---



FORM 51  102F2

ANNUAL INFORMATION FORM

Year ended December 31, 2012





April 2, 2013

---

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                                | 12
|Risk
      Factors                                               | 12
|Mineral
      Properties                                         | 24
|DIVIDENDS                                                        | 43
|CAPITAL
      STRUCTURE                                          | 43
|MARKET
      FOR SECURITIES                                      | 44
|ESCROWED
      SHARES                                            | 44
|DIRECTORS
      AND OFFICERS                                     | 44
|Director
      and Officer Information                           | 44
|Shareholdings
      of Directors and Officers                    | 46
|Corporate
      Cease Trade Orders or Bankruptcies               | 47
|Penalties
      or Sanctions                                     | 47
|Conflicts
      of Interest                                      | 48
|LEGAL
      PROCEEDINGS AND REGULATORY ACTIONS                   | 48
|INTEREST
      OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS | 48
|REGISTRAR
      AND TRANSFER AGENT                               | 48
|MATERIAL
      CONTRACTS                                         | 48
|INTEREST
      OF EXPERTS                                        | 49
|AUDIT
      COMMITTEE INFORMATION                                | 50
|ADDITIONAL
      INFORMATION                                     | 52

-i-

---

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.

This AIF is filed in relation to the fiscal year ended December
31, 2012. As a result of the change in the Companys year-end during the
previous fiscal year, the comparative period for the year ended December 31,
2012 is the nine months ended December 31, 2011 unless otherwise noted.

FORWARD LOOKING STATEMENTS

Certain statements and information contained in this Annual
Information Form (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 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 involve 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 statements. 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 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

---

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 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 we report our 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 (CIM). 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, we report 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
U.S. 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 you cannot assume 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. You are cautioned not to assume that all or any part of
Measured or Indicated Resources will ever be converted into Mineral Reserves,
and not to assume 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

---

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 intoUnited States Dollars | 2012   | 2011   | 2010  
|------------------------------------------ | ------ | ------ | ------
|                                           |        |        |       
|Closing                                    | 1.0051 | 0.9833 | 1.0054
|                                           |        |        |       
|Average                                    | 1.0004 | 1.0100 | 0.9709
|                                           |        |        |       
|High                                       | 1.0299 | 1.0583 | 1.0054
|                                           |        |        |       
|Low                                        | 0.9599 | 0.9430 | 0.9278
|                                           |        |        |       

CORPORATE STRUCTURE

Timmins Gold Corp. 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, which is also
the Companys head office. The Companys head office in Mexico is located at
Blvd. Solidaridad #335 A, Local 3, Col Las Palmas, 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 open pit gold mine (the Mine).

5

---



GENERAL DEVELOPMENT OF THE
BUSINESS

Overview

The Company is a publicly traded gold producer engaged in the
operation, development, exploration and acquisition of resource properties in
Mexico. The Company owns and operates the Mine in the state of Sonora, Mexico.
The Mine and the La Chicharra open pit gold mine (La Chicharra) are
collectively known as the Gold Property which comprises the Companys primary
asset and only material mineral property. The Company, through its subsidiaries,
has title to the approximately 200,000 hectares of exploration claims in and
around the Gold Property.

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 see increases in
production, metal revenues, cash flows and profit from operations. During
December 2012, the Company produced and sold a record 9,349 and 11,073 ounces of
gold, respectively.

The Mine was previously developed and operated by Geomaque. In
2007 the Company purchased 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 purchased certain mining and processing equipment for $4,025,000 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, 2012, the remaining liability
associated with the purchase of the mining and processing equipment was
$1,725,000. This amount is currently the subject of a process similar to a
garnishing order. See Note 10 of our consolidated financial statements for
additional information.

6

---

Commercial production began in April 2010 and the ramp-up to
full production at the Mine proceeded as planned. During calendar 2010 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 an average rate of 60,000 tonnes per day
(t/d).

The Company increased total tonnes mined quarter over quarter
through calendar 2010 and 2011, which led to a planned expansion of the crushing
facilities from 14,000 t/d to 16,000 t/d. The Company commissioned the expansion
in July 2011 with successful testing through July and August 2011. The Company
has installed an additional crushing circuit which has brought total crushing
capacity to 24,000 t/d.

The Company stockpiled 0.5 million tonnes during the fourth
quarter of 2012, compared to 0.8 million tonnes during the fourth quarter of
2011.

The average grade of ore mined from the Mine during the quarter
and year ended December 31, 2012 was 0.71 g/t Au and 0.65 g/t Au, respectively,
compared to the quarter and nine months ended December 31, 2011 of 0.58 g/t Au
and 0.66 g/t Au, respectively.

