---

**Exhibit 99.3**



|CONSOLIDATED FINANCIAL STATEMENTS          
|-------------------------------------------
|For the nine months ended December 31, 2011
|and year ended March 31, 2011              

---

|                                  | Deloitte & Touche LLP  
|--------------------------------- | -----------------------
|2800 
      1055 Dunsmuir Street
|4
      Bentall Centre           
|P.O.
      Box 49279             
|Vancouver BC V7X 1P4             
|Canada                           
|                                  |                        
|                                  | Tel:
      604-669-4466
|                                  | Fax:
      604-685-0395
|                                  | www.deloitte.ca        

Independent Auditors Report

To the Shareholders of Timmins Gold Corp.

We have audited the accompanying consolidated financial
statements of Timmins Gold Corp., which comprise the consolidated statements of
financial position as at December 31, 2011, March 31, 2011 and April 1, 2010,
and the consolidated statements of earnings and comprehensive loss, changes in
equity and cash flows for the nine-month period ended December 31, 2011 and year
ended March 31, 2011, and a summary of significant accounting policies and other
explanatory information.

Managements Responsibility for the Consolidated Financial
Statements

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

Auditors Responsibility

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

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

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

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Timmins Gold Corp.
as at December 31, 2011, March 31, 2011 and April 1, 2010 and its financial
performance and its cash flows for the nine-month period ended December 31, 2011
and year ended March 31, 2011 in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board.

/s/ Deloitte & Touche LLP

Chartered Accountants Vancouver, British Columbia March
28, 2012

---

|TIMMINS GOLD CORP.                                                
|------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE
      INCOME
|(Expressed in US
      dollars)                                   

|                                          |  |      |  |       | Nine months    |   |   |             |  
|----------------------------------------- |  | ---- |  | ----- | -------------- | - | - | ----------- | -
|                                          |  |      |  |       | ended          |   |   | Year ended  |  
|                                          |  |      |  |       | December 31,   |   |   | March 31,   |  
|                                          |  | Note |  |       | 2011           |   |   | 2011        |  
|                                          |  |      |  |       |                |   |   | (Note 23    | )
|                                          |  |      |  |       |                |   |   |             |  
|Metal revenues                            |  |      |  | **$** | **90,768,679** |   | $ | 83,080,428  |  
|                                          |  |      |  |       |                |   |   |             |  
|Cost of sales                             |  | 5    |  |       | 42,317,395     |   |   | 40,192,963  |  
|                                          |  |      |  |       |                |   |   |             |  
|Gross profit                              |  |      |  |       | 48,451,284     |   |   | 42,887,465  |  
|                                          |  |      |  |       |                |   |   |             |  
|Corporate and administrative expenses     |  | 5    |  |       | 11,875,283     |   |   | 7,761,054   |  
|                                          |  |      |  |       |                |   |   |             |  
|Profit from operations                    |  |      |  |       | 36,576,001     |   |   | 35,126,411  |  
|                                          |  |      |  |       |                |   |   |             |  
|Other (expense) income, net               |  |      |  |       | (33,274        | ) |   | 19,498      |  
|Finance expense                           |  | 5    |  |       | (2,549,550     | ) |   | (12,810,430 | )
|Loss on warrant liability                 |  | 12   |  |       | (1,003,240     | ) |   | (3,677,544  | )
|Foreign exchange
      loss               |  |      |  |       | (275,615       | ) |   | (46,490     | )
|Profit before income tax                  |  |      |  |       | 32,714,322     |   |   | 18,611,445  |  
|                                          |  |      |  |       |                |   |   |             |  
|Income tax expense                        |  |      |  |       |                |   |   |             |  
|Current income tax                        |  | 15   |  |       | 5,327,395      |   |   | 678,777     |  
|Deferred income tax                       |  | 15   |  |       | 6,513,315      |   |   | 11,342,178  |  
|                                          |  |      |  |       | 11,840,710     |   |   | 12,020,955  |  
|                                          |  |      |  |       |                |   |   |             |  
|Earnings and comprehensive income for the |  |      |  |       |                |   |   |             |  
|period                                    |  |      |  | **$** | **20,873,612** |   | $ | 6,590,490   |  
|                                          |  |      |  |       |                |   |   |             |  
|Weighted average shares outstanding:      |  |      |  |       |                |   |   |             |  
|Basic                                     |  |      |  |       | 138,591,964    |   |   | 134,792,996 |  
|Diluted                                   |  |      |  |       | 143,022,181    |   |   | 139,680,868 |  
|                                          |  |      |  |       |                |   |   |             |  
|Earnings per share:                       |  |      |  |       |                |   |   |             |  
|Basic                                     |  | 16   |  | $     | 0.15           |   | $ | 0.05        |  
|Diluted                                   |  | 16   |  | $     | 0.15           |   | $ | 0.05        |  

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

---

|TIMMINS GOLD CORP.                   
|-------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|(Expressed in US
      dollars)      

|                                                                                         |  |      |  |   | Nine months  |   |   |             |  
|---------------------------------------------------------------------------------------- |  | ---- |  | - | ------------ | - | - | ----------- | -
|                                                                                         |  |      |  |   | ended        |   |   | Year ended  |  
|                                                                                         |  |      |  |   | December 31, |   |   | March 31,   |  
|                                                                                         |  | Note |  |   | 2011         |   |   | 2011        |  
|                                                                                         |  |      |  |   |              |   |   | (Note 23    | )
|OPERATING ACTIVITIES                                                                     |  |      |  |   |              |   |   |             |  
|Profit before income tax                                                                 |  |      |  | $ | 32,714,322   |   | $ | 18,611,445  |  
|Items not affecting cash:                                                                |  |      |  |   |              |   |   |             |  
|Depletion and depreciation                                                               |  | 5    |  |   | 7,782,147    |   |   | 6,935,347   |  
|Finance expense                                                                          |  | 5    |  |   | 2,549,550    |   |   | 12,810,430  |  
|Loss on warrant liability                                                                |  | 12   |  |   | 1,003,240    |   |   | 3,677,544   |  
|Share-based payments                                                                     |  | 14b) |  |   | 5,361,371    |   |   | 687,928     |  
|Foreign exchange loss                                                                    |  |      |  |   | 275,615      |   |   | 67,231      |  
|Asset write-down                                                                         |  |      |  |   | -            |   |   | 1,358,403   |  
|Finance expense paid                                                                     |  |      |  |   | (1,274,384   | ) |   | -           |  
|Income tax paid                                                                          |  |      |  |   | (1,987,433   | ) |   | -           |  
|Changes in non-cash working capital items:                                               |  |      |  |   |              |   |   |             |  
|Trade and other
      receivables                                                        |  |      |  |   | (5,224,308   | ) |   | 2,316,623   |  
|Inventories                                                                              |  |      |  |   | (16,619,291  | ) |   | (7,756,361  | )
|Advances and prepaid
      expenses                                                      |  |      |  |   | (2,165,197   | ) |   | 42,027      |  
|Trade payables and accrued liabilities                                                   |  |      |  |   | 1,614,255    |   |   | 3,993,375   |  
|Cash flows provided by operating activities                                              |  |      |  |   | 24,029,887   |   |   | 42,743,992  |  
|                                                                                         |  |      |  |   |              |   |   |             |  
|INVESTING ACTIVITIES                                                                     |  |      |  |   |              |   |   |             |  
|Expenditures on mineral properties, plant and equipment                                  |  |      |  |   | (29,176,716  | ) |   | (29,184,394 | )
|Restricted cash                                                                          |  |      |  |   | 1,810,722    |   |   | (1,765,970  | )
|Other                                                                                    |  |      |  |   | -            |   |   | (6,137      | )
|Cash flows used in investing activities                                                  |  |      |  |   | (27,365,994  | ) |   | (30,956,501 | )
|                                                                                         |  |      |  |   |              |   |   |             |  
|FINANCING ACTIVITIES                                                                     |  |      |  |   |              |   |   |             |  
|Proceeds of long-term debt, net of transaction costs                                     |  |      |  |   | 18,168,550   |   |   | -           |  
|Repayment of long-term debt                                                              |  |      |  |   | (12,558,895  | ) |   | (15,613,712 | )
|Shares issued for
      cash                                                             |  |      |  |   | 2,021,805    |   |   | 6,547,394   |  
|Cash flows provided by (used in) financing activities                                    |  |      |  |   | 7,631,460    |   |   | (9,066,318  | )
|                                                                                         |  |      |  |   |              |   |   |             |  
|Effects of exchange rate changes on the
      balance of cash held in foreign currencies |  |      |  |   | (70,205      | ) |   | 243,922     |  
|                                                                                         |  |      |  |   |              |   |   |             |  
|Increase in cash                                                                         |  |      |  |   | 4,225,148    |   |   | 2,965,095   |  
|Cash, beginning
      of period                                                          |  |      |  |   | 5,639,859    |   |   | 2,674,764   |  
|Cash, end of period                                                                      |  |      |  | $ | 9,865,007    |   | $ | 5,639,859   |  

Supplemental disclosure with respect to cash flows(Note
17)

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

---

|TIMMINS GOLD CORP.                           
|---------------------------------------------
|CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|(Expressed in US
      dollars)              

|                                                 |  |      |  |   | December 31, |  |   | March 31,   |   |   | April 1,    |  
|------------------------------------------------ |  | ---- |  | - | ------------ |  | - | ----------- | - | - | ----------- | -
|                                                 |  | Note |  |   | 2011         |  |   | 2011        |   |   | 2010        |  
|                                                 |  |      |  |   |              |  |   | (Note 23    | ) |   | (Note 23    | )
|ASSETS                                           |  |      |  |   |              |  |   |             |   |   |             |  
|Current                                          |  |      |  |   |              |  |   |             |   |   |             |  
|Cash                                             |  |      |  | $ | 9,865,007    |  | $ | 5,639,859   |   | $ | 2,674,764   |  
|Restricted cash                                  |  | 10   |  |   | -            |  |   | 1,765,970   |   |   | -           |  
|Trade and other receivables                      |  | 6    |  |   | 8,253,803    |  |   | 4,184,271   |   |   | 6,272,539   |  
|Inventories                                      |  | 7    |  |   | 29,182,801   |  |   | 14,321,775  |   |   | 6,372,361   |  
|Advances and prepaid expenses                    |  |      |  |   | 2,759,943    |  |   | 594,746     |   |   | 650,823     |  
|Due
      from related party                     |  |      |  |   | -            |  |   | -           |   |   | 91,966      |  
|Total current assets                             |  |      |  |   | 50,061,554   |  |   | 26,506,621  |   |   | 16,062,453  |  
|                                                 |  |      |  |   |              |  |   |             |   |   |             |  
|Mineral properties, plant and equipment          |  | 8    |  |   | 107,677,591  |  |   | 87,203,035  |   |   | 65,914,550  |  
|Non-current
      unprocessed ore stockpile      |  | 7    |  |   | 4,480,769    |  |   | -           |   |   | -           |  
|Total assets                                     |  |      |  | $ | 162,219,914  |  | $ | 113,709,656 |   | $ | 81,977,003  |  
|                                                 |  |      |  |   |              |  |   |             |   |   |             |  
|LIABILITIES                                      |  |      |  |   |              |  |   |             |   |   |             |  
|Current                                          |  |      |  |   |              |  |   |             |   |   |             |  
|Trade payables and accrued
      liabilities     |  | 9    |  | $ | 15,884,416   |  | $ | 9,509,290   |   | $ | 4,371,038   |  
|Vendor loan                                      |  | 10   |  |   | 1,725,000    |  |   | 1,725,000   |   |   | 1,725,000   |  
|Current portion of long-term
      debt          |  | 13   |  |   | 17,245,442   |  |   | 12,038,469  |   |   | 7,985,273   |  
|Warrant liability                                |  | 12   |  |   | -            |  |   | 3,551,731   |   |   | -           |  
|Total current liabilities                        |  |      |  |   | 34,854,858   |  |   | 26,824,490  |   |   | 14,081,311  |  
|                                                 |  |      |  |   |              |  |   |             |   |   |             |  
|Deferred tax liabilities                         |  | 15   |  |   | 22,562,255   |  |   | 16,048,941  |   |   | 3,963,514   |  
|Long-term debt                                   |  | 13   |  |   | -            |  |   | -           |   |   | 7,475,075   |  
|Other long-term liabilities                      |  | 21   |  |   | 1,137,704    |  |   | 1,081,438   |   |   | 1,027,881   |  
|Provision for site
      reclamation and closure |  | 11   |  |   | 2,065,132    |  |   | 1,607,145   |   |   | 1,232,687   |  
|Total liabilities                                |  |      |  |   | 60,619,949   |  |   | 45,562,014  |   |   | 27,780,468  |  
|                                                 |  |      |  |   |              |  |   |             |   |   |             |  
|EQUITY                                           |  |      |  |   |              |  |   |             |   |   |             |  
|Issued capital                                   |  | 14   |  |   | 82,630,432   |  |   | 75,214,724  |   |   | 47,117,184  |  
|Convertible preference shares                    |  | 14   |  |   | -            |  |   | -           |   |   | 13,665,620  |  
|Share-based payment reserve                      |  |      |  |   | 9,169,072    |  |   | 4,006,069   |   |   | 4,085,189   |  
|Share purchase warrants                          |  | 12   |  |   | -            |  |   | -           |   |   | 2,574,174   |  
|Retained earnings
      (deficit)                |  |      |  |   | 9,800,461    |  |   | (11,073,151 | ) |   | (13,245,632 | )
|Total equity                                     |  |      |  |   | 101,599,965  |  |   | 68,147,642  |   |   | 54,196,535  |  
|Total
      liabilities and equity               |  |      |  | $ | 162,219,914  |  | $ | 113,709,656 |   | $ | 81,977,003  |  

Commitments and contingencies(Note 21)
Subsequent events (Note 24)

Approved by the Directors

Bruce
BragagnoloDirector                          Eugene
HodgsonDirector

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

---

|TIMMINS GOLD CORP.                          
|--------------------------------------------
|CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|(Expressed in US
      dollars)             

Number of
    
    
    
    
    
    Convertible
    
    
    Share-based
    
    
    Share
    
    
    Retainedcommon
    
    
    
    
    
    preference
    
    
    payment
    
    
    purchase
    
    
    earningsshares
    
    
    Issued capital
    
    
    shares
    
    
    reserve
    
    
    warrants
    
    
    (deficit)
    
    
    Total equityBalance at April 1, 2011
    
    136,964,194
    
    $
    75,214,724
    
    $
    -
    
    $
    4,006,069
    
    $
    -
    
    $
    (11,073,151
    )
    $
    68,147,642Earnings for the period
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    20,873,612
    
    
    20,873,612Share-based payments
    
    -
    
    
    -
    
    
    -
    
    
    5,361,371
    
    
    -
    
    
    -
    
    
    5,361,371Issue of shares on exercise of share options
    
    1,025,000
    
    
    469,115
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    469,115Reclassification of grant
      date fair value on exercise of share options
    
    -
    
    
    198,368
    
    
    -
    
    
    (198,368
    )
    
    -
    
    
    -
    
    
    -Issue of shares on exercise of share purchase
      warrants
    
    2,000,000
    
    
    1,552,690
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,552,690Reclassification of fair
      value on exercise of share purchase warrants
    
    -
    
    
    4,554,971
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    4,554,971Shares issued for financing costs (Note 13)
    
    301,933
    
    
    640,564
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    640,564Balance at December 31, 2011
    
    140,291,127
    
    $
    82,630,432
    
    $
    -
    
    $
    9,169,072
    
    $
    -
    
    $
    9,800,461
    
    $
    101,599,965Balance at April 1, 2010 (Note 23)
    
    115,071,514
    
    $
    47,117,184
    
    $
    13,665,620
    
    $
    4,085,189
    
    $
    2,574,174
    
    $
    (13,245,632
    )
    $
    54,196,535Earnings for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    6,590,490
    
    
    6,590,490Reclassification of share purchase warrants
      on change in functional currency
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,574,174
    )
    
    (4,418,009
    )
    
    (6,992,183
    )Share-based payments
    
    -
    
    
    -
    
    
    -
    
    
    687,928
    
    
    -
    
    
    -
    
    
    687,928Issue of shares on exercise of share options
    
    1,540,000
    
    
    908,252
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    908,252Reclassification of grant
      date fair value on exercise of share options
    
    -
    
    
    767,048
    
    
    -
    
    
    (767,048
    )
    
    -
    
    
    -
    
    
    -Issue of shares on exercise of share purchase
      warrants
    
    9,352,680
    
    
    5,638,624
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    5,638,624Reclassification of fair
      value on exercise of share purchase warrants
    
    -
    
    
    7,117,996
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    7,117,996Conversion of preference shares to common shares
    
    11,000,000
    
    
    13,665,620
    
    
    (13,665,620
    )
    
