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Exhibit 99.1



FORM 51  102F2

ANNUAL INFORMATION FORM

Nine Months ended December 31, 2011

March 28, 2012

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TABLE OF CONTENTS

|FORWARD LOOKING STATEMENTS                                       | 3 
|---------------------------------------------------------------- | --
|MINERAL RESERVE AND RESOURCE ESTIMATES                           | 4 
|CURRENCY AND EXCHANGE RATES                                      | 5 
|CORPORATE STRUCTURE                                              | 5 
|GENERAL DEVELOPMENT OF THE
      BUSINESS                        | 6 
|DESCRIPTION OF THE BUSINESS                                      | 13
|Risk Factors                                                     | 13
|Mineral Properties                                               | 25
|DIVIDENDS                                                        | 40
|CAPITAL STRUCTURE                                                | 40
|MARKET FOR SECURITIES                                            | 42
|ESCROWED SHARES                                                  | 43
|DIRECTORS AND OFFICERS                                           | 43
|Director and Officer Information                                 | 43
|Shareholdings of Directors and
      Officers                    | 44
|Corporate Cease Trade Orders or Bankruptcies                     | 44
|Penalties or Sanctions                                           | 45
|Conflicts of Interest                                            | 45
|LEGAL PROCEEDINGS AND REGULATORY
      ACTIONS                   | 46
|INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL
      TRANSACTIONS | 46
|REGISTRAR AND TRANSFER AGENT                                     | 46
|MATERIAL CONTRACTS                                               | 46
|INTEREST OF EXPERTS                                              | 47
|AUDIT COMMITTEE INFORMATION                                      | 47
|ADDITIONAL INFORMATION                                           | 49

-i-

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Unless otherwise stated or the context requires otherwise,
references in this AIF to the "Company", "Timmins", "we," us" or "our" refer to
Timmins Gold Corp. and its subsidiaries on a consolidated basis.

The Company recently changed its fiscal year end to December 31
from March 31. Consequently, this AIF is filed in respect of the nine months
ended December 31, 2011. References in this AIF to "fiscal 2011", "fiscal 2010",
"fiscal 2009" and "fiscal 2008" refer to the years (each a 12 month period)
ended March 31, 2011, 2010, 2009 and 2008, respectively. Readers should be aware
that references to fiscal 2011 are to a fiscal period prior to the nine months
ended December 31, 2011 to which this AIF relates. Readers should also be aware
that because the nine months ended December 31, 2011 is a shorter fiscal period
than the prior fiscal period, direct comparisons between such periods cannot be
made.

FORWARD LOOKING STATEMENTS

Certain statements and information contained in this Annual
Information Form (AIF) and the documents incorporated by reference in this AIF
constitute "forward-looking statements" within the meaning of applicable U.S.
securities laws and forward-looking information within the meaning of
applicable Canadian securities laws, which we refer to collectively as
"forward-looking statements". Forward-looking statements are statements and
information regarding possible events, conditions or results of operations that
are based upon assumptions about future economic conditions and courses of
action. All statements and information other than statements of historical fact
may be forward-looking statements. In some cases, forward-looking statements can
be identified by the use of words such as seek, expect, anticipate,
budget, plan, estimate, continue, forecast, intend, believe,
predict, potential, target, may, could, would, might, will and
similar words or phrases (including negative variations) suggesting future
outcomes or statements regarding an outlook. Forward-looking statements in this
AIF and the documents incorporated herein by reference include, but are not
limited to statements and information regarding: the Company's future mining
activities, including mining capacity, recoveries, cash costs, production and
mine life; the Company's reserves and resources estimates; the Companys
exploration and development plans, including anticipated costs and timing
thereof; the Companys plans for growth through exploration activities,
acquisitions or otherwise; and expectations regarding future maintenance and
capital expenditures, working capital requirements, the availability of
financing and future effective tax rates.

Such forward-looking statements are based on a number of
material factors and assumptions, including, but not limited to: that contracted
parties provide goods and/or services in a timely manner, that no unusual
geological or technical problems occur, that plant and equipment function as
anticipated and that there is no material adverse change in the price of gold,
costs associated with production or recoveries.

Forward-looking statements involves known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements, or industry results, to differ materially from those anticipated
in such forward-looking information. The Company believes the expectations
reflected in such forward-looking statements are reasonable, but no assurance
can be given that these expectations will prove to be correct and you are
cautioned not to place undue reliance on forward-looking statements contained
herein. Some of the risks and other factors which could cause actual results to
differ materially from those expressed in the forward-looking statements
contained in this AIF and the documents incorporated herein by reference
include, but are not limited to: risks and uncertainties relating to the
interpretation of drill results, the geology, grade and continuity of mineral
deposits and conclusions of economic evaluations; results of initial
feasibility, pre-feasibility and feasibility studies, and the possibility that
future exploration, development or mining results will not be consistent with
the Companys expectations; risks relating to possible variations in reserves,
resources, grade, planned mining dilution and ore loss, or recovery rates
and changes in project parameters as plans continue to be refined; mining and
development risks, including risks related to accidents, equipment breakdowns,
labour disputes (including work stoppages and strikes) or other unanticipated
difficulties with or interruptions in exploration and development; the potential
for delays in exploration or development activities or the completion of
feasibility studies; risks related to the inherent uncertainty of production and
cost estimates and the potential for unexpected costs and expenses; risks
related to commodity price and foreign exchange rate fluctuations; the
uncertainty of profitability based upon the cyclical nature of the industry in
which the Company operates; risks related to failure to obtain adequate
financing on a timely basis and on acceptable terms or delays in obtaining
governmental approvals or in the completion of development or construction
activities; risks related to environmental regulation and liability; political
and regulatory risks associated with mining and exploration; risks related to
the uncertain global economic environment; and other factors contained in the
section entitled Risk Factors in this AIF.

3

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Although the Company has attempted to identify important
factors that could cause actual results or events to differ materially from
those described in the forward-looking statements, you are cautioned that this
list is not exhaustive and there may be other factors that the Company has not
identified. Furthermore, the Company undertakes no obligation to update or
revise any forward-looking statements included in, or incorporated by reference
in, this AIF if these beliefs, estimates and opinions or other circumstances
should change, except as otherwise required by applicable law.

MINERAL RESERVE AND RESOURCE ESTIMATES

The Company is subject to the reporting requirements of the
applicable Canadian securities laws, and as a result it reports its mineral
reserves and resources according to Canadian standards. Canadian reporting
requirements for disclosure of mineral properties are governed by National
Instrument 43-101 Standards of Disclosure for Mineral Projects (NI
43-101). The definitions of NI 43-101 are adopted from those given by the
Canadian Institute of Mining, Metallurgy and Petroleum. U.S. reporting
requirements are governed by Industry Guide 7 (Guide 7) of the Securities and
Exchange Commission (the Commission). These reporting standards have similar
goals in terms of conveying an appropriate level of confidence in the
disclosures being reported, but embody different approaches and definitions. For
example, under Industry Guide 7, mineralization may not be classified as a
reserve unless the determination has been made that the mineralization could
be economically and legally produced or extracted at the time the reserve
determination is made. In particular, the Company reports resources in
accordance with NI 43-101. While the terms Mineral Resource, Measured Mineral
Resource, Indicated Mineral Resource and Inferred Mineral Resource are
recognized and required by Canadian regulations, they are not defined terms
under standards of the Commission and generally, U.S. companies are not
permitted to report resources in documents filed with the Commission. As such,
certain information contained in this AIF concerning descriptions of
mineralization and resources under Canadian standards is not comparable to
similar information made public by United States companies subject to the
reporting and disclosure requirements of the Commission. In addition, an
Inferred Mineral Resource has a great amount of uncertainty as to its existence
and as to its economic and legal feasibility, and it cannot be assumed that all
or any part of an Inferred Mineral Resource will ever be upgraded to a higher
category. Under Canadian rules, estimates of Inferred Mineral Resources may not
form the basis of feasibility or other economic studies. It cannot be assumed
that all or any part of Measured or Indicated Resources will ever be converted
into Mineral Reserves, and it cannot be assumed that all or any part of an
Inferred Mineral Resource exists, or is economically or legally mineable. In
addition, the definitions of Proven Mineral Reserves and Probable Mineral
Reserves under CIM standards differ in certain respects from the standards of
the Commission.

4

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CURRENCY AND EXCHANGE RATES

All dollar amounts in this AIF are expressed in United States
dollars, unless otherwise indicated. References in this AIF to dollars or $
are to United States dollars. References in this AIF to C$ are to Canadian
dollars. The following table sets forth the value of the Canadian dollar
expressed in United States dollars on December 31 of each year and the average,
high and low exchange rates during the year indicated based on the noon rate of
exchange as reported by the Bank of Canada:

|Canadian Dollars into       |  | 2011   |  |  | 2010   |  |  | 2009   | 
|--------------------------- |  | ------ |  |  | ------ |  |  | ------ | 
|United
      States Dollars |  |        |  |  |        |  |  |        | 
|Closing                     |  | 0.9833 |  |  | 1.0054 |  |  | 0.9555 | 
|Average                     |  | 1.0100 |  |  | 0.9709 |  |  | 0.8757 | 
|High                        |  | 1.0583 |  |  | 1.0054 |  |  | 0.9716 | 
|Low                         |  | 0.9430 |  |  | 0.9278 |  |  | 0.7692 | 

CORPORATE STRUCTURE

Timmins Gold Corp. (the Company) was incorporated pursuant to
the Business Corporations Act(British Columbia) on March 17, 2005.

The Companys registered and records office is located at Suite
1900  570 Granville Street, Vancouver, British Columbia, V6C 3P1. The Companys
head office is located at Suite 1900  570 Granville Street, Vancouver, British
Columbia, V6C 3P1. The Companys head office in Mexico is located at Blvd.
Solidaridad #335 A, Edificio A  Primera Planta Local 3, Col Palmar del Sol,
Hermosillo, Sonora, Mexico, 83270. The Company also maintains field offices at
the San Francisco Mine site, near Estacion Llano, Sonora and Magdalena de Kino,
Sonora.

The Company has two wholly owned subsidiaries: Timmins Goldcorp
Mexico, S.A. de C.V. (Timmins Mexico) and Molimentales del Noroeste, S.A. de
C.V. (Molimentales). Timmins Mexico was incorporated pursuant to the laws of
Mexico on March 23, 2005 and is the entity through which the Company conducts
its Mexican operations. Molimentales was acquired from Geomaque de Mexico, S.A.
de C.V., (Geomaque) pursuant to an acquisition agreement dated March 20, 2007,
and was incorporated pursuant to the laws of Mexico for the principal purpose of
holding the mineral concessions and infrastructure that constitute the San
Francisco Gold Mine (the Mine).

5

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GENERAL DEVELOPMENT OF THE BUSINESS

Overview

The Company is a gold mining and exploration company engaged in
exploration, mine development and the mining and extraction of precious metals,
primarily gold. The Companys primary asset and only material mineral property
is the San Francisco Gold Property located in Sonora, Mexico, which includes the
Companys only operating mine (the Mine). The Company attained commercial
production at the Mine on April 1, 2010 and its first year of operations in 2010
was a successful transition from an advanced exploration and development company
to a junior producer. Since achieving commercial production, the Company has
continued to ramp up production with increases in the average tonnes of ore
processed per day achieving record rates during the month of October, 2011 of
14,968 tonnes per day.

The Mine was previously developed and operated by Geomaque. In
2005 the Company entered into an agreement to acquire a 100% interest in the
Mine for total consideration of $5.0 million and 10.0 million common shares of
the Company. In addition, the Company was required to purchase certain mining
and processing equipment on a deferred basis for $4.025 million including
Mexican value added tax. Most of the equipment and facilities at the Mine have
been refurbished and are being used in operations. As at December 31, 2011, the
remaining liability associated with the purchase of the mining and processing equipment was $1,725,000. See Note 10 of
our consolidated financial statements for a description for the amount
outstanding.

6

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During fiscal 2008 and 2009 the Company focused its efforts on
successfully arranging financing for the construction and re-commissioning of
the Mine. During this period, construction of a new secondary and tertiary
crushing system at the Mine was completed and testing was undertaken. The gold
extraction plant was refurbished and tested, and mine infrastructure for the
Mine, including its power supply and connection to civil works, was put in
place. In addition, a third drill program was implemented with the objective of
expanding the known mineral resources at the Mine. During fiscal 2009 the
Company also completed a regional exploration program consisting of geological
mapping and sampling, soil geochemistry and ground and airborne geophysics. Work
proceeded on the new heap leach pads and emergency pond. During fiscal 2009, the
assay lab at the Mine became operational and processed samples from drilling
activity in support of planning for expansion of the existing open pit. The
Company commenced pre-stripping waste in the fourth quarter of 2009, and at that
time it also commenced the crushing and leaching of ore.

Commercial production began in April, 2010 and the ramp-up to
full production at the Mine proceeded as planned. Based on drill success and an
increased resource estimate provided in November, 2010, a decision was made to
expand crushing capacity to 18,000 tonnes per day. Additional equipment was
added to achieve the new targeted production level. In order to reach the new
production level, five new carbon columns were built, additional water rights
were purchased, a new module was added to the secondary and tertiary crushers
and additional mining equipment was delivered, including three Komatsu shovels,
one Caterpillar loader and sixteen 91 tonne Caterpillar trucks, allowing full
scale open pit extraction of materials, including ore and waste, at a current
average rate of 60,000 tonnes per day.

On November 1, 2011, Micon produced an independent technical
report on the Mine entitled NI 43-101 F1 Technical Report  Updated Resources
and Reserves and Mine Plan for the San Francisco Gold Mine, Sonora, Mexico,
(the 2011 Report). The 2011 Report concluded that the Mine and property merit
further exploration, which supports the Companys exploration plans.

During the nine months ended December 31, 2011 the Company
continued its intensive exploration drilling programs which included deeper
drilling to explore the mineralization at depth, both in and around the San
Francisco pit and for the first time in and around the La Chicharra pit. The
results of this drilling confirmed the continuity and extensions of the
mineralization, both along strike and down-dip and below the existing pit floor
at both the San Francisco and La Chicharra open pits. Assays received from
drilling completed in August and September, 2011 returned some of the highest
grades intercepted to date from the San Francisco pit. The Company completed in
excess of 110,000 meters of drilling from July, 2011 to December, 2011.
Subsequent to December 31, 2011 the Company restarted the drill program at San
Francisco and La Chicharra and anticipates completing an additional 100,000
meters of drilling in this program.

During the nine months ended December 31, 2011 the Company also
focused on improving operational efficiencies and processes at the Mine. In
November, 2011, the Company installed a new feeder and screen to complete the
crushing facility expansion from 14,000 tonnes per day (t/d) to 18,000 t/d.
Improvements to the blasting procedures and the completion of a pre-screening
facility at the primary crusher are designed to increase throughput from the San
Francisco crushing system to in excess of 22,000 t/d. In addition, a new 10,000
t/d modular crusher is being installed at the La Chicharra pit which is expected
to further increase the capacity of the crushing system at both pits to 32,000
t/d by October, 2012. Ore mined but not currently processed is being stockpiled
for future processing. The Company also implemented several modifications to the
Mine as a result of this expansion including increasing irrigation capacity and
solution flow to the heap leach pads by installing a new pump and new solution
handling tanks beside the conveyors in order to place a high concentration of cyanide solution directly onto the fresh ore
on the conveyor belts before stacking on the heap leach pad. As a result of
these modifications, the Company has seen improvements in production rates and
expects to see continued production improvements during 2012. The Company will
continue to review additional improvement and expansion opportunities in the
future.

7

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The Company mined 6.3 million tonnes from the Mine during the
nine months ended December 31, 2011, compared to 5.8 million tonnes during the
same prior year period, an 8% increase. Dry tonnes of ore mined increased to 2.1
million tonnes of ore during the current period from 1.2 million tonnes of ore
during the same prior year period; a 65% increase.

The average grade of ore mined from the Mine decreased during
the current period to 0.58 g/t Au, compared to 0.94 g/t Au for the same prior
year period. This decrease in average grade of ore mined is the result of the
recent drilling program of the Company whereby the ore body has been further
defined via the additional drill holes. While the additional drilling has
resulted in a more accurate ore grade which is lower than that of the 2010
estimates, it is considered more homogeneous. The average grade of ore mined and
ore processed during the nine months ended December 31, 2011 was 0.66 g/t Au and
0.81 g/t Au, respectively, compared to 0.84 g/t Au and 0.84 g/t Au,
respectively, for the year ended March 31, 2011. This was due to ramping up of
the grade placed on pads during the six months ended September 30, 2011 and to
the change in the mine model in response to the 2011 Report.

During the nine months ended December 31, 2011 the Company
staked an additional 95,000 hectares of claims between the Mine and the El
Chanate gold mine of AuRico Gold Inc. The Company also purchased a 10 hectare
concession called La Mexicana for $250,000, which was the last concession in the
area that the Company did not control.