The average grade of ore processed during the quarter and year
ended December 31, 2012 was 0.82 g/t Au and 0.85 g/t Au, respectively; compared
to the quarter and year ended December 31, 2011 of 0.78 g/t Au and 0.81 g/t Au
respectively.

Production, Reserves and Resources

The table below shows the production rates achieved at the Mine
during the three months ended December 31, 2012 together with comparables for
the three months ended December 31, 2011, the year ended December 31, 2012 and
the nine months ended December 31, 2011.

|                                      |  |                    |  |  |              |  |  |                   |  |  |              | 
|------------------------------------- |  | ------------------ |  |  | ------------ |  |  | ----------------- |  |  | ------------ | 
|                                      |  | Three months ended |  |  | Year ended   |  |  | Nine months ended | 
|                                      |  | December 31,       |  |  | December 31, |  |  | December 31,      |  |  | December 31, | 
|                                      |  | 2012               |  |  | 2011         |  |  | 2012              |  |  | 2011         | 
|                                      |  |                    |  |  |              |  |  |                   |  |  |              | 
|Ore processed (t)                     |  | 1,493,623          |  |  | 1,327,299    |  |  | 5,516,626         |  |  | 3,930,664    | 
|                                      |  |                    |  |  |              |  |  |                   |  |  |              | 
|Average ore processed grade (g/t Au)  |  | 0.82               |  |  | 0.78         |  |  | 0.85              |  |  | 0.81         | 
|                                      |  |                    |  |  |              |  |  |                   |  |  |              | 
|Ore mined (dry tonnes)                |  | 2,020,423          |  |  | 2,097,621    |  |  | 8,445,076         |  |  | 5,776,128    | 
|                                      |  |                    |  |  |              |  |  |                   |  |  |              | 
|Average ore mined grade (g/t Au)      |  | 0.71               |  |  | 0.58         |  |  | 0.65              |  |  | 0.66         | 
|                                      |  |                    |  |  |              |  |  |                   |  |  |              | 
|Ore stockpiled (t)                    |  | 526,800            |  |  | 812,586      |  |  | 2,966,133         |  |  | 1,863,549    | 
|                                      |  |                    |  |  |              |  |  |                   |  |  |              | 
|Average ore stockpiled grade (g/t Au) |  | 0.27               |  |  | 0.27         |  |  | 0.25              |  |  | 0.28         | 

7

---

|Waste mined (t)                     |  | 5,295,383 |  |  | 4,160,488 |  |  | 17,727,968 |  |  | 13,496,919 | 
|----------------------------------- |  | --------- |  |  | --------- |  |  | ---------- |  |  | ---------- | 
|                                    |  |           |  |  |           |  |  |            |  |  |            | 
|Total mined (t)                     |  | 7,315,806 |  |  | 6,258,109 |  |  | 26,173,044 |  |  | 19,273,047 | 
|                                    |  |           |  |  |           |  |  |            |  |  |            | 
|Strip ratio                         |  | 2.62      |  |  | 1.98      |  |  | 2.10       |  |  | 2.34       | 
|                                    |  |           |  |  |           |  |  |            |  |  |            | 
|Total days in period                |  | 92        |  |  | 92        |  |  | 365        |  |  | 275        | 
|                                    |  |           |  |  |           |  |  |            |  |  |            | 
|Average ore processed per day (t/d) |  | 16,235    |  |  | 14,427    |  |  | 15,114     |  |  | 14,293     | 
|                                    |  |           |  |  |           |  |  |            |  |  |            | 
|Gold produced (oz)                  |  | 24,556    |  |  | 21,524    |  |  | 94,444     |  |  | 55,487     | 
|                                    |  |           |  |  |           |  |  |            |  |  |            | 
|Silver produced (oz)                |  | 16,203    |  |  | 11,664    |  |  | 56,252     |  |  | 29,806     | 
|                                    |  |           |  |  |           |  |  |            |  |  |            | 

Total production for the year ended December 31, 2012 was
94,444 gold ounces and 56,252 silver ounces, compared to 55,487 gold ounces and
29,806 silver ounces during the nine months ended December 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.

On September 20, 2011, following a reverse circulation and core
hole drill program which concluded in July 2011, the Company announced the
publication of the 2011 Report (as defined below) which included a significant
increase in its resource and reserve estimate for the Mine and new resources in
the La Chicharra deposit.

On March 14, 2012, the Company released a further update to the
resource estimate in which the measured and indicated and inferred resources
were increased to 1,575,000 ounces and 1,351,000 ounces, respectively, from
1,441,000 ounces and 1,005,000 ounces, respectively. 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.

