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|                            
|----------------------------
|                            
|                            
|ANNUAL INFORMATION FORM     
|                            
|Year ended December 31, 2014
|                            
|                            
|                            
|                            
|March 23, 2015              

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TABLE OF CONTENTS

|FORWARD-LOOKING
      STATEMENTS                                 | 3 
|---------------------------------------------------------------- | --
|MINERAL
      RESERVE AND RESOURCE ESTIMATES                     | 4 
|CURRENCY
      AND EXCHANGE RATES                                | 4 
|CORPORATE
      STRUCTURE                                        | 5 
|GENERAL
      DEVELOPMENT OF THE BUSINESS                        | 6 
|Risk
      Factors                                               | 9 
|Mineral
      Properties                                         | 20
|San
      Francisco Property                                     | 20
|Caballo
      Blanco Project                                     | 44
|DIVIDENDS                                                        | 64
|CAPITAL
      STRUCTURE                                          | 65
|MARKET
      FOR SECURITIES                                      | 65
|ESCROWED
      SECURITIES                                        | 66
|DIRECTORS
      AND OFFICERS                                     | 66
|Director
      and Officer Information                           | 66
|Shareholdings
      of Directors and Officers                    | 68
|Corporate
      Cease Trade Orders or Bankruptcies               | 68
|Penalties
      or Sanctions                                     | 68
|Conflicts
      of Interest                                      | 69
|LEGAL
      PROCEEDINGS AND REGULATORY ACTIONS                   | 69
|INTEREST
      OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS | 70
|REGISTRAR
      AND TRANSFER AGENT                               | 70
|MATERIAL
      CONTRACTS                                         | 70
|TECHNICAL
      INFORMATION                                      | 70
|INTEREST
      OF EXPERTS                                        | 70
|AUDIT
      COMMITTEE INFORMATION                                | 71
|ADDITIONAL
      INFORMATION                                     | 73

- i -

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Unless otherwise stated or the context requires otherwise,
references in this Annual Information Form (AIF) to the Company,
Timmins, we, us or our refer to Timmins Gold Corp. and its subsidiaries
on a consolidated basis.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this AIF may constitute
forward-looking statements or forward-looking information (collectively,
forward-looking statements) and are made pursuant to the safe harbor
provisions of the United States Private Securities Litigation Reform Act of 1995
and Canadian securities laws. Forward-looking statements are statements which
relate to future events. Such statements include estimates, forecasts and
statements with respect to, among other things, the ability of the Company and
Newstrike Capital Inc. (Newstrike) to consummate the Arrangement (as
defined below under the heading General Development of the Business 
Newstrike Acquisition Agreement) on the terms of the arrangement agreement
between the parties, the anticipated benefits of the Arrangement, including
business and financial prospects, financial multiples, accretion estimates, the
effect of the Arrangement on project development risks and estimated future
production and cash costs, future trends, plans, strategies, objectives and
expectations, including with respect to costs, capital requirements,
availability of financing, production, exploration and reserves and resources,
projected production at the Companys San Francisco Property and Caballo Blanco
Project and at Newstrikes Ana Paula Project, including estimated internal rate
of return and projected production, exploitation activities and potential, and
future operations. Information inferred from the interpretation of drilling
results and information concerning mineral resource estimates may also be deemed
to be forward-looking statements, as it constitutes a prediction of what might
be found to be present when, and if, a project is actually developed. In some
cases, you can identify forward-looking statements by terminology such as may,
should, expects, plans, anticipates, believes, estimates, predicts,
potential, or continue or the negative of these terms or other comparable
terminology. All statements and information other than statements of historical
fact may be forward-looking statements.

These forward-looking statements are based on a number of
assumptions, including assumptions regarding the ability of the parties to the
Arrangement to receive, in a timely manner and on satisfactory terms, the
necessary court, shareholder, stock exchange and regulatory approvals and the
ability of the parties to satisfy in a timely manner, the conditions to the
closing of the Arrangement; the value of the parties respective assets; the
successful completion of development projects, planned expansions or other
projects within the timelines anticipated and at anticipated production levels;
the accuracy of reserve and resource, grade, mine life, cash cost, net present
value and internal rate of return estimates and other assumptions, projections
and estimates made in the technical reports for the San Francisco Property, the
Caballo Blanco Project and the Ana Paula Project; that mineral resources can be
developed as planned; interest and exchange rates; that required financing and
permits will be obtained; general economic conditions; that labour disputes,
flooding, ground instability, fire, failure of plant, equipment or processes to
operate as anticipated and other risks of the mining industry will not be
encountered; the price of gold, silver and other metals; competitive conditions
in the mining industry; title to mineral properties; and changes in laws, rules
and regulations applicable to the Company and Newstrike.

Forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements, or industry results, to differ materially from those anticipated
in such forward-looking statements. The Company believes the expectations
reflected in such forward-looking statements are reasonable, but no assurance
can be given that these expectations will prove to be correct and readers are
cautioned not to place undue reliance on forward-looking statements due to the
inherent uncertainty thereof. Some of the risks and other factors which could
cause actual results to differ materially from those expressed in the
forward-looking statements contained in this AIF include, but are not limited
to: non-completion of the Arrangement, including due to the parties failing to
receive, in a timely manner and on satisfactory terms, the necessary court,
shareholder, stock exchange and regulatory approvals or the inability of the
parties to satisfy in a timely manner the other conditions to the closing of the
Arrangement; changes in market conditions; actual results being materially
different than reserve and resource, grade, mine life, net present value,
internal rate of return and cash cost estimates and the other projections and
estimates made in the technical reports for the San Francisco Property, the
Caballo Blanco Project and the Ana Paula Project; variations in grade or
recovery rates; risks relating to international operations; fluctuations in
gold, silver and other metal prices and currency exchange rates; failure to
obtain required financing; inability to successfully complete development
projects, planned expansions or other projects within the timelines anticipated; natural disasters;
adverse changes to general economic conditions or applicable laws, rules and
regulations; changes in project parameters; the possibility of project cost
overruns or unanticipated costs and expenses; labour disputes, flooding, ground
instability, fire and other risks of the mining industry; failure of plant,
equipment or processes to operate as anticipated; the risk of an undiscovered
defect in title or other adverse claim; the risk that results of exploration
activities will be different than anticipated; and other factors contained in
the section entitled Risk Factors in this AIF.

- 3 -

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

MINERAL RESERVE AND RESOURCE ESTIMATES

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

CURRENCY AND EXCHANGE RATES

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

- 4 -

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|Canadian Dollars into | 2014   | 2013   | 2012  
|--------------------- | ------ | ------ | ------
|United States Dollars |        |        |       
|Closing               | 0.8620 | 0.9402 | 1.0051
|Average               | 0.8985 | 0.9701 | 1.0004
|High                  | 0.9422 | 1.0164 | 1.029 
|Low                   | 0.8589 | 0.9348 | 0.9599

CORPORATE STRUCTURE

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

The Companys head office and its registered and records office
are located at Suite 1900  570 Granville Street, Vancouver, British Columbia,
V6C 3P1. The Companys head office in Mexico is located at Blvd. Solidaridad
#335 A, Local 3, Col Las Palmas, Hermosillo, Sonora, Mexico, 83270. The Company
also maintains a field office at the San Francisco Property (as defined under
General Development of the Business  Overview below), near Estacion
Llano, Sonora.

The Company has two wholly owned subsidiaries: Timmins Goldcorp
Mexico, S.A. de C.V. (Timmins Mexico) and Molimentales del Noroeste,
S.A. de C.V. (Molimentales). Timmins Mexico was incorporated pursuant
to the laws of Mexico on March 23, 2005 and is the entity through which the
Company conducts its Mexican operations. Molimentales was acquired on March 20,
2007, and was incorporated pursuant to the laws of Mexico for the principal
purpose of holding the mineral concessions and infrastructure that constitute
the San Francisco open pit gold mine. Molimentales is also the entity that
acquired the Caballo Blanco project in Veracruz in December, 2014. In February
2015 the Company announced its agreement to acquire all of the outstanding
shares of Newstrike Capital Inc. which owns the Ana Paula gold project in
Guerrero, Mexico.



- 5 -

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GENERAL DEVELOPMENT OF THE BUSINESS

Overview

The Company is a publicly traded gold producer engaged in the
operation, development, exploration and acquisition of resource properties,
primarily in Mexico. The Company owns and operates the San Francisco open pit
gold mine (the San Francisco Mine), together with the associated La
Chicharra open pit gold mine in the state of Sonora, Mexico, together with
approximately 200,000 hectares of exploration claims in and around the mines
(collectively, the San Francisco Property). In addition, the Company
recently completed the acquisition of the Caballo Blanco project in Veracruz
State, Mexico, and on February 16, 2015, entered into an agreement to acquire
Newstrike, owner of the Ana Paula Project in the state of Guerrero, Mexico. The
Companys goal is to become a Mexican-focused intermediate gold producer.



Three Year History

Since 2011, the Company has expanded its production capacity
71%, from approximately 14,000 tonnes per day to 24,000 tonnes per day.
Production has increased 62%, from approximately 74,000 ounces in 2011 to
120,000 ounces in 2014.

During 2012 and 2013, the Company completed approximately
220,000 meters of exploration drilling at the San Francisco Property. In
November 2013, the Company announced a new reserve and resource update.
Estimated mineral reserves increased by 20%, measured and indicated
resources by 30% and inferred resources by 77%, all compared to the last
previously published technical report in 2011.

- 6 -

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On February 11, 2014, the Company closed a bought-deal offering
of 18,920,000 common shares of the Company (including 2,250,000 common shares
issued pursuant to the partial exercise of the underwriters over-allotment
option), at a price of C$1.50 per common share for aggregate gross proceeds of
C$28,380,000. The common shares were issued in a public offering in certain
provinces of Canada pursuant to a short form prospectus dated February 4, 2014
filed with certain Canadian securities regulators, and were underwritten by a
syndicate of underwriters led by RBC Dominion Securities Inc. and including BMO
Nesbitt Burns Inc., TD Securities Inc., GMP Securities L.P., National Bank
Financial Inc., Scotia Capital Inc. and PI Financial Corp.

During 2014, the Company carried out an exploration drilling
  program adjacent to and below the San Francisco pit and also completed a
  regional program. The Company completed approximately 2,100 meters in 20 diamond
  drill (core) holes evaluating the area immediately south of the current pit. The
  drilling was designed to evaluate whether the orogenic nature of the deposit may
  provide the potential for the discovery of high grade feeders. Previous drill
  results combined with this follow-up work done in 2014 indicate the potential
  for high grade structures proximal to and down dip of the existing pit. More
  work will be carried out on the high-grade structures below the pit in 2015 and
the Company treats this as a priority target.

The Company also completed approximately 9,000 meters of
drilling in 73 reverse circulation (RC) holes at various locations
throughout the pit. These holes were designed to provide additional information
to support operations and also to test areas where prior positive drill results
warranted follow-up drilling. Results identified that there was potential for
improvements in grade adjacent to existing operations.

In 2014, the Company also completed a regional drill program on
the North Trend, a cluster of high priority targets 2-8km north of the San
Francisco Property. The program consisted of approximately 25,000 meters, in a
combination of core, RC and rotary air blast drilling on the North Trend
identified by previous prospecting and exploration. The drill program met its
objective of identifying potential deposits similar to San Francisco or La
Chicharra that could act as a satellite pit to the existing operations.
Follow-up work on these targets is being planned.

While the Company has primarily focused on the San Francisco
Property, it holds interests in other properties in the state of Sonora and has
expanded into other regions in Mexico including the states of Jalisco, Veracruz
and Zacatecas. In December 2014, the Company announced that it had entered into
an Asset Purchase Agreement (the Asset Purchase Agreement) dated
December 17, 2014 among Goldgroup Mining Inc. (Goldgroup), Candymin
S.A. de C.V., Minera Cardel S.A. de C.V. (each subsidiaries of Goldgroup) and
Molimentales del Noroeste, S.A. de C.V. to purchase 100% of the Caballo Blanco
gold project in Veracruz State, Mexico (the Caballo Blanco Project),
for total consideration of US$10 million in cash and 16,065,000 common shares of
the Company. The Company has also agreed to pay to Goldgroup a contingent
payment of an additional US$5 million when Caballo Blanco receives its
environmental permit or the Company undergoes a change of control within the
next five years. The contingent payment can be paid at the Companys option in
cash or common shares.The Caballo Blanco Project is subject to two NSRs
in favour of third parties, for 0.5% and 1.5%, respectively. See Mineral
Properties - Caballo Blanco Project below.

On December 24, 2014, the Company announced that it had agreed
to a one year extension of its existing credit facility with Sprott Resource
Lending Partnership (Sprott), subject to final documentation. Once
completed in February 2015, the credit facility was amended to include Morgan
Stanley Capital Group Inc. and will expire on December 31, 2015. The facility was originally entered into in 2011 for C$18M.
In 2014 the Company paid C$5M on the facility and  redenominated the
remaining C$13M to
US$10.223M. Interest remains payable at 9% per annum. In consideration of the
extension, the Company paid a fee to Sprott, the Administrative Agent under the
credit facility, in the amount of C$130,000.

- 7 -

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Newstrike Acquisition Agreement

On February 17, 2015, the Company announced that it had entered
into a definitive arrangement agreement with Newstrike pursuant to which the
Company has agreed to acquire all of the issued and outstanding common shares of
Newstrike by way of a court approved plan of arrangement (the
Arrangement).

If the Arrangement is completed, the combination of Timmins
Gold and Newstrike will create an emerging intermediate, Mexican-focused gold
producer with a portfolio of high-quality production and growth assets all based
in Mexico. With the San Francisco Property providing a solid base of operations,
the combined company would have a leading growth profile driven by what the
Company believes are two economically robust growth projects with manageable
capital requirements, Newstrikes Ana Paula gold project (the Ana Paula
Project) and the Companys Caballo Blanco Project.

The boards of directors of both companies have each unanimously
approved the terms of the Arrangement Agreement (a common director of the
Company and Newstrike having recused himself) and agreed to recommend that their
respective shareholders vote in favour of the proposed Arrangement.

Under the terms of the Arrangement, Newstrike shareholders will
receive 0.9 (the Exchange Ratio) of a common share of the Company and
C$0.0001 in cash for each Newstrike common share (a Newstrike Share),
representing the equivalent of C$1.15 per Newstrike Share and a premium of 20.0%
based on the closing prices of the Companys common shares on the Toronto Stock
Exchange (TSX) and the Newstrike Shares on the TSX Venture Exchange
(TSX-V) on February 13, 2015, and C$1.20 per Newstrike Share and a
premium of 22.4% based on the 20-day volume-weighted-average-price of the
Companys common shares on the TSX and the Newstrike Shares on the TSX-V as of
February 13, 2015. The Exchange Ratio implies a total transaction value of
approximately C$140 million on a fully-diluted in the money basis. In addition,
each outstanding option to purchase a Newstrike Share will be exchanged for an
option to purchase a common share of the Company, based upon the Exchange
Ratio.

The implementation of the Arrangement will be subject to the
approval of at least 66 2⁄3% of the votes cast by holders of Newstrike common
shares at a special meeting of Newstrike shareholders expected to take place on
April 29, 2015 and obtaining the approval of a majority of the votes cast by the
shareholders of Timmins at a special meeting of Timmins shareholders expected to
take place on April 29, 2015. The Arrangement is also subject to the receipt of
certain regulatory, court and stock exchange approvals and certain other closing
conditions customary in transactions of this nature.

Upon completion of the Arrangement, the combined company will
be owned approximately 63% by shareholders of the Company and 37% by Newstrike
shareholders (based on the number of Newstrike shares outstanding as of the date
of the Arrangement Agreement).

Gold Sales

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

Metal Revenues

In 2014, the Company sold 121,441 gold ounces at an average
realized gold price of $1,269 per ounce, compared to sales of 118,550 gold
ounces at an average realized gold price of $1,358 per ounce during 2013. This
represents an increase of 2.4% in gold ounces sold and a decrease of 6.6% in
realized gold price over 2013.

- 8 -

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Total metal revenues from mining operations in 2014 were $154.1
million, compared to $160.6 million during 2013. The average London PM Fix price
in 2014 was $1,266 per gold ounce, compared to $1,411 per gold ounce during
2013. This represents a 10.3% decrease in 2014, compared to 2013.

Employees

As of December 31, 2014, the Company had sevenfull-time
employees or contractors at its Vancouver, Canada head office and one full-time
employee in Toronto, Canada. In addition, the Company had 26 full-time employees
at its office in Hermosillo, Mexico, and 6 employees at the Caballo Blanco
Project. All mining activities at the San Francisco Property are carried out by
a mining contractor. As of December 31, 2014 the contractor provided 339 skilled
mining personnel to the Company.

RISK FACTORS

Risk Factors Relating to the Companys
Business

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

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

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

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

- 9 -

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

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

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

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

| | terrorism and hostage taking;                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                            
| | expropriation or nationalization without
      adequate compensation;                                                                                                                      
|  |                                                                                                                                                                                            
| | difficulties enforcing judgments obtained in
      Canadian or United States courts against assets located outside of those
      jurisdictions;                                           
|  |                                                                                                                                                                                            
| | high rates of inflation;                                                                                                                                                                   
|  |                                                                                                                                                                                            
| | changes to royalty and tax regimes;                                                                                                                                                        
|  |                                                                                                                                                                                            
| | substantial fluctuations in currency exchange
      rates;                                                                                                                                 
|  |                                                                                                                                                                                            
| | volatile local political and economic
      developments;                                                                                                                                  
|  |                                                                                                                                                                                            
| | difficulty understanding and complying with the
      regulatory and legal framework respecting the ownership and maintenance of
      mineral properties, mines and mining operations; and
|  |                                                                                                                                                                                            
| | as the price of fuel is set by the federal
      government (not the market) the fuel component of cost structure is not as
      variable as it otherwise may be;                         
|  |                                                                                                                                                                                            
| | difficulty obtaining key equipment and
      components for equipment.                                                                                                                     

In particular, if the Arrangement is completed, the Company
will acquire the Ana Paula Project, which is located in the State of Guerrero.
If the Arrangement is completed, criminal activities in the region, or the
perception that activities are likely, may disrupt operations, hamper the
ability to hire and keep qualified personnel and impair access to sources of
capital. Risks associated with conducting business in the region include risks
related to personnel safety and asset security. Risks may include, but are not
limited to: kidnappings of employees and contractors, exposure of employees and
contractors to local crime related activity and disturbances, exposure of
employees and contractors to drug trade activity, and damage or theft including
future gold shipments, if any. These risks could result in serious adverse
consequences including personal injuries or death, property damage or theft,
limiting or disrupting operations, restricting the movement of funds, impairing
contractual rights and causing the Company to shut down operations, all of which
may expose the Company to costs as well as potential liability, if the
Arrangement is completed. Such events could have a material adverse effect on
the Companys cash flows, earnings, results of operations and financial
condition and make it more difficult for the Company to obtain required
financing. Although the Company intends to develop procedures regarding these
risks, due to the unpredictable nature of criminal activities, there is no
assurance that the Companys efforts will effectively mitigate risks and
safeguard personnel and the Company property effectively.

- 10 -

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

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

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

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

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

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

- 11 -

---

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

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

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

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

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

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

In particular, the Company plans to apply for certain permits
relating to the Caballo Blanco Project, which the projects prior owners were
unable to obtain in the past. If the Company is unable to obtain such permits,
it may be unable to complete the development of the Caballo Blanco Project,
which would have an adverse impact on the Companys future cash flows, earnings,
results of operations and financial condition.

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

- 12 -

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

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

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

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

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

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

- 13 -

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| | title claims, including aboriginal land claims;                               
|- | ------------------------------------------------------------------------------
|  |                                                                               
| | unanticipated transportation costs; and                                       
|  |                                                                               
| | periodic interruptions due to inclement or
      hazardous weather conditions.

These occurrences could result in:

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

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

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

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

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

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

- 14 -

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Land reclamation requirements may be burdensome.

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

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

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

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

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

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

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

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

- 15 -

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

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

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

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

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

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

- 16 -

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

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

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

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

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

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

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

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

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

- 17 -

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

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

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

There can be no certainty that the Arrangement will be
completed.

As more particularly described under the heading General
Development of the Business  Newstrike Acquisition Agreement, the Company
has agreed to acquire all of the issued and outstanding shares of Newstrike
pursuant to the Arrangement. Completion of the Arrangement is subject to certain
conditions that may be outside the control of the Company, including, without
limitation, the requisite approvals of the Companys shareholders and the
Newstrike shareholders, the receipt of court approval and approval of the
Mexican authorities under the Mexican Antitrust Act. There can be no assurance
that these conditions will be satisfied or that the Arrangement will be
completed as currently contemplated or at all.

If the Arrangement is not completed, the market price of
Timmins common shares may decline and its business may suffer. In addition,
Timmins will remain liable for significant consulting, accounting and legal
costs relating to the Arrangement and will not realize anticipated synergies,
growth opportunities and other benefits of the Arrangement. If the Arrangement
is delayed, the achievement of synergies and the realization of growth
opportunities could be delayed and may not be available to the same extent. If
the arrangement agreement with Newstrike is terminated in certain circumstances,
Timmins would be required to pay a termination fee of $5.5 million, which could
have an adverse effect on its financial condition.

The Company may experience problems integrating new
acquisitions and other problems associated with strategic transactions.

Strategic transactions, including acquisitions or dispositions
of assets, could involve numerous risks, including:

| | potential disruption of the Companys ongoing
      business and distraction of management;                                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                      
| | difficulty integrating acquired businesses or
      segregating assets to be disposed of;                                                                                                                            
|  |                                                                                                                                                                                                                      
| | exposure to unknown and/or contingent or other
      liabilities, including litigation arising in connection with the
      acquisition, disposition and/or against any businesses the Company may
      acquire, and
|  |                                                                                                                                                                                                                      
| | changing the Companys business profile in ways
      that could have unintended consequences.                                                                                                                       

The Companys success at completing acquisitions will depend on
a number of factors, including, but not limited to, identifying acquisitions
that fit its strategy, negotiating acceptable terms with the seller of the
business or property to be acquired and obtaining approval from regulatory
authorities in the jurisdictions of the business or property to be acquired. Any
positive effect on the Companys results from its acquisitions, including the
recent Caballo Blanco Project acquisition, and if it is completed, the
acquisition of Newstrike, will depend on a variety of factors, including, but
not limited to, assimilating the operations of an acquired business or property
in a timely and efficient manner, the ability to achieve identified and
anticipated operating and financial synergies, the decline in value of acquired
properties, companies or securities, maintaining the Companys financial and
strategic focus while integrating the acquired business or property, managing
the potential loss of the Companys key employees or key employees of any business acquired, implementing uniform
standards, controls, procedures and policies at the acquired business, as
appropriate, and conducting and managing operations in a new operating
environment. In addition, the financing of any significant acquisition may
result in changes in its capital structure, including the incurrence of
additional indebtedness. Conversely, any material disposition could reduce its
indebtedness or require the amendment or refinancing of a portion of its
outstanding indebtedness. The Company may not be successful in addressing these
risks or any other problems encountered in connection with any strategic
transactions.

- 18 -

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The Company may from time to time become subject to legal
proceedings.

The Company may from time to time, become involved in various
  claims, legal proceedings, regulatory investigations, and complaints arising in
  the ordinary course of business. The Company cannot reasonably predict the
  likelihood or outcome of these actions, should they arise. If it is unable to
  resolve any such disputes favorably, it may have a material adverse impact on
  the Companys financial performance, cash flow and results of operations. In
particular, see Legal Proceedings and Regulatory Actions.

The Company may not be able to generate sufficient cash to
service all of its indebtedness, and may be forced to take other actions to
satisfy its obligations under such indebtedness, which may not be
successful.

The Companys ability to make scheduled payments on or
refinance its debt obligations depends on its financial condition and operating
performance, which are subject to prevailing economic and competitive conditions
and to certain financial, business, legislative, regulatory and other factors
beyond the Companys control. The Company may be unable to maintain a level of
cash flow from operating activities sufficient to permit it to pay the
principal, premium, if any, and interest on its indebtedness.

If the Companys cash flows and capital resources are
insufficient to fund its debt service obligations, the Company could face
substantial liquidity problems and could be forced to reduce or delay
investments and capital expenditures or to dispose of material assets or
operations, seek additional debt or equity capital or restructure or refinance
its indebtedness. The Company may not be able to effect any such alternative
measures on commercially reasonable terms or at all and, even if successful,
those alternatives may not allow it to meet its scheduled debt service
obligations.

The Company faces risks and uncertainties related to the
repatriation of funds from its foreign subsidiaries.

The Company expects to generate cash flow and profits at its
foreign subsidiaries, and it will need to repatriate funds from those
subsidiaries to service its indebtedness or fulfill its business plans, in
particular in relation to ongoing expenditures at its exploration and
development assets. The Company may not be able to repatriate funds, or may
incur tax payments or other costs when doing so, as a result of a change in
applicable law or tax requirements at local subsidiary levels or at the Timmins
level, which costs could be substantial.

