---



International Tower Hill Mines Ltd.(An Exploration Stage Company)

Consolidated Financial Statements(Expressed in
Canadian dollars)



May 31, 2011, 2010 and 2009

---

|INTERNATIONAL
      TOWER HILL MINES LTD.
|-----------------------------------------
|(An
      Exploration Stage Company)     

MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS

The consolidated financial statements and all information in
the annual report are the responsibility of the Board of Directors and
management. The consolidated financial statements have been prepared by
management in accordance with Canadian generally accepted accounting principles
and reconciled to United States generally accepted accounting principles.
Management maintains the necessary systems of internal controls, policies and
procedures to provide assurance that assets are safeguarded and that the
financial records are reliable and form a proper basis for the preparation of
financial statements.

The Board of Directors ensures that management fulfills its
responsibilities for financial reporting and internal control through an Audit
Committee. This committee, which reports to the Board of Directors, meets with
the independent auditors and reviews the consolidated financial statements.

The consolidated financial statements have been audited by
MacKay LLP, Chartered Accountants, who were appointed by the shareholders. The
independent auditors report outlines the scope of their examination and their
opinion on the consolidated financial statements.

MANAGEMENTS REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING

The management of the Company is responsible for establishing
and maintaining adequate internal control over financial reporting. Internal
control over financial reporting is a process to provide reasonable assurance
regarding the reliability of the Companys financial reporting for external
purposes in accordance with accounting principles generally accepted in Canada
and in the United States of America. Internal control over financial reporting
includes maintaining records that in reasonable detail accurately and fairly
reflect our transactions and dispositions of the assets of the Company;
providing reasonable assurance that transactions are recorded as necessary for
preparation of our financial statements in accordance with generally accepted
accounting principles; providing reasonable assurance that receipts and
expenditures are made in accordance with authorizations of management and the
directors of the Company; and providing reasonable assurance that unauthorized
acquisition, use or disposition of Companys assets that could have a material
effect on our consolidated financial statements would be prevented or detected
on a timely basis. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a
misstatement of our consolidated financial statements would be prevented or
detected.

Management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework and criteria
established in Internal Control  Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission. This
evaluation included review of the documentation of controls, evaluation of the
design effectiveness of controls, testing of the operating effectiveness of
controls and a conclusion on this evaluation. Based on this evaluation,
management concluded that the Companys internal control over financial
reporting was effective as of May 31, 2011.

|James Komadina        | Michael Kinley       
|----------------------- | -----------------------
|James Komadina,         | Michael Kinley,        
|Chief Executive Officer | Chief Financial Officer
|                        |                        
|August 26, 2011         |                        
|Vancouver, Canada       |                        

|2
|-

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|INTERNATIONAL
      TOWER HILL MINES LTD.
|-----------------------------------------
|(An Exploration Stage Company)           
|Consolidated Financial Statements        
|(Expressed in Canadian dollars)          
|                                         

|May 31,
      2011                                                                                                                             | Page 
|---------------------------------------------------------------------------------------------------------------------------------------------- | -----
|                                                                                                                                               |      
|                                                                                                                                               |      
|                                                                                                                                               |      
|                                                                                                                                               |      
|Audited Consolidated Financial Statements                                                                                                      |      
|                                                                                                                                               |      
|Independent
      Auditors Report                                                                                                             | 4    
|                                                                                                                                               |      
|Independent
      Auditors Report on Internal Controls under Standards of the Public
      Company Accounting Oversight Board (United States) | 5    
|                                                                                                                                               |      
|Consolidated
      Balance Sheets                                                                                                              | 6    
|                                                                                                                                               |      
|Consolidated
      Statements of Operations and Comprehensive Loss                                                                             | 7    
|                                                                                                                                               |      
|Consolidated
      Statements of Cash Flows                                                                                                    | 8    
|                                                                                                                                               |      
|Consolidated
      Statements of Equity                                                                                                        | 9    
|                                                                                                                                               |      
|Notes
      to the Consolidated Financial Statements                                                                                           | 10-38

|3
|-

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|CHARTEREDACCOUNTANTS  | 1100  1177 West Hastings Street | 
|--------------------- | -------------------------------- | 
|Vancouver, BC V6E 4T5
|Tel: (604) 687-4511  
|MacKay LLP            | Fax: (604) 687-5805             
|                      | Toll Free: 1-800-351-0426       
|                      | www.mackay.ca                    | 

Independent Auditor's Report

To the Shareholders ofInternational Tower Hill Mines Ltd.

We have audited the accompanying consolidated financial
statements of International Tower Hill Mines Ltd. and its subsidiaries, which
comprise the consolidated balance sheets as at May 31, 2011, May 31, 2010 and
May 31, 2009, and the consolidated statements of operations, comprehensive loss,
equity and cash flows for the years then ended, and a summary of significant
accounting policies and other explanatory information. Management's
Responsibility for the Consolidated Financial Statements Management is
responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with Canadian generally accepted accounting
principles, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error.

Auditor's Responsibility Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we comply with ethical
requirements and plan and perform the audits to obtain reasonable assurance
about whether the consolidated financial statements are free from material
misstatement.

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

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

Opinion In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of
International Tower Hill Mines Ltd. and its subsidiaries as at May 31, 2011, May
31, 2010 and May 31, 2009, and the results of their operations and their cash
flows for the years then ended in accordance with Canadian generally accepted
accounting principles.

Emphasis of Matter Without modifying our opinion, we draw
attention to Note 1 to the consolidated financial statements which describes the
material uncertainty that may cast significant doubt about the ability of
International Tower Hill Mines Ltd. and its subsidiaries to continue as a going
concern.

Other matter We have also audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States),
International Tower Hill Mines Ltds internal control over financial reporting
as of May 31, 2011, based on the criteria established in Internal Control 
Integrated Frameworkissued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated August 26, 2011 expressed an
unqualified opinion on International Tower Hill Mines Ltds internal control
over financial reporting.

|Vancouver, Canada | MacKay LLP         
|----------------- | ---------------------
|August 26, 2011   | Chartered Accountants

|4
|-

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|CHARTEREDACCOUNTANTS  | 1100  1177 West Hastings Street | 
|--------------------- | -------------------------------- | 
|Vancouver, BC V6E 4T5
|Tel: (604) 687-4511  
|MacKay LLP            | Fax: (604) 687-5805             
|                      | Toll Free: 1-800-351-0426       
|                      | www.mackay.ca                    | 

Independent Auditors Report on Internal
  Controls under Standards of thePublic Company Accounting Oversight Board (United States)

To the Board of Directors and Shareholders
  ofInternational Tower Hill Mines Ltd.

We have audited the internal control over financial reporting
of International Tower Hill Mines Ltd. and subsidiaries (the Company) as of
May 31, 2011, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). The Companys management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
including in the accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of May 31,
2011, based on the COSO criteria.

We have also audited, in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended May 31, 2011 of the Company and our report dated August 26,
2011 expressed an unqualified opinion on those financial statements.

|Vancouver, Canada | MacKay LLP         
|----------------- | ---------------------
|August 26, 2011   | Chartered Accountants

|5
|-

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|INTERNATIONAL
      TOWER HILL MINES LTD.
|-----------------------------------------
|(An Exploration Stage Company)           
|CONSOLIDATED BALANCE SHEETS              
|(Expressed in Canadian dollars)          
|AS AT MAY 31                             

|                                                                      |   | 2011        |   |   | 2010        |   |   | 2009        |  
|--------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                                      |   |             |   |   |             |   |   |             |  
|ASSETS                                                                |   |             |   |   |             |   |   |             |  
|                                                                      |   |             |   |   |             |   |   |             |  
|Current                                                               |   |             |   |   |             |   |   |             |  
|Cash and cash equivalents
      (note 4a)                             | $ | 111,165,126 |   | $ | 43,460,324  |   | $ | 32,489,341  |  
|Marketable securities (note 5)                                        |   | 662,500     |   |   | 360,000     |   |   | 113,750     |  
|Accounts receivable                                                   |   | 185,733     |   |   | 110,214     |   |   | 76,634      |  
|Prepaid expenses                                                      |   | 378,492     |   |   | 274,246     |   |   | 166,264     |  
|Current assets related to discontinued
      operations (note 2)      |   | -           |   |   | 13,663      |   |   | -           |  
|                                                                      |   |             |   |   |             |   |   |             |  
|                                                                      |   | 112,391,851 |   |   | 44,218,447  |   |   | 32,845,989  |  
|                                                                      |   |             |   |   |             |   |   |             |  
|Property and equipment(note 6)                                        |   | 143,571     |   |   | 80,040      |   |   | 69,915      |  
|Mineral properties(note 7)                                            |   | 80,169,668  |   |   | 41,849,485  |   |   | 22,363,153  |  
|Long-term assets related to discontinued operations
      (note 2)    |   | -           |   |   | 12,245,690  |   |   | 11,054,413  |  
|                                                                      |   |             |   |   |             |   |   |             |  
|                                                                      | $ | 192,705,090 |   | $ | 98,393,662  |   | $ | 66,333,470  |  
|                                                                      |   |             |   |   |             |   |   |             |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                  |   |             |   |   |             |   |   |             |  
|                                                                      |   |             |   |   |             |   |   |             |  
|Current liabilities                                                   |   |             |   |   |             |   |   |             |  
|Accounts payable and accrued liabilities (note
      10)              | $ | 4,037,428   |   | $ | 1,187,865   |   | $ | 353,775     |  
|Current liabilities related to discontinued
      operations (note 2) |   | -           |   |   | 85,094      |   |   | 32,898      |  
|                                                                      |   |             |   |   |             |   |   |             |  
|                                                                      |   |             |   |   |             |   |   |             |  
|                                                                      |   | 4,037,428   |   |   | 1,272,959   |   |   | 386,673     |  
|                                                                      |   |             |   |   |             |   |   |             |  
|Shareholders equity                                                  |   |             |   |   |             |   |   |             |  
|Share capital (note 8)                                                |   | 215,544,180 |   |   | 124,277,370 |   |   | 79,256,633  |  
|Contributed surplus                                                   |   | 12,967,996  |   |   | 14,240,223  |   |   | 10,218,728  |  
|Deficit                                                               |   | (39,844,514 | ) |   | (41,396,890 | ) |   | (23,528,564 | )
|                                                                      |   |             |   |   |             |   |   |             |  
|                                                                      |   | 188,667,662 |   |   | 97,120,703  |   |   | 65,946,797  |  
|                                                                      |   |             |   |   |             |   |   |             |  
|                                                                      | $ | 192,705,090 |   | $ | 98,393,662  |   | $ | 66,333,470  |  

Nature and continuance of operations(note 1)Commitments(note 13) Subsequent events(note 17)

Approved on behalf of the Directors:

|Hendrik Van
      Alphen | Director
|-------------------------- | --------
|Anton
      Drescher     | Director