Mineral reserves for the Gold Property, which are part of the
mineral resources, are estimated (as at September 20, 2011) to be:

|In pit reserves                 | Tonnes (000) | Grade (g/t Au) | Gold ounces
|------------------------------- | ------------- | -------------- | -----------
|Proven                          | 49,030        | 0.584          | 920,000    
|Probable                        | 23,361        | 0.546          | 410,000    
|Total proven and
      probable | 72,391        | 0.572          | 1,330,000  

8

---

Mineral reserves within the San Francisco pit design (June
30, 2011) at $1,100/oz gold price and after mining recovery and dilution.

The total resource of the Gold Property is estimated (as at March
  14, 2012) to be:

|Resource
      classification    | Tonnes (000) | Grade (g/t Au) | Gold ounces
|-------------------------------- | ------------- | -------------- | -----------
|Measured mineral resource        | 58,010        | 0.610          | 1,131,000  
|Indicated mineral
      resource | 23,787        | 0.580          | 444,000    
|Total measured and indicated     | 81,797        | 0.600          | 1,575,000  
|Inferred mineral resource        | 93,202        | 0.450          | 1,351,000  

Mineral resource estimate for the Gold Property (inclusive
of mineral reserves) (cut-off grade of 0.128 g/t Au, $1,200/oz gold price)

As illustrated above, inferred resources are estimated to
contain approximately 1,351,000 ounces of gold.

The Companys budget for the next phase of exploration for the
Gold Property is the result of the successful 2009-2012 drilling program.

San Francisco open pit gold mine

The Company employed nine drill rigs at the Mine from July 2011
to November 2011 to complete 56,315 meters of drilling (225 holes), which cost
approximately $5.6 million. These meters are in addition to the 60,782 meters
(441 holes) completed from January 2011 to June 2011, which cost approximately
$6.0 million and were included in the 2011 Report (as defined below). The 56,315
meters of drilling are incorporated into the updated resource estimate, which
was released on March 14, 2012.

During 2012, the Company employed 2 drill rigs at the Mine from
January 2012 to December 2012 to complete 18,946 meters of drilling (116 holes),
which cost approximately $1.9 million.

The drilling program during 2012 was primarily focused on
exploration to the south and to the west of the projected perimeter on the final
pit design (based on the existing resource at the end of 2011), at a distance of
300 meters south and 500 meters to the east and west. The objectives of the
drilling program were to identify continuity along strike and new mineral
intervals along the footwall of the known ore body and to reduce or optimize the
stripping ratio for approach to the mineral intersections.

The Company is focused on the continued development of the Mine
and has commenced an additional drilling program for 100,000 meters of reverse
circulation drilling at an approximate cost of $10.0 million as of January 2013.
The results of this drilling program will be used in a future reserve and
resource update.

Mineral reserves for the Mine, which are part of the mineral
resources, are estimated (as at September 20, 2011) to be:

|In pit
      reserves | Tonnes (000) | Grade (g/t Au) | Gold ounces
|--------------------- | ------------- | -------------- | -----------
|Proven                | 42,850        | 0.604          | 831,000    
|Probable              | 21,395        | 0.556          | 383,000    

|Total proven and probable | 64,245 | 0.588 | 1,214,000
|------------------------- | ------ | ----- | ---------

9

---

The total resource of the Mine is estimated (as at March 14,
2012) to be:

|Resource classification            | Tonnes (000) | Grade (g/t Au) | Gold ounces
|---------------------------------- | ------------- | -------------- | -----------
|Measured mineral resource          | 46,614        | 0.630          | 949,000    
|Indicated mineral resource         | 22,482        | 0.590          | 426,000    
|Total measured and
      indicated | 69,096        | 0.620          | 1,375,000  
|Inferred mineral resource          | 79,456        | 0.450          | 1,156,000  

La Chicharra open pit gold mine

The Company has also commenced a new exploration program on La
Chicharra. La Chicharra is located 2 km west of the Mine. Discovered by Geomaque
in the late 1990s, it is estimated that approximately 37,000 ounces of gold
were extracted and processed during Geomaques last year of operations.

This deposit was discovered using exploration programs
comprised of magnetic ground surveys and soil geochemistry, using both
conventional soil sampling and advanced surface exploration (Mobile Metal Ion -
MMI) techniques. In both cases, samples returned very high values for the main
mineralized zone in an area of low magnetics. Trenches were excavated to conduct
chip sampling, which confirmed the presence of gold mineralization in the
bedrock, and drilling delineated a deposit with a resource of 60,000 to 70,000
ounces of gold. Strong gold geochemical anomalies suggest that there is the
possibility of further gold mineralization at depth.

Drilling was conducted in the west-northwest and north area of
the existing La Chicharra pit. The drilling in the west-northwest area was
focused on identifying continuity along strike of the known mineral body, while
drilling in the north was focused on identifying additional mineralization at
the wall of the existing La Chicharra mineral deposit.

