---



CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in Canadian Dollars)

Seven Months Ended December 31, 2011 Year Ended May 31,
2011

Corporate Head Office

2300-1177 West Hastings Street Vancouver, BCCanada
V6E 2K3 Tel: 604-683-6332

---

|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 International Financial Reporting Standards as
issued by the International Accounting Standards Board. 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 consolidated 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 International Financial Reporting Standards
(IFRS). 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 consolidated
financial statements in accordance with IFRS; 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 December 31, 2011.

|James Komadina        | Tom S. Q. Yip        
|----------------------- | -----------------------
|James Komadina,         | Tom S. Q. Yip,         
|Chief Executive Officer | Chief Financial Officer
|                        |                        
|March 16, 2012          |                        
|Vancouver, Canada       |                        

2

---

INTERNATIONAL TOWER HILL MINES LTD.

December 31, 2011 and May 31, 2011

|INDEX                                                                                                                                          | Page         
|---------------------------------------------------------------------------------------------------------------------------------------------- | -------------
|Audited Consolidated
      Financial Statements                                                                                                |              
|Independent
      Auditors Report                                                                                                             | 4            
|Independent
      Auditors Report on Internal Controls under Standards of the Public
      Company Accounting Oversight Board (United States) | 5            
|Consolidated
      Statements of Financial Position                                                                                            | 6            
|Consolidated
      Statements of Comprehensive Loss                                                                                            | 7            
|Consolidated
      Statement of Changes in Shareholders Equity                                                                                | 8
       9  
|Consolidated
      Statements of Cash Flows                                                                                                    | 10           
|Notes
      to the Consolidated Financial Statements                                                                                           | 11
       46

3

---

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

Independent Auditor's Report

To the Shareholders of International 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 statements of financial position as at December 31,
2011, May 31, 2011, and June 1, 2010, and the consolidated statements of
comprehensive loss, changes in shareholders' equity, cash flows for the period
ended December 31, 2011 and year ended May 31, 2011, and a summary of
significant accounting policies and other explanatory information.

Management's Responsibility for the Consolidated Financial
StatementsManagement is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards, 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 ResponsibilityOur responsibility is to express an
opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we comply with ethical requirements and
plan and perform the 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 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 December 31,
2011, May 31, 2011, and June 1, 2010 and their financial performance and their
cash flows for the period ended December 31, 2011 and the year ended May 31,
2011 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

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. to continue as a going concern.

|Vancouver, Canada | MacKay LLP         
|----------------- | ---------------------
|March 16, 2012    | Chartered Accountants

4

---

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

Independent Auditors Report on Internal Controls under
Standards of the Public Company Accounting Oversight Board (United
States)

To the Board of Directors and Shareholders of
International 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
December 31, 2011, based on criteria established in Internal
Control-Integrated Frameworkissued 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 December 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 period ended December 31, 2011 of the Company and our report dated March
16, 2012 expressed an unqualified opinion on those financial statements.

|Vancouver, Canada | MacKay LLP         
|----------------- | ---------------------
|March 16, 2012    | Chartered Accountants

5

---

|INTERNATIONAL TOWER HILL MINES LTD.                          | 
|------------------------------------------------------------ | 
|(An Exploration Stage Company)                               | 
|CONSOLIDATED STATEMENTS OF FINANCIAL POSITION                | 
|(Expressed in Canadian Dollars)                              | 
|                                                             | 
|                                                             | 
|                                                             | 
|ASSETS                                                       | 
|                                                             | 
|Current                                                      | 
|Cash and cash equivalents                                    | 
|Marketable
      securities                                  | 
|Accounts receivable                                          | 
|Prepaid expenses                                             | 
|Current assets related to discontinued operations            | 
|Total current assets                                         | 
|                                                             | 
|Property and equipment                                       | 
|Exploration and evaluation assets                            | 
|Long-term assets related to discontinued
      operations    | 
|                                                             | 
|Total assets                                                 | 
|                                                             | 
|LIABILITIES AND SHAREHOLDERS
      EQUITY                   | 
|                                                             | 
|Current liabilities                                          | 
|Accounts payable and accrued
      liabilities               | 
|Current liabilities
      related to discontinued operations | 
|Total current liabilities                                    | 
|                                                             | 
|Non-current liabilities                                      | 
|Derivative liability                                         | 
|                                                             | 
|Total liabilities                                            | 
|                                                             | 
|Shareholders equity                                         | 
|Share capital                                                | 
|Contributed surplus                                          | 
|Accumulated other
      comprehensive loss                   | 
|Deficit                                                      | 
|                                                             | 
|Total shareholders equity                                   | 
|                                                             | 
|                                                             | 
|Total
      liabilities and shareholders equity             | 
|Nature and continuance of operations(note 1)                 | 
|Commitments(note 15)                                         | 
|Subsequent event(note 17)                                    | 

On behalf of the Board:

|James
      Komadina (signed) | Director | Anton Drescher(signed) | Director
|------------------------------- | -------- | ------------------------ | --------
|Mr. James J. Komadina           |          | Mr. Anton J. Drescher    |         

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

6

---

|INTERNATIONAL TOWER HILL MINES LTD.                                       | 
|------------------------------------------------------------------------- | 
|(An Exploration Stage Company)                                            | 
|CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS                             | 
|(Expressed in Canadian Dollars)                                           | 
|                                                                          | 
|                                                                          | 
|                                                                          | 
|Expenses                                                                  | 
|Administration                                                            | 
|Charitable donations                                                      | 
|Consulting fees                                                           | 
|Depreciation                                                              | 
|Insurance                                                                 | 
|Investor
      relations                                                  | 
|Office and miscellaneous                                                  | 
|Professional fees                                                         | 
|Property investigations                                                   | 
|Regulatory                                                                | 
|Rent                                                                      | 
|Telephone                                                                 | 
|Travel                                                                    | 
|Wages and benefits                                                        | 
|                                                                          | 
|Loss before other items                                                   | 
|                                                                          | 
|Other items                                                               | 
|Gain (loss) on foreign
      exchange                                     | 
|Interest
      income                                                     | 
|Income from mineral
      property earn-in                                | 
|Spin-out
      cost                                                       | 
|Unrealized gain on derivative
      liability                             | 
|Unrealized gain (loss)
      on marketable securities                     | 
|                                                                          | 
|                                                                          | 
|                                                                          | 
|Loss from continuing
      operations                                     | 
|Loss from
      discontinued operations                                   | 
|                                                                          | 
|Net loss
      for the period                                             | 
|                                                                          | 
|Other comprehensive income (loss)                                         | 
|Exchange
      difference on translating foreign operations               | 
|Total other comprehensive income (loss) for the
      period              | 
|                                                                          | 
|Comprehensive loss for the period                                         | 
|                                                                          | 
|Basic and fully diluted loss per share
      from continuing operations   | 
|Basic and fully diluted loss per share from
      discontinued operations | 
|                                                                          | 
|Weighted average number of shares outstanding                             | 

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

7

---

|INTERNATIONAL TOWER HILL MINES LTD.                      
|---------------------------------------------------------
|(An Exploration Stage Company)                           
|CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
|(Expressed in Canadian Dollars)                          

AccumulatedNumber of
    
    
    
    
    
    Number of
    
    
    
    
    
    
    
    
    othershares
    
    
    Share capital
    
    
    shares
    
    
    Share capital
    
    
    **Contributed**
    
    
    comprehensive(old)
    
    
    (old)
    
    
    (new)
    
    
    (new)
    
    
    surplus
    
    
    loss
    
    
    Deficit
    
    
    TotalBalance, June 1, 2010 (note
      18)
    
    66,117,922
    
    $
    124,277,370
    
    
    -
    
    $
    -
    
    $
    14,240,223
    
    $
    -
    
    $
    (44,319,079
    )
    $
    94,198,514Exercise of warrants
    
    48,099
    
    
    141,892
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    141,892Exercise of options
    
    1,062,200
    
    
    1,867,950
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,867,950Share-based payments
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    3,885,118
    
    
    -
    
    
    -
    
    
    3,885,118Reallocation 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
    )
    
    -
    
    
    12,346,527
    
    
    (12,252,801
    )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
    
    
    -
    
    
    -
    
    
    -
    
    
    -Private placement
    
    -
    
    
    -
    
    
    17,505,805
    
    
    109,434,227
    
    
    -
    
    
    -
    
    
    -
    
    
    109,434,227Exercise of options
    
    -
    
    
    -
    
    
    1,915,000
    
    
    6,634,950
    
    
    -
    
    
    -
    
    
    -
    
    
    6,634,950Share-based payments
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    511,868
    
    
    -
    
    
    -
    
    
    511,868Adjustment due to
      rounding
    
    -
    
    
    -
    
    
    (107
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Reallocation of contributed surplus
    
    -
    
    
    -
    
    
    -
    
    
    3,096,114
    
    
    (3,096,114
    )
    
    -
    
    
    -
    
    
    -Share issuance costs
    
    -
    
    
    -
    
    
    -
    
    
    (4,252,437
    )
    
    -
    
    
    -
    
    
    -
    
    
    (4,252,437
    )Net loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (10,491,842
    )
    
    (10,491,842
    )Exchange difference on translating foreign operations
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (6,767,665
    )
    
    -
    
    
    (6,767,665
    )Balance, May 31, 2011
    
    -
    
    $
    -
    
    
    86,648,919
    
    $
    215,544,180
    
    $
    13,288,996
    
    $
    (6,767,665
    )
    $
    (42,464,394
    )
    $
    179,601,117


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

8

---

|INTERNATIONAL TOWER HILL MINES LTD.                                     
|------------------------------------------------------------------------
|(An Exploration Stage Company)                                          
|CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
      (contd)
|(Expressed in Canadian Dollars)                                         

AccumulatedNumber of
    
    
    
    
    
    
    
    
    othershares
    
    
    Share capital
    
    
    Contributed
    
    
    comprehensive(new)
    
    
    (new)
    
    
    surplus
    
    
    loss
    
    
    Deficit
    
    
    TotalBalance, May 31, 2011
    
    
    
    
    
    
    
    86,648,919
    
    $
    215,544,180
    
    $
    13,288,996
    
    $
    (6,767,665
    )
    $
    (42,464,394
    )
    $
    179,601,117Exercise of options
    
    
    
    
    
    
    
    35,000
    
    
    229,950
    
    
    -
    
    
    -
    
    
    -
    
    
    229,950Share-based payments
    
    
    
    
    
    
    
    
    
    
    -
    
    
    7,475,071
    
    
    -
    
    
    -
    
    
    7,475,071Reallocation from contributed surplus
    
    
    
    
    
    
    
    -
    
    
    90,956
    
    
    (90,956
    )
    
    -
    
    
    -
    
    
    -Share issuance costs
    
    
    
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Net loss
    
    
    
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (11,039,887
    )
    
    (11,039,887
    )Exchange difference on translating foreign operations
    
    
    
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    6,850,624
    
    
    -
    
    
    6,850,624Balance, December 31, 2011
    
    
    
    
    
    
    
    86,683,919
    
    $
    215,865,086
    
    $
    20,673,111
    
    $
    82,959
    
    $
    (53,504,281
    )
    $
    183,116,875


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

9

---

|INTERNATIONAL TOWER HILL MINES LTD.                                                    | 
|-------------------------------------------------------------------------------------- | 
|(An Exploration Stage Company)                                                         | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                  | 
|(Expressed in Canadian Dollars)                                                        | 
|                                                                                       | 
|                                                                                       | 
|                                                                                       | 
|Operating Activities                                                                   | 
|Loss for the period from
      continuing operations                                   | 
|Add items
      not affecting cash:                                                    | 
|Depreciation                                                                           | 
|Share-based payments                                                                   | 
|Unrealized gain on derivative liability                                                | 
|Unrealized (gain) loss on marketable securities                                        | 
|Spin-out recovery                                                                      | 
|(Gain) loss on foreign exchange                                                        | 
|Changes in non-cash
      items:                                                       | 
|Accounts receivable                                                                    | 
|Prepaid expenses                                                                       | 
|Accounts payable and accrued liabilities                                               | 
|Cash used in operating activities of continuing
      operations                       | 
|Loss for
      the year from discontinued operations                                   | 
|Add items not affecting
      cash:                                                    | 
|Stock-based compensation                                                               | 
|(Gain) loss on foreign
      exchange                                                  | 
|Cash used in operating activities of discontinued
      operations                     | 
|                                                                                       | 
|Financing Activities                                                                   | 
|Issuance of share capital                                                              | 
|Share issuance costs                                                                   | 
|Cash provided by financing activities of continuing
      operations                   | 
|Additional funding to Corvus                                                           | 
|Cash transferred on Plan
      of Arrangement                                          | 
|Cash used in financing activities of discontinued
      operations                     | 
|                                                                                       | 
|Investing Activities                                                                   | 
|Expenditures on exploration and evaluation assets                                      | 
|Expenditures on property and equipment                                                 | 
|Cash used in investing activities of continuing
      operations                       | 
|Expenditures on exploration and evaluation assets, net of costs recovered              | 
|Cash
      provided by (used in) investing activities of discontinued
      operations | 
|                                                                                       | 
|Effect of foreign exchange on cash of
      continuing operations                      | 
|Effect of foreign exchange on cash of discontinued
      operations                    | 
|                                                                                       | 
|(Decrease) increase in cash and
      cash equivalents                                 | 
|Cash and
      cash equivalents, beginning of period                                   | 
|                                                                                       | 
|Cash and
      cash equivalents, end of period                                         | 