See accompanying notes to the consolidated financial statements

6

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|INTERNATIONAL
      TOWER HILL MINES LTD.                         
|------------------------------------------------------------------
|(An Exploration Stage Company)                                    
|CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
      LOSS
|(Expressed in Canadian dollars)                                   
|FOR THE YEAR ENDED MAY 31                                         

|                                                                          |   | 2011        |   |   | 2010        |   |   | 2009       |  
|------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ---------- | -
|                                                                          |   |             |   |   |             |   |   |            |  
|Expenses                                                                  |   |             |   |   |             |   |   |            |  
|Administration (note
      10)                                            | $ | 31,544      |   | $ | 29,772      |   | $ | 29,392     |  
|Amortization                                                              |   | 42,375      |   |   | 28,477      |   |   | 54,597     |  
|Charitable donations                                                      |   | 64,637      |   |   | 50,640      |   |   | 20,122     |  
|Consulting fees (notes 8 and 10)                                          |   | 1,570,146   |   |   | 3,722,579   |   |   | 1,236,468  |  
|Insurance                                                                 |   | 215,228     |   |   | 128,607     |   |   | 79,900     |  
|Investor relations (notes 8 and 10)                                       |   | 1,148,359   |   |   | 1,117,835   |   |   | 518,419    |  
|Office and
      miscellaneous                                            |   | 281,840     |   |   | 99,124      |   |   | 94,125     |  
|Professional fees (notes 8 and 10)                                        |   | 667,405     |   |   | 614,868     |   |   | 296,384    |  
|Property investigations                                                   |   | 2,557       |   |   | 395         |   |   | 85,739     |  
|Regulatory                                                                |   | 188,121     |   |   | 224,143     |   |   | 60,182     |  
|Rent (note 10)                                                            |   | 167,697     |   |   | 89,473      |   |   | 80,431     |  
|Telephone                                                                 |   | 49,688      |   |   | 24,261      |   |   | 15,890     |  
|Travel                                                                    |   | 210,192     |   |   | 129,035     |   |   | 182,534    |  
|Wages and benefits (notes 8 and 10)                                       |   | 5,263,652   |   |   | 5,878,461   |   |   | 2,167,850  |  
|                                                                          |   |             |   |   |             |   |   |            |  
|Loss before
      other items                                             |   | (9,903,441  | ) |   | (12,137,670 | ) |   | (4,922,033 | )
|                                                                          |   |             |   |   |             |   |   |            |  
|Other items                                                               |   |             |   |   |             |   |   |            |  
|Gain (loss) on foreign
      exchange                                     |   | 41,225      |   |   | (76         | ) |   | 127,283    |  
|Interest income                                                           |   | 675,146     |   |   | 116,936     |   |   | 126,402    |  
|Loss on disposal of
      property and equipment                          |   | -           |   |   | -           |   |   | (7,861     | )
|Income from mineral property earn-in                                      |   | 311,312     |   |   | 164,102     |   |   | -          |  
|Spin-out (cost)
      recovery (note 2)                                   |   | (593,754    | ) |   | (138,141    | ) |   | -          |  
|Write-off of mineral property(notes 7b
      and 7c)                      |   | -           |   |   | (2,372,358  | ) |   | (1,617,785 | )
|Unrealized gain (loss) on
      marketable securities (note 5)            |   | 182,500     |   |   | 102,250     |   |   | (133,250   | )
|                                                                          |   |             |   |   |             |   |   |            |  
|                                                                          |   | 616,429     |   |   | (2,127,287  | ) |   | (1,505,211 | )
|                                                                          |   |             |   |   |             |   |   |            |  
|Loss from continuing operations                                           |   | (9,287,012  | ) |   | (14,264,957 | ) |   | (6,427,244 | )
|Loss from
      discontinued operations(note 2)                           |   | (934,157    | ) |   | (3,603,369  | ) |   | (3,346,679 | )
|                                                                          |   |             |   |   |             |   |   |            |  
|Net loss and
      comprehensive loss for the year                        | $ | (10,221,169 | ) | $ | (17,868,326 | ) | $ | (9,773,923 | )
|                                                                          |   |             |   |   |             |   |   |            |  
|Basic and fully diluted loss per share from
      continuing operations   | $ | (0.12       | ) | $ | (0.24       | ) | $ | (0.14      | )
|Basic and fully diluted loss per share from
      discontinued operations | $ | (0.01       | ) | $ | (0.06       | ) | $ | (0.07      | )
|                                                                          |   |             |   |   |             |   |   |            |  
|Weighted average number of shares outstanding                             |   | 77,550,644  |   |   | 59,603,193  |   |   | 45,089,555 |  

See accompanying notes to the consolidated financial statements

7

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|INTERNATIONAL
      TOWER HILL MINES LTD.
|-----------------------------------------
|(An Exploration Stage Company)           
|Consolidated Statements of Cash Flows    
|(Expressed in Canadian dollars)          
|FOR THE YEAR ENDED MAY 31                

|                                                                                 |   | 2011        |   |   | 2010        |   |   | 2009        |  
|-------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                                                 |   |             |   |   |             |   |   |             |  
|Operating Activities                                                             |   |             |   |   |             |   |   |             |  
|Loss for
      the year from continuing operations                               | $ | (9,287,012  | ) | $ | (14,264,957 | ) | $ | (6,427,244  | )
|Add items not affecting
      cash:                                              |   |             |   |   |             |   |   |             |  
|Amortization                                                                     |   | 42,375      |   |   | 28,477      |   |   | 54,597      |  
|Stock-based compensation (note 8)                                                |   | 3,254,815   |   |   | 7,659,829   |   |   | 2,744,674   |  
|Loss on sale of property and equipment                                           |   | -           |   |   | -           |   |   | 7,861       |  
|Unrealized (gain) loss on marketable securities                                  |   | (182,500    | ) |   | (102,250    | ) |   | 133,250     |  
|Spin-out recovery                                                                |   | (120,000    | ) |   | (144,000    | ) |   | -           |  
|Write-off of mineral property                                                    |   | -           |   |   | 2,372,358   |   |   | 1,617,785   |  
|(Gain) loss on foreign exchange                                                  |   | (41,225     | ) |   | 76          |   |   | (127,283    | )
|Changes in non-cash
      items:                                                 |   |             |   |   |             |   |   |             |  
|Accounts receivable                                                              |   | (75,519     | ) |   | (33,580     | ) |   | (51,801     | )
|Prepaid expenses                                                                 |   | (108,943    | ) |   | (121,548    | ) |   | 82,154      |  
|Accounts payable and accrued liabilities                                         |   | (152,916    | ) |   | 329,568     |   |   | 27,162      |  
|Cash used
      in operating activities of continuing operations                 |   | (6,670,925  | ) |   | (4,276,027  | ) |   | (1,938,845  | )
|Loss for
      the year from discontinued operations                             |   | (934,157    | ) |   | (3,603,369  | ) |   | (3,346,679  | )
|Add items not affecting
      cash:                                              |   |             |   |   |             |   |   |             |  
|Stock-based compensation                                                         |   | 756,202     |   |   | 2,241,363   |   |   | 1,356,730   |  
|Write-off of mineral property                                                    |   | -           |   |   | -           |   |   | 1,002,438   |  
|(Gain) loss on foreign exchange                                                  |   | (20,318     | ) |   | 7,181       |   |   | (54,275     | )
|Changes in non-cash
      items:                                                 |   |             |   |   |             |   |   |             |  
|Accounts receivable                                                              |   | -           |   |   | (97         | ) |   | -           |  
|Cash used in
      operating activities of discontinued operations               |   | (198,273    | ) |   | (1,354,922  | ) |   | (1,041,786  | )
|                                                                                 |   |             |   |   |             |   |   |             |  
|Financing Activities                                                             |   |             |   |   |             |   |   |             |  
|Issuance of share capital                                                        |   | 118,079,019 |   |   | 39,634,008  |   |   | 37,913,974  |  
|Share issuance costs                                                             |   | (4,261,094  | ) |   | (1,293,968  | ) |   | (977,586    | )
|Cash provided by financing activities of continuing
      operations             |   | 113,817,925 |   |   | 38,340,040  |   |   | 36,936,388  |  
|Additional funding to Corvus                                                     |   | (764,512    | ) |   | -           |   |   | -           |  
|Cash transferred on Plan of Arrangement (note 2)                                 |   | (3,300,000  | ) |   | -           |   |   | -           |  
|Cash used in
      financing activities of discontinued operations               |   | (4,064,512  | ) |   | -           |   |   | -           |  
|                                                                                 |   |             |   |   |             |   |   |             |  
|Investing Activities                                                             |   |             |   |   |             |   |   |             |  
|Expenditures on mineral properties                                               |   | (35,896,786 | ) |   | (21,303,867 | ) |   | (11,294,605 | )
|Expenditures on property
      and equipment                                     |   | (105,906    | ) |   | (41,248     | ) |   | (27,826     | )
|Cash used in investing activities of continuing
      operations                 |   | (36,002,692 | ) |   | (21,345,115 | ) |   | (11,322,431 | )
|Expenditures
      on mineral properties, net of costs recovered                 |   | 616,684     |   |   | (348,850    | ) |   | (1,208,159  | )
|Cash provided by (used in) investing activities of
      discontinued operations |   | 616,684     |   |   | (348,850    | ) |   | (1,208,159  | )
|                                                                                 |   |             |   |   |             |   |   |             |  
|Effect of foreign exchange on cash of
      continuing operations                |   | 186,277     |   |   | (34,166     | ) |   | 149,957     |  
|Effect of
      foreign exchange on cash of discontinued operations              |   | 20,318      |   |   | (9,977      | ) |   | 54,275      |  
|                                                                                 |   |             |   |   |             |   |   |             |  
|Increase in cash and cash equivalents                                            |   | 67,704,802  |   |   | 10,970,983  |   |   | 21,629,399  |  
|Cash and cash equivalents, beginning of year                                     |   | 43,460,324  |   |   | 32,489,341  |   |   | 10,859,942  |  
|                                                                                 |   |             |   |   |             |   |   |             |  
|Cash and cash equivalents, end of year                                           | $ | 111,165,126 |   | $ | 43,460,324  |   | $ | 32,489,341  |  
|Supplemental cash flow information(note 16)                                      |   |             |   |   |             |   |   |             |  

See accompanying notes to the consolidated financial statements

8

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|INTERNATIONAL
      TOWER HILL MINES LTD.
|-----------------------------------------
|(An Exploration Stage Company)           
|Consolidated Statements of Equity        
|(Expressed in Canadian dollars)          

