---

**Exhibit 99.3**



|CONSOLIDATED FINANCIAL STATEMENTS          
|-------------------------------------------
|For the year ended December 31, 2012       
|and the nine months ended December 31, 2011

---

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, 2012 and December 31, 2011, and the
consolidated statements of earnings and comprehensive income, changes in equity
and cash flows for the year ended December 31, 2012 and the nine month period
ended December 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 theseconsolidated 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 judgement, 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, 2012 and December 31, 2011, and its financial performance and
its cash flows for the year ended December 31, 2012 and the nine month period
ended December 31, 2011 in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.

Chartered Accountants March 15, 2013 Vancouver, Canada

---

|TIMMINS GOLD CORP.                                                                       
|-----------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE
      INCOME                       
|(In thousands of
      United States dollars, except share numbers and per share amounts)

|                                                       |  |      |  |   |              |   |   | Nine months  |  
|------------------------------------------------------ |  | ---- |  | - | ------------ | - | - | ------------ | -
|                                                       |  |      |  |   | Year ended   |   |   | ended        |  
|                                                       |  |      |  |   | December 31, |   |   | December 31, |  
|                                                       |  | Note |  |   | 2012         |   |   | 2011         |  
|                                                       |  |      |  |   |              |   |   |              |  
|                                                       |  |      |  |   |              |   |   |              |  
|Metal revenues                                         |  | 22   |  | $ | 156,192      |   | $ | 90,769       |  
|                                                       |  |      |  |   |              |   |   |              |  
|Cost of sales (including depreciation and depletion)   |  | 5    |  |   | 79,579       |   |   | 42,318       |  
|                                                       |  |      |  |   |              |   |   |              |  
|Gross profit                                           |  |      |  |   | 76,613       |   |   | 48,451       |  
|                                                       |  |      |  |   |              |   |   |              |  
|Corporate and administrative expenses                  |  | 5    |  |   | 16,003       |   |   | 11,875       |  
|                                                       |  |      |  |   |              |   |   |              |  
|Profit from operations                                 |  |      |  |   | 60,610       |   |   | 36,576       |  
|                                                       |  |      |  |   |              |   |   |              |  
|Other income (expense), net                            |  |      |  |   | 169          |   |   | (33          | )
|Finance expense                                        |  | 5    |  |   | (2,494       | ) |   | (2,550       | )
|Loss on warrant liability                              |  | 12   |  |   | -            |   |   | (1,003       | )
|Foreign exchange
      loss                            |  |      |  |   | (1,146       | ) |   | (276         | )
|Profit before income tax                               |  |      |  |   | 57,139       |   |   | 32,714       |  
|                                                       |  |      |  |   |              |   |   |              |  
|Income tax expense                                     |  |      |  |   |              |   |   |              |  
|Current income tax                                     |  | 15   |  |   | 14,152       |   |   | 5,327        |  
|Deferred income tax                                    |  | 15   |  |   | 6,919        |   |   | 6,513        |  
|                                                       |  |      |  |   | 21,071       |   |   | 11,840       |  
|                                                       |  |      |  |   |              |   |   |              |  
|Earnings and
      comprehensive income for the period |  |      |  | $ | 36,068       |   | $ | 20,874       |  
|                                                       |  |      |  |   |              |   |   |              |  
|Weighted average shares outstanding:                   |  |      |  |   |              |   |   |              |  
|Basic                                                  |  |      |  |   | 142,555,763  |   |   | 138,591,964  |  
|Diluted                                                |  |      |  |   | 144,489,470  |   |   | 143,022,181  |  
|                                                       |  |      |  |   |              |   |   |              |  
|Earnings per share:                                    |  |      |  |   |              |   |   |              |  
|Basic                                                  |  | 16   |  | $ | 0.25         |   | $ | 0.15         |  
|Diluted                                                |  | 16   |  | $ | 0.25         |   | $ | 0.15         |  

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

---

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

|                                                                                          |  |      |  |       |              |   |   | Nine months  |  
|----------------------------------------------------------------------------------------- |  | ---- |  | ----- | ------------ | - | - | ------------ | -
|                                                                                          |  |      |  |       | Year ended   |   |   | ended        |  
|                                                                                          |  |      |  |       | December 31, |   |   | December 31, |  
|                                                                                          |  | Note |  |       | 2012         |   |   | 2011         |  
|                                                                                          |  |      |  |       |              |   |   |              |  
|OPERATING ACTIVITIES                                                                      |  |      |  |       |              |   |   |              |  
|Profit before income tax                                                                  |  |      |  | **$** | **57,139**   |   | $ | 32,714       |  
|Items not affecting cash:                                                                 |  |      |  |       |              |   |   |              |  
|Depletion and depreciation                                                                |  | 5    |  |       | 7,934        |   |   | 7,782        |  
|Finance expense                                                                           |  | 5    |  |       | 2,494        |   |   | 2,550        |  
|Loss on warrant liability                                                                 |  | 12   |  |       | -            |   |   | 1,003        |  
|Share-based payments                                                                      |  | 14b) |  |       | 6,143        |   |   | 5,361        |  
|Unrealized foreign exchange loss                                                          |  |      |  |       | 221          |   |   | 276          |  
|Changes in non-cash working capital items:                                                |  |      |  |       |              |   |   |              |  
|Trade and other receivables                                                               |  |      |  |       | (2,797       | ) |   | (5,225       | )
|Inventories                                                                               |  |      |  |       | (10,167      | ) |   | (16,619      | )
|Advances and prepaid expenses                                                             |  |      |  |       | (227         | ) |   | (2,165       | )
|Trade payables and
      accrued liabilities                                              |  |      |  |       | 2,210        |   |   | 1,614        |  
|Income tax paid                                                                           |  |      |  |       | (16,081      | ) |   | (1,987       | )
|Cash flows provided by operating activities                                               |  |      |  |       | 46,869       |   |   | 25,304       |  
|                                                                                          |  |      |  |       |              |   |   |              |  
|INVESTING ACTIVITIES                                                                      |  |      |  |       |              |   |   |              |  
|Expenditures on mineral properties, plant and equipment,
      exploration and evaluation |  |      |  |       | (34,339      | ) |   | (29,177      | )
|Restricted cash                                                                           |  | 10   |  |       | -            |   |   | 1,811        |  
|Cash flows used in
      investing activities                                             |  |      |  |       | (34,339      | ) |   | (27,366      | )
|                                                                                          |  |      |  |       |              |   |   |              |  
|FINANCING ACTIVITIES                                                                      |  |      |  |       |              |   |   |              |  
|Proceeds of long-term debt, net of
      transaction costs                                |  |      |  |       | -            |   |   | 18,168       |  
|Repayment of long-term debt                                                               |  | 13   |  |       | -            |   |   | (12,558      | )
|Interest paid                                                                             |  |      |  |       | (1,797       | ) |   | (1,274       | )
|Issuance of shares on exercise of share options and
      warrants                        |  |      |  |       | 3,647        |   |   | 2,021        |  
|Transaction costs on refinancing, net                                                     |  |      |  |       | (68          | ) |   | -            |  
|Cash flows
      provided by financing activities                                         |  |      |  |       | 1,782        |   |   | 6,357        |  
|                                                                                          |  |      |  |       |              |   |   |              |  
|Effects of exchange rate changes on the balance of cash
      held in foreign currencies  |  |      |  |       | 11           |   |   | (70          | )
|                                                                                          |  |      |  |       |              |   |   |              |  
|Increase in
      cash                                                                    |  |      |  |       | 14,323       |   |   | 4,225        |  
|Cash, beginning of period                                                                 |  |      |  |       | 9,865        |   |   | 5,640        |  
|Cash, end of
      period                                                                 |  |      |  | $     | 24,188       |   | $ | 9,865        |  

