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UNITED STATESSECURITIES
AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________to
_______________

0-21777(Commission File Number)

GOLDEN QUEEN MINING CO.
LTD.(Name of registrant in its charter)

|British Columbia, Canada                                             | Not Applicable     
|-------------------------------------------------------------------- | -------------------
|(State or other jurisdiction                                         | (IRS Employer      
|of incorporation or organization)                                    | Identification No.)
|                                                                     |                    
|6411 Imperial Avenue, West Vancouver, British
      Columbia, Canada | V7W 2J5            
|(Address of principal executive offices)                             | (Zip Code)         

Issuers telephone number: (604) 921-7570

Securities registered under Section 12(b) of the Exchange Act:
None

Securities registered under section 12(g) of the Exchange Act:
Common shares without par value

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-K
or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filed [ ] Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such common

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equity, as of the last business day of the registrants most
recently completed second fiscal quarter: $63,020,861 as at June 30,
2008.

Indicate the number of shares outstanding of each of the
registrants classes of common equity, as of the latest practicable date:
85,640,883 common shares as at March 1, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for the Annual
Meeting of Stockholders are incorporated by reference into Part III of this Form
10-K, which Proxy Statement is to be filed within 120 days after the end of the
registrant's fiscal year ended December 31, 2008.

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Form 10-K

Table of Contents

|Part       | Item No. |                                                                                           
|---------- | -------- | ------------------------------------------------------------------------------------------
|           |          |                                                                                           
|I          | 1        | Business                                                                                  
|           | 1A       | Risk Factors                                                                              
|           | 1B       | Unresolved Staff Comments                                                                 
|           | 2        | Properties                                                                                
|           | 3        | Legal Proceedings                                                                         
|           | 4        | Submission of Matters to a Vote of Security
      Holders                                 
|II         | 5        | Market for Common Equity,
      Related Stockholder Matters and Issuer Purchases of Equity
|           |          | Securities                                                                                
|           | 6        | Selected Financial Data                                                                   
|           | 7        | Managements Discussion and Analysis of
      Financial Condition and Results of Operation
|           | 7A       | Quantitative and Qualitative
      Disclosures About Market Risk                          
|           | 8        | Financial Statements and Supplementary Data                                               
|           | 9        | Changes in and Disagreements
      With Accountants on Accounting and Financial           
|           |          | Disclosure                                                                                
|           | 9A(T)    | Controls and Procedures                                                                   
|           | 9B       | Other Information                                                                         
|III        | 10       | Directors, Executive Officers
      and Corporate Governance                              
|           | 11       | Executive Compensation                                                                    
|           | 12       | Security Ownership of Certain
      Beneficial Owners and Management and Related          
|           |          | Stockholder Matters                                                                       
|           | 13       | Certain Relationships and
      Related Transactions and Director Independence            
|           | 14       | Principal Accountant Fees and Services                                                    
|IV         | 15       | Exhibits, Financial Statement
      Schedules                                             
|Signatures

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PART I

FORWARD-LOOKING STATEMENTS

ALL STATEMENTS IN THIS DISCUSSION THAT ARE NOT HISTORICAL ARE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. STATEMENTS PRECEDED BY, FOLLOWED BY OR THAT
OTHERWISE INCLUDE THE WORDS "BELIEVES", "EXPECTS", "ANTICIPATES", "INTENDS",
"PROJECTS", "ESTIMATES", "PLANS", "MAY INCREASE", "MAY FLUCTUATE" AND SIMILAR
EXPRESSIONS OR FUTURE OR CONDITIONAL VERBS SUCH AS "SHOULD", "WOULD", "MAY" AND
"COULD" ARE GENERALLY FORWARD-LOOKING IN NATURE AND NOT HISTORICAL FACTS. THESE
FORWARD-LOOKING STATEMENTS WERE BASED ON VARIOUS FACTORS AND WERE DERIVED
UTILIZING NUMEROUS IMPORTANT ASSUMPTIONS AND OTHER IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING
STATEMENTS. FORWARD-LOOKING STATEMENTS INCLUDE THE INFORMATION CONCERNING OUR
FUTURE FINANCIAL PERFORMANCE, BUSINESS STRATEGY, PROJECTED PLANS AND OBJECTIVES.
THESE FACTORS INCLUDE, AMONG OTHERS, THE FACTORS SET FORTH BELOW UNDER THE
HEADING "RISK FACTORS." ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN
THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE FUTURE
RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. MOST OF THESE FACTORS
ARE DIFFICULT TO PREDICT ACCURATELY AND ARE GENERALLY BEYOND OUR CONTROL. WE ARE
UNDER NO OBLIGATION TO PUBLICLY UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-K,
UNLESS ANOTHER DATE IS STATED, ARE TO DECEMBER 31, 2008. AS USED HEREIN, THE
"COMPANY," "GOLDEN QUEEN MINING" "WE," "US," "OUR" AND WORDS OF SIMILAR MEANING
REFER TO GOLDEN QUEEN MINING CO. LTD.

Item 1. Business.

Glossary

Certain terms used in this Form 10-K are described below. Note
that Golden Queen Mining Co. Ltd. (the Company) uses Canadian Institute of
Mining, Metallurgy and Petroleum (CIM) definitions for the terms reserves,
measured resources, indicated resources and inferred resources, and U.S.
investors are cautioned that while these terms are recognized and required by
Canadian regulations, the U.S. Securities and Exchange Commission does not
recognize them.