|                                                                                                                         |  |              |   |   |               |   |  | Number of  |   |   | Share       |   |   |             |   |   |             |   |   |             |  
|------------------------------------------------------------------------------------------------------------------------ |  | ------------ | - | - | ------------- | - |  | ---------- | - | - | ----------- | - | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                                                                                         |  | Number of    |   |   | Share Capital |   |  | shares     |   |   | Capital     |   |   | Contributed |   |   |             |   |   |             |  
|                                                                                                                         |  | shares (Old) |   |   | (Old)         |   |  | (New)      |   |   | (New)       |   |   | Surplus     |   |   | Deficit     |   |   | Total       |  
|                                                                                                                         |  |              |   |   |               |   |  |            |   |   |             |   |   |             |   |   |             |   |   |             |  
|Balance, May 31, 2008                                                                                                    |  | 39,943,892   |   | $ | 40,586,229    |   |  | -          |   | $ | -           |   | $ | 7,024,590   |   | $ | (13,754,641 | ) | $ | 33,856,178  |  
|Private placements                                                                                                       |  | 4,200,000    |   |   | 10,500,000    |   |  | -          |   |   | -           |   |   | -           |   |   | -           |   |   | 10,500,000  |  
|Exercise of warrants                                                                                                     |  | 11,017,044   |   |   | 25,640,916    |   |  | -          |   |   | -           |   |   | -           |   |   | -           |   |   | 25,640,916  |  
|Exercise of options                                                                                                      |  | 792,037      |   |   | 1,773,058     |   |  | -          |   |   | -           |   |   | -           |   |   | -           |   |   | 1,773,058   |  
|Stock-based     compensation                                                                                             |  | -            |   |   | -             |   |  | -          |   |   | -           |   |   | 4,101,404   |   |   | -           |   |   | 4,101,404   |  
|Agents
      compensation     warrants                                                                                  |  | -            |   |   | (286,805      | ) |  | -          |   |   | -           |   |   | 286,805     |   |   | -           |   |   | -           |  
|Reallocation
      from     contributed surplus                                                                          |  | -            |   |   | 1,194,071     |   |  | -          |   |   | -           |   |   | (1,194,071  | ) |   | -           |   |   | -           |  
|Shares issued
      for     property acquisition                                                                         |  | 505,000      |   |   | 826,750       |   |  | -          |   |   | -           |   |   | -           |   |   | -           |   |   | 826,750     |  
|Share issuance costs                                                                                                     |  | -            |   |   | (977,586      | ) |  | -          |   |   | -           |   |   | -           |   |   | -           |   |   | (977,586    | )
|Net loss                                                                                                                 |  | -            |   |   | -             |   |  | -          |   |   | -           |   |   | -           |   |   | (9,773,923  | ) |   | (9,773,923  | )
|Balance, May 31, 2009                                                                                                    |  | 56,457,973   |   |   | 79,256,633    |   |  | -          |   |   | -           |   |   | 10,218,728  |   |   | (23,528,564 | ) |   | 65,946,797  |  
|Private placements                                                                                                       |  | 6,286,248    |   |   | 33,630,650    |   |  | -          |   |   | -           |   |   | -           |   |   | -           |   |   | 33,630,650  |  
|Exercise of warrants                                                                                                     |  | 245,901      |   |   | 725,408       |   |  | -          |   |   | -           |   |   | -           |   |   | -           |   |   | 725,408     |  
|Exercise of options                                                                                                      |  | 2,907,800    |   |   | 5,277,950     |   |  | -          |   |   | -           |   |   | -           |   |   | -           |   |   | 5,277,950   |  
|Stock-based     compensation                                                                                             |  | -            |   |   | -             |   |  | -          |   |   | -           |   |   | 9,901,192   |   |   | -           |   |   | 9,901,192   |  
|Reallocation
      from     contributed surplus                                                                          |  | -            |   |   | 5,879,697     |   |  | -          |   |   | -           |   |   | (5,879,697  | ) |   | -           |   |   | -           |  
|Shares issued
      for     property acquisition                                                                         |  | 220,000      |   |   | 801,000       |   |  | -          |   |   | -           |   |   | -           |   |   | -           |   |   | 801,000     |  
|Share issuance costs                                                                                                     |  | -            |   |   | (1,293,968    | ) |  | -          |   |   | -           |   |   | -           |   |   | -           |   |   | (1,293,968  | )
|Net loss                                                                                                                 |  | -            |   |   | -             |   |  | -          |   |   | -           |   |   | -           |   |   | (17,868,326 | ) |   | (17,868,326 | )
|Balance, May 31, 2010                                                                                                    |  | 66,117,922   |   |   | 124,277,370   |   |  | -          |   |   | -           |   |   | 14,240,223  |   |   | (41,396,890 | ) |   | 97,120,703  |  
|Exercise of warrants                                                                                                     |  | 48,099       |   |   | 141,892       |   |  | -          |   |   | -           |   |   | -           |   |   | -           |   |   | 141,892     |  
|Exercise of options                                                                                                      |  | 1,062,200    |   |   | 1,867,950     |   |  | -          |   |   | -           |   |   | -           |   |   | -           |   |   | 1,867,950   |  
|Stock-based     compensation                                                                                             |  | -            |   |   | -             |   |  | -          |   |   | -           |   |   | 3,885,118   |   |   | -           |   |   | 3,885,118   |  
|Reallocation
      from     contributed surplus                                                                          |  | -            |   |   | 2,252,099     |   |  | -          |   |   | -           |   |   | (2,252,099  | ) |   | -           |   |   | -           |  
|Share issuance costs                                                                                                     |  | -            |   |   | (8,657        | ) |  | -          |   |   | -           |   |   | -           |   |   | -           |   |   | (8,657      | )
|Transfer of Nevada
      and     Other Alaska    
      Business to Corvus                                               |  | -            |   |   | -             |   |  | -          |   |   | -           |   |   | (24,599,328 | ) |   | 11,773,545  |   |   | (12,825,783 | )
|Working
      capital     contribution
      to     Corvus                                                               |  | -            |   |   | -             |   |  | -          |   |   | -           |   |   | (3,300,000  | ) |   | -           |   |   | (3,300,000  | )
|Distribution of the
          common shares of     Corvus
      to ITH     shareholders as
      a     return of capital |  | -            |   |   | (27,899,328   | ) |  | -          |   |   | -           |   |   | 27,899,328  |   |   | -           |   |   | -           |  
|Exchange of old shares
          of ITH for new     shares of ITH
      at a     ratio of 1:1                            |  | (67,228,221  | ) |   | (100,631,326  | ) |  | 67,228,221 |   |   | 100,631,326 |   |   | -           |   |   | -           |   |   | -           |  
|Adjustment due to
          rounding                                                                                     |  | -            |   |   | -             |   |  | (107       | ) |   | -           |   |   | -           |   |   | -           |   |   | -           |  
|Private placement                                                                                                        |  | -            |   |   | -             |   |  | 17,505,805 |   |   | 109,434,227 |   |   | -           |   |   | -           |   |   | 109,434,227 |  
|Exercise of options                                                                                                      |  | -            |   |   | -             |   |  | 1,915,000  |   |   | 6,634,950   |   |   | -           |   |   | -           |   |   | 6,634,950   |  
|Stock-based
          compensation                                                                                       |  | -            |   |   | -             |   |  |            |   |   | -           |   |   | 190,868     |   |   | -           |   |   | 190,868     |  
|Reallocation from
          contributed surplus                                                                          |  | -            |   |   | -             |   |  | -          |   |   | 3,096,114   |   |   | (3,096,114  | ) |   | -           |   |   | -           |  
|Share issuance costs                                                                                                     |  | -            |   |   | -             |   |  | -          |   |   | (4,252,437  | ) |   | -           |   |   | -           |   |   | (4,252,437  | )
|Net loss                                                                                                                 |  | -            |   |   | -             |   |  | -          |   |   | -           |   |   | -           |   |   | (10,221,169 | ) |   | (10,221,169 | )
|                                                                                                                         |  |              |   |   |               |   |  |            |   |   |             |   |   |             |   |   |             |   |   |             |  
|Balance, May 31, 2011                                                                                                    |  | -            |   | $ | -             |   |  | 86,648,919 |   | $ | 215,544,180 |   | $ | 12,967,996  |   | $ | (39,844,514 | ) | $ | 188,667,662 |  

See accompanying notes to the consolidated financial statements

9

---

|INTERNATIONAL
      TOWER HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|1. | NATURE AND CONTINUANCE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | International Tower Hill Mines Ltd. (ITH or the
      Company) is in the business of acquiring, exploring and evaluating
      mineral properties, and either joint venturing or developing these
      properties further or disposing of them when the evaluation is completed.
      At May 31, 2011, the Company was in the exploration stage and controls a
      100% interest in its Livengood project in Alaska, U.S.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | These consolidated financial statements have been
      prepared in accordance with Canadian generally accepted accounting
      principles (GAAP) on a going-concern basis, which presume the
      realization of assets and discharge of liabilities in the normal course of
      business for the foreseeable future. The Companys ability to continue as
      a going-concern is dependent upon achieving profitable operations and/or
      obtaining additional financing. During the current year, the Company has
      raised $118,079,019 (2010 - $39,634,008; 2009 - $37,913,974) through the
      issuance of common shares and has working capital at May 31, 2011 of
      $108,354,423 (2010 - $42,945,488; 2009 - $32,459,316) which is considered
      sufficient to fund its operations and exploration program for the ensuing
      year. These consolidated financial statements do not include any
      adjustments to the amounts and classification of assets and liabilities
      that might be necessary should the Company be unable to continue in
      business.                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The business of mining and exploration involves a high
      degree of risk and there can be no assurance that current exploration
      programs will result in profitable mining operations. The Company has no
      source of revenue, and has significant cash requirements to meet its
      administrative overhead and maintain its mineral property interests. The
      recoverability of amounts shown for mineral properties is dependent on
      several factors. These include the discovery of economically recoverable
      reserves, the ability of the Company to obtain the necessary financing to
      complete the development of these properties, and future profitable
      production or proceeds from disposition of mineral properties. The
      carrying values of the Companys mineral property interests do not reflect
      current or future values.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2. | DISCONTINUED OPERATIONS AND TRANSFER OF MINERAL
      PROPERTIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | On August 26, 2010, the Company completed a Plan of
      Arrangement (the Arrangement) under the British Columbia Business
      Corporation Act pursuant to which it indirectly transferred all of its
      existing Alaska assets (other than the Livengood project and associated
      assets), being the Chisna, West Pogo, Terra and LMS properties and related
      assets, and its Nevada assets, being the North Bullfrog property and
      related assets, (collectively, the Nevada and Other Alaska Business) to
      a new public company, Corvus Gold Inc. (Corvus). Under the Arrangement,
      each shareholder of ITH received (as a return of capital) one Corvus
      common share for every two ITH common shares held as at the effective date
      of the Arrangement and exchanged each old common share of ITH for a new
      common share of ITH. As part of the Arrangement, ITH transferred its
      wholly-owned subsidiaries, Raven Gold Alaska Inc. (Raven Gold),
      incorporated in Alaska, United States, and Corvus Gold Nevada Inc.
      (formerly Talon Gold Nevada Inc.), incorporated in Nevada, United
      States, (which held the North Bullfrog property) to Corvus. As a
      consequence of the completion of the Arrangement, Corvus now holds the
      Terra, Chisna, LMS, West Pogo and North Bullfrog properties (the Spin-out
      Properties).
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Company did not realize any gain or loss on the
      transfer of the Nevada and Other Alaska Business, which was comprised of a
      working capital contribution of $3,300,000 and the other Nevada and Other
      Alaska Business assets and liabilities as at the effective date of the
      Arrangement. Costs of the Arrangement, comprised principally of legal and
      regulatory expense, amounted to expenses of $593,754 (2010 - $138,141;
      2009 - $nil).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Arrangement was approved by a favourable vote of
      ITHs shareholders at a special meeting held on August 12,
  2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

10

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|2. | DISCONTINUED OPERATIONS AND TRANSFER OF MINERAL
      PROPERTIES (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company has, in accordance with CICA 3475, Disposal
      of Long-lived Assets and Discontinued Operations, accounted for the
      financial results associated with the Nevada and Other Alaska Business up
      to the date of the Arrangement as discontinued operations in these
      consolidated financial statements and has reclassified the related amounts
      for the current and prior years.                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The amount recognized as loss from discontinued
      operations includes the direct operating results of the Nevada and Other
      Alaska Business and an allocation of head office general and
      administrative expense. The allocation of head office general and
      administrative expense was calculated on the basis of the ratio of costs
      incurred on the Spin-out Properties in each period presented as compared
      to the costs incurred on all mineral properties of the Company in each of
      the periods. Management cautions readers of these financial statements
      that the allocation of expenses does not necessarily reflect future
      general and administrative expenses.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The following table shows the results related to
      discontinued operations for the years ended May 31, 2011, 2010 and 2009.
      Included therein is $756,202 (2010 - $2,241,363; 2009 - $1,356,730) of
      stock-based compensation (SBC) charges:                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| |                                 |   | 2011    |   |   | 2010      |  |   | 2009      |  
| | ------------------------------- | - | ------- | - | - | --------- |  | - | --------- | -
| |                                 |   |         |   |   |           |  |   |           |  
| | Administration                  | $ | 1,780   |   | $ | 8,712     |  | $ | 14,529    |  
| | Charitable donations            |   | 5,413   |   |   | 14,819    |  |   | 9,946     |  
| | Consulting fees                 |   | 265,721 |   |   | 1,089,274 |  |   | 611,204   |  
| | Foreign exchange (gain) loss    |   | (20,318 | ) |   | 7,181     |  |   | (54,275   | )
| | Insurance                       |   | 10,099  |   |   | 37,633    |  |   | 39,496    |  
| | Investor relations              |   | 130,737 |   |   | 327,092   |  |   | 256,261   |  
| | Office and miscellaneous        |   | 7,214   |   |   | 29,614    |  |   | 46,527    |  
| | Professional fees               |   | 40,741  |   |   | 182,477   |  |   | 146,507   |  
| | Property investigations         |   | 291     |   |   | 83        |  |   | 34,455    |  
| | Regulatory                      |   | 3,816   |   |   | 66,040    |  |   | 30,151    |  
| | Rent                            |   | 5,302   |   |   | 26,180    |  |   | 39,758    |  
| | Telephone                       |   | 2,418   |   |   | 7,099     |  |   | 7,854     |  
| | Travel                          |   | 5,625   |   |   | 37,757    |  |   | 90,230    |  
| | Wages and benefits              |   | 475,318 |   |   | 1,769,408 |  |   | 1,071,598 |  
| | Write-off of mineral properties |   | -       |   |   | -         |  |   | 1,002,438 |  
| |                                 |   |         |   |   |           |  |   |           |  
| |                                 | $ | 934,157 |   | $ | 3,603,369 |  | $ | 3,346,679 |  

The transfer of the assets is
summarized in the table below:

| |                                  |   | August 25, 2010 |   |   | May 31, 2010 |   |   | May 31, 2009 |  
| | -------------------------------- | - | --------------- | - | - | ------------ | - | - | ------------ | -
| |                                  |   |                 |   |   |              |   |   |              |  
| | Cash and cash equivalents        | $ | 1,203,240       |   | $ | -            |   | $ | -            |  
| | Accounts receivable              |   | 199             |   |   | 97           |   |   | -            |  
| | Prepaid expenses                 |   | 3,200           |   |   | 13,566       |   |   | -            |  
| | Mineral Properties               |   | 12,392,408      |   |   | 12,245,690   |   |   | 11,054,413   |  
| | Accounts payable                 |   | (773,264        | ) |   | (85,094      | ) |   | (32,898      | )
| |                                  |   |                 |   |   |              |   |   |              |  
| | Net assets transferred to Corvus | $ | 12,825,783      |   |   |              |   |   |              |  

11

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                 
|   | The following is a summary of the significant accounting
      policies used by management in the preparation of these consolidated
      financial statements in accordance with Canadian GAAP.
|   |                                                                                                                                                                                                 
|   | a)                                                                                                                                                                                              
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 
|   | b)                                                                                                                                                                                              
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 
|   | c)                                                                                                                                                                                              
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 
|   | d)                                                                                                                                                                                              
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 
|   | e)                                                                                                                                                                                              
|   |                                                                                                                                                                                                 
|   |                                                                                                                                                                                                 

| | Computer equipment      | - | 30% declining balance            
| | ----------------------- | - | ---------------------------------
| | Computer software       | - | 3 years straight line            
| | Furniture and equipment | - | 20% declining balance            
| | Leasehold improvements  | - | straight-line over the lease term

| |    | Additions during the period are amortized at one-half the
      annual rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | f) | Mineral properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | Mineral properties consist of mining claims, leases and
      options. Acquisition option payments, leasehold and exploration costs are
      capitalized and deferred until such time as the property is put into
      production or the properties are disposed of either through sale or
      abandonment. If the property is put into production, the costs of
      acquisition and exploration will be written-off over the life of the
      property, based on estimated economic reserves. Proceeds received from the
      sale of any interest in a property will first be credited against the
      carrying value of the property, with any excess included in operations for
      the period. If a property is abandoned, the property and deferred
      exploration costs will be written-off to operations in the period of
      abandonment.