Risk Factors Relating to the Companys Common
Shares

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

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

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

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

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

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

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

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

Holders of the Companys common shares may experience
dilution when outstanding options are exercised, or as a result of additional
securities offerings which may reduce the Companys earnings per share.

There are a number of outstanding options pursuant to which
additional common shares of the Company may be issued in the future. Exercise of
such options may result in dilution to the Company shareholders. In addition, if
the Company raises additional funds to finance its activities, through the sale
of equity securities, shareholders may have their investment diluted. If the
Company issues additional common shares, shareholders percentage ownership of
the Company will decrease and shareholders may experience dilution in the
Companys earnings per share. Moreover, as the Companys intention to issue any
additional equity securities becomes publicly known, the common share price may
be materially and adversely affected.

MINERAL PROPERTIES

San Francisco Property

For a complete description of the San Francisco Property see
the report entitled NI 43-101 F1 Technical Report Updated Resources and
Reserves and Mine Plan for the San Francisco Gold Project Sonora, Mexico
dated December 6, 2013 (the San Francisco Report), prepared by Micon
International Limited of Toronto, Ontario (Micon). The Qualified
Persons responsible for the San Francisco Report are William J. Lewis, B.Sc.,
P.Geo., Ing. Alan J. San Martin, MAusIMM(CP), Mani Verma, P.Eng. and Richard M.
Gowans, B.Sc., P.Eng. of Micon. The San Francisco Report has been filed with
Canadian securities regulatory authorities on SEDAR (available at
www.sedar.com) and with the Securities and Exchange Commission on EDGAR
(available at www.sec.gov).

- 20 -

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The information contained in this section has been derived
from the San Francisco Report, is subject to certain assumptions, qualifications
and procedures described in the San Francisco Report and is qualified in its
entirety by the full text of the San Francisco Report. Reference should be made
to the full text of the San Francisco Report. The reconciliation under the
heading 2014 Reserves Reconciliation was prepared by the Company and approved
by Taj Singh, a qualified person under NI 43-101.

Property Description and Location

The Companys San Francisco Property is located in the north
central portion of the Mexican state of Sonora, which borders on the American
state of Arizona, and is approximately 150 kilometres (km) north of the
city of Hermosillo, the capital of Sonora. The latitude and longitude for the
San Francisco Property site are approximately 30°2113 N, 111°0652 W. The UTM
coordinates are 3,357,802 N, 489,017 E and the datum used was NAD 27 Mexico. The
San Francisco Property is located 2 km west of the town of Estación Llano and is
accessed via Mexican State Highway 15 (Pan American highway) from Hermosillo.

The San Francisco Property consists of 13 mining concessions,
which are held through the Companys wholly-owned Mexican subsidiary, Timmins
Mexico. All of the concessions are contiguous and each varies in size for a
total property area of 44,442.72 hectares (ha). In late 2005, the
original Timmins II concession was subdivided into two concessions (Timmins II
Fraccion Sur and Pima), as part of separate exploration strategies for the
original Timmins II concession.

All concessions are subject to a bi-annual fee and the filing
of reports in May of each year covering the work accomplished on the property
between January and December of the preceding year.

San Francisco Property, Summary of Mineral Concessions (with
Fees for 2014 noted)

Mineral Concession
      Name
    Title
      Number
    Owner
    Location (UTM
      Nad 27 Mex)
    Mineral
      Concession Type(2)
    Area
      (hectares)
    Location**Date**
    **Expiry**
      Date(2)
    Bi-Annual
      Fee (USD)(3)San Francisco
    198971
    Molimentales del Noroeste, S.A
      de C.V.
    488,675.174 E 3,359,396.801 N
    Mining Concession
    48.0000
    Nov 13, 1993
    Feb. 10, 2044
    500San Francisco Dos
    209618
    Molimentales del Noroeste, S.A
      de C.V.
    488,675.174 E 3,359,396.801 N
    Mining Concession
    315.6709
    Dec 4, 1996
    Aug. 2, 2049
    3,282San Francisco Cuatro
    219301
    Molimentales del Noroeste, S.A
      de C.V.
    488,675.174 E 3,359,396.801 N
    Mining Concession
    5,189.7041
    Aug 18, 2000
    Feb. 25, 2053
    53,947Llano II
    197203
    Molimentales del Noroeste, S.A.
      de C.V.
    483,652.702 E 3,356,290.081 N
    Mining Concession
    500.0000
    Oct 23, 1986
    Aug. 18, 2043
    5,198Llano III
    197202
    Molimentales del Noroeste, S.A
      de C.V.
    483,652.702 E 3,356,290.081 N
    Mining Concession
    500.0000
    Oct 23, 1986
    Aug. 26, 2043
    5,198Llano IV
    222787
    Molimentales del Noroeste, S.A.
      de C.V.
    488,675.174 E 3,359,396.801 N
    Mining Concession
    500.0000
    May 17, 2004
    Aug 30, 2054
    4,442Llano V
    222788
    Molimentales del Noroeste, S.A.
      de C.V.
    483,652.702 E 3,356,290.081 N
    Mining Concession
    500.0000
    May 17, 2004
    Aug 30, 2054
    4,442Timmins
    226519
    Timmins Goldcorp México, S.A.
      de C.V.
    488,675.174 E 3,359,396.801 N
    Mining Concession
    337.0000
    Aug. 26, 2005
    Jan. 23, 2056
    1,992Timmins III Fraccion 1
    227237
    Timmins Goldcorp México, S.A.
      de C.V.
    481,529.246 E 3,371,837.280 N
    Mining Concession
    346.0004
    Feb. 15, 2006
    May 25, 2056
    2,044Timmins III Fraccion 2
    227238
    Timmins Goldcorp México, S.A.
      de C.V.
    481,529.246 E 3,371,837.280 N
    Mining Concession
    54.2835
    Feb. 15, 2006
    May 25, 2056
    321Timmins II Fraccion
    228260
    Timmins Goldcorp
    488,675.174 E
    Mining
    20,370.0604
    Nov. 17,
    Mar.
    120,320


- 21 -

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Mineral Concession Name
    Title Number
    Owner
    Location (UTM Nad 27
      Mex)
    Mineral
      Concession Type(2)
    Area (hectares)
    Location Date
    Expiry
      Date(2)
    Bi-Annual Fee
    (USD)(3)Sur(1)
    
    México, S.A. de C.V.
    3,359,396.801 N
    Concession
    
    2005
    13, 2056Pima(1)
    228261
    Timmins Goldcorp México, S.A.
      de C.V.
    486,058.775 E 3,375,493.728 N
    Mining Concession
    15,772.0000
    Nov. 17, 2005
    Mar. 13, 2056
    93,160La Mexicana
    191137
    Molimentales del Noroeste, SA
      de CV
    487,910,487 E 3363,995.686
      N
    Mining Concession
    10.0000
    April, 29, 1991
    April 28, 2041
    110Total:
    -
    -
    -
    -
    44,442.7193
    -
    -
294,956


Notes:

|(1) | The Timmins II claim, originally staked with a surface of
      39.403.0000 ha., was titled by the Direccion General de Minas
      (DGM), after survey works, with a surface of 36,142.0604 ha. In
      2008, due to a change in exploration strategy, the Timmins II claim was
      divided into two claims, Timmins II Fraccion Sur and Pima.                                                                                                                                      
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | In 2006, the mining law was modified and the distinction
      between exploitation concessions and exploration concessions was
      abolished. Therefore, all concessions granted by the DGM as of 2006 are
      legally mining concessions. The amendment to the mining law also granted
      the new mining concessions for a term of 50 years which is the same length
      of time granted to the old exploitation concessions under the mining law
      before the amendment.
|(3) | Fees are estimated in U.S. dollars based on payments in
      2013 (now paid). Inflation and other factors are considered by the Mexican
      government each year. For 2014, not only is inflation considered in the
      increased fees for 2014 (estimated at 5%), but some concessions will enter
      their seventh year which also correspond to the period of the highest
      taxes.                                                                                          

The Company acquired the first seven concessions, covering the
Mine, through its purchase of Molimentales in April, 2007. In 2006, the Company
signed a temporary occupancy agreement with an agrarian community (known as an
Ejido) in Mexico called Los Chinos, whereby the Company was granted
access privileges to 674 ha, the use of the Ejidos roads, as well as being able
to perform all exploration work on the area covered by the agreement. The
agreement is for a period of 10 years with an option to extend the access beyond
the 10-year period.

During August and September, 2009, Molimentales acquired the
800 ha of surface land on which the San Francisco Mine is located, by means of
five purchase agreements covering all of the Ejido Jesus Garcia Heroe de
Nacozaris five former parcels that together form the 800 ha.

In September, 2011, Molimentales acquired 732 ha from Ejido Los
Chinos, which was originally part of the exploration agreement signed in 2006.
Other parties control two mineral concessions which are contained within the
area of the mineral concessions owned by the Company but neither of these
concessions impacts the main area of the San Francisco Property.

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

On July 6, 2011, Molimentales acquired (through a straight
purchase) a 10-ha mineral concession called La Mexicana by paying the vendor,
Mr. Agustin Albelais, a buy-out price of US$250,000. The La Mexicana mineral
concession was the last area in the metamorphic package that did not belong to
the Company.

Molimentales has completed the process (before the Mexican
Federal Agrarian Secretariat) of converting the 674 hectares contracted from the
Ejido Los Chinos into private property, and formalizing a purchase of the 674
ha, before a notary public, according to the Sonora State Civil Code.

For any concession to remain valid, the bi-annual fees must be
paid to the Dirección General de Minas (DGM) and a report has to be
filed during the month of May of each year which covers the work conducted
during the preceding year. Concessions are extendable, provided that the
application is made within the five-year period prior to the expiry of the concession and the bi-annual fee and work
requirements are in good standing. The bi-annual fee, payable to the Mexican
government for the Company to hold the group of contiguous mining concessions
for the San Francisco Property is US$294,956.

- 22 -

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Since the San Francisco Property is located on a number of
concessions upon which mining has previously been conducted, all exploration
work continues to be covered by the environmental permitting already in place
and no further notice is required to be given to any division of the Mexican
government. The specific environmental permitting of the San Francisco Property
was obtained in December, 2007, via an environmental assessment, and it is valid
for the duration of the seven mining concessions that comprise the Mine,
provided that Molimentales keeps the permitting in good standing. Water for any
drilling programs at the San Francisco Property is obtained from the on-site
water wells.

Accessibility, Climate, Local Resources, Infrastructure
and Physiography

The San Francisco Property is readily accessible from
Hermosillo, the state capital of Sonora, via Mexican State Highway 15 (Pan
American Highway). The San Francisco Property is 150 km north of Hermosillo and
is 120 km south of the United States/Mexico border city of Nogales, also on
Highway 15. The San Francisco Mine site is 2 km west of the town of Estación
Llano. The major population centre for the region is Magdalena de Kino
(Magdalena) to the north, with a population of over 50,000 inhabitants.

The Company maintains guarded gates across the access road to
the San Francisco Mine and immediate Gold Project area. Exploration can be
conducted year round, with the desert monsoon season occurring between July and
September. Materials needed to supply the San Francisco Mine are transported by
either truck (utilizing Mexican State Highway 15) or by rail (utilizing the
Ferrocarril del Pacifico railway), both of which pass through the community of
Estación Llano.

The Company has been granted the temporary occupation of
surface rights at the San Francisco Mine by the DGM for the duration of the
exploitation concessions. In the case of an exploration concession, the holder
is granted temporary occupancy for the creation of land easements needed to
carry out exploration for the duration of the mineral concession. In order to
commence mining, the holder of the concession is required to negotiate the
surface rights with the legal holder of these rights or to acquire the surface
rights through a temporary expropriation. The current surface rights are more
than adequate to cover the infrastructure, mining and stockpile areas needed for
the life of the Mine.

Water for the drilling programs is available from three wells
located on the San Francisco Mine site. The water table in the area of the San
Francisco Mine is approximately 25m below the surface. The surrounding cities
and towns supply the majority of the workers, with the professional staff coming
from other parts of Mexico. The site contains all of the necessary
infrastructure to maintain and operate the equipment and the Mine.

The climate at the San Francisco Mine site ranges from
semi-arid to arid. The average ambient temperature is 21°C, with minimum and
maximum temperatures of -5oC and 50oC, respectively. The average rainfall for
the area is 330mm, with an upper extreme of 880mm. The wet season or desert
monsoon season is between July and September and heavy rainfall can hamper
exploration at times.

The topography ranges between 700m and 750m above sea level.
The desert vegetation surrounding the San Francisco Mine is composed of low
lying scrub, thickets and various types of cacti, with the vegetation type
classified as Sarrocaulus Thicket.

History

The San Francisco Mine is a past-producing heap leach operation
which was in production originally between 1995 and 2002. Production was
conducted using open pit mining methods with gold recovered by heap leaching.
During its historical production phase, the San Francisco Mine extracted
13,490,184 t at a grade of 1.13 g/t gold for a total of 488,680 contained ounces
of gold. A total of 300,281 oz gold and 96,149 oz of silver were recovered, with
the gold recovery estimated to be 61.4% . However, during the last two years of
historical operation, gold was being recovered from the leach pads only, with no mining being
conducted from the San Francisco Mine or the La Chicharra open pits.

- 23 -

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Placer mining and small scale underground mining began in the
San Francisco Mine area during the early 1940s. This limited work drew Compania
Fresnillo S.A. de C.V. (Fresnillo) to the area in 1983. In 1985, three
diamond drill holes and 30 conventional percussion drill holes were completed on
the San Francisco Property. The results of these drill holes were encouraging
enough to warrant additional diamond drilling during 1986. In 1987, 540m of
underground development was conducted, including a decline and a number of
drifts and cross-cuts. The decline was completed to the 685m elevation above sea
level, where numerous 1.8m by 1.5m drifts and cross-cuts were developed.
Fresnillo drilled 10 diamond drill holes and 25 reverse circulation drill holes
in 1988, and an additional 226 reverse circulation holes in 1989.

Metallurgical testing and an induced polarization survey were
  also completed in 1989. In 1990 and 1991, Fresnillo completed an additional 108
  reverse circulation drill holes. Fresnillo decided to sell the San Francisco
  Property in 1992, at which time it was acquired by Geomaque Explorations Ltd.
  (Geomaque). As part of the Geomaque purchase, Fresnillo retained a 3%
  NSR royalty and the option to re-acquire a 50% interest by paying Geomaque twice
  the amount which it had expended. Geomaque completed a feasibility study in 1993
  and drilled a further 69 reverse circulation drill holes in 1994. Geomaque
  acquired the NSR royalty and option back from Fresnillo in 1995 for
US$4,700,000.

Geomaque conducted its activities in Mexico through its
subsidiaries, Geomaque de Mexico, S.A. de C.V. (Geomaque de Mexico) and
Mina San Francisco, S.A. de C.V. (Mina San Francisco). Geomaque began
construction of the San Francisco Mine in 1995, with production beginning late
in that year. Production began at the rate of 3,000 t/d of ore or 30,000 oz/y of
gold. As a result of the discovery of additional mineralization, an expansion of
the mining fleet, crushing system and gold recovery plant was undertaken in an
effort to increase production to 10,000 t/d of ore. Due to the prevailing market
conditions in February, 2000, Geomaque announced a revised mine plan whereby
higher grade ore with a lower stripping ratio would be mined from the San
Francisco pit and the La Chicharra deposit.

Mining ended and the operation entered into a leach only mode
in November, 2000. In May, 2002, the last gold pour was conducted and clean-up
activities at the San Francisco Mine site began.

In the summer of 2003, Geomaque sought and received shareholder
approval to amalgamate with a wholly-owned subsidiary of a new Canadian company,
Defiance Mining Corporation (Defiance). On November 24, 2003, Defiance
sold its Mexican subsidiaries, Geomaque de Mexico and Mina San Francisco, to the
Astiazaran family and their private Mexican company for a total consideration of
US$235,000.

Since June, 2006, the Astiazaran family and their company,
Desarrollos Prodesa S.A. de C.V. (Prodesa) have retained ownership of
the original waste dumps and the original leach pads, and have been extracting
sand and gravel intermittently for use in highway construction and other
construction projects.

The Company originally acquired the exploitation concessions
covering the San Francisco Property through its wholly-owned Mexican subsidiary,
Timmins Mexico, via an option agreement with Geomaque de Mexico on April 18,
2005. That option agreement was subsequently superseded by an acquisition
agreement. Initially, the Company had the option to earn a 50% interest in the
exploitation concessions by spending US$2,500,000 on exploration and development
over a two-year period and, after the Company had earned its interest, the San
Francisco Property would be operated as a joint venture with Timmins Mexico as
the operator.

In March of 2007, the Company announced that it had agreed to
increase its interest from 50% and had entered into an agreement to acquire a
100% interest in Molimentales, a company specifically formed to own 100% of the
Mine. The acquisition was completed by the Company in May 2007.

- 24 -

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Geological Setting

Regional Geology

The Basin and Range province, which extends into Sonora from
the United States, is characterized by northwest-trending valleys and ranges.
Paleozoic rocks, including quartzite and limestone, overlie the Precambrian
locally. The valleys are covered and in-filled by recent gravels. Further
details on the regional geology of the San Francisco Property are set out in
Section 7.1 of the San Francisco Report.

Property Geology

The San Francisco property lies in a portion of the
Mojave-Sonora megashear belt characterized by the presence of Precambrian to
Tertiary age rocks represented by different grades of deformation and
metamorphism as evidenced in the field by imbricate tectonic laminates. The
rocks principally involved in the process of deformation and associated with the
gold mineralization in the region are of Precambrian, Jurassic and Cretaceous
age. The oldest rocks within the property are a package of metamorphic rocks
which include banded quartz-feldspathic gneiss and augen gneiss, green schist,
amphibolite gneiss and some amphibolite and marble lenses. All metamorphic rocks
exhibit foliation which generally varies in strike direction from between 30° to
72° west and dips to the northeast from 24° to 68°.

The metamorphic rocks are intruded by a Tertiary igneous
package, which includes leucocratic granite with visible feldspar and quartz,
and is porphyritic to gneissic in texture. It appears that the granite was
emplaced along low angle northwest-southeast shear zones in the system which
developed between an older gabbro and the metamorphic sequence. This is the
reason that in some places the granite bodies appear as stratiform lenses that
vary in width from centimetres to more than 40m and are sub-parallel to the
foliation. It is seen however, that the emplacement of leucocratic granite also
favours the N30°W fault system, causing the granite to take an elongated form,
principally in direction N60°W, but with extensions along the N30°W system.
Besides the gabbro and the granite, dikes of different composition, including
diorite, andesite, monzonite and lamprophyre, intrude the metamorphic
sequence.

In addition, lenses of pegmatite associated with the schist
have been mapped, emplaced along the foliation planes, occasionally forming
lenses within the gabbro and within the gneiss and on the border of the
leucocratic granite bodies. All of the rocks described above form the San
Francisco unit which is the most important unit for exploration, with the
leucocratic granite being especially significant because it is the primary host
rock for gold mineralization.

Mapping of isolated outcrops and geological interpretation of
the outcrops demonstrate that the San Francisco unit is extensive within the San
Francisco Property, covering a surface area of approximately 100km2. The unit
hosts at least 15 gold occurrences which are considered to be favourable
exploration targets, in addition to the known San Francisco and La Chicharra
gold deposits. In the north and south, the San Francisco unit is in contact with
the Coyotillo unit which is a weakly metamorphosed package of sandstone,
quartzite, phyllite, conglomerate, volcanics and limestones of Jurassic age.

The granitic gneiss containing the mineralization at the San
Francisco Property is intensely fractured with a total of five fracture sets
having been identified, although there are only two primary sets. One of the
primary sets strikes 36° to 60° east and dips northwest 70° to 90°, while the
other strikes 64° to 73° west and dips northeast 46° to 66°. The regional
fracture sets are generally parallel to major faults and perpendicular to
foliation planes. The main vein systems in the region strike 50° to 80° west
with dips ranging from northeast to southwest. These vein systems are the San
Francisco, La Playa, El Diez, La Chicharra, and several systems in the La
Mexicana area, Area 1B and La Escondida. A secondary system of veins includes
the La Trinchera, Casa de Piedra, unnamed veins in portions of Area 1B and the
La Mexicana veins which strike 60° to 80° east and dip northwest to southeast.
Although the age relation between the two systems is unknown, it is believed
that the northeast system is probably later stage.

The metamorphic foliation in the San Francisco deposit
primarily strikes 78° west and dips to the northeast at 68°. Regionally the
foliation is variable, generally ranging from east-west to 60° west with varying
dips to the northeast.

- 25 -

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The original bedding is recognized in the
metavolcanic-sedimentary rocks to the south at Cerro La Bajarita, and is
variable with strikes ranging from 70° to 80° west and dips to the north. The
sedimentary beds of the Represo Formation in the northern portion of the
property strike 60° to 70° west and dip to the northeast. Dikes of intermediate
composition in the San Francisco Property area strike predominantly 63° west and
dip to the northeast at 58°. Several dikes are intruded along planes of
foliation, and others cut foliation of the metamorphic units. In the Sierra La
Vetatierra mountains in the northern portion of the San Francisco Property,
dikes strike 60° to the east, dip to the northwest, and represent a later system
of fractures. Metamorphic folds, including isoclinal, open symmetrical and kink
folds, have been described, but no systematic description of folds has been
found in the literature.

Local Geology

The La Chicharra pit is located 2km west of the San Francisco
pit. Discovered by Geomaque in the late 1990s, it is estimated that
approximately 37,000 ounces of gold were extracted and processed during
Geomaques last year of operations. The discovery of this deposit was the
consequence of exploration programs comprised of magnetic ground surveys and
soil geochemistry, using both conventional soil sampling and MMI techniques. In
both cases, samples returned very high values for the main mineralized zone in
an area of low magnetics. Trenches were excavated to conduct chip sampling which
confirmed the presence of gold mineralization in the bedrock and drilling
delineated the deposit.

The geology of the La Chicharra deposit, although it is hosted
in the San Francisco group, differs from the geology found in the San Francisco
pit. While the geology consists of quartz-feldspar gneiss, pegmatite, schist,
granite and gabbro, the mineralization is hosted principally in gabbro. The
gabbro has a very sheared appearance, almost like a breccia, comprised of large
fragments with lenses of pegmatite between the fragments. Due to the shearing
process, the blocks of gabbro are highly fractured and the fractures are filled
with quartz veins and veinlets. The gold mineralization is hosted by the
pegmatite lenses and in the veins and veinlets within the gabbro. The limits of
the mineralized gabbro are very well delineated by the shear zones, at both the
hanging wall and footwall. This geological control allowed for better
operational planning during the exploitation by Geomaque.

The gabbro at La Chicharra is different from the gabbro bodies
at the San Francisco mine, as it contains no magnetic minerals which are
generally produced by the destruction of the original minerals contained within
the gabbro during the tectonic and mineralization processes. As well, due to
strong shearing, the minerals are oxidized. The gabbro is a tabular body dipping
to the northeast at approximately 30° to 40° and striking approximately 60°
west, with the mineralization potentially open both along strike and down dip.
The Company completed a program of core drilling seeking the extension of
mineralization down dip and along strike, and confirming continuity for the
first 150m from the northern limit of the pit, with the mineralization open in
the northwest direction towards La Severiana. Structurally, all of the
metamorphic and igneous interpretation is based on the High Resolution Air
Magnetics which indicate a regional lineament varying in direction from 60° to
30° to the west. The gold deposits are located in the southern portion on each
side of this main lineament, and are related to the extension faulting of the
system west-northwest and west-east. Other grassroots gold targets are located
along this lineament, related to quartz veins with gold mineralization emplaced
along the shear zones of the system to the west-northwest and west-east.

Exploration

From July, 2011 to June, 2013, 1,464 RC and core holes were
drilled for a total of 327,853m. These holes were drilled to cover several
objectives; most of the RC drilling and the entire core drilling were undertaken
in and around the San Francisco Mine and La Chicharra. The RC drilling included
13,219m in 62 holes of condemnation drilling and 3,842m in 20 holes for water
monitoring. A further 8 RC holes totaling 107m were drilled on the low grade
stockpile for grade control.

The drilling conducted within and around the San Francisco Mine
and La Chicharra comprised more than 92.8% of the drilling undertaken between
July, 2011 and June, 2013. Both the RC and core drilling in these areas has
identified the extent of the mineralization along strike, as well as the extent
down-dip, which remains open. The drilling surrounding the San Francisco Mine
and La Chicharra has been completed, except for defining the extent of the
mineralization to the southeast of the San Francisco Mine which remains open
along strike and at depth.

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The Company has begun to explore the other mineralized areas
located on the San Francisco Property and including on the El Durazno and
Vetatierra projects located 12km and 8km north of the San Francisco Property,
respectively.