Advance minimum royalty - Payment made before the start
of commercial production under a mining lease agreement with landholders.

Ag The chemical symbol for silver.

Au The chemical symbol for gold.

Exploration stage A mining company engaged in the
search for or explorations of mineral deposits, which is not in either the
development or production stage.

Development stage A mining company engaged in the
preparation of a mineral deposit with reserves for production and which is not
in the production stage.

Production stage A mining company engaged in the
exploitation of a mineral deposit with reserves.

Fault or faulting - A fracture in the earths
crust caused by tectonic forces with displacement along the fracture.

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Grade -A term used to assign value to resources and
reserves, such as gram per tonne (g/t) or troy ounces per ton (oz/ton). Grades
are reported both in Imperial and SI units in this Form 10-K.

Heap leaching A process for extracting gold and/or
silver, which typically allows dilute cyanide solutions to percolate through
crushed ore heaped on an impervious pad to dissolve the gold and/or silver.

Kriging -A geostatistical method used to assign grades
to mineral resource and mineral reserve model blocks.

Mineral deposit -A mineral deposit is a mineralized
body, which has been intersected by a sufficient number of drill holes or by
underground workings to give an estimate of grade(s) of metal(s) to warrant
further exploration or development. A mineral deposit does not qualify as a
commercially viable mineral deposit with reserves under standards set by the
Securities and Exchange Commission until a final, comprehensive, economic,
technical and legal feasibility study has been completed.

Ore -A natural aggregate of one or more minerals which,
at a specified time and place, may be mined and processed and the product(s)
sold at a profit or from which some part may be profitably separated.

Mineral Resource -A mineral resource is a concentration
or occurrence of natural, solid, inorganic or fossilized organic material in or
on the earths crust in such form and quantity and of such a grade or quality
that it has reasonable prospects for economic exploitation. The location,
quantity, grade, geological characteristics and continuity of a Mineral Resource
are known, estimated or interpreted from specific geological evidence and
knowledge. Mineral resources are sub-divided, in order of increasing geological
confidence, into inferred, indicated and measured categories.

Mineral Reserve -A mineral reserve is the economically
mineable part of an indicated or measured mineral resource as demonstrated by at
least a preliminary feasibility study. This study must include adequate
information on mining, metallurgy and processing, economic and other relevant
factors that demonstrate, at the time of reporting, that economic exploitation
can be justified. A mineral reserve includes diluting materials and allowance
for losses that may occur when the material is mined. Mineral reserves are
sub-divided in order of increasing confidence into robable and proven
categories.

Stripping ratio -The quantity of waste rock in tons
removed to allow the mining of one ton of ore in an open pit.

Volcanics -Rock composed of clasts or pieces that are
of volcanic composition.

General Development of Business

The Company was incorporated under the laws of the Province of
British Columbia, Canada in November 1985 and has been exploring its mineral
properties (the Property) located just south of Mojave in Kern County in
southern California since that time.

The Company acquired its initial interest in the Property in
1985 and has since added to its holdings in the area. Work on the Property and
on the Soledad Mountain project (the Project) is done by Golden Queen Mining
Co., Inc., a California corporation and the wholly-owned subsidiary (the
Subsidiary) of the Company.

The Company explored for gold and silver on the Property and
did extensive engineering work on the Project between 1988 and 1999. M3
Engineering and Technology Corp. (M3), Tucson, Arizona completed a preliminary
feasibility study for the Project in 1998 with gold and silver prices of $350/oz
and $5.50/oz respectively. The Company did additional drilling and underground
sampling in 1998 and 1999.

The Company had previously reported that it expected to begin
producing gold and silver from the Project during the second half of 1998, based
on the M3 preliminary feasibility study and once permitting was completed.
Because of relatively low gold prices in the late 1990s and in the early 2000s,
however, the Company was not able to obtain financing for the Project and the
Project was therefore put on hold in late 2000. Employees were laid off and
costs were reduced to the minimum required to maintain rights to the Property.
The major landholders agreed to a 3-year moratorium on advance minimum royalty
and other property payments or until the price of gold improved. The

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Company recorded an asset impairment loss of $28,547,592 for
the year ended December 31, 2000 and this asset impairment loss reduced the
carrying value of mineral properties and other assets to their estimated, net
realizable value.

The Project remained on hold in 2008 pending the receipt of
outstanding approvals and permits for the Project.

In order to update the prospects for the economic exploitation
of the Soledad Mountain deposit, the Company initiated a detailed review of the
Project in mid-2002 to identify new approaches that would reduce both the
capital cost to the start of production and future operating costs. The review
was supported and complimented by a substantial amount of work done by
independent engineers and contractors. The review was documented and compiled
into an in-house report to assist management in determining the prospects for
development of the Project at gold and silver prices prevailing in late-2006.
The review indicated reasonable prospects for the development of the
Project.

The Company retracted the historical mineral reserve estimates,
which were based on the report prepared by M3 in 1998, in 2005 on the basis that
they were out of date and not supported by National Instrument NI 43-101 (NI
43-101), being the Canadian regulation that governs the disclosure of technical
information by natural resource companies. Past disclosure of mineral reserve
estimates should accordingly not be relied upon.

The Company engaged SRK Consulting (U.S.), Inc. (SRK),
Lakewood, Colorado in 2005 to prepare a NI 43-101 compliant technical report
(the Technical Report) to validate and confirm the mineral resource estimates
in compliance with NI 43-101. SRK released the Technical Report on March 6,
2006. The mineral resource estimates were confirmed as set out in more detail
below.