Supplemental cash flow information(note 16)

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

10

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|1. | GENERAL INFORMATION, NATURE AND CONTINUANCE OF
      OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | International Tower Hill Mines Ltd. (ITH or the
      "Company") is incorporated under the laws of British Columbia, Canada. The
      Companys head office address is 2300-1177 West Hastings Street,
      Vancouver, British Columbia, Canada. International Tower Hill Mines Ltd.
      consists of ITH and its wholly owned subsidiaries Tower Hill Mines, Inc.
      (formerly Talon Gold Alaska, Inc.) (TH Alaska) (an Alaska
      corporation), Tower Hill Mines (US) LLC (formerly Talon Gold (US) LLC)
      (TH US) (a Colorado limited liability company), Livengood Placers, Inc.
      (LPI) (a Nevada corporation), and 813034 Alberta Ltd. (an Alberta
      corporation). 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 December 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 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 period, the Company has raised
      $229,950 (May 31, 2011 - $118,079,019) through the issuance of common
      shares and has working capital at December 31, 2011 of $46,104,290 (May
      31, 2011 - $108,354,423; June 1, 2010  $42,945,488) which is considered
      sufficient to fund its operations and exploration program for the ensuing
      year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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 exploration and evaluation assets 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 exploration and
      evaluation assets. The carrying values of the Companys exploration and
      evaluation assets do not reflect current or future values. 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.                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2. | DISCONTINUED OPERATIONS AND TRANSFER OF EXPLORATION
      AND EVALUATION ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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 tax, legal
      and regulatory expense, amounted to expenses of $148,657 (May 31, 2011 -
      $593,754).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Arrangement was approved by a favorable vote of ITHs
      shareholders at a special meeting held on August 12,
  2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

11

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|2. | DISCONTINUED OPERATIONS AND TRANSFER OF EXPLORATION
      AND EVALUATION ASSETS (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company has, in accordance with International
      Financial Reporting Standards (IFRS) 5, Non-current Assets Held for
      Sale 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 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 seven months ended December 31, 2011 and
      the year ended May 31, 2011. Included therein is $nil (May 31, 2011 -
      $756,202) of share-based payment charges:                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                          |   |                   |  |   |              |  
| | ------------------------ | - | ----------------- |  | - | ------------ | -
| |                          |   | December 31, 2011 |  |   | May 31, 2011 |  
| |                          |   |                   |  |   |              |  
| | Administration           | $ | -                 |  | $ | 1,780        |  
| | Charitable donations     |   | -                 |  |   | 5,413        |  
| | Consulting fees          |   | -                 |  |   | 265,721      |  
| | Foreign exchange gain    |   | -                 |  |   | (20,318      | )
| | Insurance                |   | -                 |  |   | 10,099       |  
| | Investor relations       |   | -                 |  |   | 130,737      |  
| | Office and miscellaneous |   | -                 |  |   | 7,214        |  
| | Professional fees        |   | -                 |  |   | 40,741       |  
| | Property investigations  |   | -                 |  |   | 291          |  
| | Regulatory               |   | -                 |  |   | 3,816        |  
| | Rent                     |   | -                 |  |   | 5,302        |  
| | Telephone                |   | -                 |  |   | 2,418        |  
| | Travel                   |   | -                 |  |   | 5,625        |  
| | Wages and benefits       |   | -                 |  |   | 475,318      |  
| |                          |   |                   |  |   |              |  
| |                          | $ | -                 |  | $ | 934,157      |  

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

| |                                   |   |                 |  
| | --------------------------------- | - | --------------- | -
| |                                   |   | August 25, 2010 |  
| |                                   |   |                 |  
| | Cash and cash equivalents         | $ | 1,203,240       |  
| | Accounts receivable               |   | 199             |  
| | Prepaid expenses                  |   | 3,200           |  
| | Exploration and evaluation assets |   | 12,392,408      |  
| | Accounts payable                  |   | (773,264        | )
| |                                   |   |                 |  
| | Net assets transferred to Corvus  | $ | 12,825,783      |  

12

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|3. | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Basis of presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Canadian Institute of Chartered Accountants Handbook
      was revised in 2010 to incorporate International Financial Reporting
      Standards (IFRS)  as issued by the International Accounting Standards Board (IASB),and require publicly accountable enterprises to apply
      such standards effective for years beginning on or after January 1, 2011.
      Accordingly the Company has commenced reporting on this basis in its
  consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | These consolidated financial statements have been
      prepared in accordance with IFRS 1, First-Time Adoption of International
      Financial Reporting Standard. The accounting policies followed in these
      consolidated financial statements are the same as those applied in the
      Companys condensed consolidated interim financial statements for the
      three months ended August 31, 2011. The Company has consistently applied
      the same accounting policies throughout all periods presented, as if the
      policies had always been in effect.                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Note 18 discloses the impact of the transition from
      Canadian Generally Accepted Accounting Principles (Canadian GAAP) to
      IFRS on our reported financial position, operations and cash flows,
      including the nature and effect of significant changes in accounting
      policies from those used in our consolidated financial statements for the
      year ended May 31, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The policies applied in these consolidated financial
      statements are presented in this note and are based on IFRS issued and
      outstanding as of March 16, 2012, the date the Board of Directors approved
      the consolidated financial statements for issue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company changed its fiscal year end from May 31 to
      December 31. This change will better align the Companys financial
      reporting with its operational and budgeting cycle as well as align the
      financial reporting to those of other industry participants in the mineral
      resource exploration, development and production sectors. As a result of
      the Company changing its fiscal year end to December 31, these
      consolidated financial statements are for the seven month period from the
      previous year ended May 31, 2011 to December 31, 2011. Due to the change
      in year end, amounts presented in these consolidated financial statements
      may not be comparable and therefore these consolidated financial
      statements should be read in conjunction with the Companys Canadian GAAP
      annual financial statements for the year ended May 31, 2011.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | These consolidated financial statements include the
      accounts of ITH and its wholly owned subsidiaries TH Alaska, TH US, LPI
      and 813034 Alberta Ltd. All intercompany transactions and balances have
      been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Basis of measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | These consolidated financial statements have been
      prepared on a historical cost basis except for financial instruments
      classified as FVTPL which are stated at their fair value. In addition,
      these consolidated financial statements have been prepared using the
      accrual basis of accounting, except for cash flow information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | These consolidated financial statements are presented in
      Canadian dollars.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Significant judgments, estimates and
      assumptions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The preparation of financial statements in accordance
      with IFRS requires management to make judgments, estimates and assumptions
      that affect the reported amounts of assets and liabilities and disclosure
      of contingent assets and liabilities at the date of the financial
      statements, and the reported amounts of revenues and expenses during the
      period. These judgments, estimates and assumptions are continuously
      evaluated and are based on managements experience and knowledge of the
      relevant facts and circumstances. While management believes the estimates
      to be reasonable, actual results could differ from those estimates and
      could impact future results of operations and cash
flows.                                                                                                                                                         

13

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

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

The areas which require significant
judgment and estimates that management has made at the financial reporting date,
that could result in a material change to the carrying amounts of assets and
liabilities, in the event actual results differ from the assumptions made,
relate to, but are not limited to the following:

Significant estimates

| | a) | the fair value determination and inputs used in the
      valuation of the derivative liability;     
| | -- | -----------------------------------------------------------------------------------------------------
| |    |                                                                                                      
| | b) | the tax basis of assets and liabilities and related
      deferred income tax assets and liabilities;
| |    |                                                                                                      
| | c) | the fair value determination and inputs used in valuation
      of share-based payments;             
| |    |                                                                                                      
| | d) | amounts of provisions, if any, for environmental
      rehabilitation and restoration; and           
| |    |                                                                                                      
| | e) | the allocation of administrative expenses to discontinued
      operations.                          

Significant judgments

| | a) | the estimated useful lives of property and
    equipment;                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                       
| | b) | the determination of functional currencies; and                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                       
| | c) | the analysis of resource calculations, drill results,
      labwork, etc. which can impact the Companys assessment of impairments,
      calculation of depreciation, and provisions, if any, for environmental
      rehabilitation and restoration.

Foreign currency
transactions

The presentation currency of the
Company is the Canadian dollar.

Foreign currency accounts are
translated into Canadian dollars as follows:

The functional currency of each of the
parent Company and each subsidiary is measured using the currency of the primary
economic environment in which that entity operates. The functional currency of
TH Alaska, TH US, and LPI is US dollars and for the parent company, the
functional currency is Canadian dollars.

Transactions and balances:

Foreign currency transactions are
translated into functional currency using the exchange rates prevailing at the
date of the transaction. Foreign currency monetary items are translated at the
period-end exchange rate. Non-monetary items measured at historical cost
continue to be carried at the exchange rate at the date of the transaction.
Non-monetary items measured at fair value are reported at the exchange rate at
the date when fair values were determined.

Exchange differences arising on the
translation of monetary items or on settlement of monetary items are recognized
in profit or loss in the consolidated statements of comprehensive loss in the
period in which they arise.

Exchange differences arising on the
translation of non-monetary items are recognized in other comprehensive income
(loss) in the consolidated statements of comprehensive loss to the extent that
gains and losses arising on those non-monetary items are also recognized in
other comprehensive income (loss). Where the nonmonetary gain or loss is
recognized in profit or loss, the exchange component is also recognized in
profit or loss.

14

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|3. | SIGNIFICANT ACCOUNTING POLICIES (contd)                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Foreign currency transactions                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Parent and Subsidiary Companies:                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The financial results and position of foreign operations
      whose functional currency is different from the presentation currency are
      translated as follows:                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Exchange differences arising on translation of foreign
      operations are transferred directly to the Groups exchange difference on
      translating foreign operations on the Statement of Comprehensive Loss and
      are reported as a separate component of shareholders equity titled
      accumulated other comprehensive loss. These differences are recognized
      in the profit or loss in the period in which the operation is disposed
      of.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| | a) | Financial assets
| | -- | ----------------

Financial assets are classified as
into one of the following categories based on the purpose for which the asset
was acquired. All transactions related to financial instruments are recorded on
a trade date basis. The Companys accounting policy for each category is as
follows:

Fair value through profit or loss
(FVTPL)

A financial asset is classified as
FVTPL if it is classified as held for trading or is designated as such upon
initial recognition. Financial assets are designated as FVTPL if the Company
manages such investments and makes purchase and sale decisions based on their
fair value in accordance with the Companys documented risk management or
investment strategy. Financial assets classified as FVTPL are measured at fair
value, and changes therein are recognized in profit or loss. Cash and cash
equivalents and marketable securities are classified as FVTPL and are accounted
for at fair value.

Transaction costs associated with
FVTPL financial assets are expensed as incurred, while transaction costs
associated with all other financial assets are included in the initial carrying
amount of the asset.

Held-to-maturity

Held-to-maturity financial assets are
measured at amortized cost. The Company does not have any financial assets
classified as held-to-maturity.

Loans and receivables

Loans and receivables are financial
assets with fixed or determinable payments that are not quoted in an active
market. They are classified as current assets or non-current assets based on
their maturity date. Loans and receivables are initially recognized at fair
value and subsequently carried at amortized cost less any impairment. Loans and
receivables comprise accounts receivables.

Impairment of financial
assets

At each reporting date the Company
assesses whether there is any objective evidence that a financial asset or a
group of financial assets is impaired. A financial asset or group of financial
assets is deemed to be impaired, if, and only if, there is objective evidence of
impairment as a result of one or more events that has occurred after the initial recognition of the asset and
      that event has an impact on the estimated future cash flows of the
financial asset or the group of financial assets.

15

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|3. | SIGNIFICANT ACCOUNTING POLICIES (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Cash equivalents include highly liquid investments with
      original maturities of three months or less, and which are subject to an
      insignificant risk of change in value. Cash equivalents are held for the
      purpose of meeting short-term cash commitments rather than for investment
      or other purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Marketable securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Marketable securities held in companies with an active
      market are classified as FVTPL. Marketable securities held in non-public
      companies without an active market are classified as non-current assets
      and are valued at fair value. In situations where fair value is
      indeterminable or impracticable to determine, the shares are recorded at
      cost. This may occur when non-public company shares are received as
      payment for mineral properties. In such situations cost is determined by
      reference to the issue price of similar shares issued by the non-public
      entity for cash, at or near the time of issue of the investment shares,
      and in similar volumes. When at future measurement dates fair value is
      still indeterminable, or impracticable, cost is used as the measure of
      fair value. When there is evidence of impairment the shares are
      written-down to expected realizable value.