12

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES (contd)
|-- | ----------------------------------------
|   |                                         
|   | f)                                      
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   | g)                                      
|   |                                         
|   |                                         
|   |                                         
|   | h)                                      
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         

13

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES (contd)
|-- | ----------------------------------------
|   |                                         
|   | i)                                      
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   | j)                                      
|   |                                         
|   |                                         
|   |                                         
|   | k)                                      
|   |                                         
|   |                                         
|   |                                         
|   | l)                                      
|   |                                         
|   |                                         
|   |                                         
|   |                                         

14

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES (contd)
|-- | ----------------------------------------
|   |                                         
|   | m)                                      
|   |                                         
|   |                                         
|   |                                         
|   | n)                                      
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         

| | o) | Comprehensive Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Comprehensive income is the change in shareholders
      equity during a year from transactions and other events from non-owner
      sources. This standard requires certain gains and losses that would
      otherwise be recorded as part of the net earnings to be presented in other
      comprehensive income until it is considered appropriate to recognize
      into net earnings. This standard requires the presentation of
      comprehensive income, and its components in a separate financial statement
      that is displayed with the same prominence as the other financial
      statements. There are no material differences between comprehensive income
      (loss) and net loss for the years reported.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | p) | Future accounting changes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

15

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|4. | RISK MANAGEMENT AND FINANCIAL
INSTRUMENTS                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                 
|   | Fair Value of Financial Instruments                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                 
|   | The carrying values of cash and cash equivalents,
      marketable securities, accounts receivable and accounts payable and
      accrued liabilities approximate their fair values due to the short-term
      maturity of these financial instruments.                        
|   |                                                                                                                                                                                                                                                                                 
|   | The Companys risk exposure and the impact on the
      Companys financial instruments are summarized below:                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                 
|   | Fair Value Hierarchy                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                 
|   | Financial instruments recorded at fair value on the
      Consolidated Balance Sheets are classified using a fair value hierarchy
      that reflects the significance of the inputs used in making the
      measurements. The fair value hierarchy has the following
  levels:

| | Level 1  | valuation based on quoted prices (unadjusted) in active
      markets for identical assets or liabilities;                                                                                                                        
| | --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |           |                                                                                                                                                                                                                                   
| | Level 2  | valuation techniques based on inputs other than quoted
      prices included in level 1 that are observable for the asset or liability,
      either directly (i.e. as prices) or indirectly (i.e. derived from prices);
      and
| |           |                                                                                                                                                                                                                                   
| | Level 3  | valuation techniques using inputs for the asset or
      liability that are not based on observable market data (unobservable
      inputs).                                                                                      

The fair value hierarchy requires the
use of observable market inputs whenever such inputs exist. A financial
instrument is classified to the lowest level of the hierarchy for which a
significant input has been considered in measuring fair value.

The following table presents the
financial instruments recorded at fair value in the Consolidated Balance Sheets,
classified using the fair value hierarchy described above:

| | 2011                      |   | Level 1     |  |   | Level 2 |  |   | Level 3 | 
| | ------------------------- | - | ----------- |  | - | ------- |  | - | ------- | 
| |                           |   |             |  |   |         |  |   |         | 
| | Cash and cash equivalents | $ | 111,165,126 |  | $ | -       |  | $ | -       | 
| | Marketable securities     | $ | 662,500     |  | $ | -       |  | $ | -       | 

| | 2010                      |   | Level 1    |  |   | Level 2 |  |   | Level 3 | 
| | ------------------------- | - | ---------- |  | - | ------- |  | - | ------- | 
| |                           |   |            |  |   |         |  |   |         | 
| | Cash and cash equivalents | $ | 43,460,324 |  | $ | -       |  | $ | -       | 
| | Marketable securities     | $ | 360,000    |  | $ | -       |  | $ | -       | 

| | 2009                      |   | Level 1    |  |   | Level 2 |  |   | Level 3 | 
| | ------------------------- | - | ---------- |  | - | ------- |  | - | ------- | 
| |                           |   |            |  |   |         |  |   |         | 
| | Cash and cash equivalents | $ | 32,489,341 |  | $ | -       |  | $ | -       | 
| | Marketable securities     | $ | 113,750    |  | $ | -       |  | $ | -       | 

16

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|4. | RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
      (contd)                                                     
|-- | -------------------------------------------------------------------------------------------------------------
|   |                                                                                                              
|   | The Companys risk exposure and the impact on the
      Companys financial instruments are summarized below:
|   |                                                                                                              
|   | a)                                                                                                           
|   |                                                                                                              
|   |                                                                                                              
|   |                                                                                                              
|   |                                                                                                              

| |                           |   | 2011        |  |   | 2010       |  |   | 2009       | 
| | ------------------------- | - | ----------- |  | - | ---------- |  | - | ---------- | 
| |                           |   |             |  |   |            |  |   |            | 
| | Cash and cash equivalents | $ | 111,165,126 |  | $ | 43,460,324 |  | $ | 32,489,341 | 
| | Accounts receivable       | $ | 185,733     |  | $ | 110,214    |  | $ | 76,634     | 

At May 31, 2011, the Company held a
total of $102,310,928 (2010 - $26,537,499; 2009 - $10,044,000) cash equivalents
which consist of interest saving accounts and Guaranteed Investment Certificates
(GICs):

| |                                         |   | Quantity    |  |  | Maturity Date  |  |  | Annual Yield | 
| | --------------------------------------- | - | ----------- |  |  | -------------- |  |  | ------------ | 
| |                                         |   |             |  |  |                |  |  |              | 
| | Renaissance High Interest
      Savings | $ | 20,094,209  |  |  | N/A            |  |  | N/A          | 
| | RBC Investment Savings                  |   | 22,648,719  |  |  | N/A            |  |  | N/A          | 
| | TD Mortgage Corporation (GIC)           |   | 42,068,000  |  |  | April 16, 2012 |  |  | 1.36%        | 
| | Advisors Advantage Trust               |   | 17,500,000  |  |  | May 7, 2012    |  |  | 1.30%        | 
| |                                         |   |             |  |  |                |  |  |              | 
| |                                         | $ | 102,310,928 |  |  |                |  |  |              | 

| |    | The Companys cash and cash equivalents at May 31, 2011
      consists of $109,519,134 in Canada and $1,645,992 in the United States.
      Concentration of credit risk exists with respect to the Companys Canadian
      cash and cash equivalents as all amounts are held at two major Canadian
      financial institutions. Credit risk with regard to cash held in the United
      States is mitigated as the amount held in the United States is only
      sufficient to cover short-term requirements. With respect to receivables
      at May 31, 2011, the Company is not exposed to significant credit risk as
      the majority are from governmental agencies and interest
  accruals.                                                                                                                                    
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | b) | Liquidity risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Liquidity risk is the risk that the Company will not be
      able to meet its financial obligations as they come due. The Companys
      approach to managing liquidity risk is to provide reasonable assurance
      that it will have sufficient funds to meet liabilities when due. The
      Company manages its liquidity risk by forecasting cash flows for
      operations and anticipated investing and financing activities. The Company
      normally maintains sufficient cash and cash equivalents to meet the
      Companys business requirements. At May 31, 2011, the Company had accounts
      payable and accrued liabilities of $4,037,428 (2010 - $1,187,865; 2009 -
      $353,775), which are all payable within six months and are expected to be
      settled from available working capital as they come
due.

17

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|4. | RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
      (contd)
|-- | --------------------------------------------------------
|   |                                                         
|   | c)                                                      
|   |                                                         
|   |                                                         
|   |                                                         
|   |                                                         
|   |                                                         
|   |                                                         
|   |                                                         
|   |                                                         
|   |                                                         
|   |                                                         

| |                                          |   | CAD equivalent |  |   | USD       | 
| | ---------------------------------------- | - | -------------- |  | - | --------- | 
| |                                          |   |                |  |   |           | 
| | Cash                                     | $ | 3,876,879      |  | $ | 4,002,559 | 
| | Accounts payable and accrued liabilities | $ | 3,855,538      |  | $ | 3,980,527 | 

| |       | As at May 31, 2011, USD amounts were converted at a rate
      of USD 1 to CAD 0.9686.                                                                                                                                                                                                                                           
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                  
| | (iii) | Other price risk                                                                                                                                                                                                                                                                                                                 
| |       |                                                                                                                                                                                                                                                                                                                                  
| |       | Other price risk is the risk that the fair value or
      future cash flows of a financial instrument will fluctuate because of
      changes in market prices, other than those arising from interest rate risk
      or foreign exchange risk. The Companys investment in marketable
      securities is exposed to such risk.

|5. | MARKETABLE SECURITIES
|-- | ---------------------

| |                           |   | 2011    |  |   | 2010    |  |   | 2009    | 
| | ------------------------- | - | ------- |  | - | ------- |  | - | ------- | 
| | Millrock Resources Inc.   | $ | 422,500 |  | $ | 273,000 |  | $ | 113,750 | 
| | Ocean Park Ventures Corp. |   | 240,000 |  |   | 87,000  |  |   | -       | 
| |                           | $ | 662,500 |  | $ | 360,000 |  | $ | 113,750 | 

18

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|5. | MARKETABLE SECURITIES (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | On April 4, 2008 the Company sold its South Estelle,
      Alaska property to Millrock Resources Inc. (Millrock) for 650,000
      Millrock shares or $247,000 based upon their market value on that date of
      $0.38 per share.                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | On March 15, 2010, the Company received the initial
      200,000 common shares of Ocean Park Ventures Corp. (OPV), valued on that
      date at $0.72 per share or $144,000, in consideration for providing the
      resources for Raven Gold to enter into a joint venture with an Alaskan
      subsidiary of OPV on the Chisna property, Alaska. The Company received an
      additional 200,000 common shares of OPV on March 15, 2011, valued on that
      date at $0.60 per share at $120,000.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Fair value adjustment for the year ended May 31, 2011,
      amounted to an unrealized gain of $182,500 (2010  $102,250; 2009 -
      $133,250 loss).                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|6. | PROPERTY AND EQUIPMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |                         |   |         |  |   | 2011         |  |   |          | 
| | ----------------------- | - | ------- |  | - | ------------ |  | - | -------- | 
| |                         |   |         |  |   | Accumulated  |  |   | Net Book | 
| |                         |   | Cost    |  |   | Amortization |  |   | Value    | 
| |                         |   |         |  |   |              |  |   |          | 
| | Furniture and equipment | $ | 54,407  |  | $ | 9,013        |  | $ | 45,394   | 
| | Computer equipment      |   | 185,290 |  |   | 87,113       |  |   | 98,177   | 
| | Computer software       |   | 89,476  |  |   | 89,476       |  |   | -        | 
| | Leasehold improvements  |   | 17,061  |  |   | 17,061       |  |   | -        | 
| |                         |   |         |  |   |              |  |   |          | 
| |                         | $ | 346,234 |  | $ | 202,663      |  | $ | 143,571  | 

| |                         |   |         |  |   | 2010         |  |   |          | 
| | ----------------------- | - | ------- |  | - | ------------ |  | - | -------- | 
| |                         |   |         |  |   | Accumulated  |  |   | Net Book | 
| |                         |   | Cost    |  |   | Amortization |  |   | Value    | 
| |                         |   |         |  |   |              |  |   |          | 
| | Furniture and equipment | $ | 8,215   |  | $ | 3,700        |  | $ | 4,515    | 
| | Computer equipment      |   | 125,576 |  |   | 60,148       |  |   | 65,428   | 
| | Computer software       |   | 89,476  |  |   | 89,476       |  |   | -        | 
| | Leasehold improvements  |   | 17,061  |  |   | 6,964        |  |   | 10,097   | 
| |                         |   |         |  |   |              |  |   |          | 
| |                         | $ | 240,328 |  | $ | 160,288      |  | $ | 80,040   | 

| |                         |   |         |  |   | 2009         |  |   |          | 
| | ----------------------- | - | ------- |  | - | ------------ |  | - | -------- | 
| |                         |   |         |  |   | Accumulated  |  |   | Net Book | 
| |                         |   | Cost    |  |   | Amortization |  |   | Value    | 
| |                         |   |         |  |   |              |  |   |          | 
| | Furniture and equipment | $ | 8,215   |  | $ | 2,629        |  | $ | 5,586    | 
| | Computer equipment      |   | 84,328  |  |   | 41,579       |  |   | 42,749   | 
| | Computer software       |   | 89,476  |  |   | 82,172       |  |   | 7,304    | 
| | Leasehold improvements  |   | 17,061  |  |   | 2,785        |  |   | 14,276   | 
| |                         |   |         |  |   |              |  |   |          | 
| |                         | $ | 199,080 |  | $ | 129,165      |  | $ | 69,915   | 