During 2012, the Company employed 3 drill rigs at La Chicharra
to complete 77,720 meters of drilling (349 holes), which cost approximately $7.8
million.

Ongoing drilling continues to the northwest of the La Chicharra
prospect with the objective of testing mineralization along a strike length of
over 600 meters.

Mineral reserves for La Chicharra, which are part of the
mineral resources, are estimated (as at September 20, 2011) to be:

|In pit reserves                 | Tonnes (000) | Grade (g/t Au) | Gold ounces
|------------------------------- | ------------- | -------------- | -----------
|Proven                          | 6,180         | 0.447          | 89,000     
|Probable                        | 1,966         | 0.439          | 27,000     
|Total proven and
      probable | 8,146         | 0.445          | 116,000    

The total resource of La Chicharra is estimated (as at March
14, 2012) to be:

10

---

|Resource classification            | Tonnes (000) | Grade (g/t Au) | Gold ounces
|---------------------------------- | ------------- | -------------- | -----------
|Measured mineral resource          | 11,396        | 0.500          | 182,000    
|Indicated mineral resource         | 1,305         | 0.440          | 18,000     
|Total measured and
      indicated | 12,701        | 0.500          | 200,000    
|Inferred mineral resource          | 13,746        | 0.440          | 195,000    

All mining activities at the Gold Property 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 pit face
supervision, geology, engineering and planning and survey services.

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.

Expansion Plans

The Company reviews organic expansion opportunities and merger
and acquisition opportunities as they arise.

Financings

During the year ended December 31, 2012, the Company did not
raise any capital from the issuance of equity or debt instruments.

In June 2012, the Company amended its debt arrangement. Under
the original 2010 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, all of which have been exercised.

In June 2011, the Company replaced and restructured its debt.
The new credit agreement with Sprott Resource Lending Partnership LP (Sprott
Resource) allowed the Company to deliver the final five payments totaling 8,335
ounces of gold to SAM and provided a further C$5.6 million in working capital.
The credit agreement provided for a lump sum payment of principal upon maturity
after 14 months, with interest paid at the rate of 1% per month.

In July 2012, the Company amended the credit agreement with
Sprott Resource. The amended credit agreement has a term of 18 months ending
December 31, 2013. Interest is payable in monthly installments at the rate of 8%
per annum. Payment of the C$18 million principal amount outstanding will be made
at the end of the term. In consideration of the extension, a bonus payment of
217,918 common shares of the Company was paid, representing 2% of the principal
amount of the loan at a price equal to a 10% discount to the 5 day weighted
average trading price on the TSX of the shares of the Company. In the event the loan is not
repaid by July 28, 2013, a further fee of 1% of the loan amount outstanding on
that date will be paid to Sprott Resource in common shares priced at the same
discount on that date.

11

---

During the year ended December 31, 2012 the Company received an
aggregate of $3.6 million through the exercise of incentive stock options issued
pursuant to the Companys stock option plan and $nil through the exercise of
share purchase warrants issued in connection with previous financings.

Recent Developments

During January and February 2013, the Company completed the
drilling of 266 holes totaling 60,488 meters on the Gold Property.

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 byproduct 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;
- 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.

12

---

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 intensify 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.

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 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.

13

---

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;
- 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.

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;

14

---

- 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.

The Companys business is subject to Mexican labour laws.
Compliance with recent amendments to federal labour laws in Mexico may cause the
Company to incur significant expenses.

In the fourth quarter of 2012, the Mexican government amended
the federal labour law regarding subcontracting arrangements in order to prevent
the use of service companies to evade labour and tax obligations. The Company
currently operates in Mexico using these subcontracting arrangements. The
amendments set forth by the Mexican government also include certain regulatory
requirements regarding an employers obligation to compensate employees with
appropriate statutory profit sharing within the country. Although the Company
has received opinions indicating that the amendments to the labour laws do not
create new risks or liabilities for the Company, there can be no assurance that
there will not be an adverse effect, including significant expense incurred by
the Company complying with Mexican labour law, in the future.

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.

15

---

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s 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.

16

---

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;

17

---

- 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.

18

---

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.

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.

19

---

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.

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.

20

---

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.

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
throughout these Risk Factors Relating to the Companys Business. 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;

21

---

- 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.

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 by the directors and officers 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.

22

---

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;
- 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 have a dividend policy.

The Company has never declared or paid any cash dividends on
the Companys common shares and does not have a dividend policy. 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;

23

---

- 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.

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 are exercised, or as a result of additional
securities offerings.

There are a number of outstanding options pursuant to which
additional common shares of the Company may be issued in the future. Exercise of
such options 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, Mexicodated 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).

