash flows measured on a value in use basis reflects current market
      assessments of the time value of money and the risks specific to the asset
      for which the future cash flow estimates have not been adjusted.                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | If the carrying amount of an asset or CGU exceeds its
      recoverable amount, the carrying amount of the asset or CGU is reduced to
      its recoverable amount. An impairment loss is recognized as a charge to
      earnings or loss. Non-financial assets that have been impaired are tested
      for possible reversal of the impairment whenever events or changes in
      circumstance indicate that the impairment may have reversed.                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Where an impairment subsequently reverses, the carrying
      amount of the asset or CGU is increased to the revised estimate of its
      recoverable amount, but only so that the increased carrying amount does
      not exceed the carrying amount that would have been determined (net of
      depletion and depreciation) had no impairment loss been recognized for the
      asset or CGU in prior periods. A reversal of impairment is recognized as a
      gain in earnings or loss.                                                                                                                                                                                                                        

|n) | Taxes
|-- | -----

| | i.  | Current tax expense                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Current tax is the expected tax payable or receivable on
      the taxable earnings or loss for the period.                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Current tax for each taxable entity in the Company is
      based on the local taxable income at the local statutory tax rate enacted
      or substantively enacted at the reporting date, and includes adjustments
      to tax payable or recoverable in respect of previous periods.                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ii. | Deferred tax expense                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Deferred tax is accounted for using the liability method,
      providing for the tax effect of temporary differences between the carrying
      amount of assets and liabilities for financial reporting purposes and
      their respective tax bases.                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Deferred tax liabilities are recognized for all taxable
      temporary differences except where the deferred tax liability arises from
      the initial recognition of goodwill, or the initial recognition of an
      asset or liability in a transaction that is not a business combination
      and, at the time of the transaction, affects neither the accounting
      earnings nor taxable earnings or loss.

19

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------

| |      | Deferred tax assets are recognized for all deductible
      temporary differences, carry forwards of unused tax losses and tax
      credits, to the extent that it is probable that taxable earnings will be
      available against which the deductible temporary differences, and the
      carry forward of unused tax losses can be utilized, except where the
      deferred tax asset related to the deductible temporary difference arises
      from the initial recognition of an asset or liability in a transaction
      that is not a business combination and, at the time of the transaction,
      affects neither the accounting earnings nor taxable earnings or
    loss.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | The carrying amounts of deferred tax assets are reviewed
      at each reporting date and are adjusted to the extent that it is no longer
      probable that sufficient taxable earnings will be available to allow all
      or part of the asset to be utilized. To the extent that an asset not
      previously recognized fulfills the criteria for recognition, a deferred
      tax asset is recorded.                                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | Deferred tax is measured on an undiscounted basis using
      the tax rates that are expected to apply in the period when the liability
      is settled or the asset is realized, based on tax rates and tax laws
      enacted or substantially enacted at the reporting date. Current and
      deferred tax relating to items recognized directly in equity are
      recognized in equity and not in earnings or loss.                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | iii. | Mining taxes and royalties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | Mining taxes and certain royalties are treated and
      disclosed as current and deferred taxes if they have the characteristics
      of an income tax. This is considered to be the case when they are imposed
      under government authority and the amount payable is calculated by
      reference to a form of net income after adjustment for items comprising
      temporary differences.                                                                                                                                                                                                                                                                                         

|o) | (Loss) earnings from mine operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (Loss) earnings from mine operations is calculated by
      subtracting the cost of sales, which includes production costs and
      depletion and depreciation, from the Companys metal revenues.                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|p) | (Loss) earnings from operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (Loss) earnings from operations is calculated by
      subtracting other operational expenses from the Companys earnings from
      mine operations. Other operational expenses are those that are not
      directly attributable to the production of inventory and include corporate
      and administrative expenses and any impairment of assets incurred during
      the period.                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|q) | (Loss) earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Basic (loss) earnings per share (EPS) is calculated by
      dividing the earnings and total comprehensive income of the Company by the
      basic weighted average number of common shares outstanding during the
      period. For purposes of calculating diluted EPS, the proceeds from the
      potential exercise of dilutive share options and share purchase warrants
      with exercise prices that are below the average market price of the
      underlying shares are assumed to be used in purchasing the Companys
      common shares at their average market price for the period.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Share options and share purchase warrants are included in
      the calculation of diluted EPS only to the extent that the market price of
      the common shares exceeds the exercise price of the share options or share
      purchase warrants except where such conversion would be
    anti-dilutive.                                                                                                                                                                                                                                                                                            

20

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|r) | Borrowing costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Borrowing costs directly attributable to the acquisition,
      construction or production of qualifying assets, which are assets that
      necessarily take a substantial period of time to get ready for their
      intended use or sale, are added to the cost of those assets, until such
      time as the assets are substantially ready for their intended use or sale.
      Qualifying assets include the cost of developing mineral properties and
      constructing new facilities.                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Borrowing costs are capitalized at the rate of interest
      applicable to the specific borrowings financing the assets under
      construction, or, where financed through general borrowings, at a
      capitalization rate representing the weighted average interest rate on
      such borrowings. Investment income earned on the temporary investment of
      specific borrowings pending their expenditure on qualifying assets is
      deducted from the borrowing costs eligible for capitalization.                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | All other borrowing costs are recognized in
      earnings or loss in the period in which they are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|s) | Operating segments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The Company has determined that it operates through one
      reportable operating segment, being the acquisition, exploration, and
      development of mineral properties located in Mexico. Reporting is prepared
      on a geographic and consolidated basis as determined by the requirements
      of the Chief Executive Officer as the chief operating decision maker for
      the Company. The Company does not treat the production of gold and silver
      by-product as separate operating segments as they are the output of the
      same production process and only become separately identifiable as
      finished goods and are not reported separately from a management
      perspective.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4. | RECENT ACCOUNTING PRONOUNCEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Certain pronouncements were issued by the IASB or the
      IFRS Interpretations Committee (IFRIC) that are mandatory for accounting
      periods after December 31, 2015. Pronouncements that are not applicable to
      the Company have been excluded from this note.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The following pronouncements have been issued
      but are not yet effective:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| | a) | IFRS 9 - Financial Instruments- In July 2014, the
      IASB issued the final version of IFRS 9 - Financial
    Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | ("IFRS 9") to replace IAS 39 - Financial Instruments:
      Recognition and Measurement. IFRS 9 provides a revised model for
      recognition and measurement of financial instruments and a single,
      forward-looking expected loss impairment model. IFRS 9 also includes a
      substantially reformed approach to hedge accounting. The standard is
      effective for annual periods beginning on or after January 1, 2018, with
      early adoption permitted. The Company is currently evaluating the impact
      of the adoption of this standard on its consolidated financial
      statements.                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | b) | IFRS 15 - Revenue from Contracts with Customers-
      In May 2014, the IASB issued IFRS 15 - Revenue from Contracts with
      Customers("IFRS 15") which supersedes IAS 11 - Construction
      Contracts, IAS 18 - Revenue, IFRIC 13 - Customer Loyalty
      Programmes, IFRIC 15 - Agreements for the Construction of Real
      Estate, IFRIC 18 - Transfers of Assets from Customers, and SIC
      31 - Revenue - Barter Transactions Involving Advertising Services.
      IFRS 15 establishes a single five-step model framework for determining the
      nature, amount, timing and uncertainty of revenue and cash flows arising
      from a contract with a customer. The standard is currently mandatory for
      annual periods beginning on or after January 1, 2018, with early adoption
      permitted. The Company is currently evaluating the impact of the adoption
      of this standard on its consolidated financial statements.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | c) | IFRS 16 - Leases- In January 2016, the IASB
      published a new accounting standard, IFRS 16 - Leases("IFRS 16")
      which supersedes IAS 17 - Leases. IFRS 16 specifies how to
      recognize, measure, present and disclose leases. The standard provides a
      single lessee accounting model, requiring the recognition of assets and
      liabilities for all leases, unless the lease term is 12 months or less or
      the underlying asset has a low value. The standard is effective for annual
      periods beginning on or after January 1, 2019, with early adoption
      permitted if IFRS 15, has also been applied. The Company is currently
      evaluating the impact of the adoption of this standard on its consolidated
      financial statements.                                                                                                                                                                          

21

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|**5.** | ACQUISITIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|**a)** | Acquisition of Newstrike                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | On May 26, 2015 (Closing Date), the Company acquired
      all of the outstanding common shares of Newstrike exchanging 0.90 of the
      Companys shares (the Exchange ratio) and cash consideration of C$0.0001
      for each common share of Newstrike. This resulted in 105,108,103 common
      shares of the Company being issued and C$12 ($9) cash being paid to the
      former shareholders of Newstrike.                                                                                         
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | In addition to the 105,108,103 common shares, each
      Newstrike share option which gave the holder the right to acquire common
      shares of Newstrike, was exchanged for a share option which gave the
      holder the right to acquire common shares in the Company on the same basis
      as the Exchange ratio (the Replacement Options). The exercise price of
      the Replacement Options was determined by dividing the exercise price of
      the Newstrike share option by the Exchange ratio.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | The 5,962,500 Replacement Options issued have been
      included in the purchase price at their fair value (weighed average grant
      date fair value per Replacement Option was $0.25) based on the
      Black-Scholes pricing model using the following weighted average
      assumptions:                                                                                                                                                                                                                  

| | Risk-free interest rate  |  | 1.0%               | 
| | ------------------------ |  | ------------------ | 
| | Expected life of options |  | 0.4 - 6.2 years    | 
| | Annualized volatility    |  | 62.0 -
      64.0% | 
| | Forfeiture rate          |  | 2.2%               | 
| | Dividend rate            |  | 0.0%               | 

The acquisition has been accounted for
by the Company as a purchase of assets and assumption of liabilities. The
acquisition did not qualify as a business combination under IFRS 3 - Business
Combinations, as the significant inputs, processes and outputs, that
together constitute a business, do not currently exist. The primary asset of
Newstrike was the Ana Paula Project in Guerrero, Mexico, an exploration and
evaluation stage gold property.