    -
    
    
    -
    
    
    -
    
    
    -Balance at March 31, 2011 (Note 23)
    
    136,964,194
    
    $
    75,214,724
    
    $
    -
    
    $
    4,006,069
    
    $
    -
    
    $
    (11,073,151
    )
    $
    68,147,642


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

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|1. | NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Timmins Gold Corp. (the Company) was incorporated on
      March 17, 2005 under the laws of the Province of British Columbia, Canada.
      The Company is in the business of acquiring, exploring, developing and
      operating mineral resource properties in Mexico, through its wholly-owned
      subsidiaries, Timmins Goldcorp Mexico, S.A. de C.V and Molimentales del
      Noroeste, S.A. de C.V. (MdN) (collectively the subsidiaries). MdN owns
      the San Francisco Mine which was placed into commercial production on
      April 1, 2010. The Company is listed for trading on the Toronto Stock
      Exchange under the symbol TMM and the New York Stock Exchange AMEX under
      the symbol TGD. The registered office of the Company is located at Suite
      1900 - 570 Granville Street, Vancouver, British Columbia, Canada, V6C 3P1.                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|2. | BASIS OF PREPARATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|a) | Change of year-end                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | In December, 2011, the Company changed its fiscal
      year-end from March 31 to December 31 in order to coincide with the
      financial reporting periods of other precious metal producing companies.
      As a result of this change, these audited consolidated financial
      statements are for the nine months ended December 31, 2011 and amounts
      presented are not comparable as the comparative period is the year ended
      March 31, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|b) | Statement of compliance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | These audited consolidated financial statements
      (consolidated financial statements) represent the Companys first non-
      interim consolidated financial statements under International Financial
      Reporting Standards (IFRS) as issued by the International Accounting
      Standards Board (IASB) with full note disclosures required for annual
      financial statements. IFRS represents standards and interpretations
      approved by the IASB and the Canadian Institute of Chartered Accountants,
      and are comprised of IFRSs, International Accounting Standards (IAS),
      and interpretations issued by the IFRS Interpretations Committee
      (IFRIC).                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | These consolidated financial statements have been
      prepared in accordance with IFRS issued by the IASB. The basis of
      presentation of these consolidated financial statements is different to
      that of the Companys most recent annual audited consolidated financial
      statements (year ended March 31, 2011) due to the first-time adoption of
      IFRS. An explanation of how the transition to IFRS, with a transition date
      of April 1, 2010 (the transition date), has affected the reported
      financial position and financial performance of the Company is provided in
      Note 23. Note 23 includes reconciliations of the Companys comparative
      consolidated statements of financial position, comparative consolidated
      statements of earnings and comprehensive income and cash flows in
      accordance with Canadian generally accepted accounting principles
      (Canadian GAAP) and as previously reported to those prepared and
      reported in these consolidated financial statements in accordance to IFRS.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | These consolidated financial statements were approved by
      the Board of Directors and authorized for issue on March 23, 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|c) | Basis of measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | These consolidated financial statements have been
      prepared using the historical cost basis specified by IFRS for each type
      of asset, liability, income and expense as set out in the accounting
      policies below, except for certain financial assets and liabilities which
      are measured at fair value. In addition, these consolidated financial
      statements have been prepared using the accrual basis of accounting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|d) | Functional currency and presentation currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | These consolidated financial statements are presented in
      United States (US) dollars, except as otherwise noted, which is the
      functional currency of the Company and each of the Companys subsidiaries.
      References to C$ are to Canadian dollars.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

7

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|2. | BASIS OF PREPARATION (Continued)                                                                                                                                                                                                                                                                                                      
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                       
|e) | Judgements                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                       
|   | The critical judgements that the Companys management has
      made in the application of the accounting policies presented in Note 3,
      apart from the estimations presented in Note 2f), that have the most
      significant effect on the amounts recognized in these consolidated
      financial statements are as follows:

| | i.  | Functional currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The functional currency for each of the Companys
      subsidiaries is the currency of the primary economic environment in which
      the respective entity operates; the Company has determined the functional
      currency of each entity to be the US dollar. Such determination involves
      certain judgements to identify the primary economic environment. The
      Company reconsiders the functional currency of its subsidiaries if there
      is a change in events and/or conditions which determine the primary
      economic environment.                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ii. | Operating levels intended by management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Prior to reaching operating levels intended by
      management, costs incurred are capitalized as part of the costs of related
      mining properties. Any proceeds generated from incidental metal sales
      prior to reaching the intended operating levels are offset against the
      costs capitalized; depletion of such capitalized costs commences upon
      reaching the intended operating levels. The consolidated statement of
      earnings and comprehensive income has been impacted by managements
      determination that the San Francisco Mine reached the intended operating
      levels on April 1, 2010.

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

| | i.  | Impairments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The Company assesses its mineral properties, plant and
      equipment assets annually to determine whether any indication of
      impairment exists. Where an indicator of impairment exists, a formal
      estimate of the recoverable amount is made, which is considered to be the
      higher of the fair value less costs to sell and value in use. These
      assessments require the use of estimates and assumptions such as long-term
      commodity prices, discount rates, future capital requirements, exploration
      potential and operating performance.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ii. | Mineral reserves                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Proven and probable mineral reserves are the economically
      mineable parts of the Companys measured and indicated mineral resources
      demonstrated by at least a preliminary feasibility
study.                                                                                                                                                                                                                                                                                                                                                                       

8

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

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

| |      | The Company estimates its proven and probable reserves
      and measured and indicated and inferred mineral resources based on
      information compiled by appropriately qualified persons.                                                                                                                                                                                                                                                                                                                                                                                                           
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | The information relating to the geological data on the
      size, depth and shape of the ore body requires complex geological
      judgments to interpret the data. The estimation of future cash flows
      related to proven and probable reserves is based upon factors such as
      estimates of foreign exchange rates, commodity prices, future capital
      requirements and production costs along with geological assumptions and
      judgments made in estimating the recovery rate, size and grade of the ore
      body.                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | Changes in the proven and probable reserves or measured
      and indicated and inferred mineral resources estimates may impact the
      carrying value of exploration and evaluation properties, plant and
      equipment, site reclamation and closure provisions, recognition of
      deferred tax amounts and depreciation, depletion and
  amortization.                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | iii. | Depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | Plants and other facilities used directly in mining
      activities are depreciated using the units-of-production (UOP) method
      over a period not to exceed the estimated life of the ore body based on
      recoverable ounces to be mined from proven and probable reserves. Mobile
      and other equipment are depreciated, net of residual value, on a
      straight-line basis, over the useful life of the equipment to the extent
      that the useful life does not exceed the related estimated life of the
      mine based on proven and probable reserves.                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | The calculation of the UOP rate, and therefore the annual
      depreciation, depletion and amortization expense, could be materially
      affected by changes in the underlying estimates. Changes in estimates can
      be the result of actual future production differing from current forecasts
      of future production, expansion of mineral reserves through exploration
      activities, differences between estimated and actual recovery rates and
      costs of mining and differences in gold price used in the estimation of
      mineral reserves.                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | Significant judgment is involved in the estimation of
      useful life and residual values for the computation of depreciation,
      depletion and amortization and no assurance can be given that actual
      useful lives and residual values will not differ significantly from
      current assumptions.                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | iv.  | Deferred stripping costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | In determining whether stripping costs incurred during
      the production phase of a mining property relate to reserves and resources
      that will be mined in a future period and therefore should be capitalized,
      the Company makes estimates of the stripping activity over the life of the
      mining property (life of mine strip ratio). Changes in estimated life of
      mine strip ratios can result in a change to the future capitalization of
      stripping costs incurred. At December 31, 2011, the carrying amount of
      stripping costs capitalized was $21,268,332.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | v.   | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | Expenditures incurred, and depreciation, depletion and
      amortization of assets used in mining and processing activities are
      deferred and accumulated as the cost of ore in stockpiles, ore in process
      and finished metal inventory. These deferred amounts are carried at the
      lower of average cost or net realizable value (NRV) and subject to
      significant measurement uncertainty.                                                                                                                                                                                     
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | Write-downs of ore in stockpiles, ore in process, and
      finished metal inventory resulting from NRV impairments are reported as a
      component of current period costs. The primary factors that influence the
      need to record write-downs include prevailing and long-term metal prices
      and prevailing costs for production inputs such as labour, fuel and
      energy, materials and supplies, as well as realized ore grades and actual
      production levels.                                                                                                                  

9

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

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

| |      | Costs are attributed to the ore in process based on
      current mining costs, including applicable depreciation, depletion and
      amortization relating to mining operations incurred up to the point of
      placing the ore on the leach pad. Costs are removed from ore in process
      based on the average cost per estimated recoverable ounce of gold on the
      leach pad as the gold is recovered. Estimates of recoverable gold on the
      leach pads are calculated from the quantities of ore placed on the pads,
      the grade of ore placed on the leach pads and an estimated percentage of
      recovery. Timing and ultimate recovery of gold contained on leach pads can
      vary significantly from the estimates.                                                                                                                                                                                                                                                                               
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      | The quantities of recoverable gold placed on the leach
      pads are reconciled to the quantities of gold actually recovered
      (metallurgical balancing), by comparing the grades of ore placed on the
      leach pads to actual ounces recovered. The nature of the leaching process
      inherently limits the ability to precisely monitor inventory levels. As a
      result, the metallurgical balancing process is constantly monitored and
      the engineering estimates are refined based on actual results over time.
      The ultimate recovery of gold from a pad will not be known until the
      leaching process is completed.                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      | The allocation of costs to ore in stockpiles, ore in
      process, and finished metal inventory and the determination of NRV involve
      the use of estimates. There is a high degree of judgment in estimating
      future costs, future production level, gold prices, and the ultimate
      estimated recovery for ore in process. There can be no assurance that
      actual results will not differ significantly from estimates used in the
      determination of the carrying value of inventories.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | vi.  | Provision for site reclamation and
  closure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      | Site reclamation and closure provisions are recognized in
      the period in which they arise and are stated as the present value of
      estimated future costs. These estimates require extensive judgment about
      the nature, cost and timing of the work to be completed, and may change
      with future changes to costs, environmental laws and regulations and
      remediation practices. In view of uncertainties concerning environmental
      rehabilitation, the ultimate costs could be materially different from the
      amounts estimated.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      | The estimates of future site reclamation and closure
      provisions are subject to change based on amendments to applicable laws
      and legislation. Future changes in site reclamation and closure
      provisions, if any, could have a material impact and would be reflected
      prospectively, as a change in accounting estimate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | vii. | Deferred taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      | The Companys provision for income taxes is estimated
      based on the expected annual effective tax rate. The current and deferred
      components of income taxes are estimated based on forecasted movements in
      temporary differences. Changes to the expected annual effective tax rate
      and differences between the actual and expected effective tax rate and
      between actual and forecasted movements in temporary differences will
      result in adjustments to the Companys provision for income taxes in the
      period changes are made and/or differences are identified.                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      | In assessing the probability of realizing income tax
      assets recognized, management makes estimates related to expectations of
      future taxable income, applicable tax planning opportunities, expected
      timing of reversals of existing temporary differences and the likelihood
      that tax positions taken will be sustained upon examination by applicable
      tax authorities. In making its assessments, management gives additional
      weight to positive and negative evidence that can be objectively verified.
      Estimates of future taxable income are based on forecasted cash flows from
      operations and the application of existing tax laws in each jurisdiction.
      Forecasted cash flows from operations are based on life of mine
      projections internally developed and reviewed by management. Weight is
      attached to tax planning opportunities that are within the Companys
      control, and are feasible and implementable without significant
      obstacles.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      | The likelihood that tax positions taken will be sustained
      upon examination by applicable tax authorities is assessed based on
      individual facts and circumstances of the relevant tax position evaluated
      in light of all available evidence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

10

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

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

| |       | Where applicable tax laws and regulations are either
      unclear or subject to ongoing varying interpretations, it is reasonably
      possible that changes in these estimates can occur that materially affect
      the amounts of income tax assets recognized. At the end of each reporting
      period, the Company reassesses unrecognized income tax assets.                                                                                                                                                   
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | viii. | Share-based payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |       | Share-based payments are measured at fair value. Options
      and warrants are measured using the Black-Scholes option pricing model and
      are measured at fair value at the date of grant and is expensed to profit
      or loss over each awards vesting period. The Black-Scholes option pricing
      model utilizes subjective assumptions such as expected price volatility
      and expected life of the option. Changes in these input assumptions can
      significantly affect the fair value estimate.

|3. | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The significant accounting policies used in the
      preparation of these consolidated financial statements are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|a) | Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | These consolidated financial statements include the
      accounts of the Company and its wholly-owned subsidiaries disclosed in
      Note 1. All inter-company balances and transactions have been eliminated
      on consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Control exists where the parent entity has the power to
      govern the financial and operating policies of an entity so as to obtain
      benefits from its activities. Subsidiaries are included in the
      consolidated financial statements from the date control commences until
      the date control ceases.                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|b) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In preparing the financial statements of each individual
      group entity, transactions in currencies other than the entity's
      functional currency (foreign currencies) are translated at the rates of
      exchange prevailing at the dates of the transactions. At the end of each
      reporting period, monetary assets and liabilities denominated in foreign
      currencies are translated at the exchange rates prevailing at that date.
      Exchange gains and losses are recognized on a net basis in profit or loss
      for the period.                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | All entities maintain their financial records in
      currencies other than the functional currency. To translate the financial
      records to the functional currency, non-monetary assets and liabilities
      that are measured in terms of historical costs are translated using the
      exchange rate at the date of the transaction. Monetary balances are
      translated at the rates of exchange at the period end date. The
      translation difference resulting from translating the foreign currencies
      to the functional currency is recorded as a component of foreign exchange
      gain and loss.                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | As of April 1, 2010, the Company and the subsidiaries
      changed their functional currency from the Canadian dollar to the US
      dollar due to the commencement of commercial operations and the
      significant increase in the amount of US dollar revenue and production
      costs. Previously, the Mexican-based subsidiaries were primarily funded by
      the Company and had the Canadian dollar as their functional currency. The
      change in accounting for the Company and the subsidiaries was implemented
      prospectively from April 1, 2010, with a translation of all balances to US
      dollars at that date and re- establishment of historical cost for
      non-monetary assets.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|c) | Cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Cash equivalents are highly liquid investments, such as
      term deposits with major financial institutions, having a maturity of
      three months or less at acquisition, that are readily convertible to
      contracted amounts of cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

11

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|d) | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Metal revenues are earned from the sale of
      refined metal and ore in process. Revenue from finished metal and ore in
      process sales is recognized when significant risks and rewards of
      ownership have passed to the buyer, it is probable that economic benefits
      associated with the transaction will flow to the Company, the sale price
      can be measured reliably, the Company has no significant continuing
      involvement, and the costs incurred or to be incurred in respect of the
      transaction can be measured reliably. Metal revenues from sales are
      subject to adjustment upon final settlement based upon metal prices,
      weights and assays. These adjustments are netted within revenue.                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|e) | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Company predominantly produces gold and
      silver. Inventories consist primarily of unprocessed ore stockpile, ore in
      process, finished metal inventory (doré inventory), and mining supplies.
      Doré represents a bar containing predominantly gold by value which must be
      refined offsite to return saleable metals. These inventories are valued at
      the lower of cost and NRV after consideration of additional processing,
      refining and transportation costs. NRV represents the estimated future
      sales price of the product based on prevailing and long-term metals prices
      or as determined in long-term sales contracts, less the estimated costs to
      complete production and bring the product to saleable form.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Write-downs of inventory are recognized in
      profit or loss as incurred. The Company reverses write-downs in the event
      that there is a subsequent increase in NRV.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| | i.   | Unprocessed ore stockpile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | This represents ore that has been mined and is available
      for further processing. The unprocessed ore stockpile is measured by
      estimating the number of tonnes added and removed from the stockpile, the
      number of contained ounces (based on assay data) and the estimated
      metallurgical recovery rates (based on the expected processing method).
      Stockpile ore tonnages are verified by periodic surveys. Costs are
      allocated to the stockpile based on the current mining cost per tonne
      incurred up to the point of stockpiling the ore, including applicable
      overhead, depletion, depreciation and amortization relating to mining
      operations, and are removed at the average cost per ounce. As the
      unprocessed ore stockpile will not be further processed within one year of
      the date of these consolidated financial statements, the net carrying
      amount related to the stockpile has been classified as non-current
      unprocessed ore stockpile (Note 7).
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ii.  | Ore in process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | The recovery of gold and silver is achieved through heap
      leaching processes. Costs are added to ore on leach pads based on current
      mining and processing costs, including applicable overhead, depletion,
      depreciation and amortization relating to mining operations. Costs are
      removed from ore on leach pads as ounces are recovered, based on the
      average cost per ounce of gold in ore in process inventory.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | iii. | Finished metal inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | Finished metal inventory consists of gold, silver and
      doré bars.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | iv.  | Supplies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | Supplies include consumables used in operations such as
      fuel, grinding material, chemicals, and spare parts. NRV is estimated as
      replacement cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | Major spare parts and standby equipment are included in
      plant and equipment when they are expected to be used during more than one
      period and if they can only be used in connection with an item of plant
      and equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