24

---

San Francisco Gold Property

The following is the summary section taken directly from the
2011 Report. For more current information on production, mineral reserve and
resource estimates, exploration and development updates and strategy, refer to
the section entitled General Development of the Business in this AIF.

> 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.
>   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.

25

---

> 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.
>   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.

26

---

> 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.
>   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.

27

---

> 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.
>   From 2007 to 2009, concurrent with the feasibility study
>     which focused on restarting 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.

28

---

> 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.
>   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.

29

---

> 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.
>   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.

30

---

> 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


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

> 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.

31

---

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 OuncesSan Francisco Mine
    Measured
    42,546
    0.640
    876,000Indicated
    22,698
    0.595
    434,000Total Measured &
      Indicated
    65,244
    0.625
    1,310,000Inferred*
    66,483
    0.420
    898,000La Chicharra Deposit
    Measured
    6,158
    0.488
    96,000Indicated
    2,222
    0.488
    35,000Total Measured &
      Indicated
    8,380
    0.488
    131,000Inferred*
    7,197
    0.465
    107,000Total Resources
    Measured
    48,704
    0.621
    972,000Indicated
    24,920
    0.586
    469,000Total 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.
>   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.

32

---

> 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 1.3Mineral Reserves within the San
Francisco and La Chicharra Pit Design (August 2011) afterMining Recovery and Dilution

PIT
      Classification
      Metric tonnes (1000)
      Gold g/t
      Contained Gold OuncesSan Francisco Pit
    Proven
    42,850
    0.604
    831,000Probable
    21,395
    0.556
    383,000Total
    64,245
    0.588
    1,214,000La Chicharra Pit
    Proven
    6,180
    0.447
    89,000Probable
    1,966
    0.439
    27,000Total
    8,146
    0.445
    116,000Total
    Proven
    49,030
    0.584
    920,000Probable
    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.
>   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.

33

---

> 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 1.4San 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
      Sold2010
      April - June
    905,296
    0.718
    905,296
    0.718
    14,145
    11,319July - 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.
>   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.

34

---

> 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.
>   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.

35

---

> 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 for sustaining
>     capital.

Table 1.6Estimated Future Capital Expenditure

Year
      Capital Expenditure (USD
        thousand)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



---

Table 1.7 Operating Cost Forecast

Unit Cost (USD/tonne placed on pad)Actual
      Forecast2011 Jan.  Sept.
      2011 Oct.  Dec.
      2012
      2013  2016 (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
    0.94


37

---

Life-of-Mine Cash Flow (USD
      million)
      Average Unit Cost (USD/tonne
      leached)Gold Recovery Cost
      20
      0.31Laboratory Cost
      10
      0.15Environmental Cost
      2
      0.03General 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.

38

---

Table 1.9 Sensitivity to Gold Price

Gold Price (USD/oz)
      Change from
        Base (%)
      Cash Flow and Present
        Value (USD million)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%.
>   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.

39

---

> 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 foregoing is the summary section taken directly from the
2011 Report. For more current information on production, mineral reserve and
resource estimates, exploration and development updates and strategy, refer to
the section entitled General Development of the Business in this AIF.

The following is not contained in the 2011 Report.

Other Mineral Properties

While the Company is primarily focussed on Sonora, it has
expanded into other regions such as Jalisco, Nayarit and Zacatecas. The Company
also has an interest in the following properties:

San Onesimo

The property is situated 16 km to the northeast of the Camino
Rojo gold deposit and 45 km southeast of the Peñasquito gold deposit.

Following up on the exploration work completed in 2011, IP and
magnetic surveys were conducted over 18 lines to cover a total longitude of 76.9
km on three targets selected from the MMI soil sampling survey completed in
2011.

Six core drill holes were completed in 2012 for a total of
1,523 meters. The values of gold and some other trace elements detected by the
drilling were low, however, they did confirm the favourable lithology of the
area and suggest directing exploration toward the southwest of the property, as
it contains a very strong geochemical anomaly associated with scarce outcrops
with polymetalic mineralization.

TIM Claims

There are 5 mining concessions 100% owned by Timmins Goldcorp
Mexico, all within the region of Mazapil-Concepcion del Oro. This region is
located in the north of the state of Zacatecas, and has emerged over the last
few year as one of the most active mining exploration and development regions in
Mexico and all Latin America.

40

---

During 2012, the exploration activity in the southeast portion
focused on an area 2 by 2 km, which was initially defined for high gold and
silver values in two rock chip samples. Also, combined soil and rock chip
sampling was completed on the El Marmol and El Tecolote areas. Initial samples
were taken on isolated outcrops of assayed high silver values, and geology
mapping and interpretation of aerial photos was performed as well. Geophysics
work is planned for 2013.