All mining activities at the Mine are carried out by a mining
contractor. The contractor provides all the required mining equipment and
personnel required to meet production targets. The Company provides contract
supervision, geology, engineering and planning and survey services to the
Companys employees.

Production, Reserves and Resources

The table below shows the production rates achieved at the Mine
during the three months ended December 31, 2011, the nine months ended December
31, 2011 and the year ended March 31, 2011 together with comparables for the
three months ended December 31, 2010 and the nine months ended December 31,
2010.

8

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TwelvemonthsendedThree months ended
      December 31
    
    
    Nine months ended
      December 31
    
    
    March 312011
    
    
    2010
    
    
    2011
    
    
    2010
    
    
    2011Ore mined (dry tonnes)
    
    2,097,621
    
    
    1,208,678
    
    
    5,776,128
    
    
    3,204,742
    
    
    4,412,081Average ore mined grade (g/t Au)
    
    0.58
    
    
    0.94
    
    
    0.66
    
    
    0.84
    
    
    0.85Waste mined (t)
    
    4,160,488
    
    
    4,568,616
    
    
    13,496,919
    
    
    12,524,199
    
    
    17,621,131Total mined (t)
    
    6,258,109
    
    
    5,777,294
    
    
    19,273,047
    
    
    15,728,941
    
    
    22,033,212Strip ratio
    
    1.98
    
    
    3.70
    
    
    2.34
    
    
    3.91
    
    
    3.99Ore processed (t)
    
    1,327,299
    
    
    1,208,678
    
    
    3,930,664
    
    
    3,204,742
    
    
    4,412,081Average ore processed
      grade (g/t Au)
    
    0.78
    
    
    0.94
    
    
    0.81
    
    
    0.84
    
    
    0.85Total days in period
    
    92
    
    
    92
    
    
    275
    
    
    275
    
    
    365Average ore processed
      per day (t/d)
    
    14,427
    
    
    13,138
    
    
    14,293
    
    
    11,654
    
    
    12,088Gold produced (oz)
    
    21,524
    
    
    20,031
    
    
    55,487
    
    
    47,032
    
    
    65,786


Total production for the nine months ended December 31, 2011
was 55,487 gold ounces and 29,788 silver ounces, compared to 47,032 gold ounces
and 25,221 silver ounces during the same prior year period, and 65,786 gold
ounces and 33,874 silver ounces during the year ended March 31, 2011.

Mineral Resource Estimates

MINERAL RESOURCES THAT ARE NOT MINERAL RESERVES DO NOT HAVE
DEMONSTRATED ECONOMIC VIABILITY. IN ADDITION, INFERRED MINERAL RESOURCES ARE
CONSIDERED TOO SPECULATIVE GEOLOGICALLY TO HAVE THE ECONOMIC ANALYSIS APPLIED TO
THEM THAT WOULD ENABLE THEM TO BE CATEGORIZED AS MINERAL RESERVES. SEE MINERAL
RESERVE AND RESOURCE ESTIMATES.

In September, 2011, following a reverse circulation and core
hole drill program which concluded in July, 2011, the Company announced the
publication of the 2011 Report which included a significant increase in its
resource and reserve estimate for the Mine and new resources in the La Chicharra
deposit. The new resource and reserve estimates are contained in the 2011 Report
and illustrated in the table below. The updated mineral resource estimates were
completed by Mr. William Lewis, B.Sc. P.Geo., Ing. Alan San Martin, MAusIMM (CP)
and Mani Verma, P. Eng. of Micon. The mineral resource estimate was based on a
gold price of $1,200 per ounce and a 0.128 g/t gold cutoff grade, and utilizes
all drill results available at August 31, 2011.

9

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Pit Area
    Category
    Tonnage (x1,000)
    Avg. Grade (g/t Au)
    Gold OuncesMeasured
    42,546
    0.640
    876,000San Francisco
    Indicated
    22,698
    0.595
    434,000Mine
    Total Measured & Indicated
    65,244
    0.625
    1,310,000Inferred*
    66,483
    0.420
    898,000Measured
    6,158
    0.488
    96,000La Chicharra
    Indicated
    2,222
    0.488
    35,000Deposit
    Total Measured & 
    Indicated
    8,380
    0.488
    131,000Inferred*
    7,197
    0.465
    107,000Measured
    48,704
    0.621
    972,000Total
    Indicated
    24,920
    0.586
    469,000Resources
    Total Measured & Indicated
    73,624
    0.609
    1,441,000Total Inferred*
    73,680
    0.424
    1,005,000


*Inferred resources in this table include material outside of
the pit limit that has the potential to become additional reserves at a future
stage.

Updated resource estimates of 1,441,000 total measured and
indicated resource ounces and 1,005,000 inferred ounces in the 2011 Report
represent 46% and 383% increases respectively over the previous  2010 estimates.

In March, 2012, following a drill program of 370 holes of core
and reverse circulation drilling totaling 85,166 meters completed between July
and November, 2011, the Company announced updated mineral resources estimates
for the Mine and the La Chicharra deposit. The drill program added 134,000
ounces of measured and indicated resources (net of depletion) and 346,000 ounces
of inferred resources which represents a 34% increase to the inferred resource.
The new resource estimates are contained in a March 13, 2012 news release and
are illustrated in the table below. The updated mineral resource estimates were
audited by Mr. William Lewis, B.Sc. P.Geo., and Ing. Alan San Martin, MAusIMM
(CP) of Micon. The mineral resource estimate was based on a gold price of $1,200
per ounce and a 0.128 g/t gold cutoff grade, and utilizes all drill results
available at December 31, 2011.

Pit Area
    Category
    Tonnage (x1,000)
    Avg. Grade (g/t Au)
    Gold OuncesMeasured
    42,614
    0.63
    949,000San Francisco
    Indicated
    22,482
    0.59
    426,000Mine
    Total Measured & Indicated
    69,096
    0.62
    1,375,000Inferred*
    79,456
    0.45
    1,156,000


10

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Pit Area
    Category
    Tonnage (x1,000)
    Avg. Grade (g/t Au)
    Gold OuncesMeasured
    11,396
    0.50
    182,000La Chicharra
    Indicated
    1,305
    0.44
    18,000Deposit
    Total Measured & Indicated
    12,701
    0.50
    200,000Inferred*
    13,746
    0.44
    195,000Measured
    58,010
    0.61
    1,131,000Total Resources
    Indicated
    23,787
    0.58
    444,000Total Measured & Indicated
    81,797
    0.60
    1,575,000Total Inferred*
    93,202
    0.42
    1,351,000


|1. | Mineral resources are based on a gold price of $1,200 per
      ounce                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | An internal cutoff grade of 0.128 g/t gold was used for
      measured & indicated and inferred ounces                                                         
|3. | The inferred resources include material outside of the
      pit shell. It has the potential to become additional reserves of the Mine
      at a future stage.

Mineral Reserve Estimate

In October and November, 2011, following a reverse circulation
and core hole drill program which concluded in July, 2011, the Company announced
a significant increase in its reserve estimate for the Mine, as shown in the
table below. This revised reserve estimate constitutes a 104% increase from the
previous estimated minerals reserves at the Mine. The updated mineral reserve
estimates were audited by Mr. William Lewis, B.Sc. P.Geo., Ing. Alan San Martin,
MAusIMM (CP) and Mani Verma, P. Eng. of Micon. The mineral reserves estimates
were based on a gold price of $1,100 per ounce, a 0.14 g/t gold cutoff grade and
a mining recovery of 99%. An overall average of 8.3% dilution was estimated for
the San Francisco pit and 7.5% for the La Chicharra pit.

PIT
    Classification
    **Metric tonnes** (1000)
    Gold g/t
    **Contained Gold**OuncesProven
    42,850
    0.604
    831,000San Francisco Mine
    Probable
    21,395
    0.556
    383,000Total
    64,245
    0.588
    1,214,000Proven
    6,180
    0.447
    89,000La Chicharra Deposit
    Probable
    1,966
    0.439
    27,000Total
    8,146
    0.445
    116,000Proven
    49,030
    0.584
    920,000Total
    Probable
    23,361
    0.546
    410,000Total
    72,391
    0.572
    1,330,000


Although a mineral reserve has been estimated for the La
Chicharra deposit, the Company has not yet included the La Chicharra deposit in
its formal mining plan.

Updated reserve estimate of 1,330,000 proven and probable
reserve ounces represents a 71% increase over the 2010 Report.

11

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Strategy

The Companys activities during the nine months ended December
31, 2011 focused on optimizing and expanding the operations and production at
the Mine. With the exception of the Cocula Property, in which the Company
allowed its interest to expire in July, 2011, the Company continued to maintain
its property rights with respect to all of its property interests. The Company
did not undertake any significant activity on areas outside of the Mine, except
for a first phase reverse circulation drill program at the Norma gold-silver
property located approximately 20 km northwest of the Mine. Although the Company
evaluates other opportunities as they are presented, its principal focus is to
increase production at the Mine and generate positive cash flows from
operations.

Subsequent to December 31, 2011, the Company has commenced an
additional drilling program at the San Francisco pit for 65,000 metres of
reverse circulation drilling at an approximate cost of $6.5 million. Ongoing
drilling also continues to the northwest of the La Chicharra prospect with the
objective of testing mineralization along a strike length of over 600 metres.
The Company plans to continue development of La Chicharra and has commenced a
drilling program for 35,000 metres of reverse circulation drilling at an
approximate cost of $3.5 million. The Company expects that the results of these
drill programs will further define the ore body and be used in a future resource
update.

Based on the conclusions of the 2011 Report, the Company
expects that open pit mining will continue at the Mine until 2017 and that only
minimal capital expenditures remain to complete the expansion of the Mine to a
capacity of 18,000 t/d of leach feed. Additional capital will be required
principally in 2012 to increase production to 32,000 t/d.

The following table shows a summary of the Companys projected
operating costs over the expected life of the Mine, based on the 2011 Report:

Life-of-Mine Cash Flow (USD million)
    Average Unit Cost (USD/tonne leached)Mining Cost (including stockpiled material)
    328
    5.15Crushing Cost
    77
    1.20Leaching Cost
    60
    0.94Gold Recovery Cost
    20
    0.31Laboratory Cost
    10
    0.15Environmental Cost
    2
    0.03General and Administration
    17
    0.26Total Cash Operating Costs
    513
    8.04


Gold Sales

The Company delivers gold and silver in doré form to an
internationally respected precious metal refinery in North America where the
doré may, at the Companys option, be converted into London Good Delivery metal,
or alternatively, be sold to the refiner. Gold is delivered to the refinery by
armoured, insured carriers. If metal is returned to the Company, it is then sold
to international bullion dealers.

Expansion Plans

The Company will review organic expansion opportunities as they
arise and will review merger and acquisition opportunities on an ongoing basis.

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Financings

During the nine months ended December 31, 2011, the Company did
not raise any capital from the issuance of equity or debt instruments.

In June, 2011, the Company replaced and restructured its debt.
Under the previous arrangement, Sprott Asset Management LP, (SAM) for and on
behalf of certain of the Sprott funds, agreed to provide US$15 million financing
in senior secured notes (the Notes). The Notes were used to pay down existing
debt, and to pay for existing equipment and for general working capital to
complete development and the commissioning of operations at the Mine. The Notes
were to be repaid in 12 equal monthly installments commencing in August, 2010.
Each payment was to be equal to the value at the time of payment of 1,667 ounces
of gold (20,004 ounces total). The Noteholders were granted an aggregate of 3
million share purchase warrants exercisable for a period of 24 months at an
exercise price of CDN$0.80 per share, none of which remain unexercised.

The new credit agreement with Sprott Resource Lending
Partnership LP allowed the Company to deliver the final five payments totaling
8,335 ounces of gold to SAM and has provided a further C$5.6 million in working
capital. The new credit agreement provides for a lump sum payment of principal
on maturity in 14 months, with interest paid at the rate of 1% per month.

In August, 2011 the Company facilitated the re-sale of common
shares by one of its significant shareholders. The Company engaged MPartners and
National Bank Financial as agents to sell, on a best efforts basis, the
25,205,090 common shares of the Company held by Pacific Road Capital Management
Pty. Limited for fully managed accounts (Pacific Road) through a secondary
private placement of special warrants. Each special warrant was exchangeable for
one common share held by Pacific Road once a prospectus was filed to qualify the
distribution of the 25,205,090 common shares. The aggregate net proceeds of the
private placement, after deducting certain expenses and the agents fee, was
paid by the Company to Pacific Road in consideration for Pacific Road delivering
the common shares to purchasers of the special warrants upon exchange of the
special warrants. None of the proceeds of the private placement were payable to
the Company.

During the nine months ended December 31, 2011 the Company
received an aggregate of $2,021,805 through the exercise of incentive stock
options issued pursuant to the Companys stock option plan ($469,115) and
through the exercise of share purchase warrants issued in connection with
previous financings ($1,552,690).

Recent Developments

The Company's Chief Financial Officer, Mr. Colin Sutherland,
has accepted the position of Chief Financial Officer of Archipelago Resources
PLC. Mr. Sutherland will continue acting as the Company's Chief Financial
Officer during a transition period through the end of April 2012.

DESCRIPTION OF THE BUSINESS

Risk Factors

Risk Factors Relating to The Companys Business

The Companys revenue is derived primarily from the sale
of gold, and therefore decreases in the price of gold may cause the Companys
revenue to decrease substantially.

The majority of the Companys revenue is derived from the sale
of gold, and therefore fluctuations in the price of gold represent one of the
most significant factors affecting the Companys operations and profitability.
To a lesser extent, the Company also generates revenue from other by-product or
co-product metals, such as silver. The price of gold and other commodities has
fluctuated widely in recent years and is affected by numerous factors beyond the
Companys control, including:

- levels of supply and demand;

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- global or regional consumptive patterns;
- sales by government holders;
- metal stock levels maintained by producers and others;
- increased production due to new mine developments and improved mining and
  production methods;
- speculative activities;
- inventory carrying costs;
- availability and costs of metal substitutes;
- international economic and political conditions;
- interest rates;
- currency values; and
- inflation.

The market price of gold and other metals may decline from
current levels. Declining market prices for gold or other metals could
materially adversely affect the Companys operations and profitability. Further,
a decline in the market price of gold may also require the Company to write-down
its mineral reserves, which would have a material adverse effect on its earnings
and profitability. The Company currently does not enter into forward contracts
with respect to or otherwise hedge its potential future gold sales.

The Companys inability to access additional capital
could have a negative impact on its growth strategy.

The Company currently has limited financial resources and
operating income, and adequate funding may not be available to further its
exploration and development projects. The Company may need to raise additional
capital to fund its operations, and such capital may not be available on
commercially acceptable terms, if at all. If the Company is unable to obtain
additional capital on commercially acceptable terms, the Company may be forced
to reduce or curtail its operations or its anticipated exploration
activities.Although the Company has been successful in the past
in financing its activities through the sale of equity securities, it may not be
able to obtain sufficient financing in the future. Our ability to arrange
additional financing in the future will depend, in part, on the prevailing
capital market conditions as well as the business performance of the
Company.

The Company operates in a highly competitive industry
with many large competitors, and it expects that competition may intensity in
the future.

The gold mining industry is intensely competitive, and the
Company competes with other companies that have greater financial and human
resources and technical facilities. Competition is primarily for mineral-rich
properties which can be developed and produced economically; the technical
expertise to find, develop, and produce such properties; the labor and equipment
to operate such properties; and the capital to finance the development of such
properties. Many of the Companys competitors not only explore for and mine
precious metals, but conduct refining and marketing operations on a worldwide
basis and have far greater financial and technical resources than the Company.
In addition, the high price of gold is encouraging new entrants to start
competing companies and established companies to expand gold mining operations
significantly. Such competition may result in the Company being unable to
acquire desired properties, recruit or retain qualified employees or acquire the
capital necessary to fund its operations and develop its properties, which could
have an adverse effect on our results.

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The Company has a limited operating history and therefore
cannot ensure the long-term successful operation of its business or the
execution of its business plan.

The Company was incorporated on March 17, 2005 and commenced
commercial production on April 1, 2010. As a result, the Company has a very
limited operating history upon which you may evaluate its proposed business and
prospects. The Companys existing and proposed business operations will be
subject to numerous risks, uncertainties, expenses and difficulties associated
with early stage extractive operations and the exploration and development of
new mining properties, as more fully described elsewhere herein.

The Company is subject to particular risks associated
with doing business in Mexico, any of which could result in additional costs to
the Company and cause its operating results to suffer.

The Companys only operating mine and all of its exploration
properties are located in Mexico. In the past, Mexico has been subject to a
number of risks and uncertainties, including:

- terrorism and hostage taking;
- expropriation or nationalization without adequate compensation;
- difficulties enforcing judgments obtained in Canadian or United States
  courts against assets located outside of those jurisdictions;
- labor unrest;
- high rates of inflation;
- changes to royalty and tax regimes;
- substantial fluctuations in currency exchange rates;
- volatile local political and economic developments;
- difficulty understanding and complying with the regulatory and legal
  framework respecting the ownership and maintenance of mineral properties,
  mines and mining operations; and
- difficulty obtaining key equipment and components for equipment.