The total consideration was allocated
to the assets acquired and liabilities based on their relative fair values on
the Closing Date as follows:

| | Purchase price                                                        |   |        |  
| | --------------------------------------------------------------------- | - | ------ | -
| | Fair value of common shares
      issued, net of share issuance costs | $ | 63,820 |  
| | Fair value of share options issued                                    |   | 1,509  |  
| | Cash                                                                  |   | 9      |  
| | Transaction costs                                                     |   | 1,863  |  
| | Total consideration                                                   | $ | 67,201 |  
| | Purchase price allocation                                             |   |        |  
| | Cash and cash equivalents                                             | $ | 786    |  
| | Trade and other receivables                                           |   | 2,382  |  
| | Advances and prepaid expenses                                         |   | 221    |  
| | Plant and equipment                                                   |   | 45     |  
| | Mineral properties and
      exploration and evaluation assets        |   | 67,088 |  
| | Accounts payable and accrued liabilities                              |   | (1,689 | )
| | Debenture                                                             |   | (1,632 | )
| | Net
      assets acquired                                             | $ | 67,201 |  

22

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|**5.** | ACQUISITIONS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|**b)** | Acquisition of Caballo Blanco                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | On December 23, 2014, the Company acquired 100% of the
      Caballo Blanco Gold Project (Caballo Blanco) from subsidiaries of
      Goldgroup Mining Inc. (Goldgroup). Caballo Blanco is a gold development
      project located in the state of Veracruz, Mexico, 65 kilometers northwest
      of the state capital, Veracruz, with an estimated Measured and Indicated
      Resource of 575,000 ounce of gold (28.9 million tonnes grading 0.62 grams
      per tonne of gold) and an Inferred Resource of 419,000 ounces of gold
      (24.0 million tonnes grading 0.54 grams per tonne of gold) per the
      preliminary economic assessment filed in April 2012.                                                                                      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | Total consideration paid to the subsidiaries of Goldgroup
      to acquire Caballo Blanco was $29,168, consisting of $10,000 in cash and
      16,065,000 common shares of the Company at a deemed price of $0.86 per
      share and a contingent payment of $5,000 when Caballo Blanco receives
      approval for its environmental permit or the Company undergoes a change of
      control within the next five years. The contingent payment can be paid in
      cash or common shares, at the option of the Company, and has been
      recognized at its fair value of $4,535, which is based on when the Company
      estimates the permits will be obtained. The Caballo Blanco project is
      subject to a total 2.0% NSR in favour of third parties.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | At December 31, 2014, 6,426,000 of the common shares were
      being held in escrow awaiting the achievement of agreed upon escrow
      release conditions. These administrative escrow release conditions relate
      to the final governmental approval of the transfer of concessions and
      mineral rights from the subsidiaries of Goldgroup to the Company. The
      escrow common shares were released during the year ended December 31,
      2015.                                                                                                                                                                                                                                                                                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | The acquisition has been accounted for by the Company as
      a purchase of assets and assumption of liabilities. The transaction did
      not qualify as a business combination under IFRS 3 - Business
      Combinations, as significant inputs and processes that together
      constitute a business do not currently exist.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | Total consideration has been allocated to the assets
      acquired and liabilities assumed based upon their relative fair value at
      the date of acquisition. Total consideration of $29,168 was calculated as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| | Cash consideration               | $ | 10,000 | 
| | -------------------------------- | - | ------ | 
| | Issuance of common shares        |   | 13,813 | 
| | Transaction costs                |   | 820    | 
| | Provision for contingent payment |   | 4,535  | 
| | Total consideration              | $ | 29,168 | 

The total consideration was allocated
to mineral properties as an exploration and evaluation asset.

23

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|6. | IMPAIRMENT OF MINERAL PROPERTIES AND OTHER
      ASSETS                                                                                                                                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                    
|   | Mineral properties, plant and equipment                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                    
|   | At the end of each reporting period, the Company assesses
      whether there are any indicators, from external and internal sources of
      information, that an asset or cash generating unit (CGU) may be
      impaired, thereby requiring adjustment to the carrying value.
|   |                                                                                                                                                                                                                                                                                    
|   | The Company identified the following indicators of
      impairment during the year ended December 31,
2015:                                                                                                                                                                       

| |  | Sustained decrease in the gold price resulting in a loss
      from mining operations at the San Francisco Mine, thereby requiring a
      significant change to the mine plan as the existing mine plan was
      uneconomic at current and forecast gold prices.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sustained decrease in the market capitalization
      of the Company.                                                                                                                                                                                             

Due to the significant changes to the
San Francisco Mine plan, which foresees a curtailment of mining operations in
the fourth quarter of 2016 with the mine being placed on care and maintenance
until economic conditions improve, a detailed assessment was completed on the
recoverable value of the San Francisco Mine and related assets. As a result of
this assessment, the Company recognized an impairment charge in the amount of
$177,071 to reduce the mineral property, plant and equipment value to its
recoverable amount primarily due to the change in the expected life of mine
compared to previous forecasts. This impairment charge includes $16,170 related
to the non-depletable La Chicharra Property, which forms part of the San
Francisco Mine CGU.

The recoverable value of the San
Francisco Mine CGU was determined based on its fair value less cost of disposal
estimated utilizing a discounted cash flow model. The discounted cash flow model
is a Level 3 measurement in the fair value hierarchy. The key assumptions
included in the model are forecast gold price of $1,150 per ounce and the
discount rate of 6%. Forecast production levels and operating costs are based on
historical operating and financial results.

Inventories

| | i.  | Ore in process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Based on the continued evaluation of actual recoveries
      being realized in the irrigation and processing of ore tonnes stacked on
      the leach pads at the San Francisco Mine, the Company has determined a
      revised estimate of the recoverable gold ounces contained in leach pad
      inventory. The revised estimate of recoverable gold ounces is less than
      previous projections which, combined with the decline in current and
      forecast gold prices, resulted in an impairment charge of $35,039 against
      the ore in process inventory.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ii. | Non-current unprocessed ore stockpile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Due to sustained decrease in gold price, an impairment
      assessment was completed on the recoverability of the unprocessed ore
      stockpile. It was determined that this material could not be processed
      economically using a long- term gold price of $1,150 per ounce. As a
      result, an impairment charge of $6,125 was recognized against the
      unprocessed ore stockpile.                                                                                                                                                                         

Exploration and evaluation

The change in the San Francisco Mine
plan has resulted in the Company changing its areas of exploration focus. The
primary exploration and evaluation assets will be Ana Paula and Caballo Blanco.
As a result, an impairment charge was recognized on all other capitalized
exploration assets for a total of $6,870. The remaining net book value for
exploration and evaluation assets of $99,575 relates solely to the Ana Paula and
Caballo Blanco assets.

24

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|7. | EXPENSES      
|-- | --------------
|   |               
|a) | Cost of sales:

| |                                                      |   | Years ended
      December 31, |  
| | ---------------------------------------------------- | - | ------------------------------ | -
| |                                                      |   | 2015                           |  
| | Costs of contract mining                             | $ | 52,923                         |  
| | Crushing and gold recovery costs                     |   | 37,378                         |  
| | Mine site administration
      costs                 |   | 4,975                          |  
| | Transport and refining                               |   | 286                            |  
| | Royalties                                            |   | 547                            |  
| | Change in inventories                                |   | (567                           | )
| | Production costs                                     |   | 95,542                         |  
| | Depreciation and depletion                           |   | 16,542                         |  
| | Cost of sales (including depreciation and depletion) | $ | 112,084                        |  

|b) | Corporate and administrative
  expenses:
|-- | ----------------------------------------

| |                                         |  |      |  |       | Years ended
      December 31, | 
| | --------------------------------------- |  | ---- |  | ----- | ------------------------------ | 
| |                                         |  | Note |  |       | 2015                           | 
| | Salaries and termination
      benefits |  |      |  | **$** | **3,975**                      | 
| | Consulting and professional fees (1)    |  |      |  |       | 2,697                          | 
| | Share-based payments                    |  | 16b) |  |       | 1,573                          | 
| | Rent and office costs                   |  |      |  |       | 522                            | 
| | Administrative and other                |  |      |  |       | 1,752                          | 
| | Corporate and administrative expenses   |  |      |  | **$** | **10,519**                     | 

| | (1) | During the year ended December 31, 2015, the Company
      incurred $nil (December 31, 2014 - $2,149) in costs relating to a proxy
      contest.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------

|c) | Finance expense:
|-- | ----------------

| |                                                                   |   | Years ended December 31, |  
| | ----------------------------------------------------------------- | - | ------------------------ | -
| |                                                                   |   | 2015                     |  
| | Interest on loan facility and
      equipment financing           | $ | 1,044                    |  
| | Interest on debenture                                             |   | 9                        |  
| | Accretion on Caballo Blanco
      contingent payment              |   | 228                      |  
| | Accretion of loan facility                                        |   | 123                      |  
| | Accretion of provision for site
      reclamation and closure and |   |                          |  
| | other provisions                                                  |   | 51                       |  
| | Gain on revaluation of Caballo
      Blanco contingent payment    |   | (250                     | )
| | Gain on
      revaluation of warrant liability                    |   | (606                     | )
| | Finance expense                                                   | $ | 599                      |  