16

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|3. | SIGNIFICANT ACCOUNTING POLICIES (contd)
|-- | ----------------------------------------
|   |                                         
|   | Property and equipment                  
|   |                                         
|   | a)                                      
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   |                                         
|   | b)                                      
|   |                                         
|   |                                         
|   |                                         
|   | c)                                      
|   |                                         
|   |                                         
|   |                                         
|   | d)                                      
|   |                                         
|   |                                         
|   |                                         
|   | e)                                      
|   |                                         
|   |                                         

Computer equipment
    -
    30% declining balanceComputer software
    -
    3 years straight lineFurniture and equipment
    -
    20% declining balanceLeasehold improvements
    -
    straight-line over the lease term


Additions during the year are
depreciated at one-half the annual rates.

Depreciation methods, useful lives and
residual values are reviewed at each financial year-end and adjusted if
appropriate.

17

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|3. | SIGNIFICANT ACCOUNTING POLICIES (contd)                                                 
|-- | -----------------------------------------------------------------------------------------
|   |                                                                                          
|   | Mineral Exploration and Evaluation
    Expenditures                                      
|   |                                                                                          
|   | The Companys mineral project is currently in the
      exploration and evaluation phase.
|   |                                                                                          
|   | a)                                                                                       
|   |                                                                                          
|   |                                                                                          
|   |                                                                                          
|   | b)                                                                                       
|   |                                                                                          
|   |                                                                                          
|   |                                                                                          
|   |                                                                                          
|   |                                                                                          
|   |                                                                                          
|   |                                                                                          
|   |                                                                                          
|   |                                                                                          
|   |                                                                                          
|   |                                                                                          
|   |                                                                                          

Impairment of non-current
assets

Non-current assets are evaluated at
least annually by management for indicators that carrying value is impaired and
may not be recoverable. When indicators of impairment are present the
recoverable amount of an asset is evaluated at the level of a cash generating
unit (CGU), the smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from other assets or
groups of assets, where the recoverable amount of a CGU is the greater of the
CGUs fair value less costs to sell and its value in use. An impairment loss is
recognized in profit or loss to the extent the carrying amount exceeds the
recoverable amount.

In calculating recoverable amount, the
Company uses discounted cash flow techniques to determine fair value when it is
not possible to determine fair value either by quotes from an active market or a
binding sales agreement. The determination of discounted cash flows is dependent
on a number of factors, including future metal prices, the amount of reserves,
the cost of bringing the project into production, production schedules,
production costs, sustaining capital expenditures, and site closure, restoration
and environmental rehabilitation costs. Additionally, the reviews take into
account factors such as political, social and legal, and environmental
regulations. These factors may change due to changing economic conditions or the
accuracy of certain assumptions and, hence, affect the recoverable amount.

18

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

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

Impairment of non-current assets
(contd)

An impairment loss is reversed if there
is an indication that there has been a change in the estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that
the assets carrying amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortization, if no impairment loss had
been recognized. An impairment loss with respect to goodwill is never
reversed.

The Company uses its best efforts to
fully understand all of the aforementioned to make an informed decision based
upon historical and current facts surrounding the projects. Discounted cash flow
techniques often require management to make estimates and assumptions concerning
reserves and expected future production revenues and expenses.

Provisions for environmental
rehabilitation

The Company records a liability based
on the best estimate of costs for site closure and reclamation activities that
the Company is legally or constructively required to remediate. The liability is
recognized at the time environmental disturbance occurs and the resulting costs
are capitalized to the corresponding asset. The provision for closure and
reclamation liabilities is estimated using expected cash flows based on
engineering and environmental reports prepared by third-party industry
specialists and discounted at a pre-tax rate specific to the liability. The
capitalized amount is depreciated on the same basis as the related asset. The
liability is adjusted for the accretion of the discounted obligation and any
changes in the amount or timing of the underlying future cash flows. Significant
judgments and estimates are involved in forming expectations of the amounts and
timing of future closure and reclamation cash flows.

Additional disturbances and changes in
closure and reclamation estimates are accounted for as incurred with a change in
the corresponding capitalized cost. Costs of rehabilitation projects for which a
provision has been recorded are recorded directly against the provision as
incurred, most of which are expected to be incurred at the end of the life of
mine.

Income taxes

Income tax expense comprises current
and deferred tax. Current tax and deferred tax are recognized in profit or loss
except to the extent that they relate to a business combination or items
recognized directly in equity or in other comprehensive loss/income.

Current income taxes are recognized for
the estimated income taxes payable or receivable on taxable income or loss for
the current year and any adjustment to income taxes payable in respect of
previous years. Current income taxes are determined using tax rates and tax laws
that have been enacted or substantively enacted by the year-end date.

Deferred tax assets and liabilities are
recognized where the carrying amount of an asset or liability differs from its
tax base, except for taxable temporary differences arising on the initial
recognition of goodwill and temporary differences arising on the initial
recognition of an asset or liability in a transaction which is not a business
combination and at the time of the transaction affects neither accounting nor
taxable profit or loss.

Recognition of deferred tax assets for
unused tax losses, tax credits and deductible temporary differences is
restricted to those instances where it is probable that future taxable profit
will be available against which the deferred tax asset can be utilized. At the
end of each reporting period the Company reassesses unrecognized deferred tax
assets. The Company recognizes a previously unrecognized deferred tax asset to
the extent that it has become probable that future taxable profit will allow the
deferred tax asset to be recovered.

19

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

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

Share capital

The proceeds from the exercise of stock
options and warrants are recorded as capital stock in the amount for which the
option or warrant enabled the holder to purchase a share in the Company.
Commissions paid to underwriters, and other related share issue costs, such as
legal, auditing, and printing, on the issue of the Companys shares are charged
directly to capital stock.

Valuation of equity units issued in
private placements

The Company has adopted a residual
value method with respect to the measurement of shares and warrants issued as
private placement units. The residual value method first allocates value to the
more easily measurable component based on fair value and then the residual
value, if any, to the less easily measurable component.

The fair value of the common shares
issued in the private placements was determined to be the more easily measurable
component and were valued at their fair value, as determined by the closing
quoted bid price on the announcement date. The balance, if any, is allocated to
the attached warrants. Any fair value attributed to the warrants is recorded as
warrants.

Earnings (loss) per share

Basic loss per share is calculated
using the weighted average number of common shares outstanding during the
period. The Company uses the treasury stock method to compute the dilutive
effect of options, warrants and similar instruments. Under this method, the
dilutive effect on earnings per share is calculated presuming the exercise of
outstanding options, warrants and similar instruments. It assumes that the
proceeds of such exercise would be used to repurchase common shares at the
average market price during the period. However, the calculation of diluted loss
per share excludes the effects of various conversions and exercise of options
and warrants that would be anti-dilutive.

Share-based payments

Where equity-settled share options are
awarded to employees, the fair value of the options at the date of grant is
charged to the Statement  of Comprehensive Loss over the vesting
period. Performance vesting conditions are taken into account by adjusting the
number of equity instruments expected to vest at each reporting date so that,
ultimately, the cumulative amount recognized over the vesting period is based on
the number of options that eventually vest. Non-vesting conditions and market
vesting conditions are factored into the fair value of the options granted. As
long as all other vesting conditions are satisfied, a charge is made
irrespective of whether these vesting conditions are satisfied. The cumulative
expense is not adjusted for failure to achieve a market vesting condition or
where a non-vesting condition is not satisfied. Equity-settled awards are not
revalued subsequent to the initial grant date.

Where the terms and conditions of
options are modified before they vest, the increase in the fair value of the
options, measured immediately before and after the modification, is also charged
to the Statement of Comprehensive Loss over the remaining vesting
period.

Where equity instruments are granted to
non-employees, they are recorded at the fair value of the goods or services
received in the Statement of Comprehensive Loss, unless they are
related to the issuance of shares. Amounts related to the issuance of shares are
recorded as a reduction of share capital. Equity instruments granted to
non-employees that vest over time are revalued over the vesting period.

When the value of goods or services
received in exchange for the share-based payment cannot be reliably estimated,
the fair value is measured by use of a valuation model. The expected life used
in the model is adjusted, based on managements best estimate, for the
effects of non-transferability, exercise restrictions, and behavioural
considerations.

20

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

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

Share-based payments
(contd)

All equity-settled share-based payments
are reflected in contributed surplus, until exercised. Upon exercise, shares are
issued from treasury and the amount reflected in contributed surplus is credited
to share capital, adjusted for any consideration paid.

Where a grant of options is cancelled
or settled during the vesting period, excluding forfeitures when vesting
conditions are not satisfied, the Company immediately accounts for the
cancellation as an acceleration of vesting and recognizes the amount that
otherwise would have been recognized for services received over the remainder of
the vesting period. Any payment made to the employee on the cancellation is
accounted for as the repurchase of an equity interest except to the extent the
payment exceeds the fair value of the equity instrument granted, measured at the
repurchase date. Any such excess is recognized as an expense.

Non-monetary transactions

All non-monetary transactions are
measured at the fair value of the asset surrendered or the asset received,
whichever is more reliable, unless the transaction lacks commercial substance or
the fair value cannot be reliably established. The commercial substance
requirement is met when the future cash flows are expected to change
significantly as a result of the transaction. When the fair value of a
non-monetary transaction cannot be reliably measured, it is recorded at the
carrying amount (after reduction, when appropriate, for impairment) of the asset
given up adjusted by the fair value of any monetary consideration received or
given. When the asset received or the consideration given up is shares in an
actively traded market, the value of those shares will be considered fair value.

Joint venture accounting

Where the Companys exploration and
development activities are conducted with others, the accounts reflect only the
Companys proportionate interest in such activities.

Future accounting changes

IFRS 9, Financial Instruments (IFRS
9) was issued in November 2009 and contained requirements for financial assets.
This standard addresses classification and measurement of financial assets and
replaces multiple category and measurement models in IAS 39 for debt instruments
with a new mixed measurement model having only two categories: amortized cost
and FVTPL. IFRS 9 also replaces the models for measuring equity instruments, and
such investments are either recognised at FVTPL or at fair value through other
comprehensive income. Where such equity instruments are measured at fair value
through other comprehensive income, dividends are recognised in profit or loss
to the extent not clearly representing a return of investment; however, other
gains and losses (including impairments) associated with such instruments remain
in accumulated comprehensive income indefinitely.

Requirements for financial liabilities
were added in October 2010 and they largely carried forward existing
requirements in IAS 39, Financial Instruments  Recognition and Measurement,
except that fair value changes due to credit risk for liabilities designated at
fair value through profit and loss would generally be recorded in other
comprehensive income.

This standard is required to be applied
for accounting periods beginning on or after January 1, 2015, with earlier
adoption permitted. The Company has not yet assessed the impact of the standard
or determined whether it will adopt the standard early.