Any of these factors, among others, may cause changes in the
existing business or regulatory environment in Mexico with respect to mineral
exploration and mining activities, which could result in additional costs to the
Company and thereby cause its operating results to suffer. In addition, the
enforcement by the Company of its legal rights to exploit its properties may not
be recognized by the government of Mexico or by its court system. These risks,
along with any variation from the current regulatory, economic and political
climate may limit or disrupt the Companys operations, restrict the movement of
funds or result in the deprivation of contractual rights.

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The Companys business is subject to various governmental
regulations, and compliance with these regulations may cause the Company to
incur significant expenses. If the Company fails to maintain compliance with
applicable regulations, it may be forced to pay fines, be subject to civil
penalties or be forced to temporarily halt or cease operations.

The Companys business is subject to a variety of federal,
state, provincial and local laws and regulations in Mexico and Canada,
including:

- environmental protection;
- management and use of toxic substances and explosives;
- management of natural resources;
- exploration, development, production and post-closure reclamation of
  mines;
- imports and exports;
- price controls or production restrictions;
- taxation;
- mining royalties;
- labor standards and occupational health and safety, including mine safety;
  and
- historical and cultural preservation.

The Companys activities relating to the Mine are subject to,
among other things, regulations promulgated by SEMARNAP, Mexicos environmental
protection agency; DGM, the Mexican Department of EconomyDirector General of
Mines; and the regulations of CONAGUA, the Comision National del Aquawith respect to water rights. Mexican regulators have broad authority to
shut down and/or levy fines against facilities that do not comply with
regulations or standards.

The costs associated with compliance with these laws and
regulations are substantial and possible future laws and regulations, changes to
existing laws and regulations or more stringent enforcement of current laws and
regulations by governmental authorities, could cause additional expense, capital
expenditures, restrictions on or suspensions of the Companys operations and
delays in the development of its properties. Moreover, these laws and
regulations may allow governmental authorities and private parties to bring
lawsuits based upon damages to property and injury to persons resulting from the
environmental, health and safety impacts of the Companys past and current
operations, or possibly even those actions of parties from whom the Company
acquired its properties, and could lead to the imposition of substantial fines,
penalties or other civil or criminal sanctions. It is difficult to strictly
comply with all regulations imposed on the Company, and even with the
application of considerable care the Company may inadvertently fail to comply
with certain laws. Such events can lead to fines, penalties, loss, reduction or
expropriation of entitlements, the imposition of additional local or foreign
parties as joint venture partners and other material negative impacts on the
Company.

If the Company is unable to hire, train, deploy and
manage qualified personnel in a timely manner, particularly in Mexico, its
ability to manage and grow its business will be impaired.

Recruiting and retaining qualified personnel is critical to the
Companys success. The Company is dependent on the services of key executives
including our President and Chief Executive Officer and other highly skilled and experienced executives and personnel
focused on managing the Companys interests. The number of persons skilled in
acquisition, exploration and development of mining properties is limited and
competition for such persons is intense. As the Companys business activity
grows, the Company will require additional key financial, administrative and
mining personnel as well as additional operations staff, particularly in Mexico.
The Company may not be successful in attracting, training and retaining
qualified personnel as competition for persons with these skill sets increases.
If the Company is not successful in attracting, training and retaining qualified
personnel, the efficiency of its operations could be impaired, which could have
an adverse impact on its future cash flows, earnings, results of operations and
financial condition.

16

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It may be particularly difficult to find or hire qualified
personnel in the mining industry who are situated in Mexico, to obtain all of
the necessary services or expertise in Mexico, or to conduct operations on the
Companys projects at reasonable rates. If qualified personnel cannot be
obtained in Mexico, the Company may need to obtain those services outside of
Mexico, which will require work permits and compliance with applicable laws and
could result in delays and higher costs to the Company.

The Company may be unable to obtain or renew required
government permits, or may only be able to do so at significant expense, which
may harm its operating results.

In the ordinary course of business, the Company is required to
obtain and renew governmental permits and licenses for the operation and
expansion of existing operations or for the development, construction and
commencement of new operations. Obtaining or renewing the necessary governmental
permits and licenses is a complex and time-consuming process, often involving
public hearings and costly undertakings on the Companys part.

The duration and success of the Companys efforts to obtain and
renew permits and licenses are contingent upon many variables not within its
control, including the interpretation of applicable requirements implemented by
the permitting authority. The Company may not be able to obtain or renew permits
or licenses that are necessary to its operations, or the cost to obtain or renew
permits or licenses may exceed what the Company believes it can recover from a
given property once in production. Any unexpected delays or costs associated
with the permitting and licensing process, including challenges to the terms of
such permits or licenses, whether successful or unsuccessful, could delay the
development or impede the operation of a mine, which could adversely impact the
Company operations and profitability.

In order for the Company to carry out its mining activities,
its exploitation licenses must be kept current. There is no guarantee that the
Companys exploitation licenses will be extended or that new exploitation
licenses will be granted. In addition, such exploitation licenses could be
changed and applications to renew existing licenses may not be approved. The
Company may also be required to contribute to the cost of providing the required
infrastructure to facilitate the development of its properties, and will also be
required to obtain and comply with permits and licenses that may contain
specific conditions concerning operating procedures, water use, waste disposal,
spills, environmental studies, abandonment and restoration plans and financial
assurances. The Company may not be able to comply with any such conditions.

Failure to discover new reserves, maintain or enhance
existing reserves or develop new operations could negatively affect the
Companys future results and financial condition.

The long-term operation of the Companys business and its
profitability is dependent, in part, on the cost and success of its exploration
and development programs. Most of the Companys properties are in the
exploration and development stages and only the San Francisco property has a
mineralization considered a probable mineral reserve pursuant to CIM standards.
Mineral exploration and development involves a high degree of risk and few properties
that are explored are ultimately developed into producing mines. The Companys
mineral exploration and development programs may not result in any discoveries
of bodies of commercially viable mineralization, and even if commercial
quantities of mineralization are discovered, the Company may not be able to
bring the mineral property into commercial production. Development of the
Companys mineral properties will follow only upon obtaining satisfactory
exploration results. Discovery of mineral deposits is dependent upon a number of
factors, not the least of which is the technical skill of the exploration
personnel involved. The commercial viability of a mineral deposit once
discovered is also dependent upon a number of factors, some of which are the
particular attributes of the deposit (such as size, grade and proximity to
infrastructure), metal prices, anticipated capital and operating costs and
government regulations, including regulations relating to royalties, allowable
production, importing and exporting of minerals and environmental protection.
Most of the above factors are beyond the Companys control. As a result, the
Companys acquisition, exploration and development programs may not yield new
reserves to replace or expand current reserves. Unsuccessful exploration or
development programs could have a material adverse impact on the Companys
operations and profitability.

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In addition, the Companys ability to sustain its present
levels of gold production is dependent upon the identification of additional
reserves at the Mine. If the Company is unable to develop new ore bodies, it may
not be able to sustain or increase present production levels. Reduced production
would have a material and adverse impact on future cash flows, results of
operations and financial condition.

The Company is subject to various operating risks and
hazards associated with its exploration and mining operations, any of which
could cause it to incur substantial expenses or affect the economic feasibility
of its projects. The Company may be unable to insure against such risks, or to
insure against such risks at a reasonable cost.

The ownership, operation and development of a mine or mineral
property involves many risks which even a combination of experience, knowledge
and careful evaluation may not be able to overcome. These risks include:

- environmental hazards;
- industrial accidents, explosions and third party accidents;
- the encountering of unusual or unexpected geological formations;
- ground falls, rock bursts, cave-ins and seismic activity including
  earthquakes;
- fires and flooding;
- metallurgical and other processing problems, including the availability
  and costs of processing and refining facilities;
- availability of economic sources of power;
- variations in grade, deposit size, density and other geological problems;
- unanticipated adverse geotechnical conditions;
- incorrect data on which engineering assumptions are made;
- mechanical equipment performance problems;

18

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- unavailability or significant changes in the cost of materials and
  equipment including fuel;
- labor force disruptions;
- title claims, including aboriginal land claims;
- unanticipated transportation costs; and
- periodic interruptions due to inclement or hazardous weather conditions.

These occurrences could result in:

- environmental damage and liabilities;
- work stoppages, delayed production and resultant losses;
- increased production costs;
- damage to, or destruction of, mineral properties or production facilities
  and resultant losses;
- asset write downs;
- monetary losses;
- claims for compensation of loss of life and/or damages in connection with
  accidents that occur on company property, and punitive awards in connection
  with those claims; and
- other liabilities.

These factors, among others, may cause anticipated capital and
operating costs, production and economic returns, or other estimates to differ
significantly from the Companys actual capital and operating costs. It is not
always possible to fully insure against such risks and the Company may decide
not to insure against such risks due to high premiums or for other reasons.
Should any such uninsured liabilities arise, they could adversely impact the
Companys profitability.

The Companys operations are dependent on the
accessibility and reliability of existing local infrastructure, and its
exploration activities are dependent upon adequate infrastructure being
available in the future.

Mining, processing, development and exploration activities
depend, to one degree or another, on adequate infrastructure. Reliable roads,
bridges, power sources and water supply are important determinants, which affect
capital and operating costs. The lack of availability on acceptable terms or the
delay in the availability of any one or more of these items could prevent or
delay exploitation or development of the Companys projects. If adequate
infrastructure is not available in a timely manner, the exploitation or
development of the Companys projects may not be commenced or completed on a
timely basis, if at all. In addition, the resulting operations may not achieve
the anticipated production volume, or the construction costs and ongoing
operating costs associated with the exploitation and/or development of the
Companys advanced projects will be higher than anticipated. In addition,
unusual or infrequent weather phenomena, sabotage, government or other
interference in the maintenance or provision of such infrastructure could
adversely affect the Companys operations and profitability.

The Company is subject to extensive environmental
regulation, and any failure of compliance could result in fines or government
sanctions, civil liabilities and damage to its reputation.

All phases of the Companys operations are subject to
environmental laws and regulations. These laws and regulations set certain
standards regarding health and environmental quality, and provide for penalties
and other liabilities for violations, as well as obligations to rehabilitate
current and former properties in certain circumstances. Furthermore, operating
permits could be temporarily withdrawn where there is evidence of serious
breaches of health and safety, or even permanently, in the case of extreme
breaches. Significant liabilities could be imposed on the Company for damages,
clean-up costs or penalties in the event of certain discharges into the
environment, environmental damage caused by previous owners of acquired
properties or noncompliance with environmental laws. In addition, environmental
legislation in Mexico is generally evolving in a manner which will require
stricter standards and will be subject to increased enforcement, fines and
penalties for non-compliance, more stringent environmental assessments of
proposed projects and a heightened degree of responsibility for companies and
their officers, directors and employees. Such changes in environmental
regulation, if any, may adversely impact the Companys operations and
profitability.

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Land reclamation requirements may be
burdensome.

Land reclamation requirements are generally imposed on
companies with mining operations in order to minimize the long term effects of
land disturbance, and the Company is subject to such requirements at its mineral
properties. Reclamation obligations include requirements to:

- control dispersion of potentially harmful effluents; and
- reasonably re-establish pre-disturbance land forms and vegetation.

In order to carry out reclamation obligations arising from
exploration and development activities, the Company must allocate financial
resources that might otherwise be spent on further exploration and development
programs. If the Company is required to carry out unanticipated reclamation
work, its financial position could be adversely affected.

The Companys production and exploration depend on its
ownership of, or control over, the properties on which it operates, and
maintaining existing property rights or obtaining new rights is a highly
competitive and costly process.

The Companys ability to carry out successful mining activities
will depend in part on its ability to obtain tenure to its properties to the
satisfaction of international lending institutions. The issue of any such
licenses must be in accordance with Mexican law and, in particular, relevant
mining legislation. The validity of mining or exploration titles or claims or
rights, which constitute most of the Companys property holdings, can be
uncertain and may be contested. The Company has used reasonable commercial
efforts to investigate its title or claims to its various properties and, to its
knowledge, except where it has otherwise identified, those titles or claims to
material properties are in good standing. However, the Company has not conducted
surveys of all the claims in which it holds direct or indirect interests and
therefore, the precise area and location of such claims may be in doubt. The
Companys properties may also be subject to prior unregistered liens, agreements
or transfers, native land claims or undetected title defects. The Mexican
government may revoke or significantly alter the conditions of the applicable
exploration and mining titles or claims, and such exploration and mining titles
or claims may be challenged or impugned by third parties, which could materially
impact the Companys rights to its various properties or interests. Title
insurance is generally not available for mining properties, and the Companys
ability to ensure that it has obtained secure claims to individual mineral
properties or mining concessions may be severely constrained.

Mines have limited lives and, as a result, the Company
continually seeks to replace and expand reserves through the acquisition of new
properties. In addition, there is a limited supply of desirable mineral lands available in areas where the Company would consider
conducting exploration and/or production activities. Because the Company faces
strong competition for new properties from other mining companies, some of which
have greater financial resources than it does, the Company may be unable to
acquire attractive new mining properties on terms that it considers acceptable.
Competition in the mining business for limited sources of capital could
adversely impact the Companys ability to acquire and develop suitable mines,
developmental projects or properties having significant exploration potential.
As a result, the Companys acquisition and exploration programs may not yield
new mineral reserves to replace or expand current mineral reserves.

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The process of estimating mineral reserves and resources
is subject to inherent uncertainties, and reported reserves may not accurately
reflect the economic viability of the Companys properties.

There is a degree of uncertainty attributable to the
calculation of mineral reserves and mineral resources. Until mineral reserves or
mineral resources are actually mined and processed, the quantity of mineral and
reserve grades must be considered as estimates only. Levels of metals indicated
by such mineral reserves or mineral resources may not be produced, and the
Company may not receive the price assumed in determining its reserves. These
estimates are expressions of judgment based on knowledge, mining experience,
analysis of drilling results and industry practices. Valid estimates made at a
given time may significantly change when new information becomes available.
While the Company believes that the reserve and resource estimates included in
this AIF are well established and reflect managements best estimates, by their
nature reserve and resource estimates are imprecise and depend, to a certain
extent, upon analysis of drilling results and statistical inferences that may
ultimately prove unreliable.

Furthermore, fluctuations in the market price of metals, as
well as increased capital or production costs or reduced recovery rates may
render ore reserves uneconomic and may ultimately result in a reduction of
reserves. The extent to which resources may ultimately be reclassified as proven
or probable reserves is dependent upon the demonstration of their profitable
recovery. The evaluation of reserves or resources is always influenced by
economic and technological factors, which may change over time. Resource
estimates may not ultimately be reclassified as proven or probable reserves. If
the Companys reserve or resource figures are inaccurate or are reduced in the
future, this could have an adverse impact on its future cash flows, earnings,
results of operations and financial condition.

In estimating its reserves and resources, the Company relies on
laboratory-based recovery models to project estimated recoveries by ore type at
optimal crush sizes. Actual gold recoveries in a commercial heap leach operation
may exceed or fall short of projected laboratory test results. In addition, the
grade of mineralization ultimately mined may differ from the one indicated by
the drilling results and the difference may be material. Production can be
affected by such factors as permitting regulations and requirements, weather,
environmental factors, unforeseen technical difficulties, unusual or unexpected
geological formations, inaccurate or incorrect geological, metallurgical or
engineering work and work interruptions, among other things. Short term factors,
such as the need for an orderly development of deposits or the processing of new
or different grades, may have an adverse effect on mining operations or the
results of those operations. Minerals recovered in small scale laboratory tests
may not be duplicated in large scale tests under on-site conditions or in
production-scale operations. Material changes in proven and probable reserves or
resources, grades, waste-to-ore ratios or recovery rates may affect the economic
viability of projects. The estimated proven and probable reserves and resources
the Company discloses should not be interpreted as assurances of mine life or of
the profitability of future operations.

The Company has engaged expert independent technical
consultants to advise it on, among other things, mineral reserves and resources
and project engineering at the Mine. The Company believes these experts are
competent and that they have and will carry out their work in accordance with
all internationally recognized industry standards. If, however, the
work conducted and to be conducted by these experts is ultimately found to be
incorrect or inadequate in any material respect, the Company may experience
delays and increased costs.

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The process of estimating future mine production and
related costs are subject to inherent uncertainties, and actual results may
differ materially from such estimates.

The Company periodically prepares estimates of future mine
production and future production costs for the Mine. There can be no assurance
that the Company will achieve these production estimates. These production
estimates are dependent on, among other things, the accuracy of underlying
mineral reserve estimates; the accuracy of assumptions regarding ore grades and
recovery rates, ground conditions and physical characteristics of ores;
equipment and mechanical availability; labor availability; facilities and
infrastructure; having sufficient materials and supplies on hand; and the
accuracy of estimated rates and costs of mining and processing. Failure to
achieve production estimates could have a material and adverse effect on any or
all of the Companys future cash flows, results of operations and financial
condition.