25

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|8. | TRADE AND OTHER
RECEIVABLES
|-- | ---------------------------

| |                       |   | Years ended
      December 31, | 
| | --------------------- | - | ------------------------------ | 
| |                       |   | 2015                           | 
| | Trade receivable      | $ | 313                            | 
| | VAT receivable (1)    |   | 9,069                          | 
| | Other receivables (2) |   | 1,494                          | 
| |                       | $ | 10,876                         | 

| | (1) | VAT receivable is value added tax payments made by the
      Company, which in Mexico and Canada are refundable. The Company elects to
      use VAT amounts owed to it to settle income tax instalments payable to the
      Mexican government. As a result, the Company currently pays no income tax
      cash instalments and receives reduced amounts of VAT cash refunds. During
      the year ended December 31, 2015, the Company collected $20,944 (December
      31, 2014 - $14,446). Subsequent to December 31, 2015, $5,672 of VAT was
      received by the Company.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | In connection with the acquisition of Newstrike (note 5)
      $2,382 of VAT receivable was acquired. During the year ended December 31,
      2015, the Company collected $2,204. Subsequent to December 31, 2015, the
      Company collected $70 in Newstrike VAT cash refunds.                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (2) | Other receivables include an allowance of doubtful
      amounts of $129 (December 31, 2014 - $129).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|9. | INVENTORIES
|-- | -----------

| |                                             |   | Years ended
      December 31, | 
| | ------------------------------------------- | - | ------------------------------ | 
| |                                             |   | 2015                           | 
| | Ore in process                              | $ | 3,899                          | 
| | Finished metal inventory                    |   | 181                            | 
| | Supplies                                    |   | 4,824                          | 
| | Non-current unprocessed ore stockpile       |   | -                              | 
| |                                             |   | 8,904                          | 
| | Less: non-current unprocessed ore stockpile |   | -                              | 
| |                                             | $ | 8,904                          | 

The costs of inventories recognized as
an expense for the year ended December 31, 2015 were $112,084 (December 31, 2014
- $116,090) and are included in cost of sales. During the year ended December
31, 2015, the Company recorded inventory impairments totalling $41,164 (December
31, 2014 - $nil) related to ore in process and unprocessed ore stockpile (note
6), and $3,262 (December 31, 2014 - $nil) related to supplies inventory.

26

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|10. | MINERAL PROPERTIES, PLANT AND EQUIPMENT, EXPLORATION
      AND EVALUATION
|--- | -------------------------------------------------------------------------

| |                                                                                         |  |      |  |       |               |  |   |                |  |   | Exploration   |  |   |         | 
| | --------------------------------------------------------------------------------------- |  | ---- |  | ----- | ------------- |  | - | -------------- |  | - | ------------- |  | - | ------- | 
| |                                                                                         |  |      |  |       | Mineral       |  |   | Plant and      |  |   | and           |  |   |         | 
| |                                                                                         |  | Note |  |       | properties(b) |  |   | equipment(1,2) |  |   | evaluation(c) |  |   | Total   | 
| | Cost                                                                                    |  |      |  |       |               |  |   |                |  |   |               |  |   |         | 
| | At January 1, 2015                                                                      |  |      |  | **$** | **154,636**   |  | $ | 90,332         |  | $ | 37,645        |  | $ | 282,613 | 
| | Expenditures                                                                            |  |      |  |       | 19,381        |  |   | 13,984         |  |   | 3,520         |  |   | 36,885  | 
| | Acquisition(3)                                                                          |  |      |  |       | -             |  |   | 45             |  |   | 67,088        |  |   | 67,133  | 
| | Change in reclamation obligation                                                        |  | 12   |  |       | 2,072         |  |   | -              |  |   | -             |  |   | 2,072   | 
| | At December 31, 2015                                                                    |  |      |  |       | 176,089       |  |   | 104,361        |  |   | 108,253       |  |   | 388,703 | 
| | Accumulated
      depreciation and depletion                                            |  |      |  |       | 35,712        |  |   | 29,120         |  |   | 1,808         |  |   | 66,640  | 
| | **At January 1, 2015**                                                                  |  |      |  |       |               |  |   |                |  |   |               |  |   |         | 
| | Depreciation and
      depletion                                                        |  |      |  |       | 8,543         |  |   | 8,877          |  |   | -             |  |   | 17,420  | 
| | Impairment of mineral properties, plant and
      equipment, exploration and evaluation |  | 6    |  |       | 121,911       |  |   | 55,160         |  |   | 6,870         |  |   | 183,941 | 
| | At December 31, 2015                                                                    |  |      |  |       | 166,166       |  |   | 93,157         |  |   | 8,678         |  |   | 268,001 | 
| | Carrying amount at December 31, 2015                                                    |  |      |  | **$** | **9,923**     |  | $ | 11,204         |  | $ | 99,575        |  | $ | 120,702 | 

| |                                                               |  |      |  |   |                |   |   |               |  |   | Exploration    |  |   |         |  
| | ------------------------------------------------------------- |  | ---- |  | - | -------------- | - | - | ------------- |  | - | -------------- |  | - | ------- | -
| |                                                               |  |      |  |   | Mineral        |   |   | Plant and     |  |   | and            |  |   |         |  
| |                                                               |  | Note |  |   | properties (b) |   |   | equipment (1) |  |   | evaluation (c) |  |   | Total   |  
| | Cost                                                          |  |      |  |   |                |   |   |               |  |   |                |  |   |         |  
| | At January 1, 2014                                            |  |      |  | $ | 137,006        |   | $ | 84,348        |  | $ | 4,985          |  | $ | 226,339 |  
| | Expenditures                                                  |  |      |  |   | 19,032         |   |   | 5,984         |  |   | 3,492          |  |   | 28,508  |  
| | Acquisitions (4)                                              |  |      |  |   | -              |   |   | -             |  |   | 29,168         |  |   | 29,168  |  
| | Change in reclamation obligation                              |  | 12   |  |   | (1,402         | ) |   | -             |  |   | -              |  |   | (1,402  | )
| | At
      December 31, 2014                                    |  |      |  |   | 154,636        |   |   | 90,332        |  |   | 37,645         |  |   | 282,613 |  
| | Accumulated depreciation and
      depletion                  |  |      |  |   |                |   |   |               |  |   |                |  |   |         |  
| | At January 1, 2014                                            |  |      |  |   | 27,136         |   |   | 18,760        |  |   | -              |  |   | 45,896  |  
| | Depreciation and depletion                                    |  |      |  |   | 8,576          |   |   | 10,360        |  |   | -              |  |   | 18,936  |  
| | Impairment of exploration and evaluation properties
      (5) |  |      |  |   | -              |   |   | -             |  |   | 1,808          |  |   | 1,808   |  
| | At December 31, 2014                                          |  |      |  |   | 35,712         |   |   | 29,120        |  |   | 1,808          |  |   | 66,640  |  
| | Carrying amount at December 31, 2014                          |  |      |  | $ | 118,924        |   | $ | 61,212        |  | $ | 35,837         |  | $ | 215,973 |  

27

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|10. | MINERAL PROPERTIES, PLANT AND EQUIPMENT, EXPLORATION
      AND EVALUATION (Continued)
|--- | -------------------------------------------------------------------------------------

| | (1) | The Company entered into an agreement with an equipment
      supplier to finance the remaining portion of an equipment purchase
      totalling $4,862 of which the Company had previously paid $1,459. The
      financing agreement carries an annual interest rate of 7.2%. On November
      15, 2015, the Company renegotiated the terms of repayment. As a result,
      the remaining balance of $1,229 is payable in 19 monthly instalments with
      the final instalment being paid on April 25, 2017. The first six
      instalments will be for the interest portion only with the remaining
      instalments to include equal principal repayments of $95. At December 31,
      2015, the current and long-term portions of the equipment financing total
      $851 and $378, respectively (December 31, 2014 - $1,134 and $945,
      respectively).                                                                                                 
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (2) | On November 2, 2015, the Company acquired the El Sauzal
      processing plant and infrastructure (El Sauzal Plant) from Goldcorp Inc.
      (Goldcorp) for a total consideration of C$8,000 ($6,055). The
      consideration was payable as C$1,000 ($764) in cash and C$3,000 ($2,291)
      in common shares on closing, along with C$4,000 ($3,000) due one year from
      closing. In connection with this acquisition the Company completed a
      private placement with Goldcorp for cash proceeds of C$6,000 ($4,616).
      This cash is restricted for the acquisition, disassembly and
      transportation of the El Sauzal Plant and accordingly the remaining amount
      at December 31, 2015 is presented as restricted cash of $2,316 on the
      consolidated statement of financial position. The El Sauzal Plant is
      considered to be an asset under construction and has a carrying value of
      $7,392 (December 31, 2014 - $nil).
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (3) | The Ana Paula Property is currently considered an
      exploration and evaluation asset. Included in the acquisition were three
      other exploration properties, Aurea Norte and Aurea Sur, which are
      adjacent to the Ana Paula Property and the Ejutla Property located in
      Oaxaca, Mexico (note 5(a)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (4) | On December 23, 2014, the Company closed an agreement to
      acquire the Caballo Blanco property (note 5(b)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (5) | During the year ended December 31, 2014, the Company
      impaired certain exploration and evaluation properties in order to focus
      resources on the San Francisco Property as well as newly acquired
      assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|a) | Carrying amount by
project
|-- | --------------------------