As at the date of the San Francisco Report, the Company had
collected 1,611 soil samples from the Durazno project; samples were collected on
100m spaced stations on lines spaced 100m apart. The samples consisted of
between 0.5kg and 1.0kg of -12 mesh soil, taken from the near-surface B horizon
(0cm to 30cm) from each sample site.

The soil samples were submitted to ACME Analytical Laboratories
Ltd. (ACME Analytical), where they were sieved 100g to -80 mesh and
analyzed 30g for 53 elements by aqua regia digestion ultra-trace elements
inductively coupled plasma mass spectrometry. ACME Analytical is an independent
analytical laboratory.

The soil sampling north of the main El Durazno area was
intended to cover the area in which the Cretaceous sediments outcrop. Three gold
anomalies covering the Cretaceous sediments were identified that are
characterized by gold values up to 20 parts per billion (ppb). The
first two anomalies are located as follows: approximately 1.5km north of the
main area, an east-west trending gold anomaly was identified that covers an area
1.2km in length by 500m in width, and 2.8km north-northwest of the main area
there is a 1.4km long by 500m wide area with anomalous gold values that appears
to trend east-northeast. Dimensionally smaller than the first two anomalies
described, a third gold anomaly is located east of the main area that covers an
area of 600m in length by 500m in width.

In late 2012, the Company also initiated a rock sampling
program, beginning with the El Durazno main area. The rock sampling was
conducted over those areas where the quartz veining was mapped around the
intrusive and also over the sediments, but focused in the early stages on the El
Durazno main area and the El Pinto area. Subsequently, samples were also
collected in the Durazno Sur and El Pedregoso areas, in the central part of the
intrusive known as El Tungsteno, and from several outlying areas between those
prospects, as well as several small isolated areas.

The total number of rock samples collected through from late
2012 through the first quarter of 2013 was 930. In late 2012, the initial focus
of the rock sampling was at the area of El Durazno and within the intrusive.
Subsequently, a first pass prospecting sampling was done over the Cretaceous
sediments north of El Durazno main area. The intention of the sampling was to
define the surface mineralized zones delimited by the old artisanal diggings.
The rock chip sampling covers an area of approximately 5km in length by 4km in
width in either the intrusive or sediments.

From the total number of samples collected, 283 samples yield
values up to 0.1 g/t of gold, 44 samples yield values up to 1 g/t of gold and
the highest gold value in a sample at El Durazno returned 22.614 g/t Au, 511.9
g/t Ag, 0.86% Pb, 0.03% Mo and 221 ppm Te. Rock samples were submitted to
Inspectorate Laboratory (Inspectorate) and analyzed for gold by fire
assay and atomic absorption finish plus 29 elements by four acid digestion with
ICP-AES finish. Mercury was analyzed by cold vapour and atomic absorption
finish, and tellurium by ultra-trace analysis via aqua regia digest and atomic
absorption finish. Inspectorate is an independent laboratory.

Mineralization

At the San Francisco Property, gold occurs principally as free
gold and as electrum occasionally. Gold is found, in decreasing abundance, with
goethite after pyrite, with pyrite and, to a much lesser extent, with quartz,
galena and petzite (Ag3AuTe2). Although it is clear that the gold was deposited
at the same time as the sulphides, the paragenetic relationships are not well
understood. There is the possibility that some secondary remobilization may have
occurred as evidenced by minor amounts of gold occurring in irregular forms
along with or on top of drusy quartz.

The gold occurs in a granitic gneiss and the presence of pyrite
(or goethite after pyrite) may be an indication of gold. Stockwork quartz
veinlets, some with tourmaline, also exist in the mineralized zone. However, the
presence of quartz, even with tourmaline, is not necessarily an indication of
the presence of gold. Quartz veinlets with tourmaline, but without gold
mineralization, were found hundreds of metres away from the San Francisco
deposit. The relationship between the quartz and tourmaline at the Project is
not well understood, though at least one event is closely related to the gold
mineralization.

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Other metallic minerals associated with the deposit include
trace to small amounts of chalcopyrite, galena, sphalerite, covelite, bornite,
argentite-acanthite and pyrrhotite. Trace amounts of molybdenite and wulfenite
have also been reported. Metal mineralization is low, with copper reaching into
the hundreds of ppm, arsenic reaching about 100ppm, and antimony rarely over
10ppm. Petzite was recognized but tellurium values rarely reached 10ppm. The
mineral relationships, the possibility of associated tourmaline, and the style
of mineralization suggest that the San Francisco deposit might be of mesothermal
origin.

The San Francisco deposits are roughly tabular with multiple
phases of gold mineralization. The deposits strike 60° west to 65° west, dip to
the northeast, range in thickness from 4m to 50m, extend over 1,500m along
strike and are open ended. The San Francisco deposits consisted of the El Manto,
the San Francisco, the En Medio and the El Polvorin deposits. All of these
deposits were later incorporated into the main San Francisco pit. The El Manto
deposit (north pit), to the north of the San Francisco (main pit), is tabular,
strikes 65° west, dips relatively shallowly to the northeast, and ranges in
thickness from 5m to 35m. The En Medio (in the main pit north of San Francisco)
strikes 60° west, dips to the northeast and varies in thickness from 4m to 20m.
The El Polvorin (west pit) is a northwest extension of the San Francisco
mineralization which strikes 65° west, dips moderately to the northeast and
ranges in thickness from 4m to 20m.

Alteration related to the mineralization consists of negligible
to locally intense sericitization, course-grained pyritization and rare local
silicification. This alteration forms a halo extending a few metres from the
mineral deposits, but may also be absent. Supergene alteration consisting of
oxidation of pyrite to goethite is common. Additionally, there is supergene
alteration of feldspar to kaolin and sericite.

Analysis by Geomaque of 110 samples in seven mineralized zones
showed a silver/gold ratio of less than 1 to 10, with very low values of zinc,
copper, molybdenum, bismuth, antimony and mercury. Lead is occasionally high,
but not above 1% while gold shows a good correlation locally with arsenic and
lead.

Drilling

The three types of drilling used for exploration at the San
Francisco Property are: percussion rotary air blast (RAB) drilling, RC
drilling and diamond core drilling.

From July, 2011 to June, 2013, 1,464 RC and core holes were
drilled for a total of 327,853m. These holes were drilled to cover several
objectives; most of the reverse circulation drilling and the entire core
drilling were undertaken in and around the San Francisco Mine and La Chicharra.
The RC drilling included 13,219m in 62 holes of condemnation drilling and 3,842m
in 20 holes for water monitoring. A further 8 RC holes totaling 107m were
drilled on the low grade stockpile for grade control.

The drilling conducted within and around the San Francisco Mine
and La Chicharra comprised more than 92.8% of the drilling undertaken between
July, 2011 and June, 2013. Both the RC and core drilling in these areas has
identified the extent of the mineralization along strike, as well as the extent
down-dip, which remains open. The drilling surrounding the San Francisco Mine
and La Chicharra has been completed, except for the defining the extent of the
mineralization to the southeast of the San Francisco Mine which remains open
along strike and at depth.

Between July, 2011 and the end of June, 2013, the exploration
drilling was supported by a variable number of rigs that, in some months,
totaled ten rigs, including both core and reverse circulation. The core drilling
was focused on conducting the deep exploration holes starting north of the San
Francisco pit and explored the down dip projection of the known mineralization
in the existing block model. The drill results from the deep holes returned
mineral intersections which were delineated and interpreted as new mineral
lenses or horizons, located along the northern edges and underneath the Mine, as
well as below the currently interpreted final pit limit. The interpreted up-dip
projection of these mineral intersections defined a new exploration target that
added resources close to the existing designed pit bottom. A reverse circulation
drill program to confirm and upgrade the resources was proposed but, given the
intense mining activity both within and around the Mine, it was not possible to
conduct this program until the first half of 2013. Core drilling continued from
the immediate eastern and northern areas of the existing pit limit, with the
objective of confirming continuity along strike and down and up dip of the known
2011 mineral intersections, and of exploring at depth for high grade gold
structures related to potential feeder zones for the main mineralization system.
The deepest holes were TFD-106 and TFD-107 with a length of 1,004m and 1,049m,
respectively.

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Drill hole TFD-106 was drilled east of the San Francisco pit
(section 140W) to explore the mineralized N30°W structural trend, which has been
considered part of the main gold mineral feeder system. The assay results for
this hole did not extend the pit limits, at least as far as the upper portion of
the hole from surface to 500m are concerned. However, at a depth of 960m, the
hole intersected one 3.0m of core length interval grading 4.280 g/t gold which
confirmed the presence of high grade narrow structures at depth. The lithology
which hosts the mineralization corresponds to augen gneiss of mafic composition
that included intervals of brecciated pegmatite which appear to be associated
with the origin of the gold mineralization.

The second hole which was drilled to test the mineralization at
  depth was TFD-107. The collar point of this hole was section 740W at 1250N, with
  an azimuth of 240° and -70° dip. The assay results from the deep holes, along
  with those conducted in the first quarter of 2011 and the addition of the
  existing resource in levels where the San Francisco Mine is now in operation,
  are important to confirm the continuity of the mineral intersections and are a
  good indicator that the mineralization could continue below the final pit design
  limit. The extension of the mineralization at depth opens up the potential for
  mining to continue underground, once the mineralization accessible by open pit
is depleted.

It is significant that the deep mineralization indicated by the
core drilling results is hosted by quartz veins, veinlets, stockworks or lenses,
and quartz breccias, contained in dark rocks, which are gabbro and mafic gneiss,
with some minor felsic gneiss and sporadically thin horizons of granite. It
should be noted that, while the drilling is getting deeper, intersections reveal
that the mineralization is restricted to local structures, veins or lenses,
probably small bodies of pegmatite, both hosted in gabbro or in mafic gneiss
which, in theory, should indicate a brittle environment for formation of the
deposit. However, the sequence appears to work more as a ductile environment
that offers no structural preparation in order to be mineralized.

A second series of core holes explored the immediate area east
of the San Francisco pit, along and across the El Llano creek, to follow up
mineral intersection from previous drilling. This drilling remained incomplete
in the past, due to the difficulty in using reverse circulation for drilling.
Also, this exploration drilling was extended outside the perimeter of the
Companys surface rights that comprise the San Francisco Mine site, towards the
railroad line which has been defined as the provisional eastern limit of the
pit. Farther to the east, on the land between the railroad line and the highway,
four core holes were drilled to explore the extension to the east of the
magnetic trend related to the gold mineralization in the San Francisco pit. This
limited program was successful in that it confirmed the presence of gold
mineralization, but additional drilling is required to improve the
interpretation of the geological data from the four holes and to confirm the
continuity of the mineral intersections obtained from this program.

In addition, some core holes were drilled to the west between
the San Francisco Mine and La Chicharra to explore the area known as Casa de
Piedra. All the geological, engineering, drilling, planning and supervision
components of the exploration drilling program were overseen by the Companys
staff, principally geologists Miguel Angel Soto, VP of Exploration of the
Company and Daniel Maya, lead geologist on the San Francisco Property.

From July, 2011 to June, 2013 a total of 155,074m of RC and
core drilling distributed in 698 holes was conducted around the perimeter and
inside the San Francisco pit. Included in this total were 20 RC holes which were
drilled and equipped with piezometric devices for monitoring the groundwater in
the vicinity of the San Francisco pit.

The infill and exploration holes in and around the San
Francisco pit totaled 141,073m of RC drilling in 650 holes and 10,052m in 20
core holes. The drilling was distributed along the mineralized trend of the San
Francisco deposit to the north and to the south, looking for extensions to the
known mineralization as well as parallel mineral bodies above and beneath the
main zone from Sections 500 E to 1500 W. The holes were designed based on the
previous drilling which indicated the potential for the existence of a
repetitive series of mineral zones arranged parallel with the main deposit, both
along strike and in the up and down dip directions.

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The drilling is distributed in the north, east and the middle
(within the pit) of the San Francisco pit. In the north, the objective was to
confirm and explore the mineralized zones along strike and in the down dip
projection indicated by previous drilling underneath the dumps where the primary
crusher is situated. In the east, the drilling focused on the area between two
smaller shallow pits, to identify the continuity of the mineralization along
strike as well as its down-dip projection. Within the current pit, the drill
holes were situated on the south and north slopes (benches) and the floor of the
pit, with the main objective of infilling and exploring the inferred resource
underneath and outside the existing reserve base. In the southern portion of the
pit, the drilling focused on defining the maximum extension of the mineralized
zones in this direction, especially in the area of El Pastel, where previously a
number of isolated holes confirmed the presence of mineralization. Some infill
drilling in the La Oreja area was conducted during this portion of the
exploration program.

Section 220W

Five holes were drilled toward the west along section 220W.
These holes were TF-2057, TF-3299, TF-3503, TF-3241, TF-3445, TF-3083 and
TF-3447. The first three holes were drilled to test the mineralization indicated
by a series of old holes drilled by previous operators, which were situated in
the southern portion of the existing pit. These old holes indicated a number of
mineralized zones that had not been explored along their down dip projection,
since the previous drilling campaigns by all companies had explored only the
upper portions of the mineralized zones in the first 150m to 200m below surface.

The results from the drill holes conducted by the Company on
both this section and the neighbouring section allowed an extension of the
downward limits of the optimized pit resources in the central portion of the San
Francisco mineralization trend, from the 650m to the 550m elevation, almost 100m
below the pit resource design conducted in 2011.

Section 320W

Along Section 320W, six infill holes were drilled between the
existing widely spaced drilling that outlined an inferred resource in the
original block model. The holes were TF-3205, TF-3253, TF-3132, TF-3133,
TF-3502A, TF-3153 and TF-3098. A further four holes were drilled to the north to
explore the down-dip projection and to identify any parallel mineral intervals
in the hanging wall of the known mineralization. The four holes were TF-3153,
TF-3100 and TF-3152.

Section 420W

Several holes were drilled on Section 420W, with the most
relevant being TF-3252, TF-3147, TF-3219, TF-3094, TFD-145 and TF-3411. The
assay results from the first three holes resulted in a deepening of the central
portion of the original pit design by approximately 80m. The exploration holes
at the northern portion of the section focused on exploring the northern strike
projection of the gold mineralization in the wall of the final pit design. Two
holes were drilled; TF-3094 and TF-3411. Hole TF-3094 returned a mineralized
intersection from 9.14m to 33.53m, or 24.38m, grading 0.189 g/t gold which was
hosted in a conglomerate/breccia. Hole TF-3411 did not intersect any significant
mineral intersections. TFD-145, was drilled from the local coordinate 1350N to
drill in the adjacent section 400W. The hole was drilled to explore for high
grade mineralization underneath of the final pit floor design and looking for
mineralized feeder zones. The hole was drilled to a total length of 788m and it
confirmed the presence of mineralization up to a vertical depth of more than
500m. The mineral intersections in this hole are in the same range as those in
the pit, with the mineralized zones varying in width from 1.5m to 30m. The
results from drilling on Section 320W expanded the pit limits and increased the
reserve base.

Section 480W

From July, 2011 to June, 2013, a total of seventeen drill holes
were drilled along Section 480W with most of them concentrated on the southern
portion of the existing San Francisco pit. These holes were drilled to determine
the down-dip projection of mineral intersections located in shallow drill holes
conducted by previous operators. The assay results obtained from the drilling
program indicate that the projections of the new mineralized zones would
significantly expand the original pit design limits to the south and at depth.
The holes drilled along cross-section 480W from the south to the north sides of the pit are TF-2042,
TF-1463, TF-1470, TF-1312, TF-1478, TF-1343, TF-1402, TF-3104, TF-1461, TF-1456,
TF-1413, TF-3201, TF-3563, TF-3239, TF-3166, TFD-146 and TF-3406.

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The deeper results from these holes are significant as they
indicate the presence of high gold values associated with veins or lenses which,
when properly interpreted, could assist the Company in designing a very focused
future drill program directed towards the discovery of the mineralization feeder
system. It has been observed that there is better continuity of the high gold
grade values, although narrow, at depth. Due to the isolated nature of the core
holes, underground mining has not been considered at the San Francisco Property.
Geological information at depth is needed to demonstrate the continuity along
strike and along dip of the mineral zones with high gold values. The deep
exploration of the San Francisco-La Chicharra mineral system is still in its
early stages.

Section 820W

Several holes were drilled along Section 820W, during the last
two years in order to gain clarity regarding the mineralization contained within
the block model and to carry out exploration within the immediate portion below
the floor of the original pit design. The following holes were drilled from
south to north: TF-3149, TF-1354, TF-1356, TF-3012, TF-1391, TF-1392, TF-3109,
TF-3102, TF-35123, TF-1432, TF-1411, TF-3568 and TF-3420. In general, the
results of the drilling here were positive with a number of the holes confirming
the mineralized zone intersected by previous drilling and allowing for or
extending the limits of the original pit design.

Section 1020W

From south to north, the first holes TF-2007, TF-2022 and
TF-2008 on Section 1020W were part of a series of drill holes focused on
exploring the area called Cerro El Pastel, located to the south of the current
view point for the San Francisco pit operations. While gold values were
intersected, these are restricted to narrow intervals either without continuity
or with very short continuity both down dip and along strike.

Section 1240W

The drilling on Section 1240W only produced some small changes
to the original pit limits, mostly in the southern wall of the San Francisco
pit. Drill hole TF-3570 was collared at the southern wall at coordinate 600N at
an elevation of 654m. The hole is relatively shallow, drilled to a depth of
153.92m at an azimuth of 195° and an angle of 70°. The assay results indicated
several significant mineral intersections, starting on surface with 4.57m
grading 0.480 g/t gold, with the other significant intersections down the hole
being 13.72m grading 0.708 g/t gold starting at 27.43m, an interval of 3.05m
grading 3.615 g/t gold, then 6.10m grading 0.677 g/t gold, 1.52m grading 0.882
g/t gold and 6.10 m grading 0.646 g/t gold near the end of the hole.

Infill and Exploration Drilling in and around the La
Chicharra Pit

From July, 2011 to June, 2013, 640 holes totaling 141,314m,
including core and reverse circulation, were drilled in the La Chicharra pit and
in the area surrounding the La Chicharra pit. The objectives were to conduct an
infill drill program to upgrade the inferred mineral resource in the original
block model to measured or indicated resources, and to potentially add to the
mineral resources.

Exploration for new mineralized intervals was carried out to
the north and south of the existing deposit. To the south, in the footwall of
the La Chicharra deposit, drilling was conducted from the floor of the current
pit and along the strike direction of the floor. To the north, infill drilling
was conducted immediately adjacent to the pit, looking for parallel mineralized
zones in the hanging wall of the La Chicharra mineral deposit, with drilling
also conducted along the general strike of the deposit in the north. In the case
of the northern drilling, previous exploration had resulted in an expansion of
the existing mineral resource by defining a main mineralized zone which varies
in width from a few metres to over 100m projecting in the down dip direction for
a distance of more than 300m and remaining open at depth.

The La Chicharra drill campaign for 2011 and a portion of 2012
focused on the area to the north of the existing pit and within the pit. This
campaign was generally infill drilling to upgrade the existing inferred resource
to indicated or measured resources. Based upon this program and the analysis
of previous drilling campaign results, the drilling was extended, to the
east-southeast and to the west-northwest. In the east-southeast direction, the
mineralized zone is spotty and is restricted to narrow intervals with erratic
gold values. More work will be required in this area.

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Section 2540W

A total of 22 holes were drilled from south to north along
  Section 2450W. The first two holes were TF-1666 and TF-1657, both of which were
  drilled from the floor of the pit on local coordinate 165N. Neither hole
  intersected mineral intervals. That does not mean that the mineralization is
  absent, but that it is not located within 100m of the footwall of the known
  mineralization. The most significant intersection from these holes was 1.52m
  grading 0.452 g/t gold. The next holes (TF-1670, TF-1590, TF-1673, TF-1586 and
  TF-1592) were primarily infill holes both down and up dip and along strike, to
  confirm the interpretation derived from the wider spaced drilling. The results
  from the drilling were significant enough to warrant a push back of the pit
  walls to the north and south, and a deepening of the pit in the updated
design.

Section 2660W

The drilling on Section 2660W was primarily infill holes in the
immediate area to the north of the La Chicharra pit, coupled with exploration
holes to determine the down dip extension of the main mineralized zone, as well
as exploring for additional resources in parallel mineralized zones, both in the
hanging wall and footwall of the main mineralized zone. The drilling results for
this section were positive for the drilling that was conducted near the pit.
Drilling further to the north resulted in a number of smaller mineralized zones
with spottier continuity.

Section 2780W

The drilling along Section 2780W was a combination of infill
and exploration drilling with an objective of validating mineralized intervals
encountered by the existing shallow drilling conducted by previous operators,
upgrading the inferred resource estimate based on widely spaced drilling by the
Company and exploring the area beneath the main mineralized zone of the La
Chicharra deposit.

In general, all of the drill holes encountered mineralized
intervals, with the exception of holes TF-2695, TF-2900 and TF-1996. The
drilling closer to the existing pit has demonstrated the down dip continuity of
the mineralized zone exposed in the pit and has allowed the Company to widen and
deepen its original plans for the La Chicharra pit.

Section 2940W

A total of seven holes were drilled on Section 2940W, which
crosses the northwest limit of the 2011 pit design. These holes added further
information to the previous model, which was based on three holes that had been
drilled to the south of the west-northwest projection of the mineralized zone in
the La Chicharra pit. The results of the new holes indicated that there was
continuity to the mineralization in this direction and that additional
mineralization was located in the footwall or at depth. The continuity down dip
extends to at least 100m and the results of all holes on this section, combined
with those drilled on the adjacent sections on either side, was enough to allow
for the possible deepening and push-back of the original walls of the La
Chicharra pit by 90m in depth and nearly 100m on surface.

Section 3080W

A total of seven holes were drilled on Section 3080W to
follow-up on the results from the holes drilled during the first part of 2011
and a few shallow holes drilled by previous operators. The Company used these
holes to explore the continuity of the mineralized zone, detected close to the
surface, in its projected down and up-dip directions. The principal drill holes
that were important for extending the existing pit in the west-north-west
direction were the shorter holes, such as TF-1763 which demonstrated the
continuity of grade and mineralization. The demonstrated continuity of the
mineralization in the west-northwest direction will allow for a push-back of the
pit limits and it also has confirmed the extension in direction to the
west-northwest.

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Section 3300W

Section 3300W is 400m to the west of the existing pit limits
and the majority of the holes on this section were drilled during the period
covered by the San Francisco Report. The holes were drilled to follow up the
projected strike direction of the mineralization to the west of the La Chicharra
pit and to explore both the footwall and hanging wall of the mineralization. The
holes confirmed the extension of the mineralization to the west-northwest, both
near surface and in its projected down dip direction for 300m. The grades
intersected by the drilling will merit an updated pit design which allows for
potential exploitation of the resources approximately 160m in the down-dip
direction, over a width of 70m to 80m. This implies that the pit floor will be
approximately 100m deeper than it is currently, and also includes a small pit at
the southern extremity. The holes drilled south of local coordinate 200N did not
return any significant mineral intersections.

Sampling and Analysis

During the July, 2011 to June, 2013, drilling program, the
Company continued to use the sampling procedures instituted for the previous RC
and diamond drilling campaigns.

From the RC drilling, a portion of the material generated for
each sample interval was retained in a plastic specimen tray created
specifically for the reverse circulation program. The samples in specimen trays
constitute the primary reference for the hole in much the same way as the core
does for diamond drilling. The specimen tray was marked with the drill hole
number and each compartment within the tray was marked with both the interval
and number for the respective sequential sample it contained. Empty compartments
were left for the locations where the blank and standard samples were inserted
into the sequential sample stream and two compartments were identified for
duplicate samples.

Due to the nature of RC drilling, only rock chip fragments are
produced, and these range from a very fine grained powder up to coarse chips 2cm
in size. Since the stratigraphic contact between the different rock units cannot
be identified exactly, the holes were sampled on equal 1.5m intervals from the
collar to the toe of the hole. The sample interval was chosen because it
represented two samples per drill rod (3m). In general, this is considered to be
the standard sampling length within the industry. Samples were taken in the
overlying alluvium as well as within the underlying rock units. The alluvium
samples were subject to random assaying, whereas every sample originating from
the underlying rock units was assayed. The recovery of the material during the
drilling program was excellent, in the order of 90% to 95%, in both near surface
sulphide-oxide and lower sulphide zones.

A common feature in the sampling process for RC drilling is
that a unique sample tag is inserted into the sample bag with each sample, and
each sample bag is marked with its individual sample number. The bags containing
the blank and standard samples are added into the sequential numbering system
prior to shipment of the samples to the preparation facility. Sample preparation
and assaying were performed at the Mine. Approximately 15% of the samples
assayed in the laboratory at the San Francisco Mine were checked at an external
laboratory. The principal external laboratory has been the IPL Inspectorate
laboratory in Vancouver, B.C. Samples identified as field duplicate samples
during the RC drilling were split into two separate sequentially numbered
samples during the sampling process at the drill.