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
|(In thousands of
      United States dollars)

|                                                                          |  |      |  |   | December 31, |  |   | December 31, | 
|------------------------------------------------------------------------- |  | ---- |  | - | ------------ |  | - | ------------ | 
|                                                                          |  | Note |  |   | 2012         |  |   | 2011         | 
|                                                                          |  |      |  |   |              |  |   |              | 
|ASSETS                                                                    |  |      |  |   |              |  |   |              | 
|Current                                                                   |  |      |  |   |              |  |   |              | 
|Cash                                                                      |  |      |  | $ | 24,188       |  | $ | 9,865        | 
|Trade and other receivables                                               |  | 6    |  |   | 10,570       |  |   | 8,254        | 
|Inventories                                                               |  | 7    |  |   | 32,876       |  |   | 29,183       | 
|Advances and prepaid expenses                                             |  |      |  |   | 2,986        |  |   | 2,759        | 
|Total current assets                                                      |  |      |  |   | 70,620       |  |   | 50,061       | 
|                                                                          |  |      |  |   |              |  |   |              | 
|Mineral properties, plant and equipment,
      exploration and evaluation |  | 8    |  |   | 136,312      |  |   | 107,678      | 
|Non-current
      unprocessed ore stockpile                               |  | 7    |  |   | 10,372       |  |   | 4,481        | 
|Total assets                                                              |  |      |  | $ | 217,304      |  | $ | 162,220      | 
|                                                                          |  |      |  |   |              |  |   |              | 
|LIABILITIES                                                               |  |      |  |   |              |  |   |              | 
|Current                                                                   |  |      |  |   |              |  |   |              | 
|Trade payables and accrued
      liabilities                              |  | 9    |  | $ | 16,509       |  | $ | 15,885       | 
|Vendor loan                                                               |  | 10   |  |   | 1,725        |  |   | 1,725        | 
|Loan facility                                                             |  | 13   |  |   | 17,641       |  |   | 17,245       | 
|Total current
      liabilities                                           |  |      |  |   | 35,875       |  |   | 34,855       | 
|                                                                          |  |      |  |   |              |  |   |              | 
|Deferred tax liabilities                                                  |  | 15   |  |   | 29,481       |  |   | 22,562       | 
|Provision for site reclamation and closure                                |  | 11   |  |   | 2,869        |  |   | 2,065        | 
|Other provisions                                                          |  | 21   |  |   | 1,264        |  |   | 1,138        | 
|Total liabilities                                                         |  |      |  |   | 69,489       |  |   | 60,620       | 
|                                                                          |  |      |  |   |              |  |   |              | 
|EQUITY                                                                    |  |      |  |   |              |  |   |              | 
|Issued capital                                                            |  | 14   |  |   | 89,419       |  |   | 82,630       | 
|Share-based payment reserve                                               |  |      |  |   | 12,527       |  |   | 9,169        | 
|Retained earnings                                                         |  |      |  |   | 45,869       |  |   | 9,801        | 
|Total equity                                                              |  |      |  |   | 147,815      |  |   | 101,600      | 
|Total
      liabilities and equity                                        |  |      |  | $ | 217,304      |  | $ | 162,220      | 

Commitments and contingencies(notes 2 and 21)

|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                       
|(In thousands of
      United States dollars, except share numbers)

Share-Number of
    
    
    
    
    
    based
    
    
    Retainedcommon
    
    
    Issued
    
    
    payment
    
    
    earnings
    
    
    TotalNote
    
    
    shares
    
    
    capital
    
    
    reserve
    
    
    (deficit)
    
    
    equityBalance at January 1, 2012
    
    
    
    
    140,291,127
    
    $
    82,630
    
    $
    9,169
    
    $
    9,801
    
    $
    101,600Earnings and comprehensive income for the year
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    36,068
    
    
    36,068Share-based payments
    
    
    
    
    -
    
    
    -
    
    
    6,143
    
    
    -
    
    
    6,143Issue of shares on exercise of share options
    
    14
    
    
    3,575,000
    
    
    3,647
    
    
    -
    
    
    -
    
    
    3,647Reclassification of grant date fair
      value on exercise of share options
    
    
    
    
    -
    
    
    2,785
    
    
    (2,785
    )
    
    -
    
    
    -Shares issued
      for financing costs
    
    13
    
    
    217,918
    
    
    357
    
    
    -
    
    
    -
    
    
    357Balance at December 31, 2012
    
    
    
    
    144,084,045
    
    $
    89,419
    
    $
    12,527
    
    $
    45,869
    
    $
    147,815Balance at April
      1, 2011
    
    
    
    
    136,964,194
    
    $
    75,215
    
    $
    4,006
    
    $
    (11,073
    )
    $
    68,148Earnings and comprehensive income for the
      period
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    20,874
    
    
    20,874Share-based payments
    
    
    
    
    -
    
    
    -
    
    
    5,361
    
    
    -
    
    
    5,361Issue of shares on exercise of share
      options
    
    14
    
    
    1,025,000
    
    
    468
    
    
    -
    
    
    -
    
    
    468Reclassification of grant date fair value on exercise of
      share options
    
    
    
    
    -
    
    
    198
    
    
    (198
    )
    
    -
    
    
    -Issue of shares on exercise of share
      purchase warrants
    
    12
    
    
    2,000,000
    
    
    1,553
    
    
    -
    
    
    -
    
    
    1,553Reclassification of fair value on exercise of share
      purchase warrants
    
    12
    
    
    -
    
    
    4,555
    
    
    -
    
    
    -
    
    
    4,555Shares issued for financing costs
    
    13
    
    
    301,933
    
    
    641
    
    
    -
    
    
    -
    
    
    641Balance at
      December 31, 2011
    
    
    
    
    140,291,127
    
    $
    82,630
    
    $
    9,169
    
    $
    9,801
    
    $
    101,600


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

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|1.     | NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       | Timmins Gold Corp. (the Company) was incorporated on
      March 17, 2005 under the laws of the Province of British Columbia, Canada.
      The Company is in the business of acquiring, exploring, developing and
      operating mineral resource properties in Mexico, through its wholly-owned
      subsidiaries, Timmins Goldcorp Mexico, S.A. de C.V and Molimentales del
      Noroeste, S.A. de C.V. (MdN) (collectively the subsidiaries). MdN owns
      the San Francisco Mine 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 MKT under
      the symbol TGD. The registered office of the Company is located at Suite
      1900 - 570 Granville Street, Vancouver, British Columbia, Canada, V6C
      3P1.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|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
      (consolidated financial statements) are for the year ended December 31,
      2012 and the nine months ended December 31, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|**b)** | Statement of compliance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       | These consolidated financial statements have been
      prepared in accordance with International Financial Reporting Standards
      (IFRS) as issued by the International Accounting Standards Board
      (IASB).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       | These consolidated financial statements were approved by
      the Board of Directors and authorized for issue on March 15,
  2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|**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
      thousands of United States (US) dollars, except as otherwise noted,
      which is the functional currency of the Company and each of the Companys
      subsidiaries. References to C$ and MXP are to Canadian dollars and Mexican
      pesos, respectively, which are also stated in thousands.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|**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.