| |                        |   |            |  |   |           |  |   | Exploration |  |   |         | 
| | ---------------------- | - | ---------- |  | - | --------- |  | - | ----------- |  | - | ------- | 
| |                        |   | Mineral    |  |   | Plant and |  |   | and         |  |   |         | 
| |                        |   | properties |  |   | equipment |  |   | evaluation  |  |   | Total   | 
| | At December 31, 2015   |   |            |  |   |           |  |   |             |  |   |         | 
| | San Francisco Mine     | $ | 9,923      |  | $ | 3,742     |  | $ | -           |  | $ | 13,665  | 
| | Ana Paula Project      |   | -          |  |   | 7,433     |  |   | 69,850      |  |   | 77,283  | 
| | Caballo Blanco Project |   | -          |  |   | -         |  |   | 29,725      |  |   | 29,725  | 
| | Other                  |   | -          |  |   | 29        |  |   | -           |  |   | 29      | 
| |                        | $ | 9,923      |  | $ | 11,204    |  | $ | 99,575      |  | $ | 120,702 | 

| |                        |   |            |  |   |           |  |   | Exploration |  |   |         | 
| | ---------------------- | - | ---------- |  | - | --------- |  | - | ----------- |  | - | ------- | 
| |                        |   | Mineral    |  |   | Plant and |  |   | and         |  |   |         | 
| |                        |   | properties |  |   | equipment |  |   | evaluation  |  |   | Total   | 
| | At December 31, 2014   |   |            |  |   |           |  |   |             |  |   |         | 
| | San Francisco Mine     | $ | 118,924    |  | $ | 61,153    |  | $ | 6,669       |  | $ | 186,746 | 
| | Caballo Blanco Project |   | -          |  |   | -         |  |   | 29,168      |  |   | 29,168  | 
| | Other                  |   | -          |  |   | 59        |  |   | -           |  |   | 59      | 
| |                        | $ | 118,924    |  | $ | 61,212    |  | $ | 35,837      |  | $ | 215,973 | 

28

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|10. | **MINERAL PROPERTIES, PLANT AND
      EQUIPMENT, EXPLORATION AND EVALUATION (Continued)**
|--- | -----------------------------------------------------------------------------------------
|    |                                                                                          
|b)  | **Mineral properties**                                                                   

| |                                        |   | December 31, |  |   | December 31, | 
| | -------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                        |   | 2015         |  |   | 2014         | 
| | Depletable mineral property
      (i)  | $ | 9,923        |  | $ | 102,908      | 
| | Non-depletable mineral properties (ii) |   | -            |  |   | 16,016       | 
| |                                        | $ | 9,923        |  | $ | 118,924      | 

| | i.  | San Francisco Property                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The San Francisco Property is located in Santa Ana,
      Sonora, Mexico which is formed by several adjacent claims. Commercial
      production began at San Francisco in April 2010. At December 31, 2015,
      mineral properties includes $nil (December 31, 2014 - $43,440) of
      unamortized deferred stripping costs. During the year ended December 31,
      2015, the unamortized deferred stripping costs were fully impaired (note
      6).
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ii. | La Chicharra Property                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The La Chicharra Property is also located in Santa Ana,
      Sonora, Mexico adjacent to the San Francisco Property, and is considered
      part of the overall San Francisco Gold Property. The La Chicharra Property
      was not yet commissioned or in commercial production and was therefore
      considered non-depletable. During the year ended December 31, 2015, the La
      Chicharra Property was fully impaired (note
6).                 

|c) | Exploration and evaluation                                                                                                               
|-- | -----------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                          
|   | The Company is holding and exploring a number of mineral
      properties in Mexico which are included in exploration and
    evaluation.

| | i.   | Caballo Blanco Gold Project                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | On December 23, 2014, the Company closed an agreement to
      acquire 100% of the Caballo Blanco Gold Project located in the state of
      Veracruz, Mexico.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ii.  | Ana Paula Project                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | On May 26, 2015, the Company acquired Newstrike and its
      primary asset the Ana Paula Project in Guerro, Mexico.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | iii. | El Picacho Project                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | On December 11, 2007, the Company entered into an
      exploration agreement with the option to acquire a 100% interest in the 11
      mining properties that comprise the El Picacho Project in Sonora, Mexico.
      The agreement, which was subsequently renegotiated, required the Company
      to make periodic payments totalling $300 up to October 2015. At December
      31, 2015, a cumulative total of $300 has been paid. The vendor will retain
      a 1.5% net smelter return interest, which is limited to $1,500. The vendor
      is obligated to sell or transfer to the Company their right to the royalty
      at any time, upon the Companys request, for which the Company will pay
      $500 for every half per cent (0.5%), to a maximum of $1,500. The Company
      has also previously staked an additional 6,500 hectares surrounding the
      claims and now controls over 7,200 hectares in the El Picacho area. During
      the year ended December 31, 2015, the El Picacho Project was fully
      impaired (note 6).

29

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|10. | MINERAL PROPERTIES, PLANT AND EQUIPMENT, EXPLORATION
      AND EVALUATION (Continued)
|--- | -------------------------------------------------------------------------------------

| | iv. | Other properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Company has title to the Patricia, Norma and El Foco
      claims located in the state of Sonora, Mexico. During the year ended
      December 31, 2014, the Company acquired the 1,380 hectare El Foco
      property. The Company has title to five wholly owned mining concessions,
      known as the TIM claims, located in the state of Zacatecas, Mexico; as
      well as the Cocula claims amounting to 534 hectares in the state of
      Jalisco, Mexico. During the year ended December 31, 2015, the properties
      were fully impaired (note 6).

|11. | TRADE PAYABLES AND ACCRUED
  LIABILITIES
|--- | ----------------------------------------

| |                         |   | December 31, |  |   | December 31, | 
| | ----------------------- | - | ------------ |  | - | ------------ | 
| |                         |   | 2015         |  |   | 2014         | 
| | Trade payables (1)      | $ | 26,794       |  | $ | 17,520       | 
| | Income taxes payable    |   | 1,779        |  |   | 4,482        | 
| | Accrued liabilities (2) |   | 2,118        |  |   | 1,736        | 
| | Vendor loan             |   | 1,725        |  |   | 1,725        | 
| | Other                   |   | 35           |  |   | 57           | 
| |                         | $ | 32,451       |  | $ | 25,520       | 

| | (1) | Trade payables at December 31, 2015 include amounts due
      to Goldcorp of C$4,000 ($2,890) due on November 2, 2016 in relation to the
      El Sauzal Plant acquisition (note 10) (December 31, 2014 -
$nil).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                 
| | (2) | Accrued liabilities at December 31, 2015 include amounts
      due in termination benefits of C$1,500 ($1,083) (December 31, 2014 -
      $nil).                                                                

|12. | PROVISION FOR SITE RECLAMATION AND
  CLOSURE
|--- | --------------------------------------------

| | Balance at December 31, 2013                         | $ | 3,168  |  
| | ---------------------------------------------------- | - | ------ | -
| | Accretion of discounted cash flows                   |   | 99     |  
| | Change in estimated cash flows and assumptions       |   | (1,402 | )
| | Balance at December 31, 2014                         | $ | 1,865  |  
| | Accretion of discounted cash flows                   |   | 44     |  
| | Change in
      estimated cash flows and assumptions |   | 2,072  |  
| | Balance at December 31, 2015                         | $ | 3,981  |  

The provision for site reclamation and
closure consists of mine closure costs, reclamation and retirement obligations
for mine facilities and infrastructure.

During the year ended December 31,
2015, the Company completed its annual reassessment of the provision for site
reclamation and closure based on independent technical reports. As a result of
this reassessment, the provision was increased by $2,072 (December 31, 2014 -
decrease in provision of $1,402).

The total undiscounted amount of
estimated cash flows required to settle the retirement obligations of the San
Francisco Property is $4,166 (December 31, 2014 - $2,312). The cash flows have
been inflated by the rate of 3.0% (December 31, 2014 - 4.0%) and discounted
using the pre-tax risk-free rate of 1.31% (December 31, 2014 - 2.17%) . The
provision for site reclamation and closure is not expected to be paid in the
near term and is intended to be funded from cash balances at the time of the
mine closure.