The RC drill sampling was conducted by a team of two or three
geological assistants, under the close supervision of the Companys staff
geologists in charge of the on-site program. The staff geologists were
responsible for the integrity of the samples from the time they were taken until
they were delivered to the preparation facilities at the Mine.

The RC cuttings collected at the drill site were discharged
from the drill hole through a hose, into a cyclone where they were collected in
a plastic pail. Sampling of the material generated during the RC drilling was
conducted at the drill rig using a stainless steel riffle splitter if the
material was dry and a rotary splitter situated below the cyclone if the
material was wet. The cyclone and splitters were cleaned between samples and, in
the case of wet samples, the cyclone and splitters were blown out using
compressed air and also washed out between each sample using clean water. Using
a 12.5cm drill bit and a sample length of 1.5m, it is estimated that the
original sample weighed 48.3kg, prior to making allowance for recovery. It is estimated that
the average recovery was between 90% and 95%, which would indicate that the mass
of the recovered sample varied between 42kg and 45kg.

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All samples from the RC drilling were prepared at the drill
site by the Companys staff geologists and their assistants. Each time that a
hole was completed, a truck was dispatched from the drill site to the
preparation facilities of the Companys assaying laboratory, which currently
supports the mining and processing operations of the San Francisco Mine and the
exploration in the area surrounding the pit. For check assays and their
preparation, a truck was periodically dispatched to deliver samples to the
Hermosillo assay preparation facility of IPL Laboratories and, from January,
2010, to IPL Inspectorate. Sample bags containing the blank and standard samples
were added into the sequential numbering system prior to shipment of samples to
the preparation facilities, both at the San Francisco Mine and in Hermosillo.
Samples selected as duplicates were split into two separate sequentially
numbered samples during the sampling process at the drill.

For core drilling, control starts after a run has been
  completed and the rods are pulled out of the hole. Once the core is removed, it
  is placed in core boxes; the length stored in each box depends of the diameter
  of the core, 2.40m for HQ diameter and 3.0m for NQ. This step in the procedure
  is completed by the contractors personnel, under the supervision of a Company
  geologist. The Company and the drill contractors follow generally accepted
industry procedures for core placement in the core boxes.

Small wooden tags mark the distance drilled in metres at the
end of each run, the depth from and to, and the length drilled and length
recovered. The drill rods used by the contractors involved in the core drilling
are measured in Imperial units, while the tags placed in the boxes are measured
in metric units. The hole number and progressive box number are marked on each
filled box by the drill helper and checked by the geologist. Once the core box
is filled at the drill site the box is covered with a lid to protect the core
and the box is sent to the core logging facility for further processing.

For diamond drilling where core is produced, the exact
stratigraphic contact between the various different rock units can be identified
and these contacts are used as the primary basis for separation of the sample
intervals. The maximum sample length within the stratigraphic unit was
restricted to approximately 1.0m or 2.0m, with no minimum restriction. The
maximum sample lengths are in accordance with accepted industry practice. In
addition to the stratigraphic restrictions that limit the length of the core
interval, the size of the sample may be restricted because of the content or
type of mineralization encountered within the drill hole. In general, core
recovery for the diamond drill holes at the San Francisco Property was better
that 98% and no core loss due to poor drilling methods or procedures was
experienced.

A unique sample tag is inserted into the sample bag with each
sample and each sample bag is marked with its individual sample number. The bags
containing the blank and standard samples are added into the sequential sample
numbering system prior to be being shipped to the assay preparation facilities
of IPL Inspectorate or ALS-Chemex. Both of these preparation facilities are
located in Hermosillo, although ALS-Chemex has sent samples to its facilities in
Chihuahua and Zacatecas for preparation, if there is a large backlog of samples
waiting to be prepared. During the sampling process, some samples are identified
as field duplicate samples and these are also inserted into the sample stream.

Geologic descriptions of the core samples, including nature of
the sample, length of sample, lithology, alteration and mineralization, were
captured on drill log forms. Samples were sealed in cloth bags with drawstring
closures with the sample identification tags placed with each sample in the bag.
A matching tag was retained in a sample book. Samples are stored on site in a
locked warehouse at the exploration camp.

A truck goes to each drill site to collect the core boxes at
regular intervals during the day. The boxes were loaded into the truck and
placed in a criss-cross pattern and then secured to the truck by ropes to
prevent movement on the short drive back to the on-site core logging facilities.

Once the core boxes arrive at the logging facility, they are
laid out in order, the lids are removed and the core is washed to remove any
grease and dirt which may have entered the boxes. The depth markers are checked
by the geologist and the depth from and to for each box is noted on both the
top and the bottom covers of each core box. The geologist logging the core begins by examining the
core to ensure it is intact. During the core logging process, the geologist
defines the sample contacts and designates the axis along which to cut the core.
Special attention is paid to the mineralized zones to ensure that the sample
splits are representative. The sample limits are marked on the core as well as
on the side of the core box, and the sample numbers are marked on the core box
next to the sample limits. Afterwards, the sample limits are input into an Excel
spreadsheet, which records the sample number and intervals.

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Once the core has been logged and the samples marked, the core
boxes are brought to the area where an electric diamond saw is set up to cut the
samples. At the sampling area, two core splitters and their helpers process the
samples by using the diamond saw to cut the core in half. Once the core is sawn
in half, one half of the core is placed into a plastic sample bag and the other
half is returned to the core box. The geologist or an assistant has previously
marked the sample bags with the sample number and inserted the individual
numbered sample tag into the plastic bag. A geologist supervises the core sawing
to ensure that the quality of the sampling remains high and that no mistakes are
introduced into the system due to sloppy practices. The boxes containing the
remaining half core are stacked, with lower numbers at the bottom and the higher
numbers at the top, and stored on site in a secure core storage facility.

General Quality Control/Quality Assurance (QA/QC) Procedures
and Security of Samples

As part of the Companys general quality control/quality
assurance procedures, a set of samples comprised of a blank sample, a standard
reference sample and a field duplicate sample are inserted randomly into the
sample sequence. The insertion rate for the blanks, standards and duplicate
samples is approximately one in every 25 samples.

During the second semester of 2011, blank samples were used
that had been prepared from a tonalite dike that outcrops on the southwestern
extension of the San Francisco pit. The rock unit is younger than both the host
rock of the gold mineralization and the mineralizing events in the region, at
least as far as is known. A geologist currently working with the Company, and
previously for both Geomaque and Fresnillo, considered the material in the dike
to be barren and this was verified during the 2005 to 2010 drill programs.
However, during the 2011 to 2013 program, anomalous gold values, including some
of economic interest, started to appear in this material and a detailed mapping
program resulted in the discovery of xenoliths of mineralized rock within the
dike. As a result, the Company made the immediate decision to use material from
another source, which was selected based upon a regional geological
reconnaissance. The regional reconnaissance resulted in the identification of a
basalt-andesite in several areas within a 40 km perimeter around the Mine. Due
to the accessibility of the Norma Project area to the northwest of the mine, a
series of outcrops were chosen at the southern end of the Norma concession, from
which several samples were taken and assayed by the San Francisco Mine
laboratory. The results of the assaying revealed gold values either below the
detection limits or no gold.

While the Company was waiting for a new blank sample to be
generated from its own material, it used blanks purchased from Proveedora de
Laboratorios, SA de CV, based in Hermosillo. The Company purchased two types of
blanks, a fine and coarse grain blank, with the first one used to check the
assaying of the primary laboratory and the second to check the sample
preparation in the Companys on-site facilities.

Certified standard reference materials were submitted with each
sample shipment during the course of the drill programs. Standard pulps,
consisting of 70g to 100g of material, were randomly inserted into each batch of
25 samples. The 27 standards include low, medium and high gold grades, in
relation to the average grade of the known deposits in the area.

For the RC drilling, the samples which were identified for
duplication (field duplicates) were processed and split in the same way as the
regular samples taken on either side of them. In the case of dry samples, the
final 21kg to 23kg sample was subjected to a further split in the field,
yielding two 10.5kg to 11.5kg samples. Wet samples were dried and then passed
through the riffle splitter to obtain a second (duplicate) sample of
approximately the same mass as the original. The duplicate samples were given
sequential numbers and submitted as two separate samples for the purpose of
assaying.

- 35 -

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Samples from the San Francisco Mine are picked up periodically
by Inspectorate de Mexico, SA de CV. (Inspectorate), a subsidiary of
Inspectorate America Corp. These sample pickup trips are performed by
Inspectorates wholly owned trucks, driven by full time Inspectorate employees.
Samples are picked up at the Mine. The Company delivers the samples to
Inspectorate personnel in rice sacks marked with the numbers corresponding to
the samples in each sack. The samples inside the rice sack are contained in
plastic bags marked with the sample number and including a numbered sample tag.

The Company provides proper documentation to Inspectorates
personnel regarding the samples being picked up, including a list of the samples
delivered, the type of samples, the type of analysis requested and the elements
for which assays are to be reported.

Samples are driven to Inspectorates sample preparation
facilities in Hermosillo, Sonora, where they are subjected to the sample
preparation process prior to shipment of a representative sub-sample to the
analytical laboratories located in Richmond, B.C., Canada or Sparks, Nevada,
USA.

Once the samples are received at Inspectorates sample
preparation facilities, they are sorted in alpha-numerical or numerical order in
the sample layout area. A registration form is completed providing details of
the samples received. When all the samples have been sorted and no extra,
missing or duplicate samples are found, the sample registration is accepted by
the supervisor and is taken to the administration office where the sample data
are entered into the Laboratory Information Management System.

Once the samples have been registered, each sample is taken out
of its plastic bag and placed in a stainless steel drying pan which is then
positioned in the wheeled drying racks. The drying racks are placed inside a
high capacity drying oven where the samples are fully dried at 100°C. The
samples are never dried for more than 5 to 6 hours.

Once the samples are fully dried, the wheeled racks are taken
to the crushing area where the entire sample is crushed by a TM Engineering
Terminator Jaw Crusher to 70% minus 10 mesh (2mm). A quality control check test
is performed to ensure that the crushed sample meets the specified size
criteria. The test is performed on the first sample crushed at the beginning of
a shift and then once in every 40 samples thereafter. Once a sample has been
crushed, it is split using a Jones riffle splitter until a 250g representative
sub-sample is obtained.

The entire 250 sub-sample is pulverized by using a Bico VP-1989
VP Pulverizer or LM2 Labtechnics Pulverizer, to 85% passing minus 200 mesh (75
microns). A quality control check test is performed to ensure that the
pulverized samples meet the specified size criteria. This test is performed at
the same frequency as the crushed sample sizing test. The pulverized material is
split to obtain a 100g representative sample, which is sent to Inspectorates
analytical laboratory in Richmond, B.C. or Sparks, Nevada, where it is analyzed.
The other 150g split is saved in the warehouse for future checks or returned to
the Mine. Samples from the San Francisco Property are assayed for gold by fire
assay, with atomic absorption finish, on a one assay-tonne sample. The lower and
upper detection limits for this method are 5 and 10,000 ppb. Inspectorates
Metals and Minerals Inspection and Laboratory Testing Services are certified by
BSI Inc. annually, in compliance with the ISO 9001:2008 Guidelines for Quality
Management. Inspectorates internal quality assurance/quality control program is
considered to meet normal industry standards for analytical laboratories.

Data Verification

In March, 2013, the Company started to use the specialized
software called Geobank by Micromine, to improve its data collection procedures.
Geobank is geological data management software which offers a significant
improvement in data handling allowing flexibility, scalability and
centralization among other benefits, for the purpose of developing a better
database.

In July, 2013, Micon undertook a data verification of the
entire San Francisco Mine database, with the primary focus on the drill collar,
survey and assays portions of the database. Cross checks were conducted randomly
with the existing sample numbers and no problems were found. The review of the
collar and survey tables indicated that there were no issues with these portions
of the database.

- 36 -

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During a visit to Toronto by the Companys personnel between
July 15 and 18, 2013, Micon conducted an audit of the preliminary resource
estimation data and procedures being used by the Company. Micon assisted the
Company with the variographic analysis performed on the geological domains and
helped to select estimation parameters based on the results. The Company and
Micon also tested other parameters, and comparisons were conducted.

After the Company and Micon finalized the parameters to be used
for resource estimation, the results were inspected graphically for consistency
throughout the deposit, ensuring that the grade distribution of the composites
was properly reflected in the interpolated blocks. Micon suggested changes to
the categorization of the mineral resource and the final measured, indicated and
inferred blocks were approved by Micon.

The San Francisco Propertys database was found to be of
sufficient quality and free of errors to be used as the basis of the updated
resource and reserve estimates. The database has a vast amount of robust data
which provide confidence in the resource and reserve estimates. Micon has
concluded based that the revised block models for the San Francisco Mine and La
Chicharra are also acceptable to be used as the basis for the resource and
reserve estimation.

Mineral Resource and Mineral Reserve Estimates

Mineral Resources

The mineral resource estimate for the San Francisco Property is
presented in the following table and includes the mineral reserve estimate
described subsequently.

Mineral Resource Estimate for the San Francisco Property
(Inclusive of Mineral Reserves) (US$1,250 Gold Price)

Pit Area
    Cut-off (Au
      g/t)
    Category
    Tonnage
      (x1,000)
    Avg. Grade (Au
      g/t)
    Gold OuncesSan Francisco Mine
    0.17
    Measured
    50,351
    0.60
    968,000Indicated
    26,093
    0.59
    496,000Total Measured
      & Indicated
    76,444
    0.60
    1,464,000Inferred*
    95,830
    0.46
    1,431,000La Chicharra Deposit
    0.15
    Measured
    13,427
    0.51
    221,000Indicated
    11,847
    0.48
    183,000Total Measured
      & Indicated
    25,274
    0.50
    404,000Inferred*
    26,347
    0.41
    351,000Total Resources
    
    Measured
    63,778
    0.58
    1,189,000Indicated
    37,940
    0.56
    679,000Total Measured
      & Indicated
    101,718
    0.57
    1,868,000Total Inferred*
    122,177
    0.45
    1,782,000


*Inferred resources in this table include material outside of
the pit limits.

Micon recommended that the Company use the October 1, 2013
mineral resource estimate contained in the above table as the stated mineral
resource estimate for the San Francisco Property as this estimate recognizes the
use of a 0.17 g/t and 0.15 g/t gold cut-off for the San Francisco pit and the La
Chicharra pit, respectively, as the grade at which the mineralization would meet
the parameters for potential economic extraction.

The resource estimate for the San Francisco Property is based
on a pit shell designed at a gold price of US$1,250 per ounce and additional
cost and recovery parameters developed by the Company and reviewed and approved
by Micon. The resource estimate within the pit shell includes all material in
the measured, indicated and inferred categories.

- 37 -

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The resource block model is based on 5m by 5m by 6m high
blocks. The coordinate limits of the 2011 resource model were retained for this
current work. The topography was updated to reflect the surface at the end of
September, 2013. The undisturbed pre-mining topographic surfaces are also
available in the model.

The parameters used in the pit optimization for the estimation
of the resources are summarized in the following table.

Pit Optimization Parameters for the 2013 Resource Estimate
for the San Francisco and La Chicharra Deposits

Area
    CostsSan Francisco
      Mine
    Description
    Units
    AmountWaste mining cost
    USD/t
    1.80Ore mining cost
    USD/t
    1.80Process cost
    USD/t
    4.15G & A cost
    USD/t
    0.40Gold price
    USD/oz
    1,250Rock Densities and
      RecoveriesName/code
    Density
    Recovery %Diorite (2)
    2.72
    60.50Gneiss felsic (4)
    2.75
    67.80Granite (5)
    2.76
    85.70Schist (6)
    2.75
    71.70Lamprophrite dike (8)
    2.76
    60.50Pegmatite (10)
    2.85
    71.70Gabbro (11)
    2.81
    57.80Conglomerate (12)
    2.00
    71.70General
      Recovery
    68.00La Chicharra
      Project
    CostsWaste mining cost
    USD/t
    1.40Ore mining cost
    USD/t
    1.40Process cost
    USD/t
    4.15G & A cost
    USD/t
    0.00Gold price
    USD/oz
    1,250Rock Densities and
      RecoveriesName/code
    Density
    Recovery %All Rock (100-500)
    2.90
    70.00General
      Recovery
    70.00


The database for the San Francisco Mine and La Chicharra
consists of 3,907 drill holes with 380,031 intervals, amounting to 592,435m of
drilling. A total of 126 of the drill holes lie beyond the model limits and have
not been included in the study. The current database includes 1,350 new holes
drilled from 2011 to 2013, and 303,203m of drilling. Approximately 13% of the
sampling intervals are greater than or equal to 2m length, about 84% of the
intervals are between 1.5m and 2.0 m in length, and about 3% are less than 1.5m
in length. In the case of duplicate samples, the original sample was used in the
database.

The assay database was composited to 3m regular down-hole
lengths, which is half the block height of 6m. Assays were length-weighted for
each composite. The relatively short composite length was chosen to unsmooth the
resultant block grade distribution and provide a better match between the
interpolated block grades and the underlying assay data.

- 38 -

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For the current estimate, the mineralized grade shells were
constrained using 3-D solids interpreted by geologists, based on the mineralized
intercepts intersected by the drill holes. Micon considers this approach to be
superior because it allows for appropriate interpretive geological control
within the model.

The Company has continued to use the rock domain interpretation
developed for previous resource estimates. As much more data are available for
the current estimate, the geological domains were interpreted in more detail by
a senior geologist in the field.

Bench polygons for each rock type were derived from this
interpretation and imported into the block model. Blocks were coded based on 12m
bench polygons, projecting 6m above and 6m below the bench, in accordance with
the principal rock type present in each block. Composites were assigned the rock
type of the block in which they were located.

All blocks in the model were interpolated using the Ordinary
Kriging method. The parameters were derived from the variography analysis and
applied to the different domains and zones accordingly.

The block model was validated using three methods:

|1. | Statically - The gold grades of the 3m composites grouped
      by domain were compared against the grades of the interpolated
    blocks.                                                                                                                                                    
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                               
|2. | Trend Analysis - The interpolated block grades and the
      average grades of the 3m composites were compared in swath plots at 50m
      intervals in the east-west direction.                                                                                                              
|   |                                                                                                                                                                                                                                                                                               
|3. | Visually - Using Gemcom, Micon visually examined vertical
      sections, comparing the drill hole trace samples against the block model
      grade distribution, to ensure that the original sample grades and the
      block grades agree and that they are reasonably related in
  space.

All three validation procedures gave satisfactory results,
sufficient to conclude that the block model can be used with confidence for the
estimation of resources and reserves.

There are no known environmental, permitting, legal, title,
taxation, socio-economic, marketing or political issues expected to adversely
affect the mineral resources estimated for the Gold Project (as defined in the
San Francisco Report).

Mineral Reserves

The mineral reserve estimate for the San Francisco Property is
presented in the following table.

- 39 -

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Mineral Reserves within the San Francisco and La Chicharra
Pit Design (October 1, 2013) after 
Mining Recovery and Dilution

PIT
    Classification
    Metric tonnes
      (x1,000)
    Gold g/t
    Contained Gold OuncesSan Francisco Pit
    Proven
    44,952
    0.559
    808,000Probable
    26,420
    0.547
    465,000Total
    71,373
    0.555
    1,273,000La Chicharra Pit
    Proven
    12,364
    0.515
    205,000Probable
    7,463
    0.463
    111,000Total
    19,827
    0.495
    316,000Total
    Proven
    57,316
    0.550
    1,013,000Probable
    33,883
    0.528
    576,000Total
    91,199
    0.542
    1,589,000San Francisco Pit
    Stockpile
    6,155
    0.26
    51,000


The gold price used for estimating the reserves at the San
Francisco Property was US$1,250 per ounce. The parameters used in the pit
optimization for the estimation of reserves are the same as those described
previously in connection with the estimation of resources.

Mining recovery for the San Francisco Mine and La Chicharra has
been assumed to be 99%. This estimate is based on actual experience at the Mine.
An overall average of 9.1% dilution was estimated for the San Francisco Mine and
3.0% for the La Chicharra.

During its site inspection, Micon observed that the existing
pit walls were generally dry, with a few minor seepages along shear zones. At
the end of 2010, a hydrogeological study was conducted by Investigación y
Desarrollo de Acuíferos y Ambiente around the pit, to evaluate the hydrological
regime in this area. A number of piezometers were installed to monitor the water
flow surrounding the pit. During 2013, water volumes pumped from the San
Francisco Mine have ranged between 6,000m3 and 51,000m3 per month.

Existing waste rock dumps are located to the south of the Mine,
close to the pit rim and cannot be extended to the north. They are also limited
to the east by a property boundary and to the west by ground not yet condemned
by drilling. Accordingly, the existing dumps will be extended further south,
where adequate space does exist. With the expansion of reserves, additional
waste dump volume is required and a site located northwest of the pit has been
identified that would contain the majority of waste rock produced during the
mine life. Currently, a condemnation drilling program is underway in this area.

Mining Operations

Mine operations are being conducted using open-pit mining
methods. For 2014 and 2015, all production is planned to be sourced from the San
Francisco pit of the Mine. The average daily throughput is expected to be
approximately 24,000 tonnes per day for 2014 and 2015. Production from the La
Chicharra pit is planned to begin in early 2016. Average daily throughput from
2016 onwards is expected to be 30,000 to 32,000 tonnes per day (24,000 tonnes
per day from San Francisco and 6,000 to 8,000 tonnes per day from La Chicharra).

The installation of an 8,000 tonnes per day crushing unit and
new leach pad at La Chicharra is scheduled to begin in late 2015, and
pre-stripping at La Chicharra is scheduled to begin in early 2016.

All mining activities are being carried out by Peal Mexico,
S.A. de C.V., of Navojoa, Mexico, a contractor of the Company. The contractor is
obliged to supply and maintain the appropriate principal and auxiliary mining
equipment and personnel required to produce the tonnage mandated by the Company,
in accordance with the mining plan.

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Crushing and Conveying

Ore extracted from the pit is transported in haulage trucks
with a capacity of 100t, which feed directly into the gyratory primary crusher
with dimensions of 42 inch x 65 inch. The crusher has a nominal capacity of 900
t/h. The crushed product is then transported on conveyor belts to a coarse ore
stockpile with a capacity of 6,000t. Two feeders beneath the coarse ore
stockpile deliver the material to a conveyor belt for transport to the secondary
crushing circuit. The ore is screened at 1⁄2 inch. Screen undersize reports to the
final product, while screen oversize is fed to two secondary crushers. Product
from the secondary crushers is transported on conveyor belts to the tertiary
crushing circuit, which comprises three tertiary crushers operating in closed
circuit with 1⁄2 inch screens. Undersize from the screens is delivered to the
leach pad. This crushing circuit has a nominal capacity to deliver 16,000 t/d of
crushed material to the pads. Recently, the Company has installed a new crushing
circuit with a capacity for processing an additional 8,000 t/d. This circuit
comprises one primary jaw crusher, two secondary crushers, three tertiary
crushers, screens and conveyors. The total installed crushing capacity is 24,000
t/d. The Company does not have any additional plans to increase throughput of
the crushing and conveying systems for the San Francisco pit. A new crushing
plant, with a capacity of 8,000 t/d, is expected to be installed late in 2015,
to serve La Chicharra.

Leaching

The current leach pad occupies approximately 40 ha and is
divided into seven sections. An additional 25ha leach pad is currently being
constructed. Product from the crushing plant is transported to the leach pad on
overland conveyors and deposited on the pad with a stacker, forming 6m high
lifts. A bulldozer is used to level the surface of each lift. The irrigation
pipelines are then installed to distribute the leach solution over the entire
surface of the lift. The leach solution consists of 0.03% sodium cyanide with a
pH of 10.5 to 11. The solution percolates to the bottom of the lift and flows to
the channel that carries the solution to the pregnant solution storage pond,
from which it is pumped to the adsorption, desorption and recovery plants.

Barren solution exiting the adsorption, desorption and recovery
plants flows to the barren solution storage pond where fresh water and sodium
cyanide are added, before the solution is pumped back to the leach pad. Due to
the increase in reserves and the increase in production, authorization was
granted by the Mexican authorities to use an additional 49 ha for the
construction of a new leach pad adjacent to the current pad.

Adsorption/Desorption/Recovery (ADR) Plants

Pregnant leach solution is fed to the first adsorption plant
which consists of two parallel lines of carbon columns, each with five tanks in
series, through which the carbon is advanced counter-currently to the solution
flow. One line of columns contains approximately 2.0t of carbon and the other
2.5t. Gold is adsorbed on the carbon to a concentration of approximately 5,000
g/t. Desorption of the carbon is achieved in a Zadra type elution circuit. Gold
is recovered by an electro-winning circuit comprising stainless steel electrodes
in a stainless steel electrolytic cell. The stainless steel cell and cathodes
are relatively new and replace the original polypropylene cell with steel wool
cathodes. The use of stainless cathodes is considered to be more efficient, as
it does not require the smelting of substantial quantities of steel wool, which
requires substantially more flux and can lead to inferior grade doré.
Installation of a new line of carbon columns (second ADR plant) with 5 tanks
containing approximately 6t of carbon, and with a flow of 3,500 USGM, was
completed in August, 2011, to increase the production capacity.