12

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

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

| | i. | Exploration and evaluation costs                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Acquisition costs for exploration and evaluation stage
      properties are capitalized. Exploration and evaluation expenditures
      incurred on a mineral property are capitalized where management determines
      there is sufficient evidence that the expenditure will result in a future
      economic benefit to the Company. All other exploration and evaluation
      expenditures are expensed as incurred.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Exploration and evaluation expenditures comprise costs
      that are directly attributable to:                                                                                                                                                                                                                                                                                                                           

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

| |      | Subsequent to completion of a positive economic analysis
      on a mineral property, capitalized acquisition costs and exploration and
      evaluation expenditures are reclassified to mineral properties. The
      Company is in the process of exploring and developing many of its
      exploration and evaluation properties and has not yet determined the
      amount of reserves available.                                                                                                           
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | Management reviews the carrying value of mineral
      properties at each reporting date and will recognize impairment in value
      based upon current exploration results, the prospect of further work being
      carried out by the Company, the assessment of future probability of
      profitable revenues from the property, or from the sale of the property.
      Amounts shown for properties represent costs incurred net of write-offs
      and recoveries.                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ii.  | Mineral property and development costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | Mineral property development costs, including
      reclassified mineral property acquisition costs and capitalized
      exploration and evaluation costs, are stated at cost less accumulated
      amortization and accumulated impairment losses. Costs associated with the
      commission of new assets, net of incidental revenues, are capitalized as
      mineral property costs in the period before they are operating in the way
      intended by management.                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | The Company capitalizes the cost of acquiring,
      maintaining, exploring, and developing mineral properties until such time
      as the properties are placed into production, abandoned, sold or
      considered to be impaired in value. Costs of producing properties are
      amortized using the UOP method based on estimated proven and probable
      reserves and the costs of abandoned properties are written off in the
      period in which that decision is made by management.               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | The Company capitalizes the costs of developing mineral
      properties that are currently in production until such time that
      management can conclude the existence of additional proven and probable
      reserves resulting from the development activities. Upon determination of
      the additional proven and probable ounces, the development costs are
      amortized using the UOP method based on the total proven and probable
      reserves (previous remaining reserves plus new reserves).
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | Proceeds received on the sale of interests in mineral
      properties are credited to the carrying value of the mineral properties,
      with any excess included in profit or loss as incurred. Write-offs due to
      impairment in value are charged to profit or loss as incurred.                                                                                                                                                                                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | iii. | Stripping costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | In open pit mining operations, it is necessary to remove
      overburden and other waste in order to access the ore body. Stripping
      costs incurred prior to commercial production are capitalized and deferred
      as part of the cost of constructing the mine.                                                                                                                                                                                                                                          

13

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

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

| |     | Mining costs associated with stripping activities during
      the production phase of a mine are variable production costs that are
      included in the costs of the inventory during the period that the
      stripping costs are incurred, unless the stripping activity can be shown
      to represent a future benefit to the mineral property, in which case
      stripping costs are capitalized.                                                                                                                                                                                           
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | A future benefit to the mineral property is demonstrated
      when access is gained to sources of reserves that will be produced in
      future periods that would otherwise not have been accessible. The amount
      capitalized is calculated by multiplying the stripping tonnes mined during
      the period by the current mining cost per tonne in the open pit.                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The Company includes stripping costs in its production
      costs on an average life of mine stripping ratio basis based on tonnes of
      material mined. Periods where the ratio of waste material to ore exceeds
      the average life of mine stripping ratio result in deferral of the excess
      costs as an asset recorded within mineral properties (Note 8). Periods
      where the ratio of waste material to ore is lower than the average life of
      mine stripping ratio result in an inclusion in production costs of an
      amount of the previously deferred stripping costs.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | iv. | Plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Plant and equipment is measured at cost less accumulated
      depreciation and impairment losses. Cost includes the purchase price, any
      costs directly attributable to bringing plant and equipment to the
      location and condition necessary for it to be capable of operating in the
      manner intended by management and the estimated site reclamation and
      closure costs associated with removing the asset, and, where applicable,
      borrowing costs.                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Upon sale or abandonment of any plant and equipment, the
      cost and related accumulated depreciation and impairment losses are
      written off and any gains or losses thereon are recognized in profit or
      loss for the period. When the parts of an item of plant and equipment have
      different useful lives, they are accounted for as separate items (major
      components) of plant and equipment.                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The cost of replacing or overhauling a component of an
      item of plant and equipment is recognized in the carrying amount of the
      item if it is probable that the future economic benefits embodied within
      the component will flow to the Company and its cost can be measured
      reliably. The carrying amount of the replaced component is derecognized.
      Maintenance and repairs of a routine nature are charged to profit or loss
      as incurred.                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | v.  | Depletion, depreciation and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Mineral property costs, excluding stripping costs
      capitalized during the production phase of a mine, are amortized when
      commercial production begins using the UOP method based on estimated
      proven and probable reserves.                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Plant and equipment, including major components, are
      depreciated using the following depreciation
methods:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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

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

On April 1, 2010, the Company
concluded that the San Francisco Mine had achieved a rate of production
sufficient for it to be classified as being in commercial production. At
December 31, 2011, the estimated remaining life of the mine is six years. This
estimate is based on the life of mine plan prepared by the Company, which, in
turn, is based on the estimate of the reserves and updated, as necessary, for
subsequent revisions and updates to the estimate made based on the results of
actual production.

14

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (Continued)                                                                                                                                                                                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                             
|g) | Provisions                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                             
|   | A provision is recognized if, as a result of a past
      event, the Company has a present legal or constructive obligation that can
      be estimated reliably and it is probable that an outflow of economic
      benefits will be required to settle the obligation.
      Constructive obligations are obligations that derive from
      the Companys actions where:

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

Provisions are reviewed at the end of
each reporting period and adjusted to reflect managements current best estimate
of the expenditure required to settle the present obligation at the end of the
reporting period. If it is no longer probable that an outflow of resources
embodying economic benefits will be required to settle the obligation, the
provision is reversed. Provisions are reduced by actual expenditures for which
the provision was originally recognized. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects the
current market assessments of the time value of money and the risks specific to
the liability. The accretion of the discount is charged to profit or loss as
finance expense.

| | i. | Provision for site reclamation and
  closure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The Companys mining and exploration activities are
      subject to various laws and regulations governing the protection of the
      environment. The Company records the fair value of a provision for site
      reclamation and closure as a liability in the period in which it incurred
      a legal or constructive obligation associated with the reclamation of the
      mine site and the retirement of tangible long-lived assets that result
      from the acquisition, construction, development, and/or normal use of the
      assets.                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The obligation is measured initially at fair value based
      on estimated future cash flows derived using internal information and
      third party reports. The estimated cost is capitalized and included in the
      carrying value of the related mineral properties and is amortized using
      either the straight-line method or UOP method, as appropriate.                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The provision is initially discounted using a current
      market-based pre-tax discount rate and subsequently increased for the
      unwinding of the discount. The unwinding of the discount is charged to
      profit or loss as finance expense.                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | At each reporting date, the Company reviews its provision
      for site reclamation and closure to reflect the current best estimate. The
      provision for site reclamation and closure is adjusted for changes in
      factors such as the amount or timing of the expected underlying cash
      flows, or the market-based pre-tax discount rate, with the offsetting
      amount recorded to the site reclamation and closure asset included in
      mineral properties which arises at the time of establishing the provision.
      The site reclamation and closure asset is amortized on the same basis as
      the related asset.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | It is possible that the Companys estimate of the site
      reclamation and closure liability could change as a result of change in
      regulations, the extent of environmental remediation required, the means
      and technology of reclamation activities or cost estimates. Any such
      changes could materially impact the estimated provision for site
      reclamation and closure. Changes in estimates are accounted for
      prospectively from the period the estimate is
revised.                                                                                                                                          

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

15

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The fair value of a share-based payment is determined at
      the date of the grant. The estimated fair value of share options is
      measured using the Black-Scholes option pricing model. The Black-Scholes
      option pricing model requires the input of subjective assumptions,
      including the expected term of the option and share price volatility. The
      expected term of options granted is determined based on historical data on
      the average hold period before exercise, expiry or cancellation. Expected
      volatility is estimated with reference to the historical volatility of the
      share price of the Company.                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | These estimates involve inherent uncertainties and the
      application of managements judgment. The costs of share-based payments
      are recognized over the vesting period of the option. The total amount
      recognized as an expense is adjusted to reflect the number of options
      expected to vest at each reporting date. At each reporting date prior to
      vesting, the cumulative compensation expense representing the extent to
      which the vesting period has passed and managements best estimate of the
      share options that are ultimately expected to vest is computed. The
      movement in cumulative expense is recognized in profit or loss with a
      corresponding charge to share-based payment reserve.                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Share-based payments to non-employees are measured at the
      fair value of the goods or services received or the fair value of the
      equity instruments issued if it is determined that the fair value of the
      goods or services cannot be reliably measured, and are recorded at the
      date the goods or services are received.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | No expense is recognized for share options that do not
      ultimately vest. Charges for share options that are forfeited before
      vesting are reversed from share-based payment reserve and expensed. For
      those share options that expire unexercised after vesting, the recorded
      value remains in share-based payment reserve.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|i) | Warrant liability                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Upon adoption of the US dollar as the Companys
      functional currency on April 1, 2010, the Company recorded an adjustment
      as a result of accounting for share purchase warrants issued using the
      principles of IAS 39 - Financial Instruments: Recognition and
      Measurement(Note 23). As the exercise price of the share purchase
      warrants is fixed in Canadian dollars (C$) and the functional currency of
      the Company is the US dollar, the share purchase warrants are considered a
      derivative liability in accordance with IAS 32 - Financial Instruments:
      Presentationas a variable amount of cash in the Companys functional
      currency will be received on exercise. On April 1, 2010, the fair value of
      the share purchase warrants was $6,992,183.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | These types of share purchase warrants are recognized at
      fair value using the Black-Scholes option pricing model at the date of
      issue. Share purchase warrants are initially recorded as a liability at
      fair value with any subsequent changes in fair value recognized in profit
      or loss as finance expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Upon exercise of share purchase warrants with exercise
      prices in a currency other than the Companys functional currency, the
      share purchase warrants are revalued at the date of exercise and the total
      fair value of the exercised share purchase warrants is reallocated to
      equity. The proceeds generated from the payment of the exercise price are
      also allocated to equity. At December 31, 2011, all share purchase
      warrants with exercise prices in a currency other than the functional
      currency had been exercised.                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|j) | Issued capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Common shares are classified as issued capital.
      Incremental costs directly attributable to the issue of common shares are
      recognized as a deduction from issued capital, net of any tax effects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|k) | Financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Financial assets, other than derivatives, are classified
      as held for trading, available-for-sale, loans and receivables or fair
      value through profit or loss (FVTPL).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

16

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Financial assets classified as
      available-for-sale are measured initially at fair value plus transaction
      costs and subsequently at fair value with unrealized gains and losses
      recognized in other comprehensive income except for financial assets that
      are considered to be impaired, in which case the loss is recognized in
      profit or loss. The Company has not classified any assets as available for
      sale for any period presented.                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Financial assets classified as loans and
      receivables are measured initially at fair value plus transaction costs
      and subsequently at amortized cost using the effective interest method.
      The effective interest method is a method of calculating the amortized
      cost of a financial asset and allocating the interest expense over the
      relevant period. The effective interest rate is the rate that exactly
      discounts estimated future cash payments through the expected life of the
      financial asset, or, where appropriate, a shorter period. The Companys
      cash, restricted cash, trade and other receivables, and due from related
      party are classified as loans and receivables.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Financial assets classified as FVTPL are
      measured on initial recognition and subsequently at fair value with
      unrealized gains and losses recognized in profit or loss. Transaction
      costs are expensed for assets classified as FVTPL. The Company has not
      classified any assets as FVTPL for any period presented.                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|l) | Financial liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Financial liabilities, which are trade
      payables, vendor loan, long-term debt, and other long-term liabilities,
      are initially recognized at fair value less directly attributable
      transaction costs. Subsequently, financial liabilities are measured at
      amortized cost using the effective interest method.                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Financial liabilities classified as FVTPL
      include financial liabilities held for trading and financial liabilities
      designated upon recognition as FVTPL. Fair value changes on these
      liabilities are recognized in profit or loss. The Companys previously
      outstanding embedded gold derivative and share purchase warrants with
      foreign currency exercise prices are classified as FVTPL.                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|m) | **Impairment**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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

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

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

With the exception of
available-for-sale equity instruments, if, in a subsequent period, the amount of
the impairment loss decreases, the previously recognized impairment loss is
reversed through profit or loss to the extent that the carrying amount of the
impaired financial asset at the date the impairment is reversed does not exceed
what the amortized cost would have been had the impairment not been
recognized.

17

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

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

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

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

| | i. | Current tax                                                                                                                                                                                                                                                                               
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                           
| |    | Current tax is the expected tax payable or receivable on
      the taxable profit or loss for the period.                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                           
| |    | Current tax for each taxable entity in the Company is
      based on the local taxable income at the local statutory tax rate enacted
      or substantively enacted at the reporting date, and includes adjustments
      to tax payable or recoverable in respect of previous
  periods.

18

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

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

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

|o) | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Basic earnings per share (EPS) is calculated by
      dividing the profit of the Company by the weighted average number of
      common shares outstanding during the period. For purposes of calculating
      diluted earnings per share, the proceeds from the potential exercise of
      dilutive stock options and share purchase warrants with exercise prices
      that are below the average market price of the underlying shares are
      assumed to be used in purchasing the Companys common shares at their
      average market price for the period. Share options and share purchase
      warrants are included in the calculation of dilutive EPS only to the
      extent that the market price of the common shares exceeds the exercise
      price of the share options or share purchase warrants except where such
      conversion would be anti-dilutive.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|p) | Borrowing costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Borrowing costs directly attributable to the acquisition,
      construction or production of qualifying assets, which are assets that
      necessarily take a substantial period of time to get ready for their
      intended use or sale, are added to the cost of those assets, until such
      time as the assets are substantially ready for their intended use or sale.
      Qualifying assets include the cost of developing mineral properties and
      constructing new facilities.                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Borrowing costs are capitalized at the rate of interest
      applicable to the specific borrowings financing the assets under
      construction, or, where financed through general borrowings, at a
      capitalization rate representing the average interest rate on such
      borrowings. Investment income earned on the temporary investment of
      specific borrowings pending their expenditure on qualifying assets is
      deducted from the borrowing costs eligible for capitalization.                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | All other borrowing costs are recognized in profit or
      loss in the period in which they are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

19

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|4. | CHANGES IN ACCOUNTING STANDARDS                                                                                                                                                                                                                                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                   
|   | A number of new standards, and amendments to standards
      and interpretations, are not yet effective for the nine months ended
      December 31, 2011, and have not been applied in preparing these
      consolidated financial statements. Those that are expected to be
      applicable to the consolidated financial statements of the Company are
      discussed below.
|   |                                                                                                                                                                                                                                                                                                                                                                                   
|   | Accounting standards effective January 1,
    2012                                                                                                                                                                                                                                                                                                                                

| | i.  | Financial instruments disclosure                                                                                                                                                                                                                                                                                                                                             
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                              
| |     | In October, 2010, the IASB issued amendments to IFRS 7 -
      Financial Instruments: Disclosuresthat improve the disclosure
      requirements in relation to transferred financial assets. The amendments
      are effective for annual periods beginning on or after July 1, 2011, with
      earlier adoption permitted.                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company does not anticipate this amendment to have a
      material impact on its consolidated financial statements.                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                              
| | ii. | Income taxes                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                              
| |     | In December, 2010, the IASB issued an amendment to IAS 12
      - Income Taxesthat provides a practical solution to determining
      the recovery of investment properties as it relates to the accounting for
      deferred income taxes. This amendment is effective for annual periods
      beginning on or after January 1, 2012, with earlier adoption
    permitted.
| |     |                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company does not anticipate this amendment to have a
      material impact on its consolidated financial
statements.                                                                                                                                                                                                                                                     

Accounting standards effective
January 1, 2013

| | i.  | Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | In May, 2011, the IASB issued IFRS 10 - Consolidated
      Financial Statements, which supersedes SIC 12 - Consolidation -
      Special Purpose Entitiesand the requirements relating to consolidated
      financial statements in IAS 27 - Consolidated and Separate Financial
      Statements. IFRS 10 is effective for annual periods beginning on or
      after January 1, 2013, with earlier adoption permitted under certain
      circumstances. IFRS 10 establishes control as the basis for an investor to
      consolidate its investees; and defines control as an investors power over
      an investee with exposure, or rights, to variable returns from the
      investee and the ability to affect the investors returns through its
      power over the investee.                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | In addition, the IASB issued IFRS 12 - Disclosure of
      Interests in Other Entities,which combines and enhances the
      disclosure requirements for the Companys subsidiaries, joint
      arrangements, associates and unconsolidated structured entities. The
      requirements of IFRS 12 include reporting of the nature of risks
      associated with the Companys interests in other entities, and the effects
      of those interests on the Companys consolidated financial
    statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The Company is currently evaluating the impact that the
      above standards are expected to have on its consolidated financial
      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ii. | Joint arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | In May, 2011, the IASB issued IFRS 11 - Joint
      Arrangementswhich supersedes IAS 31 - Interests in Joint Venturesand SIC 13 - Jointly Controlled Entities - Non-Monetary
      Contributions by Venturers.IFRS 11 is effective for annual periods
      beginning on or after January 1, 2013, with earlier adoption permitted
      under certain circumstances. Under IFRS 11, joint arrangements are
      classified as joint operations or joint ventures based on the rights and
      obligations of the parties to the joint arrangements. A joint operation is
      a joint arrangement whereby the parties that have joint control of the
      arrangement (joint operators) have rights to the assets, and obligations
      for the liabilities, relating to the arrangement. A joint venture is a
      joint arrangement whereby the parties that have joint control of the
      arrangement (joint venturers) have rights to the net assets of the
      arrangement.