30

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|13. | LOAN FACILITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Company is a party to a secured loan facility with
      Sprott Asset Management (the Lender) for a principal amount of $10,223,
      which bears an annual interest rate of 9.0% paid monthly and was due on
      December 31, 2015. Under the terms of the loan facility, the Company has
      pledged all of its assets (including the assets of its subsidiaries) in
      favour of the Lender as security over the loan facility. In addition, the
      subsidiaries have each provided guarantees to the Lender for the repayment
      of any amounts advanced to the Company under the terms of the loan
      facility.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | On December 31, 2015, the loan facility was extended to
      January 31, 2016 and the Company incurred transaction costs of $204. The
      interest rate remained at 9.0% per annum paid monthly. Subsequent to
      December 31, 2015, the loan facility was refinanced and extended to June
      30, 2016 with an interest rate of 12.0% per annum to be paid monthly, and
      the principal amount outstanding payable on the maturity date (note
      25).                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The following changes took place to the loan facility
      over the years ended December 31, 2015 and December 31,
  2014:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| |  | During December 2014, the Company renegotiated with the
      Lender to extend the term of the current loan facility of C$13,000
      ($11,206) to a maturity date of December 31, 2015. The loan facility
      continued to have an interest rate of 9.0% per annum. The Company incurred
      transaction costs of $136, consisting of C$130 ($112) in extension fees
      and $24 in legal fees. For the year ended December 31, 2014, the effective
      interest rate of the loan facility was 10.2% (December 31, 2013 - 8.9%).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On February 2, 2015, the C$13,000 loan facility
      was converted to $10,223.                                                                                                                                                                                                                                                                                                                                                                                                                                                           

At December 31, 2015 and December 31,
2014, no accrued interest on the loan facility was included in trade payables
and accrued liabilities.

|14. | DEBENTURE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | As part of the acquisition of Newstrike (note 5(a)), the
      Company assumed an obligation for a debenture of C$2,000 ($1,632). The
      terms of the debenture required annual cash interest of 5%, paid
      semi-annually, and 225 common shares of the Company for every C$100 ($75)
      principal value outstanding on a monthly basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | On September 17, 2015, the Company renegotiated the terms
      of the debenture to extend the maturity date to May 31, 2016. As part of
      the negotiation, the Company agreed to a one-time issuance of 86,667
      common shares ($20) of the Company. In addition, 2,167 common shares of
      the Company are to be issued per month for every C$100 ($75) principal
      value outstanding retrospective to June 1, 2015. The total accrued common
      shares at September 17, 2015 was 154,579 ($35). Cash interest accrues only
      on amounts remaining unpaid after the maturity date or on default at a
      rate of 5%, payable semi-annually. The renegotiation did not constitute a
      substantial modification of the debenture and the Company recognized a
      charge of $98 in connection with the renegotiation.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The common share interest component of the debenture
      constitutes an embedded derivative and is measured at fair value. At
      December 31, 2015, the value of the embedded derivative, included in the
      carrying value of the debenture, was $29 (December 31, 2014 - $nil). At
      December 31, 2015, the Company has accrued common share interest of 43,340
      common shares ($6) included in the carrying value of the debenture
      (December 31, 2014 - $nil).                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Subsequent to December 31, 2015, the Company issued
      43,340 common shares to settle the accrued common share
  interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

31

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|15. | WARRANT LIABILITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | On October 19, 2015, the Company completed a C$6,000
      ($4,616) non-brokered private placement with Goldcorp Inc. (Goldcorp)
      consisting of 20 million units of the Companys shares at a price of
      C$0.30 ($0.23) per unit. Each unit consisted of one common share and
      one-half share purchase warrant. Each whole share purchase warrant is
      exercisable for one common share of the Company at a price of C$0.35
      ($0.27) per share for a term of 24 months. The share purchase warrants are
      subject to an accelerated exercise period of 10 days if the Companys
      closing share price meets or exceeds C$0.60 ($0.46) per share for a period
      of 20 consecutive days.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | At December 31, 2015, share purchase warrant transactions
      are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |                                                  |  | Number of share   |  |  | Weighted average    | 
| | ------------------------------------------------ |  | ----------------- |  |  | ------------------- | 
| |                                                  |  | purchase warrants |  |  | exercise price (C$) | 
| | Outstanding at January 1,
      2015             |  | -                 |  |  | -                   | 
| | Granted                                          |  | 10,000,000        |  |  | 0.35                | 
| | Outstanding and exercisable at December 31, 2015 |  | 10,000,000        |  |  | 0.35                | 

The share purchase warrants are
classified as a warrant liability under the principles of IAS 39 - Financial
Instruments Recognition and Measurement (note 3(i)), as the share purchase
warrants are considered a derivative financial instrument given that their
exercise price is in Canadian dollars (C$) while the functional currency of the
Company is the US dollar.

Accordingly, the Company used the
Black-Scholes option pricing model to determine the fair value of the share
purchase warrants at the date of issuance. On October 19, 2015, the share
purchase warrants were recognized at a fair value of $888 using the following
weighted average assumptions for the Black-Scholes option pricing:

| | Risk-free interest rate  |  | 0.50%     | 
| | ------------------------ |  | --------- | 
| | Expected life of options |  | 2.0 years | 
| | Annualized volatility    |  | 73.1%     | 
| | Dividend rate            |  | 0.0%      | 

At issuance, the remainder of the
private placement proceeds, totalling $3,729, was allocated to issued capital
using the residual method.

On December 31, 2015, the share
purchase warrants were revalued to a fair value of $282 using the following
weighted average assumptions for the Black-Scholes option pricing:

| | Risk-free interest rate  |  | 0.62%     | 
| | ------------------------ |  | --------- | 
| | Expected life of options |  | 1.8 years | 
| | Annualized volatility    |  | 73.2%     | 
| | Dividend rate            |  | 0.0%      | 

At December 31, 2015, the Company
recognized a gain of $606 (December 31, 2014 - $nil) on the revaluation of the
share purchase warrant liability (note 7(c)).

32

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|16. | **EQUITY**                  
|--- | ----------------------------
|    |                             
|a)  | **Authorized share capital**

| |  | Unlimited number of common shares without par value.
      These shares have voting rights and their holders are entitled to receive
      dividend payments; and                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Unlimited number of convertible preference shares without
      par value, with the same rights as the common shares on dissolution and
      similar events. These shares have no voting rights and are not entitled to
      dividend payments.

The Company had the following common
share transactions:

Year ended December 31, 2015

| |  | On May 26, 2015, the Company completed the acquisition of
      Newstrike and issued 105,108,103 common shares valued at $63,820 (note
      5(a)).                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On October 19, 2015, the Company issued 20,000,000 common
      shares valued at $3,729 on closing of the private placement with Goldcorp
      (note 15). Cash proceeds of C$6,000 ($4,616) are restricted for the
      acquisition, disassembly and transportation of the El Sauzal plant (note
      10).
| |  | On October 22, 2015, the Company issued 303,368 common
      shares valued at $67 to settle debenture accrued common share interest
      (note 14).                                                                                                                                                         
| |  | On November 2, 2015, the Company issued 10,000,000 common
      shares valued at $2,291 in connection with the El Sauzal Plant acquisition
      from Goldcorp (note 10).                                                                                                                                    
| |  | On December 1, 2015, the Company issued 43,340 common
      shares valued at $7 to settle debenture common share interest (note 14).                                                                                                                                                                         

Year ended December 31, 2014

| |  | During the year, the Company issued 433,334 common
      shares, for a value of $423, to share option holders who exercised their
      options (note 16b).                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On January 24, 2014, the Company issued 300,000 common
      shares as part of renegotiating the loan facility.                                                                                       
| |  | On February 11, 2014, the Company closed a bought deal
      financing and issued 18,920,000 common shares for gross proceeds of
      C$28,380 ($25,741), with transaction costs of C$1,716 ($1,557).
| |  | On December 23, 2014, the Company completed the
      acquisition of Caballo Blanco and issued 16,065,000 common shares with a
      value of C$16,065 ($13,813) (note 5(b)).                         

At December 31, 2015, there were
315,332,190 issued and outstanding common shares (December 31, 2014 -
179,877,379). The Company does not currently pay dividends and entitlement will
only arise upon declaration.

|b) | Share options                                                                                                                                                                                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                         
|   | The Company has an incentive share option plan (the
      plan) in place under which it is authorized to grant share options to
      executive officers, directors, employees and consultants. The plan allows
      the Company to grant share options up to a maximum of 10.0% of the number
      of issued shares of the Company.
|   |                                                                                                                                                                                                                                                                                                                                         
|   | Share options granted under the plan will have a term not
      to exceed five years, have an exercise price not less than the Discounted
      Market Price as defined by the TSX Corporate Finance Manual and vest over
      periods up to two years.                                                                                

33

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|16. | EQUITY (Continued)                                                                                                                                           
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                              
|    | Share option transactions and the number of share options
      outstanding during the year ended December 31, 2015 and 2014 are
      summarized as follows:

| |                                        |  | Number of share |   |  | Weighted average    | 
| | -------------------------------------- |  | --------------- | - |  | ------------------- | 
| |                                        |  | options         |   |  | exercise price (C$) | 
| | Outstanding at January 1,
      2014   |  | 11,375,000      |   |  | 1.99                | 
| | Granted                                |  | 3,300,000       |   |  | 1.44                | 
| | Exercised                              |  | (433,334        | ) |  | 1.08                | 
| | Forfeited                              |  | (1,341,666      | ) |  | 2.24                | 
| | Outstanding at December 31,
      2014 |  | 12,900,000      |   |  | 1.85                | 
| | Granted                                |  | 11,637,500      |   |  | 0.89                | 
| | Expired                                |  | (2,997,000      | ) |  | 0.85                | 
| | Forfeited                              |  | (75,000         | ) |  | 0.75                | 
| | Outstanding at December 31, 2015       |  | 21,465,500      |   |  | 1.47                | 
| | Exercisable at December 31, 2015       |  | 15,634,250      |   |  | 1.72                | 

Share options outstanding and
exercisable at December 31, 2015 are as follows:

Weighted
    
    
    
    
    
    
    
    
    WeightedWeighted
    
    
    average
    
    
    
    
    
    Weighted
    
    
    averageExercise
    
    Number of
    
    
    average
    
    
    remaining life
    
    
    Number of
    
    
    average
    
    
    remaining lifeprice range
    
    options
    
    
    exercise price
    
    
    of options
    
    
    options
    
    
    exercise price
    
    
    of options(C$)
    
    outstanding
    
    
    (C$)
    
    
    (years)
    
    
    exercisable
    
    
    (C$)
    
    
    (years)0.25 - 1.00
    
    8,738,500
    
    
    0.65
    
    
    4.60
    
    
    4,557,250
    
    
    0.71
    
    
    4.631.01 - 2.00
    
    5,965,000
    
    
    1.37
    
    
    3.57
    
    
    4,315,000
    
    
    1.34
    
    
    3.472.01 - 3.14
    
    6,762,000
    
    
    2.64
    
    
    1.51
    
    
    6,762,000
    
    
    2.64
    
    
    1.5121,465,500
    
    
    1.47
    
    
    3.34
    
    
    15,634,250
    
    
    1.72
    
    
    2.96


There were nil share options exercised
during the year ended December 31, 2015 (year ended December 31, 2014 -
433,334). The weighted average share prices at the dates of exercise for the
433,334 share options exercised during the year ended December 31, 2014 were
C$1.57.