21

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|3. | SIGNIFICANT ACCOUNTING POLICIES (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Future accounting changes (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In May 2011 the International Accounting Standards Board
      (IASB) issued the following five new standards: IFRS 10, Consolidated
      Financial Statements; IFRS 11, Joint Arrangements; IFRS 12, Disclosure of
      Involvement in Other Entities; along with amendments to the current and
      renamed IAS 27, Separate Financial Statements & IAS 28, Investments in
      Associates and Joint Ventures. These standards are required to be applied
      for annual periods beginning on or after January 1, 2013, with earlier
      adoption permitted. The Company has not yet assessed the impact of the
      standards or determined whether it will adopt the standards
  early.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In October 2011 the IASB issued IFRIC 20, Stripping Costs
      in the Production Phase of a Mine. This interpretation clarifies when
      production stripping should lead to the recognition of an asset and how
      that asset should be measured, both initially and in subsequent periods.
      This interpretation is effective for annual periods beginning on or after
      January 1, 2013 with early adoption permitted. The Company has not yet
      assessed the impact of the interpretation or determined whether it will
      adopt the interpretation early.                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|4. | RISK MANAGEMENT AND FINANCIAL
INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Fair Value                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The carrying values of cash and cash equivalents,
      accounts receivable and accounts payable and accrued liabilities
      approximate their fair values due to the short-term maturity of these
      financial instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Financial instruments measured at fair value are
      classified into one of three levels in the fair value hierarchy according
      to the significance of the inputs used in making the measurement. The
      three levels of the fair value hierarchy are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| |                                      |   |                                                            | 
| | ------------------------------------ | - | ---------------------------------------------------------- | 
| |                                      |   | Financial assets and liabilities
      at fair value as at | 
| |                                      |   | December 31, 2011                                          | 
| |                                      |   | Level 1                                                    | 
| |                                      |   |                                                            | 
| | Financial assets:                    |   |                                                            | 
| | Cash and cash equivalents            | $ | 55,642,179                                                 | 
| | Marketable securities
      (note 5) |   | 302,500                                                    | 
| |                                      | $ | 55,944,679                                                 | 
| | Financial liabilities:               |   |                                                            | 
| | Derivative liability (note 8)        | $ | -                                                          | 
| |                                      | $ | -                                                          | 

22

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

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

| |                                      |   |                                                   | 
| | ------------------------------------ | - | ------------------------------------------------- | 
| |                                      |   | Financial assets at fair value as at May 31, 2011 | 
| |                                      |   | Level 1                                           | 
| |                                      |   |                                                   | 
| | Financial assets:                    |   |                                                   | 
| | Cash and cash equivalents            | $ | 111,165,126                                       | 
| | Marketable securities
      (note 5) |   | 662,500                                           | 
| |                                      | $ | 111,827,626                                       | 

| |                                      |   |                                                   | 
| | ------------------------------------ | - | ------------------------------------------------- | 
| |                                      |   | Financial assets at fair value as at June 1, 2010 | 
| |                                      |   | Level 1                                           | 
| |                                      |   |                                                   | 
| | Financial assets:                    |   |                                                   | 
| | Cash and cash equivalents            | $ | 43,460,324                                        | 
| | Marketable securities
      (note 5) |   | 360,000                                           | 
| |                                      | $ | 43,820,324                                        | 

The Companys risk exposure and the
impact on the Companys financial instruments are summarized below:

| | a) | Credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | Credit risk is the risk of financial loss to the Company
      if a counterparty to a financial instrument fails to meet its contractual
      obligations. The Company manages credit risk, in respect of cash and cash
      equivalents, by purchasing highly liquid, short-term investment-grade
      securities held at a major Canadian financial institution in accordance
      with the Companys investment policy. The Company has no asset backed
      securities.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | The Companys concentration of credit risk and maximum
      exposure thereto relating to financial assets is as
  follows:                                                                                                                                                                                                                                                                                                                                                     

| |                           |   |              |  |   |             |  |   |            | 
| | ------------------------- | - | ------------ |  | - | ----------- |  | - | ---------- | 
| |                           |   | December 31, |  |   | May 31,     |  |   | June 1,    | 
| |                           |   | 2011         |  |   | 2011        |  |   | 2010       | 
| |                           |   |              |  |   |             |  |   |            | 
| | Cash and cash equivalents | $ | 55,642,179   |  | $ | 111,165,126 |  | $ | 43,460,324 | 
| | Accounts
      receivable | $ | 468,806      |  | $ | 185,733     |  | $ | 110,214    | 

At December 31, 2011, the Company held
a total of $45,068,000 (May 31, 2011 - $102,310,928, June 1, 2010 -$26,537,499)
cash equivalents which consist of interest saving accounts and Guaranteed
Investment Certificates (GICs):

| |                               |   |            |  |  |                |  |  |              | 
| | ----------------------------- | - | ---------- |  |  | -------------- |  |  | ------------ | 
| |                               |   | Quantity   |  |  | Maturity Date  |  |  | Annual Yield | 
| | TD Mortgage Corporation (GIC) | $ | 42,068,000 |  |  | April 16, 2012 |  |  | 1.36%        | 
| | Advisors Advantage Trust     |   | 3,000,000  |  |  | May 7, 2012    |  |  | 1.30%        | 
| |                               | $ | 45,068,000 |  |  |                |  |  |              | 

The Companys cash and cash
equivalents at December 31, 2011 consists of $47,008,802 in Canada and
$8,633,377 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 December 31, 2011,
      the Company is not exposed to significant credit risk as the receivables
are from governmental agencies and interest accruals.

23

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

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

24

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

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

| | c) | Market risk
| | -- | -----------

| | (ii) | Foreign currency risk (contd)
| | ---- | ------------------------------

As at December 31, 2011, the Company
had the following financial instruments in USD:

| |                                          |   |                |  |   |            | 
| | ---------------------------------------- | - | -------------- |  | - | ---------- | 
| |                                          |   | CAD equivalent |  |   | USD        | 
| |                                          |   |                |  |   |            | 
| | Cash                                     | $ | 8,709,370      |  | $ | 8,563,785  | 
| | Accounts payable and accrued liabilities | $ | 10,184,489     |  | $ | 10,014,246 | 
| | Derivative liability                     | $ | 21,153,600     |  | $ | 20,800,000 | 

As at December 31, 2011, USD amounts
were converted at a rate of USD 1 to CAD 1.017.

| | (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. The Companys derivative liability is
      also exposed to other price risk. The fair value of this liability will
      fluctuate with the average daily price of gold as well as with future
      projections for the average price of gold over the life of the obligation.
      For every dollar change in the average daily price of gold, the value of
      the derivative liability will change by USD
23,148.

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

| |                                 |   |              |  |   |         |  |   |         | 
| | ------------------------------- | - | ------------ |  | - | ------- |  | - | ------- | 
| |                                 |   | December 31, |  |   | May 31, |  |   | June 1, | 
| |                                 |   | 2011         |  |   | 2011    |  |   | 2010    | 
| |                                 |   |              |  |   |         |  |   |         | 
| | Millrock Resources Inc.         | $ | 214,500      |  | $ | 422,500 |  | $ | 273,000 | 
| | Ocean Park
      Ventures Corp. |   | 88,000       |  |   | 240,000 |  |   | 87,000  | 
| |                                 |   |              |  |   |         |  |   |         | 
| |                                 | $ | 302,500      |  | $ | 662,500 |  | $ | 360,000 | 

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 seven
months ended December 31, 2011 amounted to an unrealized loss of $360,000 (May
31, 2011 - $182,500 gain).

25

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|6. | PROPERTY AND EQUIPMENT
|-- | ----------------------

| |                                          |   |           |   |   |           |   |   |          |   |   |              |   |   |          |  
| | ---------------------------------------- | - | --------- | - | - | --------- | - | - | -------- | - | - | ------------ | - | - | -------- | -
| |                                          |   | Furniture |   |   |           |   |   |          |   |   |              |   |   |          |  
| |                                          |   | and       |   |   | Computer  |   |   | Computer |   |   | Leasehold    |   |   |          |  
| |                                          |   | Equipment |   |   | Equipment |   |   | Software |   |   | Improvements |   |   | Total    |  
| |                                          |   |           |   |   |           |   |   |          |   |   |              |   |   |          |  
| | Cost                                     |   |           |   |   |           |   |   |          |   |   |              |   |   |          |  
| | Balance at June 1, 2010                  | $ | 8,215     |   | $ | 125,576   |   | $ | 89,476   |   | $ | 17,061       |   | $ | 240,328  |  
| | Additions                                |   | 46,192    |   |   | 59,714    |   |   | -        |   |   | -            |   |   | 105,906  |  
| | Disposals                                |   | -         |   |   | -         |   |   | -        |   |   | -            |   |   | -        |  
| | Balance at May 31, 2011                  |   | 54,407    |   |   | 185,290   |   |   | 89,476   |   |   | 17,061       |   |   | 346,234  |  
| | Additions                                |   | -         |   |   | 2,962     |   |   | -        |   |   | -            |   |   | 2,962    |  
| | Disposals                                |   | -         |   |   | -         |   |   | -        |   |   | -            |   |   | -        |  
| |                                          |   |           |   |   |           |   |   |          |   |   |              |   |   |          |  
| | Balance at Dec 31, 2011                  | $ | 54,407    |   | $ | 188,252   |   | $ | 89,476   |   | $ | 17,061       |   | $ | 349,196  |  
| |                                          |   |           |   |   |           |   |   |          |   |   |              |   |   |          |  
| | Depreciation and
      impairment losses |   |           |   |   |           |   |   |          |   |   |              |   |  
| | Balance at June 1, 2010                  | $ | (3,700    | ) | $ | (60,148   | ) | $ | (89,476  | ) | $ | (6,964       | ) | $ | (160,288 | )
| | Depreciation for the
      period        |   | (5,313    | ) |   | (26,965   | ) |   | -        |   |   | (10,097      | ) |   | (42,375  | )
| | Disposals                                |   | -         |   |   | -         |   |   | -        |   |   | -            |   |   | -        |  
| | Balance at May 31, 2011                  |   | (9,013    | ) |   | (87,113   | ) |   | (89,476  | ) |   | (17,061      | ) |   | (202,663 | )
| | Depreciation for the period              |   | (5,206    | ) |   | (16,583   | ) |   | -        |   |   | -            |   |   | (21,789  | )
| | Disposals                                |   | -         |   |   | -         |   |   | -        |   |   | -            |   |   | -        |  
| |                                          |   |           |   |   |           |   |   |          |   |   |              |   |   |          |  
| | Balance at Dec 31, 2011                  | $ | (14,219   | ) | $ | (103,696  | ) | $ | (89,476  | ) | $ | (17,061      | ) | $ | (224,452 | )
| | **Carrying amounts**                     |   |           |   |   |           |   |   |          |   |   |              |   |   |          |  
| | At June 1, 2010                          | $ | 4,515     |   | $ | 65,428    |   | $ | -        |   | $ | 10,097       |   | $ | 80,040   |  
| |                                          |   |           |   |   |           |   |   |          |   |   |              |   |   |          |  
| | At May 31, 2011                          | $ | 45,394    |   | $ | 98,177    |   | $ | -        |   | $ | -            |   | $ | 143,571  |  
| |                                          |   |           |   |   |           |   |   |          |   |   |              |   |   |          |  
| | At Dec 31, 2011                          | $ | 40,188    |   | $ | 84,556    |   | $ | -        |   | $ | -            |   | $ | 124,744  |  

26

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|7. | EXPLORATION AND EVALUATION
ASSETS
|-- | ---------------------------------

| |                                          |   |             |  
| | ---------------------------------------- | - | ----------- | -
| |                                          |   | Total       |  
| |                                          |   |             |  
| | Balance, June 1,
      2010              | $ | 39,500,278  |  
| |                                          |   |             |  
| | Acquisition costs:                       |   |             |  
| | Cash payments                            |   | 31,070      |  
| | Common shares issued                     |   | -           |  
| |                                          |   | 31,070      |  
| | Deferred exploration costs:              |   |             |  
| | Advance to contractors                   |   | 276,555     |  
| | Aircraft services                        |   | 346,568     |  
| | Assay                                    |   | 3,502,374   |  
| | Drilling                                 |   | 13,633,947  |  
| | Equipment rental                         |   | 2,015,862   |  
| | Field costs                              |   | 5,281,089   |  
| | Geological/geophysical                   |   | 9,984,494   |  
| | Land maintenance & tenure                |   | 2,660,912   |  
| | Legal                                    |   | 58,075      |  
| | Transportation                           |   | 319,041     |  
| | Travel                                   |   | 235,700     |  
| |                                          |   | 38,314,617  |  
| |                                          |   |             |  
| | Total expenditures for the year          |   | 38,345,687  |  
| | Cumulative
      translation adjustments |   | (6,742,842  | )
| |                                          |   |             |  
| | Balance, May 31,
      2011              |   | 71,103,123  |  
| |                                          |   |             |  
| | Acquisition costs:                       |   |             |  
| | Cash consideration (see note 8)          |   | 48,777,927  |  
| | Common shares issued                     |   | -           |  
| |                                          |   | 48,777,927  |  
| | Deferred exploration costs:              |   |             |  
| | Advance to contractors                   |   | (411,865    | )
| | Aircraft services                        |   | 2,223,419   |  
| | Assay                                    |   | 1,769,256   |  
| | Drilling                                 |   | 9,982,001   |  
| | Environmental                            |   | 2,838,071   |  
| | Equipment rental                         |   | 1,125,811   |  
| | Field costs                              |   | 7,460,642   |  
| | Geological/geophysical                   |   | 5,670,982   |  
| | Land maintenance & tenure                |   | 565,799     |  
| | Legal                                    |   | 164,488     |  
| | Surveying and mapping                    |   | 405,680     |  
| | Transportation                           |   | 6,178       |  
| | Travel                                   |   | (209        | )
| |                                          |   | 31,800,253  |  
| |                                          |   |             |  
| | Total expenditures for the year          |   | 80,578,180  |  
| | Cumulative
      translation adjustments |   | 6,360,138   |  
| |                                          |   |             |  
| | Balance,
      December 31, 2011         | $ | 158,041,441 |  