7

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

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

| | ii. | Operating levels intended by management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Prior to reaching operating levels intended by
      management, costs incurred in the development of a mine are capitalized as
      part of the costs of the 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
      judgements about carrying values of assets and liabilities that are not
      readily apparent from other sources. Actual results could differ from
      those estimates.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The estimates and underlying assumptions are reviewed on
      an ongoing basis. Revisions to accounting estimates are recognized
      prospectively in the period in which the estimate is revised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Areas that require significant estimates and assumptions
      as the basis for determining the stated amounts include, but are not
      limited to, the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| | i.  | Impairments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company assesses its mineral properties, plant and
      equipment assets and exploration and evaluation properties 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.                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company estimates its proven and probable reserves
      and measured and indicated and inferred mineral resources based on
      information compiled by appropriately qualified persons.                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The information relating to the geological data on the
      size, depth and shape of the ore body requires complex geological
      judgements to interpret the data. The estimation of future cash flows
      related to proven and probable reserves is based upon factors such as
      estimates of foreign exchange rates, commodity prices, future capital
      requirements and production costs along with geological assumptions and
      judgements made in estimating the recovery rate, size and grade of the ore
      body.                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Changes in the proven and probable reserves or measured
      and indicated and inferred mineral resources estimates may impact the
      carrying value of mineral properties, exploration and evaluation
      properties, plant and equipment, site reclamation and closure provisions,
      recognition of deferred tax amounts and depreciation and
  depletion.                                                                                                                                                                                                                                                       

8

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

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

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

9

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

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

| |       | The allocation of costs to ore in stockpiles, ore in
      process, and finished metal inventory and the determination of NRV involve
      the use of estimates. There is a high degree of judgement in estimating
      future costs, future production level, gold prices, and the ultimate
      estimated recovery for ore in process. There can be no assurance that
      actual results will not differ significantly from estimates used in the
      determination of the carrying value of inventories.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | vi.   | Provision for site reclamation and
  closure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       | Site reclamation and closure provisions are recognized in
      the period in which they arise and are stated as the present value of
      estimated future costs. These estimates require extensive judgement about
      the nature, cost and timing of the work to be completed, and may change
      with future changes to costs, environmental laws and regulations and
      remediation practices. In view of uncertainties concerning environmental
      rehabilitation, the ultimate costs could be materially different from the
      amounts estimated.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       | 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
      based on estimated fair values of all share-based awards 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

10

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

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

| | ix. | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Due to the nature of the Companys operations, various
      legal and tax matters can arise from time to time. In the event that
      managements estimate of the future resolution of these matters changes,
      the Company will recognize the effects of the changes in its consolidated
      financial statements for the period in which such changes occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | In the fourth quarter of 2012, the Mexican government
      amended the Federal labour law regarding subcontracting arrangements in
      order to prevent the use of service companies to evade labour and tax
      obligations. As is common place, the Company currently operates in Mexico
      using these subcontracting arrangements. The amendments set forth by the
      Mexican government also include certain regulatory requirements regarding
      an employers obligation to compensate employees with appropriate
      statutory profit sharing within the country. The Company has assessed the
      implications of these amendments and has determined that, other than what
      is presently recorded, it is probable that no additional obligation for
      statutory profit sharing payments is required to be recorded in the
      Companys consolidated financial statements as at and for the year ended
      December 31, 2012.

|3. | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The significant accounting policies used in the
      preparation of these consolidated financial statements are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|a) | Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | These consolidated financial statements include the
      accounts of the Company and its wholly-owned subsidiaries disclosed in
      note 1. All inter-company balances, transactions, revenues and expenses
      have been eliminated on consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Control exists where the parent entity 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.                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|c) | Cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Cash includes cash balances held with major financial
      institutions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|d) | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Metal revenues are earned from the sale of refined metal
      (gold and silver by-product) and 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 are subject to adjustment upon final settlement based upon metal
      prices, weights and assays. These adjustments are netted within revenue.

11

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|e) | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company predominantly produces gold and silver.
      Inventories consist primarily of unprocessed ore stockpile, ore in
      process, finished metal inventory (doré), and mining supplies. Doré
      represents a bar containing predominantly gold by value which must be
      refined offsite into its saleable metals. These inventories are valued at
      the lower of cost and NRV after consideration of additional processing,
      refining and transportation costs. NRV represents the estimated future
      sales price of the product based on prevailing and long-term metals prices
      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 and depreciation 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 from the ore is achieved
      through heap leaching processes. Costs are added to ore on leach pads
      based on current mining and processing costs, including applicable
      overhead, depletion and depreciation relating to mining operations. Costs
      are removed from ore on leach pads as ounces are recovered, based on the
      average cost per ounce of gold in ore in process inventory.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | iii. | Finished metal inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | Finished metal inventory consists of doré bars containing
      gold and silver.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | iv.  | Supplies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | Supplies include consumables used in operations such as
      fuel, grinding material, chemicals, and spare parts. NRV is estimated as
      replacement cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | Major spare parts and standby equipment are included in
      plant and equipment when they are expected to be used during more than one
      period and if they can only be used in connection with an item of plant
      and equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|f) | Mineral properties, plant and equipment, exploration
      and evaluation
|-- | -------------------------------------------------------------------------

| | i. | 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
      depreciation 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.                                                                                                                                                                                                                             

12

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

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

| |      | 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.                                                                                                                                                                                                                                                                                                               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | In open pit mining operations, it is necessary to remove
      overburden and other waste in order to access the ore body. Stripping
      costs incurred prior to commercial production are capitalized and deferred
      as part of the cost of constructing the mine.                                                                                                                                                                                                                                                                                                                               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | Mining costs associated with stripping activities during
      the production phase of a mine are variable production costs that are
      included in the costs of the inventory during the period that the
      stripping costs are incurred, unless the stripping activity can be shown
      to represent 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.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ii.  | Plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | Plant and equipment is measured at cost less accumulated
      depreciation and impairment losses. Cost includes the purchase price, any
      costs directly attributable to bringing plant and equipment to the
      location and condition necessary for it to be capable of operating in the
      manner intended by management and the estimated site reclamation and
      closure costs associated with removing the asset, and, where applicable,
      borrowing costs.                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | 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.                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | iii. | Exploration and evaluation costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | Acquisition costs for exploration and evaluation stage
      properties are capitalized. Exploration and evaluation expenditures
      incurred on a mineral property are capitalized where management determines
      there is sufficient evidence that the expenditure will result in a future
      economic benefit to the Company. All other exploration and evaluation
      expenditures are expensed as incurred.                                                                                                                                                                              

13

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

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

| |     | 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.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | iv. | Depletion and depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Mineral property costs, excluding stripping costs
      capitalized during the production phase of a mine, are depreciated when
      commercial production begins using the UOP method based on estimated
      proven and probable reserves.                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Plant and equipment, including major components, are
      depreciated using the following depreciation
methods:                                                                                                                                                                                                                                                                                                                                                             

| | 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.

|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.

14

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

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

| | i. | Provision for site reclamation and
  closure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The Companys mining and exploration activities are
      subject to various laws and regulations governing the protection of the
      environment. The Company records the fair value of a provision for site
      reclamation and closure as a liability in the period in which it incurred
      a legal or constructive obligation associated with the reclamation of the
      mine site and the retirement of tangible long-lived assets that result
      from the acquisition, construction, development, and/or normal use of the
      assets.                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The obligation is measured initially at 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 depreciated using
      either the straight-line method or UOP method, as appropriate.                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The provision is initially discounted using a current
      market-based pre-tax discount rate and subsequently increased for the
      unwinding of the discount. The unwinding of the discount is charged to
      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 depreciated 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, determined 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.                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The fair value of a share-based payment is determined at
      the date of the grant. The estimated fair value of share options is
      measured using the Black-Scholes option pricing model. The Black-Scholes
      option pricing model requires the input of subjective assumptions,
      including the expected term of the option and share price volatility. The
      expected term of options granted is determined based on historical data on
      the average hold period before exercise, expiry or cancellation. Expected
      volatility is estimated with reference to the historical volatility of the
      share price of the Company.                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | These estimates involve inherent uncertainties and the
      application of managements judgement. The costs of share-based payments
      are recognized over the vesting period of the option. The total amount
      recognized as an expense is adjusted to reflect the number of options
      expected to vest at each reporting date. At each reporting date prior to
      vesting, the cumulative compensation expense representing the extent to
      which the vesting period has passed and managements best estimate of the
      share options that are ultimately expected to vest is computed. The
      movement in cumulative expense is recognized in 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.                                                                                                                                                                                                                                                                                                                                                                                                            

15

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | 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) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|j) | Financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Financial assets, other than derivatives, are classified
      as held to maturity, available-for-sale, loans and receivables or fair
      value through profit or loss (FVTPL).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Financial assets classified as available-for-sale are
      measured initially at fair value plus transaction costs and subsequently
      at fair value with unrealized gains and losses recognized in other
      comprehensive income except for financial assets that are considered to be
      impaired, in which case the impairment loss is 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 and
      trade and other receivables are classified as loans and receivables.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Financial assets classified as FVTPL are measured on
      initial recognition and subsequently at fair value with unrealized gains
      and losses recognized in 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.                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|k) | Financial liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Financial liabilities, which are trade payables, vendor
      loan, loan facility, 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 were classified as FVTPL.                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|l) | 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.