The fair value of share options
recognized as an expense during the year ended December 31, 2015 was $1,573
(year ended December 31, 2014 - $1,411). There were 11,637,500 share options
granted during the year ended December 31, 2015 (year ended December 31, 2014 -
3,300,000).

During the years ended December 31,
2015 and 2014, the weighted average grant date fair value per option of the
share options granted was C$0.29 ($0.21) and C$0.73 ($0.63), respectively.

34

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|16. | EQUITY (Continued)                                                                                                                                                                                    
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                       
|    | The following are the weighted average assumptions used
      for the Black-Scholes option pricing model valuation of share options
      granted during the years ended December 31, 2015 and
  2014:

| |                          |  | Years ended
      December 31, | 
| | ------------------------ |  | ------------------------------ | 
| |                          |  | 2015                           | 
| | Risk-free interest rate  |  | 0.9%                           | 
| | Expected life of options |  | 4.1 years                      | 
| | Annualized volatility    |  | 64.2%                          | 
| | Forfeiture rate          |  | 2.2%                           | 
| | Dividend rate            |  | 0.0%                           | 

|        | The risk-free rate of periods within the expected life of
      the share option is based on the Canadian government bond rate. The
      expected life of share options granted represents the period of time that
      share options granted are expected to be outstanding. Expected
      volatilities are based on historical volatility of the Companys shares
      listed on the TSX. The expected forfeiture is based on the historical
      forfeiture rate of the Companys share options.                                                                                                                                                                                                                                                                                                                                                                                  
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|**17.** | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | For the year ended December 31, 2015, the Company
      incurred $432 of current tax expense (December 31, 2014 - $10,152). The
      decrease in current tax expense in 2015 primarily relates to the decrease
      in profitability at the San Francisco Mine compared to 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | For the year ended December 31, 2015, the Company
      recognized $50,690 of deferred tax recovery (December 31, 2014 - $620
      deferred tax expense). The deferred tax recovery in 2015 primarily relates
      to timing differences reversal related to the impairment of mineral
      properties and other assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|**a)**  | Rate reconciliation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | Income tax expense differs from the amount that would
      result by applying the combined Canadian federal and provincial income tax
      rates to earnings before income taxes. Substantially all of the Companys
      taxable income for the year ended December 31, 2015 is generated in Mexico
      and is subject to Mexicos 30.0% tax rate (December 31, 2014  30.0%). The
      primary driver of the change in effective tax rate for the year ended
      December 31, 2015 (22.7%) and the year ended December 31, 2014 (54.0%) was
      the impact of tax losses and temporary differences generated at the San
      Francisco Mine during 2015 which were not recognized as deferred tax
      assets as the Company does not consider it probable that future taxable
      profit will be available against which these deferred tax assets can be
      utilized.

35

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|17. | INCOME TAXES (Continued)                                                                                                                 
|--- | -----------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                          
|    | The impact of being subject to this higher tax rate, as
      well as other differences, is included in the following
    reconciliation:

| |                                                                 |   | Years ended
      December 31, |  
| | --------------------------------------------------------------- | - | ------------------------------ | -
| |                                                                 |   | 2015                           |  
| | (Loss) earnings before income
      taxes                       | $ | (240,569                       | )
| | Combined Canadian federal and provincial
      income tax rates |   | 26.0%                          |  
| | Expected income tax (recovery) expense                          |   | (62,548                        | )
| | Items that cause an increase (decrease):                        |   |                                |  
| | Effect of different tax rates in foreign jurisdiction           |   | (9,371                         | )
| | Non-deductible
      expenses and Mexico inflation adjustments  |   | 2,590                          |  
| | Foreign exchange                                                |   | 3,899                          |  
| | Utilization of tax
      losses                                 |   | (50                            | )
| | Effect of SMD in Mexico                                         |   | (6,244                         | )
| | Change in
      unrecognized deferred income tax assets         |   | 18,351                         |  
| | Other                                                           |   | 3,115                          |  
| | Income (recovery) tax expense                                   | $ | (50,258                        | )

|b) | Deferred tax assets and liabilities                                                                                     
|-- | ------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                         
|   | The composition of the Company's net deferred income tax
      liabilities at December 31, 2015 and 2014 are as
follows:

| |                                                            |   | December 31, |   |   | December 31, |  
| | ---------------------------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                                            |   | 2015         |   |   | 2014         |  
| | Deferred income tax assets:                                |   |              |   |   |              |  
| | Non-capital losses                                         | $ | 1,684        |   | $ | 3,060        |  
| | Monetary items and other                                   |   | -            |   |   | 2,907        |  
| |                                                            |   | 1,684        |   |   | 5,967        |  
| |                                                            |   |              |   |   |              |  
| | Deferred income tax liabilities:                           |   |              |   |   |              |  
| | Mineral
      properties book value in excess of tax value |   | (311         | ) |   | (54,131      | )
| | Other                                                      |   | (2,678       | ) |   | (3,832       | )
| |                                                            |   | (2,989       | ) |   | (57,963      | )
| | Deferred income tax liabilities, net                       | $ | (1,305       | ) | $ | (51,996      | )

The Company's unrecognized deductible
temporary difference at December 31, 2015 and 2014 are as follows:

| |                                                                                 |   | December 31, |  |   | December 31, | 
| | ------------------------------------------------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                                                                 |   | 2015         |  |   | 2014         | 
| | Deductible temporary
      differences:                                         |   |              |  |   |              | 
| | Non-capital losses                                                              | $ | 112,872      |  | $ | 45,712       | 
| | Mineral properties tax value
      in excess of book value and other tax assets |   | 38,571       |  |   | 842          | 
| | Share issuance costs                                                            |   | 1,288        |  |   | 1,893        | 
| | Deductible temporary differences                                                | $ | 152,731      |  | $ | 48,447       | 

36

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|**17.** | INCOME TAXES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|**c)**  | Non-capital losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | At December 31, 2015, the Company has losses for income
      tax purposes in Canada and Mexico of $37,053 (December 31, 2014 - $37,699)
      and $82,137 (December 31, 2014 - $11,073), respectively, which may be used
      to reduce future taxable income. The Canadian losses, if not utilized,
      will expire beginning 2026 through to 2036, while the Mexican losses, if
      not utilized, will expire beginning 2016 through to 2025. Of these
      Canadian and Mexican amounts, $5,279 (December 31, 2014 - $7,255) and
      $1,039 (December 31, 2014 - $3,912), respectively, have been offset
      against recognized deferred tax liabilities.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|**18.** | (LOSS) EARNINGS PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Year ended
      December 31, 2015
    
    
    Year ended
      December 31, 2014Weighted
    
    
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    Earnings
    
    
    averageLoss for
    
    
    shares
    
    
    Loss per
    
    
    for the
    
    
    shares
    
    
    Earningsthe year
    
    
    outstanding
    
    
    share
    
    
    year
    
    
    outstanding
    
    
    per shareBasic EPS
    $
    (190,311
    )
    
    248,620,420
    
    $
    (0.77
    )
    $
    9,187
    
    
    161,297,692
    
    $
    0.06Effect of dilutive securities:Share options
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    707,469
    
    
    -Diluted EPS
    $
    (190,311
    )
    
    248,620,420
    
    $
    (0.77
    )
    $
    9,187
    
    
    162,005,161
    
    $
    0.06


|    | At December 31, 2015, 21,465,500 share options were
      outstanding, all of which were anti-dilutive because the Company was in a
      loss position for the year ended December 31, 2015. Additionally, at
      December 31, 2015, 10,000,000 share purchase warrants were anti-dilutive
      because the underlying exercise price exceeded the average market price
      from the date of issuance to December 31, 2015.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | At December 31, 2014, 12,900,000 share options were
      outstanding, of which 9,858,336 were anti-dilutive because the underlying
      exercise prices exceeded the average market price for the year ended
      December 31, 2014 of the underlying common shares of C$1.51
  ($1.31).                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|19. | SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH
      FLOWS                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | As at December 31, 2015, the Company held $11,481 of cash
      (December 31, 2014 - $26,069) and $18 of cash equivalents (December 31,
      2014 - $883).                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Significant non-cash transactions were as
  follows:                                                                                                                                                                                                                                                                                                                                                                             

| |                                                      |  |      |  |   | Years ended
      December 31, | 
| | ---------------------------------------------------- |  | ---- |  | - | ------------------------------ | 
| |                                                      |  | Note |  |   | 2015                           | 
| | Shares issued to acquire
      Newstrike             |  | 5a)  |  | $ | 63,820                         | 
| | Shares issued to acquire Caballo Blanco              |  | 5b)  |  |   | -                              | 
| | Shares issued for El Sauzal
      Plant acquisition  |  | 10   |  | $ | 2,291                          | 
| | Shares issued as payment of debenture
      interest |  | 14   |  | $ | 74                             | 
| | VAT used to settle income tax liabilities            |  | 8    |  |   | -                              | 