19

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|7. | MINERAL PROPERTIES                                                                                                                   
|-- | -------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                      
|   | Accumulated costs in respect of mineral tenures and
      mineral rights owned, leased or under option, consist of the
    following:

| |                                 |   | Siwash      |  |   |             |   |   |                 |   |   |                |   |   |            |  
| | ------------------------------- | - | ----------- |  | - | ----------- | - | - | --------------- | - | - | -------------- | - | - | ---------- | -
| |                                 |   | Silver      |  |   |             |   |   |                 |   |   |                |   |   |            |  
| |                                 |   | Leases      |  |   | BMP         |   |   | Coffee Dome     |   |   | Livengood      |   |   | Total      |  
| |                                 |   | (note 7(a)) |  |   | (note 7(b)) |   |   | (note 7(c)(ii)) |   |   | (note 7(c)(i)) |   |   |            |  
| |                                 |   |             |  |   |             |   |   |                 |   |   |                |   |   |            |  
| | Balance, May 31, 2009           | $ | 1           |  | $ | 573,139     |   | $ | 1,074,197       |   | $ | 20,715,816     |   | $ | 22,363,153 |  
| | Acquisition costs:              |   |             |  |   |             |   |   |                 |   |   |                |   |   |            |  
| | Cash payments                   |   | -           |  |   | -           |   |   | -               |   |   | -              |   |   | -          |  
| | Common shares issued            |   | -           |  |   | -           |   |   | -               |   |   | -              |   |   | -          |  
| |                                 |   | -           |  |   | -           |   |   | -               |   |   | -              |   |   | -          |  
| | Deferred exploration costs:     |   |             |  |   |             |   |   |                 |   |   |                |   |   |            |  
| | Advance to contractors          |   | -           |  |   | -           |   |   | -               |   |   | (3,215         | ) |   | (3,215     | )
| | Aircraft services               |   | -           |  |   | -           |   |   | -               |   |   | 21,939         |   |   | 21,939     |  
| | Assay                           |   | -           |  |   | -           |   |   | 140,241         |   |   | 2,977,431      |   |   | 3,117,672  |  
| | Drilling                        |   | -           |  |   | -           |   |   | 268,280         |   |   | 9,457,688      |   |   | 9,725,968  |  
| | Equipment rental                |   | -           |  |   | -           |   |   | 60,041          |   |   | 861,873        |   |   | 921,914    |  
| | Field costs                     |   | -           |  |   | 19          |   |   | 33,124          |   |   | 2,559,742      |   |   | 2,592,885  |  
| | Geological                      |   | -           |  |   | -           |   |   | 109,687         |   |   | 3,770,767      |   |   | 3,880,454  |  
| | Land maintenance & tenure       |   | -           |  |   | 1,193       |   |   | 97,952          |   |   | 1,158,079      |   |   | 1,257,224  |  
| | Legal                           |   | -           |  |   | 1,790       |   |   | -               |   |   | 80,455         |   |   | 82,245     |  
| | Transportation                  |   | -           |  |   | -           |   |   | 12,695          |   |   | 128,779        |   |   | 141,474    |  
| | Travel                          |   | -           |  |   | -           |   |   | -               |   |   | 120,130        |   |   | 120,130    |  
| |                                 |   | -           |  |   | 3,002       |   |   | 722,020         |   |   | 21,133,668     |   |   | 21,858,690 |  
| | Total expenditures for the year |   | -           |  |   | 3,002       |   |   | 722,020         |   |   | 21,133,668     |   |   | 21,858,690 |  
| | Property write-off              |   | -           |  |   | (576,141    | ) |   | (1,796,217      | ) |   | -              |   |   | (2,372,358 | )
| | Balance, May 31, 2010           |   | 1           |  |   | -           |   |   | -               |   |   | 41,849,484     |   |   | 41,849,485 |  
| | Acquisition costs:              |   |             |  |   |             |   |   |                 |   |   |                |   |   |            |  
| | Cash payments                   |   | -           |  |   | -           |   |   | -               |   |   | 31,170         |   |   | 31,170     |  
| | Common shares issued            |   | -           |  |   | -           |   |   | -               |   |   | -              |   |   | -          |  
| |                                 |   | -           |  |   | -           |   |   | -               |   |   | 31,170         |   |   | 31,170     |  
| | Deferred exploration costs:     |   |             |  |   |             |   |   |                 |   |   |                |   |   |            |  
| | Advance to contractors          |   | -           |  |   | -           |   |   | -               |   |   | 276,555        |   |   | 276,555    |  
| | Aircraft services               |   | -           |  |   | -           |   |   | -               |   |   | 346,593        |   |   | 346,593    |  
| | Assay                           |   | -           |  |   | -           |   |   | -               |   |   | 3,500,229      |   |   | 3,500,229  |  
| | Drilling                        |   | -           |  |   | -           |   |   | -               |   |   | 13,626,871     |   |   | 13,626,871 |  
| | Field costs                     |   | -           |  |   | -           |   |   | -               |   |   | 5,281,369      |   |   | 5,281,369  |  
| | Equipment rental                |   | -           |  |   | -           |   |   | -               |   |   | 2,016,613      |   |   | 2,016,613  |  
| | Geological                      |   | -           |  |   | -           |   |   | -               |   |   | 9,970,789      |   |   | 9,970,789  |  
| | Land maintenance & tenure       |   | -           |  |   | -           |   |   | -               |   |   | 2,658,138      |   |   | 2,658,138  |  
| | Legal                           |   | -           |  |   | -           |   |   |                 |   |   | 57,985         |   |   | 57,985     |  
| | Transportation                  |   | -           |  |   | -           |   |   | -               |   |   | 318,609        |   |   | 318,609    |  
| | Travel                          |   | -           |  |   | -           |   |   | -               |   |   | 235,262        |   |   | 235,262    |  
| |                                 |   | -           |  |   | -           |   |   | -               |   |   | 38,289,013     |   |   | 38,289,013 |  
| | Total expenditures for the year |   | -           |  |   | -           |   |   | -               |   |   | 38,320,183     |   |   | 38,320,183 |  
| | Balance, May
      31, 2011     | $ | 1           |  | $ | -           |   | $ | -               |   | $ | 80,169,667     |   | $ | 80,169,668 |  

20

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|7. | MINERAL PROPERTIES (contd)
|-- | ---------------------------
|   |                            
|   | a)                         
|   |                            
|   |                            
|   |                            
|   | b)                         
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            

Mining Lease (15 year initial term,
and so long thereafter as commercial production continues)

| |  | Advance Minimum Royalty: Payments of USD 150,000
      in years 1  3, USD 200,000 in years 4  5 and USD 400,000 for year 6 and
      beyond (unless a feasibility study has been completed). AMR payments are
      50% deductible from royalty payments.                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sliding Scale Royalty: An NSR Royalty of between
      1% and 2.5% before payback and between 3% and 5% (depending upon the gold
      price) after payback is payable in respect of precious metals, and an NSR
      Royalty of 1% before payback and 3% after payback is payable in respect of
      base metals. In both cases, CIRI will have the option to replace the NSR
      Royalty with a Net Profits Interest Royalty (10% before and 20% after
      payback).
| |  | CIRI Participation Option: Upon a production
      decision being made, CIRI will have the right to acquire up to a 15%
      working interest in the leased area by contributing 2 times its pro
      rata share of the cumulative project expenditures by the Company
      (other than AMR payments) to the date of the exercise of CIRIs
      participation option.                                                                                                  

21

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|7. | MINERAL PROPERTIES (contd)
|-- | ---------------------------
|   |                            
|   | b)                         
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            
|   | c)                         
|   |                            
|   |                            
|   |                            
|   |                            

| | (i) | Livengood Property                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | The Livengood property is located in the Tintina gold
      belt approximately 110 kilometres north of Fairbanks, Alaska. The property
      is approximately 145 square kilometres and consists of fee land leased
      from the Alaska Mental Health Trust, a number of smaller private mineral
      leases, Alaska state mining claims located by the Company and patented
      ground held by the Company.

22

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|7. | MINERAL PROPERTIES
(contd)
|-- | ---------------------------

| | c) | Properties acquired from AngloGold, Alaska
      (contd)
| | -- | ---------------------------------------------------------

| | (i) | Livengood Property (contd) Details of the leases are as
      follows:
| | --- | -----------------------------------------------------------------------

| |  | a lease of the Alaska State mineral rights having an
      initial term of three years, commencing July 1, 2004 (subject to extension
      for two extensions of three years each) and requires work expenditures of
      USD 10/acre/year in years 1  3, USD 20/acre/year in years 4  6 and USD
      30/acre/year in years 7  9 and advance royalty payments of USD
      5/acre/year in years 1  3, USD 15/acre/year in years 4  6 and USD
      25/acre/year in years 7  9. An NSR production royalty of between 2.5% and
      5.0% (depending upon the price of gold) is payable to the lessor with
      respect to the lands subject to this lease. In addition, an NSR production
      royalty of 1% is payable to the lessor with respect to the unpatented
      federal mining claims subject to the lease below.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | a lease of State of Alaska mining claims for a term of
      ten years, commencing on September 11, 2006. The lease requires payments
      of USD 75,000 on execution (paid), USD 50,000 in each of years 2  5 (paid
      to year 4) and USD 100,000 in each of years 6  10 and work expenditures
      of USD 100,000 in year one (incurred), USD 200,000 in each of years 2  5
      (incurred to year 4) and USD 300,000 in each of years 6  10. An NSR
      production royalty of between 2% and 5% is payable to the lessors
      (depending upon the price of gold). The Company may buy all interest in
      the property subject to the lease (including the retained royalty) for USD
      10,000,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | a lease of US federal unpatented claims having an initial
      term of ten years, commencing on April 21, 2003 and for so long thereafter
      as mining related activities are carried out. The lease requires a bonus
      payment of USD 5,000 on signing (paid), and advance royalties of USD
      20,000 on execution (paid), USD 30,000 on or before April 21, 2004 (paid),
      USD 40,000 on or before April 21, 2005 (paid), USD 50,000 on or before
      April 21, 2006 (paid), USD 40,000 on or before April 21, 2007 (paid) and
      an additional USD 50,000 on or before each subsequent April 21 during the
      term (paid USD 200,000). An NSR production royalty of between 2% and 3%
      (depending on the price of gold) is payable to the lessors. The Company
      may purchase 1% of the royalty for USD 1,000,000.                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | a lease of patented federal claims having an initial term
      of ten years, and for so long thereafter as the Company pays the lessors
      the minimum royalties required under the lease. The lease requires a bonus
      payment of USD 10,000 on signing (paid), and minimum royalties of USD
      10,000 on or before January 18, 2008 (paid), USD 10,000 on or before
      January 18, 2009 (paid), USD 10,000 on or before January 18, 2010 (paid)
      and an additional USD 20,000 on or before each of January 18, 2011 through
      January 18, 2016 (paid USD 20,000 on December 14, 2010) and an additional
      USD 25,000 on each subsequent January 18 thereafter during the term (all
      of which minimum royalties are recoverable from production royalties). An
      NSR production royalty of 3% is payable to the lessors. The Company may
      purchase all interest of the lessors in the leased property (including the
      production royalty) for USD 1,000,000 (less all minimum and production
      royalties paid to the date of purchase), of which USD 500,000 is payable
      in cash over four years following the closing of the purchase and the
      balance of USD 500,000 is payable by way of the 3% NSR production royalty.