16

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

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

| |     | 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.                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | 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 to 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 and depreciation) had no impairment loss been recognized for the
      asset or CGU in prior periods. A reversal of impairment is recognized as a
      gain in profit or loss.                                                                                                                                                                                                                          

17

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|**3.** | SIGNIFICANT ACCOUNTING POLICIES (Continued)
|------ | -------------------------------------------
|       |                                            
|**m)** | 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.                                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 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 fulfills the criteria for recognition, a deferred
      tax asset is recorded.                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      | Deferred tax is measured on an undiscounted basis using
      the tax rates that are expected to apply in the period when the liability
      is settled or the asset is realized, based on tax rates and tax laws
      enacted or substantially enacted at the reporting date. Current and
      deferred tax relating to items recognized directly in equity 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.                                                                                                                                                                                                                                                          

|n) | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Basic earnings per share (EPS) is calculated by
      dividing the earnings and comprehensive income 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.

18

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|o) | Borrowing costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Borrowing costs directly attributable to the acquisition,
      construction or production of qualifying assets, which are assets that
      necessarily take a substantial period of time to get ready for their
      intended use or sale, are added to the cost of those assets, until such
      time as the assets are substantially ready for their intended use or sale.
      Qualifying assets include the cost of developing mineral properties and
      constructing new facilities.                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Borrowing costs are capitalized at the rate of interest
      applicable to the specific borrowings financing the assets under
      construction, or, where financed through general borrowings, at a
      capitalization rate representing the weighted average interest rate on
      such borrowings. Investment income earned on the temporary investment of
      specific borrowings pending their expenditure on qualifying assets is
      deducted from the borrowing costs eligible for capitalization.                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | All other borrowing costs are recognized in profit or
      loss in the period in which they are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|p) | Operating segments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company has determined that it operates through one
      reportable operating segment, being the acquisition, exploration, and
      development of mineral properties located in 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
      (CEO) 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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4. | CHANGES IN ACCOUNTING STANDARDS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | A number of new standards, and amendments to standards
      and interpretations, will become effective subsequent to December 31,
      2012, and thus 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, 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 January 1, 2013. 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. IFRS 12
      is effective January 1, 2013. 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 does not anticipate this amendment to have a
      material impact on its consolidated financial
statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

19

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

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

| | 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 January 1, 2013.
      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. 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 January 1, 2013.
      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
      January 1, 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | 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
      January 1, 2013, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

20

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|4. | CHANGES IN ACCOUNTING STANDARDS (Continued)
      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. 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 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 year ended December 31, 2012 and
      nine months ended December 31, 2011 are as
follows:

| |                                                            |   |              |   |   | Nine months  |  
| | ---------------------------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                                            |   | Year ended   |   |   | ended        |  
| |                                                            |   | December 31, |   |   | December 31, |  
| |                                                            |   | 2012         |   |   | 2011         |  
| | Costs of contract mining                                   | $ | 41,499       |   | $ | 27,571       |  
| | Crushing and gold recovery costs                           |   | 27,121       |   |   | 15,881       |  
| | Mine site administration costs                             |   | 5,112        |   |   | 2,923        |  
| | Transport and refining                                     |   | 344          |   |   | 246          |  
| | Net change in inventories                                  |   | (2,431       | ) |   | (12,085      | )
| | Production costs                                           |   | 71,645       |   |   | 34,536       |  
| | Depreciation and depletion                                 |   | 7,934        |   |   | 7,782        |  
| | Cost of sales
      (including depreciation and depletion) | $ | 79,579       |   | $ | 42,318       |  

Corporate and administrative expenses
for the year ended December 31, 2012 and nine months ended December 31, 2011 are
as follows:

| |                                             |  |       |  |   |              |  |   | Nine months  | 
| | ------------------------------------------- |  | ----- |  | - | ------------ |  | - | ------------ | 
| |                                             |  |       |  |   | Year ended   |  |   | ended        | 
| |                                             |  |       |  |   | December 31, |  |   | December 31, | 
| |                                             |  | Note  |  |   | 2012         |  |   | 2011         | 
| | Salaries                                    |  |       |  | $ | 3,440        |  | $ | 2,261        | 
| | Consulting and professional fees            |  |       |  |   | 2,811        |  |   | 2,218        | 
| | Share-based payments                        |  | 14b)  |  |   | 6,143        |  |   | 5,361        | 
| | Property payment                            |  | 8b)ii |  |   | 395          |  |   | -            | 
| | Administrative and other                    |  |       |  |   | 3,214        |  |   | 2,035        | 
| | Corporate and
      administrative expenses |  |       |  | $ | 16,003       |  | $ | 11,875       | 

21

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|5. | EXPENSES (Continued)                                                                                              
|-- | ------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                   
|   | Finance expense for the year ended December 31, 2012 and
      nine months ended December 31, 2011 are as
follows:

| |                                                                                    |   |              |  |   | Nine months  |  
| | ---------------------------------------------------------------------------------- | - | ------------ |  | - | ------------ | -
| |                                                                                    |   | Year ended   |  |   | ended        |  
| |                                                                                    |   | December 31, |  |   | December 31, |  
| |                                                                                    |   | 2012         |  |   | 2011         |  
| | Loss on Embedded Derivative                                                        | $ | -            |  | $ | 815          |  
| | Gain on early extinguishment of Gold Loan                                          |   | -            |  |   | (856         | )
| | Interest on loan facility                                                          |   | 1,797        |  |   | 1,274        |  
| | Accretion of loan facility                                                         |   | 619          |  |   | 1,184        |  
| | Accretion of provision for site reclamation and closure
      and other provisions |   | 78           |  |   | 133          |  
| | Finance expense                                                                    | $ | 2,494        |  | $ | 2,550        |  

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

| |                  |   | December 31, |  |   | December 31, | 
| | ---------------- | - | ------------ |  | - | ------------ | 
| |                  |   | 2012         |  |   | 2011         | 
| | Trade receivable | $ | 1,483        |  | $ | 1,652        | 
| | VAT receivable   |   | 6,860        |  |   | 6,235        | 
| | Other            |   | 2,227        |  |   | 367          | 
| |                  | $ | 10,570       |  | $ | 8,254        | 

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

| |                                                   |   | December 31, |   |   | December 31, |  
| | ------------------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                                   |   | 2012         |   |   | 2011         |  
| | Ore in process                                    | $ | 24,656       |   | $ | 23,174       |  
| | Finished metal inventory                          |   | 218          |   |   | -            |  
| | Supplies                                          |   | 8,002        |   |   | 6,009        |  
| | Unprocessed ore
      stockpile                   |   | 10,372       |   |   | 4,481        |  
| |                                                   |   | 43,248       |   |   | 33,664       |  
| | Less: non-current
      unprocessed ore stockpile |   | (10,372      | ) |   | (4,481       | )
| |                                                   | $ | 32,876       |   | $ | 29,183       |  

The costs of inventories recognized as
an expense for the year ended December 31, 2012 were $61,683 (December 31, 2011
- $29,496) and are included in cost of sales.