37

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|20. | **FINANCIAL INSTRUMENTS AND
      RISK MANAGEMENT**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|a)  | Fair value measurement of financial assets
      and liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company has established a fair value hierarchy that
      reflects the significance of inputs of valuation techniques used in making
      fair value measurements as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Level 1 - quoted prices in active markets for
      identical assets or liabilities;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Level 2 - inputs other than quoted prices included in
      Level 1 that are observable for the asset or liability, either directly
      (i.e. as prices) or indirectly (i.e. from derived prices); and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Level 3 - inputs for the asset or liability
      that are not based upon observable market data.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | At December 31, 2015 and 2014, none of the Companys
      financial assets and liabilities are measured and recognized in the
      consolidated statement of financial position at fair value with the
      exception of the outstanding share purchase warrants (note 15).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company has determined the estimated fair values of
      its financial instruments based upon appropriate valuation methodologies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | At December 31, 2015 and 2014, there were no financial
      assets or liabilities measured and recognized in the consolidated
      statement of financial position at fair value that would be categorized as
      Level 2 or Level 3 in the fair value hierarchy above with the exception of
      the outstanding share purchase warrants, a Level 2 fair value measurement
      as outlined in note 15.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|b)  | Risk management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Companys primary business activities consist of the
      acquisition, exploration, development and operation of mineral resource
      properties in Mexico. The Company examines the various financial risks to
      which it is exposed and assesses the impact and likelihood of occurrence.
      These risks may include credit risk, commodity price risk, currency risk,
      liquidity risk, and interest rate risk. The Companys risk management
      program strives to evaluate the unpredictability of financial and
      commodity markets and its objective is to minimize the potential adverse
      effects of such risks on the Companys financial performance, where
      financially feasible to do so. When deemed material, these risks may be
      monitored by the Companys corporate finance group and they are regularly
      discussed with the Board of Directors or one of its committees.

| | i. | Credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | Counterparty credit risk is the risk that the financial
      benefits of contracts with a specific counterparty will be lost if a
      counterparty defaults on its obligations under the contract. This includes
      any cash amounts owed to the Company by those counterparties, less any
      amounts owed to the counterparty by the Company where a legal right of
      set-off exists and also includes the fair values of contracts with
      individual counterparties which are recorded in the consolidated financial
      statements.                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | The Companys credit risk is predominantly limited to
      cash and cash equivalent balances held in financial institutions, the
      recovery of VAT receivable from the Mexican tax authorities, any gold and
      silver sales and related receivables and other receivables. The maximum
      exposure to the credit risk is equal to the carrying value of such
      financial assets. At December 31, 2015, the Company expects to recover the
      full amount of such assets, less any allowance for doubtful accounts in
      trade and other receivables (note 8).
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | The objective of managing counterparty credit risk is to
      minimize potential losses in financial assets. The Company assesses the
      quality of its counterparties, taking into account their credit worthiness
      and reputation, past performance and other
factors.                                                                                                                                                                                                                                                                                                  

38

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|20. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
      (Continued)
|--- | -----------------------------------------------------------

| |      | Cash and cash equivalents are only deposited with or held
      by major financial institutions where the Company conducts its business.
      In order to manage credit and liquidity risk, the Company invests only in
      highly rated investment grade instruments that have maturities of three
      months or less. Limits are also established based on the type of
      investment, the counterparty and the credit rating.                                                                                                                                                                                                                                                                                                                                                     
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      | Gold and silver sales are made to a limited number of
      large international organizations specializing in the precious metals
      markets. The Company believes them to be of sound credit worthiness, and
      to date, all receivables have been settled in accordance with agreed upon
      terms and conditions. The Mexican tax authorities with whom the Company
      holds a VAT receivable balance, are also deemed to be of sound credit
      worthiness.                                                                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ii.  | Commodity price risks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      | The Company is exposed to price risk associated with the
      volatility of the market price of commodities, in particular gold and
      silver, and also to many consumables that are used in the production of
      gold and silver.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      | The prices of most commodities are determined in
      international markets and as such the Company has limited or no ability to
      control or predict the future level of most commodity prices. In some
      instances, the Company may have the ability to enter into derivative
      financial instruments to manage the Companys exposure to changes in the
      price of commodities such as gold, silver, oil and electricity. At
      December 31, 2015, the Company had elected not to actively manage its
      exposure to commodity price risk through the use of derivative financial
      instruments. Subsequent to December 31, 2015, the Company entered into
      derivative financial instruments to manage its commodity price risk
      exposure (note 25).
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | iii. | Currency risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      | The Companys functional currency is the US dollar and
      therefore the Companys earnings and total comprehensive income are
      impacted by fluctuations in the value of foreign currencies in relation to
      the US dollar.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      | The table below summarizes the net monetary assets and
      liabilities held in foreign currencies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| |                                                |   | December 31, |   |   | December 31, |  
| | ---------------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                                |   | 2015         |   |   | 2014         |  
| | Canadian dollar net monetary
      liabilities | $ | (5,934       | ) | $ | (11,201      | )
| | Mexican peso net monetary assets               |   | 6,126        |   |   | 10,297       |  
| |                                                | $ | 192          |   | $ | (904         | )

The effect on earnings before income
tax at December 31, 2015 of a 10.0% change in the foreign currencies against the
US dollar on the above mentioned net monetary assets and liabilities of the
Company is estimated to be a increase/decrease of $19 (December 31, 2014 - $90)
assuming that all other variables remained constant.

The calculations above are based on
the Companys statement of financial position exposure at December 31, 2015.

39

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|20. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
      (Continued)
|--- | -----------------------------------------------------------

| | iv. | Liquidity risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Liquidity risk is the risk that the Company will
      encounter difficulty in meeting obligations associated with its financial
      liabilities that are settled by delivering cash or another financial
      asset. The Company has a planning and budgeting process in place to help
      determine the funds required to support the Companys normal operating
      requirements and its exploration and production plans. As outlined in note
      1 to the financial statements, the Company has identified a material
      uncertainty in its ability to meet its obligations as they come
  due.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | At December 31, 2015, the Company has a working capital
      deficiency of $13,779 and its current liabilities include a $1,480
      debenture and a $10,019 loan facility which are repayable on May 31, 2016
      and June 30, 2016, respectively. The Company is reviewing alternative to
      repay or refinance these liabilities as they come due.                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | In the normal course of business, the Company enters into
      contracts and performs business activities that give rise to commitments
      for future minimum payments. The Company has no concentrations of
      liquidity risk.                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | A summary of future operating commitments is presented in
      note 23.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | v.  | Interest rate risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The Companys interest revenue earned on cash and
      interest expense incurred on the loan facility and equipment financing are
      exposed to interest rate risk. The Company does not enter into derivative
      contracts to manage this risk, and the Companys exposure to interest rate
      risk is very low as the Company has a fixed interest rate on its loan
      facility, debenture and equipment financing.                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | At December 31, 2015, a 1.0% increase of the effective
      interest rate on the loan facility would decrease its fair value by $50
      (December 31, 2014 - C$122 ($105)). Additionally, a 1.0% decrease of the
      effective interest rate on the loan facility would increase its fair value
      by $50 (December 31, 2014 - C$123 ($106)).                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | At December 31, 2015, a 1.0% increase of the effective
      interest rate on the equipment financing would decrease its fair value by
      $7 (December 31, 2014 - $11). Additionally, a 1.0% decrease of the
      effective interest rate on the equipment financing would increase its fair
      value by $10 (December 31, 2014 - $19).                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The Company has elected not to enter into interest rate
      swaps or other instruments to actively manage such risks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | vi. | Fair value disclosures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | At December 31, 2015 and 2014, none of the Companys
      financial assets and liabilities are measured and recognized in the
      consolidated statement of financial position at fair value with the
      exception of the outstanding share purchase warrants (note 15).                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The carrying values of cash and cash equivalents,
      restricted cash, trade and other receivables, trade payables and accrued
      liabilities, loan facility, and the debenture, approximate their fair
      value due to their short-term nature. The carrying value of the vendor
      loan approximates its fair value given its short-term nature.                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The fair value of the equipment financing at December 31,
      2015 is $1,214 (December 31, 2014 - $1,911) as determined by discounting
      the future cash flows by a discount factor based on an interest rate of
      9.0% (December 31, 2014 - 9.0%), which reflects the Companys current rate
      of borrowing.                                                                                                                                                                                                                                                                                     