20

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|4. | CHANGES IN ACCOUNTING STANDARDS
  (Continued)
|-- | ---------------------------------------------

| |      | IFRS 11 requires that a joint operator recognize its
      portion of assets, liabilities, revenues and expenses of a joint
      arrangement, while a joint venturer recognizes its investment in a joint
      arrangement using the equity method.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | The Company does not anticipate this amendment to have a
      material impact on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | iii. | Fair value measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | In May, 2011, as a result of the convergence project
      undertaken by the IASB and the US Financial Accounting Standards Board to
      develop common requirements for defining and measuring fair value and for
      disclosing information about fair value measurements, the IASB issued IFRS
      13 - Fair Value Measurement. IFRS 13 is effective for annual
      periods beginning on or after January 1, 2013, with earlier adoption
      permitted. IFRS 13 defines fair value and sets out a single framework for
      measuring fair value which is applicable to all IFRSs that require or
      permit fair value measurements or disclosures about fair value
      measurements.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | IFRS 13 requires that when using a valuation technique to
      measure fair value, the use of relevant observable inputs should be
      maximized while unobservable inputs should be minimized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | The Company does not anticipate this amendment to have a
      material impact on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | iv.  | Financial statement presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | In June, 2011, the IASB issued amendments to IAS 1 -
      Presentation of Financial Statementsthat require an entity to
      group items presented in the statement of comprehensive income on the
      basis of whether they may be reclassified to earnings subsequent to
      initial recognition. For those items presented before taxes, the
      amendments to IAS 1 also require that the taxes related to the two
      separate groups be presented separately. The amendments are effective for
      annual periods beginning on or after July 1, 2012, with earlier adoption
      permitted.                                                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | The Company does not anticipate this amendment to have a
      material impact on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | v.   | Stripping costs in the production phase of a surface
      mine                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | In October, 2011, the IASB issued IFRIC 20 - Stripping
      Costs in the Production Phase of a Surface Mine. IFRIC 20 clarifies
      the requirements for accounting for the costs of stripping activity in the
      production phase when two benefits accrue: (i) usable ore that can be used
      to produce inventory; and (ii) improved access to further quantities of
      material that will be mined in future periods. IFRIC 20 is effective for
      annual periods beginning on or after January 1, 2013, with earlier
      adoption permitted and includes guidance on transition for pre-existing
      stripping assets.                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | The Company is currently evaluating the impact the new
      guidance is expected to have on its consolidated financial
    statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Accounting standards effective
January 1, 2015

| | i. | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The IASB intends to replace IAS 39 - Financial
      Instruments: Recognition and Measurementin its entirety with IFRS 9 -
      Financial Instrumentsin three main phases. IFRS 9 will be the new
      standard for the financial reporting of financial instruments that is
      principles-based and less complex than IAS 39. In November, 2009 and
      October, 2010, phase one of IFRS 9 was issued and amended, respectively,
      which addressed the classification and measurement of financial assets and
      financial liabilities. IFRS 9 requires that all financial assets be
      classified and subsequently measured at amortized cost or at fair value
      based on the Companys business model for managing financial assets and
      the contractual cash flow characteristics of the financial assets.
      Financial liabilities are classified and subsequently measured at
      amortized cost except for financial liabilities classified as FVTPL,
      financial guarantees and certain other exceptions.

21

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|4. | CHANGES IN ACCOUNTING STANDARDS
  (Continued)
|-- | ---------------------------------------------

In response to delays to the
completion of the remaining phases of the project, on December 16, 2011, the
IASB issued amendments to IFRS 9 which deferred the mandatory effective date of
IFRS 9 from January 1, 2013 to annual periods beginning on or after January 1,
2015. The amendments also provided relief from the requirement to restate
comparative financial statements for the effects of applying IFRS 9.

The Company is currently evaluating
the impact the final standard is expected to have on its consolidated financial
statements.

|5. | EXPENSES                                                                                                     
|-- | -------------------------------------------------------------------------------------------------------------
|   |                                                                                                              
|   | Cost of sales for the nine months ended December 31, 2011
      and year ended March 31, 2011 are as follows:

| |                                  |   | Nine months  |   |   |             |  
| | -------------------------------- | - | ------------ | - | - | ----------- | -
| |                                  |   | ended        |   |   | Year ended  |  
| |                                  |   | December 31, |   |   | March 31,   |  
| |                                  |   | 2011         |   |   | 2011        |  
| | Costs of mining                  | $ | 33,602,000   |   | $ | 39,873,973  |  
| | Crushing and gold recovery costs |   | 15,880,957   |   |   | 11,379,148  |  
| | Mine site administration costs   |   | 2,923,385    |   |   | 3,837,892   |  
| | Deferred stripping               |   | (6,031,222   | ) |   | (15,237,109 | )
| | Transport and refining           |   | 245,492      |   |   | 285,934     |  
| | Depreciation and depletion       |   | 7,782,147    |   |   | 6,935,347   |  
| | Net change in inventories        |   | (12,085,364  | ) |   | (6,882,222  | )
| | Cost of sales                    | $ | 42,317,395   |   | $ | 40,192,963  |  

Corporate and administrative expenses
for the nine months ended December 31, 2011 and year ended March 31, 2011 are as
follows:

| |                                       |  |      |  |       | Nine
      months |  |   |            | 
| | ------------------------------------- |  | ---- |  | ----- | ----------------- |  | - | ---------- | 
| |                                       |  |      |  |       | ended             |  |   | Year ended | 
| |                                       |  |      |  |       | December 31,      |  |   | March 31,  | 
| |                                       |  | Note |  |       | 2011              |  |   | 2011       | 
| | Salaries                              |  |      |  | **$** | **2,260,754**     |  | $ | 907,004    | 
| | Consulting and professional fees      |  |      |  |       | 2,217,958         |  |   | 1,765,405  | 
| | Investor relations                    |  |      |  |       | 498,646           |  |   | 648,050    | 
| | Share-based payments                  |  | 14b) |  |       | 5,361,371         |  |   | 687,928    | 
| | Travel                                |  |      |  |       | 526,516           |  |   | 328,232    | 
| | Insurance                             |  |      |  |       | 208,270           |  |   | 74,240     | 
| | Rent                                  |  |      |  |       | 273,914           |  |   | 91,043     | 
| | Other                                 |  |      |  |       | 527,854           |  |   | 263,004    | 
| | Asset write-down                      |  | 8    |  |       | -                 |  |   | 1,358,403  | 
| | Acquisition costs                     |  |      |  |       | -                 |  |   | 1,637,745  | 
| | Corporate and administrative expenses |  |      |  | **$** | **11,875,283**    |  | $ | 7,761,054  | 

During the year ended March 31, 2011,
$1,637,745 was incurred in legal and professional fees relating to the attempted
acquisition of a gold company. The acquisition was not completed and as a result
these costs have been expensed.

22

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|5. | EXPENSES (Continued)                                                                                           
|-- | ---------------------------------------------------------------------------------------------------------------
|   |                                                                                                                
|   | Finance expense for the nine months ended December 31,
      2011 and year ended March 31, 2011 are as
follows:

| |                                                                                               |   | Nine months  |   |   |            | 
| | --------------------------------------------------------------------------------------------- | - | ------------ | - | - | ---------- | 
| |                                                                                               |   | ended        |   |   | Year ended | 
| |                                                                                               |   | December 31, |   |   | March 31,  | 
| |                                                                                               |   | 2011         |   |   | 2011       | 
| | Loss on Embedded Derivative                                                                   | $ | 814,870      |   | $ | 4,937,219  | 
| | Gain on early extinguishment of Gold Loan                                                     |   | (856,408     | ) |   | -          | 
| | Interest on long-term debt                                                                    |   | 1,274,384    |   |   | -          | 
| | Accretion of long-term debt                                                                   |   | 1,184,035    |   |   | 7,791,083  | 
| | Accretion of provision for site reclamation and closure
      and other long-term liabilities |   | 132,669      |   |   | 82,128     | 
| | Finance expense                                                                               | $ | 2,549,550    |   | $ | 12,810,430 | 

|6. | TRADE AND OTHER
RECEIVABLES
|-- | ---------------------------

| |                  |   | December 31, |  |   | March 31, |  |   | April 1,  | 
| | ---------------- | - | ------------ |  | - | --------- |  | - | --------- | 
| |                  |   | 2011         |  |   | 2011      |  |   | 2010      | 
| | Trade receivable | $ | 1,651,908    |  | $ | 644,475   |  | $ | 2,506,337 | 
| | VAT receivables  |   | 6,234,619    |  |   | 3,263,059 |  |   | 3,432,336 | 
| | Other            |   | 367,276      |  |   | 276,737   |  |   | 333,866   | 
| |                  | $ | 8,253,803    |  | $ | 4,184,271 |  | $ | 6,272,539 | 

|   | VAT receivable is value added tax payments made by the
      Company, which in Mexico and Canada are refundable.
|-- | ----------------------------------------------------------------------------------------------------------------
|   |                                                                                                                 
|7. | INVENTORIES                                                                                                     

| |                                                   |   | December 31, |   |   | March 31,  |  |   | April 1,  | 
| | ------------------------------------------------- | - | ------------ | - | - | ---------- |  | - | --------- | 
| |                                                   |   | 2011         |   |   | 2011       |  |   | 2010      | 
| | Ore in process                                    | $ | 23,174,226   |   | $ | 10,465,571 |  | $ | 4,026,130 | 
| | Finished metal inventory                          |   | -            |   |   | 623,292    |  |   | -         | 
| | Supplies                                          |   | 6,008,575    |   |   | 3,232,912  |  |   | 2,346,231 | 
| | Unprocessed ore
      stockpile                   |   | 4,480,769    |   |   | -          |  |   | -         | 
| |                                                   |   | 33,663,570   |   |   | 14,321,775 |  |   | 6,372,361 | 
| | Less: non-current
      unprocessed ore stockpile |   | (4,480,769   | ) |   | -          |  |   | -         | 
| |                                                   | $ | 29,182,801   |   | $ | 14,321,775 |  | $ | 6,372,361 | 

23

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|8. | MINERAL PROPERTIES, PLANT AND
  EQUIPMENT
|-- | -----------------------------------------

ExplorationMineral
    
    
    Plant and
    
    
    Deferred
    
    
    andproperties
    
    
    equipment
    
    
    stripping
    
    
    evaluation
    
    
    TotalCostAt April 1, 2011
    $
    47,287,665
    
    $
    30,085,448
    
    $
    15,237,110
    
    $
    1,795,195
    
    $
    94,405,418Expenditures
    
    16,212,359
    
    
    7,812,836
    
    
    6,031,222
    
    
    568,242
    
    
    30,624,659Disposals
    
    -
    
    
    (34,389
    )
    
    -
    
    
    -
    
    
    (34,389
    )Change in reclamation obligation
    
    381,584
    
    
    -
    
    
    -
    
    
    -
    
    
    381,584At December 31,
      2011
    
    63,881,608
    
    
    37,863,895
    
    
    21,268,332
    
    
    2,363,437
    
    
    125,377,272Accumulated amortizationAt April 1, 2011
    
    4,150,283
    
    
    3,052,100
    
    
    -
    
    
    -
    
    
    7,202,383Amortization expense
    
    6,105,569
    
    
    4,399,212
    
    
    -
    
    
    -
    
    
    10,504,781Disposals
    
    -
    
    
    (7,483
    )
    
    -
    
    
    -
    
    
    (7,483
    )At December 31, 2011
    
    10,255,852
    
    
    7,443,829
    
    
    -
    
    
    -
    
    
    17,699,681Carrying amount
      at December 31, 2011
    $
    53,625,756
    
    $
    30,420,066
    
    $
    21,268,332
    
    $
    2,363,437
    
    $
    107,677,591


ExplorationMineral
    
    
    Plant and
    
    
    Deferred
    
    
    andproperties
    
    
    equipment
    
    
    stripping
    
    
    evaluation
    
    
    TotalCostAt April 1, 2010
    $
    40,336,932
    
    $
    24,559,229
    
    $
    -
    
    $
    1,361,770
    
    $
    66,257,931Expenditures
    
    6,658,403
    
    
    5,526,219
    
    
    15,237,110
    
    
    1,791,828
    
    
    29,213,560Impairments
    
    -
    
    
    -
    
    
    -
    
    
    (1,358,403
    )
    
    (1,358,403
    )Change in reclamation obligation
    
    292,330
    
    
    -
    
    
    -
    
    
    -
    
    
    292,330At March 31, 2011
    
    47,287,665
    
    
    30,085,448
    
    
    15,237,110
    
    
    1,795,195
    
    
    94,405,418Accumulated amortizationAt April 1, 2010
    
    -
    
    
    343,381
    
    
    -
    
    
    -
    
    
    343,381Amortization expense
    
    4,150,283
    
    
    2,708,719
    
    
    -
    
    
    -
    
    
    6,859,002At March 31, 2011
    
    4,150,283
    
    
    3,052,100
    
    
    -
    
    
    -
    
    
    7,202,383Carrying amount at March 31, 2011
    
    43,137,382
    
    
    27,033,348
    
    
    15,237,110
    
    
    1,795,195
    
    
    87,203,035Carrying amount at
      April 1, 2010
    $
    40,336,932
    
    $
    24,215,848
    
    $
    -
    
    $
    1,361,770
    
    $
    65,914,550


|a) | Mineral properties                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                    
|   | San Francisco Property                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The San Francisco Property is located in Santa Ana,
      Sonora, Mexico. Commercial production began April 1, 2010, although the
      Company continues to conduct and incur some exploration and development
      costs which are being capitalized. The San Francisco Property includes the
      titles to the Timmins and Timmins II concessions and the Timmins III
      fraction 1 and 2.