Patricia Property

The property is located in the north-central portion of the
state of Sonora, 50 km to the southwest of the Mine. The Company has undertaken
trenching and systematic sampling which has returned anomalous gold values of
between 1.0 to 2.0 g/t Au with potential silver and polymetallics. The Company
has no plans for further exploration work while resources are allocated to the
development of the Gold Property.

41

---

Norma Property

The property is located 30 km northwest of the Mine. During
2011, the Company completed 2,090 meters of reverse circulation drilling,
distributed in 16 drill holes along 2,000 meters of gold anomalous outcrops.
Drilling returned intercepts ranging from 0.32 g/t to 27 g/t Au hosted in veins,
veinlets and breccia, mainly in close contact to the sandstones and siltstones
with dikes of monzonite. The Company has no current plans for further
exploration work.

El Picacho Property

The property is located in the north-central portion of the
state of Sonora, 20 km southwest of the Mine. Exploration by the Company
included geological mapping, sampling and compilation of the exploration work
performed by previous exploration companies on the property. The Company has
drilled 8 holes on the property for a toal of 1,478 meters. The Company has no
current plans for further exploration work.

La Mexicana Target

The La Mexicana target is located 6.5 km north of the Mine.
Mapping and sampling was performed along the north portion of the metamorphic
precambrian belt of the San Francisco gold deposit, which includes systematic
sampling of the existing underground works on the La Mexicana target. The assays
included gold values as high as 28.91 g/t Au and generally showed consistency
along the old underground workings.

In October 2011 and November 2011, 16 holes were drilled for a
total of 2,669 meters to assist in further assessing the La Mexicana exploration
potential. High grade gold values were intercepted however no exploration work
is currently planned on this target.

La Pima Target

The La Pima target consists of an outcrop on the large La Pima
claim and beyond that in a series of northeast trending limestone ridges in the
southwest part of the claim, 25 km northwest of the Mine and 13 km west of the
town of Santa Ana. Sampling has returned values as high as 1,000 g/t Ag from old
workings. The Company is assessing a drill program on this target.

El Capomo Target

The El Capomo target is located in the south of the state of
Nayarit and consists of six concessions covering more than 47,500 hectares.
Prospecting work done on the property has identified favourable geology for
mineral discoveries in at least five locations; the most significant is a series
of quartz veins and quartz outcrops along 1,200 meters with widths varying from
0.70 meters to 3.0 meters with gold and silver grades varying from 0.28 to 3.45
g/t Au and 15 to 240 g/t Ag. The Company has no current plans to continue
exploration work.

Quila Property

The Company held 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. On May 2, 2012 the Company terminated
its interest in this property by paying Soltoro Ltd. $395,000 in exchange for a
general release.

42

---

DIVIDENDS

The Company has neither declared nor paid any dividends on its
common shares. The Company does not have a dividend policy.

CAPITAL STRUCTURE

Authorized and Issued Share Capital

The authorized share capital of the Company consists of an
unlimited number of common shares of which 144,084,045 common shares were issued
and outstanding as at December 31, 2012 and 144,084,045 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.

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 year ended December 31,
2012 and none of which are currently issued and outstanding.

Options

As at December 31, 2012, the Company had the following
outstanding options pursuant to the Stock Option Plan adopted by the Companys
board of directors on September 8, 2011. These options are exercisable into
common shares.

Numberof Options
    ExercisePrice
    Expiry Date1,700,000
    C$1.00
    November 13, 201450,000
    C$1.00
    November 27, 20143,050,000
    C$2.50
    April 4, 2016200,000
    C$2.75
    August 15, 20163,100,000
    C$2.56
    January 26, 2017150,000
    C$2.15
    August 20, 2017900,000
    C$2.74
    September 28, 20179,150,000


Warrants

As at December 31, 2012, there were no warrants outstanding in
the capital of the Company and there are no warrants outstanding as at the date
of this AIF.

43

---

MARKET FOR SECURITIES

Effective November 4, 2011 the Companys common shares were
listed for trading on the NYSE MKT 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
    VolumeJanuary 2012
    C$2.87
    C$1.96
    C$2.86
    16,344,000February 2012
    C$3.04
    C$2.58
    C$2.85
    8,600,500March 2012
    C$2.87
    C$2.19
    C$2.24
    9,775,000April 2012
    C$2.43
    C$2.00
    C$2.42
    10,029,600May 2012
    C$2.50
    C$1.49
    C$1.76
    12,862,600June 2012
    C$2.12
    C$1.61
    C$1.87
    8,727,100July 2012
    C$1.99
    C$1.62
    C$1.78
    3,622,200August 2012
    C$2.49
    C$1.73
    C$2.48
    5,631,500September 2012
    C$3.00
    C$2.50
    C$2.77
    10,070,600October 2012
    C$3.10
    C$2.60
    C$3.08
    15,352,900November 2012
    C$3.48
    C$2.95
    C$3.22
    17,703,400December 2012
    C$3.25
    C$2.79
    C$2.99
    9,243,300


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 ofResidence and Positionwith the Company
    Director/OfficerSince
    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.