40

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|21. | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                     
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                
|    | The Companys related parties include key management
      personnel and any transactions with such parties for goods and/or services
      are made on regular commercial terms and are considered to be at arms
      length. During the years ended December 31, 2015 and 2014, the Company did
      not enter into any transactions with related parties.
|    |                                                                                                                                                                                                                                                                                                                                                                
|    | Key management are those personnel having the authority
      and responsibility for planning, directing, and controlling the Company.
      Salaries and benefits, bonuses and share-based payments are included in
      corporate and administrative expenses.                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                
|    | Key management compensation
includes:                                                                                                                                                                                                                                                                                                                          

| |                       |   | Years ended
      December 31, | 
| | --------------------- | - | ------------------------------ | 
| |                       |   | 2015                           | 
| | Salaries and benefits | $ | 1,251                          | 
| | Bonuses               |   | 752                            | 
| | Share-based payments  |   | 1,428                          | 
| | Termination benefits  |   | 1,083                          | 
| |                       | $ | 4,514                          | 

|22. | MANAGEMENT OF CAPITAL                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                
|    | The Companys objectives of capital management are
      intended to safeguard the Companys normal operating requirements on an
      ongoing basis and the continued development and exploration of its mineral
      properties. The capital of the Company consists of the consolidated
      equity, loan facility and equipment financing, net of
  cash.

| |                                                             |   | December 31, |   |   | December 31, |  
| | ----------------------------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                                             |   | 2015         |   |   | 2014         |  
| | Equity                                                      | $ | 96,462       |   | $ | 213,777      |  
| | Loan facility                                               |   | 10,019       |   |   | 11,070       |  
| | Debenture                                                   |   | 1,480        |   |   | -            |  
| | Equipment financing                                         |   | 1,229        |   |   | 2,079        |  
| |                                                             |   | 109,190      |   |   | 226,926      |  
| | Less: Cash and cash equivalents (including restricted cash) |   | (11,499      | ) |   | (26,952      | )
| |                                                             | $ | 97,691       |   | $ | 199,974      |  

In order to facilitate the management
of its capital requirements, the Company prepares expenditure budgets that are
updated as necessary depending on various factors, including successful capital
deployment and general industry conditions.

The Company also has in place a
planning, budgeting and forecasting process which is used to identify the amount
of funds required to ensure the Company has appropriate liquidity to meet short
and long-term operating objectives. In order to maintain or adjust its capital
structure, the Company may issue new shares or debt.

At December 31, 2015, the Company is
seeking opportunities to obtain funding to repay liabilities as they come due
and restructure the Companys capital structure (note 1). At December 31, 2015,
the Company is not subject to any externally imposed capital requirements except
for restricted cash to be used for the acquisition, disassembly and
transportation of the El Sauzal plant (note 10).

41

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|23. | COMMITMENTS AND CONTINGENCIES                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                    
|    | A summary of undiscounted liabilities and future
      operating commitments at December 31, 2015 are as
  follows:

| |                                                            |   |        |  |   | Within |  |   | 2 - 5 | 
| | ---------------------------------------------------------- | - | ------ |  | - | ------ |  | - | ----- | 
| |                                                            |   | Total  |  |   | 1 year |  |   | years | 
| | Maturity analysis of
      financial liabilities           |   |        |  |   |        |  |   |       | 
| | Trade payables and accrued liabilities                     | $ | 32,451 |  | $ | 32,451 |  | $ | -     | 
| | Loan facility                                              |   | 10,223 |  |   | 10,223 |  |   | -     | 
| | Equipment financing                                        |   | 1,229  |  |   | 851    |  |   | 378   | 
| | Interest payments on loan facility and equipment financing |   | 597    |  |   | 591    |  |   | 6     | 
| |                                                            |   | 44,500 |  |   | 44,116 |  |   | 384   | 
| | Commitments                                                |   |        |  |   |        |  |   |       | 
| | Future operating commitments (1)(2)                        |   | 29,195 |  |   | 29,195 |  |   | -     | 
| | Provision for site
      reclamation and closure (3)       |   | 3,981  |  |   | -      |  |   | 3,981 | 
| | Other provisions (4)                                       |   | 1,113  |  |   | 1,113  |  |   | -     | 
| | Provision for contingent payment (note 5(b))               |   | 5,000  |  |   | -      |  |   | 5,000 | 
| |                                                            |   | 39,289 |  |   | 30,308 |  |   | 8,981 | 
| | Total financial liabilities and commitments                | $ | 83,789 |  | $ | 74,424 |  | $ | 9,365 | 

| | (1) | The future operating commitments of the Company are
      mainly due to the mining contract with Peal de Mexico, S.A. de C.V.
      (Peal). The original Peal contract was for 42 months, however an
      addendum was signed effective November 1, 2012 for five years (December
      31, 2015 - 22 months remaining) and covers substantially all mining
      services at a fixed cost per tonne of material mined. The Peal commitment
      is based on the expected tonnage for 2016. Operating commitments also
      includes a guarantee provided by the Company for the office premises at
      its corporate office.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (2) | Contractual commitments are defined as agreements that
      are enforceable and legally binding. Certain of the contractual
      commitments may contain cancellation clauses; the Company discloses the
      contractual operating commitments based on management's intent to fulfil
      the contracts.                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (3) | Provision for site reclamation and closure represents the
      undiscounted amount of the estimated cash flows required to settle the
      retirement obligations of the San Francisco Mine.                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (4) | Other provisions represent the undiscounted amount of the
      demobilization costs related to the Peal contract, whereby the Company is
      responsible for demobilization costs payable one month prior to the end of
      the mining contract. This obligation has been recorded at an annualized
      discount rate of 1.4%, reflecting the implied interest rate, and
      calculated according to the formula stipulated in the contract. At
      December 31, 2015, this obligation was determined to be
  $1,113.                                                                                                    

Various tax and legal matters are
outstanding from time to time. In the event that managements estimate of the
future resolution of these matters changes, the Company will recognize the
effects of these changes in the consolidated financial statements on the date
such changes occur.

42

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|24. | SEGMENTED INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Company has determined that it has one reportable
      operating segment, being the acquisition, exploration, and development of
      mineral properties located in Mexico. At December 31, 2015, all of the
      Companys operating and capital assets are located in Mexico except for
      $3,928 (December 31, 2014 - $2,312) of cash and cash equivalents and other
      current assets which are held in Canada.                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Reporting is prepared on a geographic and consolidated
      basis as determined by the requirements of the Chief Executive Officer as
      the chief operating decision maker for the Company. The Company does not
      treat the production of gold and silver, the primary two minerals, as
      separate operating segments as they are the output of the same production
      process and only become separately identifiable as finished goods and are
      not reported separately from a management perspective.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | During the years ended December 31, 2015 and 2014, the
      Company had sales agreements with three major customers. The percentage
      breakdown of metal revenues by major customer is as
  follows:                                                                                                                                                                                                                                                                                                                     

| |            |  | Years ended
      December 31, | 
| | ---------- |  | ------------------------------ | 
| |            |  | 2015                           | 
| | Customer A |  | 94%                            | 
| | Customer B |  | 3%                             | 
| | Customer C |  | 3%                             | 
| | Total      |  | 100%                           | 

Due to the nature of the gold market,
the Company is not dependent on any customers to sell the finished goods.

The Companys metal revenues from
operations, 100% of which are derived in Mexico, for the years ended December
31, 2015 and 2014 are as follows:

| |                   |   | Years ended
      December 31, | 
| | ----------------- | - | ------------------------------ | 
| |                   |   | 2015                           | 
| | Gold              | $ | 108,387                        | 
| | Silver by-product |   | 805                            | 
| |                   | $ | 109,192                        | 

|25. | EVENTS AFTER THE REPORTING
PERIOD
|--- | ---------------------------------

| | a) | On January 26, 2016, the Company announced that it
      finalized an agreement to re-finance its existing $10,223 secured loan
      facility. The new loan facility is effective as of January 26, 2016 and
      has a maturity date of June 30, 2016. Interest is payable monthly at the
      rate of 12.0% per annum, and the principal amount outstanding is payable
      on the maturity date. No changes in security pledges to the Lender with
      the refinancing. The new loan facility includes financial covenants
      related to minimum cash and cash equivalents and working capital levels,
      as at March 16, 2016, the Company is in compliance with these covenants.
      In consideration of the re-financing, the Company will pay a bonus to the
      lenders under the loan facility, in the amount of $409 on the earlier of
      the repayment of the loan facility and June 30, 2016. The bonus is payable
      at the option of each lender, in relation to its proportion of the credit
      facility, in cash or in common shares of the Company. Any shares issued in
      connection with the bonus payment shall be issued at a deemed price equal
      to the volume weighted average price per share on the TSX for the ten days
      immediately preceding issuance, less 10.0%.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

43

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|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2015                                                
|(In thousands of
      United States dollars, except where noted)

|25. | EVENTS AFTER THE REPORTING PERIOD
    (Continued)
|--- | -------------------------------------------------

| | b) | Subsequent to December 31, 2015, the Company entered into
      short-term options contracts whereby the Company purchased the option to
      sell gold ounces at a set price (put option) and financed the purchase
      price of this put option by selling the right to a third party to purchase
      a number of the Companys gold ounces at a set price (call option). The
      Company has placed a minimum floor sales price and a maximum sales price
      on the ounces that are subject to these contracts. A total of 3,200 gold
      ounces were placed under these contracts with expiry dates through to June
      30, 2016 with floor sales prices at $1,075/oz and a weighted average
      maximum sales price of $1,120/oz. At March 14, 2016, all 3,200 options
      contracts were unsettled.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | c) | As part of the Companys regular sales procedures, a
      portion of the Companys gold ounces are occasionally committed for
      near-term delivery. Subsequent to December 31, 2015, approximately 13,000
      gold ounces were committed for delivery at a gold price of $1,083/oz.
      These ounces will be delivered over January to April 2016. At March 14,
      2016, approximately 3,000 of these gold ounces remain to be
    delivered.                                                                                                                                                                                                                                                                                                                                                                      

44

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