24

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|8. | MINERAL PROPERTIES, PLANT AND EQUIPMENT
      (Continued)                                                                                                                                                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                
|   | Mineral properties include properties which are under
      exploration and development and are non-depletable, as well as the San
      Francisco property, which began commercial production on April 1, 2010.
      The carrying amounts of these two categories of mineral properties are as
      follows:

| |                                                        |   | December 31, |  |   | March 31,  |  |   | April 1,   | 
| | ------------------------------------------------------ | - | ------------ |  | - | ---------- |  | - | ---------- | 
| |                                                        |   | 2011         |  |   | 2011       |  |   | 2010       | 
| | Non-depletable mineral properties                      | $ | 5,807,096    |  | $ | 1,800,735  |  | $ | 40,336,932 | 
| | Depletable mineral
      property (San Francisco Mine) |   | 47,818,660   |  |   | 41,336,647 |  |   | -          | 
| |                                                        | $ | 53,625,756   |  | $ | 43,137,382 |  | $ | 40,336,932 | 

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

| | i.   | El Capomo Property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | The Company has acquired the mineral rights to four claim
      blocks by staking the Capomo Property in Nayarit, Mexico.                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ii.  | Cocula Property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | On July 18, 2007, the Company finalized an option
      agreement to acquire the Cocula Property in Jalisco, Mexico. The terms of
      the option agreement required the Company to make a final payment of
      $1,050,000 on or before July 18, 2011. During the year ended March 31,
      2011, management determined that they would not proceed with the final
      option payment on this property and cumulative expenditures were written
      off for a total of $1,358,403 during the year ended March 31,
  2011.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | iii. | El Picacho Property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | On December 11, 2007, the Company entered into an
      exploration agreement with the option to acquire a 100% interest in the 11
      mining properties that comprise the Picacho Project in Sonora, Mexico. The
      agreement requires the Company to make a final payment of $1,395,000 on
      March 31, 2012.                                                                                                                                                                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | The vendor will retain a 1.5% net smelter return
      interest, which is limited to $1,500,000. The vendor is obligated to sell
      or transfer to the Company his right to the royalty at any time, upon the
      Companys request, for which the Company will pay $500,000 for every half
      per cent (0.50%), to a maximum of $1,500,000.                                                                                                                                                                             
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | The Company has also staked an additional 6,500 hectares
      surrounding the claims and now controls over 7,200 hectares in the Picacho
      area.                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | iv.  | Other properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | In November 23, 2010, the Company entered into a property
      option agreement to earn an interest in the San Onesimo, Zindy and San
      Fernando mineral concessions located in the State of Zacatecas, Mexico. To
      earn its interest, the Company is required to make payments of up to
      $2,000,000 at various dates up to January, 2015.                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | On November 24, 2010, the Company entered into a property
      option agreement to earn an interest in the Quila mineral concession
      located in the State of Jalisco, Mexico. To earn its interest, the Company
      is required to make payments of up to $1,000,000 and incur exploration
      expenditures of up to $2,000,000 at various dates up to November,
    2013.                                                                                                                                             
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | The Company has received title to the Santa Maria del Oro
      claim in Jalisco, Onesimo claims in Mazapil-Conception del Oro, and the
      Patricia and Norma concessions in the Municipality of Trincheras, Sonora,
      Mexico.                                                                                                                                                                                                                                                                                            

25

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|9. | TRADE PAYABLES AND ACCRUED
  LIABILITIES
|-- | ----------------------------------------

| |                      |   | December 31, |  |   | March 31, |  |   | April 1,  | 
| | -------------------- | - | ------------ |  | - | --------- |  | - | --------- | 
| |                      |   | 2011         |  |   | 2011      |  |   | 2010      | 
| | Trade payables       | $ | 11,631,751   |  | $ | 7,204,741 |  | $ | 4,218,118 | 
| | Income taxes payable |   | 3,932,113    |  |   | 678,777   |  |   | -         | 
| | Accrued liabilities  |   | 272,671      |  |   | 1,605,170 |  |   | 144,762   | 
| | Other                |   | 47,881       |  |   | 20,602    |  |   | 8,158     | 
| |                      | $ | 15,884,416   |  | $ | 9,509,290 |  | $ | 4,371,038 | 

|10. | VENDOR LOAN AND RESTRICTED CASH                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Restricted cash includes amounts not available for use by
      the Company or subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Under the San Francisco Property Acquisition Agreement
      signed in 2007 (the Acquisition Agreement), the Company was required to
      purchase certain mine equipment and buildings from the vendor for
      $4,025,000. Originally, payment for the mine equipment and buildings was
      to be made at any time prior to March 11, 2010, without
interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | As a result, the full acquisition price of the vendor
      loan had been discounted at an annualized rate of 6.775% to reflect the
      implied interest rate. The balance remained unpaid to the vendor after
      March 11, 2010 due to mutual deferrals and extenuating circumstances as
      noted below. The balance outstanding at December 31, 2011 was $1,725,000
      (March 31, 2011 - $1,725,000; April 1, 2010 - $1,725,000). The balance
      remains unpaid due to continuing mutual deferrals between the Company and
      the vendor.                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | During the year ended March 31, 2011, an order was issued
      by Mexico Tax Administration Service (SAT) requiring the Company to
      directly pay amounts owed under the Acquisition Agreement to SAT rather
      than to the vendor through a process similar to a garnishment order. This
      was done to cover liabilities owed by the vendor to SAT. In January, 2011,
      the order was overturned by a Mexican tax court, which was subsequently
      appealed by SAT. In May, 2011, a Mexican appellate court judgment was
      issued confirming that the garnishment order laid down by SAT was imposed
      with insufficient legal support and the Company started an administrative
      process to release the 21,046,932 Mexican pesos ($1,810,722) of previously
      restricted funds. The cash was released from restrictions on July 5,
      2011.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | At December 31, 2011, the restricted cash balance was
      $nil (March 31, 2011 - $1,765,970; April 1, 2010 - $nil).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|11. | PROVISION FOR SITE RECLAMATION AND
  CLOSURE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| | Balance at April 1, 2010                             | $ | 1,232,687 | 
| | ---------------------------------------------------- | - | --------- | 
| | Accretion of discounted cash flows                   |   | 82,128    | 
| | Change in estimated cash flows and assumptions       |   | 292,330   | 
| | Balance at March 31, 2011                            |   | 1,607,145 | 
| | Accretion of discounted cash flows                   |   | 76,403    | 
| | Change in
      estimated cash flows and assumptions |   | 381,584   | 
| | Balance at December 31, 2011                         | $ | 2,065,132 | 

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

26

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|11. | PROVISION FOR SITE RECLAMATION AND CLOSURE
      (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | During the nine months ended December 31, 2011 and the
      year ended March 31, 2011, the Company reassessed its provision for site
      reclamation and closure based on an independent technical reports and to
      reflect the additional liability incurred with the commencement of mining
      operations on April 1, 2010.                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The total undiscounted amount of estimated cash flows
      required to settle the retirement obligations of the San Francisco
      Property is $2,203,925 (March 31, 2011 - $2,002,051; April 1, 2010 -
      $1,584,543) The cash flows have been inflated by the rate of 5% which is
      consistent with the rate used for the year ended March 31, 2011, and
      discounted using the pre-tax risk-free rate of 1.09% (March 31, 2011 and
      April 1, 2010 - 3.09%). The provision for site reclamation and closure is
      not expected to be paid for several years into the future and is intended
      to be funded from cash balances at the time of the mine closure.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|12. | WARRANT LIABILITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | At December 31, 2011, the fair value of share purchase
      warrants issued and outstanding with Canadian dollar exercise prices was
      $nil (March 31, 2011 - $3,551,731; April 1, 2010 - $6,992,183) due to the
      share purchase warrants being fully exercised during September, 2011. The
      fair value of the share purchase warrants on exercise was $4,554,971 and
      was reclassified to equity along with the C$1,600,000 ($1,552,690)
      proceeds from exercise. The change in fair value for the nine months ended
      December 31, 2011 was a loss of $1,003,240 (year ended March 31, 2011 -
      loss of $3,677,544).                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | At December 31, 2011, share purchase warrant transactions
      are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| |                                        |  |                   |   |  | Weighted average | 
| | -------------------------------------- |  | ----------------- | - |  | ---------------- | 
| |                                        |  | Number of share   |   |  | exercise price   | 
| |                                        |  | purchase warrants |   |  | (C$)             | 
| | Outstanding at April 1, 2010           |  | 11,352,780        |   |  | 0.65             | 
| | Exercised                              |  | (9,352,680        | ) |  | 0.62             | 
| | Expired                                |  | (100              | ) |  | 0.60             | 
| | Outstanding at March 31, 2011          |  | 2,000,000         |   |  | 0.80             | 
| | Exercised                              |  | (2,000,000        | ) |  | 0.80             | 
| | Outstanding at
      December 31, 2011 |  | -                 |   |  | -                | 

|13. | LONG-TERM DEBT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | On January 22, 2010, the Company issued $15,000,000 in
      notes to Sprott Asset Management LP (the Gold Loan). Gold Loan holders
      were also granted an aggregate of three million share purchase warrants
      exercisable for 24 months at a price of C$0.80. These share purchase
      warrants were valued at $1,732,278 using the Black-Scholes option pricing
      model with the following assumptions: (i) volatility - 101%, (ii) interest
      rate - 1.22%, (iii) term - 734 days, and (iv) dividends - $nil. The Gold
      Loan was to be repaid in 12 monthly instalments commencing in September,
      2010. Each monthly payment would be the US dollar cash equivalent of 1,667
      ounces of gold.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | In addition, the Company had guaranteed that the holders
      of the Gold Loan would receive minimum nominal payments over the term of
      the loan totalling $18,375,000. The loan was secured by among other
      things, a first charge on the assets of MdN. After considering the
      separate recognition of the share purchase warrants referred to above, the
      debt was recorded at a discount to its face value.                                                                                                                                                                                                                                                                                                

27

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|13. | LONG-TERM DEBT (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | As a result of the indexation of the principal repayments
      to the movement in the price of gold, the Company had determined that the
      Gold Loan contained a derivative, which was embedded in the US dollar
      denominated debt instrument (the Embedded Derivative). This derivative
      was the equivalent of a series of 12 gold forward sales contracts which
      mature on each of the principal repayment dates. As a result, the value of
      the loan was revalued each period to recognize the change in value of the
      derivative with changes in the value being recorded as finance expense.
      The loss on revaluation the Embedded Derivative during the nine months
      ended was $814,870 (year ended March 31, 2011 - $4,937,219). In addition,
      the debt discount was amortized using the effective interest method to
      each of the scheduled principal payment dates.

| |                                                |   | December 31, |  |   | March 31,  |  |   | April 1,   | 
| | ---------------------------------------------- | - | ------------ |  | - | ---------- |  | - | ---------- | 
| |                                                |   | 2011         |  |   | 2011       |  |   | 2010       | 
| | Accreted principal amount of Gold Loan         | $ | -            |  | $ | 9,158,243  |  | $ | 14,841,535 | 
| | Gold Loan embedded
      derivative fair value |   | -            |  |   | 2,880,226  |  |   | 618,813    | 
| |                                                | $ | -            |  | $ | 12,038,469 |  | $ | 15,460,348 | 

In May, 2011, the Company reached
agreement with Sprott Asset Management LP to renegotiate the Gold Loan and
consequently stopped making any further payments.

On June 1, 2011, the Company repaid the
Gold Loan for a cash total of $12,558,895, which was the sum of the accreted
principal and embedded derivative.

On June 1, 2011, the Company entered
into a new C$18,000,000 ($17,245,442) debt agreement (the debt agreement) with
Sprott Resource Lending Partnership, LP. (the Lender). The amounts advanced
under the terms of the debt agreement were first used to repay the Gold Loan,
with the remainder available for working capital purposes, and are repayable in
full on July 29, 2012, bearing interest at 1% per month.

The effective interest rate of the debt
agreement is 17.05% for the nine months ended December 31, 2011. Under the terms
of the debt agreement, the Company has pledged all of its assets (including the
assets of its subsidiaries) in favour of the Lender as security over the debt
agreement. In addition, the subsidiaries have each provided guarantees to the
Lender for the repayment of any amounts advanced to the Company under the terms
of the debt agreement.

As part of the refinancing, the Company
issued 301,933 common shares to the Lender as payment for a facility bonus and
standby facility break fee associated with the new debt agreement. The $640,564
fair value of this share issuance was considered to represent additional
transaction costs and have been included as an adjustment to the initial fair
value of long-term debt and will be amortized over the term of the loan using
the effective interest method.

The current portion of each debt
agreement at December 31, 2011, March 31, 2011 and April 1, 2010 is as follows:

| |                                        |   | December 31, |  |   | March 31,  |  |   | April 1,  | 
| | -------------------------------------- | - | ------------ |  | - | ---------- |  | - | --------- | 
| |                                        |   | 2011         |  |   | 2011       |  |   | 2010      | 
| | Gold Loan - current portion            | $ | -            |  | $ | 12,038,469 |  | $ | 7,985,273 | 
| | Debt agreement -
      current portion |   | 17,245,442   |  |   | -          |  |   | -         | 
| | Total current portion                  | $ | 17,245,442   |  | $ | 12,038,469 |  | $ | 7,985,273 | 

At December 31, 2011, no accrued
interest on long-term debt was included in trade payables and accrued
liabilities.

28

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|**14.** | EQUITY                  
|------- | ------------------------
|        |                         
|**a)**  | Authorized share capital

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

|   | At December 31, 2011, there were 140,291,127 issued and
      outstanding shares (March 31, 2011 - 136,964,194; April 1, 2010 -
      115,071,514).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | On July 14, 2008, the Company closed a private placement
      which consisted of 11,000,000 special warrants at a price of C$1.30 per
      special warrant, which was exercisable without payment of any additional
      consideration into a unit consisting of one convertible preference share
      and a 0.318 convertible share purchase warrant for a total of 3,500,000
      share purchase warrants. On September 30, 2008, all 11,000,000 units were
      exercised into 11,000,000 convertible preference shares and 3,500,000
      share purchase warrants, the latter of which all expired October 1, 2008.
      These convertible preference shares were considered common share
      equivalents for EPS purposes. On September 13, 2010, all 11,000,000
      convertible preference shares were exercised and converted to 11,000,000
      common shares.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|b) | Share options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The Company has an incentive share option plan in place
      under which it is authorized to grant share options to executive officers,
      directors, employees and consultants. The Company at no time may have more
      than 10% of the outstanding issued common shares reserved for incentive
      share options granted to any one individual.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Share options granted under the plan will have a term not
      to exceed five years, have an exercise price not less than the Discounted
      Market Price as defined by the TSX Corporate Finance Manual and vest over
      periods up to two years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Share option transactions and the number of share options
      outstanding are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| |                                        |  |                 |   |  | Weighted average | 
| | -------------------------------------- |  | --------------- | - |  | ---------------- | 
| |                                        |  | Number of share |   |  | exercise price   | 
| |                                        |  | options         |   |  | (C$)             | 
| | Outstanding, April 1, 2010             |  | 7,950,000       |   |  | 0.77             | 
| | Exercised                              |  | (1,540,000      | ) |  | 0.67             | 
| | Expired                                |  | (375,000        | ) |  | 0.96             | 
| | Cancelled                              |  | (160,000        | ) |  | 0.54             | 
| | Outstanding, March 31, 2011            |  | 5,875,000       |   |  | 0.78             | 
| | Granted                                |  | 4,000,000       |   |  | 2.50             | 
| | Exercised                              |  | (1,025,000      | ) |  | 0.44             | 
| | Outstanding at
      December 31, 2011 |  | 8,850,000       |   |  | 1.60             | 
| | Exercisable at December 31, 2011       |  | 6,800,000       |   |  | 1.33             | 

29

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|14. | EQUITY (Continued)                                                                  
|--- | ------------------------------------------------------------------------------------
|    |                                                                                     
|    | Share options outstanding and exercisable at December 31,
      2011 are as follows:

Weighted
    Weighted
    
    Weighted
    Weightedaverage
    average
    
    average
    averageExercise
    Number of
    exercise
    remaining life
    Number of
    exercise
    remaining lifeprice range
    options
    price
    of options
    options
    price
    of options(C$)
    outstanding
    (C$)
    (years)
    exercisable
    (C$)
    (years)0.70 - 1.00
    4,850,000
    0.86
    1.70
    4,850,000
    0.86
    1.702.35 - 2.75
    4,000,000
    2.49
    4.30
    1,950,000
    2.49
    4.308,850,000
    1.60
    2.88
    6,800,000
    1.33
    2.45


The weighted average share price at the
date of exercise for share options exercised during the nine months ended
December 31, 2011 was C$2.39 (year ended March 31, 2011 - C$2.03) . The fair
value of share options recognized as an expense during the nine months ended
December 31, 2011 was $5,361,371 (year ended March 31, 2011 - $687,928). For the
4,000,000 share options granted during the nine months ended December 31, 2011,
the weighted average grant date fair value per option was $1.48 (C$1.43) (no
share options were granted in the year ended March 31, 2011).