44

---

Name, Municipality of
      Residence and Position with the Company
    Director/Officer
      Since
    Principal
      Occupation for the Past Five YearsBruce Bragagnolo(1)(4)(5)
      Vancouver, British 
      Columbia, Canada Chief
      Executive Officer 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 Tourism for the State of
      Sinaloa.R. Barry Fraser(2)(3)(4)Vancouver,
      British Columbia, Canada Chair 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 a partner with McCarthy Tetrault.Eugene Hodgson(2)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 Region for Corpfinance International Limited.Keith Peck(1)(2)(3)Vancouver,
      British Columbia, Canada Director
    July 19, 2012
    Mr. Peck is Chairman and CEO of
      Lincoln Peck Financial Inc. and a director of Orezone Gold Corporation. He
      is a former director of the Investment Dealers Association of Canada
      (Pacific Region).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.,
      director and Audit Committee Chair of  Athabasca Uranium Inc. and former Vice-President and Treasurer of Goldcorp
      Inc. from 2005 to 2010.Miguel Soto(5)Aguascalientes, Ags
      Mexico Vice-President of Exploration and
      Director
    September 27, 2005
    Mr. Soto has been the Chief
      Operating Officer of the Company since September 2005.


45

---

Name, Municipality of
      Residence and Position with the Company
    Director/Officer
      Since
    Principal
      Occupation for the Past Five YearsDarren Prins Vancouver, British Columbia,
      Canada Chief Financial Officer
    August 15, 2011
    Mr. Prins was the Companys
      Vice-President Finance Canada from August 2011 until May 2012. On May 8
      2012 he was appointed as the Companys Chief Financial Officer. 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.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.Leslie Kapusianyk Vancouver, British
      Columbia, Canada Corporate Secretary
    June 28, 2012
    Ms. Kapusianyk has been the
      Companys Corporate Secretary since June 2012. She is a barrister and
      solicitor and has been the Corporate Counsel for the Company since August
      2008.Arturo Montaño Hermosillo, Sonora, Mexico
      Vice-President Operations Mexico
    July 19, 2012
    Mr. Montaño has been the
      Companys Vice-President Operations, Mexico since July 2012. Prior to that
      he was the National Manager for Exploraciones Mojave, a wholly owned
      subsidiary of Mincore Inc. from January 2008 to July 2012. Mr. Montaño is
      a Registered Professional Engineer in Mexico.Taj Singh Toronto, Ontario Canada
      Vice-President Business Development
    September 9, 2012
    Mr. Singh is a Professional
      Engineer and was formerly a publishing Mining Analyst at Macquarie Capital
      Markets in Toronto. Mr. Singh is a member of the Canadian Institute of
      Mining, Metallurgy and Petroleum and a member of the Society of Management
      Accountants of Canada.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.


Notes: (1) Denotes a member of the
Mergers & Acquisitions 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

Shareholdings of Directors and Officers

To the best of the Companys knowledge, as at December 31,
2012, directors and executive officers, as a group, beneficially owned,
directly, or exercised control over 6,481,400 common shares (not including
common shares issuable upon the exercise of stock options) of the Company,
representing 4.50% of the then outstanding common shares.

46

---

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.

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 was subject to or instituted any proceedings, arrangement
      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,
      arrangement 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.

47

---

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 as
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.

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 director, executive or
insider of the Company, 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 2ndFloor, 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 year ended December 31, 2012, or before that period but are still in effect:

|1. | 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, as amended November 1, 2012;

48

---

|4.  | 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;                                                                                                                                                                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|5.  | Release dated May 2, 2012 terminating the Property Option
      Agreement with Soltoro Ltd. 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, Zindy and San Fernando
      concessions in the San Onesimo property;
|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|8.  | Credit Agreement between the Company and Sprott Resource
      Lending Partnership dated May 27, 2011;                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|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; confirm these are covered
      by Credit confirmation;                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|12. | Exploration and Option to Purchase Mineral Concessions
      among Eduardo Vazquez Narro, Maria de la Luz Nava Ontiveros, Timmins
      Goldcorp Mexico, S.A. de C.V. dated June 1, 2012 regarding the Sarai and
      Emanuel concessions in the San Onesimo property;                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|13. | First Amending Agreement to the Credit Agreement between
      the Company and Sprott Resource Lending Partnership dated July 3,
    2012;                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|14. | Agreement between Molimentales del Noroeste S.A. de C.V.
      and Evonik Degussa Mexico, S.A. de C.V. dated October 1, 2012 regarding
      cyanide supply;                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|15. | 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 consultant to and former director of the Company, is a
Qualified Person. Except for 43,500 common shares and 50,000 incentive stock
option (as at December 31, 2012) 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, Mexicodated 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).