22

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

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

| |                                            |   |               |  |   |           |  |   | Exploration   |  |   |         | 
| | ------------------------------------------ | - | ------------- |  | - | --------- |  | - | ------------- |  | - | ------- | 
| |                                            |   | Mineral       |  |   | Plant and |  |   | and           |  |   |         | 
| |                                            |   | properties(a) |  |   | equipment |  |   | evaluation(b) |  |   | Total   | 
| | Cost                                       |   |               |  |   |           |  |   |               |  |   |         | 
| | At January 1, 2012                         | $ | 85,150        |  | $ | 37,864    |  | $ | 2,364         |  | $ | 125,378 | 
| | Expenditures                               |   | 19,014        |  |   | 14,880    |  |   | 1,309         |  |   | 35,203  | 
| | Change in
      reclamation obligation     |   | 781           |  |   | -         |  |   | -             |  |   | 781     | 
| | At December 31, 2012                       |   | 104,945       |  |   | 52,744    |  |   | 3,673         |  |   | 161,362 | 
| | Accumulated depreciation and depletion     |   |               |  |   |           |  |   |               |  |   |         | 
| | At January 1, 2012                         |   | 10,256        |  |   | 7,444     |  |   | -             |  |   | 17,700  | 
| | Depreciation
      and depletion           |   | 4,055         |  |   | 3,295     |  |   | -             |  |   | 7,350   | 
| | At December 31, 2012                       |   | 14,311        |  |   | 10,739    |  |   | -             |  |   | 25,050  | 
| | Carrying amount
      at December 31, 2012 | $ | 90,634        |  | $ | 42,005    |  | $ | 3,673         |  | $ | 136,312 | 

| |                                            |   |               |  |   |           |   |   | Exploration   |  |   |         |  
| | ------------------------------------------ | - | ------------- |  | - | --------- | - | - | ------------- |  | - | ------- | -
| |                                            |   | Mineral       |  |   | Plant and |   |   | and           |  |   |         |  
| |                                            |   | properties(a) |  |   | equipment |   |   | evaluation(b) |  |   | Total   |  
| | Cost                                       |   |               |  |   |           |   |   |               |  |   |         |  
| | At April 1, 2011                           | $ | 62,525        |  | $ | 30,085    |   | $ | 1,795         |  | $ | 94,405  |  
| | Expenditures                               |   | 22,243        |  |   | 7,813     |   |   | 569           |  |   | 30,625  |  
| | Disposals                                  |   | -             |  |   | (34       | ) |   | -             |  |   | (34     | )
| | Change in reclamation obligation           |   | 382           |  |   | -         |   |   | -             |  |   | 382     |  
| | At December 31,
      2011                 |   | 85,150        |  |   | 37,864    |   |   | 2,364         |  |   | 125,378 |  
| | Accumulated depreciation and depletion     |   |               |  |   |           |   |   |               |  |   |         |  
| | At April 1, 2011                           |   | 4,150         |  |   | 3,052     |   |   | -             |  |   | 7,202   |  
| | Depreciation and depletion                 |   | 6,106         |  |   | 4,399     |   |   | -             |  |   | 10,505  |  
| | Disposals                                  |   | -             |  |   | (7        | ) |   | -             |  |   | (7      | )
| | At
      December 31, 2011                 |   | 10,256        |  |   | 7,444     |   |   | -             |  |   | 17,700  |  
| | Carrying amount at
      December 31, 2011 | $ | 74,894        |  | $ | 30,420    |   | $ | 2,364         |  | $ | 107,678 |  

|a) | Mineral properties
|-- | ------------------

| |                                         |   | December 31, |  |   | December 31, | 
| | --------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                         |   | 2012         |  |   | 2011         | 
| | Depletable mineral property             | $ | 76,995       |  | $ | 69,087       | 
| | Non-depletable
      mineral properties |   | 13,639       |  |   | 5,807        | 
| |                                         | $ | 90,634       |  | $ | 74,894       | 

| | i. | San Francisco Property                                                                                                                                                                                                                                                                                                                                                  
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                         
| |    | The San Francisco Property is located in Santa Ana,
      Sonora, Mexico. Commercial production began April 1, 2010. The Company
      continues to conduct and incur some exploration and development costs
      which are being capitalized. At December 31, 2012, mineral properties
      includes $25,168 (December 31, 2011 - $21,268) of deferred
    stripping.

23

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|8. | MINERAL PROPERTIES, PLANT AND EQUIPMENT, EXPLORATION
      AND EVALUATION (Continued)
|-- | -------------------------------------------------------------------------------------

| | ii. | La Chicharra Property                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The La Chicharra Property is also located in Santa Ana,
      Sonora, Mexico adjacent to the San Francisco Property, and is considered
      part of the overall San Francisco Gold Property. The La Chicharra Property
      is under active exploration and development with a significant drill
      program in process, but is not yet in commercial production and is
      therefore considered non-depletable.

|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 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 El Picacho Project in Sonora, Mexico.
      The agreement, which was renegotiated in March 2012, requires the Company
      to make periodic payments totalling $250 up to April 2014. The vendor will
      retain a 1.5% net smelter return interest, which is limited to $1,500. The
      vendor is obligated to sell or transfer to the Company his right to the
      royalty at any time, upon the Companys request, for which the Company
      will pay $500 for every half per cent (0.50%), to a maximum of
    $1,500.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The Company has also staked an additional 6,500 hectares
      surrounding the claims and now controls over 7,200 hectares in the El
      Picacho area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ii. | Other properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | During the fiscal year ended March 31, 2008, the Company
      acquired the mineral rights to 60,000 hectares in four claim blocks by
      staking the El Capomo Property in Nayarit, Mexico.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | On 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 Zacatecas, Mexico. To earn its
      interest, the Company is required to make payments of up to $2,000 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 Jalisco, Mexico. During the year ended December 30, 2012, the
      Company decided not to pursue earning its interest in the Quila concession
      and paid a mandatory property payment of $395. The value of the
      capitalized mineral property was $nil.                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The Company has received title to the Santa Maria del Oro
      claim in Jalisco, San Onesimo claims in Mazapil- Concepcion del Oro, and
      the Patricia and Norma concessions in the municipality of Trincheras,
      Sonora, Mexico.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | On June 1, 2012, the Company entered into a property
      option agreement to earn an interest in the Sarai and Emanuel mineral
      concessions located in Zacatecas, Mexico. To earn its interest, the
      Company is required to make payments of up to $600 at various dates up to
      June 2017.                                                                                                                                                                                                                                                                                                                                                                                                     

24

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

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

| |                      |   | December 31, |  |   | December 31, | 
| | -------------------- | - | ------------ |  | - | ------------ | 
| |                      |   | 2012         |  |   | 2011         | 
| | Trade payables       | $ | 12,019       |  | $ | 11,632       | 
| | Income taxes payable |   | 2,640        |  |   | 3,932        | 
| | Accrued liabilities  |   | 1,795        |  |   | 273          | 
| | Other                |   | 55           |  |   | 48           | 
| |                      | $ | 16,509       |  | $ | 15,885       | 

|10. | VENDOR LOAN                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | 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.
      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 6.78% to reflect the implied interest rate. The balance remained
      unpaid to the vendor after March 11, 2010. The balance outstanding at
      December 31, 2012 was $1,725 (December 31, 2011 - $1,725). 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 judgement 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 MXP 21,047 ($1,811) of previously restricted funds.
      The cash was released from restrictions on July 5, 2011.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|11. | PROVISION FOR SITE RECLAMATION AND
  CLOSURE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| | Balance at April 1, 2011                             | $ | 1,607 | 
| | ---------------------------------------------------- | - | ----- | 
| | Accretion of discounted cash flows                   |   | 76    | 
| | Change in estimated cash flows and assumptions       |   | 382   | 
| | Balance at December 31, 2011                         |   | 2,065 | 
| | Accretion of discounted cash flows                   |   | 23    | 
| | Change in
      estimated cash flows and assumptions |   | 781   | 
| | Balance at December 31, 2012                         | $ | 2,869 | 

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

During the year ended December 31, 2012
and the nine months ended December 31, 2011, the Company reassessed its
provision for site reclamation and closure based on independent technical
reports and to reflect the additional liability of mining operations during the
year.