To complement the increase in production, an additional pumping
station with a solution storage capacity of 8,000 m3 was installed. The new
system can feed 6,200 USGM of solution directly to the leach pads, using three
vertical pumps. To support the new 25 ha leach pad expansion currently in
progress, a new vertical pump will be installed, in parallel with the existing
pumps.

Refining and Sales Contracts

The Companys subsidiary, Molimentales, has entered into an
agreement with Johnson Matthey Inc. (Johnson Matthey) to refine the
gold and silver doré bars produced at the Mine, at Johnson Mattheys Salt Lake
City refinery in Utah, USA. Some of the terms and conditions in the agreement
are as follows:

- 41 -

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| | Shipments will consist of no less than 30 kg of
      material, in the form of doré bars weighing approximately 15 to 30 kg.                                                                                                                                                                                     
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                  
| | Each shipment will have full and complete
      documentation to permit importation into the United States.                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                  
| | The refiner will credit the following percentages of the
      final agreed assayed gold and silver content of the refined material in
      each shipment: (a) 99.85% of the assayed gold content; and (b) 97.00% of
      the assayed silver content.                                                          
|  |                                                                                                                                                                                                                                                                                                                  
| | Delivery of the gold and silver components of the
      recoverable metals from each shipment will be made as directed no more
      than 10 working days after receipt of the material by the refiner, subject
      to the assay results being within the splitting limits as set forth in the
      agreement.
|  |                                                                                                                                                                                                                                                                                                                  
| | Treatment charges are US$0.65 per troy ounce of
      material received, with a minimum charge of US$1,000 per shipment.                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                  
| | If the Company elects to take an early
      settlement of the account, Johnson Matthey will levy a fee which is
      calculated according to the terms of the agreement.                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                  
| | Johnson Matthey may charge additional fees for
      refining or may reject any material containing in excess of the maximum
      limits of deleterious elements, as defined by the agreement.                                                                                                                  

The first refining agreement between Molimentales and Johnson
Matthey commenced on December 20, 2009 and remained in effect until December 31,
2011. It was renewed in 2012 and 2013 and the current term has been extended
until December 31, 2014. Thereafter, the agreement will be automatically renewed
for 12 months, unless either party provides written notice of its intention not
to renew it. To date, neither party has provided notice of its intention not to
renew.

Master Purchase Contract and Bill of Sale and Trading
Agreement

On June 23, 2010, Molimentales entered into a contract and sale
agreement with Auramet Trading, LLC (Auramet), under which it agreed to
sell the gold and silver output from the San Francisco Mine to Auramet. On June
23, 2010, Molimentales also entered into a trading agreement with Auramet, which
set forth the terms and conditions that govern non-exchange traded,
over-the-counter, spot, forward and option transactions, on a deliverable and
non-deliverable basis, involving various metals, energy products and currencies.
The trading agreement is part of the master purchase contract and bill of sale
agreement with Auramet.

Environmental Considerations

On July 22, 2011, Molimentales submitted a request to the
Secretary of Environment and Natural Resources (the Secretary) for the
authorization of an additional land use of 24.3401ha for the San Francisco Mine
and 54.8415ha for a new waste dump, for the increase in production capacity to
18,000 t/d. The Secretary conditionally authorized the additional land on
October 13, 2011. A technical justification study for the change of use of Land
(Estudio Técnico Jusitificativo para el Cambio de Uso de Suelo) is in process,
and will be submitted, to request that the Secretary grant authorization for new
land use areas, based upon the inventory of the natural resources to be
affected, and an environmental evaluation of the new areas. Although
Molimentales is expecting a favourable response, there can be no guarantee that
such approval will be obtained.

Modifications to the Environmental License (Licencia Ambiental
°nica), authorized on March 17, 2010, are in the process of being submitted, to
request the authorization of the Secretary of Environment and Natural Resources
to include new equipment and increased production capacity for the operating
license, new inventory and registration of emissions to the atmosphere, new
inventory and registration of hazardous waste generation and, also to register
modifications to the blasting program. This documentation is in the process of
being prepared, along with the license extension documentation, and will be
submitted in April, 2014.

Due to the increase in mineral resources and reserves and the
increase in production capacity, Molimentales submitted a request for
authorization by the Secretary of a new Environmental Impact Assessment for the
additional use of land. The request was granted in October, 2011. Molimentales
continues to comply with the conditions established by the Secretary of Environment and Natural
Resources for all of the previous and newly authorized environmental permits.
These conditions include programs for the recovery and relocation of flora,
reforestation, recovery and relocation of fauna, monitoring of surface water
quality, monitoring of air quality, and hazardous waste management.

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Economic Evaluation

In November of 2013, the Company announced an updated economic
  evaluation of the San Francisco Property to incorporate the increase in mineral
  reserves. The evaluation is based on a constant gold price of US$1,350/oz in
  real terms and a constant silver price of US$20/oz. The base case mine plan from
  2014 to 2022 is split into three phases, as summarized in the following
table.

San Francisco Property: Base Case Mine Plan Summary (2014 to
2022)

Description
    2014 to 2015
    2016 to 2020
    2021 to 2022Approximate average daily throughput
    24,000 t/d
    30,000  32,000 t/d
    30,000  32,000 t/dOre source
    San Francisco
    San Francisco and La
      Chicharra
    San Francisco, La Chicharra
      and stockpileAverage gold grade
    0.59 g/t
    0.51 g/t
    0.58 g/t and 0.26 g/t
      stockpileAverage operating strip ratio
    2.4
    2.7
    1.4Average total strip ratio (operating +
      deferred)
    2.5
    3.2
    1.4Average reprocessed gold from existing leach
      pads
    18 koz (2015)
    5 koz/y
    0Average gold production
    121 koz/y
    135 koz/y
    130 koz/y (2021), 53 koz/y
      (2022)Average cash cost/oz (by-product)
    USD 758
    USD 895
    USD 663Average sustaining capital
    USD 2 M/y
    USD 3 M/y
    USD 2 M/yAverage AISC/oz, site level (by-product)
    USD 775
    USD 918
    USD 674Average deferred strip capex
    USD 2 M/yr
    USD 9 M/yr
    nilAverage development capex
    USD 7 M/yr
    USD 4 M/yr
    USD 2 M/yrAverage AIC/oz, site level (by-product)
    USD 846
    USD 1,016
    USD 686Gold price/ounce, assumed
    USD 1,350
    USD 1,350
    USD 1,350Average annual net cashflow (excl.
      taxes, royalties)
    USD 61 M/y
    USD 44 M/y
    USD 82 M/y, USD
      37 M/y


Assumptions: (1) Average total costs of
US$10.75/t for San Francisco and La Chicharra; (2) Average life-of-mine heap
leach recovery of 68% for San Francisco and 70% for La Chicharra; (3) Operating
costs for La Chicharra are approximately 20% lower than San Francisco due to
lower work index; (4) It is estimated that there are 40,000 to 50,000 oz of gold
recoverable from older leach pads. It is planned to recover these ounces over
the life of the mine by applying cyanide to selected cells. Reprocessing costs 
US$60/oz.; (5) Stockpile re-handling costs  US$0.30/t.

Table provided by Timmins Goldcorp
Mexico, S.A. de CV.

At a gold price of US$1,350/oz, the undiscounted pre-tax cash
flow for the life of the mine is US$489M and the pre-tax 5% discounted net
present value is US$381M.

The recently implemented Mexican mining taxes/royalties have
not been incorporated into the economic evaluation presented above. The new
Mexican mining tax of 7.5% on resource companies, and as much as 8% for gold,
silver and platinum, was approved by the Mexican Senate on October 31, 2013 with
final approval of the President of Mexico on December 6, 2013 (and published in
the official gazette on December 11, 2013), effective as of January 1, 2014. As
originally proposed, the tax will be on earnings before interest, taxes,
depreciation and amortization.

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Based on the estimated mineral reserves of the San Francisco
Property disclosed in the San Francisco Report, the mine life is approximately
9.5 years. As the San Francisco Property did not require any significant initial
capital outlay and is currently generating cash flow, the payback period of
capital is nil years.

Metallurgical Process and Testing

On November 21, 2012, the Company announced a summary of the
results from its recent bulk sample locked column leach testing program on
representative mineralization from the San Francisco Property. This material was
tested at the METCON Research metallurgical laboratory in Tucson, Arizona, in
2012.

The column testing results indicate an average gold extraction
of 71.0% based on a crush size of 80% of the particles passing 3/8 inch (P80 3/8
inch) and 77.1% based on a crush size of 80% of the particles passing 1/4 inch
(P80 1/4 inch), on samples from the Mine. For La Chicharra samples, the column
testing results indicate an average gold extraction of 78.3% and 80.9% based on
crush sizes of P80 3/8 inch and P80 1/4 inch, respectively. No percolation
issues were observed during the column leach tests. Although the testwork
results are encouraging, the Company continues to use a life-of-mine gold
recovery of 68.6% in its resource estimations, mine planning and economic
analyses. The Company believes that the testwork results indicates there may be
potential to further improve gold recoveries, through optimization of the
process.

The Company has no plans to conduct any additional external
metallurgical testwork at the present time, although, it will continue to
conduct internal testing to continuously improve recovery and further its
understanding of the metallurgical response of the mineralization types located
on the San Francisco Property.

Exploration and Development

For a description of current and contemplated exploration and
development activities at the San Francisco Property, please see General
Development of the Business  Three Year History above.

2014 Reserves Reconciliation

As of last San
      Francisco Report (Oct 1 2013)
    Production
      (Oct 2013December 2014)
    As of Dec 31,
    2014Metric tonnes
      (x1,000)
    ozs
    g/t Au
    Metric tonnes
      (x1,000)
    Ozs
    g/t Au
    Metric tonnes
      (x1,000)
    Ozs
    g/t AuSan Francisco pit
    Proven
    44,952
    808,000
    0.56
    10,638
    227,925
    0.67
    34,314
    580,075
    0.53Probable
    26,420
    465,000
    0.55
    0
    0
    -
    26,420
    465,000
    0.55Total
    71,372
    1,273,000
    0.56
    10,638
    227,925
    0.67
    60,734
    1,045,075
    0.54La Chicharra pit
    Proven
    12,364
    205,000
    0.52
    0
    0
    0.50
    12,364
    205,000
    0.52Probable
    7,463
    111,000
    0.46
    0
    0
    -
    7,463
    111,000
    0.46Total
    19,827
    316,000
    0.50
    0
    0
    -
    19,827
    316,000
    0.50Stockpile
    Proven
    6,155
    51,000
    0.26
    -854
    -6,275
    0.23
    7,009
    57,275
0.25


Notes: Mineral Reserves As of San Francisco Report are based
on (1) a gold price of $1,250/oz Au; (2) 0.20 g/t Au cutoff; (3) mining recovery
of 99% for San Francisco and La Chicharra, dilution of 9.1% for San Francisco
and 3.0% for La Chicharra; (4) average total costs of $10.75/t ore. December 31,
2014 values are calculated by subtracting actual production from October 2013 to
December 2014 from the Reserve of October 1 2013. It is assumed that all
production aforementioned period are from the Proven category of Reserves.

Caballo Blanco Project

The Company acquired 100% of the Caballo Blanco Project from
Goldgroup on December 24, 2014 pursuant to the Asset Purchase Agreement (see
General Development of the Business  Three Year History).

The information under the heading Post-Acquisition
Update in this Caballo Blanco Project section has been provided by the
Company and approved by Taj Singh, a qualified person within the meaning of NI
43-101.

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The information under all other headings other than
Post-Acquisition Update in this Caballo Blanco Project section is
derived from the report Preliminary Economic Assessment Caballo Blanco Gold
Heap Leach, Veracruz, Mexico originally prepared for Goldgroup, and
readdressed to the Company on January 28, 2015, with an effective date as of May
7, 2012 (the Caballo Blanco Report). The Caballo Blanco Report was
prepared by Joseph M. Keane, P.E., Brent C. Bailey, P.E., Jim Cuttle, P.Geo.,
Gary Giroux, P.Eng., Stephen Taylor, P.E., Dino Pilotto, P.Eng., each a
Qualified Person as defined in NI 43-101. The description of the Caballo Blanco
Project under such sections is based on assumptions, qualifications, and
procedures which are set out only in the full Caballo Blanco Report. Reference
should be made to the full text of the Caballo Blanco Report, which has been
filed with Canadian securities regulatory authorities on SEDAR at
www.sedar.com and with the Securities and Exchange Commission on EDGAR at
www.sec.gov. The full text of the Caballo Blanco Report is not
incorporated by reference into this AIF.

Readers are reminded that the Caballo Blanco Report is
preliminary in nature and includes inferred mineral resources that are
considered too speculative geologically to have the economic considerations
applied to them that would enable them to be categorized as mineral reserves,
and there is no certainty that the preliminary economic assessment will be
realized. Mineral resources that are not mineral reserves do not have
demonstrated economic viability.

Post-Acquisition Update

The Property and Ownership

The Caballo Blanco Project is currently contained within 13
mineral concessions over 23,694 hectares. Title to each such mineral concessions
is held by Molimentales, a wholly-owned subsidiary of the Company.

There are no royalties, overrides, back-in rights, payments or
other agreements and encumbrances to which the Caballo Blanco Project is subject
other than a total 2% net smelter return (NSR) royalty payable to two parties.
1.5% is payable to Almaden Minerals Ltd. (Almaden), and 0.5% is payable
to a local land surveyor that originally discovered the mineralized zones that
make up the Caballo Blanco asset.

The concessions are currently classified as Exploration
Concessions. The Company requires approval of an Environmental Impact Assessment
and associated permits before being granted the Exploitation Concession
classification. At this time, the property is currently subject to no
environmental liabilities.

The Company owns a majority of the surface rights required to
begin mining operations as they have been described in the Caballo Blanco
Report. However, the acquisition of additional surface rights will be required
prior to beginning operations.

Contemplated Exploration and Development Activities

The Company plans to focus on obtaining permits for the
property in the immediate term and then plan subsequent exploration and
development activities.

Property Description And Location

The Caballo Blanco Project covers a horizontal surface area of
54,732.4120 hectares (547.32 square kilometers) and is centered next to the Gulf
of Mexico at Longitude 96° 27 30 W, Latitude 19° 40 44 N, or 65 kilometers
by paved road north northwest of the city of Veracruz in Veracruz State,
Mexico.

The Caballo Blanco Project is an advanced stage open pit, heap
leach gold project. The project consists of two large areas of epithermal gold
mineralization, the Northern Zone and the Highway Zone.

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Accessibility, Climate, Local Resources, Infrastructure
& Physiography

Accessibility

Veracruz is a major port and is well connected with daily
flights to Mexico City and other national and international destinations. The
property is reached by driving north from Veracruz to Villa Rica, using the Pan
American Highway which transects the eastern portion of the claim block. From
here a network of dirt roads access most of the current areas of interest. New
drill roads have been constructed to support recent drill campaigns,
particularly in the Northern Zone areas.

The nearest supply center is Cardel, a town of 20,000 located
approximately 30 kilometers south of the Caballo Blanco claim block. The town
offers an abundant supply of mining personnel. On the north-eastern edge of the
property sits Mexicos only nuclear power plant at Laguna Verde. Its location
allows easy access to the Mexican electrical power grid. Water is relatively
abundant in small creeks at elevations below 200 meters, throughout most of the
year.

A well-organized field office and villa style accommodations
house a small crew at the coastal community of Villa Rica.

The topography is semi-rugged with elevations from sea level up
to 700 meters on the higher mountain tops. The climate is semi-tropical with a
distinct rain season from June to November.

Infrastructure

The design of the ancillary facilities is based upon
information extracted from the prefeasibility economic evaluation, data provided
by third party qualified persons and assumptions. The infrastructure required
for the Caballo Blanco project includes; site roads (access and haul roads),
electrical power, fuel, lubrication storage and dispensing, explosives storage,
reagent storage, warehousing, administration offices, water supply, potable
water, sewage, power distribution and telecommunications. There will be no on
site camp or accommodation as it is expected that workers will be bused to and
from site each day.

Existing Regional Infrastructure

The project area is 65 kilometers northwest of Veracruz in the
state of Veracruz Mexico. There is excellent access by paved road to the project
area, in addition there is significant electrical infrastructure provided by the
nuclear power plant Laguna Verde. Communications are well established in terms
of phone lines and high speed internet. Water in the area is generally from
local wells, there are no major water reservoirs in the area. Well water is the
supply method used by the local population.

History

The first record of gold in the Caballo Blanco claim area dates
back to 1995 when Charlie Warren of Whitehorse, Yukon sampled a small quartz
vein outcrop in a road cut along the Pan American Highway. He staked several
mineral claims to cover what is known today as the Highway Zone.

The property was subsequently optioned to Almaden in 1997
(Minera Gavilán S.A. de C.V.) who staked additional claims to cover the two
other areas known as the Central Grid Zone and Northern Zone. Almaden completed
a variety of geophysical, geochemical and geological surveys and drilled 17
reverse circulation drill holes in the Central Grid Zone porphyry target.

In 2001, Almaden optioned the property to Noranda Inc.
(Noranda) who drilled nine core holes in the Highway and Central Grid
zones and returned the property to Almaden later that year. Results were not
encouraging.

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In December, 2002, Almaden signed a joint-venture agreement
with Comaplex Minerals Corp. (Comaplex) proposing to spend US$ 2
million over four years to explore the Caballo Blanco claims. Comaplex carried
out a variety of geological work throughout the property, targeting the Central
Grid Zone, the Highway Zone and the Northern Zone. From 2004 through 2006
Comaplex drilled ten core holes, and in 2005 discovered wide low grade gold
mineralization in drill hole CB05-03 at La Paila in the Northern Zone. Comaplex
completed the required expenditures of the joint venture agreement and went on
to earn a 60 percent interest in the property. In February 2007, Almaden
purchased Comaplexs 60 percent interest for a cash payment of US$ 1.25
million.

In April 2007 Almaden optioned Caballo Blanco to Canadian Gold
Hunter Corp. of Vancouver, B.C (Gold Hunter) who in turn completed a
variety of surveys and additional drilling in the Northern Zone and Central Grid
areas under its Mexican subsidiary, Minera Cardel S.A de C.V. (Minera
Cardel). From 2007 to 2009, 42 core holes were drilled, with at least 30
holes targeting the new gold area at La Paila discovered by Comaplex in
2005.

In September 2009, Gold Hunter changed its name to NGEx
Resources Inc. (NGEx) and later in November signed a share purchase
agreement allowing Goldgroup Resources to earn a 70 percent interest in the
Caballo Blanco Project.

Pursuant to a memorandum of agreement among Almaden, Goldgroup
and NGEx dated February 5, 2010, the area defined in Section 4.0, Table 4.2 of
the Caballo Blanco Report was transferred to a new entity (the El Cobre
Joint Venture) owned 60 percent by Almaden and 40 percent by
Goldgroup.

In October, 2011 Goldgroup completed the acquisition of the
remaining 30 percent interest in the Caballo Blanco project held by Almaden and
transferred to Almaden Goldgroup's remaining 40 percent interest in the El Cobre
property. As at the effective date of the Caballo Blanco Report, Goldgroup owned
100 percent of the Caballo Blanco Project.

Geologic Setting And Mineralization

Regional Geology

During the visit to the Caballo Blanco Project, the author
responsible for the regional geology sections in the Caballo Blanco Report had a
limited amount of time to become familiar with geological interpretations of the
regional and local geology. As a consequence he relied on summary reports from
other sources, specifically summaries and descriptions by Richard Sillitoe
(Sillitoe, R.H. 2008) and geologists for Gold Hunter (internal report by, Téliz,
F., Hernandez, H., Mehner, D., and Christoffersen, J., 2008). Descriptions from
the latter follow:

The Caballo Blanco project is located at the intersection
of the Trans-Mexican Volcanic Belt (at its eastern extremity) and the NNW-SSE
trending Eastern Alkaline Province. Regionally the area is located over a
tectonic high known as the Teziutlan Massif, which has a Palaeozoic
(metamorphic-intrusive0-metasedimentary) basement. This massif divides the
Tampico-Misantla Basin and the Veracruz Basin, respectively to the north and
south. Such basement underlies marine Mesozoic rocks (Gómez-Tuena, et al.,
2003).

The Trans-Mexican Volcanic Belt (TMVB) has been defined as a
continental magmatic arc formed by more than 8,000 volcanic edifices and a few
intrusive bodies that extends from the Pacific to the Gulf coast in Central
Mexico (1,000 km long and up to 230 km wide), with a general E-W orientation.
The TMVB is controlled by a complex extensional tectonic regime, whose volcanic
products are underlain by basements with widely different ages, compositions and
thicknesses. Calc-alkaline and alkaline rocks are distributed all along the
TMVB; however alkaline rocks (Na-K) tend to be more abundant at both the west
and east ends of the TMVB (Orozco-Esquivel, et al., 2007).

The evolution of the TMVB is considered to be related to the
reorientation of the magmatic arc and directly associated with the change in the
general composition from felsic (Sierra Madre Occidental) to intermediate and
mafic. This change has been considered as being related to the re-organization
of the subduction system associated with large-scale tectonism during the early
Miocene. In the middle Miocene (17-12 Ma), the volcanic arc extended to the
east, to the coast of the Gulf of México (Ferrari, et al., 1999).

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The Eastern Alkaline Province (EAP) was considered as an
independent Cenozoic magmatic province with alkaline rocks, related to
extensional faulting parallel to the Gulf of México coast, extending from the
state of Tamaulipas in the north southward to the Los Tuxtlas Range in the State
of Veracruz (Demant and Robin, 1975 in Orozco-Esquivel, et al., 2007).
Originally, the EAP was interpreted as a progressively southward migration of
alkaline volcanism from the Oligocene-Eocene in Tamaulipas to the Quaternary in
Los Tuxtlas. However, based on recent data (dating and geochemistry), such kind
of migration model is not likely nor is the mafic volcanism in Tamaulipas
considered to be directly linked to magmatism in the Caballo Blanco area. Based
on new data (Orozco-Esquivel, et al., 2007), the volcanism near the Caballo
Blanco project area is linked to the evolution of the TMVB and not really to
intra-plate tectonism of the EAP. Several geological episodes have been
distinguished during the time evolution of the TMV B (Orozco Esquivel, et al.,
2007 and Ferrari, et al., 2005). These episodes are well represented around the
Caballo Blanco Project:

| |  | Middle to late Miocene episode: This stage is defined
      by the emplacement of plutonic and sub- volcanic bodies of gabbroic
      to dioritic, calc-alkaline composition (15-11 Ma), with an adakitic
      geochemical signature (implying partial fusion of a subducted slab
      during a period of sub-horizontal to shallow-dipping subduction)
      (Gomez-Tuena, et al., 2003). In this way, the earliest magmatic
      activity around the Caballo Blanco project was strongly influenced by
      melting of the subducted oceanic crust. At the end of the adakitic
      period, there followed a regional uplift, correlated to an episode
      of sub-volcanic and intrusion emplacement (Gomez-Tuena, et al., 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   | The intrusive rocks are described as micro-porphyritic
      to microcrystalline (hypabyssal), found with sulfides, propyllitic
      alteration and normally cut by mafic dikes. These rocks have been dated as
      17 Ma (Laguna Verde microdiorite, NE corner of the property), 14.6
      Ma (Plan de las Hayas, north of the project) and 13-11 Ma (El
      Limón, western edge of the property) for some gabbros. This initial
      phase of magmatism in the area resulted in some products being emplaced
      to the east within the present Gulf of Mexico (Ferrari, et al.,
      2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | Late Miocene episode: Mafic volcanic rocks were
      emplaced as fissure basaltic flows, commonly forming plateaus or
      mesas, with ages reported in the area between 7.5 to 6.5 Ma
      (López-Infanzón, 1991; Ferrari et al., 2005). Intermediate,
      sub-alkaline, subduction-related volcanism changed at about 7.5 Ma
      to mafic alkaline volcanism in the area (Chiconquiaco Palma Sola volcanic
      fields to the north of Caballo Blanco). Such an abrupt change in
      the nature of the volcanism has been ascribed to a sudden change in
      the magma source (Orozco-Esquivel, et al., 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   | An unconformity, associated with several tens of
      meters of volcaniclastic rocks is reported between the Middle to
      late Miocene intrusions and late Miocene lava flows. Dating done by
      Cantagrel and Robin (1979) (in Gómez-Tuena, 2007) has reported ages
      of 6.5 Ma and 7.5 Ma for dacite domes in Cerro Metates (eastern
      part of the property) and Cerro Cantera (SE zone of the claim block).
      A dioritic intrusion has been dated as 7.3 Ma (Zempoala, 20 km to
      the south of the property). This intrusion is considered as
      hypabyssal magmatism, the time equivalent to the basaltic plateau
      volcanism in the area (Ferrari, et al., 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | EarlyLate Pliocene bimodal volcanism episode: The
      magmatic products around the Caballo Blanco area derive from the
      partial fusion of a relatively deeper mantle with the geochemical
      signature of an enriched mantle wedge (Orozco-Esquivel, et al., 2007).
      Ages of 4.0 and 3.1 Ma were obtained for plateau basalt to the
      north of the property (Plan de Hayas). A few kilometers to the
      south of the property (Actopan and Alto Lucero), highly potassic
      younger volcanic rocks overlying the plateau succession have been
      dated at 2.24 to 1.97 Ma. d) Late Pliocene to Quaternary episode:
      Basaltic to andesitic volcanic products of alkaline composition occur
      in the Palma Sola region (north edge of the Caballo Blanco
      Project). The most recent volcanic rocks do not show signs of the
      subducted oceanic crust but have been influenced by contamination with
      the local continental crust (Orozco-Esquivel, et al., 2007).
      Quaternary volcanic rocks reach a thickness of up to 800 meters (to
      the west of the property area), abruptly thinning to the east to tens
      of meters in the coastal zone (Ferrari, et al., 2005).