The Company engaged Norwest Corporation (Norwest), Vancouver
2007 to prepare a further Technical Report to assess mineral reserves for the
Project as part of an independent feasibility study based upon the technical
work that had been completed to the end of 2006. The results of the Norwest
study were disclosed in a press release on December 14, 2007 as set out in more
detail below.

There are a number of risks associated with the Project and
readers are urged to consider the risks set out below and possible other risks,
in order to obtain an understanding of the Project.

The registered office of the Company is located at 1200 - 750
West Pender Street, Vancouver, British Columbia V6C 2T8 and its executive
offices are located at 6411 Imperial Ave., West Vancouver, BC, V7W 2J5.

The U.S. dollar is used in this Form 10-K and quantities are
reported in Metric units with Imperial units in brackets.

Project Background

The Project is located approximately 8 km (5 mi) south of
Mojave in Kern County in southern California.

Gold mining on Soledad Mountain dates back to the late
19th century. The largest producer in the area was a syndicate
managed by Gold Fields America Development Co. (Gold Fields), a subsidiary of
Consolidated Gold Fields of South Africa. This syndicate operated an underground
mine and mill on the property from 1935 to 1942, when the mine was forced to
close by War Production Board Order L-208. Production after the war was minimal,
as costs had increased while the price of gold remained fixed at $35/oz until
1973.

Exploration & Mineral Resources

The Soledad Mountain mineral deposit is hosted in a volcanic
sequence of rhyolite porphyries, quartz latites and bedded pyroclastics that
occur on a large dome-shaped feature, called Soledad Mountain, along the margins
of a collapsed caldera. Higher-grade precious metals mineralization is
associated with steeply dipping, epithermal veins, which occupy faults and
fracture zones that cross cut the rock units and generally trend northwest. The
veins are contained within siliceous envelopes of lower-grade mineralization
that forms the bulk of the mineral resource.

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The primary rock types that occur on the Property are rhyolite
porphyry and flow-banded rhyolite, quartz latite porphyry, pyroclastics and
siliceous vein material. Little or no clay occurs in any of the rocks and the
rocks contain upwards of 60 % Si as SiO2. Rhyolite porphyry and
flow-banded rhyolite were grouped as a single rock type for the metallurgical
test work.

Extensive programs of mapping, diamond drilling,
reverse-circulation drilling and underground diamond drilling and channel
sampling were carried out on the Property between 1985 and 1999. Company
geologists and engineers managed these programs. The geological database today
includes the results of exploration done on the Property by Rosario Exploration
and Shell/Billiton and the crosscut assay data recorded on linens by Gold Fields
between 1933 and 1942. The database contains 71,325 samples, generated from over
113,593 m (372,649 ft) of drilling and sampling of underground crosscuts.

Ore zones were shaped manually by Company geologists to define
continuity with a low-grade cutoff grade of 0.274 g/t AuEq (0.008 oz/ton AuEq).
Prices for gold and silver of $325.00/oz and $6.00/oz and recoveries for gold
and silver of 78.0 % and 60.0 % respectively were used to calculate the
gold-equivalent cutoff grade for this purpose.

Mineral Resources Development, Inc. (MRDI), San Mateo,
California, completed a detailed due diligence review of the procedures used by
the Company between 1998 and 2000. This work involved statistical analyses, the
evaluation of grade capping, the design of appropriate kriging techniques and
setting criteria for the classification of resources. MRDI submitted a final
report with recommendations in May 2000.

SRK and AMEC E&C Services, Inc. (AMEC acquired MRDI in
2000) did an exhaustive review of the database information and this included the
MRDI recommendations from 2000 and audited the geological model over a period of
five months in late 2005 and early 2006. Linear kriging was used to estimate
gold and silver grades for all blocks in the model. SRK released the Technical
Report on March 6, 2006.

Mineral resources were classified as follows:

- Measured  first drill hole or crosscut within 21 m (70 ft)
and a second drill hole or crosscut within 30 m (100 ft).

- Indicated - first drill hole or crosscut within 43 m (140 ft)
and a second drill hole or crosscut within 61 m (200 ft).

- Inferred  everything beyond measured and indicated, but with
two drill holes or cross-cuts within 91 m (300 ft) and this is more restrictive
than the MRDI recommendation from 2000.

Note that mineral resources are not mineral reserves and do not
have demonstrated economic viability.

Cautionary note to U.S. investors concerning estimates of
measured or indicated resources:This section uses the terms measured
resources and indicated resources. We advise U.S. investors that while these
terms are recognized and required by Canadian regulations, the U.S. Securities
and Exchange Commission does not recognize them.

Soledad Mountain Project - Measured & Indicated Mineral
Resources

|                |            |            | Grade
|--------------- | ---------- | ---------- | -----
|                |            |            | AuEq 
|Category        | t          | ton        | g/t  
|Measured        | 39,720,000 | 43,692,000 | 1.118
|Indicated       | 50,774,000 | 55,851,000 | 0.789
|Total & Average | 90,494,000 | 99,543,000 | 0.912

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Cautionary note to U.S. investors concerning estimates of
inferred resources:This section uses the term inferred resources. We
advise U.S. investors that while this term is recognized and required by
Canadian regulations, the U.S. Securities and Exchange Commission does not
recognize it. Inferred resources have great uncertainty as to their existence,
and great uncertainty as to the economic feasibility of exploiting these in a
mining operation. Under Canadian rules, estimates of an inferred resource may
not form the basis of pre-feasibility or feasibility studies except in rare
cases. Investors are cautioned not to assume that all of or part of an inferred
resource exists or will be economically exploitable.