27



---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|7. | EXPLORATION AND EVALUATION ASSETS
  (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Properties acquired from AngloGold,
  Alaska                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Pursuant to an Asset Purchase and Sale and Indemnity
      Agreement dated June 30, 2006, as amended on July 26, 2007, (the
      AngloGold Agreement) among the Company, AngloGold Ashanti (U.S.A.)
      Exploration Inc. (AngloGold) and TH Alaska, the Company acquired all of
      AngloGolds interest in a portfolio of seven mineral exploration projects
      in Alaska (then aggregating 246 square kilometres) and referred to as the
      Livengood, Chisna, Gilles, Coffee Dome, West Pogo, Blackshell, and Caribou
      properties (the Sale Properties) in consideration of cash payment USD
      50,000 on August 4, 2006, and the issuance of 5,997,295 common shares,
      representing approximately 19.99% of the Companys issued shares following
      the closing of the acquisition and two private placement financings
      raising an aggregate of $11,479,348. AngloGold has the right to maintain
      its percentage equity interest in the Company, on an ongoing basis,
      provided that such right will terminate if AngloGolds interest falls
      below 10% at any time after January 1, 2009.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | As further consideration for the transfer of the Sale
      Properties, the Company granted to AngloGold a 90 day right of first offer
      with respect to the Sale Properties and any additional mineral properties
      in Alaska in which the Company acquires an interest and which interest the
      Company proposes to farm out or otherwise dispose of. If AngloGolds
      equity interest in the Company is reduced to less than 10%, then this
      right of first offer will terminate. Details of the Livengood Property
      (being the only Sale Property still held by the Company) are as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| | (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.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | Details of the leases are as follows:                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                  

28

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|7. | EXPLORATION AND EVALUATION ASSETS
  (contd)
|-- | --------------------------------------------

Properties acquired from AngloGold,
Alaska (contd)

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

Livengood land purchase

In December 2011, the Company
completed a transaction to acquire certain mining claims and related rights in
the vicinity of the Livengood Project. This acquisition included both mining
claims and all of the shares of Livengood Placers, Inc. (an Alaska corporation).
These assets were purchased for aggregate consideration of USD 36,600,000
allocated between cash consideration of USD 13,500,000 and a derivative
liability of USD 23,100,000. Of the USD 13,500,000 cash consideration, USD
5,000,000 was paid at the date of acquisition and USD 8,500,000 is payable in
March 2012 and is included in accounts payable and accrued liabilities on the
consolidated statements of financial position. The derivative liability is a
contingent payment based on the five-year average daily gold price (Average
Gold Price)

29

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|7. | EXPLORATION AND EVALUATION ASSETS
  (contd)
|-- | --------------------------------------------

Properties acquired from AngloGold,
Alaska (contd)

| | (i) | Livengood Property (contd)
| | --- | ---------------------------

Livengood land purchases (contd):

from the date of the acquisition (see
note 8). The derivative liability (payable in December 2016) will equal USD
23,148 for every dollar that the Average Gold Price exceeds USD 720 per troy
ounce. If the Average Gold Price is less than USD 720, there will be no
additional contingent payment. The subject ground was previously vacant or was
used for placer gold mining.

Acquisitions

The acquisition of title to mineral
properties is a detailed and time-consuming process. The Company has taken
steps, in accordance with industry standards, to verify title to mineral
properties in which it has an interest. Although the Company has taken every
reasonable precaution to ensure that legal title to its properties is properly
recorded in the name of the Company, there can be no assurance that such title
will ultimately be secured.

Environmental Expenditures

The operations of the Company may in
the future be affected from time to time in varying degrees by changes in
environmental regulations, including those for future removal and site
restoration costs. Both the likelihood of new regulations and their overall
effect upon the Company vary greatly and are not predictable. The Companys
policy is to meet or, if possible, surpass standards set by relevant legislation
by application of technically proven and economically feasible measures.

Environmental expenditures that relate
to ongoing environmental and reclamation programs are charged against earnings
as incurred or capitalized and amortized depending on their future economic
benefits. Estimated future removal and site restoration costs, when the ultimate
liability is reasonably determinable, are charged against earnings over the
estimated remaining life of the related business operation, net of expected
recoveries. The Company does not have any material provisions for environmental
rehabilitation as of December 31, 2011.

|8. | DERIVATIVE LIABILITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | As discussed in note 7 above, the Company acquired
      certain mining claims and related rights in the vicinity of the Livengood
      Project located near Fairbanks, Alaska. The aggregate consideration was
      USD 13,500,000 in cash plus an additional contingent payment based on the
      five-year average daily gold price (Average Gold Price) from the date of
      the acquisition. The contingent payment will equal USD 23,148 for every
      dollar that the Average Gold Price exceeds USD 720 per troy ounce. If the
      Average Gold Price is less than USD 720, there will be no additional
      contingent payment. This additional contingent payment is classified as a
      derivative liability and is recognized at FVTPL.                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | At initial recognition on December 13, 2011 the
      derivative liability was valued at USD 23,100,000. The key assumption used
      in the valuation of the derivative is the estimate of the future Average
      Gold Price. The estimate of the future Average Gold Price was determined
      using a forward curve on future gold prices as published by the CME Group.
      The CME Group represents the merger of the Chicago Mercantile Exchange
      (CME), the Chicago Board of Trade (CBOT), the New York Mercantile Exchange
      (NYMEX) and its commodity exchange division, Commodity Exchange, Inc.
      (COMEX). Using this forward curve, the Company estimated an Average Gold
      Price five years from the date of acquisition of USD 1,720 per ounce of
      gold. Based on the inputs and assumptions used in valuing the derivative
      liability, it has been classified as a Level 2 financial instrument as
      defined in note 4 above.

30

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|8. | DERIVATIVE LIABILITY (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | At December 31, 2011 the derivative was revalued using
      the same methodology as above. The Company estimated an Average Gold Price
      over the term of the agreement at December 31, 2011 of USD 1,619 per ounce
      of gold. This estimate of the Average Gold Price resulted in a fair value
      of the derivative liability of USD 20,800,000. As the derivative liability
      is classified as a FVTPL, the change in fair value from initial
      recognition to December 31, 2011 was recognized as a gain in the
      consolidated statements of comprehensive loss.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|9. | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | A reconciliation of income taxes at statutory rates with
      the reported taxes is as follows for the period ended December 31, 2011
      and the year ended May 31, 2011:                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                                           |   |                   |   |   |              |  
| | --------------------------------------------------------- | - | ----------------- | - | - | ------------ | -
| |                                                           |   | December 31, 2011 |   |   | May 31, 2011 |  
| |                                                           |   |                   |   |   |              |  
| |                                                           |   |                   |   |   |              |  
| |                                                           |   |                   |   |   |              |  
| | Loss from continuing operations before
      income taxes | $ | (11,039,887       | ) | $ | (9,557,685   | )
| | Statutory Canadian
      corporate tax rate               |   | 26.50%            |   |   | 27.67%       |  
| |                                                           |   |                   |   |   |              |  
| | Income tax recovery at statutory rates                    | $ | (2,925,570        | ) | $ | (2,644,611   | )
| | Share-based payments                                      |   | 1,980,894         |   |   | 1,216,646    |  
| | Unrecognized items for tax purposes                       |   | (423,885          | ) |   | (282,595     | )
| | Effect of tax rate change                                 |   | 17,655            |   |   | 43,858       |  
| | Difference in tax rates in other jurisdictions            |   | (348,000          | ) |   | (690,466     | )
| | Unrecognized amounts                                      |   | 1,698,906         |   |   | 2,357,168    |  
| |                                                           |   |                   |   |   |              |  
| | Income tax recovery                                       | $ | -                 |   | $ | -            |  

The significant components of the
Companys deferred income tax assets and liabilities are as follows:

| |                                                 |   |                   |   |   |              |  
| | ----------------------------------------------- | - | ----------------- | - | - | ------------ | -
| |                                                 |   | December 31, 2011 |   |   | May 31, 2011 |  
| |                                                 |   |                   |   |   |              |  
| | Deferred income tax assets (liabilities)        |   |                   |   |   |              |  
| | Mineral properties                              | $ | 656,948           |   | $ | 656,966      |  
| | Equipment                                       |   | (4,544            | ) |   | (5,345       | )
| | Marketable securities                           |   | 22,188            |   |   | (22,813      | )
| | Derivative liability                            |   | (510,979          | ) |   | -            |  
| | Charitable donations                            |   | 92,481            |   |   | 85,249       |  
| | Share issue costs                               |   | 972,747           |   |   | 1,171,193    |  
| | Non-capital losses available for future periods |   | 12,321,366        |   |   | 9,966,068    |  
| |                                                 |   |                   |   |   |              |  
| |                                                 |   | 13,550,207        |   |   | 11,851,318   |  
| | Unrecognized deferred tax assets                |   | (13,550,207       | ) |   | (11,851,318  | )
| |                                                 |   |                   |   |   |              |  
| | Deferred income tax asset                       | $ | -                 |   | $ | -            |  

31

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|9. | INCOME TAXES (contd)
|-- | ---------------------

At December 31, 2011, the Company has
available non-capital tax losses for Canadian income tax purposes of
approximately $13,373,000 and net operating losses for US income tax purposes of
approximately $20,687,000 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 |   | 5,475,000  |  |   | 8,817,000     | 
| |      |   |            |  |   |               | 
| |      | $ | 13,373,000 |  | $ | 20,687,000    | 

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 $132,224,000 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. As disclosed in
Note 7, the Company has accounted for the acquisition of Livengood Placers Inc.
as an asset acquisition. Accordingly, $26,154,304 in mineral property
expenditures and $26,229,756 in equity investments has not been recognized for
deferred income tax purposes.

|10. | SHARE CAPITAL                                                      
|--- | -------------------------------------------------------------------
|    |                                                                    
|    | Authorized                                                         
|    |                                                                    
|    | 500,000,000 common shares without par value.                       
|    |                                                                    
|    | Share issuances                                                    
|    |                                                                    
|    | During the seven months ended December 31, 2011, the
      Company:
|    |                                                                    
|    | a)                                                                 
|    |                                                                    
|    | During the year ended May 31, 2011 the Company:                    
|    |                                                                    
|    | a)                                                                 
|    |                                                                    
|    | b)                                                                 

32

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|10. | SHARE CAPITAL (contd)                           
|--- | -------------------------------------------------
|    |                                                  
|    | Share issuances (contd)                         
|    |                                                  
|    | c)                                               
|    |                                                  
|    | d)                                               
|    |                                                  
|    | Warrants                                         
|    |                                                  
|    | Warrant transactions are summarized as
  follows:

| |                                  |  |                   |  |   |                | 
| | -------------------------------- |  | ----------------- |  | - | -------------- | 
| |                                  |  | December 31, 2011 |  |   | May 31, 2011   | 
| |                                  |  |                   |  |   | Weighted       | 
| |                                  |  | Number of         |  |   | Average        | 
| |                                  |  | Warrants          |  |   | Exercise Price | 
| |                                  |  |                   |  |   |                | 
| | Balance, beginning of the period |  | -                 |  | $ | -              | 
| | Issued  agents warrants        |  | -                 |  |   | -              | 
| | Exercised                        |  | -                 |  |   | -              | 
| | Expired                          |  | -                 |  |   | -              | 
| |                                  |  |                   |  |   |                | 
| | Balance, end of
      the period |  | -                 |  | $ | -              | 

There are no warrants outstanding at
December 31, 2011 and May 31, 2011.

Stock options

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.

On November 15, 2011, the Company
granted incentive stock options to an employee to purchase 100,000 common shares
in the capital of the Company. The options are exercisable on or before November
15, 2016 at a price of $5.64 per share. The options will vest as to one-third on
November 15, 2011, one-third on November 15, 2012 and the balance on November
15, 2013.

On August 23, 2011, the Company granted
incentive stock options to an officer and an employee of the Company to purchase
650,000 common shares in the capital of the Company. The options are exercisable
on or before August 23, 2016 at a price of $8.07 per share. The options will
vest as to one-third on August 23, 2011, one-third on August 23, 2012 and the
balance on August 23, 2013.