The Companys actual production and costs may vary from its
estimates for a variety of reasons, including actual ore mined varying from
estimates of grade, tonnage, dilution and metallurgical and other
characteristics; short-term operating factors, such as the need for sequential
development of ore bodies and the processing of new or different ore grades from
those planned; and the risks and hazards associated with mining described above
under The Company is subject to various operating risks and hazards associated
with its exploration and mining operations, any of which could cause it to incur
substantial expenses or affect the economic feasibility of its projects. The
Company may be unable to insure against such risks, or to insure against such
risks at a reasonable cost. In addition, metal recoveries in small scale
laboratory tests may not be duplicated in larger scale tests under on-site
conditions or during production, and known and experienced recoveries may not
continue. Costs of production may also be affected by changing stripping ratios,
ore grade metallurgy, labor costs, costs of supplies and services (such as, for
example, fuel and power), general inflationary pressures and currency exchange
rates. Failure to achieve cost estimates could have a material and adverse
effect on any or all of the Companys future cash flows, results of operations
and financial condition.

The expansion and development of the Companys mining
properties is uncertain and subject to risk.

The development of the Companys properties that are found to
be economically feasible will require the expansion and improvement of existing
mining operations, as well as the construction and operation of additional
mines, processing plants and related infrastructure. As a result, the Company is
subject to all of the risks associated with establishing and expanding mining
operations and business enterprises including:

- the timing and cost, which will be considerable, of the construction of
  additional mining and processing facilities;
- the availability and costs of skilled labor, power, water, transportation
  and mining equipment;
- the availability and cost of appropriate smelting and/or refining
  arrangements;
- the need to obtain necessary environmental and other governmental
  approvals, permits and licenses, and the timing of those approvals, permits
  and licenses; and
- the availability of funds to finance construction and development
  activities.

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It is not unusual in new mining operations to experience
unexpected problems and delays during the construction and development of a
mine. In addition, delays in the commencement or expansion of mineral production
often occur and, once commenced or expanded, the production of a mine may not
meet expectations or estimates set forth in feasibility or other studies.
Accordingly, the Company may not be able to successfully develop and expand
mining operations or profitably produce precious metals at its exploration or
development-stage properties.

The Companys results may be negatively affected by
currency exchange rate fluctuations.

Fluctuations in currency exchange rates, particularly the
weakening or strengthening of the U.S. dollar (being the currency in which the
Companys products are sold) against the Mexican peso (being the currency in
which the majority of the Companys capital and operating costs are incurred),
could have a significant impact on the Companys results of operations. The
Company does not currently have a formal policy of actively managing such
currency fluctuations, and therefore, such fluctuations may have a significant
impact on its financial results in any given period.

Some of the Companys directors and officers have
interests that may be different than the Companys interests.

Some of the Companys directors and officers are engaged and
will continue to be engaged in the search for additional business opportunities
on behalf of other companies, and situations may arise where these directors and
officers will be in direct competition with the Company. Conflicts, if any, will
be dealt with in accordance with the relevant provisions of the Business
Corporations Act (British Columbia). Some of the Companys directors and
officers are or may become directors or officers of other companies engaged in
other business ventures. In order to avoid potential conflicts of interest which
may arise between the directors and officers duties to the Company and their
duties to other companies, the Companys directors and officers have agreed to
the following:

- participation in other business ventures will be allocated on the basis of
  prudent business judgment and the relative financial abilities and needs of
  the companies to participate;
- no commissions or other extraordinary consideration will be paid to such
  directors and officers; and
- business opportunities arising through other companies in which such
  directors and officers are involved will not be offered to the Company except
  on the same or better terms than the basis on which they are offered to third
  party participants.

In addition, the Companys Corporate Governance and Nominating
Committee has developed, and its board of directors has adopted, guidelines
which require all directors to disclose all conflicts of interest and potential
conflicts of interest to the Company.

The Company may pursue strategic transactions in the
future, which could be difficult to implement, disrupt its business or change
its business profile significantly.

The Company will continue to consider opportunistic strategic
transactions, which could involve acquisitions or dispositions of assets. Any
future strategic transaction could involve numerous risks, including:

- potential disruption of the Companys ongoing business and distraction of
  management;
- difficulty integrating acquired businesses or segregating assets to be
  disposed of;

23

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- exposure to unknown and/or contingent or other liabilities, including
  litigation arising in connection with the acquisition, disposition and/or
  against any businesses the Company may acquire, and
- changing the Companys business profile in ways that could have unintended
  consequences.

If the Company enters into significant strategic transactions
in the future, related accounting charges may affect its financial condition and
results of operations, particularly in the case of any acquisitions. In
addition, the financing of any significant acquisition may result in changes in
its capital structure, including the incurrence of additional indebtedness.
Conversely, any material disposition could reduce its indebtedness or require
the amendment or refinancing of a portion of its outstanding indebtedness. The
Company may not be successful in addressing these risks or any other problems
encountered in connection with any strategic transactions.

Risk Factors Relating to the Companys Common Shares

The Company does not intend to pay dividends for the
foreseeable future.

The Company has never declared or paid any cash dividends on
the Companys common shares and does not intend to pay any cash dividends in the
foreseeable future. The Company anticipates that it will retain all of its
future earnings for use in the development of its business and for general
corporate purposes. Any determination to pay dividends in the future will be at
the discretion of the Companys board of directors. In addition, from time to
time the Company may enter into agreements that restrict its ability to pay
dividends.

The price of the Companys common shares may be
volatile.

The trading price of the Companys common shares has been and
may continue to be subject to material fluctuations and may increase or decrease
in response to a number of events and factors, including:

- changes in the market price of the commodities the Company sells and
  purchases, particularly gold and silver;
- current events affecting the economic situation and exchange rates in
  Canada, the United States, Mexico and internationally;
- changes in financial estimates and recommendations by securities analysts;
- acquisitions and financings;
- quarterly variations in operating results;
- the operating and share price performance of other companies that
  investors may deem comparable;
- the issuance of additional equity securities by the Company or the
  perception that such issuance may occur; and
- purchases or sales of blocks of the Companys common shares.

24

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Part of this volatility may also be attributable to the current
state of the stock market, in which wide price swings are common. This
volatility may adversely affect the prices of the Companys common shares
regardless of the Companys operating performance and could cause the market
price of the Companys common shares to decline.

The Company may issue additional equity securities which
may reduce the Companys earnings per share.

The Company has in the past issued and may continue to issue
equity securities to finance its activities, including in order to finance
working capital requirements, capital expenditures and acquisitions. If the
Company issues additional common shares, your percentage ownership of the
Company will decrease and you may experience dilution in the Companys earnings
per share. Moreover, as the Companys intention to issue any additional equity
securities becomes publicly known, the common share price may be materially and
adversely affected.

If securities analysts or industry analysts downgrade the
Companys common shares, publish negative research or reports, or do not publish
reports about the Companys business, the price of and trading volume of the
Companys common shares could decline.

The trading market for the Companys common shares will be
influenced by the research and reports that industry or securities analysts
publish about the Company, its business and its market. If one or more analysts
adversely change their recommendation regarding the Companys common shares or
its competitors securities, the price of the Companys common shares would
likely decline. If one or more analysts cease covering or fail to regularly
publish reports about the Company, it could lose visibility in the financial
markets, which in turn could cause its share price or trading volume to decline.
In addition, the Companys common shares price could be adversely affected by
negative stories written or broadcast about it.

Holders of the Companys common shares may experience
dilution when outstanding options and warrants are exercised, or as a result of
additional securities offerings.

There are a number of outstanding options and warrants pursuant
to which additional common shares of the Company may be issued in the future.
Exercise of such options and warrants may result in dilution to the Company
shareholders. In addition, if the Company raises additional funds through the
sale of equity securities, shareholders may have their investment further
diluted.

Mineral Properties

For a complete description of the Property see the report
entitled NI 43-101 F1 Technical Report Updated Resources and Reserves and
Mine Plan for the San Francisco Gold Mine Sonora, Mexico dated November 1,
2011 (the 2011 Report), prepared by Micon International Limited of Toronto,
Ontario (Micon). The Qualified Persons responsible for the 2011 Report are
William J. Lewis, B.Sc., P.Geo., Ing. Alan J. San Martin, MAusIMM (CP), Mani
Verma, P.Eng., Christopher R. Lattanzi, P.Eng. and Richard M. Gowans, B.Sc.,
P.Eng. of Micon. The 2011 Report has been filed with Canadian securities
regulatory authorities on SEDAR (available at www.sedar.com).

San Francisco Gold Project

The following is the summary section of the 2011 Report.

GENERAL

Timmins Gold Corp. (TSX-V:TMM) (TMM) has retained Micon
International Limited (Micon) to conduct an audit of its resource and reserve
estimates and prepare an update of its 2010 Technical Report on the San
Francisco gold project in the state of Sonora, Mexico. The purpose of this
Technical Report is to support disclosure of the results of Micons resource and
reserve audit and the updated mining plan, compliant with Canadian National
Instrument (NI) 43-101.

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Micons most recent Technical Report for TMM was entitled NI
43-101 Technical Report on the Updated Resources and Reserves and Mine Plan for
the San Francisco Gold Mine, Sonora, Mexico, dated November 30, 2010. That
Technical Report was filed by TMM on the System for Electronic Document Analysis
and Retrieval (SEDAR) which is an electronic filing system developed for the
Canadian Securities Administrators (CSA).

Micon does not have nor has it previously had any material
interest in TMM or related entities. The relationship with TMM is solely a
professional association between the client and the independent consultant. This
report is prepared in return for fees based upon agreed commercial rates and the
payment of these fees is in no way contingent on the results of this report.

This report includes technical information which requires
subsequent calculations or estimates to derive sub-totals, totals and weighted
averages. Such calculations or estimations inherently involve a degree of
rounding and consequently introduce a margin of error. Where these occur, Micon
does not consider them to be material.

This report is intended to be used by TMM subject to the terms
and conditions of its agreement with Micon. That agreement permits TMM to file
this report as a Technical Report with the CSA pursuant to provincial securities
legislation. Except for the purposes legislated under provincial securities
laws, any other use of this report, by any third party, is at that partys sole
risk.

The conclusions and recommendations in this report reflect the
authors best independent judgment in light of the information available to them
at the time of writing. The authors and Micon reserve the right, but will not be
obliged, to revise this report and conclusions if additional information becomes
known to them subsequent to the date of this report. Use of this report
acknowledges acceptance of the foregoing conditions.

Property Description and Location

The San Francisco property is situated in the north central
portion of the state of Sonora, Mexico, approximately 150 km north of the state
capital, Hermosillo. In this report, the term San Francisco project (the
project) refers to the area within the exploitation or mining concessions
controlled by TMM, while the term San Francisco property (the property) refers
to the entire land package (mineral exploitation and exploration concessions)
under TMMs control.

The project is comprised of two previously mined open pits (San
Francisco and La Chicharra), together with heap leach processing facilities and
associated infrastructure located close to the San Francisco pit.

TMM advises that it holds the San Francisco project, which
consists of 13 mining concessions, through its wholly-owned Mexican subsidiary
Timmins Goldcorp Mexico, S.A. de C.V. (Timmins). All the concessions are contiguous and
each varies in size for a total property area of 44,442.72 hectares (ha). In
late 2005, the original Timmins II concession was subdivided into two
concessions (Timmins II Fraccion Sur and Pima) as part of separate exploration
strategies for the original Timmins II concession. All concessions are subject
to a bi-annual fee and the filing of reports in May of each year covering the
work accomplished on the property between January and December of the preceding
year.

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Timmins advises that it acquired the first seven concessions
covering the San Francisco mine through its purchase of Molimentales del
Noroeste de S.A. de C.V. (Molimentales) in April, 2007.

In 2006, Timmins signed a temporary occupancy agreement with an
agrarian community (Ejido) in Mexico called Los Chinos whereby Timmins was
granted access privileges to 674 ha, the use of the Ejidos roads, as well as
being able to perform all exploration work on the area covered by the agreement.
The agreement is for a period of 10 years with an option to extend the access
beyond the 10-year period.

During August and September, 2009, Molimentales acquired the
800 ha of surface land on which the San Francisco mine is located, by means of
five purchase agreements covering every one of the Ejido Jesus Garcia Heroe de
Nacozaris five former parcels that altogether form the 800 ha. Molimentales is
currently negotiating the acquisition of 800 ha from the El Ejido Los Chinos,
which was originally part of an exploration agreement signed in 2006.

Other parties control two mineral concessions which are
contained within the area of the mineral concessions owned by Timmins but
neither of these concessions impacts the main area of the San Francisco project.

On February 23, 2011, TMM announced that it had staked an
additional 95,000 ha of claims along the highly prospective Sonora-Mojave
Megashear structural province in northern Sonora. TMM has continued to stake
additional concessions since February and the total additional regional mineral
concessions now amount to approximately 152,279.6 ha.

On July 6, 2011, Molimentales acquired (through a straight
purchase) a 10-ha mineral concession called La Mexicana by paying the vendor a
buy-out price of USD 250,000. This straight purchase agreement is currently in
the process of being filed with the Mexican Federal Mining Registrar. Prior to
this purchase the La Mexicana mineral concession was the last area in the
metamorphic package that did not belong to Timmins.

The Mexican mining laws were changed in 2005 and, as a result
of these changes, all mineral concessions granted by the Dirección General de
Minas (DGM) became mining concessions and there are no longer separate
specifications for a mineral exploration or exploitation concession. A second
change to the mining laws was that all mining concessions are granted for 50
years provided that the concessions remain in good standing. As part of this
change, all former exploration concessions which were previously granted for 6
years became eligible for the 50-year term.

For any concession to remain valid, the bi-annual fees must be
paid and a report has to be filed during the month of May of each year which
covers the work conducted during the preceding year. Concessions are extendable
provided that the application is made within the five-year period prior to the expiry of the
concession and the biannual fee and work requirements are in good standing. The
bi-annual fee payable to the Mexican government for Timmins to hold the group of
contiguous mining concessions for the San Francisco operations is USD 102,818.
The bi-annual fee for Timmins to hold the group of contiguous mining concessions
which comprise the regional mineral property is USD 104,168.

27

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Accessibility, Climate, Physiography, Local Resources and
Infrastructure

The project is located in the Arizona-Sonora desert in the
northern portion of the Mexican state of Sonora, 2 km west of the town of
Estación Llano (Estación), approximately 150 km north of Hermosillo and 120 km
south of the United States/Mexico border city of Nogales along Highway 15 (Pan
American highway). The closest accommodations are in Santa Ana, a small city
located 21 km to the north on Highway 15.

The climate at the project site ranges from semi-arid to arid.
The average ambient temperature is 21°C, with minimum and maximum temperatures
of -5oC and 50oC, respectively. The average rainfall for the area is 330
millimetres (mm) with an upper extreme of 880 mm. The desert vegetation
surrounding the San Francisco mine is composed of low lying scrub, thickets and
various types of cacti, with the vegetation type classified as Sarrocaulus
Thicket.

Physiographically, the San Francisco property is situated
within the southern Basin and Range Province, characterized by elongate,
northwest-trending ranges separated by wide alluvial valleys. The San Francisco
mine is located in a relatively flat area of the desert with the topography
ranging between 700 and 750 m above sea level.

History

After conducting exploration on the project between 1983 and
1992, Compania Fresnillo S.A. de C.V. (Fresnillo) sold the property in 1992 to
Geomaque Explorations Ltd. (Geomaque). After conducting further exploration,
Geomaque decided to bring the project into production in 1995. Due to economic
conditions, mining ceased and the operation entered into the leach-only mode in
November, 2000. In May, 2002, the last gold pour was conducted; the plant was
mothballed, and clean-up activities at the mine site began.

In 2003, Geomaque sought and received shareholder approval to
amalgamate the corporation under a new Canadian company, Defiance Mining
Corporation (Defiance). On November 24, 2003, Defiance sold its Mexican
subsidiaries (Geomaque de Mexico and Mina San Francisco), which held the San
Francisco gold mine, to the Astiazaran family of Sonora and their private
company.

Since June, 2006, the Astiazaran family and their company
Desarrollos Prodesa S.A. de C.V. have been extracting sand and gravel
intermittently from both the waste dumps and the leach pads for use in highway
construction as well as other construction projects.

Timmins acquired an option to earn an interest in the property
in early 2005, whereupon Timmins conducted a review of the available data and
started a reverse circulation drilling program in August and September, 2005.
This was followed by a second drilling program comprised of both reverse circulation
and diamond drilling in 2006, based on the results of the 2005 drilling program.

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From 2007 to 2009, concurrent with the feasibility study which
focused on re-starting the mining operations, TMM conducted exploration
comprised of mainly infill and confirmation drilling in and around of the San
Francisco and La Chicharra pits. The drilling results as of the end of 2009
indicated that the mineralization extended both along strike and down dip of the
deposit, a situation which led to the decision to accelerate the drilling in the
first 6 months of 2010. The results from the 2010 drilling, when combined with
the previous results, led to Timmins updating the resource and reserve
estimations as well as its mine plan. The latest updates were disclosed in a
November, 2010 Technical Report which TMM filed on SEDAR.