Soledad Mountain Project - Inferred Mineral Resources

|         |            |            | Grade
|-------- | ---------- | ---------- | -----
|         |            |            | AuEq 
|Category | t          | ton        | g/t  
|Inferred | 32,073,000 | 35,280,000 | 0.634

Note:

|1. | AuEq is the gold-equivalent grade, which is calculated as
      follows: AuEq g/t = Au g/t + {(Ag/R1)xR2} g/t
      where R1= Au price in $/oz/Ag price in $/oz; R2=
      Ag recovery in %/Au recovery in %. Prices used in the calculations are
      $450.00/oz and $7.50/oz for gold and silver respectively. Recoveries used
      in the calculations are 78.0 % and 60.0 % for gold and silver
      respectively.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Ore zones were shaped manually with a cutoff grade of
      0.274 g/t (0.008 oz/ton) AuEq.                                                                                                                                                                                                                                                                                                                               
|3. | The mineral resources were calculated with a cutoff grade
      of 0.274 g/t (0.008 oz/ton) AuEq.                                                                                                                                                                                                                                                                                                                        

Infill Drilling Program

The Company has prepared a drilling program with 40 drill holes
and approximately 7,200 m (23,500 ft) of drilling, designed to test a portion of
the material classified as inferred within pit shells constructed in 2007. SRK
concurred in the Technical Report that strategically targeted drilling could
upgrade a significant portion of the inferred to the measured or indicated
categories.

Mineral Reserves

The Company engaged Norwest in January 2007 to prepare a NI
43-101 compliant Technical Report to assess mineral reserves for the Project as
part of an independent feasibility study based upon the technical work that had
been completed to the end of 2006. The results of the Norwest study were
disclosed in a press release on December 14, 2007.

The mineral reserve estimates as calculated by Norwest are set
out in the table below.

Soledad Mountain Project - Proven and Probable Mineral Reserves

|                 |            |            | Diluted Grades
|---------------- | ---------- | ---------- | --------------
|                 |            |            | Gold          
|Reserve Category | t          | ton        | g/t           
|Proven           | 27,705,500 | 30,476,000 | 0.819         
|Probable         | 18,861,800 | 20,748,000 | 0.535         
|Total & Average  | 46,567,300 | 51,224,000 | 0.703         

Cautionary note to U.S. investors concerning estimates of
proven or probable reserves:This section uses the terms proven reserves
and probable reserves. We advise U.S. investors that these terms are defined
strictly in accordance with applicable Canadian regulations.

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Sean Ennis, P.Eng., of Norwest Corporation, a Qualified Person
as described in NI 43-101, signed the Technical Report. The Technical Report is
available on the Companys web site at www.goldenqueen.com.

The gold-equivalent cut-off grade for the calculation mineral
reserves is 0.51 g/t (0.015 oz/ton) AuEq.

Norwest allowed for ore loss of 2.5 % and 15 % dilution at a
zero grade in calculating the mineral reserves.

Exploration Potential

Additional geological targets have been identified on the
Property. These targets are generally peripheral (east, south and west) to the
currently defined mineral resources. In the east, two additional zones of quartz
stringer veins have been mapped in the hanging wall of the Karma/Ajax vein
system. Toward the south, an extension of the Silver Queen vein system is open
and additional vein splits have been mapped on surface. Also, an extension of
the Golden Queen vein system appears to be offset by an east-west trending
fault. Initial drill results indicate widths of 8 m (26 ft) with good gold and
silver grades.

The exploration work to date has focused on known fault/vein
structures central to the deposit. The host volcanics associated with the
mineralization on the Property extend further to the south and have not been
fully evaluated. Further, anomalous gold values have also been found in the low
volcanic hills that protrude from the valley floor to the northwest of the
Property.

The continuity of mineralization at depth remains untested.

Independent Feasibility Study Completed By Norwest
Corporation

Norwest completed a feasibility study and Technical Report for
the Project and the results were released in a press release on December 14,
2007.

The following are the parameters used in the base case cash
flow projection:

- Gold and silver prices of $600.00/oz and $12.00/oz
respectively- An analysis on an all-equity basis with lease
financing of the primary mining equipment and - A 10 % contingency on
capital and operating costs.

The Project has a projected internal rate of return (IRR) on
capital employed of 19 % before taxes with a payback of approximately 4 years.
The net present value (NPV) is $66.5million with discount rate of 5.0 % and
the undiscounted, cumulative, net cash flow is $120million. The contribution of
gold and silver to gross revenues is projected to be 84 % and 16 % respectively
with an average cash operating cost per ounce of gold produced, net of silver
credits, of $420/oz. To provide a comparison, the same mining scenario without
the 10 % contingency on operating costs has an IRR of 23 % before taxes, a NPV
of $93.3million with a discount rate of 5 % and an undiscounted, cumulative net
cash flow of $158million.

Detailed technical information is provided in the following
sections.

Mine Design

Norwest did a detailed mine design in 2007. Gold and silver
prices of $600.00/oz and $12.00/oz respectively were used to develop an
ultimate, open pit shell with standard modeling techniques. A total of five
mining phases were defined within this shell. Detailed waste rock removal and
ore production schedules were prepared. The waste rock management plan
incorporates sequential backfilling of mined-out phases of the open pit as
required by current California regulations.