33

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|10. | SHARE CAPITAL (contd)                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Stock options (contd)                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | On July 28, 2011, the Company granted incentive stock
      options to directors of the Company to purchase 950,000 common shares in
      the capital of the Company. The options are exercisable on or before July
      28, 2013 at a price of $7.47 per share.                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | On June 1, 2011, the Company granted incentive stock
      options to an officer of the Company to purchase 1,000,000 common shares
      in the capital of the Company. The options are exercisable on or before
      May 9, 2016 at a price of $8.35 per share. The options will vest as to
      one-third on June 1, 2011, one-third on May 9, 2012 and the balance on May
      9, 2013.                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | 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.                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | A summary of the status of the stock option plan as of
      December 31, 2011, and May 31, 2011 and changes is presented
  below:                                                                                                                                                                                                                                                                                

| |                                  |  |                    |   |   |                  |  
| | -------------------------------- |  | ------------------ | - | - | ---------------- | -
| |                                  |  | Seven Months Ended |   |   | Year Ended       |  
| |                                  |  | December 31, 2011  |   |   | May 31, 2011     |  
| |                                  |  |                    |   |   | Weighted         |  
| |                                  |  |                    |   |   | Average Exercise |  
| |                                  |  | Number of          |   |   |                  |  
| |                                  |  |                    |   |   | Price            |  
| |                                  |  | Options            |   |   |                  |  
| |                                  |  |                    |   |   |                  |  
| | Balance, beginning of the period |  | 4,600,000          |   | $ | 7.24             |  
| | Granted                          |  | 2,700,000          |   | $ | 7.87             |  
| | Exercised                        |  | (35,000            | ) | $ | (6.57            | )
| | Cancelled/Expired                |  | (50,000            | ) | $ | (6.96            | )
| | Balance, end of the period       |  | 7,215,000          |   | $ | 7.48             |  

The weighted average share price at the
date of exercise for options exercised during the period was $7.88. The weighted
average remaining life of options outstanding at December 31, 2011 was 1.57
years.

| | Stock
      options outstanding are as follows: |   |                   |  |  |              |  |  |             |  |   |                |  |  |           |  | 
| | ----------------------------------------------- | - | ----------------- |  |  | ------------ |  |  | ----------- |  | - | -------------- |  |  | --------- |  | 
| |                                                 |   | December 31, 2011 |  |  | May 31, 2011 | 
| |                                                 |   | Exercise          |  |  | Number of    |  |  |             |  |   |                |  |  | Number of |  | 
| | Expiry Date                                     |   | Price             |  |  | Options      |  |  | Exercisable |  |   | Exercise Price |  |  | Options   |  | 
| |                                                 |   |                   |  |  |              |  |  |             |  |   |                |  |  |           |  | 
| | January 12, 2012                                | $ | 7.95              |  |  | 250,000      |  |  | 250,000     |  | $ | 7.95           |  |  | 250,000   |  | 
| | April 14, 2012                                  | $ | 7.34              |  |  | 2,635,000    |  |  | 2,635,000   |  | $ | 7.34           |  |  | 2,660,000 |  | 
| | August 19, 2012                                 | $ | 6.57              |  |  | 1,365,000    |  |  | 1,365,000   |  | $ | 6.57           |  |  | 1,425,000 |  | 
| | January 10, 2013                                | $ | 9.15              |  |  | 265,000      |  |  | 198,750     |  | $ | 9.15           |  |  | 265,000   |  | 
| | July 28, 2013                                   | $ | 7.47              |  |  | 950,000      |  |  | 950,000     |  | $ | -              |  |  | -         |  | 
| | May 9, 2016                                     | $ | 8.35              |  |  | 1,000,000    |  |  | 333,333     |  | $ | -              |  |  | -         |  | 
| | August 23, 2016                                 | $ | 8.07              |  |  | 650,000      |  |  | 216,667     |  | $ | -              |  |  | -         |  | 
| | November 15,
      2016                         | $ | 5.64              |  |  | 100,000      |  |  | 33,333      |  | $ | -              |  |  | -         |  | 
| |                                                 |   |                   |  |  |              |  |  |             |  |   |                |  |  |           |  | 
| |                                                 |   |                   |  |  | 7,215,000    |  |  | 5,982,083   |  |   |                |  |  | 4,600,000 |  | 

34

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|10. | SHARE CAPITAL (contd)                                                                                                                                                                                                                                                                                                                                                     
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                            
|    | Share-based payments                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                            
|    | During the period ended December 31, 2011, the Company
      granted 2,700,000 stock options with a fair value of $10,894,938,
      calculated using the Black-Scholes option pricing model. Share-based
      payment charges for the seven months ended December 31, 2011 totaled
      $7,475,071 for continuing operations and $nil for discontinued
      operations.
|    |                                                                                                                                                                                                                                                                                                                                                                            
|    | During the year ended May 31, 2011, the Company granted
      1,760,000 stock options with a fair value of $4,648,591, calculated using
      the Black-Scholes option pricing model. Share-based payment charges for
      the year ended May 31, 2011 totaled $3,575,815 for continuing operations
      and $756,202 for discontinued operations.                       
|    |                                                                                                                                                                                                                                                                                                                                                                            
|    | The following weighted average assumptions were used for
      the Black-Scholes option pricing model
calculations:                                                                                                                                                                                                                                                        

| |                          |   |              |  |   |         | 
| | ------------------------ | - | ------------ |  | - | ------- | 
| |                          |   | December 31, |  |   | May 31, | 
| |                          |   | 2011         |  |   | 2011    | 
| |                          |   |              |  |   |         | 
| | Expected life of options |   | 4 years      |  |   | 2 years | 
| | Risk-free interest rate  |   | 1.77%        |  |   | 1.42%   | 
| | Expected volatility      |   | 71.80%       |  |   | 68.91%  | 
| | Dividend rate            |   | 0.00%        |  |   | 0.00%   | 
| | Exercise price           | $ | 7.87         |  | $ | 6.96    | 

The expected volatility used in the
Black-Scholes option pricing model is based on the historical volatility of the
Companys shares.

Share-based payment charges of
$7,475,071 (May 31, 2011 - $3,575,815) were allocated as follows for continuing
operations:

| |                                            |   |               |  |   |             |  |   |                  | 
| | ------------------------------------------ | - | ------------- |  | - | ----------- |  | - | ---------------- | 
| |                                            |   | Before        |  |   |             |  |   |                  | 
| |                                            |   | allocation of |  |   |             |  |   | After allocation | 
| |                                            |   | share-based   |  |   | Share-based |  |   | of share-based   | 
| |                                            |   | payment       |  |   | payment     |  |   | payment          | 
| | Seven months
      ended December 31, 2011 |   | charges       |  |   | charges     |  |   | charges          | 
| |                                            |   |               |  |   |             |  |   |                  | 
| | Consulting                                 | $ | 345,886       |  | $ | 1,461,677   |  | $ | 1,807,563        | 
| | Investor relations                         |   | 253,048       |  |   | 69,729      |  |   | 322,777          | 
| | Professional fees                          |   | 631,169       |  |   | 18,594      |  |   | 649,763          | 
| | Wages and benefits                         |   | 4,056,165     |  |   | 5,925,071   |  |   | 9,981,236        | 
| |                                            |   |               |  |   |             |  |   |                  | 
| |                                            |   |               |  | $ | 7,475,071   |  |   |                  | 

35

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|10. | SHARE CAPITAL (contd) Share-based payments
      (contd)
|--- | ----------------------------------------------------------

| |                               |   |               |  |   |                     |  |   |               | 
| | ----------------------------- | - | ------------- |  | - | ------------------- |  | - | ------------- | 
| |                               |   | Before        |  |   |                     |  |   | After         | 
| |                               |   | allocation of |  |   |                     |  |   | allocation of | 
| |                               |   | share-based   |  |   |                     |  |   | share-based   | 
| |                               |   | payment       |  |   | Share-based payment |  |   | payment       | 
| | Year ended May
      31, 2011 |   | charges       |  |   | charges             |  |   | charges       | 
| |                               |   |               |  |   |                     |  |   |               | 
| | Consulting                    | $ | 559,252       |  | $ | 1,010,894           |  | $ | 1,570,146     | 
| | Investor relations            |   | 781,692       |  |   | 457,516             |  |   | 1,239,208     | 
| | Professional fees             |   | 580,049       |  |   | 75,570              |  |   | 655,619       | 
| | Wages and benefits            |   | 3,473,754     |  |   | 2,031,835           |  |   | 5,505,589     | 
| |                               |   |               |  |   |                     |  |   |               | 
| |                               |   |               |  | $ | 3,575,815           |  |   |               | 

|11. | RELATED PARTY TRANSACTIONS AND BALANCES                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                             
|    | During the seven month period ended December 31, 2011 and
      the year ended May 31, 2011, the Company entered into the following
      transactions with related parties:
|    |                                                                                                                                                                             
|    | Management compensation                                                                                                                                                     
|    |                                                                                                                                                                             
|    | Key management personnel compensation
  comprised:                                                                                                                          

| |                            |   |                   |  |   |              | 
| | -------------------------- | - | ----------------- |  | - | ------------ | 
| |                            |   | December 31, 2011 |  |   | May 31, 2011 | 
| | Fees, wages and benefits   | $ | 2,047,224         |  | $ | 2,029,370    | 
| | Share-based
      payments |   | 6,748,799         |  |   | 2,333,401    | 
| |                            | $ | 8,796,023         |  | $ | 4,362,771    | 

Transactions with other related
parties

Paid or accrued $22,399 (May 31, 2011 -
$56,795) in rent and administration to a company with common officers and
directors.

Paid or accrued $6,000 (May 31, 2011 -
$nil) in rent to an officer.

At December 31, 2011, included in
accounts payable and accrued liabilities was $10,946 (May 31, 2011 - $nil; June
1, 2010  $19,760) in expenses owing to officers of the Company and $53,988 (May
31, 2011 - $10,091; June 1, 2010  $8,790) to companies related by common
directors and officers. Included in share issuance costs was $nil (May 31, 2011
- $63,333) 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.

36

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|11. | RELATED PARTY TRANSACTIONS AND BALANCES
      (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | 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 once to twice) 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.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|12. | SEGMENTED INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The Company has chosen to organise its segments based on
      geographic location. The following tables present selected financial
      information by segment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |                                                           |   |             |  |   |               |  |   |             | 
| | --------------------------------------------------------- | - | ----------- |  | - | ------------- |  | - | ----------- | 
| |                                                           |   | Canada      |  |   | United States |  |   | Total       | 
| |                                                           |   |             |  |   |               |  |   |             | 
| | December 31, 2011                                         |   |             |  |   |               |  |   |             | 
| | Exploration and evaluation assets  continuing operations | $ | -           |  | $ | 158,041,441   |  | $ | 158,041,441 | 
| | Property and equipment                                    |   | 16,514      |  |   | 108,230       |  |   | 124,744     | 
| | Current assets                                            |   | 47,907,054  |  |   | 8,692,285     |  |   | 56,599,339  | 
| | Total assets                                              | $ | 47,923,568  |  | $ | 166,841,956   |  | $ | 214,765,524 | 
| |                                                           |   |             |  |   |               |  |   |             | 
| | Current liabilities                                       | $ | 310,484     |  | $ | 10,184,565    |  | $ | 10,495,049  | 
| | Non-current
      liabilities                             |   | -           |  |   | 21,153,600    |  |   | 21,153,600  | 
| | Total liabilities                                         | $ | 310,484     |  | $ | 31,338,165    |  | $ | 31,648,649  | 
| |                                                           |   |             |  |   |               |  |   |             | 
| | May 31, 2011                                              |   |             |  |   |               |  |   |             | 
| | Exploration and evaluation assets  continuing operations | $ | -           |  | $ | 71,103,123    |  | $ | 71,103,123  | 
| | Property and equipment                                    |   | 16,753      |  |   | 126,818       |  |   | 143,571     | 
| | Current assets                                            |   | 110,544,083 |  |   | 1,847,768     |  |   | 112,391,851 | 
| | Total assets                                              | $ | 110,560,836 |  | $ | 73,077,709    |  | $ | 183,638,545 | 
| |                                                           |   |             |  |   |               |  |   |             | 
| | Current liabilities                                       | $ | 181,890     |  | $ | 3,855,538     |  | $ | 4,037,428   | 
| | Non-current
      liabilities                             |   | -           |  |   | -             |  |   | -           | 
| | Total liabilities                                         | $ | 181,890     |  | $ | 3,855,538     |  | $ | 4,037,428   | 