Between July, 2010 and June, 2011, Timmins conducted an
intensive exploration drilling program which included deeper drilling to explore
the mineralization at depth, both in and around the La Chicharra and San
Francisco pits. The results of this drilling indicate that the mineralization is
located in parallel mineralized bodies both along strike and at depth. Timmins
believes that the conclusion that the mineralization is located in parallel
bodies may lead to further increases in the mineral resources and is continuing
its intensive drilling program as a result.

GEOLOGICAL SETTING AND MINERALIZATION

The San Francisco project is a gold occurrence with trace to
small amounts of other metallic minerals. The gold occurs in granitic gneiss and
the deposit contains principally free gold and occasionally electrum. The
mineralogy, the possibility of associated tourmaline, the style of
mineralization and fluid inclusion studies suggest that the San Francisco
deposits may be of mesothermal origin.

The San Francisco deposits are roughly tabular with multiple
phases of gold mineralization. The deposits strike 60° to 65° west, dip to the
northeast, range in thickness from 4 to 50 m, extend over 1,500 m along strike
and are open ended. Another deposit, the La Chicharra zone, was mined by
Geomaque, as a separate pit.

EXPLORATION PROGRAMS

2010 to 2011 Exploration Programs

From July, 2010 to June, 2011, 691 RC and core holes were
drilled for a total of 94,148 m. These holes were drilled to cover several
objectives; most of the reverse circulation drilling and the entire core
drilling were undertaken in and around the San Francisco pit and in June, 2011,
36 RC holes totalling 6,170 m were drilled in the northern area of the La
Chicharra pit. The RC drilling included 9,817 m in 67 holes of condemnation
drilling which covered two areas; the first area was to the south of the
existing waste dumps with the second to the west of the new leach pads. The
negative results allowed Timmins to expand the existing waste dumps to the south
and the negative results to the west of the leach pads allow for this area to be
used for the stockpile of the low grade material. Details of the drilling
programs are outlined in Section 10 of this report.

For the exploration drilling and other programs conducted on
the San Francisco property, between July, 2010 and the end of June, 2011,
Timmins expended approximately USD 9.153 million.

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Future Exploration Programs

Most of the exploration drilling performed from July, 2010 to
June, 2011 was focused on exploring potential extensions of the gold
mineralization around the perimeter of the San Francisco pit and supporting the
mining operation through confirmation or infill drilling in specific areas where
there was a lack of reliable information. Only recently was the decision taken
to extend the exploration programs to include the La Chicharra pit and the area
around it. The general results were successful with the addition of further
resources and reserves, including the addition of the La Chicharra area for the
first time. Based on the positive results, Timmins will continue with the
exploration drilling for the rest of 2011 and into 2012, with an exploration
budget of approximately USD 19.6 million.

Timmins will continue to explore the area surrounding and
beneath the San Francisco pit to further expand the mineral resources and
reserves. Timmins will also begin to explore to the northwest along the
projected strike extension from the pit, both to determine the continuity of the
mineralization in this direction and to condemn areas which may be used for
further infrastructure such as leach pads and waste piles as the mining
operations continue.

In the La Chicharra area, infill drilling is currently in
progress to test the extension of the mineralized zones near the pit perimeter
primarily in the down-dip direction. However, Timmins also believes that it is
important to extend the exploration along strike and this will be done as soon
as the infill drilling to the north of the pit is completed. The first part of
this program will drill in both directions to the west-northwest and
east-southeast, starting from the existing La Chicharra pit. Once these programs
are underway or completed, Timmins has outlined a drill program to tie in the
mineral intersections on Section 1300W, 500 m to the south of the San Francisco
pit, which are related to the southeastern projection of the La Chicharra
mineral trend. This program will cover an area approximately 1,300 m long and
500 m wide with the initial drilling program based on a grid of 50 m.

Recently Timmins reached an agreement with the Ejido El Claro
to conduct exploration work on the Ejidos ground. Also, Timmins purchased the
last mineral concession (La Mexicana) inside the San Francisco property that it
did not already control. These arrangements will allow Timmins to conduct
exploration programs on a further thirteen targets to the north of the San
Francisco mine.

Timmins has laid out a program to conduct systematic drilling
starting with the La Mexicana target and on at least four other targets located
in the eastern portion of the northern exploration area. These other four
targets are the La Playa, El Diez, Area 1B and El Socorro areas which have been
linked to a series of structural events that could be favourable for the
emplacement of gold mineralization. Timmins has outlined a series of north-south
section lines linking the targets that will be drilled on 100 m centres along
the lines.

Micon has reviewed TMM/Timmins proposal for further
exploration and studies on its San Francisco property and considers that the
budget for the proposed program is reasonable. Micon recommends that TMM/Timmins
implements the program as proposed, subject to either funding or other matters
which may cause the proposed program to be altered in the normal course of its
business activities, or alterations which may affect the program as a result of
the exploration activities themselves.

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RESOURCE AND RESERVE ESTIMATES

Mineral Resource Estimate

The block model is based on 5 m by 5 m by 6 m high blocks. The
coordinate limits of the previous model were retained for this current work. The
topography was updated to reflect the surface at the end of June, 2011. The
undisturbed pre-mining topographic surfaces are also available in the model.

Unlike the previous study, in which Timmins used the indicator
kriging (IK) estimation method to outline the mineral resources, Timmins has
conducted a manual interpretation of the mineralized zones based on all of the
drilling intersections now available in its database. The manual interpretation
allows for a more geologically precise mineralization interpretation which will
enable Timmins to plan better drilling programs to explore the extent of the
mineralization and also to prepare better engineering designs regarding the ore
and waste split in the pit for planning purposes. Overall, the method is similar
to the previous method, except that the grade zones are no longer computer
designed but are directly interpreted by the geologists using the drilling
information they have gathered.

The database of the San Francisco and La Chicharra deposits
consists of 2,665 drill holes with 182,319 intervals, amounting to 302,999 m of
drilling. A total of 92 of the drill holes lie beyond the model limits and have
not been included in the study. The current database includes 691 new holes
drilled from 2010 to 2011, and 94,148 m of drilling.

Once Micon had audited and accepted Timmins block model,
Timmins proceeded to run a pit optimization program in order to estimate the
resources. The gold price used for estimating the resources at the San Francisco
project was USD 1,200 per ounce, based on the three year trailing average in
July, 2011, plus USD 100 per ounce.

The parameters used in the pit optimization for the estimation
of the resources are summarized in Table 1.1. They are a combination of the
parameters decided by Micon and Timmins taking into account the actual costs
obtained from the operation.

Pit bench heights were set at 6 m (the block height used in the
model) and slope angles were based on inter-ramp angles recommended by Golder
Associates in its December, 1996, report, adjusted to allow for haul roads of 25
m width.

Table 1.1Pit Optimization Parameters for the 2011
Resource Estimate for the San Francisco Project

Costs
    Rock Densities and
      RecoveriesDescription
    Units
    Amount
    Name
    Code
    Density
    Recovery %Waste mining cost
    USD/t
    1.82
    Diorite
    2
    2.72
    60.50Ore mining cost
    USD/t ore
    1.82
    Gneiss felsic
    4
    2.75
    70.70Process cost
    USD/t ore
    2.75
    Granite
    5
    2.76
    85.70G & A cost
    USD/t ore
    0.64
    Schist
    6
    2.75
    71.70Gold price
    USD/oz
    1,200
    Gneiss mafic
    7
    2.75
    65.00Lamprophrite dike
    8
    2.76
    60.50Pegmatite
    10
    2.85
    71.70Gabbro
    11
    2.81
    57.80Conglomerate
    12
    2
    71.70General Recovery
    
    
    68.60


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The pit shell adopted for reporting resources was estimated at
a gold price of USD 1,200/troy ounce, using the economic parameters summarized
in Table 1.1 and the topographic surface as of June, 2011. Table 1.2 summarizes
the August, 2011, mineral resource estimate.

Table 1.2Mineral Resource Estimate for the San
Francisco Project (Inclusive of Mineral Reserves) (Cut-off Grade of 0.128
g/t Gold and a USD 1,200 Gold Price)

Pit Area
    Category
    Tonnage (x1,000)
    Avg. Grade (g/t Au)
    Gold OuncesMeasured
    42,546
    0.640
    876,000Indicated
    22,698
    0.595
    434,000San Francisco Mine
    Total Measured & Indicated
    65,244
    0.625
    1,310,000Inferred*
    66,483
    0.420
    898,000Measured
    6,158
    0.488
    96,000La Chicharra
    Indicated
    2,222
    0.488
    35,000Deposit
    Total Measured & Indicated
    8,380
    0.488
    131,000Inferred*
    7,197
    0.465
    107,000Measured
    48,704
    0.621
    972,000Indicated
    24,920
    0.586
    469,000Total Resources
    Total Measured & Indicated
    73,624
    0.609
    1,441,000Total Inferred*
    73,680
    0.424
    1,005,000


*Inferred resources in this table include material outside of
the pits limit that has the potential to become additional reserves at a future
stage.

Micon recommends that Timmins use the August, 2011 mineral
resource estimate contained in Table 1.2 as the stated mineral resource estimate
for the San Francisco project, as this estimate recognizes the use of a 0.128
g/t Au cut-off as the grade at which the mineralization would meet the
parameters for potential economic extraction as defined by the CIM standards and
definitions for resources. The figures in Table 1.2 have been rounded to reflect
that they are an estimate.

Micon believes that no environmental, permitting, legal, title,
taxation, socioeconomic, marketing or political issues exist which would
adversely affect the mineral resources estimated above, at this time. However,
mineral resources that are not mineral reserves do not have demonstrated
economic viability.

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Mineral Reserve Estimate

Once Micon had audited and accepted Timmins resource estimate,
Timmins proceeded to run a pit optimization program in order to estimate the
reserves. The gold price used for estimating the resources at the San Francisco
project was USD 1,100 per ounce, based on the three year trailing average in
July, 2011.

Mining recovery for the San Francisco deposit has been assumed
to be 99%. Micon agrees with the mining recovery as initially presented,
although this number may change based on actual year-to-year reconciliation
studies.

The dilution for the San Francisco deposit is defined according
to the type of mineralization and the size of the modelled blocks. The deposit
varies in size and shape of the mineralization from one bench to another. The
potential dilution varies with the amount of waste in contact with economic
material; larger mineralized zones carry a lower percentage of dilution than
smaller zones.

Timmins believes that its method for estimating dilution
achieves a close approximation of what can be expected during operations. The
method consists of identifying the blocks that are partially mineralized with a
maximum 40% of material below the economic cut-off grade, and adding that waste
percent (tonnes and grade) as mining dilution.

An overall average of 8.3% dilution was estimated for the San
Francisco pit and 7.5% for the La Chicharra pit.

The parameters used in the pit optimization for the estimation
of reserves are the same as those used for the resource estimation, except for
the gold price of USD 1,100.

Table 1.3 presents the total reserves estimated within the pit
design outline, including mine recovery and dilution factors.

Table 1.3 
Mineral Reserves within the San Francisco and La Chicharra
Pit Design (August, 2011) after Mining Recovery and Dilution

PIT
    Classification
    **Metric tonnes** (1000)
    Gold g/t
    **Contained Gold** OuncesProven
    42,850
    0.604
    831,000San Francisco Pit
    Probable
    21,395
    0.556
    383,000Total
    64,245
    0.588
    1,214,000Proven
    6,180
    0.447
    89,000La Chicharra Pit
    Probable
    1,966
    0.439
    27,000Total
    8,146
    0.445
    116,000Proven
    49,030
    0.584
    920,000Total
    Probable
    23,361
    0.546
    410,000Total
    72,391
    0.572
    1,330,000


The proven and probable reserves in Table 1.3 have been derived
from the measured and indicated mineral resources summarized in Table 1.2 and
account for mining recovery and dilution. The figures in Table 1.3 have been
rounded to reflect that they are an estimate.

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The mineral reserve estimate has been reviewed and audited by
Micon. It is Micons opinion that the August 30, 2011 mineral reserve estimate
has been prepared in accordance with the CIM standards and definitions for
mineral reserve estimates and that TMM/Timmins can use this estimate as a basis
for further mine planning and operational optimization at the San Francisco mine
project.

Although a mineral reserve has been estimated herein for the La
Chicharra pit, drilling is continuing in this area and Timmins has not yet
included the La Chicharra pit in its formal mining plan. It is expected that,
once the current drilling program is completed, the mineral reserves at La
Chicharra will be re-estimated and scheduled for mining.

OPERATIONAL DATA

Production to Date

The San Francisco mine resumed commercial production in April,
2010. Table 1.4 summarizes production from April, 2010 to the end of June, 2011,
by quarter. Ore of lower grade is being stockpiled for processing at the end of
the mine life. Timmins reports that, at September 30, 2011, there was an
accumulated stockpile of 1.518 Mt at an average grade of 0.281 g/t, containing
approximately 13,700 ounces of gold.

During July, 2011 Timmins tested the expansion of the crushing
system to 18,000 t/d and announced that it is quickly reaching this target.

Table 1.4 
San Francisco Project, Timmins Annual Production for 2010
and 2011 by Quarter

Year
    Quarter
    **Mined** Ore* 
    (Dry   **Tonnes)**
    Average **Grade**(g/t  **Gold)**
    **Processed**Ore 
    (Dry **Tonnes)**
    Average **Grade** (g/t **Gold)**
    **Gold** Ounces **Recoverable**
    **Gold** Ounces   **Sold**April - June
    905,296
    0.718
    905,296
    0.718
    14,145
    11,3192010
    July - September
    1,090,768
    0.817
    1,090,768
    0.817
    19,374
    15,680October - December
    1,208,678
    0.939
    1,208,677
    0.939
    25,033
    20,0302011
    January - March
    1,207,339
    0.895
    1,207,339
    0.895
    24,088
    18,755April - June
    1,648,230
    0.762
    1,239,075
    0.859
    22,138
    17,965Total
    
    6,060,311
    
    
    
    104,778
    83,749


*Excluding lower grade ore stockpiled.Table provided by
Timmins Goldcorp Mexico, S.A. de C.V.

Mine Plans

Before Timmins commenced mining within the San Francisco pit,
pit designs were revised from the two mining phases developed previously by
Independent Mining Consultants, Inc., to three mining phases designed by
Timmins. The latter designs were used for re-starting operations, in order to achieve a
favourable distribution of waste tonnage during the mine life and enhance the
availability of heap leach feed.

34

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In 2010, the three-phase open pit design was extended to
incorporate the additional, discovered resources to the northwest of the
previous pit outline. In the present update, additional drilling extended the
pit limits from 70 to 100 m surrounding the previous 2010 design. A fourth pit
phase has now been added to the design production schedule. The first phase will
be completely mined by the end of 2011.

The La Chicharra pit, previously mined by Geomaque, is located
1,000 m west of the San Francisco pit. Timmins anticipates that the La Chicharra
pit will be returned to operation in the future.

For the San Francisco mine plan, phase one developed the pit
down the 560 m elevation. The phase two push back expands the pit about 350 m
west and 150 m north, with the lowest bench at the 542 m elevation. The third
phase has a 215 m push back of the west wall and 130 m of the east wall, with
the lowest bench at the 494 elevation. Phase four expands the pit 200 m
southwest and 200 m southeast, to its ultimate design limit, with the final pit
bottom at the 440 elevation. The estimated tonnage for each design phase is
listed in Table 1.5.

Table 1.5Summary of the Mining Tonnages for the
San Francisco Mining Phases as of the end of August, 2011

**Pit**
    Ore Tonnage
    Gold (g/t)
    **Gold (oz)**
    Waste Tonnage
    Total Tonnes
    Stripping RatioPhase 2
    4,735,747
    0.846
    128,788
    3,907,249
    8,642,996
    0.8Phase 3
    24,400,667
    0.585
    458,855
    40,010,568
    64,411,235
    1.6Phase 4
    35,108,868
    0.576
    626,579
    78,192,055
    113,300,923
    2.2La Chicharra
    8,145,959
    0.555
    116,503
    25,663,280
    33,809,239
    3.2Total
    72,391,241
    0.572
    1,330,725
    147,773,152
    186,355,154
    2.0


Table provided by Timmins Goldcorp Mexico, S.A. de C.V.

PROCESSING

Ore extracted from the pit is transported in haulage trucks
with a capacity of 100 tonnes, which feed directly into the gyratory primary
crusher with dimensions of 42 x 65. The crusher has nominal capacity of 1,200
t/h. The crushed product is then transported on conveyor belts to a stockpile
with a capacity of 10,000 tonnes.

Two feeders beneath the stockpile deliver the ore to a conveyor
belt for transport to the secondary crushing circuit. The ore is screened at 1⁄2.
Screen undersize reports to the final product, while screen oversize is fed to
two secondary crushers.