An independent consulting engineer did open pit slope stability
analyses in 1995 and these included analyses with the ultimate slopes subjected
to a maximum, credible earthquake acceleration of 0.297g. The consulting
engineer recommended an ultimate slope angle of 55o with an
indication that this angle could be safely increased to 63.4 o.

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The Company drilled five diamond drill holes in 1997
specifically to obtain rock strength parameters for further slope stability
analyses. An independent consulting engineer did further slope stability
analyses and confirmed the ultimate slope angle of 55o. Norwest use
an inter-ramp slope angle of 55o for the mine design done in 2007.

Disposal of waste rock will be largely in mined-out phases of
the open pit. Independent consulting engineers did waste rock dump stability
analyses in 1996 and again in 1998 and these were confirmed by Norwest in 2007.
The analyses concluded that waste rock dumps would be stable under both static
and seismic loading conditions, both during operations and after closure and
reclamation. Some sloughing of the faces of dumps could occur during significant
seismic events in the area.

Waste rock dumps will be constructed using an angle of repose
of 37o (1.3:1.0) and a specific volume of 18.1 ft3/ton
that represents a 30 % net swell after allowing for partial compaction in the
heap. Dumps will be re-sloped to 27o (2.0:1.0) as part of closure and
reclamation. The toes of the re-sloped dumps will also remain within the
disturbed area boundary.

The minimum depth to groundwater is 200 feet below natural
ground level in the areas where waste rock will be disposed of and this will
therefore not have an impact on the stability of waste rock dumps.

Open Pit Operation

Standard, open pit mining methods will be used to mine ore and
waste rock. Mining operations will include drilling, blasting, loading and
hauling and it is expected that the Company will do the mining. All open pit
mining will occur in dry conditions above the water table.

Norwest determined the detailed open pit equipment requirements
and capital and operating costs.

Planned mining rates are 13,000 tons of ore and 27,000 tons of
waste rock per day or 4.55 million tons of ore and 9.45 million tons of waste
rock per year for a combined total of 14.0 million tons per year and these have
been reduced from the earlier planned mining rates. Mine life has increased from
7 years to 12 years. The total quantity of ore to be mined, crushed and screened
and stacked on the heap leach pads is estimated to be 51.2 million tons. Total
waste rock mined is 108.4 million tons of which 19.0 million tons is expected to
be sold as aggregate and 89.4 million is expected to be disposed of in a number
of waste rock management units on site. The average stripping ratio is 2.12:1.0.

The quantities of both ore and waste rock mined per year will
vary from year to ensure the most efficient disposal of waste rock in mined-out
phases of the open pit.

Ore-from-waste separation will require special attention to
ensure that overall grade projections are met.

Underground mine openings will be encountered from time-to-time
during open pit mining and this will be allowed for in the detailed mine
planning.

The open pit design done by Norwest assumed a loaded downhill
ore haul to the primary crusher for the life of the mine. The intent is to
replace trucks with a downhill pipe conveyor to convey ore for a number of the
mining phases with a reduction in the number of trucks required. Ore will be
crushed by an in-pit, portable, primary crusher and fed to the pipe conveyor and
conveyed to the coarse ore stockpile. The length of the pipe conveyor will be
approximately 1500 ft. Various alternative mine designs are being explored in an
effort to make the best possible use of the pipe conveyor and detailed
engineering for this application remains to be completed.

Pipe conveyor technology is well-proven in practice with
upwards of 200 installations in Europe. Regenerative braking is typically used
in all loaded downhill applications and the power generated would provide a
small portion of the power required elsewhere in the Project.

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Mineralogy, Process Development & Flow
Sheet

Studies show that gold is present as native gold and electrum
with particles ranging in size from less than 10 micron to greater than 150
micron with the silver content of the electrum as high as 25 %. Silver is also
present as the mineral acanthite (Ag2S) with some native silver,
pyrargyrite (3Ag2S.Sb2S3) and polybasite
(9Ag2S.Sb2S3). Pyrite (FeS2), galena
(PbS) and chalcopyrite (CuFeS2) are present in minor amounts with no
indicated acid-generating potential. Multi-element x-ray fluorescence analyses
show only trace quantities of mercury.

Test work done on Soledad Mountain ores from 1989 to 2007 shows
that these ores are readily amenable to heap leaching provided the ore is
crushed and/or ground to relatively small sizes. Gold and silver recoveries of
78.0 % and 60.0 % respectively and a range of parameters required to design a
heap leach operation, such as agglomerate strength, percolation rates under load
and the consumption of cyanide and other reagents, were determined.

It was proposed to crush and screen ore to 100 % - 8mesh or 100
% - 2.37 mm and a four-stage crushing and screening plant using vertical shaft
impact crushers in the third and fourth crushing stages was designed for the
Project in the 1990s. This approach is referred to as conventional crushing in
the following analysis. The Company did a review that provided new insights into
the historical test results in 2002. An alternative flow sheet was developed for
the Project in late 2002, based upon the use of a high-pressure grinding roll
(HPGR). The Company, in consultation with an independent engineering firm
experienced in HPGR design, prepared a detailed flow sheet for the Project based
on an HPGR.

Confirmation HPGR tests were required to provide the following:

- The design parameters to both size the equipment and
determine the motor sizes for the HPGR; - The target particle size
distributions for the commercial operation; and - Information to finalize
the flow sheet, e.g. the need to recycle edge material.