37

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|12. | SEGMENTED INFORMATION
(contd)
|--- | ------------------------------

| | June 1, 2010                                              |   |            |  |   |            |  |   |            | 
| | --------------------------------------------------------- | - | ---------- |  | - | ---------- |  | - | ---------- | 
| | Exploration and evaluation assets  continuing operations | $ | 1          |  | $ | 39,500,277 |  | $ | 39,500,278 | 
| | Exploration and evaluation assets 
      discontinued    |   |            |  |   |            |  |   |            | 
| | operations                                                |   | -          |  |   | 11,672,708 |  |   | 11,672,708 | 
| | 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 |  | $ | 95,471,473 | 
| |                                                           |   |            |  |   |            |  |   |            | 
| | Current liabilities                                       | $ | 386,246    |  | $ | 801,619    |  | $ | 1,187,865  | 
| | Current liabilities  discontinued operations             |   | -          |  |   | 85,094     |  |   | 85,094     | 
| | Non-current liabilities                                   |   | -          |  |   | -          |  |   | -          | 
| | Total liabilities                                         | $ | 386,246    |  | $ | 886,713    |  | $ | 1,272,959  | 

| |                                                                            |   |                   |   |   |              |  
| | -------------------------------------------------------------------------- | - | ----------------- | - | - | ------------ | -
| |                                                                            |   | December 31, 2011 |   |   | May 31, 2011 |  
| | Net loss from continuing operations for the
      period  Canada          | $ | (8,490,228        | ) | $ | (5,218,523   | )
| | Net loss from continuing operations for the period - United
      States   |   | (2,549,659        | ) |   | (4,339,162   | )
| | Net loss from discontinued operations for
      the period  Canada        |   | -                 |   |   | (844,813     | )
| | Net loss from
      discontinued operations for the period - United States |   | -                 |   |   | (89,344      | )
| |                                                                            |   |                   |   |   |              |  
| | Net loss for the
      period                                              | $ | (11,039,887       | ) | $ | (10,491,842  | )

|13. | 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 period ended December 31, 2011. The Company
      is not subject to externally imposed capital
  requirements.                                                                                                                                                                                                                                                                                          

38

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|14. | SUBSIDIARIES
|--- | ------------

Significant subsidiaries
are:

| |                                 |  |               |  |  |                           |  |  |                     | 
| | ------------------------------- |  | ------------- |  |  | ------------------------- |  |  | ------------------- | 
| |                                 |  |               |  |  |                           |  |  | ITHs effective     | 
| |                                 |  | Country of    |  |  | Principal                 |  |  | interest for        | 
| |                                 |  | Incorporation |  |  | Activity                  |  |  | 2011
      and 2010 | 
| |                                 |  |               |  |  |                           |  |  |                     | 
| | Tower Hill Mines, Inc.          |  | USA           |  |  | Exploration
      company |  |  | 100%                | 
| | Tower Hill Mines
      (US) LLC |  | USA           |  |  | Exploration company       |  |  | 100%                | 

|15. | COMMITMENTS
|--- | -----------
|    |            
|    | a)         
|    |            
|    | b)         

| |                           |   |         | 
| | ------------------------- | - | ------- | 
| | 2012                      | $ | 278,659 | 
| | 2013                      |   | 219,139 | 
| | 2014                      |   | 107,000 | 
| | 2015                      |   | 6,196   | 
| | 2016                      |   | 6,196   | 
| | 2017 and
      thereafter |   | 12,392  | 
| |                           |   |         | 
| |                           | $ | 629,582 | 

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

| |                                                                                              |   |                   |  |   |              | 
| | -------------------------------------------------------------------------------------------- | - | ----------------- |  | - | ------------ | 
| |                                                                                              |   | December 31, 2011 |  |   | May 31, 2011 | 
| |                                                                                              |   |                   |  |   |              | 
| | Interest paid                                                                                | $ | -                 |  | $ | -            | 
| | Income taxes paid                                                                            | $ | -                 |  | $ | -            | 
| |                                                                                              |   |                   |  |   |              | 
| | Non-cash investing and financing transactions 
      continuing operations:                 |   |                   |  |   |              | 
| | Accounts payable and accrued
      liabilities included in exploration and evaluation assets | $ | 10,012,833        |  | $ | 3,676,106    | 
| | Derivative liability included in exploration and evaluation assets                           | $ | 23,508,340        |  | $ | -            | 
| |                                                                                              |   |                   |  |   |              | 
| | Non-cash investing and financing transactions 
      discontinued operations:               |   |                   |  |   |              | 
| | Shares issued to acquire
      long-term assets related to discontinued operations           | $ | -                 |  | $ | -            | 
| | Accounts payable and accrued liabilities included in exploration and
      evaluation assets | $ | -                 |  | $ | -            | 

39

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|17. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Subsequent to December 31, 2011, the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|18. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | As stated in note 3, these are the Companys first
      consolidated financial statements prepared in accordance with IFRS. An
      explanation of how the transition from previous Canadian GAAP to IFRS has
      affected the Companys financial position and comprehensive loss is set
      out in this note.                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The accounting policies set out in note 3 have been
      applied in preparing the consolidated financial statements as at and for
      the seven month period ended December 31, 2011, the comparative
      information presented in these financial statements as at and for the year
      ended May 31, 2011, and in the preparation of an opening IFRS Statement of
      Financial Position at June 1, 2010 (the Companys date of
    transition).                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | First time adoption of IFRS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Companys consolidated financial statements for the
      seven month period ending December 31, 2011 are the first annual financial
      statements that will be prepared in accordance with IFRS. The Company has
      adopted IFRS on June 1, 2011 with a transition date of June 1, 2010. Under
      IFRS 1, First time adoption of International Financial Reporting
      Standards(IFRS 1), the IFRS standards are applied retrospectively
      at the transition date with all adjustments to assets and liabilities as
      stated under Canadian GAAP taken to deficit, and IFRS 1 providing for
      certain optional and mandatory exemptions to this principle.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Below are the adjustments necessary for the IFRS
      transition, including exemptions taken at the transition date:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

40

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|18. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS (contd)
|--- | ------------------------------------------------------------------------

First time adoption of IFRS
(contd)

Impact on Consolidated Financial
Statements

May 31,
    
    
    June 1,2011
    
    
    2010Contributed surplus
    $
    321,000
    
    $
    -Adjustment to deficit
    $
    (321,000
    )
    $
    -Adjustment to share-based payment charges
    $
    321,000
    
    $
    -


| | b) | Business combinations                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | IFRS 1 allows that a first-time adopter may elect not to
      apply IFRS 3 Business Combinations (IFRS 3) retrospectively to business
      combinations prior to the date of transition, avoiding the requirement to
      restate prior business combinations. The Company has elected to only apply
      IFRS 3 to business combinations that occur on or after June 1, 2010, of
      which there were none.                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | c) | Marketable securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | IAS 39 permits a financial asset to be designated on
      initial recognition as available-for-sale or a financial instrument
      (provided it meets certain criteria) to be designated as a financial asset
      or financial liability at fair value through profit or loss. The Company
      has taken this election as at the transition date.                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | d) | Cumulative translation differences                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | IFRS 1 allows first-time adopter to elect to deem all
      cumulative translation differences to be zero at the date of transition.
      The Company has elected this exemption and as such all cumulative
      translations amounts to June 1, 2010 have been included in the
    deficit.                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | Functional and presentation currency                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | The functional currency of TH Alaska, LPI, and TH US is
      the US dollars and for all other entities within the Group, the functional
      currency is the Canadian dollar at the transition date of June 1, 2010.
      The consolidated financial statements are presented in Canadian Dollars
      (CAD) which is the Groups presentation currency.                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | Translation of transactions and balances                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | Foreign currency transactions are translated into the
      functional currency using the exchange rates prevailing at the dates of
      the transactions or valuation where items are re-measured. Foreign
      exchange gains and losses resulting from the settlement of such
      transactions and from the translation at period end exchange rates of
      monetary assets and liabilities denominated in foreign currencies are
      recognized in the Statement of Comprehensive
Loss.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | Group companies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | The results and financial position of all the Group
      entities (none of which has the currency of a hyper- inflationary economy)
      that have a functional currency different from the presentation currency
      are translated into the presentation currency as follows:                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

41

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|18. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS (contd)
      First time adoption of IFRS (contd)
|--- | -------------------------------------------------------------------------------------------------------------------

| |    |                                              
| | -- | ---------------------------------------------
| | d) | Cumulative translation differences
  (contd)

Group companies(contd)

- Income and expenses for each Statement of Comprehensive Loss are translated at average exchange rates
  (unless this average is not a reasonable approximation of the cumulative
  effect of the rates prevailing on the transaction dates, in which case income
  and expenses are translated at the rate on the dates of the transactions);
- Equity transactions are translated using the
  exchange rate at the date of the transaction; and
- All resulting exchange differences are recognized
  in other comprehensive income and reported as a separate component of equity.

On consolidation, exchange differences
arising from the translation of functional to presentation currency are taken to
Accumulative Other Comprehensive Income.

IAS 21  The effects of Changes in
Foreign Exchange Ratesdiffers from the Canadian GAAP equivalent, applied
by the Group until May 31, 2011. IAS 21 requires an entity to measure its
assets, liabilities, revenue and expenses in its functional currency. It has
been determined that as at the transition date of June 1, 2010, TH Alaska and TH
US is US dollars (USD) and for all other entities within the Group, the
functional currency is Canadian dollars. Prior to the adoption of IFRS, the
functional currency of the Group was the CAD.

Under IAS 21, the assets and
liabilities of the Group are translated from TH Alaska and TH US functional
currency USD, to the presentation currency at the reporting date. The income and
expenses are translated to the Groups presentation currency, which is CAD at
the dates of the transactions. Foreign currency differences are recognized
directly in other comprehensive income within the foreign currency translation
reserve.

Impact on Consolidated Financial
Statements

May 31,
    
    
    June 1,2011
    
    
    2010Exploration and evaluation assets
    $
    (9,066,545
    )
    $
    (2,349,207
    )Long-term assets related to discontinued operations
    $
    -
    
    $
    (572,982
    )Accumulated to other comprehensive income
    $
    (6,767,665
    )
    $
    -Adjustment to
      deficit
    $
    (2,298,880
    )
    $
    (2,922,189
    )


| | e) | Fair value as deemed cost                                                                                                                                                                                                                                                                                                                                                   
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                             
| |    | The Company may elect among two options when measuring
      the value of its assets under IFRS. It may elect, on an asset by asset
      basis, to use either historical cost as measured under retrospective
      application of IFRS or fair value of an asset at the opening balance sheet
      date. The Company has elected to use historical cost for its
  assets.
| |    |                                                                                                                                                                                                                                                                                                                                                                             
| | f) | Consolidated and Separate Financial Statements                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                             
| |    | In accordance with IFRS 1, if a company elects to apply
      IFRS 3 Business Combinations retrospectively, IAS 27 Consolidated and
      Separate Financial Statements must also be applied retrospectively. As the
      Company elected to apply IFRS 3 prospectively, the Company has applied IAS
      27 prospectively.                                               

42

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|18. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS (contd)                                                                                                                                                           
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                    
|    | First time adoption of IFRS (contd)                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                    
|    | g)                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                    
|    | Reconciliation to previously reported financial
      statements                                                                                                                                                                   
|    |                                                                                                                                                                                                                                    
|    | A reconciliation of the above noted changes is included
      in these following Consolidated Statements of Financial Position and
      Consolidated Statements of Comprehensive Loss for the dates and periods
      noted below.

- Transitional Consolidated Statement of Financial
  Position Reconciliation  June 1, 2010
- Consolidated Statement of Financial Position
  Reconciliation  May 31, 2011.
- Consolidated Statement of Comprehensive Loss
  Reconciliation  May 31, 2011.

As there have been no adjustments to
net cash flows, no reconciliation of the Statement of Cash Flows has been
prepared.