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Property Geology

The Caballo Blanco Project lies at the eastern end of the Trans
Mexican Volcanic Belt and is underlain by sub-aerial basalts, andesites and
diorite dykes of Miocene age that are in turn covered by a sequence of felsic
quartz tuffs, andesitic dome complexes, volcaniclastics and younger intrusive
dacitic plugs. Capping the volcanic package are Pliocene alkaline basalt flows
that are commonly well preserved as small flat highland plateaus.

At least two large areas of epithermal precious metal occur
within the current Caballo Blanco Project, referred to as the Northern Zone and
Highway Zone. Mineralization is confined to altered varieties of upper Miocene
andesitic domes and dacitic intrusives.

Northern Zone High-Sulphidation Epithermal Gold
Target

Geological mapping, rock chip sampling, geophysical surveying
and core drilling have identified a large area of silica and associated silica
clay alteration within an andesitic dome complex along the northern portion of
the property. Altered feldspar andesites that host gold mineralization are
spread over an area of 5 by 4 kilometers and occur in close association to a
prominent magnetic ring structure with at least five prominent silica caps
forming distinct 600 meter high hilltops. Rock exposures in these areas include
mixtures and overprints of classic vuggy, brecciated and or massive silica with
associated and flanking haloes of advanced argillic to argillic alteration.
These diverse clay alteration zones have been identified and mapped in part
using a TerraSpec® spectrometer. Drill testing at three of these silica cap
features, La Paila, Bandera and La Cruz, suggest that acid leaching from
hydrothermal fluids extend to depths of over 300 meters. The Red Valley target
lies at lower elevations on the outside fringe of the circular ring feature and
has been identified with soil geochemistry.

Gold mineralization at La Paila is very fine and occurs within
vuggy and brecciated silica alteration of the original andesitic flows and
domes. The resource is clean and has little if any mercury or arsenic
signatures. Drill core intervals contain significant gold mineralization with
assays up to 2.19 g/t gold over 89.91 meters.

Highway Zone High-Sulphidation Epithermal Gold
Target

This area is roughly 3 kilometers by 4 kilometers in size and
is located along the eastern edge of the Caballo Blanco Project where road cuts
for the Pan American Highway first exposed strong argillic alteration and small
quartz veins that form part of the original discovery in 1995.

Alteration of the local dacitic tuffs and volcaniclastic host
rock is very similar to the Northern Zone, located approximately 10 kilometers
to the north northwest. Various geophysical and geochemical surveys suggest that
high resistivity anomalies combined with extensive silica and silica-clay
alteration coincide with the inner haloes of a high-sulphidation epithermal
system.

Several areas of vuggy silica alteration have been identified
by geophysical and geological means in the southern area of the Highway Zone
however the area is large and remains a valid exploration target for the future.
Encouraging drill core assays from a hole collared in flanking clay alteration
zones intersected several gold bearing zones grading up to 1.42 g/t gold over 6
meters at the bottom of the hole. Examples like these and other isolated
resistivity anomalies approximately two kilometers to the north of this drilling
suggest significant potential remains open for additional work.

Property Mineralization and Alteration

In the Northern Zone and Highway Zone, gold mineralization is
associated with vuggy silica breccia surrounded by large and distinct haloes of
various mixtures of clay alteration including alunite, dickite, and pyrophylite.
The elongate and silicified gold rich mineralization at La Paila likely formed
from fluid rising along a north trending fault structure well above a deeper
intrusive heat source. It is interesting that similar silica and clay
alteration zones and or soil anomalies have been recognized at La Cruz, Red
Valley and Highway Zone, all of which lie along a north-south linear trend
greater than nine kilometers in length.

- 49 -

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Deposit Types

The Caballo Blanco Project and Almadens neighboring El Cobre
property includes at least two distinct deposit types, defined as
high-sulphidation epithermal gold and porphyry copper gold respectively. The
Central Grid Zone (Porphyry) is located to the south of the Caballo Blanco
Project and was part of the El Cobre Joint Venture between Almaden and Goldgroup
before Goldgroup transferred its 40 percent remaining interest back to
Almaden.

Exploration

Work on the original Caballo Blanco Project had outlined at
least three large areas of interest since the initial discovery of gold at the
Highway Zone in 1995. In the north and central part of the property, two large
areas of high-sulphidation epithermal alteration have been discovered, locally
named the Northern Zone (4 by 5 kilometers in area) and the Highway Zone (4 by 2
kilometers in area). In the southwest of the property, which, as of the date of
the Caballo Blanco Report, was not part of Goldgroup's claim holdings, the
Central Grid area hosts what appear to be at least two porphyry copper-gold
prospects (Pedrero, Porvenir). These two porphyry prospects likely formed
similar high level argillic and silicic haloes and caps to the Northern and
Highway zones. The degree of erosion here is deeper, and likely reveals the
underlying porphyry intrusive plugs with stock-work copper-gold mineralization
and associated alteration in the host rock.

From 1995 to 2005 Almaden, Noranda and Comaplex (all through
Minera Gavilán S.A. de C.V. (Minera Gavilán)) conducted a variety of
surveys including an airborne magnetic / radiometric survey in 1997 (by
Aerodat), extensive geochemical soil and rock sampling, induced polarization
resistivity and chargeability (by Marc Beaupre Geophysics) and detailed
geological mapping surveys (in house consultants). Follow up on anomalies
developed from these surveys led to the drilling of 34 holes (6446 meters) in
all three areas described above. Contractors for this drilling were Minera
Gavilán and Energold de Mexico.

More recently from 2006 to 2009 Canadian Gold Hunter through
Minera Cardel completed an aerial photographic survey on the northern two-thirds
of the Caballo Blanco Project and during 2008, the geophysics department of the
Servicio Geológico de Mexico (SGM) completed a helicopter-borne magnetic and
radiometric survey (60 meter instrument terrain clearance) over the northern
half of the property. The survey overlapped by three kilometers an earlier
airborne magnetic, and radiometric survey completed by Aerodat over the southern
half of the claims from 1997. Minera Cardel continued to collect soil and rock
samples and also improve upon previous geological mapping that now covers most
of the property area.

New road construction was completed to gain access to Cerro La
Paila as well as the northern portion of the Central Grid Zone to support
on-going ground surveys and drilling and up-grading old roads to access El
Porvenir area. Minera Cardel drilled a total of 42 core holes, concentrating
primarily on testing for epithermal gold mineralization at La Paila, Bandera and
La Cruz areas in the Northern Zone as well as testing for porphyry
mineralization twelve kilometers to the southwest at Pedrero and Porvenir areas
in the Central Grid Zone. Drill contractors included Minera Gavilán, Energold de
Mexico and Major Drilling de Mexico.

Since the last NI 43-101 report by Cuttle and Giroux in March,
2010 Goldgroup has drilled an additional 142 holes (19 RC, 123 core), including
holes 10CBRC-43 through 11CBN-184. Goldgroup has also completed detailed 3
dimensional induced polarization (IP) surveys as infill and extensions to
previous surveys previously completed by Almaden and Comaplex and at the time of
the Caballo Blanco Report has driven a 123 meter long 3 meters by 3 meters
underground access route into the north central portion of the La Paila
mineralized body.

The complete database since 1995 is summarized in point form
below:

| | Stream Sediments- 308 stream sediment samples
      have been collected sporadically on the property and each analyzed for
      gold by fire assay and 41 additional elements by ICP methods. Results show
      66 samples are above the 80 percentile threshold of 8 ppb gold with a
      range up to a high of 205 ppb gold. The anomalous zones are generally
      confined to the three areas (Northern, Highway, and Central Grid Zones)
      but also include two other areas, one 4 kilometers southwest of Bandera
      (Northern Zone) and 2.3 kilometers west of Pedrero (Central Grid Zone) as
      seen in Fig. 17 in Cuttle and Giroux, 2010.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 50 -

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| | Rocks- 2441 rock grab samples have been taken
      from many surface locations throughout the property, however most come
      from the Northern, Highway and Central Grid Zones. Approximately 492
      samples (20 percent) are above the 80 percentile of 88 ppb gold and many
      of these general areas; particularly along east trending ridges at La
      Paila that are indicative of low grade epithermal mineralization (0.5 to
      1.5 g/t gold) have yet to be drill tested. Other isolated and higher grade
      gold samples (up to 14.6 g/t gold) occur outside the three main areas of
      interest and are located two and four kilometers southwest of Bandera and
      four kilometers south of the Highway Zone (refer to Fig. 17 and Fig. 21 in
      Cuttle and Giroux, 2010).                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Soils- 8578 soil samples have been collected over
      3 general areas in the Northern Zone, Highway Zone and the Central Grid
      Zone, covering a total of over 52 square kilometers. All samples were
      analyzed by fire assay for gold and 41 additional elements by ICP methods.
      The grid spacing is dominantly 200m by 50m however local infill sampling
      has improved grid density in specific interest areas to 100m by 50m and
      50m by 50m spacing. Geochemically positive correlation from soils over the
      high sulphidation epithermal prospects in the Northern and Highway Zones
      includes Ag, As, Bi, Sb, Pb and lesser Mo, Sn. In the porphyry environment
      of the Central Grid Zone, Au, Cu, Mo, Pb, Zn, and Sn. Results for gold in
      soils identify several anomalous areas that have in some but not all cases
      been followed up by drill testing. Several local anomalies above an 80
      percentile threshold of 22 ppb gold remain valid exploration targets.
      Strong acid soil PH anomalies are located one kilometer west of La Paila
      and may be indicative of acid leaching from an undiscovered or blind
      epithermal system (refer to Fig. 16 in Cuttle and Giroux, 2010).
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Geophysics- Ninety percent of the property has
      been covered with two stages of airborne magnetics, and radiometrics with
      flight line spacing of 200 meters. On the ground, approximately 34 square
      kilometers of area (Northern Zone, Highway Zone and Central Grid Zone) has
      been surveyed with IP resistivity and chargeability on a grid line spacing
      of generally 200 meters. Local step outs on 400 meter spaced lines and
      infill spaced lines at 100 meters isolate some areas of interest or known
      gold mineralization. It is reasonable to suggest with the large volumes of
      silica alteration and associated gold mineralization in a deeply oxidized
      environment such as La Paila in the Northern Zone, high resistivity
      anomalies have been instrumental in defining specific drill targets.
      Deeper un-oxidized rocks that contain primary sulfide and possible higher
      grade gold feeder zones may be represented by chargeability high anomalies
      underlying resistivity high anomalies found closer to surface (refer to
      Fig. 18 in Cuttle and Giroux, 2010).                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  | In 2010, Goldgroup contracted SJ Geophysics to complete
      approximately 100 line kilometers of 3D IP over the Northern Zone and
      Highway Zone at Caballo Blanco. The surveys were completed on 100 meter
      and 200 meter line separation. Modeling of the resistivity and
      chargeability data has since helped refine new and improved targets for
      further drill testing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Lithogeochemistry- 1065 surface rock specimens
      have been collected and analyzed for clay alteration products using a
      company owned Terra Spec® spectrometer. These data are critical in
      defining distinct alteration haloes around mineralization and will help to
      vector exploration targets in the future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Drilling- Since the discovery of gold at Caballo
      Blanco (Northern Zone and Highway Zone) 181 core holes and 36 reverse
      circulation holes have been drilled, including the neighboring Central
      Grid Zone which, as of October 2011, is owned 100 percent by Almaden
      Minerals. Due to small open cavities and intense alteration and oxidation
      to at least 300 meters, reverse circulation (RC) drilling and diamond
      drilling at Caballo Blanco was at times problematic and consequently
      several holes were either lost, had poor recovery, or never attained their
      projected depths. When comparing the two drilling methods, diamond drill
      core recoveries were consistently higher. The author responsible for this
      section of the Caballo Blanco Report believes that the many methods of
      collecting and presenting the historical data obtained by various
      companies since 1995 have been thorough and of high caliber.                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Underground Development- As of 4 January 2012
      Goldgroup had driven a 123 meter long 3 meter by 3 meter underground
      access drift into the north central portion of the La Paila mineralized
      body. This is a portion of the planned underground development which is
      designed to give more detailed geological information on mineralization
      controls and also to provide more material for large ongoing column leach
      tests. At the time of Cuttle's visit, the walls of this new
underground access had been chip sampled, however assay results for these
samples and corresponding geological mapping were not complete.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

- 51 -

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Drilling

Since the discovery of gold at the Caballo Blanco Project
  (Northern Zone and Highway Zone), 181 core holes and 36 reverse circulation
  holes have been drilled. This includes the neighboring Central Grid Zone which
is part of the El Cobre project sold by Goldgroup to Almaden Minerals.

Due to small open cavities and intense alteration and oxidation
to at least 300 meters, drilling has been at times problematic and consequently
several drill holes were either lost or never attained their projected depths.
However, drill core recovery is generally good (80%+) and the authors of the
Caballo Blanco Report believe that the many methods of collecting and presenting
the historical data obtained by various companies since 1995 have been thorough
and of high caliber.

Previous drill testing throughout the Caballo Blanco Project
has identified many areas with gold mineralization, however the La Paila
prospect in the Northern Zone, among other areas, is considered the most
significant area of gold mineralization found to date and is detailed below.
Descriptions of other mineralized locations are described in the previous NI
43-101 report by Cuttle and Giroux, 2010.

Pre 2010 Drilling - La Paila

Besides the mineralized rock chip samples and extensive
alteration assemblages found on the top and along the upper slopes of Cerro La
Paila, the first real significant gold mineralization associated with this
alteration was intersected in drill hole CB05-03 by Comaplex in 2005. The
discovery hole cut 58 meters grading 1.772 g/t gold and is located at relatively
shallow depths along the north end of an irregular northerly trending body of
vuggy silica breccia.

Holes were drilled, targeting the extents of the low-grade bulk
mineable gold at La Paila. These drill holes were collared along 50 and 100
meter sections extending over a horizontal distance of 800 meters to the north,
280 meters east and extend to vertical depths of 200 meters above sea level. The
principal unit hosting the gold mineralization outcrops at surface in the north
ends of the property and may plunge gently to the south. It is not clear however
if this perceived plunge of the gold zone at La Paila is the direct result of
local block faulting or subject to insufficient drill data. True widths were not
calculated for any composites at Caballo Blanco.

Goldgroup Drilling - 2010/2011

In 2010/2011 Goldgroup targeted seven specific areas within the
Northern Zone of the Caballo Blanco Project. The Caballo Blanco Report includes
maps that locate and identify 142 holes new holes (10CBRC-43 to 11CBN¬184).
Three additional holes were drilled at La Paila (11CBN-185 to 187); however
assays for these holes as well as holes 11CBN-179 to 11CBN-181 and 11CBN-183 had
not been received and are not included in resource estimations by Giroux at the
time of writing the Caballo Blanco Report.

Areas drilled in 2010/2011 by Goldgroup
    (holes 10CBRC-43 to 11CBN 184)Zone
    Area
    Total Meterage
    HolesNorthern
    La Paila
    33459.63
    130Northern
    Bandera N/S
    1022
    4Northern
    Las Cuevas SW
    612.1
    2Northern
    Red Valley
    612.1
    3Northern
    Cerro Blanco
    250.5
    2Northern
    Las Cuevas
    600
    136556.33
142


- 52 -

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The 2010/2011 drill program commenced with a reverse
circulation percussion rig contracted from Layne Drilling in Hermosillo. Hard
abrasive conditions and intense fracturing encountered in the siliceous
alteration lead to very poor sample recoveries of less than 50 percent, in the
mineralized assemblage. The reverse circulation program was abandoned after 19
holes due to the poor recoveries and the inability to complete holes to their
target depths because of the difficult drilling conditions.

The program was changed to all diamond core with two rigs, one
supplied by Corebeil and the other by Landdrill. As the program progressed
another rig was added by Corebeil and two more by Landdrill bringing the total
to 5 machines in July of 2011, for the remainder of the program. All of the
original 14 reverse circulation holes drilled at La Paila were later twinned
with diamond core and a table of comparative results is shown in Table 10.2 of the Caballo Blanco Report. None of the reverse circulation drill holes have been
included in the resource estimation.

All diamond drill holes were collared with either PQ or HQ size
rods and reduced from there to HQ or NQ as drilling conditions dictated. The
majority of the core is HQ size. A total of 117 core holes were completed at La
Paila (10 CBN 54, 61 and 11 CBN 68-88, 90, 91, 93-102, 104, 105 and 107-184).
All drill holes were surveyed using a Reflex EZ shot.

The 2010/2011 drill program continued to identify the extents
of the low-grade bulk mineable gold at La Paila and other areas in the Northern
Zone The drill holes at La Paila were collared along 50 and 100 meter sections
extending over a horizontal distance of 900 meters to the north, 380 meters east
and extend to vertical depths of close to 100 meters above sea level.

A variety of geophysical, geochemical and geological surveys
continue to be extremely useful in identifying drill targets in and around the
Northern Zone; most importantly airborne magnetic, IP resistivity high
anomalies, clay alteration haloes identified by a TerraSpec® spectrometer,
location of mineralized surface rock geochemistry and detailed geological and
structural mapping. These surveys have not only been used successfully to
outline a classic zonation of clay minerals representative of a large epithermal
system but they have most importantly been useful in defining zones of silica
flooding and associated gold mineralization. These surveys should remain
principle exploration tools for future work at Caballo Blanco.

Table 10.3 of the Caballo Blanco Report lists all drill hole
data collected by Goldgroup in 2010 and 2011 from seven different areas of the
Northern Zone. These collar locations include 19 reverse circulation holes and
123 diamond drill holes for a total of 36,556 meters of drilling. None of the
nineteen reverse circulation drill holes have been included in the resource
estimation due to low recovery.

Sample Preparation, Analysis and Security

Prior to Goldgroup drill 2010/2011, at least four different
companies have completed drill programs at Caballo Blanco. Early reverse
circulation drilling by Almaden (through Minera Gavilán in 1998 concentrated on
the Central Zone Porphyry target, and in 2002, Noranda and Almaden drilled
nine holes in the Central Grid and Highway Zones. More recently, Comaplex and
Gold Hunter (through Minera Cardel) completed an additional fifty two core
holes, principally targeting the Northern Zone area at or near La Paila and to a
lesser extent at the Central Grid and Highway Zones in the central and southern
part of the claims.

Sampling methods used by Canadian Gold Hunter (Minera Cardel)
geologists on 32 of the 38 drill holes in the Northern Zone are described in the
following paragraph. Sampling methods by Comaplex for the other six holes in the
Northern Zone are unknown at this time; however check assays by Minera Cardel on
mineralized core intercepts from three of these core holes suggest no
significant differences in assay results.

Sample Preparation and Analysis - 2009

The core samples were sent to ALS Chemex preparation lab in
Guadalajara, Mexico where they were dried and crushed to minus 150 mesh and the
pulps were then air couriered to ALS Chemex Laboratories in North Vancouver, BC,
Canada (ISO 17025 accredited). Each were then dissolved in an aqua regia leach
and analyzed for gold by fire assay methods and 35 other trace elements by ICP - MS methods
(inductively coupled plasma with mass spectroscopy).

- 53 -

---

Quality Assurance / Quality Control (QA/QC) - 2009

The three different standard reference materials used in this
  drilling campaign were purchased from CDN Resource Laboratories Ltd. in
  Vancouver, Canada by Minera Cardel. Control charts suggest most all of the assay
  data on these three different standards fall within two standard deviation of
  the norm. Specific outliers exist just outside 2SD, however these are not
considered influential to the overall data package.

| | Standard P1 - 6% or 3 samples out of 49 - above
      / below 2SD 
|- | ------------------------------------------------------------------
|  |                                                                   
| | Standard 3C - 4% or 2 samples out of 48 - above
      / below 2SD 
|  |                                                                   
| | Standard P7A - 4% or 2 samples out of 46 -
      above / below 2SD

Source material for the 48 blanks inserted into the assays in
the Northern Zone comes from two locations. Inserts into assay shipments for
drill holes CB06-01 to CB-06-03 and 07CBN-01 to 08CBN-05 used local blank gravel
and inserts for holes 08CBN-06 to 09CBN-042 used previously drilled core from
barren andesite in the Northern Zone. Exact location and the average reference
analysis of the barren andesite inserts and local gravels are unknown; however
assay data on the blanks generally vary from minimum detection of less than 5
parts per billion (ppb) of gold to 44 ppb gold with 3 samples above two standard
deviation of 31 ppb gold. The authors of the Caballo Blanco Report do not
considered these outliers to be problematic.

Although three outlier samples from 141 duplicates show
abnormal results, the duplicate assaying program reflects an acceptable degree
of correlation. The author responsible for this section of the Caballo Blanco
Report believes sample preparation, security and general analytical procedures
to be adequate for the core drilling at Caballo Blanco. A list of relevant
composite intervals from core drilling at La Paila is itemized in Appendix V of
the Caballo Blanco Report. True widths were unknown.

Sample Security - 2009

A variety of HQ, NQ and / or BQ size drill core was delivered
daily from the drill rig to Goldgroups on-site core logging and storage
facility near the small community of Arroyo Agrio in the north-eastern part of
the claim block. Geotechnical and geological data was then recorded by company
geologists, including recovery, specific gravity, rock quality designation
(RQD), alteration defined by spectrometer readings and specific geological rock
type. Core samples were selected and marked by the same geologists, with company
technicians later using a diamond saw to half the core and secure each half
sample with self-locking clips. Sample lengths varied generally from 1 to 3
meters long and up to 6 meters in length and were chosen primarily along on
recognized alteration or lithological boundaries. Three different standard
reference samples, as well as locally derived blank material and core
duplicates were inserted into each lab shipment in regular frequency; generally
a different standard reference material every 20 samples, a blank every 80
samples and core duplicates every 20 to 30 samples. A complete library of split
core remains protected inside a fenced compound near the small village of Arroyo
Agrio.

Sample Preparation and Analysis - 2010/1011

During the 2010/2011 drilling campaign conducted by Goldgroup
samples of half core and riffle split reverse circulation percussion chips from
drill holes 10CBRC43 to 11CBN113 were collected from site by Inspectorate and
taken to their Durango preparation facility where they were dried, crushed and a
250g split was pulverized to -75 microns. The rejects were returned to site
while the pulps were air couriered to Inspectorates Richmond, BC, Canada
facility and analyzed for gold by fire assay with Atomic Absorption (AA) finish.
In addition, a 30 element Inductively Coupled Plasma (ICP) analysis (aqua regia
digest) was conducted on all samples.

- 54 -

---

Samples of half core from drill holes 11CBN114 to 11CBN184 were
collected from site by ALS Global and taken to their Guadalajara preparation
facility where they were dried, crushed and a 250 gram split was pulverized to
minus 75 microns. The rejects were returned to site while the pulps were air
couriered to their Vancouver facility and analyzed for gold by fire assay with
AAS finish. In addition, a 35 element ICP analysis was conducted on all
samples.

Quality Assurance -Quality Control (QA-QC) -
2010/2011

The three different standard reference materials used in this
drilling campaign were prepared by CDN Resource Laboratories Ltd. in Vancouver,
Canada from mineralized material from the La Paila deposit supplied by Minera
Cardel. Control charts suggest most all of the assay data on these three
different standards fall within two standard deviation of the norm. Specific
outliers exist outside 2SD, however these are not considered influential to the
overall data package.

| | Standard GS-1E -2% or 3 samples out of 163 -
      above / below 2SD 
|- | ---------------------------------------------------------------------
|  |                                                                      
| | Standard GS-P8 - 2% or 3 samples out of 161 -
      above / below 2SD
|  |                                                                      
| | Standard CGH-1 -1% or 2 samples out of 167 -
      above / below 2SD 

One standard, one blank or one duplicate was inserted per group
of 10 samples sent to the laboratory.