The total undiscounted amount of
estimated cash flows required to settle the retirement obligations of the San
Francisco Property is $2,973 (December 31, 2011 - $2,204). The cash flows have
been inflated by the rate of 5% which is consistent with the rate used for the
nine months ended December 31, 2011, and discounted using the pre-tax risk-free
rate of 1.36% (December 31, 2011 - 1.09%) . The provision for site reclamation
and closure is not expected to be paid in the near term and is intended to be
funded from cash balances at the time of the mine closure.

25

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|12. | WARRANT LIABILITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | At December 31, 2012 and 2011, the fair value of share
      purchase warrants issued and outstanding with Canadian dollar exercise
      prices was $nil due to the share purchase warrants being fully exercised
      during September 2011. The fair value of the share purchase warrants on
      exercise was $4,555 and was reclassified to equity along with the C$1,600
      ($1,553) proceeds from exercise. The change in fair value for the nine
      months ended December 31, 2011 was a loss of $1,003.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | At December 31, 2012 and 2011, share purchase warrant
      transactions are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                     

| |                                           |  | Number of share   |   |  | Weighted average exercise | 
| | ----------------------------------------- |  | ----------------- | - |  | ------------------------- | 
| |                                           |  | purchase warrants |   |  | price (C$)                | 
| | Outstanding at April 1, 2011              |  | 2,000,000         |   |  | 0.80                      | 
| | Exercised                                 |  | (2,000,000        | ) |  | 0.80                      | 
| | Outstanding at December 31, 2012 and 2011 |  | -                 |   |  | -                         | 

|13. | LOAN FACILITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | On January 22, 2010, the Company issued $15,000 in notes
      to Sprott Asset Management LP (the Gold Loan). Holders of the Gold Loan
      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 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. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | 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). The Embedded
      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 year ended December 31, 2012 was $nil (nine months ended December 31,
      2011 - $815). In addition, the debt discount was amortized using the
      effective interest method to each of the scheduled principal payment
      dates.   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | 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, which was the sum of the accreted principal and the
      Embedded Derivative.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | On June 1, 2011, the Company entered into a new C$18,000
      ($17,245) debt agreement (the loan facility) with Sprott Resource
      Lending Partnership, LP (the Lender). The amounts advanced under the
      terms of the loan facility were first used to repay the Gold Loan, with
      the remainder available for working capital purposes, and were repayable
      in full on July 29, 2012, bearing interest at 1% per month. 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 loan facility. The $641 fair value of this share issuance was
      considered to represent additional transaction costs and has been included
      as an adjustment to the initial fair value of the loan facility and will
      be amortized over the term of the loan using the effective interest
      method.

26

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|13. | **LOAN FACILITY (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | On July 5, 2012, the Company renegotiated the terms of
      the loan facility with the Lender. The loan facility now carries an
      interest rate of 8% per annum and will be repayable in full on or before
      December 31, 2013 (original maturity date of July 29, 2012). As part of
      the terms to the extension, the Company paid a fee to the Lender equal to
      2% of the original loan facility balance, payable in common shares of the
      Company priced at a 10% discount to the 10 day weighted average closing
      price of the shares; 217,918 shares were issued and valued at C$362
      ($357). In the event the loan has not been repaid by July 28, 2013, an
      anniversary fee of 1% of the loan amount outstanding on that date will be
      paid to the lender in shares priced at the same discount on that date.
      These fees, in addition to other directly attributable transaction costs,
      total C$603 ($595), were included in the fair value of the loan facility,
      and are amortized over the term of the loan using the effective interest
      method.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The effective interest rate of the debt agreement was
      10.72% for the year ended December 31, 2012. Under the terms of the loan
      facility, the Company has pledged all of its assets (including the assets
      of its subsidiaries) in favour of the Lender as security over the loan
      facility. In addition, the subsidiaries have each provided guarantees to
      the Lender for the repayment of any amounts advanced to the Company under
      the terms of the loan facility. At December 31, 2012 and 2011, no accrued
      interest on the loan facility was included in trade payables and accrued
      liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|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; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |  Unlimited number of convertible preference shares
      without par value, with the same rights as the common shares on
      dissolution and similar events. These shares have no voting rights and are
      not entitled to dividend payments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | At December 31, 2012, there were 144,084,045 issued and
      outstanding common shares (December 31, 2011 - 140,291,127).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|b)  | Share options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company has an incentive share option plan (the
      plan) in place under which it is authorized to grant share options to
      executive officers, directors, employees and consultants. The plan allows
      the Company to grant share options up to a maximum of 10% of the number of
      issued shares of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Share options granted under the plan will have a term not
      to exceed five years, have an exercise price not less than the Discounted
      Market Price as defined by the TSX Corporate Finance Manual and vest over
      periods up to two years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Share option transactions and the number of share options
      outstanding are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| |                                        |  | Number of share |   |  | Weighted average exercise | 
| | -------------------------------------- |  | --------------- | - |  | ------------------------- | 
| |                                        |  | options         |   |  | price (C$)                | 
| | Outstanding, April 1, 2011             |  | 5,875,000       |   |  | 0.78                      | 
| | Granted                                |  | 4,000,000       |   |  | 2.50                      | 
| | Exercised                              |  | (1,025,000      | ) |  | 0.44                      | 
| | Outstanding, December 31, 2011         |  | 8,850,000       |   |  | 1.60                      | 
| | Granted                                |  | 4,550,000       |   |  | 2.58                      | 
| | Exercised                              |  | (3,575,000      | ) |  | 1.02                      | 
| | Forfeited                              |  | (850,000        | ) |  | 2.47                      | 
| | Expired                                |  | (25,000         | ) |  | 0.75                      | 
| | Outstanding at December 31, 2012       |  | 8,950,000       |   |  | 2.25                      | 
| | Exercisable at
      December 31, 2012 |  | 7,425,000       |   |  | 2.18                      | 

27

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|14. | EQUITY (Continued)                                                                  
|--- | ------------------------------------------------------------------------------------
|    |                                                                                     
|    | Share options outstanding and exercisable at December 31,
      2012 are as follows:

Weighted
    
    
    WeightedWeighted
    average
    
    Weighted
    averageExercise
    Number of
    average
    remaining life
    Number of
    average
    remaining lifeprice range
    options
    exercise price
    of options
    options
    exercise price
    of options(C$)
    outstanding
    (C$)
    (years)
    exercisable
    (C$)
    (years)0.70 - 1.00
    1,750,000
    1.00
    1.87
    1,750,000
    1.00
    1.872.35 - 2.75
    7,200,000
    2.55
    3.81
    5,675,000
    2.54
    3.658,950,000
    2.25
    3.43
    7,425,000
    2.18
    3.23


The weighted average share price at the
date of exercise for share options exercised during the year ended December 31,
2012 was C$1.02 (nine months ended December 31, 2011 - C$2.39) . The fair value
of share options recognized as an expense during the year ended December 31,
2012 was $6,143 (nine months ended December 31, 2011 - $5,361). For the
4,550,000 share options granted during the year ended December 31, 2012, the
weighted average grant date fair value per option was C$1.45 ($1.46) . During
the nine months ended December 31, 2011, the weighted average grant date fair
value per option of the 4,000,000 share options granted was C$1.43 ($1.48) .