Samples of rhyolite ore and quartz latite ore were collected
for the HPGR tests in July 2003 and in March 2004 respectively. The samples were
crushed to 100 % passing 32 mm and 35 mm respectively by McClelland
Laboratories, Inc. (MLI), an independent metallurgical laboratory located in
Sparks, Nevada. The samples were shipped by airfreight to two HPGR manufacturers
in Germany where the actual HPGR tests were done. The crushed samples were
returned to the laboratory in Nevada for confirmation leach test work. The
following conclusions were drawn based upon the results of bottle roll and
column leach tests:

Recoveries are higher with longer leach times and this confirms
the historical findings;

Recoveries increase with a finer crushed product and this
effect is especially pronounced for silver; and Recoveries for the HPGR products
are consistently higher and extraction rates faster than those obtained from
conventional crusher products  the evidence is that this is due to penetration
of leach solution into micro-cracks that are created by the high specific press
force applied to the ore particles in the HPGR.

The detailed analysis of the leached residues or tails
indicated that tests should be done on a high-grade and a low-grade sample to
obtain data for the complete range of expected head grades. Two rhyolite samples
were taken for this test work in April 2006. The total weight of the two samples
was approximately 2,100 kg (4,600 lb). The samples were shipped by truck to MLI
for first-stage crushing and then by airfreight to a HPGR manufacturers
laboratory in Germany where the HPGR tests were done. The samples were returned
to MLI and bottle roll tests and column leach tests were started in July and
completed in December 2006. Final test results were received and analyzed in
detail.

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The Company now estimates the following recoveries based upon
the tails analysis:

|Primary Rock Types | Proportion | Gold    | Silver 
|------------------ | ---------- | ------- | -------
|                   | %          | %       | %      
|Pyroclastics       | 10.5       | 85.4    | 52.5   
|Quartz Latite      | 21.3       | 89.9    | 52.5   
|Rhyolite           | 68.1       | 83.4    | 52.5   
|Undefined          | 0.1        | Average | Average
|Total & Average    | 100.0      | 85.0    | 52.5   

Tests were done on leached residues from two of the column
leach tests to determine the percolation rates under load and the results of the
tests were used to design the heap and confirm heap height for the heap leach
operation.

The test work shows that the HPGR is expected to have distinct
advantages over conventional crushing and screening to size and prepare
particles for heap leaching in this particular application. The indicated
benefits of using the HPGR will be:

- Higher recoveries in the heap leach operation due to micro-cracks in the
  ore particles;
- Faster gold and silver extraction rates;
- Stronger agglomerates due to a more favorable overall particle size
  distribution and this will also impact the flow rates of solution through the
  heap;
- Substantially lower capital costs than a conventional crushing - screening
  plant;
- Manageable dust control with fewer transfer points;
- Lower energy consumption and thus lower operating costs and
- Exceptional circuit flexibility that will readily permit future upgrades
  such as a finer HPGR feed size or the recycle of edge product.

A technical paper entitled Flow Sheet Development And Benefits
Of The HPGR was presented at the RANDOL conference held in Perth, Australia in
late-August 2005.

An independent consulting engineering firm did the design of
the crushing-screening plant including the HPGR in 2006 and this design was
revised in detail in 2008.

The HPGR consists basically of two counter-rotating rolls  one
a fixed roll and the other a floating roll. The floating roll is mounted on
and can move freely on two slides and the grinding forces are applied to the
floating roll by four hydraulic rams. Ore is choke-fed to the gap between the
rolls and comminution takes place by inter-particle crushing in the bed of
particles. The gap between the rolls is determined by the nip-in characteristics
of the feed and the total grinding force applied, which in turn depends upon
pressures in the hydraulic system. Each roll is driven by an electric motor via
a planetary gear reducer. The total grinding force can range from 750 kN to
20,000 kN and pressures in the gap can range from 50 MPa to 250 MPa. The
unconfined compressive strengths of Soledad Mountain ores range from 2.2 MPa to
118.9 MPa by comparison.

Comminution in the HPGR is achieved without impact and
essentially without attrition of the wear protection on the surface of the
rolls.

Merrill-Crowe Plant

Gold and silver are typically recovered in a heap leach
operation by dissolution in a dilute sodium-cyanide solution and then by
precipitation with zinc or adsorption on activated carbon. The zinc
precipitation process, referred to as the Merrill-Crowe process after its
developers, is used to recover gold and silver when the silver to gold ratio in
solution is greater than 10 to 1. The silver to gold ratio is expected to
average 15:1 for the Project and a Merrill-Crowe precipitation plant will
therefore be required. In the Merrill-Crowe process, zinc dust is metered into
the

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deaerated, pregnant solution and gold and silver are
precipitated as micron-sized, metallic particles. The precipitate is dried,
mixed with selected fluxes and melted in an induction furnace. The molten mix of
gold and silver, i.e. the dorè, is poured into molds. The dorè is cooled,
cleaned and shipped to a commercial refinery where gold and silver bullion are
produced for final sale.

The Merrill-Crowe process is highly efficient and recoveries in
a commercial plant typically range upwards of 98 %.

Independent consulting engineering firms did detailed designs
for the Merrill-Crowe plant and this includes the refinery and for an analytical
laboratory.

The Heap Leach Pad And The Heap

A dilute, sodium-cyanide solution will be used to extract gold
and silver in the heap leach operation. Extensive procedures will be put in
place to protect workers and the environment. The cyanide will be received in a
dissolved form by truck directly from the manufacturer and will be pumped to a
storage tank on site and from there to the process. An alternative is to receive
delivery of the cyanide in dry form and the facilities have been designed to
accept delivery of cyanide in either form.