43

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|18. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS (contd)
      Reconciliation to previously reported financial
      statements (contd)
      Transition Consolidated Statement of Financial
      Position Reconciliation  June 1, 2010
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                           |   |             |   |   |               |   |  |     |  |       |                |  
| | --------------------------------------------------------- | - | ----------- | - | - | ------------- | - |  | --- |  | ----- | -------------- | -
| |                                                           |   |             |   |   | Effect of     |   |  |     |  |       |                |  
| |                                                           |   | Canadian    |   |   | Transition to |   |  |     |  |       |                |  
| |                                                           |   | GAAP        |   |   | IFRS          |   |  | Ref |  |       | IFRS           |  
| |                                                           |   |             |   |   |               |   |  |     |  |       |                |  
| | ASSETS                                                    |   |             |   |   |               |   |  |     |  |       |                |  
| |                                                           |   |             |   |   |               |   |  |     |  |       |                |  
| | Current assets                                            |   |             |   |   |               |   |  |     |  |       |                |  
| | Cash and cash equivalents                                 | $ | 43,460,324  |   | $ | -             |   |  |     |  | **$** | **43,460,324** |  
| | Marketable securities                                     |   | 360,000     |   |   | -             |   |  |     |  |       | 360,000        |  
| | Accounts receivable                                       |   | 110,214     |   |   | -             |   |  |     |  |       | 110,214        |  
| | Prepaid expenses                                          |   | 274,246     |   |   | -             |   |  |     |  |       | 274,246        |  
| | Current assets related to discontinued operations         |   | 13,663      |   |   | -             |   |  |     |  |       | 13,663         |  
| |                                                           |   |             |   |   |               |   |  |     |  |       |                |  
| | Total current assets                                      |   | 44,218,447  |   |   | -             |   |  |     |  |       | 44,218,447     |  
| |                                                           |   |             |   |   |               |   |  |     |  |       |                |  
| | Property and equipment                                    |   | 80,040      |   |   | -             |   |  |     |  |       | 80,040         |  
| | Exploration and evaluations assets                        |   | 41,849,485  |   |   | (2,349,207    | ) |  | d)  |  |       | 39,500,278     |  
| | Long-term
      assets related to discontinued operations |   | 12,245,690  |   |   | (572,982      | ) |  | d)  |  |       | 11,672,708     |  
| |                                                           |   |             |   |   |               |   |  |     |  |       |                |  
| | Total
      assets                                        | $ | 98,393,662  |   | $ | (2,922,189    | ) |  |     |  | **$** | **95,471,473** |  
| |                                                           |   |             |   |   |               |   |  |     |  |       |                |  
| | LIABILITIES AND SHAREHOLDERS'
      EQUITY                |  
| |                                                           |   |             |   |   |               |   |  |     |  |       |                |  
| | Current liabilities                                       |   |             |   |   |               |   |  |     |  |       |                |  
| | Accounts payable and accrued
      liabilities            | $ | 1,187,865   |   | $ | -             |   |  |     |  | **$** | **1,187,865**  |  
| | Current liabilities of discontinued operations            |   | 85,094      |   |   | -             |   |  |     |  |       | 85,094         |  
| |                                                           |   |             |   |   |               |   |  |     |  |       |                |  
| | Total
      liabilities                                   |   | 1,272,959   |   |   | -             |   |  |     |  |       | 1,272,959      |  
| |                                                           |   |             |   |   |               |   |  |     |  |       |                |  
| | Shareholders' equity                                      |   |             |   |   |               |   |  |     |  |       |                |  
| | Share capital                                             |   | 124,277,370 |   |   | -             |   |  |     |  |       | 124,277,370    |  
| | Contributed surplus                                       |   | 14,240,223  |   |   | -             |   |  |     |  |       | 14,240,223     |  
| | Accumulated other
      comprehensive loss                |   | -           |   |   | -             |   |  |     |  |       | -              |  
| | Deficit                                                   |   | (41,396,890 | ) |   | (2,922,189    | ) |  | d)  |  |       | (44,319,079    | )
| |                                                           |   |             |   |   |               |   |  |     |  |       |                |  
| | Total
      shareholders equity                          |   | 97,120,703  |   |   | (2,922,189    | ) |  |     |  |       | 94,198,514     |  
| |                                                           |   |             |   |   |               |   |  |     |  |       |                |  
| | Total
      liabilities and shareholders equity          | $ | 98,393,662  |   | $ | (2,922,189    | ) |  |     |  | **$** | **95,471,473** |  

44

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|18. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS (contd)
|--- | ------------------------------------------------------------------------

Reconciliation to previously
reported financial statements (contd)

Consolidated Statement of Financial
Position Reconciliation  May 31, 2011

| |                                                           |   |             |   |   |               |   |  |       |  |   |             |  
| | --------------------------------------------------------- | - | ----------- | - | - | ------------- | - |  | ----- |  | - | ----------- | -
| |                                                           |   |             |   |   | Effect of     |   |  |       |  |   |             |  
| |                                                           |   | Canadian    |   |   | Transition to |   |  |       |  |   |             |  
| |                                                           |   | GAAP        |   |   | IFRS          |   |  | Ref   |  |   | IFRS        |  
| |                                                           |   |             |   |   |               |   |  |       |  |   |             |  
| | ASSETS                                                    |   |             |   |   |               |   |  |       |  |   |             |  
| |                                                           |   |             |   |   |               |   |  |       |  |   |             |  
| | Current assets                                            |   |             |   |   |               |   |  |       |  |   |             |  
| | Cash and cash equivalents                                 | $ | 111,165,126 |   | $ | -             |   |  |       |  | $ | 111,165,126 |  
| | Marketable securities                                     |   | 662,500     |   |   | -             |   |  |       |  |   | 662,500     |  
| | Accounts receivable                                       |   | 185,733     |   |   | -             |   |  |       |  |   | 185,733     |  
| | Prepaid expenses                                          |   | 378,492     |   |   | -             |   |  |       |  |   | 378,492     |  
| | Current assets related to discontinued operations         |   | -           |   |   | -             |   |  |       |  |   | -           |  
| |                                                           |   |             |   |   |               |   |  |       |  |   |             |  
| | Total current assets                                      |   | 112,391,851 |   |   | -             |   |  |       |  |   | 112,391,851 |  
| |                                                           |   |             |   |   |               |   |  |       |  |   |             |  
| | Property and equipment                                    |   | 143,571     |   |   | -             |   |  |       |  |   | 143,571     |  
| | Exploration and evaluations assets                        |   | 80,169,668  |   |   | (9,066,545    | ) |  | d)    |  |   | 71,103,123  |  
| | Long-term
      assets related to discontinued operations |   | -           |   |   | -             |   |  |       |  |   | -           |  
| |                                                           |   |             |   |   |               |   |  |       |  |   |             |  
| | Total
      assets                                        | $ | 192,705,090 |   | $ | (9,066,545    | ) |  |       |  | $ | 183,638,545 |  
| |                                                           |   |             |   |   |               |   |  |       |  |   |             |  
| | LIABILITIES AND SHAREHOLDERS'
      EQUITY                |  
| |                                                           |   |             |   |   |               |   |  |       |  |   |             |  
| | Current liabilities                                       |   |             |   |   |               |   |  |       |  |   |             |  
| | Accounts payable and accrued
      liabilities            | $ | 4,037,428   |   | $ | -             |   |  |       |  | $ | 4,037,428   |  
| | Current liabilities of discontinued operations            |   | -           |   |   | -             |   |  |       |  |   | -           |  
| |                                                           |   |             |   |   |               |   |  |       |  |   |             |  
| | Total
      liabilities                                   |   | 4,037,428   |   |   | -             |   |  |       |  |   | 4,037,428   |  
| |                                                           |   |             |   |   |               |   |  |       |  |   |             |  
| | Shareholders' equity                                      |   |             |   |   |               |   |  |       |  |   |             |  
| | Share capital                                             |   | 215,544,180 |   |   | -             |   |  |       |  |   | 215,544,180 |  
| | Contributed surplus                                       |   | 12,967,996  |   |   | 321,000       |   |  | a)    |  |   | 13,288,996  |  
| | Accumulated other
      comprehensive loss                |   | -           |   |   | (6,767,665    | ) |  | d)    |  |   | (6,767,665  | )
| | Deficit                                                   |   | (39,844,514 | ) |   | (2,619,880    | ) |  | a) d) |  |   | (42,464,394 | )
| |                                                           |   |             |   |   |               |   |  |       |  |   |             |  
| | Total
      shareholders equity                          |   | 188,667,662 |   |   | (9,066,545    | ) |  |       |  |   | 179,601,117 |  
| |                                                           |   |             |   |   |               |   |  |       |  |   |             |  
| | Total
      liabilities and shareholders equity          | $ | 192,705,090 |   | $ | (9,066,545    | ) |  |       |  | $ | 183,638,545 |  

45

---

|INTERNATIONAL TOWER HILL MINES LTD.           
|----------------------------------------------
|(An Exploration Stage Company)                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Seven Months Ended December 31, 2011 and      
|Year Ended May 31, 2011                       
|(Expressed in
      Canadian dollars)         

|18. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS (contd)
      Reconciliation to previously reported financial
      statements (contd)
      Consolidated Statement of Comprehensive Loss
      Reconciliation  May 31, 2011
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                           |   |               |   |   |               |   |  |     |  |   |             |  
| | ------------------------------------------------------------------------- | - | ------------- | - | - | ------------- | - |  | --- |  | - | ----------- | -
| |                                                                           |   |               |   |   | Effect of     |   |  |     |  |   |             |  
| |                                                                           |   |               |   |   | Transition to |   |  |     |  |   |             |  
| |                                                                           |   | Canadian GAAP |   |   | IFRS          |   |  | Ref |  |   | IFRS        |  
| |                                                                           |   |               |   |   |               |   |  |     |  |   |             |  
| | Expenses                                                                  |   |               |   |   |               |   |  |     |  |   |             |  
| | Administration                                                            | $ | 31,544        |   | $ | -             |   |  |     |  | $ | 31,544      |  
| | Charitable donations                                                      |   | 64,637        |   |   | -             |   |  |     |  |   | 64,637      |  
| | Consulting fees                                                           |   | 1,570,146     |   |   | -             |   |  |     |  |   | 1,570,146   |  
| | Depreciation                                                              |   | 42,375        |   |   | -             |   |  |     |  |   | 42,375      |  
| | Insurance                                                                 |   | 215,228       |   |   | -             |   |  |     |  |   | 215,228     |  
| | Investor relations                                                        |   | 1,148,359     |   |   | 90,849        |   |  | a)  |  |   | 1,239,208   |  
| | Office and miscellaneous                                                  |   | 281,840       |   |   | -             |   |  |     |  |   | 281,840     |  
| | Professional fees                                                         |   | 667,405       |   |   | (11,786       | ) |  | a)  |  |   | 655,619     |  
| | Property investigations                                                   |   | 2,557         |   |   | -             |   |  |     |  |   | 2,557       |  
| | Regulatory                                                                |   | 188,121       |   |   | -             |   |  |     |  |   | 188,121     |  
| | Rent                                                                      |   | 167,697       |   |   | -             |   |  |     |  |   | 167,697     |  
| | Telephone                                                                 |   | 49,688        |   |   | -             |   |  |     |  |   | 49,688      |  
| | Travel                                                                    |   | 210,192       |   |   | -             |   |  |     |  |   | 210,192     |  
| | Wages and benefits                                                        |   | 5,263,652     |   |   | 241,937       |   |  | a)  |  |   | 5,505,589   |  
| |                                                                           |   |               |   |   |               |   |  |     |  |   |             |  
| | Loss before other items                                                   |   | (9,903,441    | ) |   | (321,000      | ) |  |     |  |   | (10,224,441 | )
| |                                                                           |   |               |   |   |               |   |  |     |  |   |             |  
| | Other items                                                               |   |               |   |   |               |   |  |     |  |   |             |  
| | Gain on foreign exchange                                                  |   | 41,225        |   |   | 50,327        |   |  | d)  |  |   | 91,552      |  
| | Interest income                                                           |   | 675,146       |   |   | -             |   |  |     |  |   | 675,146     |  
| | Income from mineral property earn-in                                      |   | 311,312       |   |   | -             |   |  |     |  |   | 311,312     |  
| | Spin-out cost                                                             |   | (593,754      | ) |   | -             |   |  |     |  |   | (593,754    | )
| | Unrealized gain on marketable securities                                  |   | 182,500       |   |   | -             |   |  |     |  |   | 182,500     |  
| |                                                                           |   |               |   |   |               |   |  |     |  |   |             |  
| |                                                                           |   | 616,429       |   |   | 50,327        |   |  |     |  |   | 666,756     |  
| |                                                                           |   |               |   |   |               |   |  |     |  |   |             |  
| | Loss from continuing operations                                           |   | (9,287,012    | ) |   | (270,673      | ) |  |     |  |   | (9,557,685  | )
| | Loss from discontinued operations                                         |   | (934,157      | ) |   | -             |   |  |     |  |   | (934,157    | )
| |                                                                           |   |               |   |   |               |   |  |     |  |   |             |  
| | Net loss for the year                                                     |   | (10,221,169   | ) |   | (270,673      | ) |  |     |  |   | (10,491,842 | )
| |                                                                           |   |               |   |   |               |   |  |     |  |   |             |  
| | Other comprehensive loss                                                  |   |               |   |   |               |   |  |     |  |   |             |  
| | Exchange difference on translating foreign operations                     |   | -             |   |   | (6,767,665    | ) |  | d)  |  |   | (6,767,665  | )
| |                                                                           |   |               |   |   |               |   |  |     |  |   |             |  
| | Total other
      comprehensive loss                                      |   | -             |   |   | (6,767,665    | ) |  |     |  |   | (6,767,665  | )
| |                                                                           |   |               |   |   |               |   |  |     |  |   |             |  
| | Comprehensive
      loss for the year                                     | $ | (10,221,169   | ) | $ | (7,038,338    | ) |  |     |  | $ | (17,259,507 | )
| |                                                                           |   |               |   |   |               |   |  |     |  |   |             |  
| | Basic and fully diluted loss per share from
      continuing operations   | $ | (0.12         | ) | $ | -             |   |  |     |  | $ | (0.12       | )
| | Basic and fully diluted loss per share from
      discontinued operations | $ | (0.01         | ) | $ | -             |   |  |     |  | $ | (0.01       | )
| |                                                                           |   |               |   |   |               |   |  |     |  |   |             |  
| | Weighted average number of shares outstanding                             |   | 77,550,644    |   |   | -             |   |  |     |  |   | 77,550,644  |  

46

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