Sample Security - 2010/2011

A variety of HQ and/or NQ size drill core was delivered daily
from the drill rig to Goldgroups on-site core logging and storage facility near
the small community of Arroyo Agrio in the north-eastern part of the claim
block. Geotechnical and geological data were then recorded by company
geologists, including recovery, specific gravity, rock quality designation
(RQD), alteration defined by spectrometer readings and specific geological rock
type.

Core samples were selected and marked by the same geologists,
with company technicians later using a diamond saw to halve the core and secure
each half sample with self-locking clips. Sample lengths varied generally from 1
to 3 meters long and up to 6 meters in length and were chosen primarily along on
recognized alteration or lithological boundaries. The samples were sealed and
shipped via ALS Global to ALS Chemex Preparation Laboratories in Guadalajara
(holes 11CBN114 to 11CBN184) or picked up by Inspectorate Labs and driven to
their preparation laboratories in Durango State (holes 10CBRC43 to
11CBN113).

The opinion of the author responsible for this section of the
Caballo Blanco Report is that sample preparation, security and analytical
procedures are adequate and have been completed to industry standard.

Data Verification

One of the authors of the Caballo Blanco Report completed an
on-site field visit to the Caballo Blanco Project area was from November 1 to
November 3, 2009. During the field visit the author was able to collect rock and
drill core samples from La Paila (Northern Zone), verify drill hole collar
locations as well as visit the core logging / storage facilities near Arroyo
Agrio and the geological field offices at Villa Rica. The author did not visit
the Highway and Central zones on the Caballo Blanco Project.

Five rock samples were collected by the author, one rock chip
sample from surface exposure of the gold zone at La Paila and four rock samples
from mineralized intervals in four drill holes at La Paila. The rocks were later
hand delivered to Acme Labs of Vancouver for analysis (ISO 9001:2008
accredited).

The five check assays show good correlation to previous assays
obtained by Canadian Gold Hunter (Minera Cardel) and the author verifies that
gold mineralization does exist at point locations in drill core and surface
exposures at the La Paila Area. No other samples were taken by the author
outside the La Paila area at the Caballo Blanco Project.

- 55 -

---

The author visited the Caballo Blanco Project a second time on
6 January 2012 in the company of Kevin Sullivan, VP Exploration of Goldgroup.
During the field trip the author was able to visit the La Paila prospect in the
Northern Zone and verify new drill hole collar locations as well as visit
Goldgroup's core logging / storage facilities and column leach pads near Arroyo
Agrio, and the geological field offices at Villa Rica. No additional samples
were taken during this site visit, however the author was able to verify that
exploration work and drill testing at La Paila was ongoing by Goldgroup.

In the opinion of the authors of the Caballo Blanco Report the
  data base provided is adequate to estimate a resource and is up to industry
standards.

Mineral Resource Estimates

The basis of this study is the mineral resource estimate by
Gary Giroux of Giroux Consultants contained in the NI 43-101 Technical Report
compiled by Cuttle and Giroux in February 2012. The resource estimate is based
on the constraints of a geological solid surrounding the mineralized sections of
a silica breccia. It follows up an initial estimate completed by Cuttle and
Giroux, March 2010. The resource estimate is based on 145 diamond drill holes
completed since the discovery of the La Paila mineralized zone. The drill hole
density is not sufficient to establish any blocks in the measured category and
all blocks are considered either indicated or inferred. Below is the resource
available if one could mine to the limits of the mineralized solid. It includes
no edge dilution. Estimations using a cut-off of 0.2 grams per tonne (g/t) gold
can be separated into the following categories for La Paila:

Mineral Resources(1)Tonnes
    Metal Grade
    Contained Metal(M tonnes)
    Au (g/t)
    Ag (g/t)
    Au (ozs)
    Ag (ozs)Indicated Mineral Resources(2)
    28.9
    0.62
    2.32
    575,000
    2,150,000Inferred Mineral Resources (2)
    24.0
    0.54
    2.50
    419,000
1,930,000


(1)      As reported by Goldgroup in
the Caballo Blanco Report, subject to rounding. The Caballo Blanco Report is
preliminary in nature, includes inferred mineral resources that are considered
too speculative geologically to have the economic considerations applied to them
that would enable them to be categorized as mineral reserves and there is no
certainty that the Caballo Blanco Report will be realized. Mineral resources
that are not mineral reserves do not have demonstrated economic viability.

(2)      As disclosed in the Caballo
Blanco Report, mineral resources were estimated using cut-off grade of 0.20 g/t.

The authors of the Caballo Blanco Report are not aware of any
environmental, permitting, legal, title, taxation, socio-economic, marketing or
political factors that could materially affect this mineral resource estimate.

Mining Operations

Mining Operations

It is proposed that the La Paila deposit is amenable to be
developed as an open pit mine. Mining of the deposit is planned to produce a
total of 49.3 million tonnes (Mt) of heap leach feed and 81.8 Mt of waste (1.7:1
overall strip ratio) over a seven and a half year mine operating life. The
current life of mine (LOM) plan focuses on achieving consistent heap leach feed
production rates, mining of higher grade material early in schedule, and
balancing grade and strip ratios.

- 56 -

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Mine design for the La Paila deposit commenced with the
development of a net smelter return (NSR) model. The model included
estimates of metal prices, exchange rate, mining dilution, leach recovery,
smelting and refining payables and costs, freight and marketing costs and
royalties (see the tablebelow). The NSR model was based on a 20 m x 20 m
x 5 m block size.

NSR Parameters used inthe Whittle Optimization ModelItem
    Unit
    AssumptionsMetal PricesGold
    US$/oz
    1,150Silver
    US$/oz
    21.00Recovery to DoréSilver
    %
    30%Gold
    %
    80%Smelter PayablesGold in doré
    %
    99.9%Gold deduction in doré
    g/t in conc
    0.0%Silver in doré
    %
    98.0%Silver deduction in doré
    g/t in conc
    0.0%Off-site costsAu refining/transportation
      charge
    US$/oz pay Au
    5.50Ag refining/transportation
      charge
    US$/oz pay Ag
    -Other ParametersGrade factor
    %
    90%Royalties
    %
    1.90%Operating CostsWaste mining Cost
    US$/waste tonne
    $1.60Resource material Mining Cost
    US$/tonne
    $2.40G&A/Sustaining Cost
    US$/milled tonne
    $0.80Heap Leach Processing Cost
    US$/milled tonne
    $2.24CostP
    
    $3.04Pit Slope Angels w/ramps
    overallo
    40Heap Leach Processing rate
    t/day leached
    20,000Heap Leach Processing rate
    Mt/yr leached
    7.00Discount Rate
    %
8%


Gemcom Whittle - Strategic Mine Planning (Whittle)
software was then used to determine the optimal mining shell with an assumed
preliminary overall slope angle of 40 degrees. Preliminary phases were selected
and preliminary mine planning and scheduling was then conducted on these
selected optimal shells. The mineable resources for the La Paila deposit are
presented in the table below.

Indicated and inferred resources were used in the LOM plan,
with inferred resources representing approximately 40 percent of the material
planned to be processed.

Resources Planned to be Extracted in the LOM
    PlanDescription
    Unit
    Caballo PEA 2012Diluted Mineralized Tonnage
    (Mt)
    49.3Mine Life
    (yrs)
7.5


- 57 -

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Resources Planned to be Extracted in the LOM
    PlanDescription
    Unit
    Caballo PEA 2012Diluted GradesGold
    (g/t)
    0.54Silver
    (g/t)
    2.31Contained MetalGold
    (koz)
    854Silver
    (koz)
    3,667Recovered MetalGold
    (koz)
    683Silver
    (koz)
    1,100Waste Tonnage
    (Mt)
    81.8Total Tonnage
    (Mt)
    131.1Total Material Mined (avg.)
    (t/day)
    45,000Strip Ratio
    (t:t)
1.66


Mine Production Schedule

The mining sequence was divided into a number of stages
designed to maximize grade, reduce pre-stripping requirements in the early years
and maintain the heap leach at full production capacity. The mining is
envisioned to be undertaken by a mining contractor. The LOM mine production
schedule is shown in the following table:

LOM Production
    ScheduleItem
    Unit
    Total
    Year 1
    Year 2
    Year 3
    Year 4
    Year 5
    Year 6
    Year 7
    Year 8Diluted Mineralized Tonnage
    (Mt)
    49.3
    4.3
    7.0
    7.0
    7.0
    7.0
    7.0
    7.0
    3.0Diluted GradesGold
    (g/t)
    0.54
    0.55
    0.55
    0.51
    0.53
    0.55
    0.53
    0.52
    0.61Silver
    (g/t)
    2.31
    2.42
    3.04
    2.53
    2.87
    2.25
    1.76
    1.76
    1.39Contained MetalGold
    (koz)
    853
    76
    124
    115
    119
    124
    119
    117
    58Silver
    (koz)
    3,664
    336
    683
    569
    645
    506
    396
    395
    133Recovered MetalGold
    (koz)
    682
    61
    99
    92
    95
    99
    96
    94
    47Silver
    (koz)
    1,099
    101
    205
    171
    193
    152
    119
    119
    40Waste Tonnage
    (Mt)
    82.0
    2.1
    9.0
    15.3
    10.3
    10.9
    18.0
    13.7
    2.7Total Tonnage
    (Mt)
    131.3
    6.4
    16.0
    22.3
    17.3
    17.9
    25.0
    20.7
    5.6Strip Ratio
    (t:t)
    1.7
    0.5
    1.3
    2.2
    1.5
    1.6
    2.6
    2.0
    0.9Avg. Material Mined
    (t/day)
    45,00 0
    18,00 0
    44,000
    61,000
    47,000
    49,000
    68,000
    57,000
15,000


Mineral resources that are not mineral reserves do not have
demonstrated economic viability. There is no certainty that all or any part of
the mineral resources will be converted into mineral reserves. Mineral reserves
can only be estimated as a result of an economic evaluation as part of a
preliminary feasibility study or a feasibility study of a mineral project.
Accordingly, at the present level of development there are no mineral reserves
at the Caballo Blanco Project.

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Mineral Processing and Metallurgical Testing

The calculated gold extraction from each cell under leach,
assuming the sample used accurately reflects the resource, is 81 percent.
Analysis was based on data provided by Minera Cardel. Extraction curves were
calculated from column data where adequate particle distributions were
available.

Selection of secondary open-circuit crushing was based on
initial run-of-mine (ROM), data provided by Minera Cardel and modeled using
Bruno© software. The ROM distribution curve was generated from simulation
software.

Recovery Methods

Material from the La Paila pit is reduced to 80 percent passing
40 mm using a secondary open-circuit crushing system. Haul trucks bring ROM to
the primary crushing plant area and direct dump fresh material into a dump
hopper. ROM in the hopper is fed to a jaw crusher. The primary crusher product
has an 80 percent passing size of 140 mm. Primary crushed material is fed to a
conveyor where pebble lime is added from a lime silo. The primary crushed
product is fed to a double deck secondary screen. Screen oversize is fed to a
secondary cone crusher. The secondary screen undersize and the secondary cone
crusher product are combined as the final crushed product reporting to a
stockpile. The stockpile has a nominal capacity of 6,700 tonnes.

Fine material is loaded into trucks using a front-end loader
and hauled to the leach pad where it is stacked in 6 meter lifts forming leach
cells. After a cell is filled, a dozer rips the surface to mitigate compaction
from the loading process.

The heap leach pad has both barren and intermediate irrigation
circuits. Barren solution from the adsorption, desorption, recovery, (ADR),
plant is used to irrigate the previously leached material. The drainage from
this portion of the heap reports to an intermediate leach solution (ILS) pond.
The ILS pond and pumps recirculate the ILS solution to irrigate newly completed
fresh cell material. The areas under leach with the fresh barren solution and
the ILS are equal, allowing the total flow to be split in half with half the
solution reporting to the heap and half reporting to the ADR plant.

The carbon adsorption system consists of one train of five
columns in series. Solution flows from each adsorption stage to the next stage
by gravity. Carbon is advanced countercurrent to the solution flow by a common
carbon advance pump. Barren solution discharging from adsorption is adjusted
with cyanide and lime to achieve specified concentrations before reporting to a
barren pond or tank.

Loaded carbon is desorbed using the Zadra process. Carbon is
first acid washed, rinsed, and then loaded into the Zadra column where gold is
stripped from the carbon forming an electrolyte. Carbon is regenerated and
returned to the carbon adsorption plant.

The electrolyte solution advances to the refinery where
precious metal is recovered. Solutions exiting the electro-winning process
report to the barren-solution tank. The electrowon gold is removed batch-wise by
high pressure water and the precious metal sludge slurry flows to a pressure
filter. The filter cake is dried in a retort to volatilize and recover mercury
prior to smelting. The dried cake is fluxed and smelted in an induction furnace
and poured into 500 oz doré ingots

Infrastructure

The project area is 65 kilometers northwest of Veracruz in the
state of Veracruz Mexico. There is access by paved road to the project area.
There is significant electrical infrastructure provided by the nuclear power
plant located at Laguna Verde and the project may be able to negotiate accessing
this grid at a future date. Communications are well established in terms of
phone lines and high speed internet. Water in the area is generally from local
wells, there are no major water reservoirs in the area. Well water is the supply
method used by the local population.

There is good infrastructure surrounding the Caballo Blanco
gold heap leach and equipment can be shipped to the ports of Veracruz then
trucked to the Caballo Blanco Project site.

- 59 -

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Community relation issues were, as of the date of the Caballo
Blanco Report handled by Goldgroup and a community liaison officer and a good
understanding of local issues and sensitivities has been established.

Environmental Conditions

The environmental and regulatory framework for mining
activities is well defined by Mexican law. Environmental permits have been
issued to Minera Cardel for exploration activities, development of an
exploration tunnel and use of explosives. A comprehensive Environmental Impact
Assessment has been completed and was submitted in December 2011 to SMARNAT
(Regulatory Authority) and is currently being evaluated. Part of this submission
includes a baseline environmental study, which addressed climatology, land use,
hydrology, geology, flora, fauna and landforms. The Environmental Impact
Assessment addressed mine waste, heap leach processing, water management, and
monitoring programs.

The Environmental Risk Assessment addressed hazardous
components such as gasoline, diesel, explosives, sodium cyanide and hydrochloric
acid. Minera Cardel has addressed issues related to the ERA and has proposed
mitigation measures to meet Mexican Regulatory requirements. Sociological
baseline studies were completed and will implement appropriate sociological
programs appropriate to the local and regional landscape

Project Capital Costs

Unless otherwise noted, all costs under the subheadings
Project Capital Costs, Operating Costs and Economic Analysis are in 2012
US dollars.

A summary of the 2-stage crushing, process plant and associated
infrastructure capital costs is shown above in the table entitled LOM
Production Schedule. The table includes direct costs, indirect costs, and a
contingency. These are factored capital cost estimates and are based on
equipment costs multiplied by factors to include installation costs. The capital
costs estimate does not include sunk costs such as drilling and prior studies
undertaken to date.

Capital costs for the project were developed from a mix of
first principles, reference projects, and experience. The annual capital costs
by major category are shown in the table below. No open pit mining fleet capital
costs are included since contract mining is assumed and the contractor will be
responsible for supplying an adequate mining fleet.

Total Initial And Future Sustaining Project
    Costs For Two Stage Crushing OptionItem
    Initial Cost US$
    Sustaining Cost
      US$
    Total US$Mining Cost
    4,500,000
    -
    4,500,000Process Plant Total Cost
    55,338,555
    -
    55,338,555Leach Pads
    24,926,368
    31,138,957
    56,065,325Closure and Reclamation
    
    22,348,113
    22,348,113Total Initial and Future Sustaining Project Cost
    84,764,923
    53,487,070
138,251,993


The process costs are shown below in more detail.

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Summary Process Plant Cost - 2-Stage
    CrushingCost (US$)Plant Direct CostsProcess &
      Crushing Plant
    17,676,832Project
      Infrastructure
    8,145,183Total Direct & Infrastructure Costs
    25,822,015Plant Indirect Costs
    9,784,566Total Direct And Indirect
    35,606,58130% Contingency
    10,681,974Owners Cost
    9,050,000Total Process Costs
55,338,555


Owners Costs were included in the estimate and were provided by
Minera Cardel. An allowance of US$ 9.05 Million dollars includes the following
list of items:

|                                                |  | USD         | 
|----------------------------------------------- |  | ----------- | 
|Water Source and supply to
      site           |  | 1,200,000   | 
|Mine Workshops                                  |  | 360,000     | 
|Administration and
      engineering Offices    |  | 1,200,000   | 
|Mobile Equipment                                |  | 80,000      | 
|Laboratory Equipment and
      building Upgrade |  | 50,000      | 
|Communications                                  |  | 270,000     | 
|Plant Warehouse                                 |  | 40,000      | 
|Septic Systems                                  |  | 100,000     | 
|Fire Water Distribution
      System            |  | 1,500,000   | 
|Land Cost                                       |  | 4,200,000   | 
|Working Capital                                 |  | 1,200,000   | 
|Total Owners Cost                               |  | $ 9,050,000 | 

Operating Costs

Operating costs for the project are summarized in as follows.
All costs are in US dollars. The open pit mining operating costs assume contract
mining including drilling/blasting.

Operating Cost
    EstimateUnit
    ValueMining Cost
    $/tonne
    5.36Processing
    $/tonne
    3.26Impacted
    WaterTreatment/Management
    $/tonne
    0.72General & Administration
    $/tonne
    1.22Royalties
    $/tonne
    0.38Total Operating Cost
    $/tonne
10.94


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Economic Analysis

The preliminary economic highlights (base case two stage
crushing) are summarized as follows:

Economic SummaryUnit
    ValuesAverage gold grade
    g/t
    0.538Average annual gold production
    oz
    85,962Life of Mine from production start
    Yr
    8IRR Pre tax
    %
    66.4NPV Pretax (5% discount rate)
    $M
    283.8Payback period from start of production
    Yr
    1.5NPV Pretax (0% discount rate)
    $M
    386.3Initial Capital Cost
    $M
    84.8Total Capital Cost
    $M
    138.3Cash Operating Cost
    $/oz
    784.0Pre-Income Tax Cash Flow
    $/oz
    508.97Metallurgical Recovery, Au
    %
    80.7Total Mined Gold to Leach Pad
    Moz
852,689


The financials for the base case mining options are summarized
as follows:

Economic
    Evaluation$US x 1000
    $US/t
      Resource
    $US/oz GoldMine Gate Value of All Resource Net
      of Transportation and Refining
    1,063,704
    21.58
    1,546.77Mining Operating Cost
    (264,302)
    (5.36)
    (384.33)Processing Cost
    (160,707)
    (3.26)
    (233.69)Water Treatment/management Operating Cost
    (35,379)
    (0.72)
    (51.45)General & Administration
    (60,142)
    (1.22)
    (87.45)Royalties
    (18,615)
    (0.38)
    (27.07)Cash Operating Cost
    (539,145)
    (10.94)
    (783.99)Cash Operating Cash Flow
    524,560
    10.64
    762.78Capital Cost including Pre-Production Development
    (138,252)
    (2.80)
    (201.04)Pre-Income Tax Cash Flow
    386,308
    7.84
561.74


Metal price scenarios were used in the pre-tax model to
evaluate the sensitivity on NPV, IRR, and payback. The results for the base case
mining options are shown as follows:

- 62 -

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Summary of Key Financial Parameters
    (Sensitivity to Gold Price)Gold Price, $/oz
    1,150
    1,300
    1,400
    1,500
    1,600
    1,700Pre-Tax NPV@ 5%, (000's)
    93,856
    180,041
    231,920
    283,800
    335,679
    387,558IRR, Pre-Taxes
    30.03%
    47.71%
    57.29%
    66.41%
    75.20%
    83.73%Payback, Operating Years
    3.3
    2.0
    1.7
    1.5
    1.4
    1.3


Other Mineral Properties

La Pima target -The La Pima target consists of a
series of northeast trending limestone ridges at the central-west part of the
claim of the same name, located 25 km northwest of the San Francisco Mine and 13
km west of the town of Santa Ana. During the fourth quarter of 2013, an initial
program of mapping and rock sampling was performed along more than 3 km of
outcrops of the limestone trend identifying at least three mineral targets where
there exists evidence of silver and polymetallic mineralization and erratic gold
grades. Mapping and sampling were performed to identify the main geological
structures of the mineralization. Assay results show high silver grades above
1.0 kilograms of silver per tonne (kg/t Ag) and anomalous gold grades
of 1.0 g/t Au.

No exploration was performed on this property during 2014. The
Company will conduct further exploration on this property if resources allow.

TIM Claims -There are 5 mining concessions
100.0% owned by Timmins Goldcorp Mexico, all within the region of
Mazapil-Concepcion del Oro. This region is located in the north of the state of
Zacatecas, and has emerged over the last few years as one of the most active
mining exploration and development regions in Mexico and all Latin
America.

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

No exploration was performed on this property during 2014. The
Company will conduct further exploration on this property if resources allow.

Patricia Property -The property is located in
the north-central portion of the state of Sonora, 50 km to the southwest of the
San Francisco Mine. The Company has undertaken trenching and systematic sampling
which has returned anomalous gold values of between 1.0 to 2.0 g/t Au with
potential silver and polymetallics.

No exploration was performed on this property during 2014 and
the Company has no plans for further exploration work while resources are
allocated to the development of the San Francisco Property.

Norma Property

The property is located 30 km northwest of the San Francisco
Mine. During prior years, the Company completed 2,090 meters of reverse
circulation drilling, distributed in 16 drill holes along 2,000 meters of gold
anomalous outcrops. Drilling returned intercepts ranging from 0.32 g/t to 27 g/t
Au hosted in veins, veinlets and breccia, mainly in close contact to the
sandstones and siltstones with dikes of monzonite.

No exploration was performed on this property during 2014. The
Company will conduct further exploration on this property if resources allow.

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El Picacho Property

The property is located in the north-central portion of the
state of Sonora, 20 km southwest of the San Francisco Mine. Exploration by the
Company included geological mapping, sampling and compilation of the exploration
work performed by previous exploration companies on the property. During prior
years, the Company drilled several holes on the property for a cumulative total
of 1,478 meters.

No exploration was performed on this property during 2014. The
Company will conduct further exploration on this property if resources allow.

El Durazno target

El Durazno target is located 10 km to the north of the San
Francisco Mine. During prior years, the Company completed exploration work
including prospecting, geological mapping, rock and soil sampling and reverse
circulation drilling totaling 3,342 meters in 15 drill holes distributed over
two mineral targets within the project.

Drilling returned important mineral intersections in nine of
these drill holes, the most significant of which are in the following:

| | DRC13-005 an interval of 21.34 meters with a grade of
      1.53 g/t Au including three mineral intervals of 10.67 meters width at
      2.91 g/t Au, 4.57 meters of 6.48 g/t Au and 1.52 meters of 14.42 g/t Au.
      Along of the same hole at an interval of 10.67 meters of 1.47 g/t Au
      including 1.52 meters of 8.78 g/t Au;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                         
| | DRC13-011 at an interval of 28.96 meters with a
      grade of 0.42 g/t Au including 9.14 meters of 1.11 g/t Au;                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                         
| | DRC13-004 an interval of 7.62 meters of 0.69
      g/t Au including 1.79 g/t Au over 1.52 meters; and                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                         
| | DRC-009 intersected 6.10 meters of 0.39 g/t
      gold.                                                                                                                                                                                                                                                                                 

Although this is an initial drill campaign on a new area, the
results show that further exploration should be performed on the target however
the Company will only conduct further exploration if resources allow.

La Mexicana target

The La Mexicana target is located 6.5 km north of the Mine.
Mapping and sampling was performed along the north portion of the metamorphic
precambrian belt of the San Francisco gold deposit, which includes systematic
sampling of the existing underground works on the La Mexicana target. The assays
included gold values as high as 28.91 g/t Au and generally showed consistency
along the old underground workings. During prior years, several holes were
drilled for a total of 2,669 meters to assist in further assessing the La
Mexicana exploration potential.

No exploration was performed on this property during 2014. The
Company will conduct further exploration on this property if resources allow.

El Capomo Target and San Onesimo
Property  During the year ended December 31, 2014 the Company
terminated its interests in the El Capomo property and the San Onesimo property
to focus its resources on the San Francisco Property and the development of the
Caballo Blanco Project.

DIVIDENDS

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

- 64 -

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CAPITAL STRUCTURE

Authorized and Issued Share Capital

The authorized share capital of the Company consists of an
unlimited number of common shares of which 179,877,379 common shares were issued
and outstanding as at December 31, 2014 and 179,877,379 common shares are
currently issued and outstanding. The holders of common shares are entitled to
receive notice of and to attend and vote at all meetings of the shareholders of
the Company and each common share confers the right to one vote in person or by
proxy at all meetings of the shareholders of the Company. The holders of the
common shares are entitled to receive such dividends in any financial year as
the board of directors of the Company may by resolution determine. In the event
of the liquidation, dissolution or winding-up of the Company, whether voluntary
or involuntary, the holders of the common shares are entitled to receive the
remaining property and assets of the Company.