Product from the secondary crushers is transported on conveyor
belts to the tertiary crushing circuit, which consists of two tertiary crushers
operating in closed circuit with 1⁄2 screens. Undersize from the screens is
delivered to the leach pad.

Timmins has installed an additional crusher and screen to
increase throughput to 18,000 t/d. Timmins now intends to install sufficient
crushing and other equipment to increase the production of leach feed to
approximately 32,000 t/d by 2013.

35

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The current leach pad occupies approximately 40 ha and is
divided into seven sections. Product from the crushing plant is transported to
the leach pad on overland conveyors and deposited on the pad with a stacker,
forming lifts 6 m in height. A bulldozer is used to level the surface of each
lift. The irrigation pipelines are then installed to distribute the leach
solution over the entire surface of the lift.

The leach solution, consisting of 0.03% sodium cyanide and
having a pH of 10.5 to 11, flows downward through the crushed ore, dissolving
the precious metals. The solution percolates to the bottom of the lift and flows
to the canal that carries the pregnant solution to a storage pond, from which it
is pumped to the ADR plant.

Barren solution exiting the ADR plant flows to a second storage
pond where fresh water and sodium cyanide are added, before the solution is
pumped back to the leach pad.

Due to the increase in mineral reserves and the increase in
production, authorization was granted for an additional 49 ha for the
construction of a new leach pad, located next of the current pads.

CAPITAL AND OPERATING COSTS

Only minimal capital expenditures remain to complete the
expansion of the San Francisco project to a capacity of 18,000 t/d of leach
feed. Additional capital will be required, principally in 2012, to increase
production to 32,000 t/d. Timmins estimate of life-of-mine capital expenditure
is summarized in Table 1.6, which also includes a nominal provision n for
sustaining capital.

Table 1.6Estimated Future Capital Expenditure

Capital Expenditure (USD
      thousand)Year
    Expansion Capital
    Sustaining Capital
    Total2011 (fourth quarter)
    3,303
    20
    3,3232012
    18,922
    75
    18,9972013
    3,000
    75
    3,5752014
    3,000
    75
    3,5752015
    3,000
    75
    3,5752016
    -
    75
    752017
    -
    -
    -TOTAL
    31,225
    395
    33,120


Timmins operating cost forecast for 2012 and subsequent years
is summarized in Table 1.7. From 2013 onwards, the forecast is based on mining a
total of approximately 11.6 million tonnes of ore and approximately 22 million
tonnes of waste per year. Approximately 4.2 million tonnes of stockpiled low
grade is planned to be crushed and placed on the leach pad in 2017.

36

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Table 1.7 Operating Cost Forecast

Unit Cost
      (USD/tonne placed on pad)Actual
    
    Forecast2011
    2011
    2012
    2013  2016Jan.  Sept.
    Oct.  Dec.
    
    (average)Mining (excluding stockpiled material)
    9.51
    7.78
    6.93
    5.28Crushing
    1.45
    1.25
    1.20
    1.20Leaching
    1.07
    0.97
    0.96
    0.94Gold Recovery
    0.38
    0.37
    0.34
    0.30Laboratory
    0.28
    0.23
    0.20
    0.14Environmental
    Included in G & A
    0.05
    0.04
    0.03General and Administration
    0.51
    0.46
    0.34
    0.23Total
    13.20
    11.11
    10.01
    8.12


The unit mining cost per tonne of ore placed on the leach pad
is based on a cost of $1.82/t of total material mined. The actual cost for the
first nine months of 2011 was $1.85/t mined.

Micon has reviewed the estimates of capital expenditure and
operating cost prepared by Timmins and regards them as reasonable.

ECONOMIC EVALUATION

Micon has performed the economic analysis of the San Francisco
project by conventional discounted cash flow techniques, using the life-of-mine
production schedule and the estimates of future capital expenditures and
operating costs summarized above, together with certain supplementary procedures
and estimates described in Section 22. The starting date for the cash flow
forecasts is October 1, 2011, and all estimated future annual after-tax cash
flows have been discounted to that date at discount rates of 5% and 8% per year.
The long-term gold price used in the economic analysis is USD 1,200 per ounce.

The results of the economic analysis of the San Francisco
project are summarized in Table 1.8. Based on the reserve estimates discussed
herein, the life of the San Francisco pit extends into 2017.

Table 1.8Summary of Economic Analysis

Life-of-Mine Cash Flow (USD million)
    Average Unit Cost (USD/tonne leached)Net Sales Revenue
    968
    15.17Mining Cost (including stockpiled material)
    328
    5.15Crushing Cost
    77
    1.20Leaching Cost
    60
    0.94Gold Recovery Cost
    20
    0.31Laboratory Cost
    10
    0.15Environmental Cost
    2
    0.03


37

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Life-of-Mine Cash Flow (USD million)
    Average Unit Cost (USD/tonne leached)General and Administration
    17
    0.26Total Cash Operating Costs
    513
    8.04Operating Profit
    455
    7.13Capital Expenditures (including closure)
    38
    0.60Income Tax
    125
    1.96Undiscounted Net Cash Flow
    291
    4.57Net Present Value, 5% Discount
    252Net Present Value, 8% Discount
    232Average Cash Cost (USD/oz gold)
    633Average Annual Gold Production (oz/y)
    145,000


It can be seen that, at a gold price of USD 1,200/oz, the San
Francisco project exhibits robust economics over its projected remaining life of
approximately 5.5 years. The life-of-mine average cash cost of producing gold is
estimated at USD 633/oz, and future capital expenditures are forecast to be
relatively low. The economic analysis indicates that the project will yield
present values of USD 252 million at a discount rate of 5%/y and USD 232 million
at a discount rate of 8%/y. The expansion capital scheduled principally in 2012
will be paid back rapidly through accelerated cash flows.

Sensitivity Analysis

The economics of the San Francisco project are more sensitive
to changes in the factors that influence revenue than the factors which
influence cost. The principal factors influencing revenue are gold price, ore
grade and metallurgical recovery. Table 1.9 shows the changes in undiscounted
after-tax cash flow and present value over a range of gold prices from USD 900
to USD 1,500/oz.

Table 1.9 Sensitivity to Gold Price

Cash Flow and Present
      Value (USD million)Gold Price (USD/oz)
    Change 
    from Base (%)
    Undiscounted Cash Flow
    Present Value (5%/y discount)
    Present Value (8%/y discount)900
    -25
    121
    101
    951,000
    -16.7
    178
    153
    1411,100
    -8.3
    235
    202
    1861,200
    Base
    291
    252
    2321,300
    8.3
    348
    301
    2771,400
    16.7
    405
    350
    2311,500
    25
    462
    399
    368


These data suggest that the San Francisco project is
economically attractive at a gold price of USD 900/oz or more. The sensitivity
of project economics to changes in ore grade or metallurgical recovery is the
same as the sensitivity to changes in gold price. The sensitivity results shown
in Table 1.9 for a range of gold prices would apply equally to a range of variability ore grade or metallurgical
recovery from -25% to +25%.

38

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Project economics are moderately sensitive to variations in
overall operating cost but, with the relatively low level of forecast capital
expenditure, variations in life-of-mine capital have little effect on overall
economics.

CONCLUSIONS AND RECOMMENDATIONS

The San Francisco mine commenced commercial production in
April, 2010, and by the end of December, 2010, Timmins had sold 47,029 ounces of
gold. Between the end of December, 2010 and the end of June, 2011, a further
36,720 ounces of gold has been sold, for a total of 83,749 ounces of gold since
the mine commenced commercial production.

Micon has audited the resource and reserve estimates, and has
reviewed the mine design, the mining schedule, the mining contract terms and the
ability of the contractor to meet the mining production targets, and concludes
that the estimations and designs have been properly carried out and that the
contractor is capable of meeting the schedule.

Micon has reviewed the crushing, heap leach and ADR facilities,
including the planned expansion, and concludes that they are adequate for the
treatment of the scheduled process feed material and the recovery of gold in
doré as forecast in the production plan.

Micon has reviewed the economics of the San Francisco operation
and concludes that it is viable and meets the criteria for publication of a
mineral reserve.

Given the known extent of mineralization on the property,
compared to the amount of mining activity, the San Francisco project has the
potential to host further deposits or lenses of gold mineralization, similar in
character and grade to those exploited in the past, outside the present resource
base.

Micon has reviewed the proposed exploration program for the
property and, in light of the observations made in this report, supports the
concepts as outlined by TMM/Timmins. Given the prospective nature of the
property, it is Micons opinion that the San Francisco project merits further
exploration and that TMM/Timmins proposed exploration plans are properly
conceived and justified.

Micon agrees with the general direction of TMM/Timmins
exploration and development program for the property and makes the following
additional recommendations:

1)          Micon recommends that as Timmins continues to define the
mineralized lenses in its new model for the deposit, it snaps the interpretation
to the drill holes for better definition and interpretation accuracy of the
mineral lenses

2)          Micon recommends that Timmins composites the grades within
each mineralized lense rather than from the collar of the drill hole down to the
toe as is now the case.

The following is not contained in the 2011 Report.

39

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Other Mineral Properties

While the Company is primarily focussed on Sonora, it has
expanded into other regions such as Jalisco, Nayarit and Zacatacus. The Company
also has an interest in and plans to undertake exploration activities at the
following properties:

El Capomo Property, Nayarit The Companyacquired by staking the mineral rights to 60,000 hectares in four claim
blocks by staking. El Capomo Property is located in Nayarit State, approximately
50 kilometres east of Puerto Vallarta.

Timm Property, Zacatacas The Companyacquired
by staking a 45,000 hectare land package in the Peňasquito area. The Tim claims
are located in the northern part of the state of Zacatecas, approximately 42
kilometres west of the town of Concepcion del Oro and contiguous to the
Peňasquito mine recently placed into production by Goldcorp Inc.

El Picacho Property, Sonora The Company holds
an option to acquire a 100% interest in the 703 hectare El Picacho Property
located 20 kilometres west of the San Francisco Mine. The Company also staked an
additional 6,500 hectares encompassing the claims along the principal trend of
the mineralization and now controls over 7,200 hectares either proximate to or
surrounding the Mine.

Patricia and Norma Property, Sonora  These two
claims totaling approximately 20,000 hectares were staked by the Company and are
located in the Municipality of Trincheras, Sonora, Mexico to the west of the San
Francisco claims block.

San Onesimo, Zindy and San Fernando Properties, Zacatecas The Companyholds an option to acquire an interest in each of the San
Onesimo, Zindy and San Fernando mineral concessions located in the State of
Zacatecas, Mexico.

Quila Property, Jalisco  The Company holds an option to
acquire a 100% interest in a 12,000 hectare claim on the eastern section of
Soltoro Ltd.s 22,428 hectare Quila claim located in Jalisco, Mexico.

Cocula Property, Jalisco  The Company held an option to
acquire a 100% interest in this project located approximately 50 kilometres west
of Guadalajara, Jalisco. On July 11, 2011 the Company allowed its interest in
this property to expire.

DIVIDENDS

The Company has neither declared nor paid any dividends on its
common shares. The Company intends to retain its earnings to finance growth and
expand its operations and does not anticipate paying any dividends on its common
shares in the foreseeable future.

CAPITAL STRUCTURE

Authorized and Issued Share Capital

The authorized share capital of the Company consists of an
unlimited number of common shares of which 140,291,127 common shares were issued
and outstanding as at December 31, 2011 and 141,731,127 common shares are
currently issued and outstanding. The holders of common shares are entitled to
receive notice of and to attend and vote at all meetings of the shareholders of
the Company and each common share confers the right to one vote in person or by
proxy at all meetings of the shareholders of the Company. The holders of the
common shares are entitled to receive such dividends in any financial year as the board of directors of
the Company may by resolution determine. In the event of the liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary, the
holders of the common shares are entitled to receive the remaining property and
assets of the Company.

40

---

Convertible Preference Shares

The authorized capital of the Company also includes an
unlimited number of non-voting convertible preference shares without par value,
none of which were issued and outstanding during the nine month period ended
December 31, 2011 and none of which are currently issued and outstanding.

Options

As at December 31, 2011, the Company had the following
outstanding options pursuant to the 2011 Stock Option Plan adopted by the
Companys board of directors on September 8, 2011. These options are exercisable
into common shares.

41

---

Number of Options
    Exercise Price
    Expiry Date1,300,000
    C$0.70
    May 11, 20121,225,000
    C$0.75
    November 27, 20122,150,000
    C$1.00
    November 13, 2014175,000
    C$1.00
    November 27, 20143,400,000
    C$2.50
    April 4, 2016400,000
    C$2.35
    June 27, 2016200,000
    C$2.75
    August 15, 20168,850,000


Subsequent to December 31, 2011, a further 3,500,000 options
were granted to officers and directors of the Company on January 26, 2012,
expiring on January 26, 2017, at an exercise price of C$2.56 per share, all of
which remain outstanding.

Warrants

As at December 31, 2011, there were no warrants outstanding in
the capital of the Company and there are not warrants outstanding as at the date
of this AIF.

MARKET FOR SECURITIES

Effective November 4, 2011 the Companys common shares were
listed for trading on the New York Stock Exchange AMEX under the symbol TGD.
Effective March 23, 2011 the Companys common shares were listed and posted for
trading on the Toronto Stock Exchange under the symbol TMM. Prior to March 23,
2011, the Companys common shares were listed and posted for trading on the TSX
Venture Exchange under the symbol TMM. The following table gives the monthly
trading ranges for the Companys common shares and a number of shares traded
(Volume) on the Toronto Stock Exchange.

Trading Price and Volume Toronto Stock Exchange

2011
    High
    Low
    Close
    VolumeApril 2011
    C$2.64
    C$2.22
    C$2.40
    8,138,778May 2011
    C$2.55
    C$2.14
    C$2.42
    8,168,282June 2011
    C$2.44
    C$2.11
    C$2.35
    9,287,006July 2011
    C$2.75
    C$2.29
    C$2.55
    10,489,562August 2011
    C$2.99
    C$2.48
    C$2.74
    12,921,004September 2011
    C$3.45
    C$2.67
    C$2.89
    17,093,161October 2011
    C$3.23
    C$2.26
    C$2.39
    15,856,413November 2011
    C$2.68
    C$1.94
    C$2.33
    17,035,364December 2011
    C$2.49
    C$1.74
    C$1.95
    14,987,749


42

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ESCROWED SECURITIES

There are no common shares held in escrow.

DIRECTORS AND OFFICERS

Director and Officer Information

The following table provides the names, municipalities of
residence, position, and principal occupations of each of the directors and
executive officers as of the date hereof:

Name, Municipality of
    
    Residence and Position 
    with
      the Company
    Director/Officer**Since**
    Principal Occupation for the Past
      Five YearsArturo Bonillas(1)(4)(5)Hermosillo,
      Sonora, Mexico President, and Director
    March 17, 2005
    Mr. Bonillas has been the Companys President
      since March 17, 2005.Bruce Bragagnolo(1)(4)(5)Vancouver,
      British Columbia, Canada Chief Executive Officer, Secretary
      and Director
    March 17, 2005
    Mr. Bragagnolo is a barrister and solicitor and
      has been the Companys Chief Executive Officer since May 1, 2007.Frank Cordova(4)Hermosillo, Sonora,
      Mexico Director
    July 16, 2008
    Mr. Cordova is an attorney. He has held a
      number of positions in the Mexican federal and state governments and is
      currently the Secretary of Security for the State of Sinaloa.Lawrence Dick, Phd., P.Geo.(2)(3)(4)(5)Vancouver, British
      Columbia, Canada Director
    September 27, 2005
    Mr. Dick was the President of Continuum
      Resources Ltd. (Continuum) from February of 2002 until March of 2006.
      Mr. Dick has been a director of Evolving Gold Corp. since June 2004. Prior
      to joining Continuum, Mr. Dick held positions and as Executive Vice
      President and Director of General Minerals Corporation in Latin America.R. Barry Fraser(3)(4)Vancouver,
      British Columbia, Canada Chairman of the Board and Director
    December 3, 2010
    Mr. Fraser is a barrister and solicitor . He
      has been a partner with Clark Wilson LLP since March, 2007 and prior to
      that he was an associate and later a partner with McCarthy Tetrault.Eugene Hodgson(1)(2)(3)Vancouver,
      British Columbia, Canada Director
    October 31, 2005
    Mr. Hodgson has been a self-employed consultant
      to public companies since 1996. He is currently Vice-President, Western
      Pacific Region for Corpfinance International Limited.Paula Rogers(2)(3)Vancouver, British
      Columbia, Canada Director
    August 3, 2011
    Ms. Rogers is a Chartered Accountant. She is
      the Chief Financial Officer of Castle Peak Mining Ltd. and former Vice-
      President and Treasurer of Goldcorp Inc. from 2005 to 2010.Miguel Soto(5)Aguascalientes, Ags
      Mexico Chief Operating Officer andDirector
    September 27, 2005
    Mr. Soto has been the Chief Operating Officer
      of the Company since September of 2005.