The following are the weighted average
assumptions used for the Black-Scholes option pricing model valuation of share
options granted during the nine months ended December 31, 2011 (no share options
were granted in the year ended March 31, 2011):

| | Nine months ended December 31, 2011
| | -----------------------------------
| | Risk-free interest rate            
| | Expected life of options           
| | Annualized volatility              
| | Dividend rate                      

|    | The fair value of each share option payment is estimated
      on the date of grant using the Black-Scholes option pricing model that
      uses the assumptions noted in the table above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Expected volatilities are based on historical volatility
      of the Companys shares. The Company uses historical data to estimate
      share option exercise and employee termination within the valuation model;
      separate groups of employees that have similar historical exercise
      behaviour are considered separately for valuation purposes. The expected
      life of share options granted represents the period of time that share
      options granted are expected to be outstanding. The risk-free rate of
      periods within the expected life of the share option is based on the
      Canadian government bond rate. The expected forfeiture rate represents the
      cumulative historical rate of forfeitures occurring within the vesting
      period.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|15. | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | For the nine months ended December 31, 2011, the Company
      incurred $5,327,395 of current income tax (year ended March 31, 2011 -
      $678,777). During the year ended March 31, 2011, the current tax provision
      was reduced by utilizing previously unrecognized loss carry forwards. By
      the end of the current fiscal year, the Company has fully utilized the
      non- capital loss carry forward balances of MdN.                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | For the nine months ended December 31, 2011, the Company
      incurred $6,513,315 of deferred income tax (year ended March 31, 2011 -
      $11,342,178). The amounts in all periods related primarily to the
      recognizing the tax effects on changes in timing differences from mineral
      property and equipment balances.                                                                                                                                                                                                                                                                                                                                                                                                                                                        

30

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|15. | **INCOME TAXES
      (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|a)  | Rate changes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | In late 2009, the Mexican government enacted tax reform
      that included a 2% increase in corporate taxes that increased the rate
      from 28% to 30%. The tax rate in Mexico is scheduled to reduce to 28% in
      2014. Also, included in this tax reform was the introduction of a minimum
      flat tax levied at the rate of 17.5% on cash flows of Mexican
      corporations. A company doing business in Mexico must pay the greater of
      the general corporate income tax or the flat tax.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|b)  | Rate reconciliation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Income tax expense differs from the amount that would
      result from applying the Canadian federal and provincial income tax rates
      to profit before income taxes. Substantially all of the Companys taxable
      income is generated in Mexico and is subject to Mexicos 30% tax rate. The
      impact of being subject to this higher tax rate, as well as other
      differences, is included in the following items:                                                                         

| |                                                                                              |   | Nine months  |   |   |            |  
| | -------------------------------------------------------------------------------------------- | - | ------------ | - | - | ---------- | -
| |                                                                                              |   | ended        |   |   | Year ended |  
| |                                                                                              |   | December 31, |   |   | March 31,  |  
| |                                                                                              |   | 2011         |   |   | 2011       |  
| | Profit before income tax expense                                                             | $ | 32,714,322   |   | $ | 18,611,445 |  
| | Canadian federal and provincial income tax rates                                             |   | 26.50%       |   |   | 28.00%     |  
| | Expected income tax expense                                                                  |   | 8,669,295    |   |   | 5,211,205  |  
| | Items that cause an increase (decrease):                                                     |   |              |   |   |            |  
| | Effect of
      different tax rates in foreign jurisdiction                                  |   | 1,450,205    |   |   | 806,271    |  
| | Non-deductible expenses                                                                      |   | 1,477,490    |   |   | 4,738,521  |  
| | Benefit of
      recognizing previously unrecognized loss carry forwards                     |   | -            |   |   | (916,230   | )
| | Impact of difference in
      functional and tax currencies                                  |   | (821,261     | ) |   | (702,665   | )
| | Difference in
      future and current tax rates                                             |   | (403,243     | ) |   | (251,851   | )
| | Losses and temporary
      differences for which an income tax asset has not been recognized |   | 1,468,224    |   |   | 3,135,704  |  
| | Income tax expense                                                                           | $ | 11,840,710   |   | $ | 12,020,955 |  

|c) | Deferred tax assets and liabilities                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                         
|   | The composition of the Company's deferred tax assets and
      liabilities at December 31, 2011, March 31, 2011, and April 1, 2010 are as
      follows:

| |                                                            |   | December 31, |   |   | March 31,   |   |   | April 1,   |  
| | ---------------------------------------------------------- | - | ------------ | - | - | ----------- | - | - | ---------- | -
| |                                                            |   | 2011         |   |   | 2011        |   |   | 2010       |  
| | Deferred income tax assets:                                |   |              |   |   |             |   |   |            |  
| | Non-capital losses                                         | $ | -            |   | $ | -           |   | $ | 4,534,829  |  
| |                                                            |   |              |   |   |             |   |   |            |  
| | Deferred income tax liabilities:                           |   |              |   |   |             |   |   |            |  
| | Mineral properties book
      value in excess of tax value | $ | (22,562,255  | ) | $ | (16,048,941 | ) | $ | (8,498,343 | )
| | Deferred income
      tax liabilities, net:                | $ | (22,562,255  | ) | $ | (16,048,941 | ) | $ | (3,963,514 | )

31

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|15. | INCOME TAXES (Continued)                                                                                                      
|--- | ------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                               
|    | The Company's unrecognized deferred tax assets at
      December 31, 2011, March 31, 2011, and April 1, 2010 are as
  follows:

| |                                    |   | December 31, |  |   | March 31, |  |   | April 1,  | 
| | ---------------------------------- | - | ------------ |  | - | --------- |  | - | --------- | 
| |                                    |   | 2011         |  |   | 2011      |  |   | 2010      | 
| | Deferred income tax assets:        |   |              |  |   |           |  |   |           | 
| | Non-capital losses                 | $ | 7,341,869    |  | $ | 5,430,506 |  | $ | 3,781,669 | 
| | Other credits and tax
      assets |   | 189,554      |  |   | 614,881   |  |   | -         | 
| | Share issuance costs               |   | 382,956      |  |   | 400,768   |  |   | 283,403   | 
| | Deferred income tax assets         |   | 7,914,379    |  |   | 6,446,155 |  |   | 4,065,072 | 

|   | The non-capital losses have expiry dates while the
      remainder of the unrecognized deferred tax assets have no expiry
    dates.                                                                                                                                                                                                
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                     
|d) | Non-capital losses                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                     
|   | At December 31, 2011, the Company has losses for income
      tax purposes in Canada and Mexico which may be used to reduce future
      taxable income. The income tax benefit, if any, of these losses have not
      been recorded in these consolidated financial statements because of the
      uncertainty of their recovery.
|   |                                                                                                                                                                                                                                                                                                                                     
|   | The future expiration of unrecognized tax losses at
      December 31, 2011 are as follows:                                                                                                                                                                                                                                         

| | Operating losses for tax purposes |   | Canada     |  |   | Mexico    |  |   | Total      | 
| | --------------------------------- | - | ---------- |  | - | --------- |  | - | ---------- | 
| | Expire in:                        |   |            |  |   |           |  |   |            | 
| | 2015                              | $ | -          |  | $ | 7,458     |  | $ | 7,458      | 
| | 2016                              |   | -          |  |   | 68,668    |  |   | 68,668     | 
| | 2017                              |   | -          |  |   | 132,295   |  |   | 132,295    | 
| | 2018                              |   | -          |  |   | 976,914   |  |   | 976,914    | 
| | 2019                              |   | -          |  |   | 902,255   |  |   | 902,255    | 
| | 2020                              |   | -          |  |   | 219,514   |  |   | 219,514    | 
| | 2021                              |   | -          |  |   | 3,009,756 |  |   | 3,009,756  | 
| | 2022 - 2025                       |   | -          |  |   | -         |  |   | -          | 
| | 2026                              |   | 117,781    |  |   | -         |  |   | 117,781    | 
| | 2027                              |   | 735,988    |  |   | -         |  |   | 735,988    | 
| | 2028                              |   | 2,115,900  |  |   | -         |  |   | 2,115,900  | 
| | 2029                              |   | 1,849,201  |  |   | -         |  |   | 1,849,201  | 
| | 2030                              |   | 4,124,695  |  |   | -         |  |   | 4,124,695  | 
| | 2031                              |   | 14,469,026 |  |   |           |  |   | 14,469,026 | 
| |                                   | $ | 23,412,591 |  | $ | 5,316,860 |  | $ | 28,729,451 | 

32

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|16. | EARNINGS PER SHARE
|--- | ------------------

Nine months ended December 31,
      2011
    
    
    Year ended March 31, 2011Weighted
    
    
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    
    
    averageProfit after
    
    
    shares
    
    
    Per share
    
    
    Profit after
    
    
    shares
    
    
    Per sharetax
    
    
    outstanding
    
    
    amount
    
    
    tax
    
    
    outstanding
    
    
    amountBasic EPS
    $
    20,873,612
    
    
    138,591,964
    
    
    0.15
    
    $
    6,590,490
    
    
    134,792,996
    
    $
    0.05Effect of dilutive securities:Share options
    
    -
    
    
    3,562,041
    
    
    -
    
    
    -
    
    
    4,043,491
    
    
    -Warrants
    
    -
    
    
    868,176
    
    
    -
    
    
    -
    
    
    844,381
    
    
    -Diluted EPS
    $
    20,873,612
    
    
    143,022,181
    
    
    0.15
    
    $
    6,590,490
    
    
    139,680,868
    
    $
    0.05


|    | For the nine months ended December 31, 2011 and year
      ended March 31, 2011, no outstanding share options were excluded from the
      calculation of the diluted earnings per share.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                          
|17. | SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH
      FLOWS                                                                                                                                 
|    |                                                                                                                                                                                          
|    | Significant non-cash transactions were as
  follows:                                                                                                                                     

| |                                       |  |      |  |   | Nine months  |  |   |            | 
| | ------------------------------------- |  | ---- |  | - | ------------ |  | - | ---------- | 
| |                                       |  |      |  |   | ended        |  |   | Year ended | 
| |                                       |  |      |  |   | December 31, |  |   | March 31,  | 
| |                                       |  | Note |  |   | 2011         |  |   | 2011       | 
| | Shares issued for debt issuance costs |  | 13   |  | $ | 640,564      |  | $ | -          | 

|**18.** | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT                                                                                                                                                                                                                                                                                                                                                                                          
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|**a)**  | Fair value measurement of financial assets and
      liabilities                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | The Company has established a fair value hierarchy that
      reflects the significance of inputs of valuation techniques used in making
      fair value measurements as follows:                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Level 1 - quoted prices in active markets for identical
      assets or liabilities;                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Level 2 - inputs other than quoted prices included in
      Level 1 that are observable for the asset or liability, either directly
      (i.e. as prices) or indirectly (i.e. from derived prices); and                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | Level 3 - inputs for the asset or liability that are not
      based upon observable market data.                                                                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | At December 31, 2011 and March 31, 2011, the following
      table sets forth the levels in the fair value hierarchy into which the
      Companys financial assets and liabilities are measured and recognized in
      the consolidated statement of financial position at fair value. Assets are
      classified in their entirety based on the lowest level of input that is
      significant to the fair value measurement.

33

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|18. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
      (Continued)
|--- | -----------------------------------------------------------

| |                                     |   | December 31, 2011 |  |   | March 31, 2011 | 
| | ----------------------------------- | - | ----------------- |  | - | -------------- | 
| |                                     |   | Level 1           |  |   | Level 2        | 
| | Warrant liability (Note 12)         | $ | -                 |  | $ | -              | 
| | Embedded
      Derivative (Note 13) | $ | -                 |  | $ | -              | 

|   | The Company has determined the estimated fair values of
      its financial instruments based upon appropriate valuation methodologies.
      At December 31, 2011, there were no financial assets or liabilities
      measured and recognized in the consolidated statement of financial
      position at fair value that would be categorized as Level 3 in the fair
      value hierarchy above (March 31, 2011 - $nil; April 1, 2010 - $nil). The
      Gold Loan was recognized in two components with the debt host instrument
      measured at its accreted principal amount. The Embedded Derivative, which
      was classified as FVTPL, was recorded in addition to the principal and was
      measured at fair value. The fair value of share purchase warrants is based
      on a Black-Scholes option pricing model which incorporates market prices
      of the underlying shares.                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|b) | Derivative financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company may utilize financial instruments to manage
      the risks associated with fluctuations in the market prices of gold and
      silver and foreign exchange rates. At December 31, 2011, the Company had
      not entered into any such derivative contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|c) | Risk management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Companys primary business activities consist of the
      acquisition, exploration, development and operation of mineral resource
      properties in Mexico. The Company examines the various financial risks to
      which it is exposed and assesses the impact and likelihood of occurrence.
      These risks may include credit risk, commodity price risk, equity price
      risk, currency risk, liquidity risk, and interest rate risk. The Companys
      risk management program strives to evaluate the unpredictability of
      financial and commodity markets and its objective is to minimize the
      potential adverse effects of such risks on the Companys financial
      performance, where financially feasible to do so. When deemed material,
      these risks may be monitored by the Companys corporate finance group and
      they are regularly discussed with the Board of Directors or one of its
      committees.

| | i. | Credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | Counterparty credit risk is the risk that the financial
      benefits of contracts with a specific counterparty will be lost if a
      counterparty defaults on its obligations under the contract. This includes
      any cash amounts owed to the Company by those counterparties, less any
      amounts owed to the counterparty by the Company where a legal right of
      set-off exists and also includes the fair values of contracts with
      individual counterparties which are recorded in the consolidated financial
      statements. The Companys credit risk is predominantly limited to cash
      balances held in financial institutions, the recovery of VAT receivable
      from the Mexican tax authorities and for any gold and silver sales and
      related receivables. The maximum exposure to the credit risk is equal to
      the carrying value of such financial assets. At December 31, 2011, the
      Company expects to recover the full amount of such assets.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | The objective of managing counterparty credit risk is to
      minimize potential losses in financial assets. The Company assesses the
      quality of its counterparties, taking into account their credit worthiness
      and reputation, past performance and other factors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | Cash and short-term investments are only deposited with
      or held by major financial institutions where the Company conducts its
      business. In order to manage credit and liquidity risk, the Company
      invests only in highly rated investment grade instruments that have
      maturities of three months or less. Limits are also established based on
      the type of investment, the counterparty and the credit
  rating.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

34

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|18. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
      (Continued)
|--- | -----------------------------------------------------------

| |      | Gold and silver sales are made to a limited number of
      large international organizations specializing in the precious metals
      markets. The Company believes them to be of sound credit worthiness, and
      to date, all receivables have been settled in accordance with agreed upon
      terms and conditions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ii.  | Commodity price risks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | Beginning with the commissioning of the San Francisco
      Mine, the Company is exposed to price risk associated with the volatility
      of the market price of commodities, in particular gold and silver, and
      also to many consumables that are used in the production of gold and
      silver. Similarly, the Embedded Derivative (Note 13) was also sensitive to
      the price of gold. The prices of most commodities are determined in
      international markets and as such the Company has limited or no ability to
      control or predict the future level of most commodity prices. In some
      instances, the Company may have the ability to enter into derivative
      financial instruments to manage the Companys exposure to changes in the
      price of commodities such as gold, silver, oil and electricity. At this
      time, the Company has elected not to actively manage its exposure to
      commodity price risk through the use of derivative financial
      instruments.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | iii. | Currency risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | The Companys functional currency is the US dollar and
      therefore the Companys earnings and other comprehensive income are
      impacted by fluctuations in the value of foreign currencies in relation to
      the US dollar.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | The table below summarizes the net monetary liabilities
      held in foreign currencies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| |                 |   | December 31, |  |   | March 31,  | 
| | --------------- | - | ------------ |  | - | ---------- | 
| |                 |   | 2011         |  |   | 2011       | 
| | Canadian dollar | $ | 17,542,749   |  | $ | 16,850,329 | 
| | Mexican peso    |   | 2,814,395    |  |   | 3,044,929  | 
| |                 | $ | 20,357,144   |  | $ | 19,895,258 | 

| |     | The effect on profit before taxes at December 31, 2011 of
      a 10% appreciation or depreciation in the foreign currencies against the
      US dollar on the above mentioned financial and non-financial assets and
      liabilities of the Company is estimated to be $2,035,714 (March 31, 2011 -
      $1,989,526) assuming that all other variables remained constant. This
      calculation is based on the Companys statement of financial position
      exposure at December 31, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | iv. | Liquidity risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company has a planning and budgeting process in place
      to help determine the funds required to support the Companys normal
      operating requirements and its exploration and production plans. The
      Companys overall liquidity risk has decreased since the San Francisco
      Mine was placed into commercial production on April 1, 2010 due to the
      metal revenues and positive net cash flows from operations generated since
      that time. Although the Company has transitioned to the operating stage
      and has generated metal revenues and net cash flow from operations during
      the nine months ended December 31, 2011, no assurance may be given that
      external financing will be available should the Companys Board of
      Directors determine that such additional financing will be necessary. The
      Companys long-term debt matures on July 29, 2012 (Note 13), until which
      time the Company must only pay interest.