23

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|7. | MINERAL PROPERTIES (contd)
|-- | ---------------------------
|   |                            
|   | c)                         
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            

| | (ii) | Coffee Dome Property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | The Coffee Dome property is located approximately 15
      kilometres northeast of the Fort Knox mine. The property consists of State
      of Alaska mining claims (2,600 hectares) owned 100% by the Company, State
      of Alaska mining claims (388.8 hectares) leased from an individual and
      1,166.2 hectares of fee lands leased from the University of Alaska (the
      University).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | The lease of the State of Alaska mining claims is for an
      initial term of twenty years, commencing on August 11, 2005 and for so
      long thereafter as mining related activities are carried out. The lease
      requires a bonus payment of USD 10,000 on signing (paid), and advance
      royalties of USD 15,000 on or before December 31, 2005 (paid), USD 25,000
      on or before August 11, 2006 (paid) and an additional USD 50,000 on or
      before each subsequent August 11 during the term (paid USD 150,000). A
      production payment of USD 500,000 is also payable upon the Company making
      a positive production decision. An NSR production royalty of between 0.5%
      and 5% (depending on the price of gold) is payable to the lessor. The
      Company may purchase 1% of the royalty for USD 2,000,000. The lessor also
      has the right to receive an NSR production royalty on production of gold
      of between 0.5% and 5% (depending on the price of gold) and a 3% NSR
      production royalty on production of minerals other than gold, from any
      lands acquired by the Company within a defined area of interest. In
      addition, the lessor is entitled to receive an NSR production royalty on
      all minerals equal to the greater of 1% and one-half of the difference
      between 4% and the actual NSR production royalty payable by the Company to
      a third party with respect to certain defined lands held by such third
      party upon the Company entering into a mining lease with such third
      party.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | The agreement with the University is a two stage
      Exploration Agreement with Option to Lease. The Agreement has an effective
      date of January 1, 2007 and covers approximately 1,166 hectares of land.
      The key terms of the Agreement (and any resulting mining lease) are as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

24

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|7. | MINERAL PROPERTIES (contd)
|-- | ---------------------------
|   |                            
|   | c)                         
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            
|   |                            

|8. | SHARE CAPITAL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Authorized                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | 500,000,000 common shares without par value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Shareholder rights plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On August 26, 2009, the Companys Board of Directors (the
      Board) approved and adopted a Shareholder Rights Plan which was approved
      by the shareholders on October 15, 2009.                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The purpose of the Shareholder Rights Plan is to provide
      shareholders and the Board with adequate time to consider and evaluate any
      unsolicited bid made for the Company, to provide the Board with adequate
      time to identify, develop and negotiate value-enhancing alternatives, if
      considered appropriate, to any such unsolicited bid, to encourage the fair
      treatment of shareholders in connection with any take-over bid for the
      Company and to ensure that any proposed transaction is in the best
      interest of the Companys shareholders.

25

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|8. | SHARE CAPITAL (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The rights issued under the Shareholder Rights Plan will
      become exercisable only if a person, together with its affiliates,
      associates and joint actors, acquires or announces its intention to
      acquire beneficial ownership of shares which, when aggregated with its
      current holdings, total 20% or more of the Companys outstanding common
      shares, other than by a Permitted Bid. Permitted Bids must be made by way
      of a take-over bid circular prepared in compliance with applicable
      securities laws and, among other conditions, must remain open for 60 days.
      If a take-over bid does not meet the Permitted Bid requirements of the
      Shareholder Rights Plan, the rights will entitle shareholders, other than
      any shareholder or shareholders making the take-over bid, to purchase
      additional common shares of the Company at a substantial discount to the
      market price of the common shares at that time.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Share issuances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | During the year ended May 31, 2011 the Company:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | During the year ended May 31, 2010 the Company:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

26

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|8. | SHARE CAPITAL (contd)                         
|-- | -----------------------------------------------
|   |                                                
|   | During the year ended May 31, 2009 the Company:
|   |                                                
|   | a)                                             
|   |                                                
|   | b)                                             
|   |                                                
|   | c)                                             
|   |                                                
|   | d)                                             
|   |                                                
|   | e)                                             
|   |                                                
|   | f)                                             
|   |                                                
|   | g)                                             

Warrants

Warrant transactions are summarized as
follows:

| |                            |  | 2011      |   |   | 2010     |   |  | 2009      |  
| | -------------------------- |  | --------- | - | - | -------- | - |  | --------- | -
| |                            |  |           |   |   | Weighted |   |  |           |  
| |                            |  |           |   |   | Average  |   |  |           |  
| |                            |  | Number of |   |   | Exercise |   |  | Number of |  
| |                            |  | Warrants  |   |   | Price    |   |  | Warrants  |  
| |                            |  |           |   |   |          |   |  |           |  
| | Balance, beginning of year |  | 48,099    |   | $ | 2.95     |   |  | 294,000   |  
| | Issued  agents warrants  |  | -         |   | $ | -        |   |  | -         |  
| | Exercised                  |  | (48,099   | ) | $ | (2.95    | ) |  | (245,901  | )
| | Expired                    |  | -         |   | $ | -        |   |  | -         |  
| |                            |  |           |   |   |          |   |  |           |  
| | Balance, end of year       |  | -         |   | $ | -        |   |  | 48,099    |  

There are no warrants outstanding at
May 31, 2011.

27

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|8. | SHARE CAPITAL (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Options and SBC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company has adopted an incentive stock option plan
      (the 2006 Plan). The essential elements of the 2006 Plan provide that
      the aggregate number of common shares of the Companys capital stock that
      may be made issuable pursuant to options granted under the 2006 Plan may
      not exceed 10% of the number of issued shares of the Company at the time
      of the granting of the options. Options granted under the 2006 Plan will
      have a maximum term of ten years. The exercise price of options granted
      under the 2006 Plan will not be less than the discounted market price of
      the common shares (defined as the last closing market price of the
      Companys common shares immediately preceding the issuance of a news
      release announcing the granting of the options, less the maximum discount
      permitted under applicable stock exchange policies), or such other price
      as may be agreed to by the Company and accepted by the Toronto Stock
      Exchange. Options granted under the 2006 Plan vest immediately, unless
      otherwise determined by the directors at the date of grant.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Pursuant to the 2006 Plan, on August 19, 2010 the Company
      granted incentive stock options to directors, officers, employees and
      consultants of the Company to purchase 1,495,000 common shares in the
      capital stock of the Company. The options are exercisable on or before
      August 19, 2012 at a price of $6.57 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On January 10, 2011, the Company granted incentive stock
      options to officers, employees and consultants of the Company to purchase
      265,000 common shares in the capital stock of the Company. The options are
      exercisable on or before January 10, 2013 at a price of $9.15 per share.
      The options will vest evenly over 12 months with the first vesting date
      being April 10, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On August 19, 2010, the Company granted incentive stock
      options to officers, directors, employees and consultants of the Company
      to purchase 1,495,000 common shares in the capital stock of the Company.
      The options are exercisable on or before August 19, 2012 at a price of
      $6.57 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On April 14, 2010 the Company granted incentive stock
      options to directors, officers, employees and consultants of the Company
      to purchase 2,835,000 common shares in the capital stock of the Company.
      The options are exercisable on or before April 14, 2012 at a price of
      $7.34 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On January 12, 2010 the Company granted incentive stock
      options to an officer of the Company to purchase 250,000 common shares in
      the capital stock of the Company. The options are exercisable on or before
      January 12, 2012 at a price of $7.95 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On May 20, 2009 the Company granted incentive stock
      options to directors, officers, employees and consultants of the Company
      to purchase 965,000 common shares in the capital stock of the Company. The
      options are exercisable on or before May 20, 2011 at a price of $3.15 per
      share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On March 12, 2009 the Company granted incentive stock
      options to directors, officers, employees and consultants of the Company
      to purchase 885,000 common shares in the capital stock of the Company. The
      options are exercisable on or before March 12, 2011 at a price of $2.66
      per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | A summary of the status of the stock option plan as of
      May 31, 2011, and changes during the year is presented
  below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

28

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|8. | SHARE CAPITAL (contd)
      Options and SBC
|-- | --------------------------------------------

| |                            |  | 2011       |   |   | 2010     |   |  | 2009       |  
| | -------------------------- |  | ---------- | - | - | -------- | - |  | ---------- | -
| |                            |  |            |   |   | Weighted |   |  |            |  
| |                            |  |            |   |   | Average  |   |  |            |  
| |                            |  | Number of  |   |   | Exercise |   |  | Number of  |  
| |                            |  | Options    |   |   | Price    |   |  | Options    |  
| |                            |  |            |   |   |          |   |  |            |  
| | Balance, beginning of year |  | 5,822,200  |   | $ | 5.08     |   |  | 5,645,000  |  
| | Granted                    |  | 1,760,000  |   | $ | 6.96     |   |  | 3,085,000  |  
| | Exercised                  |  | (2,977,200 | ) | $ | (2.86    | ) |  | (2,907,800 | )
| | Expired                    |  | (5,000     | ) | $ | (1.75    | ) |  | -          |  
| | Repriced                   |  | -          |   | $ | -        |   |  | -          |  
| | Repriced                   |  | -          |   | $ | -        |   |  | -          |  
| |                            |  |            |   |   |          |   |  |            |  
| | Balance, end of year       |  | 4,600,000  |   | $ | 7.24     |   |  | 5,822,200  |  

As at May 31, 2011, stock options
outstanding are as follows:

| |                  |   | 2011     |  |  | 2010      |  |  | 2009        | 
| | ---------------- | - | -------- |  |  | --------- |  |  | ----------- | 
| |                  |   | Exercise |  |  | Number of |  |  |             | 
| | Expiry Date      |   | Price    |  |  | Options   |  |  | Exercisable | 
| |                  |   |          |  |  |           |  |  |             | 
| | July 16, 2010    |   | -        |  |  | -         |  |  | -           | 
| | July 16, 2010    |   | -        |  |  | -         |  |  | -           | 
| | January 16, 2010 |   | -        |  |  | -         |  |  | -           | 
| | February 1, 2010 |   | -        |  |  | -         |  |  | -           | 
| | March 12, 2011   |   | -        |  |  | -         |  |  | -           | 
| | May 20, 2011     |   | -        |  |  | -         |  |  | -           | 
| | January 12, 2012 | $ | 7.95     |  |  | 250,000   |  |  | 250,000     | 
| | April 14, 2012   | $ | 7.34     |  |  | 2,660,000 |  |  | 2,660,000   | 
| | August 19, 2012  | $ | 6.57     |  |  | 1,425,000 |  |  | 1,425,000   | 
| | January 10, 2013 | $ | 9.15     |  |  | 265,000   |  |  | 66,250      | 
| |                  |   |          |  |  |           |  |  |             | 
| |                  |   |          |  |  | 4,600,000 |  |  | 4,401,250   | 

The Company uses the fair value method
for determining SBC expense for all options granted during the fiscal periods.
The fair value of options granted was $3,254,815 for continuing operations (2010
- $7,659,829; 2009 - $2,744,674), and $821,171 (2010 - $2,241,363; 2009 -
$1,356,730) for discontinued operations, determined using the Black-Scholes
option pricing model based on the following weighted average assumptions:

| |                       |   | 2011   |  |   | 2010   |  |   | 2009   | 
| | --------------------- | - | ------ |  | - | ------ |  | - | ------ | 
| |                       |   |        |  |   |        |  |   |        | 
| | Expected life (years) |   | 2      |  |   | 2      |  |   | 2      | 
| | Interest rate         |   | 1.42%  |  |   | 1.88%  |  |   | 1.05%  | 
| | Annualized Volatility |   | 68.91% |  |   | 79.30% |  |   | 82.51% | 
| | Dividend yield        |   | 0%     |  |   | 0%     |  |   | 0%     | 
| | Exercise price        | $ | 6.96   |  | $ | 7.39   |  | $ | 2.89   | 

29

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|8. | SHARE CAPITAL (contd)
      Options and SBC
(contd)
|-- | -----------------------------------------------------

| |                                                 |   | Weighted average fair value of options granted | 
| | ----------------------------------------------- | - | ---------------------------------------------- | 
| |                                                 |   | 2011                                           | 
| |                                                 |   |                                                | 
| | Exercise price                                  |   |                                                | 
| | Equals                                          | $ | -                                              | 
| | exceeds                                         | $ | 2.88                                           | 
| | less than                                       | $ | 2.60                                           | 
| | The market price of the stock on the grant date |   |                                                | 