The following are the weighted average
assumptions used for the Black-Scholes option pricing model valuation of share
options granted during the year ended December 31, 2012 and the nine months
ended December 31, 2011:

| |                          | Year ended        | Nine months ended
| | ------------------------ | ----------------- | -----------------
| |                          | December 31, 2012 | December 31, 2011
| | Risk-free interest rate  | 1.11%             | 2.13%            
| | Expected life of options | 3.3 years         | 3.3 years        
| | Annualized volatility    | 74%               | 88%              
| | Forfeiture rate          | 0.55%             | 0.19%            
| | Dividend rate            | 0%                | 0%               

|        | The risk-free rate of periods within the expected life of
      the share option is based on the Canadian government bond rate. The
      expected life of share options granted represents the period of time that
      share options granted are expected to be outstanding. Expected
      volatilities are based on historical volatility of the Companys shares
      listed on the TSX. The expected forfeiture rate represents the expectation
      of forfeitures occurring within the vesting period.                 
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|**15.** | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | For the year ended December 31, 2012, the Company
      incurred $14,152 of current income tax (nine months ended December 31,
      2011 - $5,327).                                                                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | For the year ended December 31, 2012, the Company
      incurred $6,919 of deferred income tax (nine months ended December 31,
      2011 - $6,513). The amounts in all periods related primarily to the
      recognizing the tax effects on changes in timing differences from mineral
      property and equipment balances.                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|**a)**  | Rate changes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | In late 2012, the Mexican government enacted tax reform
      extending by one year the 2% gradual rate reduction to 28%. The tax rate
      for both 2012 and 2013 remains at 30%, 29% for 2014, and 28% for 2015 and
      thereafter. Mexico also continues to have a flat tax which was introduced
      in late 2009 and which is 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.

28

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|**15.** | INCOME TAXES (Continued)                                                                                                                                                                                                                                                                                                                                                                       
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                
|**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 for the year ended December 31, 2012 is generated in Mexico and is
      subject to Mexicos 30% (nine months ended December 31, 2011 - 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  |  
| | ----------------------------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                                             |   | Year ended   |   |   | ended        |  
| |                                                             |   | December 31, |   |   | December 31, |  
| |                                                             |   | 2012         |   |   | 2011         |  
| | Profit before income tax                                    | $ | 57,139       |   | $ | 32,714       |  
| | Canadian federal and provincial income tax rates            |   | 25.0%        |   |   | 26.5%        |  
| | Expected income tax expense                                 |   | 14,285       |   |   | 8,669        |  
| | Items that cause an increase (decrease):                    |   |              |   |   |              |  
| | Effect of
      different tax rates in foreign jurisdiction |   | 3,441        |   |   | 1,450        |  
| | Non-deductible expenses                                     |   | 1,629        |   |   | 1,477        |  
| | Foreign exchange                                            |   | (853         | ) |   | (821         | )
| | Difference in future and current
      tax rates            |   | (204         | ) |   | (403         | )
| | Change in
    unrecognized deferred income tax assets       |   | 2,452        |   |   | 1,468        |  
| | Other                                                       |   | 321          |   |   | -            |  
| | Income tax expense                                          | $ | 21,071       |   | $ | 11,840       |  

|c) | Deferred tax assets and liabilities                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                     
|   | The composition of the Company's deferred income tax
      liabilities at December 31, 2012 and 2011 are as
follows:

| |                                                      |   | December 31, |   |   | December 31, |  
| | ---------------------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                                      |   | 2012         |   |   | 2011         |  
| | Deferred income tax liabilities:                     |   |              |   |   |              |  
| | Mineral properties book value in excess of tax value | $ | (29,481      | ) | $ | (22,562      | )
| | Deferred income tax liabilities, net                 | $ | (29,481      | ) | $ | (22,562      | )

The Company's unrecognized deferred tax
assets at December 31, 2012 and 2011 are as follows:

| |                                         |   | December 31, |  |   | December 31, | 
| | --------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                         |   | 2012         |  |   | 2011         | 
| | Deferred income tax assets:             |   |              |  |   |              | 
| | Non-capital losses                      | $ | 9,676        |  | $ | 7,342        | 
| | Other credits and tax
      assets      |   | 415          |  |   | 189          | 
| | Share issuance costs                    |   | 275          |  |   | 383          | 
| | Unrecognized deferred income tax assets | $ | 10,366       |  | $ | 7,914        | 

29

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|**15.** | INCOME TAXES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|**d)**  | Non-capital losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | At December 31, 2012, 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.                                                                                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | At December 31, 2012, the Company has available
      non-capital losses for deduction against future taxable income in Canada
      and Mexico of $32,544 (December 31, 2011 - $23,413) and $7,372 (December
      31, 2011 - $5,317), respectively. The Canadian losses, if not utilized,
      will expire through to 2032, while the Mexican losses, if not utilized,
      will expire through to 2022. Of these Canadian and Mexican amounts, $620
      (December 31, 2011 - $nil) and $1,316 (December 31, 2011 - $1,693),
      respectively, have been recognized to offset select deferred tax
      liabilities.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|**16.** | EARNINGS PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                                |   | Year ended December 31,
      2012 |  |  | Nine months ended December 31,
      2011 | 
| | ------------------------------ | - | ---------------------------------- |  |  | ----------------------------------------- | 
| |                                |   |                                    |  |  | Weighted                                  | 
| |                                |   | Earnings                           |  |  | average                                   | 
| |                                |   | for the                            |  |  | shares                                    | 
| |                                |   | period                             |  |  | outstanding                               | 
| | Basic EPS                      | $ | 36,068                             |  |  | 142,555,763                               | 
| | Effect of dilutive securities: |   |                                    |  |  |                                           | 
| | Share options                  |   | -                                  |  |  | 1,933,707                                 | 
| | Warrants                       |   | -                                  |  |  | -                                         | 
| | Diluted EPS                    | $ | 36,068                             |  |  | 144,489,470                               | 

|17. | SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH
      FLOWS
|--- | --------------------------------------------------------
|    |                                                         
|    | Significant non-cash transactions were as
  follows:    

| |                                       |  |      |  |   |              |  |   | Nine months  | 
| | ------------------------------------- |  | ---- |  | - | ------------ |  | - | ------------ | 
| |                                       |  |      |  |   | Year ended   |  |   | ended        | 
| |                                       |  |      |  |   | December 31, |  |   | December 31, | 
| |                                       |  | Note |  |   | 2012         |  |   | 2011         | 
| | Shares issued for debt issuance costs |  | 13   |  | $ | 357          |  | $ | 641          | 

|**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.                                                                                                       

30

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|18. | **FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
      (Continued)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | At December 31, 2012 and 2011, none of the Companys
      financial assets and liabilities are measured and recognized in the
      consolidated statement of financial position at fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company has determined the estimated fair values of
      its financial instruments based upon appropriate valuation methodologies.
      At December 31, 2012 and 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 2 or
      Level 3 in the fair value hierarchy above. The fair value of share
      purchase warrants (note 12) was 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, 2012, 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, 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, any gold and silver sales and related
      receivables, prepaid expenses and advances to counterparties and other
      receivables. The maximum exposure to the credit risk is equal to the
      carrying value of such financial assets. At December 31, 2012, 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 is only deposited with or held by major financial
      institutions where the Company conducts its business. In order to manage
      credit and liquidity risk, the Company invests only in highly rated
      investment grade instruments that have maturities of three months or less.
      Limits are also established based on the type of investment, the
      counterparty and the credit rating.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | Gold and silver sales are made to a limited number of
      large international organizations specializing in the precious metals
      markets. The Company believes them to be of sound credit worthiness, and
      to date, all receivables have been settled in accordance with agreed upon
      terms and conditions. The Mexican tax authorities with whom the Company
      holds a VAT receivable balance, are also deemed to be of sound credit
      worthiness.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