35

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|18. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
      (Continued)
|--- | -----------------------------------------------------------

A summary of future operating
commitments is presented in Note 21 and a summary of non-discounted liabilities
is as follows:

Less than
    
    
    
    
    
    
    
    
    Greater
      thanTotal
    
    
    1 year
    
    
    1 - 3
      years
    
    
    3 - 5
      years
    
    
    5
      yearsTrade payables and accrued liabilities
    $
    15,884,416
    
    $
    15,884,416
    
    $
    -
    
    $
    -
    
    $
    -Vendor loan
    
    1,725,000
    
    
    1,725,000
    
    
    -
    
    
    -
    
    
    -Long-term debt
    
    17,245,442
    
    
    17,245,442
    
    
    -
    
    
    -
    
    
    -Other long-term liabilities
    
    1,233,392
    
    
    -
    
    
    1,233,392
    
    
    -
    
    
    -Provision for site reclamation and closure
    
    2,203,925
    
    
    -
    
    
    -
    
    
    -
    
    
    2,203,925$
    38,292,175
    
    $
    34,854,858
    
    $
    1,233,392
    
    $
    -
    
    $
    2,203,925


| | v.  | Interest rate risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The Companys interest revenue earned on cash and cash
      equivalents and interest expense incurred on long-term borrowings are
      exposed to interest rate risk. The Company does not enter into derivative
      contracts to manage this risk, and the Companys exposure to interest rate
      risk is very low as the Company has limited short-term investments and the
      debt agreement entered into during the current period has a fixed interest
      rate throughout its term that ends on July 29, 2012 (Note 13).                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | At December 31, 2011, a 1% increase of the effective
      interest rate on the new debt agreement would decrease its fair value by
      $97,304. Additionally, a 1% decrease of the effective interest rate on the
      debt agreement would increase its fair value by $97,939. The Company has
      elected not to enter into interest rate swaps or other instruments to
      actively manage such risks.                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | vi. | Fair value disclosures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The carrying values of cash, restricted cash, trade and
      other receivables, and trade payables and accrued liabilities approximate
      their fair value based on their short-term nature.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The carrying value of the loan obtained under the terms
      of the vendor loan agreement (Note 10) approximates fair value given its
      short-term and as it has been amortized using the effective interest
      method. The carrying value of the long- term liability related to the
      mining contract (Note 21) approximates its fair value as it has been
      discounted at an interest rate reflecting the implied interest rate. At
      December 31, 2011, the fair value of the new debt agreement is $17,493,987
      as determined by discounting the future cash flows by a discount factor
      based on an interest rate of 17.05%, which reflects the Companys
      effective interest rate on the loan.

|19. | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                          
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The Companys related parties include key management
      personnel and any transactions with such parties for goods and/or services
      are made on regular commercial terms and are considered to be at arms
      length. During the nine months ended December 31, 2011 and year ended
      March 31, 2011, the Company entered into the following transactions with
      related parties:

- The Company incurred $219,891 (year ended March 31, 2011 - $424,233) of
  geological and consulting fees to directors and officers. At December 31,
  2011, $97,162 (March 31, 2011 - $24,304; April 1, 2010 - $(2,666)) was due to
  (from) these directors and officers.

36

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|19. | RELATED PARTY TRANSACTIONS (Continued)                                                                                                                                                                                                                                                                                                                
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                       
|    | Key management are those personnel having the authority
      and responsibility for planning, directing, and controlling the Company
      and include the President, the Chief Executive Officer, the Chairman, the
      Chief Financial Officer, the Chief Operations Officer, directors, and the
      General Manager of the San Francisco Mine.
|    |                                                                                                                                                                                                                                                                                                                                                       
|    | Key management compensation
includes:                                                                                                                                                                                                                                                                                                                 

| |                       |   | Nine months  |  |   |            | 
| | --------------------- | - | ------------ |  | - | ---------- | 
| |                       |   | ended        |  |   | Year ended | 
| |                       |   | December 31, |  |   | March 31,  | 
| |                       |   | 2011         |  |   | 2011       | 
| | Salaries and benefits | $ | 1,159,996    |  | $ | 834,311    | 
| | Bonuses               |   | 500,596      |  |   | 50,748     | 
| | Share-based payments  |   | 3,542,528    |  |   | 338,209    | 
| |                       | $ | 5,203,120    |  | $ | 1,223,268  | 

|    | Salaries, benefits and bonuses are included in corporate
      and administrative expenses.                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                
|20. | MANAGEMENT OF CAPITAL                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                
|    | The Companys objectives of capital management are
      intended to safeguard the Companys normal operating requirements on an
      ongoing basis and the continued development and exploration of its mineral
      properties. The capital of the Company consists of the items included in
      the consolidated equity and long-term debt, net of
cash.

| |                                   |   | December 31, |   |   | March 31,  |   |   | April 1,   |  
| | --------------------------------- | - | ------------ | - | - | ---------- | - | - | ---------- | -
| |                                   |   | 2011         |   |   | 2011       |   |   | 2010       |  
| | Equity                            | $ | 101,599,965  |   | $ | 68,147,642 |   | $ | 54,196,535 |  
| | Current portion of long-term debt |   | 17,245,442   |   |   | 12,038,469 |   |   | 7,985,273  |  
| | Long-term debt                    |   | -            |   |   | -          |   |   | 7,475,075  |  
| |                                   |   | 118,845,407  |   |   | 80,186,111 |   |   | 69,656,883 |  
| | Less: Cash                        |   | (9,865,007   | ) |   | (5,639,859 | ) |   | (2,674,764 | )
| |                                   | $ | 108,980,400  |   | $ | 74,546,252 |   | $ | 66,982,119 |  

In order to facilitate the management
of its capital requirements, the Company prepares expenditure budgets that are
updated as necessary depending on various factors, including successful capital
deployment and general industry conditions. The Company also has in place a
rigorous planning, budgeting and forecasting process which is used to identify
the amount of funds required to ensure the Company has appropriate liquidity to
meet short and long-term operating objectives. In order to maintain or adjust
its capital structure, the Company may issue new shares or debt.

At December 31, 2011, the Company
anticipates its capital resources and projected future cash flows from operation
of the San Francisco Mine to support its normal operating requirements on an
ongoing basis as well as the planned development and exploration of its mineral
and exploration properties. At December 31, 2011, the Company is not subject to
any externally imposed capital requirements.

37

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|21. | COMMITMENTS AND CONTINGENCIES                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                             
|    | The Company has certain operating commitments which
      require future minimum payments over the following time
  periods:

Less than
    
    
    
    
    
    
    
    
    Greater thanTotal
    
    
    1 year
    
    
    1 - 3 years
    
    
    3 - 5 years
    
    
    5 yearsFuture operating commitments
    $
    41,493,117
    
    $
    30,774,291
    
    $
    10,718,826
    
    $
    -
    
    $
    -


Operating commitments include a
guarantee provided by the Company for the office premises at its corporate
office.

The Company has entered into a mining
contract with Peal de Mexico, S.A. de C.V. (Peal). The contract is for 42
months (December 31, 2011 - 15 months remaining), and is at a contracted price
of $1.64 per tonne of material mined (plus value added tax). Under the Peal
contract, the Company is responsible for demobilization costs of $900,000 (plus
value added tax) payable one month prior to the end of the mining contract.
These obligations have been recorded at an annualized discount rate of 6.775%,
reflecting the implied interest rate, and calculated according to the formula
stipulated in the contract. The carrying value of this obligation is $1,137,704
(March 31, 2011 - $1,081,438; April 1, 2010 - $1,027,881).

The Company will also have commitments
with regards to payments going to El Picacho, San Onesimo and Quila exploration
properties at various dates until January, 2015.

On June 17, 2011, the Company entered
into an exclusive contract with Metalurgica Laczano for the purchase of
1,200,000 kilograms (kg) of sodium cyanide over the period August, 2011 and
August, 2012. More specifically, 100,000kg of cyanide would be provided monthly
at a price of $4.00/kg (plus value added tax) with the Company being invoiced on
a monthly basis.

|22. | SEGMENTED INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company has determined that it operates through one
      reportable operating segment, being the acquisition, exploration, and
      development of mineral properties located in two geographical areas,
      Canada and Mexico. Reporting is prepared on a geographic and consolidated
      basis as determined by the requirements of the Chief Executive Officer as
      the chief operating decision maker for the Company. The Company does not
      treat the production of gold and silver, the primary two minerals, as
      separate reportable segments as they are the output of the same production
      process and only become separately identifiable as finished goods and are
      not reported separately from a management perspective.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | At December 31, 2011, all of the Companys operating and
      capital assets are located in Mexico except for $1,070,143 (March 31, 2011
      - $772,562; April 1, 2010 - $1,003,147) of cash and other current assets
      which are held in Canada.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | On April 1, 2010, the Company began commercial production
      and began recording metal revenues. During the nine months ended December
      31, 2011, the Company had sales agreements with two major customers based
      in the United States which constitute 100% of metal revenues; 97% to
      customer A and 3% to customer B (year ended March 31, 2011 - 98% to
      customer A and 2% to customer B). However, due to the nature of the gold
      market, the Company is not dependent on any customers to sell the finished
      goods.                                                                                                                                                                                                            

38

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|23. | TRANSITION TO IFRS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Companys IFRS accounting policies presented in Note
      3 have been applied in preparing these consolidated financial statements,
      the comparative information and the opening consolidated statement of
      financial position at the transition date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Company has applied IFRS 1 - First-time Adoption
      of International Financial Reporting Standardsin preparing these
      consolidated financial statements. The effects of the transition to IFRS
      on equity, earnings and comprehensive income and cash flows are presented
      in this section and are further explained in the notes that accompany the
      tables presented below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | First-time adoption of IFRS and exemptions
      applied                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | IFRS 1 sets forth guidance for the initial adoption of
      IFRS. Under IFRS 1, the standards are applied retrospectively at the
      transition date with all adjustments to assets and liabilities recognized
      in deficit unless certain exemptions are applied. The Company has applied
      the following exemptions to its opening consolidated statement of
      financial position at the transition date:                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Business combinations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | IFRS 1 permits the first-time adopter to not apply IFRS 3
      - Business Combinationsretrospectively to business combinations
      that occurred before the transition date. The use of this IFRS 1 exemption
      does not preclude a review of the terms of past acquisitions to identify
      any assets or liabilities that would need to be recognized or derecognized
      had the acquiree been applying IFRS. The exemption also applies to
      transactions which were accounted for as asset acquisitions under Canadian
      GAAP but which meet the definition of a business under IFRS. The Company
      elected to apply this exemption at the transition date and has not
      restated business combinations that occurred prior to April 1,
  2010.                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Share-based payment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | This exemption permits the first-time adopter to not
      apply IFRS 2 - Share-based Paymentto equity instruments that
      vested before the transition date or any unvested equity instruments that
      were granted prior to November 7, 2002. The Company has elected not to
      apply IFRS 2 to awards that vested prior to April 1, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Cumulative foreign currency translation
      differences                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | IFRS 1 allows a first-time adopter to not comply with the
      requirements of IAS 21 - The Effects of Changes in Foreign Exchange
      Ratesfor cumulative foreign currency translation differences that
      existed at the transition date. Due to the Companys change in
      presentation currency, $3,817,495 has been recorded for cumulative foreign
      currency translation reserve for the periods prior to April 1, 2010. The
      Company has chosen to apply this election and has eliminated the
      cumulative foreign currency translation reserve and adjusted deficit by
      the same amount at the transition date. As a result of this election, if,
      subsequent to adoption, a foreign operation is disposed of, the
      translation differences that arose before the date of transition to IFRS
      will not affect the gain or loss on disposal.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Decommissioning liabilities included in the cost of
      mineral properties, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Under IFRIC 1 - Changes in Existing Decommissioning,
      Restoration and Similar Liabilitiescertain changes in a
      decommissioning, restoration or similar liability are added to or deducted
      from the cost of the asset to which the liability relates. This exemption
      provides the option to not apply these requirements to changes in such
      liabilities that occurred before the transition date and instead
      re-measure them in accordance with IAS 37 - Provisions, Contingent
      Liabilities and Contingent Assetsand adjust the historical cost and
      accumulated depreciation of the related assets to reflect the adoption of
      IFRIC 1 at the transition date. The Company has elected to apply this
      exemption.                                                                                                                       

39

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|23. | TRANSITION TO IFRS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Borrowing costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | IAS 23 - Borrowing Costsrequires the
      capitalization of borrowing costs directly attributable to the
      acquisition, construction or production of qualifying assets. For example,
      certain items of plant and equipment that take a substantial time to
      complete would represent a qualifying asset. IFRS 1 provides an exemption
      whereby the Company may apply requirements of IAS 23 prospectively from
      the transition date. The Company has taken this exemption and elected to
      commence capitalization of borrowing costs for qualifying assets
      prospectively from the transition date. Borrowing costs expensed prior to
      April 1, 2010 under Canadian GAAP were not
capitalized.

40

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|23. | TRANSITION TO IFRS
(Continued)
|--- | ------------------------------

Consolidated Statements of Earnings and Comprehensive
Income

For the year ended March 31, 2011Canadian GAAP
    
    
    Translated to
    
    
    IFRSNote
    
    
    in C$
    
    
    US dollar
    
    
    adjustment
    
    
    IFRSMetal revenues
    
    
    
    $
    84,351,172
    
    $
    83,080,428
    
    $
    -
    
    $
    83,080,428Cost of sales
    
    
    
    
    40,884,974
    
    
    40,192,963
    
    
    -
    
    
    40,192,963Gross profit
    
    
    
    
    43,466,198
    
    
    42,887,465
    
    
    -
    
    
    42,887,465Corporate and administrative expenses
    
    e)
    
    
    8,359,814
    
    
    8,323,028
    
    
    (561,974
    )
    
    7,761,054Profit from operations
    
    
    
    
    35,106,384
    
    
    34,564,437
    
    
    561,974
    
    
    35,126,411Other income, net
    
    
    
    
    20,036
    
    
    19,498
    
    
    -
    
    
    19,498Finance expense
    
    d),f),g)
    
    
    (12,604,760
    )
    
    (12,362,246
    )
    
    (448,184
    )
    
    (12,810,430
    )Loss on warrant liability
    
    c)
    
    
    -
    
    
    -
    
    
    (3,677,544
    )
    
    (3,677,544
    )Foreign exchange
      gain (loss)
    
    b)
    
    
    611,968
    
    
    620,846
    
    
    (667,336
    )
    
    (46,490
    )Profit before income tax
    
    
    
    
    23,133,628
    
    
    22,842,535
    
    
    (4,231,090
    )
    
    18,611,445Income tax expenseCurrent income tax
    
    
    
    
    659,047
    
    
    678,777
    
    
    -
    
    
    678,777Deferred income tax
    
    h)
    
    
    11,010,527
    
    
    10,821,947
    
    
    520,231
    
    
    11,342,17811,669,574
    
    
    11,500,724
    
    
    520,231
    
    
    12,020,955Earnings for
      the year
    
    
    
    
    11,464,054
    
    
    11,341,811
    
    
    (4,751,321
    )
    
    6,590,490Exchange
      differences on translating foreign operations, net of tax
    
    a)
    
    
    -
    
    
    2,868,674
    
    
    (2,868,674
    )
    
    -Total
      comprehensive income
    
    
    
    $
    11,464,054
    
    $
    14,210,485
    
    $
    (7,619,995
    )
    $
    6,590,490Weighted average shares
      outstanding:Basic
    
    
    
    
    134,792,996
    
    
    134,792,996
    
    
    134,792,996
    
    
    134,792,996Diluted
    
    
    
    
    139,680,868
    
    
    139,680,868
    
    
    139,680,868
    
    
    139,680,868Earnings per share:Basic
    
    
    
    $
    0.09
    
    $
    0.11
    
    $
    (0.06
    )
    $
    0.05Diluted
    
    
    
    $
    0.08
    
    $
    0.10
    
    $
    (0.05
    )
    $
    0.05


41

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|23. | TRANSITION TO IFRS
(Continued)
|--- | ------------------------------

Consolidated Statements of Cash Flows

For the year ended March
      31, 2011Canadian
    GAAP
    
    
    Translated to
    
    
    IFRSNote
    
    
    in C$
    
    
    US dollar
    
    
    adjustment
    
    
    IFRSOPERATING ACTIVITIESProfit before income tax
    
    
    
    $
    23,133,628
    
    $
    22,842,535
    
    $
    (4,231,090
    )
    $
    18,611,445Items not affecting cash:Depletion and depreciation
    
    
    
    
    7,063,281
    
    
    6,935,347
    
    
    -
    
    
    6,935,347Finance expense
    
    d)
    
    
    12,542,177
    
    
    12,335,356
    
    
    475,074
    
    
    12,810,430Loss on warrant liability
    
    c)
    
    
    -
    
    
    -
    
    
    3,677,544
    
    
    3,677,544Share-based payment
    
    e)
    
    
    1,290,473
    
    
    1,249,902
    
    
    (561,974
    )
    
    687,928Unrealized foreign exchange (gain) loss
    
    b)
    
    
    (560,239
    )
    
    (573,215
    )
    
    640,446
    
    
    67,231Asset write-down
    
    
    
    
    1,338,978
    
    
    1,358,403
    
    
    -
    
    
    1,358,403Changes in non-cash working capital items:Trade and other
      receivables
    
    
    