SBC charges of $3,254,815 (2010 -
$7,659,829; 2009 - $2,744,674) were allocated as follows for continuing
operations:

| |                    |   | Before        |  |   |           |  |   |                  | 
| | ------------------ | - | ------------- |  | - | --------- |  | - | ---------------- | 
| |                    |   | allocation of |  |   |           |  |   | After allocation | 
| | 2011               |   | SBC           |  |   | SBC       |  |   | of SBC           | 
| |                    |   |               |  |   |           |  |   |                  | 
| | Consulting         | $ | 559,252       |  | $ | 1,010,894 |  | $ | 1,570,146        | 
| | Investor relations |   | 781,692       |  |   | 366,667   |  |   | 1,148,359        | 
| | Professional fees  |   | 580,049       |  |   | 87,356    |  |   | 667,405          | 
| | Wages and benefits |   | 3,473,754     |  |   | 1,789,898 |  |   | 5,263,652        | 
| |                    |   |               |  |   |           |  |   |                  | 
| |                    |   |               |  | $ | 3,254,815 |  |   |                  | 

| |                    |   | Before        |  |   |           |  |   |                  | 
| | ------------------ | - | ------------- |  | - | --------- |  | - | ---------------- | 
| |                    |   | allocation of |  |   |           |  |   | After allocation | 
| | 2010               |   | SBC           |  |   | SBC       |  |   | of SBC           | 
| |                    |   |               |  |   |           |  |   |                  | 
| | Consulting         | $ | 427,319       |  | $ | 3,295,260 |  | $ | 3,722,579        | 
| | Investor relations |   | 407,745       |  |   | 710,090   |  |   | 1,117,835        | 
| | Professional fees  |   | 555,387       |  |   | 59,481    |  |   | 614,868          | 
| | Wages and benefits |   | 2,283,463     |  |   | 3,594,998 |  |   | 5,878,461        | 
| |                    |   |               |  |   |           |  |   |                  | 
| |                    |   |               |  | $ | 7,659,829 |  |   |                  | 

| |                    |   | Before        |  |   |           |  |   |                  | 
| | ------------------ | - | ------------- |  | - | --------- |  | - | ---------------- | 
| |                    |   | allocation of |  |   |           |  |   | After allocation | 
| | 2009               |   | SBC           |  |   | SBC       |  |   | of SBC           | 
| |                    |   |               |  |   |           |  |   |                  | 
| | Consulting         | $ | 198,151       |  | $ | 1,038,317 |  | $ | 1,236,468        | 
| | Investor relations |   | 290,535       |  |   | 227,884   |  |   | 518,419          | 
| | Professional fees  |   | 258,452       |  |   | 37,932    |  |   | 296,384          | 
| | Wages and benefits |   | 727,309       |  |   | 1,440,541 |  |   | 2,167,850        | 
| |                    |   |               |  |   |           |  |   |                  | 
| |                    |   |               |  | $ | 2,744,674 |  |   |                  | 

30

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|9. | INCOME TAXES                                                                                                                
|-- | ----------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                             
|   | A reconciliation of income taxes at statutory rates with
      the reported taxes is as follows for the year ended May
  31:

| |                                                           |   | 2011       |   |   | 2010        |   |   | 2009       |  
| | --------------------------------------------------------- | - | ---------- | - | - | ----------- | - | - | ---------- | -
| |                                                           |   |            |   |   |             |   |   |            |  
| |                                                           |   |            |   |   |             |   |   |            |  
| | Loss from continuing operations before
      income taxes | $ | (9,287,012 | ) | $ | (14,264,957 | ) | $ | (6,427,244 | )
| | Statutory Canadian
      corporate tax rate               |   | 27.67%     |   |   | 29.38%      |   |   | 30.38%     |  
| |                                                           |   |            |   |   |             |   |   |            |  
| | Income tax recovery at statutory rates                    | $ | (2,569,716 | ) | $ | (4,191,044  | ) | $ | (1,952,597 | )
| | Stock-based compensation                                  |   | 1,127,825  |   |   | 2,908,970   |   |   | 1,246,007  |  
| | Unrecognized items for tax purposes                       |   | (282,595   | ) |   | (1,509,274  | ) |   | (1,061,327 | )
| | Effect of tax rate change                                 |   | 45,202     |   |   | 180,645     |   |   | 16,328     |  
| | Difference in tax rates in other jurisdictions            |   | (690,466   | ) |   | (739,533    | ) |   | (334,209   | )
| | Change in valuation allowance                             |   | 2,369,750  |   |   | 3,350,236   |   |   | 2,085,798  |  
| |                                                           |   |            |   |   |             |   |   |            |  
| |                                                           | $ | -          |   | $ | -           |   | $ | -          |  

The significant components of the
Companys future income tax assets are as follows:

| |                                                 |   | 2011        |   |   | 2010       |   |   | 2009       |  
| | ----------------------------------------------- | - | ----------- | - | - | ---------- | - | - | ---------- | -
| |                                                 |   |             |   |   |            |   |   |            |  
| | Future income tax assets (liabilities)          |   |             |   |   |            |   |   |            |  
| | Mineral properties                              | $ | 656,966     |   | $ | 656,948    |   | $ | 683,226    |  
| | Equipment                                       |   | (5,345      | ) |   | (8,689     | ) |   | (10,218    | )
| | Marketable securities                           |   | (22,813     | ) |   | -          |   |   | -          |  
| | Charitable donations                            |   | 85,249      |   |   | 57,196     |   |   | 40,679     |  
| | Share issue costs                               |   | 1,171,193   |   |   | 597,764    |   |   | 575,185    |  
| | Non-capital losses available for future periods |   | 9,978,650   |   |   | 7,125,639  |   |   | 3,789,751  |  
| |                                                 |   |             |   |   |            |   |   |            |  
| |                                                 |   | 11,863,900  |   |   | 8,428,858  |   |   | 5,078,623  |  
| | Valuation allowance                             |   | (11,863,900 | ) |   | (8,428,858 | ) |   | (5,078,623 | )
| |                                                 |   |             |   |   |            |   |   |            |  
| |                                                 | $ | -           |   | $ | -          |   | $ | -          |  

At May 31, 2011, the Company has
available non-capital tax losses for Canadian income tax purposes of
approximately $11,636,000 and net operating losses for US income tax purposes of
approximately $16,290,000 available for carry-forward to reduce future years
taxable income, if not utilized, expiring as follows:

| |      |   | Canada     |  |   | United States | 
| | ---- | - | ---------- |  | - | ------------- | 
| |      |   |            |  |   |               | 
| | 2025 | $ | 82,000     |  | $ | -             | 
| | 2026 |   | 92,000     |  |   | -             | 
| | 2027 |   | 1,031,000  |  |   | 1,423,000     | 
| | 2028 |   | 1,301,000  |  |   | 1,402,000     | 
| | 2029 |   | 2,378,000  |  |   | 2,982,000     | 
| | 2030 |   | 3,014,000  |  |   | 6,063,000     | 
| | 2031 |   | 3,738,000  |  |   | 4,420,000     | 
| |      |   |            |  |   |               | 
| |      | $ | 11,636,000 |  | $ | 16,290,000    | 

31

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|9.  | INCOME TAXES (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | In addition, the Company has available mineral resource
      related expenditure pools for Canadian income tax purposes totalling
      approximately $2,628,000 which may be deducted against future taxable
      income in Canada on a discretionary basis. The Company also has available
      mineral resource expenses that are related to the Companys exploration
      activities in the United States of approximately $80,170,000, which may be
      deductible for US tax purposes. Future tax benefits, which may arise as a
      result of applying these deductions to taxable income, have not been
      recognized in these accounts due to the uncertainty of future taxable
      income.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10. | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | During the year ended May 31, 2011, the Company paid or
      accrued $2,029,370 (2010 - $1,816,834; 2009 - $559,844) in consulting,
      investor relations, wages and benefits to officers, directors and
      companies controlled by directors of the Company and $56,795 (2010 -
      $49,534; 2009 - $48,589) in rent and administration to a company with
      common officers and directors. Professional fees of $81,259 (2010 -
      $49,667; 2009 - $29,835) and spin-out costs of $63,333 (2010 - $nil; 2009
      - $nil) were paid to a company related to an officer of the Company. These
      figures do not include SBC (note 8).                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | At May 31, 2011, included in accounts payable and accrued
      liabilities was $nil (2010 - $19,760; 2009 - $nil) in expenses owing to
      directors and officers of the Company and $10,091 (2010 - $8,790; 2009 -
      $4,667) to companies related by common directors and officers. Included in
      share issuance costs was $63,333 (2010 - $nil; 2009 - $nil) paid to a
      company related to an officer of the Company.                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | These amounts were unsecured, non-interest bearing and
      had no fixed terms of repayment. Accordingly, fair value could not be
      readily determined.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Company has entered into a retainer agreement dated
      August 1, 2008 with Lawrence W. Talbot Law Corporation (LWTLC), pursuant
      to which LWTLC agrees to provide legal services to the Company. Pursuant
      to the retainer agreement, the Company has agreed to pay LWTLC a minimum
      annual retainer of $50,000 (plus applicable taxes and disbursements). The
      retainer agreement may be terminated by LWTLC on reasonable notice, and by
      the Company on one years notice (or payment of one years retainer in
      lieu of notice). An officer of the Company is a director and shareholder
      of LWTLC.                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Company has also entered into change of control
      agreements during the year with officers of the Company. In the case of
      termination, the officers are entitled to an amount equal to a multiple
      (ranging from twice to once) of the sum of the annual base salary then
      payable to the officer, the aggregate amount of bonus(es) (if any) paid to
      the officer within the calendar year immediate preceding the Effective
      Date of Termination, and an amount equal to the vacation pay which would
      otherwise be payable for the one year period next following the Effective
      Date of Termination.                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | These transactions with related parties have been valued
      in these financial statements at the exchange amount, which is the amount
      of consideration established and agreed to by the related
  parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

32

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|11. | GEOGRAPHIC SEGMENTED
INFORMATION
|--- | --------------------------------

| |                                                    |   | Canada      |  |   | United States |  |   | Total       | 
| | -------------------------------------------------- | - | ----------- |  | - | ------------- |  | - | ----------- | 
| |                                                    |   |             |  |   |               |  |   |             | 
| | 2011                                               |   |             |  |   |               |  |   |             | 
| | Mineral properties 
      continuing operations   | $ | 1           |  | $ | 80,169,667    |  | $ | 80,169,668  | 
| | Property and equipment                             | $ | 16,753      |  | $ | 126,818       |  | $ | 143,571     | 
| | Current assets                                     | $ | 110,544,083 |  | $ | 1,847,768     |  | $ | 112,391,851 | 
| |                                                    |   |             |  |   |               |  |   |             | 
| | Total assets                                       | $ | 110,560,837 |  | $ | 82,144,253    |  | $ | 192,705,090 | 
| |                                                    |   |             |  |   |               |  |   |             | 
| | 2010                                               |   |             |  |   |               |  |   |             | 
| | Mineral properties  continuing operations         | $ | 1           |  | $ | 41,849,484    |  | $ | 41,849,485  | 
| | Mineral properties 
      discontinued operations | $ | -           |  | $ | 12,245,690    |  | $ | 12,245,690  | 
| | Property and equipment                             | $ | 11,918      |  | $ | 68,122        |  | $ | 80,040      | 
| | Current assets                                     | $ | 43,227,795  |  | $ | 990,652       |  | $ | 44,218,447  | 
| |                                                    |   |             |  |   |               |  |   |             | 
| | Total assets                                       | $ | 43,239,714  |  | $ | 55,153,948    |  | $ | 98,393,662  | 
| |                                                    |   |             |  |   |               |  |   |             | 
| | 2009                                               |   |             |  |   |               |  |   |             | 
| | Mineral properties  continuing operations         | $ | 1           |  | $ | 22,363,152    |  | $ | 22,363,153  | 
| | Mineral properties 
      discontinued operations | $ | -           |  | $ | 11,054,413    |  | $ | 11,054,413  | 
| | Property and equipment                             | $ | 15,191      |  | $ | 54,724        |  | $ | 69,915      | 
| | Current assets                                     | $ | 32,719,106  |  | $ | 126,883       |  | $ | 32,845,989  | 
| |                                                    |   |             |  |   |               |  |   |             | 
| | Total assets                                       | $ | 32,734,298  |  | $ | 33,599,172    |  | $ | 66,333,470  | 

| |                                                                          |   | 2011        |   |   | 2010        |   |   | 2009       |  
| | ------------------------------------------------------------------------ | - | ----------- | - | - | ----------- | - | - | ---------- | -
| |                                                                          |   |             |   |   |             |   |   |            |  
| | Net loss from continuing
      operations for the year - Canada          | $ | (4,897,523  | ) | $ | (8,990,112  | ) | $ | (3,860,354 | )
| | Net loss from continuing operations for the
      year  United States   |   | (4,389,489  | ) |   | (5,274,845  | ) |   | (2,566,890 | )
| |                                                                          |   |             |   |   |             |   |   |            |  
| |                                                                          |   |             |   |   |             |   |   |            |  
| | Net loss from discontinued
      operations for the year - Canada        |   | (844,813    | ) |   | (2,752,594  | ) |   | (1,899,047 | )
| | Net
      loss from discontinued operations for the year - United States |   | (89,344     | ) |   | (850,775    | ) |   | (1,447,632 | )
| |                                                                          |   |             |   |   |             |   |   |            |  
| | Net loss for
      the year                                              | $ | (10,221,169 | ) | $ | (17,868,326 | ) | $ | (9,773,923 | )