An independent consulting engineering firm is responsible for
the design of the heap the leach facility, which has been designed for zero
discharge. The design contemplates that the first heap leach pad to be
constructed, the Phase 1 pad, will be located on the northern side of Soledad
Mountain. A second heap leach pad, the Phase 2 pad, will be located on the
western side of Soledad Mountain if required. The Phase 1 pad will be a
dedicated pad, i.e. ore will be stacked, leached, rinsed and left in place on
the pad for final reclamation. The following are the design criteria for the
Phase 1 pad:

- The pad has been designed as a permanent, single-use pad;
- Dry specific weight of agglomerated ore is 1.36 t/m3(85.0
  lb/ft3) and 1.42 t/m3(88.5 lb/ft3) after
  leaching and consolidation in the heap;
- Maximum heap height is 60 m (200 ft);
- Lift height is 10 m (33 ft);
- The angle of repose of the agglomerated ore is 2.0H:1.0V;
- Slopes are 2.5H:1.0V on the north and west sides and 2.0H:1.0V on the
  south and east sides;
- Nominal capacity of the pad is 46.5million t (51.2million ton) and
- The heap is to be constructed in 3 stages and each stage is to be divided
  into 2 hydraulically isolated zones, i.e. Zone 1 and Zone 2 for a total of 6
  zones

The Phase 1 pad will be lined with a composite liner consisting
of a compacted soil liner and a geomembrane. The geomembrane will in turn be
covered and protected by 45 cm (18 inch) of a crushed liner protection fill that
will act as a drainage layer. A network of perforated pipes will be installed in
the liner protection fill. Solution will drain by gravity to a pump box and will
be pumped to the Merrill-Crowe plant where gold and silver will be extracted
from the pregnant solution. The barren solution will be pumped to the heap with
vertical turbine pumps and drip emitters will be used on the heap to limit
evaporation losses. A proposed overflow pond is located east and downstream of
the pump box.

Detailed site investigations were done in the area where the
Phase 1 pad will be constructed in 2004 and again in 2006. The design of the
Phase 1 pad for construction has been completed.

The design of the heap leach pad meets all applicable
regulatory requirements.

An equipment manufacturer did the heap leach stacking study for
the conveying and stacking system.

Services

The Project is located approximately 8 km (5 mile) south of
Mojave in south-central California. The metropolitan areas of Rosamond and
Lancaster lie from 14 km (9 miles) to 32 km (20 miles) to the south. Access to
site is from

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State Route 14 and Silver Queen Road, an existing paved County
road. Mojave is a railroad hub for the Burlington Northern/Santa Fe and Union
Pacific/Southern Pacific railroad lines. Services such as a hospital, ambulance,
fire-protection, garbage and hazardous waste disposal, schools, motels and
housing, shopping, airport and recreation are available in Mojave and its
surroundings.

Water Supply

A water supply will be required for the heap leach operation
and it is expected that groundwater will be used.

A detailed study of the site hydrogeology was completed in 2006
to confirm that groundwater would be a dependable source of water for the
Project. As many as 35 wells have been drilled in the greater Project area in
the past. Records for some of these wells plus step rate test data from
production well PW-1 drilled by the Company indicate that, initially, two
production wells can provide the maximum estimated water requirement of 147.6
m3/h (650 gal/min). Production well PW-1 is located approximately 1km
(3,000 ft) north of the Project. A second production well was drilled
approximately 300 m (1,000 ft) north of well PW-1 and cased and tested and a
third production well, PW-3, was drilled in an area west of the Project in
November 2008. Development of PW-3 remains to be completed..

Water samples taken from five monitoring wells on site indicate
that groundwater can be used in the heap leach process without pre-treatment.

An independent consulting engineering firm did the design for
the water supply and the process water and firewater distribution systems

The Company filed an application for a water service connection
with Antelope Valley  East Kern Water Agency in February 2008 to provide a
backup water supply. This was mandated as one of the conditions of approval in
the Conditional Use Permits that were issued in 1997. The possibility of water
banking is also being discussed.

Power Supply

The regional utility, Southern California Edison (SCE), will
supply power.

A main power line with two sets of conductors currently reaches
the eastern property boundary. The top set of conductors carries 66 kV while the
bottom set of conductors carries 12,460 V and these are the common primary
voltages in SCE territory.

SCE provided a rate for power. The rate structure is complex
and a mix of consumption and demand charges applies to peak, mid-peak and
off-peak periods.

SCE indicates that the power factor is an absolutely critical
item in SCE territory. SCE requires a minimum operating power factor of 0.95 and
a load-sensitive capacitor bank will be installed to achieve this. SCE may also
limit the number of starts permitted for the major motors per day.

SEC will do an in-house impact study to ensure that the 66 kV
line can support the projected load. GQM will support this study by providing
information and support any work done on site.

GQM will install and own the utility tie sub-station, which
will transform the incoming voltage of 66 kV to 4.16 kV and this will be the
mine distribution voltage. Overhead transmission lines will distribute power
from the utility tie sub-station to the areas where power will be required.

A diesel-powered generator will provide standby power and this
will be set beside the Merrill-Crowe plant. Power will be available to operate
the barren and recycle solution pumps in case of power failure.

An independent consulting engineering firm did a detailed motor
list and estimated the power consumption for a commercial heap leach operation..

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Assay Laboratory, Offices & Workshop/Warehouse

The detailed designs for all services required for a mining
operation such as an assay laboratory, office, workshop and warehouse and diesel
fuel and gasoline storage have been completed.