    
    2,355,464
    
    
    2,316,623
    
    
    -
    
    
    2,316,623Inventories
    
    
    
    
    (7,886,408
    )
    
    (7,756,361
    )
    
    -
    
    
    (7,756,361
    )Advances and prepaid
      expenses
    
    
    
    
    42,732
    
    
    42,027
    
    
    -
    
    
    42,027Trade payables and accrued liabilities
    
    
    
    
    4,060,330
    
    
    3,993,375
    
    
    -
    
    
    3,993,375Cash flows provided by operating activities
    
    
    
    
    43,380,416
    
    
    42,743,992
    
    
    -
    
    
    42,743,992INVESTING ACTIVITIESExpenditures on mineral properties, plant and equipment
    
    
    
    
    (29,673,714
    )
    
    (29,184,394
    )
    
    -
    
    
    (29,184,394
    )Restricted cash
    
    
    
    
    (1,716,170
    )
    
    (1,765,970
    )
    
    -
    
    
    (1,765,970
    )Other
    
    
    
    
    (6,240
    )
    
    (6,137
    )
    
    -
    
    
    (6,137
    )Cash flows used in investing activities
    
    
    
    
    (31,396,124
    )
    
    (30,956,501
    )
    
    -
    
    
    (30,956,501
    )FINANCING ACTIVITIESRepayment of long-term debt
    
    
    
    
    (15,875,499
    )
    
    (15,613,712
    )
    
    -
    
    
    (15,613,712
    )Shares issued for cash
    
    
    
    
    6,677,222
    
    
    6,547,394
    
    
    -
    
    
    6,547,394Cash flows used in
      financing activities
    
    
    
    
    (9,198,277
    )
    
    (9,066,318
    )
    
    -
    
    
    (9,066,318
    )Effects of exchange rate changes on the balance of cash
      held in foreign currencies
    
    
    
    
    -
    
    
    243,922
    
    
    -
    
    
    243,922Increase in
      cash
    
    
    
    
    2,786,015
    
    
    2,965,095
    
    
    -
    
    
    2,965,095Cash, beginning of period
    
    
    
    
    2,694,825
    
    
    2,674,764
    
    
    -
    
    
    2,674,764Cash, end of
      period
    
    
    
    $
    5,480,840
    
    $
    5,639,859
    
    $
    -
    
    $
    5,639,859


42

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|23. | TRANSITION TO IFRS
(Continued)
|--- | ------------------------------

Consolidated Statements of Financial Position

At April 1, 2010Canadian GAAP
    
    
    Translated to
    
    
    IFRSNote
    
    
    in C$
    
    
    US dollar
    
    
    adjustment
    
    
    IFRSASSETSCurrentCash
    
    
    
    $
    2,694,825
    
    $
    2,674,764
    
    $
    -
    
    $
    2,674,764Trade and other receivables
    
    
    
    
    6,319,583
    
    
    6,272,539
    
    
    -
    
    
    6,272,539Inventories
    
    b)
    
    
    6,420,154
    
    
    6,372,361
    
    
    -
    
    
    6,372,361Advances and prepaid expenses
    
    b)
    
    
    655,704
    
    
    650,823
    
    
    -
    
    
    650,823Due from related party
    
    
    
    
    92,656
    
    
    91,966
    
    
    -
    
    
    91,966Total current
      assets
    
    
    
    
    16,182,922
    
    
    16,062,453
    
    
    -
    
    
    16,062,453Equipment
    
    b),g)
    
    
    24,397,467
    
    
    24,215,848
    
    
    (24,215,848
    )
    
    -Resource properties
    
    b),g)
    
    
    41,698,893
    
    
    41,388,479
    
    
    (41,388,479
    )
    
    -Mineral
      properties, plant and equipment
    
    f),g)
    
    
    -
    
    
    -
    
    
    65,914,550
    
    
    65,914,550Total assets
    
    
    
    $
    82,279,282
    
    $
    81,666,780
    
    $
    310,223
    
    $
    81,977,003LIABILITIESCurrentTrade payables and accrued
      liabilities
    
    
    
    $
    4,403,822
    
    $
    4,371,038
    
    $
    -
    
    $
    4,371,038Vendor loan
    
    
    
    
    1,758,120
    
    
    1,725,000
    
    
    -
    
    
    1,725,000Current portion of long-term debt
    
    
    
    
    8,045,163
    
    
    7,985,273
    
    
    -
    
    
    7,985,273Total current
      liabilities
    
    
    
    
    14,207,105
    
    
    14,081,311
    
    
    -
    
    
    14,081,311Deferred tax liabilities
    
    h)
    
    
    3,967,061
    
    
    3,937,530
    
    
    25,984
    
    
    3,963,514Long-term debt
    
    d)
    
    
    8,088,563
    
    
    8,028,350
    
    
    (553,275
    )
    
    7,475,075Other long-term liabilities
    
    b)
    
    
    1,035,590
    
    
    1,027,881
    
    
    -
    
    
    1,027,881Provision for site reclamation and closure
    
    b),f)
    
    
    929,382
    
    
    922,464
    
    
    310,223
    
    
    1,232,687Total
      liabilities
    
    
    
    
    28,227,701
    
    
    27,997,536
    
    
    (217,068
    )
    
    27,780,468EQUITYIssued capital
    
    
    
    
    52,271,066
    
    
    47,117,184
    
    
    -
    
    
    47,117,184Convertible preference shares
    
    
    
    
    13,586,780
    
    
    13,665,620
    
    
    -
    
    
    13,665,620Share-based payment reserve
    
    e)
    
    
    3,773,765
    
    
    3,539,538
    
    
    545,651
    
    
    4,085,189Share purchase warrants
    
    c)
    
    
    2,876,305
    
    
    2,574,174
    
    
    -
    
    
    2,574,174Foreign currency translation reserve
    
    a)
    
    
    -
    
    
    3,817,495
    
    
    (3,817,495
    )
    
    -Deficit
    
    b),c),d),e)
    
    
    (18,456,335
    )
    
    (17,044,767
    )
    
    3,799,135
    
    
    (13,245,632
    )54,051,581
    
    
    53,669,244
    
    
    527,291
    
    
    54,196,535Total
      liabilities and equity
    
    
    
    $
    82,279,282
    
    $
    81,666,780
    
    $
    310,223
    
    $
    81,977,003


43

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|23. | TRANSITION TO IFRS
(Continued)
|--- | ------------------------------

Consolidated Statements of Financial Position

At March 31, 2011Canadian GAAP
    
    
    Translated to
    
    
    IFRSNote
    
    
    in C$
    
    
    US dollar
    
    
    adjustment
    
    
    IFRSASSETSCurrentCash
    
    
    
    $
    5,480,840
    
    $
    5,639,859
    
    $
    -
    
    $
    5,639,859Restricted cash
    
    
    
    
    1,716,170
    
    
    1,765,970
    
    
    -
    
    
    1,765,970Trade and other receivables
    
    
    
    
    4,066,285
    
    
    4,184,271
    
    
    -
    
    
    4,184,271Inventories
    
    b)
    
    
    14,306,562
    
    
    14,721,714
    
    
    (399,939
    )
    
    14,321,775Advances and prepaid expenses
    
    b)
    
    
    609,843
    
    
    627,540
    
    
    (32,794
    )
    
    594,746Total current
      assets
    
    
    
    
    26,179,700
    
    
    26,939,354
    
    
    (432,733
    )
    
    26,506,621Equipment
    
    b),g)
    
    
    27,293,120
    
    
    28,085,120
    
    
    (28,085,120
    )
    
    -Resource properties
    
    b),g)
    
    
    60,202,020
    
    
    61,948,981
    
    
    (61,948,981
    )
    
    -Mineral
      properties, plant and equipment
    
    f),g)
    
    
    -
    
    
    -
    
    
    87,203,035
    
    
    87,203,035Total assets
    
    
    
    $
    113,674,840
    
    $
    116,973,455
    
    $
    (3,263,799
    )
    $
    113,709,656LIABILITIESCurrentTrade payables and accrued
      liabilities
    
    
    
    $
    9,241,156
    
    $
    9,509,290
    
    $
    -
    
    $
    9,509,290Vendor loan
    
    
    
    
    1,672,560
    
    
    1,725,000
    
    
    -
    
    
    1,725,000Current portion of long-term
      debt
    
    g)
    
    
    -
    
    
    -
    
    
    12,038,469
    
    
    12,038,469Warrant liability
    
    c)
    
    
    -
    
    
    -
    
    
    3,551,731
    
    
    3,551,731Total current
      liabilities
    
    
    
    
    10,913,716
    
    
    11,234,290
    
    
    15,590,200
    
    
    26,824,490Deferred tax liabilities
    
    h)
    
    
    15,065,549
    
    
    15,502,726
    
    
    546,215
    
    
    16,048,941Long-term debt
    
    d),g)
    
    
    11,840,168
    
    
    12,183,749
    
    
    (12,183,749
    )
    
    -Other long-term liabilities
    
    b)
    
    
    1,050,942
    
    
    1,081,438
    
    
    -
    
    
    1,081,438Provision for site reclamation and closure
    
    b),f)
    
    
    1,258,233
    
    
    1,294,745
    
    
    312,400
    
    
    1,607,145Total
      liabilities
    
    
    
    
    40,128,608
    
    
    41,296,948
    
    
    4,265,066
    
    
    45,562,014EQUITYIssued capital
    
    
    
    
    75,158,311
    
    
    69,571,173
    
    
    5,643,551
    
    
    75,214,724Share-based payment reserve
    
    e)
    
    
    4,216,577
    
    
    4,022,392
    
    
    (16,323
    )
    
    4,006,069Share purchase warrants
    
    c)
    
    
    1,163,625
    
    
    1,099,729
    
    
    (1,099,729
    )
    
    -Foreign currency translation reserve
    
    a)
    
    
    -
    
    
    6,686,169
    
    
    (6,686,169
    )
    
    -Deficit
    
    b),c),d),e)
    
    
    (6,992,281
    )
    
    (5,702,956
    )
    
    (5,370,195
    )
    
    (11,073,151
    )73,546,232
    
    
    75,676,507
    
    
    (7,528,865
    )
    
    68,147,642Total liabilities and equity
    
    
    
    $
    113,674,840
    
    $
    116,973,455
    
    $
    (3,263,799
    )
    $
    113,709,656


44

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|23. | **TRANSITION TO IFRS
      (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|a)  | Change in presentation currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company has changed its presentation currency from
      the Canadian dollar to the US dollar. Prior to performing the required
      reconciliations of the impact of adoption of IFRS, the Companys
      previously published consolidated financial statements (in accordance with
      Canadian GAAP) have been recast using methods consistent with IAS 21 -
      The Effects of Changes in Foreign Exchange Rates. Assets and
      liabilities have been recast to US dollars using period end exchange
      rates. Revenues, expenses, gains and losses have been recast into US
      dollars using the rate in effect on the date of the transaction or the
      average rate for the period. The effect of making these changes resulted
      in the recognition of an accumulated foreign currency translation reserve
      within equity of $3,817,495 and $6,686,169 at April 1, 2010 and March 31,
      2011, respectively, and $2,868,674 for the year ended March 31, 2011. The
      Company has elected to apply the IFRS 1 exemption and has deemed all
      cumulative translation differences to be $nil and reallocated the balance
      to deficit at the transition date.                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|b)  | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | In connection with the adoption of IFRS, the Company
      assessed the functional currencies of each of its subsidiaries. The
      Company determined that under IFRS, the functional currency of the Company
      and each of its subsidiaries changed from Canadian dollars to US dollars
      effective April 1, 2010. The effect of this change resulted in changes to
      the measurement of non-monetary assets and liabilities for the periods
      subsequent to April 1, 2010. In addition, the amount of foreign exchange
      loss during the year ended March 31, 2011 relates to revaluation of non-US
      dollar monetary balances, while prior to the change in functional
      currency, the foreign exchange gain related to revaluation of non-Canadian
      dollar balances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|c)  | Classification and measurement of share purchase
      warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | On April 1, 2010, 11,352,780 share purchase warrants were
      outstanding and exercisable at a weighted average exercise price of
      C$0.65. As the exercise price of the share purchase warrants is fixed in
      Canadian dollars and the functional currency of the Company is the US
      dollar, the conversion option is considered a derivative liability as the
      Company will receive a variable amount of US dollar equivalent cash when
      the share purchase warrants are exercised. Accordingly, the share purchase
      warrants have been reclassified as a warrant liability subsequent to the
      transition date and have been measured at fair value at the end of each
      reporting period with changes in fair value included in profit or loss.
      This resulted in a reclassification of $3,551,731 to warrant liability at
      March 31, 2011 and a loss of $3,677,544 during the year ended March 31,
      2011. The share purchase warrant elimination amount of $1,099,729 at March
      31, 2011 is the net figure resulting from exercises of the share purchase
      warrants during the year ended March 31, 2011. Under Canadian GAAP, these
      share purchase warrants were considered equity instruments and changes in
      fair value subsequent to initial recognition were not recognized. Note
      that this adjustment resulted from the change in functional currency of
      the Company, rather than from differences between Canadian GAAP and IFRS.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|d)  | Recognition and amortization of transaction costs and
      reclassification of long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Under Canadian GAAP, the Company previously expensed all
      transaction costs related to the issuance of debt classified as other
      financial liabilities and measured at amortized cost. IFRS requires that
      such costs be accounted for as an adjustment to the recorded amount of the
      financial instrument at the time of initial recognition and amortized over
      the term of the instrument using the effective interest method. This
      resulted in $553,275 and $145,280 in transaction costs being reclassified
      to long-term debt at April 1, 2010 and March 31, 2011, respectively. The
      impact for the year ended March 31, 2011 was an increase in finance
      expense of $407,995.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|e)  | Share-based payment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Certain previously issued share options had not yet fully
      vested at the transition date. Consequently, these equity instruments do
      not fall within the scope of the IFRS 1 exemption pertaining to
      share-based payments and must be re- measured in accordance with IFRS 2 on
      a retrospective basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

45

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|TIMMINS GOLD CORP.                            
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2011                             
|(Expressed in US
      dollars)               

|23. | **TRANSITION TO IFRS
      (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | This resulted in a $561,974 entry to share-based payments
      included in corporate and administrative expenses for the year ended March
      31, 2011. The $16,323 adjustment to share-based payment reserve is net of
      the $545,651 effect of this IFRS at April 1, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|f)  | Measurement of provision for site reclamation and
      closure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Under IAS 37, a change in the current market-based
      discount rate will result in a change in the measurement of this
      provision, whereas under Canadian GAAP, discount rates are not changed
      unless there is an increase in the estimated future cash flows in which
      case the incremental cash flows are discounted at current market-based
      rates. In addition, under Canadian GAAP, a credit adjusted risk-free
      discount rate is used whereas under IFRS, the discount rate reflects the
      current market assessments of the time value of money and the risks
      specific to the liability. This resulted in $310,223 and $312,400
      adjustments to the provision and related asset at April 1, 2010 and March
      31, 2011, respectively. The impact for the year ended March 31, 2011 was
      an increase in finance expense of $40,189.                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|g)  | Presentation of financial statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Certain differences exist between IFRS and Canadian GAAP
      with respect to how items are presented in the consolidated financial
      statements. A decision was made to combine equipment and resource
      properties as a single financial statement line item called mineral
      properties, plant and equipment resulting in a reclassification within
      long-term assets at the transition date and for subsequent periods. In
      accordance with IAS 37, accretion of provision for site reclamation and
      closure was reclassified as finance expense. Also, under Canadian GAAP,
      debt that was refinanced subsequent to a reporting period was allowed to
      be classified as non-current, IFRS does not include such considerations.
      As such, the Gold Loan, which was refinanced on June 1, 2011, is required
      to be classified as a current liability at March 31, 2011.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|h)  | **Taxation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Under IAS 12 - Income taxes, deferred tax has been
      recognized on temporary differences arising from differences between the
      functional currency in which an asset or liability is reported and its tax
      basis as determined in its local currency, translated at current exchange
      rates. Under Canadian GAAP, a deferred income tax asset or liability is
      not recognized for such temporary differences. In addition, under IFRS the
      re-measurement of the provision for closure and reclamation and the
      related asset resulted in changes to temporary differences and the
      deferred tax liability. The impact of this change resulted in adjustments
      of $25,984 and $546,215 to the deferred tax liability at April 1, 2010 and
      March 31, 2011, respectively.                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|24. | **SUBSEQUENT EVENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | On January 26, 2012, 3,500,000 share options were granted
      to directors and officers of the Company, which carry an exercise price of
      C$2.56 and expire on January 26, 2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Subsequent to December 31, 2011, a total of 1,440,000
      share options with exercise prices ranging between C$0.70 and C$2.50 have
      been exercised. The total proceeds received from these share option
      exercises were $1,561,750.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

46

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