Convertible Preference Shares

The authorized capital of the Company also includes an
unlimited number of non-voting convertible preference shares without par value,
none of which were issued and outstanding during the year ended December 31,
2014 and none of which are currently issued and outstanding.

Options

As at December 31, 2014, the Company had the following
outstanding options pursuant to the Stock Option Plan adopted by the Companys
board of directors on July 18, 2013. These options are exercisable into common
shares.

Number of Options
    Exercise Price
    Expiry Date1,400,000
    $1.00
    March 23, 20152,575,000
    $2.50
    April 4, 2016100,000
    $2.75
    Aug. 15, 20162,600,000
    $2.56
    Jan. 26, 201775,000
    $2.15
    August 20, 2017450,000
    $2.74
    September 28, 20171,750,000
    $1.25
    December 18, 2018650,000
    $1.25
    December 31, 20181,400,000
    $2.00
    August 6, 20191,900,000
    $1.03
    December 31, 201912,900,000


Warrants

As at December 31, 2014, there were no warrants outstanding in
the capital of the Company and there are no warrants outstanding as at the date
of this AIF.

MARKET FOR SECURITIES

Effective November 4, 2011 the Companys common shares were
listed for trading on the NYSE MKT under the symbol TGD. Effective March 23,
2011 the Companys common shares were listed and posted for trading on the TSX
under the symbol TMM. Prior to March 23, 2011, the Companys common shares
were listed and posted for trading on the TSX-V under the symbol TMM. The
following table gives the monthly trading ranges for the Companys common shares
and the number of common shares traded (Volume) on the TSX:

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Trading Price and Volume TSX

2014
    High
    Low
    Close
    VolumeJanuary
    C$1.73
    C$1.17
    C$1.42
    15229325February
    C$1.80
    C$1.39
    C$1.60
    12305961March
    C$1.90
    C$1.33
    C$1.39
    14682199April
    C$1.64
    C$1.35
    C$1.54
    8539400May
    C$1.63
    C$1.26
    C$1.38
    7459211June
    C$2.00
    C$1.34
    C$1.91
    28123690July
    C$2.12
    C$1.78
    C$2.01
    14196497August
    C$2.05
    C$1.76
    C$1.89
    6136363September
    C$1.85
    C$1.41
    C$1.41
    9719913October
    C$1.50
    C$1.07
    C$1.08
    7943020November
    C$1.26
    C$0.99
    C$1.05
    10350749December
    C$1.24
    C$0.97
    C$1.14
25934582


ESCROWED SECURITIES

Except as disclosed below, there are no common shares held in
escrow.

Designation of class
    Number of Securities Held in
      Escrow(1)
    Percentage of ClassCommon Shares
    6,426,000
3.57%


|(1) | In connection with the Asset Purchase Agreement, the
      parties to the Asset Purchase Agreement entered into an escrow agreement
      dated December 17, 2014 (the Escrow Agreement), pursuant to which
      6,426,000 of the total 16,065,000 common shares of the Company issued as
      consideration under the Asset Purchase Agreement are being held in escrow
      pending the earlier of (i) the satisfaction of certain conditions in
      connection with the formalization of concession and property transfers in
      Mexico and (ii) April 24, 2015, subject to the terms of the Escrow
      Agreement.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

DIRECTORS AND OFFICERS

Director and Officer Information

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

Name,
      Municipality of Residence and Position with the Company
    Director/Officer Since
    Principal
    Occupation for the Past Five YearsGeorge
      Brack(2)(3)Vancouver, British Columbia, Canada
      Director
    July 31, 2014
    Corporate Director.Bruce Bragagnolo
      Vancouver, British Columbia, Canada Chief Executive Officer
      and Director
    March 17, 2005
    Companys Chief Executive Officer
      since May 1, 2007.


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Name,
      Municipality of Residence and Position with the Company
    Director/Officer Since
    Principal
    Occupation for the Past Five YearsBryan A.
      Coates(2)(6)Saint-Lambert, Quebec, Canada
      Director and Chair of the Board
    July 31, 2014
    President of Osisko Gold Royalties
      Ltd. (July 2014  present); Vice-President Finance and Chief
      Financial Officer Osisko Mining Corp. (2007-2014).Anthony
      Hawkshaw(1)(3)Vancouver, British Columbia, Canada
      Director
    July 31, 2014
    Corporate Director.Stephen
      Lang(3)(4)Columbia, Missouri, USA Director
    July 31, 2014
    Corporate Director (2012  present);
      President and Chief Executive Officer of Centerra Gold Inc.
      (2008-2012).Luc Lessard(1)(4)Montreal, Quebec, Canada Director
    July 31, 2014
    President of Osisko Mining Group Inc. (2015),
    President and CEO of Falco Resources Limited (2015), Vice President and
    Chief Operating Officer of Osisko Mining Corporation (2011-2014) and Senior
    Vice President and Chief Operating Officer of Canadian Malartic Partnership
    (2014- January 2015).Paula
      Rogers(1)(2)Vancouver, British Columbia, Canada
      Director
    August 3, 2011
    Corporate director, Chief Financial Officer of
    Castle Peak Mining Ltd. from 2010 to 2014, former director and Chair of the
    Audit Committee of Athabasca Uranium Inc., Treasurer of Wheaton River
    Minerals Ltd. and Silver Wheaton Corp., and from 2004 to 2010 she served as
    Vice-President and Treasurer of Goldcorp Inc.José
      Vizquerra(2)(4)Toronto, Ontario, Canada
      Director
    November 27, 2013
    Chief Executive Officer and a
      director of Braeval Mining Corporation and a director of Oban
      Exploration Limited, a private exploration company focusing on
      copper exploration in Peru.Miguel Bonilla
      Hermosillo, Sonora, Mexico Vice-President Finance
      Mexico
    November 12, 2009
    Companys Vice-President Finance,
      Mexico. Mr. Bonilla has been the Companys comptroller since its
      inception in 2005.Arturo Bonillas
      Hermosillo, Sonora, Mexico President
    March 17, 2005
    Companys President since March 17,
      2005.Leslie Kapusianyk
      Vancouver, British Columbia, Canada Corporate Secretary
    June 28, 2012
    Companys Corporate Secretary since
      June 2012. Ms. Kapusianyk is a barrister and solicitor and has
      been the Companys Corporate Counsel since August 2008.Darren Prins Vancouver,
      British Columbia, Canada Chief Financial Officer
    August 15, 2011
    Companys Chief Financial Officer
      (May 2012 to present); Companys Vice-President Finance Canada
      (August 2011 until May 2012); Corporate Controller and Assistant
      Corporate Controller for Rusoro Mining Ltd. (October 2009 to July
      2011).Taj Singh Toronto,
      Ontario Canada Vice-President Business Development
    September 9, 2012
    Companys Vice-President Business
      Development since September 2012. Mr. Singh is a Professional
      Engineer, a Chartered Professional Accountant and was formerly an
      Equity Research Analyst at Macquarie Capital Markets in Toronto.Alex P. Tsakumis
      Richmond, British Columbia, Canada Vice-President
      Corporate Development
    November 12, 2009
    Companys Vice-President Corporate
      Development since November 2009.


Notes:

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

- 67 -

---

|(4) | Denotes a member of the Technical Committee of the
      Company
|--- | ----------------------------------------------------------------

Shareholdings of Directors and Officers

To the best of the Companys knowledge, as at December 31,
2014, directors and executive officers, as a group, beneficially owned,
directly, or exercised control over 6,063,200 common shares (not including
common shares issuable upon the exercise of stock options) of the Company,
representing 3.37% of the then outstanding common shares.

Corporate Cease Trade Orders or Bankruptcies

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

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

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

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

Mr. Stephen Lang is a director of Allied Nevada Gold Corp.
which together with certain of its domestic direct and indirect subsidiaries,
filed voluntary petitions for relief under chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the District of Delaware on March
10, 2015.

Penalties or Sanctions

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

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

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

- 68 -

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Conflicts of Interest

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

Mr. George Brack is a director of both the Company and
Newstrike. He declared his interest to the boards of directors of each of
Newstrike and the Company at the start of discussions regarding a possible
transaction between the two companies. Mr. George Brack recused himself from any
negotiations and abstained from voting on resolutions of either the Newstrike
Board or the Timmins Board in connection with the Arrangement and ancillary
matters. To the Companys knowledge, he owns, directly or indirectly, or
exercises control over 500,000 Newstrike common shares, 200,000 options to
purchase Newstrike common shares, and 200,000 options to purchase Timmins common
shares.

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

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

The Company is not party to any legal proceedings or regulatory
actions except for the following:

|1. | Under the San Francisco Property Acquisition Agreement
      signed in 2007 Timmins purchased certain mining equipment and buildings
      from a Mexican vendor for $4,025,000. The balance outstanding at December
      31, 2014 was $1,725,000 (December 31, 2011, 2012 and 2013 - $1,725,000).
      The balance remains unpaid due to continuing mutual deferrals between
      Timmins and the vendor. Timmins signed a promissory note in favour of the
      vendor in the amount of US$1,725,000 on April 18, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | During the year ended March 31, 2011, an order was issued
      by the Mexico Tax Administration Service (SAT) requiring Timmins
      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, and was subsequently
      appealed by SAT. In May 2011, a Mexican appellate court judgment was
      issued confirming that the garnishment order had been imposed by SAT with
      insufficient legal support, and Timmins started an administrative process
      to release the MXP 21,047,000 ($1,811,000) of previously restricted funds.
      The funds were released from restrictions on July 5, 2011. The liability
      under the promissory note in favour of the vendor remains outstanding;
      however, Timmins has received legal advice not to pay the amount to the
      vendor while the garnishment order remains outstanding. The vendor has
      filed a notice of litigation but has not served Timmins with the
      notice.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2. | Auteq Mexicana, S.A. de C.V. (the Vendor), the
      Vendor of two of the mining concessions within the San Francisco Property
      (Llano IV and V) is currently occupying a portion of Timmins waste dumps
      at the San Francisco Mine. The Vendor is using the site for a small
      crushing operation. The Vendor has brought a claim against Timmins
      subsidiary Molimentales del Noroeste, S.A. de C.V. alleging breach of
      contract with respect to an alleged contract pursuant to which Timmins
      agreed to provide power and water as well as access to the waste dumps.
      Timmins has provided access to the Vendor but has no other obligation. The
      Vendor is claiming damages in the amount of US$172,500 plus compensatory
      damages, and Timmins has counter-claimed to remove the crushing operation
      from the San Francisco Property.                                                                                                                                                                                                                                                                                                     

- 69 -

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INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

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

REGISTRAR AND TRANSFER AGENT

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

MATERIAL CONTRACTS

Except for contracts made in the ordinary course of business,
the following are the only material contracts entered into by the Company within
the year ended December 31, 2014, or before that period but are still in effect:

|1. | Stock Option Plan dated July 18, 2013 and the granting of
      stock options thereunder to directors, officers, employees and consultants
      of the Company;                                                                                                                        
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                         
|2. | Asset Purchase Agreement dated December 17, 2014 among
      the Company, Goldgroup Mining Inc., Candymin S.A. de C.V., Minera Cardel
      S.A. de C.V. and Molimentales del Noroeste, S.A. de C.V. with respect to
      the acquisition by the Company of the Caballo Blanco Project;
|   |                                                                                                                                                                                                                                                                                         
|3. | 2015 Credit Agreement between the Company, Sprott
      Resource Lending Partnership and Morgan Stanley Capital Group Inc. dated
      February 2, 2015;                                                                                                                                
|   |                                                                                                                                                                                                                                                                                         
|4. | Underwriting Agreement among the Company, RBC Dominion
      Securities Inc., BMO Nesbitt Burns Inc., TD Securities Inc., GMP
      Securities L.P., National Bank Financial Inc., Scotia Capital Inc. and PI
      Financial Corp. dated January 28, 2014; and                         
|   |                                                                                                                                                                                                                                                                                         
|5. | Arrangement Agreement dated February 16, 2015 between
      Timmins Gold Corp. and Newstrike Capital Inc. with respect to the proposed
      acquisition by the Company of all of the issued and outstanding common
      shares of Newstrike Capital Inc.                              

TECHNICAL INFORMATION

The Company has included scientific and technical information
concerning material mineral projects of the Company (Technical
Information) in this AIF.

Taj Singh, M.Eng, P.Eng, CPA, a Qualified Person under NI
43-101 and the Vice President of Business Development of the Company, has
approved the Technical Information disclosed regarding the San Francisco
Property and the Caballo Blanco Project contained in this AIF.

INTEREST OF EXPERTS

In December 2013, the Company filed the San Francisco Report
prepared by Micon. The Independent Qualified Persons (as defined by National
Instrument 43-101) responsible for the San Francisco Report are William J.
Lewis, B.Sc., P.Geo., Ing. Alan J. San Martin, MAusIMM (CP), Mani Verma, P.Eng.
and Richard M. Gowans, B.Sc., P.Eng. of Micon.

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

- 70 -

---

In February 2015, the Company filed the Caballo Blanco Report.
The Caballo Blanco Report has an effective date of May 7, 2012, was originally
prepared for Goldgroup Mining Inc., and was readdressed to the Company on
January 28, 2015. The Caballo Blanco Report was prepared by Joseph M. Keane,
Brent C. Bailey, Jim Cuttle, Gary Giroux, Stephen Taylor and Dino Pilotto of K D
Engineering, all of whom are independent Qualified Persons as defined in NI
43-101.

Messrs. Keane, Bailey, Cuttle, Giroux, Taylor and Pilotto and K
D Engineering are not known to the Company to have any registered or beneficial
interest, direct or indirect, in any securities or other property of the Company
or any of the Companys associates or affiliates.

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

AUDIT COMMITTEE INFORMATION

Audit Committee Charter

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

Composition of the Audit Committee and Relevant Education
and Experience

The Companys Audit Committee is comprised of Paula Rogers, Luc
Lessard and Tony Hawkshaw, all of whom are financially literate within the
meaning of applicable Canadian and U.S. securities laws. In the opinion of the
Companys Board of Directors, Ms. Rogers, Mr. Lessard and Mr. Hawkshaw are
independent within the meaning of applicable Canadian and U.S. securities
laws, including Rule 10A-3 of the Exchange Act of 1934, as amended (the
Exchange Act) and the rules of the TSX and NYSE MKT.

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

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

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

Committee Member
    Relevant Education and ExperiencePaula Rogers Director and Chair of Audit
      Committee Independent Financially Literate
    Ms. Rogers received her Bachelor of Commerce degree from
      the University of British Columbia in 1990. She became a member of the
      Institute of Chartered Accountants of British Columbia in 1993. From 1990
      to 1994, Ms. Rogers was with Deloitte & Touche LLP (now Deloitte LLP),
      Chartered Accountants. Ms. Rogers has over 15 years experience working
      for Canadian-based international public companies in the areas of treasury
      operations, tax planning and compliance, mergers and acquisitions and
      financial reporting. She has extensive experience in multi-million dollar
      financings in the Canadian and US bank and public debt markets. Ms. Rogers
      has served as an officer of other public companies including
      Vice-President, Treasurer of NYSE-listed Goldcorp Inc. and Treasurer of
      Wheaton River Minerals Ltd and Silver Wheaton Corp. She currently serves on the board of NeutriSci
      International Inc. and Diversified Royalty Corp., where she also serves as
      the Chair of the Audit Committee.


- 71 -

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Committee Member
    Relevant Education and ExperienceLuc Lessard Director Independent
      Financially Literate
    Mr. Lessard has spent more than 25 years in the mining
      industry. He is currently the President of Osisko Mining Group Inc. and
      President and CEO at Falco Resources Limited. Mr. Lessard was Senior Vice
      President and Chief Operating Officer of Osisko from 2011 until it was
      acquired in June 2014 for $3.9 billion. He was Osiskos VP,
      Engineering and Construction from 2007 to 2011, during which time he was
      directly responsible for the design and construction of the Canadian
      Malartic gold mine. He previously served as VP Engineering and
      Construction for IAMGOLD Corp. and as General Manager, Projects for
      Cambior Inc. during which time he was responsible for the construction of
      the Rosebel gold mine in Suriname.   He also serves on the board
      of directors of Nighthawk Gold Corp. and Falco Resources Ltd.Anthony Hawkshaw Director Independent
      Financially Literate
    Mr. Hawkshaw has more than 30 years of experience in the
      mining industry in countries including Canada, the United States, Mexico,
      Russia and Peru and is a former director, Chief Financial Officer and
      founding shareholder of Rio Alto Mining Ltd. Prior to joining Rio Alto,
      Mr. Hawskshaw was the Chief Financial Officer of Pan American Silver Corp.
      and Chariot Resources Ltd. He has also served as Chairman of the audit
      committee of Caza Gold Corp.


Pre-approval policies and procedures

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

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

External auditor service fees

Deloitte has been the Companys external auditor since January
2008. The aggregate fees billed for professional services rendered by Deloitte
for the year ended December 31, 2014 and the year ended December 31, 2013 in
Canadian dollars were as follows:

Year Ended December 31, 2014
    Year Ended December 31, 2013Audit fees
    $244,000
    $244,000Audit related fees
    $35,000
    $nilTax fees
    $77,500
    $98,400All other fees
    $nil
    $nilTotal
    $356,500
$342,400


Notes:

|(1) | Audit Fees means the aggregate fees billed by the
      Companys external auditor for audit and interim review
services.                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Audit Related Fees means the aggregate fees billed for
      assurance and related services by the Companys external auditor that are
      reasonably related to the performance of the audit or review of the
      Companys financial statements and are not reported under Audit
    Fees.
|(3) | Tax Fees means the aggregate fees billed in each of the
      last two fiscal years for professional services rendered by the Companys
      external auditor for tax compliance, tax advice and tax
planning.                                                                                   
|(4) | Other Fees means the aggregate fees billed for products
      and services provided by the Companys external auditor, other than the
      services reported under Audit Fees, Audit-Related Fees and Tax
      Fees.                                                                      

- 72 -

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ADDITIONAL INFORMATION

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

Additional information, including directors and officers
remuneration and indebtedness, the Companys principal shareholders, and
securities authorized for issuance under equity compensation plans, if
applicable, is contained in the management information circular prepared for the
Annual and Special Meeting of Shareholders to be held on April 29, 2015, and
available on SEDAR at www.sedar.com.

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

- 73 -

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APPENDIX 1

TIMMINS GOLD CORP.

(the Company)

AUDIT COMMITTEE MANDATE AND CHARTER

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

| | 1. | The Audit Committee (the Committee) is an
      advisory committee of the Board of Directors of the Company (the
      Board).                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 2. | This mandate and charter (the Charter) is part
      of a flexible governance framework for the Boards strategic oversight of
      the Company. This Charter will be interpreted in the context of the
      Companys Articles and all applicable laws, regulations and listing
      requirements and guidelines, including those of the Canadian Securities
      Administrators: National Policy 58-201 Corporate Governance Guidelines
      (NP 58-201), and National Instrument 52-110 Audit Committees
      (NI 52-110) as amended from time to time.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | This Charter is a Board policy to guide the directors and
      officers in the governance of the Company. Although this Charter is
      intended to consolidate and restate legislative, regulatory or corporate
      obligations established by other documents and processes, it remains
      subject to the most current and binding legislative, regulatory and
      contractual obligations of the Company, and its directors and
    officers.                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | The authority and mandate of this Committee will evolve
      for greater independence of Committee members and processes as the
      corporate enterprise emerges through stages of capitalization and
      production.                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 3. | The Committee has the authority to:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | Such advisors and external auditors will report to and be
      accountable to the Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 4. | The Committee reports to and is accountable to the Board.
      The Company will provide the Committee with reasonable resources for its
      work, including services of non-executive secretary.                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 5. | The Committee may delegate information assembly,
      assessment or advisory responsibilities to such advisors or subcommittees
      as it reasonably sees fit. The Committee may request any executive
      officer, employee, advisor or consultant of the Company to attend a
      Committee meeting and the individuals will be obliged to make every effort
      to do so or provide alternative effective communications with the
      Committee.                                                                                                          

- 74 -

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|B. | OVERVIEW AND PURPOSE                                    
|-- | --------------------------------------------------------
|   |                                                         
|   | 6.                                                      
|   |                                                         
|   |                                                         
|   |                                                         
|   |                                                         
|   |                                                         
|C. | MEMBERSHIP AND ATTENDANCE AT MEETINGS                   
|   |                                                         
|   | 7.                                                      
|   |                                                         
|   | 8.                                                      
|   |                                                         
|   | 9.                                                      
|   |                                                         
|   | 10.                                                     
|   |                                                         
|   | 11.                                                     
|   |                                                         
|D. | DUTIES AND RESPONSIBILITIES OF THE AUDIT
      COMMITTEE
|   |                                                         
|   | 12.                                                     
|   |                                                         
|   |                                                         
|   |                                                         
|   | 13.                                                     

| | 13.1 | Financial Strategic Planning and
  Policies
| | ---- | -------------------------------------------

- 75 -

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The Committee will review and make
recommendations to the Board on matters related to:

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

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

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

| | 13.2 | Financial Accountability and Public
  Disclosures.
| | ---- | --------------------------------------------------

The Committee will,

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

| | (i) | the financial content of the annual report, if
      applicable;
| | --- | ----------------------------------------------------------------

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

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

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

| | 13.3 | Financial Accountability and the External
  Auditor.
| | ---- | ----------------------------------------------------

The Committee will,

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

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

| | (c) | pre-approve all non-audit services to be provided to the
      Company or its subsidiary entities by its external auditors or those of
      its subsidiaries; the Committee may delegate to one or more independent
      members of the Committee the authority to pre-approve nonaudit services
      if the Committee is informed of each pre-approval at the next scheduled
      Committee meeting (all pre-approvals shall be made according to the
      pre-approval policies and procedures specified by the Board for each
      particular non-audit service);
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | (d) | review the fees paid to the external auditors or its
      affiliates for non-audit services, and consider the impact on the
      independence of the external audit work;                                                                                                                                                                                                                                                                                                            
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (e) | oversee the work of the external auditors engaged for the
      purposes of preparing or issuing an audit report or performing other
      audit, review or attest services for the Company, including the resolution
      of disagreements between management and the external auditors regarding
      financial reporting, and including the review with the external auditors
      the results of the annual audit examination including, but not limited to
      the following:

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

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

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

The Committee will,

| | (a) | obtain reasonable assurance, by discussions with and
      reports from executive officers and the external auditors, that the
      accounting systems are reliable and that the system of internal controls
      is effectively designed and implemented;                                                                                                                                                              
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (b) | annually request the external auditor to provide its
      views on the quality (not just the acceptability) of the Companys annual
      and interim financial reporting. Such quality assessment should encompass
      judgments about the appropriateness, aggressiveness or conservatism of
      estimates and elective accounting principles, or methods and judgments
      about the clarity of disclosures;    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (c) | review the engagement of the auditor every five years,
      and when changing auditors for this or any other reason, review all issues
      related to the change, including the information to be included in the
      notice of change of auditor called for under applicable securities
      legislation and the rules and policies of applicable exchanges, and the
      planned steps for an orderly transition;
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (d) | review any litigation, claim or other contingency,
      including tax assessments, that could have a material effect upon the
      financial position or operating results of the Company, and the manner in
      which these matters have been disclosed in the financial
  statements;                                                                                                                               

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| | (e) | review the internal control and approval policies and
      practices concerning, and oversee the Companys management of, identifying
      and mitigating financial risks faced by the Company;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                  
| | (f) | review the compensation of directors and officers,
      including expenses and the use of the Companys assets;                                                                                 
| |     |                                                                                                                                                                                                  
| | (g) | review all contractual indemnities and any claims of
      indemnification pursuant to the Articles of the Company;                                                                              
| |     |                                                                                                                                                                                                  
| | (h) | provide Committee meeting minutes and reports to the
      Board, and;                                                                                                                           
| |     |                                                                                                                                                                                                  
| | (i) | review annually the terms of reference for the Committee
      and support the annual assessment of the performance of the Committee, and
      recommend any required changes to the Board.     

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

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

| | (a) | provide the Committee with such information, including
      access to all books, records, facilities and personnel, and resources to
      retain outside counsel or advisors, as the Committee may consider
      necessary and appropriate for its purposes;                                                                                                                                                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (b) | request that the Chief Executive Officer and Chief
      Financial Officer or persons who perform functions similar to them, report
      on any and all issues requested by the Committee or the external auditor,
      including those which are the subject of any Certificates to be signed and
      filed in accordance with applicable securities regulations by the Chief
      Executive Officer and Chief Financial Officer or persons who perform
      functions similar to them; and to review such report, and to;
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (c) | establish procedures for the receipt, retention and
      treatment of complaints received by the Company regarding accounting,
      internal accounting controls, or auditing matters and, for the
      confidential, anonymous submission by employees of the Company of concerns
      regarding questionable accounting or auditing
matters.                                                                                                                                                                               

Approved by Resolution of the Board 17
June, 2010

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