43

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Name, Municipality of Residence and Position with
      the Company
    Director/Officer Since
    Principal Occupation for the Past
      Five YearsColin Sutherland Hammonds Plains, Nova Scotia,
      Canada Chief Financial Officer*
    June 27, 2011
    Mr. Sutherland is a Chartered Accountant. He
      has been the Companys Chief Financial Officer since June, 2011. He is the
      Chief Financial Officer of Archipelago Resources Inc. Prior to joining the
      Company he was the Chief Financial Officer of Gammon Gold Inc. from 2004
      to 2007, President and Chief Executive Officer of Nayarit Gold Inc. from
      2007 to 2010 and President of Capital Gold Corp. from 2010 to 2011.Alex P. Tsakumis Richmond, British Columbia,
      Canada Vice-President Corporate Development
    November 12, 2009
    Mr. Tsakumis has been the Companys VP
      Corporate Development since November, 2009. Prior to that he provided
      corporate development and communications consulting services to the
      Company.Miguel Bonilla Hermosillo, Sonora, Mexico
      Vice-President Finance Mexico
    November 12, 2009
    Mr. Bonilla has been the Companys
      Vice-President Finance, Mexico since November, 2009. He has been the
      Companys comptroller since its inception in 2005. Mr. Bonilla is a
      Certified Public Accountant.Darren Prins Vancouver, British Columbia, Canada
      Vice-President Finance Canada
    August 15, 2011
    Mr. Prins has been the Companys Vice-President
      Finance Canada since August, 2011. He is a Chartered Accountant and was
      formerly Corporate Controller and Assistant Corporate Controller for
      Rusoro Mining Ltd. (October 2009 to July 2011). Prior to that Mr. Prins
      was in the audit and assurance practice at Ernst & Young LLP.


Notes:

| | (1) | Denotes a member of the Finance Committee of the
      Company                            
| | --- | ------------------------------------------------------------------------------------------
| | (2) | Denotes a member of the Audit Committee of the
    Company                                
| | (3) | Denotes a member of the Compensation Committee of the
      Company                       
| | (4) | Denotes a member of the Corporate Governance and
      Nominating Committee of the Company
| | (5) | Denotes a member of the Mining Operations Committee of
      the Company                  

*  Mr. Sutherland has accepted the position of Chief
Financial Officer of Archipelago Resources PLC, but will continue acting as the
Company's Chief Financial Officer during a transition period through the end of
April 2012.

Shareholdings of Directors and Officers

To the best of the Companys knowledge, as at December 31,
2011, directors and executive officers, as a group, beneficially owned,
directly, or exercised control over 6,285,300 common shares (not including
common shares issuable upon the exercise of stock options) of the Company,
representing 4.48% of the then outstanding common shares.

Corporate Cease Trade Orders or Bankruptcies

No director or executive officer of the Company is, as of the
date hereof or was within 10 years before the date hereof, a director, chief
executive officer or chief financial officer of any company (including the
Company) that:

| | a) | was subject to a cease trade order, an order similar to a
      cease trade order or an order that denied the relevant company access to
      any exemption under securities legislation, for a period of more than 30
      consecutive days, that was issued while the director or executive officer
      was acting in the capacity as director, chief executive officer or chief
      financial officer; or                                                                                                                                          
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | b) | was subject to a cease trade order, an order similar to a
      cease trade order or an order that denied the relevant company access to
      any exemption under securities legislation, for a period of more than 30
      consecutive days, that was issued after the director or executive officer
      ceased to be a director, chief executive officer or chief financial
      officer and which resulted from an event that occurred while that person was
acting in the capacity as director, chief executive officer or chief financial
officer.

44

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No director or executive officer of the Company, and no
shareholder holding a sufficient number of securities of the Company to affect
materially the control of the Company:

| | a) | is, as of the date hereof or was within 10 years before
      the date hereof, a director or executive officer of any company (including
      the Company) that, while that person was acting in that capacity, or
      within a year of that person ceasing to act in that capacity, became
      bankrupt made a proposal under any legislation relating to bankruptcy or
      insolvency, or been subject to or instituted any proceedings, arrangements
      or compromise with creditors or had a receiver, receiver manager or
      trustee appointed to hold its assets; or
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | b) | has, within 10 years before the date hereof, become
      bankrupt, made a proposal under any legislation relating to bankruptcy or
      insolvency, or become subject to or instituted any proceedings,
      arrangements or compromise with creditors or had a receiver, receiver
      manager or trustee appointed to hold the assets of the director, executive
      officer or shareholder.                                                                                                                                                                                   

Penalties or Sanctions

No director or executive officer of the Company and no
shareholder holding a sufficient number of securities of the Company to affect
materially the control of the Company has been subject to:

| | (a) | any penalties or sanctions imposed by a court relating to
      securities legislation or by a securities regulatory authority or has
      entered into a settlement agreement with a securities regulatory
      authority; or
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                 
| | (b) | any other penalties or sanctions imposed by a court or
      regulatory body that would likely be considered important to a reasonable
      investor making an investment decision.                                            

The foregoing, not being within the knowledge of the Company,
has been furnished by the respective directors, executive officers and
shareholders holding a sufficient number of securities of the Company to affect
materially the control of the Company.

Conflicts of Interest

The directors of the Company are required by law to act
honestly and in good faith with a view to the best interests of the Company and
to disclose any interests, which they may have in any project or opportunity of
the Company. If a conflict of interest arises at a meeting of the board of
directors, any director in a conflict will disclose his interest and abstain
from voting on such matter. In addition, the Companys Corporate Governance and
Nominating Committee has developed, and the board of directors has adopted,
guidelines which require all Company directors to disclose all conflicts of
interest and potential conflicts of interest to the Company.

To the best of the Companys knowledge, and other than
disclosed herein, there are no known existing or potential conflicts of interest
among the Company, its promoters, directors and officers or other members of
management of the Company or of any proposed promoter, director, officer or
other member of management as a result of their outside business interests
except that certain of the directors and officers serve as directors and
officers of other companies, and therefore it is possible that a conflict may
arise between their duties to the Company and their duties as a director or
officer of such other companies.

45

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LEGAL PROCEEDINGS AND REGULATORY ACTIONS

The Company is not party to any legal proceedings or regulatory
actions.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Other than as disclosed in this AIF, no insider of the Company,
director, or associate or affiliate of them, has any material interest, direct
or indirect, in any transaction since incorporation or in any proposed
transaction that has materially affected, or will materially affect the Company.

REGISTRAR AND TRANSFER AGENT

The registrar and transfer agent of the Company is
Computershare Trust Company of Canada of 2nd Floor, 510 Burrard
Street, Vancouver, British Columbia, Canada V6C 3A6.

MATERIAL CONTRACTS

Except for contracts made in the ordinary course of business,
the following are the only material contracts entered into by the Company within
the nine months ended December 31, 2011, or before that period but are still in
effect:

| | 1. | 2011 Stock Option Plan dated September 8, 2011 and the
      granting of stock options thereunder to directors, officers, employees and
      consultants of the Company;                                                                                                                                                                            
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                      
| | 2. | Consulting Agreement dated March 1, 2011 between the
      Company and Grandich Publications, LLC;                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                      
| | 3. | Mining Agreement between Peal Mexico, S.A. de C.V. and
      Molimentales del Noroeste, S.A. de C. V. dated September 15, 2009
      regarding mining operations.                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                      
| | 4. | Termination Agreement dated July 11, 2011, terminating
      the Exploration and Option to Purchase Mineral Concessions Agreement
      between Rosalio Lopez Orozco and Timmins GoldCorp Mexico, S.A. DE C.V.
      dated July 18, 2007 as amended, regarding the Cocula project;                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                      
| | 5. | Property Option Agreement among the Company, Timmins
      Mexico, Soltoro Ltd. And Soltoro S. A. de C.V. dated November 23, 2010
      regarding the Quila property;                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                      
| | 6. | Exploration and Option to Purchase Mineral Concessions
      Agreement between Julio Cesar Suarez Ramirez and Timmins GoldCorp Mexico,
      S.A. DE C.V dated December 6, 2007 regarding the El Picacho
    property;                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                      
| | 7. | Exploration and Option to Purchase Mineral Concessions
      Agreement among Fernando Santos Chavez, Maria Isaias Yolanda Rangel
      Zavala, Onesimo Donez Noriega, Maria Elvia Reyes Gutierrez, Timmins
      Goldcorp Mexico, S.A. de C.V. and Francisco Arturo Bonillas Zepeda dated
      November 24, 2010 regarding the San Onesimo property;
| |    |                                                                                                                                                                                                                                                                                                                                                      
| | 8. | Credit Agreement between the Company and Sprott Resource
      Lending Partnership dated May 27, 2011;                                                                                                                                                                                                                                               

46

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| | 9.  | Guarantee between Timmins Goldcorp Mexico S.A. de C.V.
      and Sprott Resources Lending Partnership dated May 27, 2011;     
| | --- | ------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                               
| | 10. | Guarantee between Molimentales del Noroeste S.A. de C.V.
      and Sprott Resources Lending Partnership dated May 27, 2011;   
| |     |                                                                                                                               
| | 11. | General Security Agreement between the Company and Sprott
      Resource Lending Partnership dated May 27, 2011;              
| |     |                                                                                                                               
| | 12. | The Company is also in the process of formalizing
      employment and consulting agreements with management and
  executives.

INTEREST OF EXPERTS

As the term is defined in National Instrument 43-101, Lawrence
Dick, P. Geo., a Director of the Company, is a Qualified Person. Except for
100,000 common shares and 100,000 incentive stock option (as at December 31,
2011) he is not known to the Company to have any registered or beneficial
interest, direct or indirect, in any securities or other property of the Company
or any of the Companys associates or affiliates.

In November, 2011, the Company filed the technical report
entitled NI 43-101 F1 Technical Report Updated Resources and Reserves and
Mine Plan for the San Francisco Gold Mine Sonora, Mexico dated November 1,
2011 (the 2011 Report). The 2011 Report was prepared by Micon. The Independent
Qualified Persons (as defined by National Instrument 43-101) responsible for the
2011 Report are William J. Lewis, B.Sc., P.Geo., Ing. Alan J. San Martin,
MAusIMM (CP), Mani Verma, P.Eng., Christopher R. Lattanzi, P.Eng. and Richard M.
Gowans, B.Sc., P.Eng. of Micon. The 2011 Report has been filed with Canadian
securities regulatory authorities on SEDAR (available at www.sedar.com).

Messrs. Lewis, San Martin, Verma, Gowans and Lattanzi, and
Micon, are not known to the Company to have any registered or beneficial
interest, direct or indirect, in any securities or other property of the Company
or any of the Companys associates or affiliates.

Deloitte & Touche LLP is independent in accordance with the
Rules of Professional Conduct of the Institute of Chartered Accountants of
British Columbia.

AUDIT COMMITTEE INFORMATION

Audit Committee Charter

The text of the Companys Audit Committee Charter are included
as Appendix 1.

Composition of the Audit Committee and Relevant Education
and Experience

The Companys Audit Committee is comprised of Paula Rogers,
Lawrence Dick and Eugene Hodgson, all of whom are financially literate within
the meaning of applicable Canadian and U.S. securities laws. In the opinion of
the Companys Board of Directors, Ms. Rogers and Mr. Dick are independent
within the meaning of applicable Canadian and U.S. securities laws, including
Rule 10A-3 of the Exchange Act of 1934, as amended (the Exchange Act) and the
rules of the TSX and NYSE Amex. Mr. Hodgson is not considered to be independent
under such rules due to his having served as an executive officer of the Company
within the past three years. Mr. Hodgson is permitted to serve on the Companys
audit committee pursuant to the exemption from the listing standards for audit
committees provided by Rule 10A-3(b)(1)(iv)(A) of the Exchange Act and the rules
of the TSX and the NYSE Amex. The Company has determined that its reliance on
such exemption would not materially adversely affect the ability of the audit committee to act independently and to satisfy the other
requirements of Rule 10A-3 of the Exchange Act or other applicable laws and
regulations.

47

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The Companys Board of Directors has determined that it has at
least one audit committee financial expert serving on its audit committee. The
Companys Board of Directors has determined that Paula Rogers is an audit
committee financial expert (as such term is defined in paragraph 8(b) of General
Instruction B to Form 40-F) and is independent, as that term is defined by the
Exchange Act and the NYSE Amexs corporate governance standards applicable to
the Company.

The Securities and Exchange Commission has indicated that the
designation of a person as an audit committee financial expert does not make
such person an expert for any purpose, including without limitations for
purpose of Section 11 of the Securities Act of 1933, as amended, does not impose
on such person any duties, obligations or liability that are greater than those
imposed on such person as a member of the audit committee and the Companys
Board of Directors in the absence of such designation and does not affect the
duties, obligations or liability of any other member of the audit committee or
Companys Board of Directors.

A summary of the relevant education and experience of each
member of the Audit Committee is included in the table below.

Committee Member
    Relevant Education and ExperienceEugene Hodgson, Director Not Independent
      Financially Literate
    Mr. Hodgson is the Vice President-Western Region for
      Corpfinance International Ltd. He is currently a director and the Chair of
      the Audit Committee for Grandfield Pacific Inc. Mr. Hodgson was formerly a
      director and the Chief Financial Officer of Sea Breeze Power Corp. and a
      director and the Chair of the Audit Committee for ALDA Pharmaceuticals
      Inc.Lawrence Dick, Director Independent Financially
      Literate
    Mr. Dick has over 35 years experience in the mining
      industry and has been responsible for exploration, pre-development and
      development projects ranging from small exploration projects to
      development projects with several $100 millions in capital expenditures.
      These include the giant Collahuasi exploration and development project,
      now one of the largest copper producers in the world. Mr. Dick was
      responsible for preparing and monitoring an exploration budget of over $35
      million per year. He has served as president, vice president, and director
      of many junior and mid tier public companies, with direct responsibility
      for expenditures and rationalizing expenditures in consideration of the
      work being conducted. He has overseen public audits conducted on a number
      of companies for which he has acted as a director and/or officer. Most
      recently Mr. Dick was the President of Evolving Gold Ltd. until his
      resignation earlier this year. He continues as a Director of Evolving Gold
      Ltd., a position he has held since 2004. Mr. Dick was also the President
      of Continuum Resources Ltd. from February of 2002 until March of 2006.Paula Rogers Director and Chair 
    of Audit
      CommitteeIndependent Financially Literate
    Ms. Rogers received her Bachelor of Commerce degree from
      the University of British Columbia in 1990. She became a member of the
      Institute of Chartered Accountants of British Columbia in 1993. From 1990
      to 1994, Ms. Rogers was with Deloitte & Touche, Chartered Accountants.
      Ms. Rogers has over 15 years experience working for Canadian-based
      international public companies in the areas of treasury operations, tax
      planning and compliance, mergers and acquisitions and financial reporting.
      She has extensive experience in multi-million dollar financings in the
      Canadian and US bank and public debt markets. Ms. Rogers is also currently the CFO of TSXV-listed
      Castle Peak Mining Ltd. She has served as an officer of other public
      companies including Vice-President, Treasurer of NYSE-listed Goldcorp Inc.
      and Treasurer of Wheaton River Minerals Ltd.


48

---

All related services provided by the Auditors, including
non-audit services, are subject to pre-approval by the Audit Committee through
established procedures. The Companys chief financial officer (CFO) discusses
proposed non-audit related services to be performed by Deloitte & Touche LLP
(Deloitte) with the Chair of the Audit Committee. If the amount is immaterial
and will not otherwise interfere with the independence of the auditors, the
Chair approves the services and the CFO reports to the Audit Committee on these
services at the next regularly scheduled Audit Committee meeting. If the amount
of the proposed services is material, a special Audit Committee meeting is
convened to discuss the proposed service and the pre-approval is put to a vote.
Management regularly updates the Audit Committee on the services rendered by the
Auditors.

The Audit Committee has reviewed other services provided by the
Auditors and has determined that they do not interfere with the independence of
the Auditors.

External auditor service fees

Deloitte has been the Companys external auditor since January,
2008. The aggregate fees billed for professional services rendered by Deloitte
for the nine months ended December 31, 2011 and the year ended March 31, 2011
were as follows:

Nine Months Ended December 31, 2011
    Year Ended March 31, 2011Audit fees
    $420,500
    $285,900Audit related fees
    $169,000
    $331,850Tax fees
    $90,750
    $122,000All other fees
    Nil
    NilTotal
    $680,250
    $739,750


Notes:

| | (1) | Audit Fees means the aggregate fees billed by the
      Companys external auditor for audit and interim review
services.                                                                                                                                                                         
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Audit Related Fees means the aggregate fees billed for
      assurance and related services by the Companys external auditor that are
      reasonably related to the performance of the audit or review of the
      Companys financial statements and are not reported under Audit
    Fees.
| | (3) | Tax Fees means the aggregate fees billed in each of the
      last two fiscal years for professional services rendered by the Companys
      external auditor for tax compliance, tax advice and tax
planning.                                                                                   
| | (4) | Other Fees means the aggregate fees billed for products
      and services provided by the Companys external auditor, other than the
      services reported under Audit Fees, Audit-Related Fees and Tax
      Fees.                                                                      
| | (5) | Audit fees for the nine-months ended December 31, 2011
      include fees of $62,750 related to the audit of the year ended March 31,
      2011 which were agreed subsequent to the filing of the annual report for
      the year ended March 31, 2011.                                           

ADDITIONAL INFORMATION

Additional information relating to the Companys business is
available on SEDAR at www.sedar.com or on the
Companys website at www.timminsgold.com.