31

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

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

| | ii.  | Commodity price risks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      | The Company is exposed to price risk associated with the
      volatility of the market price of commodities, in particular gold and
      silver, and also to many consumables that are used in the production of
      gold and silver. 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 assets and
      liabilities held in foreign currencies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| |                                                      |   | December 31, |   |   | December 31, |  
| | ---------------------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                                      |   | 2012         |   |   | 2011         |  
| | Canadian dollar net monetary liabilities             | $ | (17,191      | ) | $ | (17,543      | )
| | Mexican peso net
      monetary assets (liabilities) |   | 3,681        |   |   | (2,814       | )
| |                                                      | $ | (13,510      | ) | $ | (20,357      | )

| |     | The effect on profit before income tax at December 31,
      2012 of a 10% appreciation in the foreign currencies against the US dollar
      on the above mentioned net monetary assets and liabilities of the Company
      is estimated to be a decrease of $1,501 (December 31, 2011 - $2,036)
      assuming that all other variables remained constant.                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The effect on profit before income tax at December 31,
      2012 of a 10% 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 an increase of $1,228 (December 31, 2011
      - $2,083) assuming that all other variables remained constant.                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The calculations above are based on the Companys
      statement of financial position exposure at December 31, 2012.                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 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 significantly 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 year ended December 31, 2012, 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.                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | A summary of future operating commitments is presented in
      note 21.                                                                                                                                                                                                                                                                                                                                                                                                                 

32

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

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

| | v.  | Interest rate risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Companys interest revenue earned on cash and
      interest expense incurred on the loan facility are exposed to interest
      rate risk. The Company does not enter into derivative contracts to manage
      this risk, and the Companys exposure to interest rate risk is very low as
      the Company has a fixed interest rate on its loan facility. At December
      31, 2012, a 1% increase of the effective interest rate on the loan
      facility would decrease its fair value by C$253 ($255). Additionally, a 1%
      decrease of the effective interest rate on the loan facility would
      increase its fair value by C$257 ($259). 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, 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 nature.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | At December 31, 2012, the fair value of loan facility is
      C$17,177 ($17,265) as determined by discounting the future cash flows by a
      discount factor based on an interest rate of 10.72%, 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 year ended December 31, 2012 and nine months ended
      December 31, 2011, the Company entered into the following transactions
      with related parties:                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Company incurred $30 (nine months ended December 31, 2011 - $nil)
      of consulting fees to directors and officers; and                                                                                                                                                                                                                                                                                                                     
|    | At December 31, 2012, $5 (December 31, 2011 - $33) was due to these
      directors and officers.                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | 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. Salaries, benefits and bonuses
      are included in corporate and administrative expenses.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Key management compensation
includes:                                                                                                                                                                                                                                                                                                                                                                                                             

| |                       |   |              |  |   | Nine months  | 
| | --------------------- | - | ------------ |  | - | ------------ | 
| |                       |   | Year ended   |  |   | ended        | 
| |                       |   | December 31, |  |   | December 31, | 
| |                       |   | 2012         |  |   | 2011         | 
| | Salaries and benefits | $ | 1,628        |  | $ | 1,160        | 
| | Bonuses               |   | 372          |  |   | 501          | 
| | Share-based payments  |   | 5,532        |  |   | 3,542        | 
| |                       | $ | 7,532        |  | $ | 5,203        | 

33

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|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 consolidated equity
      and loan facility, net of cash.

| |               |   | December 31, |   |   | December 31, |  
| | ------------- | - | ------------ | - | - | ------------ | -
| |               |   | 2012         |   |   | 2011         |  
| | Equity        | $ | 147,815      |   | $ | 101,600      |  
| | Loan facility |   | 17,641       |   |   | 17,245       |  
| |               |   | 165,456      |   |   | 118,845      |  
| | Less: Cash    |   | (24,188      | ) |   | (9,865       | )
| |               | $ | 141,268      |   | $ | 108,980      |  

|    | 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, 2012, 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, 2012, the Company is not
      subject to any externally imposed capital requirements.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|21. | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | A summary of non-discounted liabilities and future
      operating commitments at December 31, 2012 are as
  follows:                                                                                                                                                                                                                                                                                                                     

Less than
    
    
    
    
    
    
    
    
    Greater thanTotal
    
    
    1 year
    
    
    1 - 3
      years
    
    
    3 - 5
      years
    
    
    5
      yearsTrade payables and accrued
      liabilities
    $
    16,509
    
    $
    16,509
    
    $
    -
    
    $
    -
    
    $
    -Vendor loan
    
    1,725
    
    
    1,725
    
    
    -
    
    
    -
    
    
    -Loan facility (C$18,000)
    
    18,092
    
    
    18,092
    
    
    -
    
    
    -
    
    
    -Interest payments on loan facility
    
    1,447
    
    
    1,447
    
    
    -
    
    
    -
    
    
    -Future operating commitments
      (1)
    
    295,807
    
    
    58,308
    
    
    138,006
    
    
    99,493
    
    
    -Provision for site reclamation and closure
      (2)
    
    2,973
    
    
    -
    
    
    -
    
    
    -
    
    
    2,973Other provisions (3)
    
    1,308
    
    
    -
    
    
    -
    
    
    1,308
    
    
    -$
    337,861
    
    $
    96,081
    
    $
    138,006
    
    $
    100,801
    
    $
    2,973


| | (1) | The future operating commitments of the Company are
      mainly due to the mining contract with Peal de Mexico, S.A. de C.V.
      (Peal). The original Peal contract was for 42 months, however an
      addendum was signed effective November 1, 2012 for five years (December
      31, 2012 - 46 months remaining) and covers substantially all mining
      services at a cost of $1.59 per tonne of material mined ($1.64 per the
      original contract). The Peal commitment is based on the forecasted minimum
      tonnage to be mined until the end of the mining contract, and would be
      significantly less in the event that mining activities at the San
      Francisco Mine ceased. Operating commitments also includes a guarantee
      provided by the Company for the office premises at its corporate
      office.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

34

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2012                                                
|(In thousands of
      United States dollars, except where noted)

|21. | COMMITMENTS AND CONTINGENCIES
  (Continued)
|--- | -------------------------------------------

| | (2) | Provision for site reclamation and closure represents the
      non-discounted amount of the estimated cash flows required to settle the
      retirement obligations of the San Francisco Mine.                                                                                                                                                                                                                                                                                                
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (3) | Other provisions represent the non-discounted amount of
      the demobilization costs related to the Peal contract, whereby the Company
      is responsible for demobilization costs of $900 (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 1.36%,
      reflecting the implied interest rate, and calculated according to the
      formula stipulated in the contract.

|    | Various tax and legal matters are outstanding from time
      to time. In the event that managements estimate of the future resolution
      of these matters changes, the Company will recognize the effects of these
      changes in the consolidated financial statements on the date such changes
      occur. The Company will also have commitments with regards to payments
      going to El Picacho and San Onesimo exploration properties at various
      dates until January 2015.                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|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 Mexico. At December 31, 2012,
      all of the Companys operating and capital assets are located in Mexico
      except for $2,296 (December 31, 2011 - $1,752) of cash and other current
      assets which are held in Canada.                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Reporting is prepared on a geographic and consolidated
      basis as determined by the requirements of the Chief Executive Officer as
      the chief operating decision maker for the Company. The Company does not
      treat the production of gold and silver, the primary two minerals, as
      separate 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.                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | During the year ended December 31, 2012, the Company had
      sales agreements with two major customers based in the United States which
      constitute 98% of metal revenues; 94% to customer A and 4% to customer B
      (nine months ended December 31, 2011 - 100% of metal revenues; 97% to
      customer A and 3% to customer B) with the remaining 2% of 2012 metal
      revenues from sales occurring in Mexico. However, due to the nature of the
      gold market, the Company is not dependent on any customers to sell the
      finished goods.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Companys revenues from operations for the year ended
      December 31, 2012 and nine months ended December 31, 2011 are as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                    

| |        |   |              |  |   | Nine months  | 
| | ------ | - | ------------ |  | - | ------------ | 
| |        |   | Year ended   |  |   | ended        | 
| |        |   | December 31, |  |   | December 31, | 
| |        |   | 2012         |  |   | 2011         | 
| | Gold   | $ | 154,509      |  | $ | 89,763       | 
| | Silver |   | 1,683        |  |   | 1,006        | 
| |        | $ | 156,192      |  | $ | 90,769       | 

35

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