33

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|12. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
      GAAP                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                           
|    | These consolidated financial statements are prepared in
      accordance with GAAP in Canada, which differs in certain respects from
      GAAP in the United States. The material differences between Canadian and
      United States GAAP, in respect of these consolidated financial statements,
      are as follows:
|    |                                                                                                                                                                                                                                                                                                                           
|    | a)                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                           

| |                                                                             |   | 2011        |   |   | 2010        |   |   | 2009        |  
| | --------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
| |                                                                             |   |             |   |   |             |   |   |             |  
| | Consolidated Statements of Operations
      and Comprehensive Loss          |   |             |   |   |             |   |   |             |  
| | Loss from continuing operations for the
      year under Canadian GAAP      | $ | (9,287,012  | ) | $ | (14,264,957 | ) | $ | (6,427,244  | )
| | Mineral property expenditures, net                                          |   | (38,289,013 | ) |   | (20,171,472 | ) |   | (9,784,416  | )
| |                                                                             |   |             |   |   |             |   |   |             |  
| | Loss from continuing operations for the
      year under United States GAAP | $ | (47,576,025 | ) | $ | (34,436,429 | ) | $ | (16,211,660 | )
| |                                                                             |   |             |   |   |             |   |   |             |  
| | Loss from continuing operations per
      share under United States GAAP    | $ | (0.61       | ) | $ | (0.58       | ) | $ | (0.36       | )

| |                                                                               |   | 2011       |   |   | 2010       |   |   | 2009       |  
| | ----------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
| |                                                                               |   |            |   |   |            |   |   |            |  
| | Consolidated statements of Operations
      and Comprehensive Loss            |   |            |   |   |            |   |   |            |  
| | Loss from discontinued operations
      for the year under Canadian GAAP      | $ | (934,157   | ) | $ | (3,603,369 | ) | $ | (3,346,679 | )
| | Mineral property expenditures, net                                            |   | (146,718   | ) |   | (140,277   | ) |   | (165,157   | )
| |                                                                               |   |            |   |   |            |   |   |            |  
| | Loss from discontinued operations
      for the year under United States GAAP | $ | (1,080,875 | ) | $ | (3,743,646 | ) | $ | (3,511,836 | )
| |                                                                               |   |            |   |   |            |   |   |            |  
| | Loss from discontinued operations
      per share under United States GAAP    | $ | (0.01      | ) | $ | (0.06      | ) | $ | (0.08      | )

34

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|12. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GAAP
      (contd)
|--- | ------------------------------------------------------------------

| | a) | Mineral property exploration
      and development (contd)
| | -- | -----------------------------------------------------------

| |                                                                                    |   | 2011         |   |   | 2010        |   |   | 2009        |  
| | ---------------------------------------------------------------------------------- | - | ------------ | - | - | ----------- | - | - | ----------- | -
| |                                                                                    |   |              |   |   |             |   |   |             |  
| | Consolidated Balance Sheets                                                        |   |              |   |   |             |   |   |             |  
| | Mineral Properties under Canadian GAAP                                             | $ | 80,169,668   |   | $ | 41,849,485  |   | $ | 22,363,153  |  
| | Mineral property expenditures
      (cumulative)                                   |   | (74,999,946  | ) |   | (36,710,933 | ) |   | (16,539,461 | )
| |                                                                                    |   |              |   |   |             |   |   |             |  
| | Mineral Properties under United States
      GAAP                                  | $ | 5,169,722    |   | $ | 5,138,552   |   | $ | 5,823,692   |  
| |                                                                                    |   |              |   |   |             |   |   |             |  
| | Long-term assets related
      to discontinued operations under Canadian GAAP      | $ | -            |   | $ | 12,245,690  |   | $ | 11,054,413  |  
| | Mineral property expenditures (cumulative)                                         |   | -            |   |   | (8,483,369  | ) |   | (8,343,092  | )
| |                                                                                    |   |              |   |   |             |   |   |             |  
| | Long-term assets related to discontinued
      operations under United States GAAP | $ | -            |   | $ | 3,762,321   |   | $ | 2,711,321   |  
| |                                                                                    |   |              |   |   |             |   |   |             |  
| | Deficit under Canadian GAAP                                                        | $ | (39,844,514  | ) | $ | (41,396,890 | ) | $ | (23,528,564 | )
| | Mineral property expenditures (cumulative)                                         |   | (74,999,946  | ) |   | (45,194,302 | ) |   | (24,882,553 | )
| |                                                                                    |   |              |   |   |             |   |   |             |  
| | Deficit under United States GAAP                                                   | $ | (114,844,460 | ) | $ | (86,591,192 | ) | $ | (48,411,117 | )

| |                                                                                                 |   | 2011        |   |   | 2010        |   |   | 2009        |  
| | ----------------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
| |                                                                                                 |   |             |   |   |             |   |   |             |  
| | Consolidated statements of cash flows                                                           |   |             |   |   |             |   |   |             |  
| | Cash used in operating
      activities from continuing operations per Canadian GAAP            | $ | (6,670,925  | ) | $ | (4,276,027  | ) | $ | (1,938,845  | )
| | Effect of the write-off of exploration expenditures                                             |   | (36,139,768 | ) |   | (21,303,867 | ) |   | (11,294,605 | )
| |                                                                                                 |   |             |   |   |             |   |   |             |  
| | Cash
      used in operating activities from continuing operations per United States
      GAAP | $ | (42,810,693 | ) | $ | (25,579,894 | ) | $ | (13,233,450 | )
| |                                                                                                 |   |             |   |   |             |   |   |             |  
| | Cash used in investing activities from
      continuing operations per Canadian GAAP            | $ | (36,002,692 | ) | $ | (21,345,115 | ) | $ | (11,322,431 | )
| | Effect of the write-off of exploration
      expenditures                                       |   | 36,139,768  |   |   | 21,303,867  |   |   | 11,294,605  |  
| |                                                                                                 |   |             |   |   |             |   |   |             |  
| | Cash used in investing activities from
      continuing operations per United States GAAP       | $ | (137,076    | ) | $ | (41,248     | ) | $ | (27,826     | )

35

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|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|12. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GAAP
      (contd)
|--- | ------------------------------------------------------------------

| | a) | Mineral property exploration and development
      (contd)
| | -- | -----------------------------------------------------------

| |                                                                                                           |   | 2011     |   |   | 2010       |   |   | 2009       |  
| | --------------------------------------------------------------------------------------------------------- | - | -------- | - | - | ---------- | - | - | ---------- | -
| |                                                                                                           |   |          |   |   |            |   |   |            |  
| | Consolidated statements of cash flows                                                                     |   |          |   |   |            |   |   |            |  
| | Cash used in operating
      activities from discontinued operations per Canadian GAAP                    | $ | (198,273 | ) | $ | (1,354,922 | ) | $ | (1,041,786 | )
| | Effect of the write-off of exploration expenditures                                                       |   | (146,718 | ) |   | (98,850    | ) |   | (1,208,159 | )
| |                                                                                                           |   |          |   |   |            |   |   |            |  
| | Cash
      used in operating activities from discontinued operations per United
      States GAAP         | $ | (344,991 | ) | $ | (1,453,772 | ) | $ | (2,249,945 | )
| |                                                                                                           |   |          |   |   |            |   |   |            |  
| | Cash provided by (used in) investing
      activities from discontinued per Canadian GAAP                 | $ | 616,684  |   | $ | (348,850   | ) | $ | (1,208,159 | )
| | Effect of the write-off of exploration
      expenditures                                                 |   | 146,718  |   |   | 98,850     |   |   | 1,208,159  |  
| |                                                                                                           |   |          |   |   |            |   |   |            |  
| | Cash provided by (used in) investing
      activities from discontinued operations per United States GAAP | $ | 763,402  |   | $ | (250,000   | ) | $ | -          |  

| | b) | SBC                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | The Company has adopted Statement of Financial Accounting
      Standards No. 123R (codified under ASC 178 and ASC 505-50), and records
      compensation cost for stock-based employee compensation plans at fair
      value. Accordingly, compensation cost for stock options granted is
      measured as the fair value at the date of grant, and there is no
      difference in these consolidated financial statements.                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | c) | Loss per share                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | Under both Canadian and United States GAAP basic loss per
      share is calculated using the weighted average number of common shares
      outstanding during the period.                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | Under United States GAAP, the weighted average number of
      common shares outstanding excludes any shares that remain in escrow, but
      may be earned out based on the Company incurring a certain amount of
      exploration and development expenditures. The weighted average number of
      shares outstanding under United States GAAP for the year ended May 31,
      2011 was 77,550,644 (2010 - 59,603,193; 2009 - 45,089,555).
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | d) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | Under United States GAAP, the Company would have
      initially recorded an income tax asset for the benefit of the resource
      deduction pools. This asset would have been reduced to $Nil by a valuation
      allowance. The result is no difference in net income reported between
      Canadian and United States GAAP.                                                                                                               

36

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|12. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GAAP
      (contd)
|--- | ------------------------------------------------------------------
|    |                                                                   
|    | e)                                                                
|    |                                                                   
|    |                                                                   
|    |                                                                   
|13. | COMMITMENTS                                                       
|    |                                                                   
|    | a)                                                                
|    |                                                                   
|    | b)                                                                

| | 2012 | $ | 116,079 | 
| | ---- | - | ------- | 
| | 2013 |   | 98,577  | 
| | 2014 |   | 14,729  | 
| |      |   |         | 
| |      | $ | 229,385 | 

|14. | CAPITAL MANAGEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company manages its capital structure, being its
      share capital, and makes adjustments to it, based on the funds available
      to the Company, in order to support future business opportunities. The
      Board of Directors does not establish quantitative return on capital
      criteria for management, but rather relies on the expertise of the
      Companys management to sustain future development of the
  business.                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company currently has no source of revenues. As such,
      the Company is dependent upon external financings to fund activities. In
      order to carry future projects and pay for administrative costs, the
      Company will spend its existing working capital and raise additional funds
      as needed. Management reviews its capital management approach on an
      ongoing basis and believes that this approach, given the relative size of
      the Company, is reasonable.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | There were no changes in the Companys approach to
      capital management during the year ended May 31, 2011. The Company is not
      subject to externally imposed capital requirements.                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|15. | COMPARATIVE FIGURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Certain of the comparative figures have been reclassified
      to conform with the consolidated financial statement presentation adopted
      in the current year.                                                                                                                                                                                                                                                                                                                            

37

---

|INTERNATIONAL TOWER
      HILL MINES LTD.     
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in Canadian dollars)               
|YEARS ENDED MAY 31, 2011, 2010 AND 2009       
|                                              

|16. | SUPPLEMENTAL CASH FLOW
  INFORMATION
|--- | ------------------------------------

| |                                                                                          |   | 2011      |  |   | 2010    |  |   | 2009    | 
| | ---------------------------------------------------------------------------------------- | - | --------- |  | - | ------- |  | - | ------- | 
| |                                                                                          |   |           |  |   |         |  |   |         | 
| |                                                                                          |   |           |  |   |         |  |   |         | 
| | Interest paid                                                                            | $ | -         |  | $ | -       |  | $ | -       | 
| | Income taxes paid                                                                        | $ | -         |  | $ | -       |  | $ | -       | 
| |                                                                                          |   |           |  |   |         |  |   |         | 
| |                                                                                          |   |           |  |   |         |  |   |         | 
| | Non-cash investing and financing
      transactions  continuing operations:             |   |           |  |   |         |  |   |         | 
| | Issuance of agents warrants for share
      issuance costs                              | $ | -         |  | $ | -       |  | $ | 286,805 | 
| | Accounts payable and accrued liabilities
      included in mineral property expenditures | $ | 3,676,106 |  | $ | 679,247 |  | $ | 87,253  | 
| |                                                                                          |   |           |  |   |         |  |   |         | 
| |                                                                                          |   |           |  |   |         |  |   |         | 
| | Non-cash investing and financing transactions 
      discontinued operations:           |   |           |  |   |         |  |   |         | 
| | Shares issued to acquire
      long-term assets related to discontinued operations       | $ | -         |  | $ | 801,000 |  | $ | 826,750 | 
| | Accounts payable and accrued liabilities included in mineral property
      expenditures | $ | -         |  | $ | 53,783  |  | $ | 83,386  | 

|17. | SUBSEQUENT EVENTS                      
|--- | ---------------------------------------
|    |                                        
|    | Subsequent to May 31, 2011, the Company
|    |                                        
|    | a)                                     
|    |                                        
|    | b)                                     
|    |                                        
|    | c)                                     
|    |                                        
|    | d)                                     

38

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