49

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Additional information, including directors and officers
remuneration and indebtedness, the Companys principal shareholders, and
securities authorized for issuance under equity compensation plans, if
applicable, is contained in the management information circular prepared for the
Annual Meeting of Shareholders held on September 8, 2011, and available on SEDAR
at www.sedar.com.

Additional financial information is provided in the Companys
financial statements and Management Discussion and Analysis for the Companys
most recently completed financial year and is available on SEDAR at www.sedar.com or on the Companys website at www.timminsgold.com.

50

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APPENDIX 1

TIMMINS GOLD CORP. (the Company)

AUDIT COMMITTEE MANDATE AND CHARTER

|A. | AUTHORITY AND MANDATE
|-- | ---------------------

| | 1. | The Audit Committee(theCommittee) is an
      advisory committee of the Board of Directors of the Company (the
      Board).                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 2. | This mandate and charter (the Charter) is part of a
      flexible governance framework for the Boards strategic oversight of the
      Company. This Charter will be interpreted in the context of the Companys
      Articles and all applicable laws, regulations and listing requirements and
      guidelines, including those of the Canadian Securities Administrators:
      National Policy 58-201 Corporate Governance Guidelines(NP
      58-201), and National Instrument 52-110 Audit Committees(NI
      52-110) as amended from time to time.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | This Charter is a Board policy to guide the directors and
      officers in the governance of the Company. Although this Charter is
      intended to consolidate and restate legislative, regulatory or corporate
      obligations established by other documents and processes, it remains
      subject to the most current and binding legislative, regulatory and
      contractual obligations of the Company, and its directors and
    officers.                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The authority and mandate of this Committee will evolve
      for greater independence of Committee members and processes as the
      corporate enterprise emerges through stages of capitalization and
      production.                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 3. | The Committee has the authority
to:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| | a) | engage independent external auditors;                                                                  
| | -- | -------------------------------------------------------------------------------------------------------
| |    |                                                                                                        
| | b) | engage independent counsel and other advisors as it
      determines necessary to carry out its duties;
| |    |                                                                                                        
| | c) | set and pay compensation for any advisors appointed by
      it; and                                   
| |    |                                                                                                        
| | d) | communicate directly with the internal and external
      auditors.                                    

| |    | Such advisors and external auditors will report to and be
      accountable to the Committee.                                                                                                                                                                                                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 4. | The Committee reports to and is accountable to the Board.
      The Company will provide the Committee with reasonable resources for its
      work, including services of non-executive secretary.                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 5. | The Committee may delegate information assembly,
      assessment or advisory responsibilities to such advisors or subcommittees
      as it reasonably sees fit. The Committee may request any executive
      officer, employee, advisor or consultant of the Company to attend a
      Committee meeting and the individuals will be obliged to make every effort
      to do so or provide alternative effective communications with the
      Committee.

---

OVERVIEW AND PURPOSE

| | 6. | The Audit Committee approves, monitors, evaluates,
      advises or makes recommendations to the Board,in accordance with
      this Committee charter, on:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | matters affecting the external audit and the financial
      reporting and accounting control policies and practices of the Company;
      and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                               
| | b) | oversight of management's duties regarding financial
      risks encountered by the Company.                                                  

MEMBERSHIP AND ATTENDANCE AT MEETINGS

| | 7.  | The members of the Committee will consist of a minimum of
      three directors, appointed from Board directors by the Board and at the
      pleasure of the Board. Committee members will be appointed or affirmed at
      the first Board meeting following each Annual General Meeting and should
      expect to serve successive terms. One member of the Committee should have
      professional financial credentials and expertise.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 8.  | Subject to limited permitted exemptions, every audit
      committee member must be independent. At all times, even if exemptions
      apply, a majority of the members of the Committee will be independent
      (as defined by NI 52-110, and the Companys Board Guideline:
      Independence).                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 9.  | Subject to limited exemptions to upgrade education, every
      audit committee member must be financially literate as defined by NI
      52-110, currently as having the ability to read and understand a set of
      financial statements of comparable breadth and complexity of issues
      reasonably expected to be raised in the financial statements of the
      Company.                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 10. | The Board will designate the chair of the Committee (the
      Chair).                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 11. | Attendance by invitation at a or a portion of a Committee
      meeting is determined by the Chair in the first instance, or by resolution
      of the Committee members. One or more of the Chief Financial Officer,
      Chief Executive Officer, or President of the Company, the auditor, and
      such other corporate officers, advisors, or support staff should be
      prepared to attend at the request of the Chair.           

DUTIES AND RESPONSIBILITIES OF THE AUDIT COMMITTEE

| | 12. | The Board, executive officers, and advisors, recognize
      that the Committees role is one of advising on strategic matters and
      providing oversight through the periodic assessment of
      corporate-governance performance against strategic plans, policies and
      protocols.                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | The Companys executive officers and management are
      responsible for recommending board governance systems and strategic
      planning, enterprise risk management, and establishing internal controls,
      including retaining such advisors as management sees fit for professional
      advice on such matters. Executive officers, management and advisors are expected to have
      more time, knowledge and information to address day-to-day details and
      decisions; the Committee is expected to exercise due care and diligence at
      a strategic oversight level but not to provide detailed expertise nor
      assurances as to the work of others.

2

---

| | 13. | The following responsibilities are guidelines, subject to
      such other responsibilities or limitations designated by resolution of the
      Board from time to time, and to special
circumstances:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                        
| |     | 13.1                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                        

| | (a) | strategic plans, goals, policies and budgets related to
      the financial and risk management and administration of the Company,
      and;                                       
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                     
| | (b) | finance policies of the Company for compliance with such
      strategic documents, including such matters as signing authority, internal
      systems and controls, and reporting.

As a guideline and not as an exclusive
list, the Committee will periodically review and assess, in conjunction with
management and the external auditor, the following financial policy matters:

| | (a) | the appropriateness of accounting policies and financial
      reporting practices used by the Company;                                                                                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                             
| | (b) | any significant proposed changes in financial reporting
      and accounting policies and practices to be adopted by the
  Company;                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                             
| | (c) | any new or pending developments in accounting and
      reporting standards that may affect or impact on the Company;                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                             
| | (d) | identification of the Companys principal financial risks
      and uncertainties and the systems to manage such risks and
      uncertainties;                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                             
| | (e) | the key estimates and judgments of management that may be
      material to the financial reporting of the Company;                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                             
| | (f) | that adequate procedures are in place for the review of
      the Companys public disclosure of financial information derived from the
      Companys financial statements, other than the Companys financial
      statements, MD&A and annual and interim earnings press releases, as
      applicable;
| |     |                                                                                                                                                                                                                                                                                                             
| | (g) | the integrity (including without limitation, the
      effectiveness) of the Companys disclosure controls and procedures,
      internal control and management information
systems;                                                                                                                       

3

---

| | (h) | the Companys hiring policies regarding employees and
      former employees of the present and former external auditors of the
      Company, and;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                    
| | (i) | the approval policies and practices concerning the
      expenses of officers of the Company, including the use of Company
      assets.           

| |  | 13.2 | Financial Accountability and Public Disclosures. The Committee will,
| |  | ---- | --------------------------------------------------------------------

| | (a) | obtain reasonable assurance, by discussions with and
      reports from management and external auditors, that the accounting systems
      are reliable and that the system of internal controls is effectively
      designed and implemented;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                 
| | (b) | review, and recommend to the Board for approval, the
      following public disclosure documents:                                                                                                                                               

| | i.   | the financial content of the annual report, if
      applicable;                                               
| | ---- | ---------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                
| | ii.  | the annual management information circular and proxy
      materials;                                          
| |      |                                                                                                                
| | iii. | the annual information form, if applicable;                                                                    
| |      |                                                                                                                
| | iv.  | managements discussion and analysis section of the
      Companys quarterly and annual reports, and;         
| |      |                                                                                                                
| | v.   | quarterly financial statements and related press release,
      if applicable, on earnings of the Company,
and;

| | (c) | review, and recommend to the Board for approval, all
      financial statements, reports of a financial nature, and the financial
      content of prospectuses or any other reports which require approval by the
      Board, including any report of management which accompanies published
      financial statements (to the extent such a report discusses the financial
      position or operating results) for consistency of disclosure with the
      financial statements themselves.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

prior to the Company providing such
disclosures to the shareholders, any regulatory authority, or the public.

| |  | 13.3 | Financial Accountability and the External Auditor. The Committee will,
| |  | ---- | ----------------------------------------------------------------------

| | (a) | assess candidates and recommend to the Board an external
      auditor to prepare an annual auditors report and perform other audit
      services for the Company and recommend the compensation of the external
      auditor , for the approval of the Board and nomination of such auditors by
      resolution for appointment by the shareholders in a general
  meeting;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                 
| | (b) | review the terms and conditions of the annual external
      audit engagement including, but not limited to, :                                                                                                                                                                                                                                                                  

4

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| | i.   | staffing;                                       
| | ---- | ------------------------------------------------
| |      |                                                 
| | ii.  | objectives and scope of the external audit
work;
| |      |                                                 
| | iii. | materiality limits;                             
| |      |                                                 
| | iv.  | audit reports required;                         
| |      |                                                 
| | v.   | areas of audit risk;                            
| |      |                                                 
| | vi.  | performance timetable; and                      
| |      |                                                 
| | vii. | proposed fees and
compensation.                 

| | (c) | pre-approve all non-audit services to be provided to the
      Company or its subsidiary entities by its external auditors or those of
      its subsidiaries; the Committee may delegate to one or more independent
      members of the Committee the authority to pre-approve nonaudit services
      if the Committee is informed of each pre-approval at the next scheduled
      Committee meeting (all pre-approvals shall be made according to the
      pre-approval policies and procedures specified by the Board for each
      particular non-audit service);
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (d) | review the fees paid to the external auditors or its
      affiliates for non-audit services, and consider the impact on the
      independence of the external audit work;                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (e) | oversee the work of the external auditors engaged for the
      purposes of preparing or issuing an audit report or performing other
      audit, review or attest services for the Company, including the resolution
      of disagreements between management and the external auditors regarding
      financial reporting, and including the review with the external auditors
      the results of the annual audit examination including, but not limited to
      the following:                                                                                    

| | i.   | any difficulties encountered, or restrictions imposed by
      management, during the annual audit;                                                                                                                                                        
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                            
| | ii.  | any significant accounting or financial reporting
      issues;                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                            
| | iii. | the auditors evaluation of the Companys system of
      internal accounting controls, procedures and documentation;                                                                                                                                      
| |      |                                                                                                                                                                                                                                                            
| | iv.  | the post-audit or management letter containing any
      findings or recommendations of the external auditor including managements
      response thereto and the subsequent follow-up to any identified internal
      accounting control weaknesses; and
| |      |                                                                                                                                                                                                                                                            
| | v.   | any other matters which the external auditors should
      bring to the attention of the Committee.                                                                                                                                                        

| | (f) | meet with the external auditors, at least annually or as
      requested by the auditors, without management representatives present; and
      to meet with management, at least annually, without the external auditors
      present.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 13.4 | Financial Accountability, Risk Management and Internal
      Controls.
| | ---- | ----------------------------------------------------------------------

5

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The Committee will,

| | (a) | obtain reasonable assurance, by discussions with and
      reports from executive officers and the external auditors, that the
      accounting systems are reliable and that the system of internal controls
      is effectively designed and implemented;                                                                                                                                                              
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (b) | annually request the external auditor to provide its
      views on the quality (not just the acceptability) of the Companys annual
      and interim financial reporting. Such quality assessment should encompass
      judgments about the appropriateness, aggressiveness or conservatism of
      estimates and elective accounting principles, or methods and judgments
      about the clarity of disclosures;    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (c) | review the engagement of the auditor every five years,
      and when changing auditors for this or any other reason, review all issues
      related to the change, including the information to be included in the
      notice of change of auditor called for under applicable securities
      legislation and the rules and policies of applicable exchanges, and the
      planned steps for an orderly transition;
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (d) | review any litigation, claim or other contingency,
      including tax assessments, that could have a material effect upon the
      financial position or operating results of the Company, and the manner in
      which these matters have been disclosed in the financial
  statements.                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (e) | review the internal control and approval policies and
      practices concerning, and oversee the Companys management of, identifying
      and mitigating financial risks faced by the Company.                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (f) | review the compensation of directors and officers,
      including expenses and the use of the Companys assets;                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (g) | review all contractual indemnities and any claims of
      indemnification pursuant to the Articles of the Company;                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (h) | provide Committee meeting minutes and reports to the
      Board, and;                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (i) | review annually the terms of reference for the Committee
      and support the annual assessment of the performance of the Committee, and
      recommend any required changes to the Board.                                                                                                                                                                                                                              

| |  | 13.5 | Financial Accountability and Internal Transparency
| |  | ---- | --------------------------------------------------

The Committee will be responsible for
the strategic oversight of, and have the full support and assistance of the
Board and the Company to:

| | (a) | provide the Committee with such information, including
      access to all books, records, facilities and personnel, and resources to
      retain outside counsel or advisors, as the
Committee may consider necessary and appropriate for its purposes.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

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| | (b) | request that the Chief Executive Officer and Chief
      Financial Officer or persons who perform functions similar to them, report
      on any and all issues requested by the Committee or the external auditor,
      including those which are the subject of any Certificates to be signed and
      filed in accordance with applicable securities regulations by the Chief
      Executive Officer and Chief Financial Officer or persons who perform
      functions similar to them; and to review such report, and to;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (c) | establish procedures for the receipt, retention and
      treatment of complaints received by the Company regarding accounting,
      internal accounting controls, or auditing matters and, for the
      confidential, anonymous submission by employees of the Company of concerns
      regarding questionable accounting or auditing
matters.                                                                                                                                                                               

Approved by Resolution of the Board 17 June, 2010

7

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|Audit Committee Mandate   
|--------------------------
|Appendix A - Annual Agenda

The timetable below is a guideline of the Committees expected
regularly scheduled activities.

8

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|Audit Committee Mandate       
|------------------------------
|Appendix B - Annual
Assessment

|B.1 | Board ComplianceAudit Committee Annual Evaluation                                                                                                                                                                                             
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | [Please refer to the
      Governance Committee for the current standards and process for the annual
      assessment of the Committees work and performance, by the
      Committee or the G&N Committee]                                    
|    |                                                                                                                                                                                                                                                
|B.2 | Regulatory ComplianceAudit Committee Compliance Checklist1                                                                                                                                                                                    
|    | [The following is the type of assessment
      which could be requested by or required of Corporate Counsel or an
      independent advisor to assist the Committee in understanding
      obligations for regulatory disclosures or reporting]

|Governance Principles and
      Practices                                                                                                                                                               | Yes/No | Explain
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | -------
|                                                                                                                                                                                                        |        |        
|Organized                                                                                                                                                                                               |        |        
|Does the committee have a written mandate
      that addresses its purposes, goals and responsibilities; member
      qualifications, appointment and removal, and; reporting to the Board?             |        |        
|                                                                                                                                                                                                        |        |        
|Has the committee developed and periodically
      updated a set of operations guidelines, including risks, staffing and
      consultants, for the Board?                                              |        |        
|                                                                                                                                                                                                        |        |        
|Independent Judgment                                                                                                                                                                                    |        |        
|As the President is a designated member of
      the Committee, are appropriate measures in place for the independent and
      objective exercise of judgment?                                         |        |        
|                                                                                                                                                                                                        |        |        
|Competent                                                                                                                                                                                               |        |        
|Are [all] members of the committee qualified
      to serve on the Committee?                                                                                                                           |        |        
|                                                                                                                                                                                                        |        |        
|Have engineering, systems or other operations
      consultants or advisors been retained to assist in strategic oversight or
      risk management matters, and if so who and under what mandate?      |        |        
|                                                                                                                                                                                                        |        |        
|Effective and Accountable                                                                                                                                                                               |        |        
|Are all members of the Committee in
      compliance with the Code of Business Conduct and Standards? Does the
      Committee annually evaluate its meetings, mandate, performance, and
      systems? |        |        
|                                                                                                                                                                                                        |        |        
|Does the Committee report to the Board after
      each committee meeting?                                                                                                                              |        |        

___________________________________
1Compiled from requirements of the NYSE and the
Canadian TSX, but only as a guide -- not comprehensive nor current  confirm all
current and applicable standards with legal counsel.

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