49

---

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 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 is included
as Appendix 1.

Composition of the Audit Committee and Relevant Education
and Experience

The Companys Audit Committee is comprised of Paula Rogers,
Barry Fraser and Keith Peck, 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, Mr. Fraser and Mr. Peck 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 MKT.

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 MKT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.

CommitteeMember
    Relevant Education and
      ExperiencePaula Rogers Director and Chair of Audit 
      Committee 
      Independent 
      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 LLP, 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 TSX
      Venture Exchange- listed Castle Peak Mining Ltd. and a director and Audit
      Committee Chair of TSX Venture Exchange-listed Athabasca Uranium Inc. 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.


50

---

Committee Member
    Relevant Education and
      ExperienceKeith Peck, Director Independent
      Financially Literate
    Mr. Peck is Chairman and CEO of Lincoln Peck Financial
      Inc., a financial advisory firm focused on the resource sector. He has
      over 27 years investment banking experience including Vice-President and
      Director of RBC Dominion Securities Inc., Haywood Securities Inc. and
      Vice- Chairman of Yorkton Securities Inc. Mr. Peck has a broad business
      background that includes financings in public and private markets, mergers
      and acquisitions, corporate restructurings, business valuations and expert
      financial testimony. Mr. Peck was a founder of Centenario Copper
      Corporation, a Chilean copper company which was acquired by Quadra Mining
      Ltd. in 2009. He has a BA in Economics from Princeton University and is a
      Chartered Business Valuator (CBV).Barry Fraser, Director Independent
      Financially Literate
    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  a partner with McCarthy Tetrault.


Pre-approval policies and procedures

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 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 year ended December 31, 2012 and the nine months ended December 31, 2011
in Canadian dollars were as follows:

51

---

Year Ended December 31,2012
    Nine Months Ended December31,
      2011Audit fees
    $260,500
    $420,500Audit related fees
    $nil
    $169,000Tax fees
    $33,277
    $90,750All other fees
    $nil
    NilTotal
    $293,777
    $680,250


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.comor on the
Companys website at www.timminsgold.com.

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 July 19, 2012, 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.comor on the Companys website at www.timminsgold.com.

52

---

APPENDIX 1

TIMMINS GOLD CORP. (the Company)

AUDIT COMMITTEE MANDATE AND CHARTER

|A. | AUTHORITY AND MANDATE
|-- | ---------------------
|   | 1.                   
|   |                      
|   | 2.                   
|   |                      
|   |                      
|   |                      
|   |                      
|   |                      
|   | 3.                   
|   |                      
|   |                      
|   |                      
|   |                      
|   |                      
|   |                      
|   |                      
|   |                      
|   | 4.                   
|   |                      
|   | 5.                   

---

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)                                                                                                                                                         
| |    |                                                                                                                                                            
| |    | b)                                                                                                                                                         

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      Financial Strategic
      Planning and Policies                                                                                                                                              
| |     |                                                                                                                                                                                                        
| |     | The Committee will review and make recommendations to the
      Board on matters related to:                                                                                                           

| | (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;

3

---

| | (g) | the integrity (including without limitation, the
      effectiveness) of the Companys disclosure controls and procedures,
      internal control and management information systems;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                      
| | (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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | ii.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | iii.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | iv.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | v.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (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;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4

---

| | (b) | review the terms and conditions of the annual external
      audit engagement including, but not limited to:
| | --- | ------------------------------------------------------------------------------------------------------------
| |     |                                                                                                             
| |     | i.                                                                                                          
| |     |                                                                                                             
| |     | ii.                                                                                                         
| |     |                                                                                                             
| |     | iii.                                                                                                        
| |     |                                                                                                             
| |     | iv.                                                                                                         
| |     |                                                                                                             
| |     | v.                                                                                                          
| |     |                                                                                                             
| |     | vi.                                                                                                         

| | 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.                                                                                                                                                         

5

---

| | (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. 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;                                                                                                                                                                                                                                                                                                                                                    

6

---

| | (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 TransparencyThe 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.                                                                                                                                                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (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

---

|Audit Committee MandateAppendix A - Annual Agenda
|-------------------------------------------------

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



8

---

|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
      ExplainOrganizedDoes 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 JudgmentAs the President is a designated member of the Committee, are appropriate
        measures in place for the independent and objective exercise of judgment?CompetentAre [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 AccountableAre 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.

9

---