Project Management & Operating Manpower

A management team will be assembled in Mojave to manage the
Project. Manpower is expected to average 27 salaried and 129 hourly-paid workers
once the mine is in full production. Indications are that skilled workers will
be available locally as there are a number of mines and quarries in production
in the greater Mojave area.

Construction manpower is expected to peak at 200.

Aggregate

It is expected that a byproduct aggregate and construction
materials business can be developed once the heap leach operation is in full
production, based on the location of the Project in southern California with
close proximity to major highways and railway lines. The source of raw materials
would be quality waste rock specifically stockpiled for this purpose. The waste
rock can be classified into a range of products such as riprap, crushed stone
and sand with little further processing. Test work done in the 1990s confirmed
the suitability of waste rock as aggregate and construction material. The waste
rock could be sold over an extended mine life greater than 30 years. The Company
has received an expression of interest from an aggregate producer with
experience in southern California markets and this is being actively pursued.

Wind Power

A large number of wind turbines are located in an area between
the Project and a range of mountains to the northwest of the Project..

A company based in Mojave has investigated the feasibility of
using Soledad Mountain as a base for a commercial installation of wind turbines
and has had discussions with the Company. Initial indications are that Soledad
Mountain would be a good site and could accommodate a number of wind turbines
without interfering with the mining operation. The first step is to determine
wind speed over an extended period of time and this is where the two companies
have agreed to cooperate. The company has now erected two wind monitoring
stations on property controlled by the Company and this has added to the
information that has been generated from the upwind meteorological station
installed by the Company just north of Silver Queen Road in 2006.

Wind power could only be a supplemental source of power for the
Project as it would still be necessary for the local utility to provide power
during periods when there is little or no wind.

Environmental Issues & Permits

General

The area surrounding Mojave is typical of the western Mojave
Desert. The immediate vicinity of the Project is sparsely populated with
considerable historical and more recent mining activity. The Standard Hill,
Tropico and Cactus mines are located within a radius of 12 km (7.5 miles) of the
Property.

The Project and the immediate area surrounding the Project or a
total of approximately 9,600 acres are included in the Specific Plan (the
Plan) for Soledad Mountain - Elephant Butte & Vicinity - south of Mojave.
This Plan was prepared in March 1973 and adopted by the Kern County Board of
Supervisors as Resolution 73-485 on June 18, 1973. Gold and silver mining
operations are recognized in the Plan as important land uses and the protection
of mineral deposits, potentially of commercial value, is included in the Plan
through restriction of incompatible land uses. The Project as presently defined
is consistent with the Plan.

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An independent consulting engineering firm reviewed the major
approvals and permits that were issued for the Project in the late 1990s and the
current regulatory environment in California in 2005. Additional work was
indicated due to the time that had passed since the permits were first issued
and changes that have been made in the Project. There have also been changes in
regulations imposed by two levels of government in California. No significant
environmental issues were however identified in the review and furthermore, the
footprint of the Project as presently defined has been reduced in both a
physical and an environmental sense.

Environmental issues and the status of approvals and permits
are summarized in the following sections.

CEQA/NEPA

The Project is subject to the California Environmental Quality
Act (CEQA) and the National Environmental Policy Act (NEPA), each of which
requires written analysis of proposed mining activities and their effect on the
physical, biological, social and economic resources of the area. This analysis
is known under CEQA as an environmental impact report (EIR), and under NEPA as
an environmental impact statement (EIS).

The environmental setting of the Project was documented in a
number of baseline studies prepared between 1990 and 1997. The Kern County Board
of Supervisors unanimously approved two Conditional Use Permits (CUP) for the
Project in September 1997 (i.e. CUP Case No. 41, Map No. 213 and CUP Case No.
22, Map No. 214). The Bureau of Land Management subsequently issued its Record
of Decision approving the Plan of Operations under NEPA in November 1997.

The State of California introduced backfilling requirements for
certain types of open pit, metal mines in December 2002. The Company contended
that these regulations did not apply to the Project under a grandfathering
provision included in the regulation. The Company, therefore, pursued both a
favorable interpretation under the regulation and subsequently an amendment of
the regulation with the State Mining and Geology Board (the Board) in 2006.
These efforts were supported by Kern County officials. Both approaches were
rejected by the Board and the decision was duly recorded by the Board in January
2007.

The Company completed an Application for a revised Surface
Mining and Reclamation Plan, which was submitted to the Kern County Planning
Department (the Planning Department) in April 2007. The Planning Department
completed its review of the Application and deemed the Application complete as
set out in July 2007. The Planning Department noted that changes proposed for
the Project constituted new information that required evaluation of potential
impacts and mitigation in a supplemental EIR. The Planning Department issued a
Request for Proposal to prepare the supplemental EIR to a total of 17 qualified
consultants in October 2007. The Chambers Group was awarded the contract to
prepare the supplemental EIR. The Company signed an agreement with the Planning
Department in February 2008 and made a payment of $55,000 which was 50 % of the
cost of preparing the supplemental EIR. This agreement was approved by the Kern
County Board of Supervisors at its regular meeting on March 11, 2008.

The kickoff meeting with the Chambers Group was held on the
afternoon of March 12, 2008. The Chambers Group completed the initial review of
information provided by the Planning Department and issued a draft Notice of
Preparation by mid-June. The Planning Department then terminated the agreement
with the Chambers Group due to a conflict of interest related to another
project. The Planning Department mailed the Notice of Preparation and the
supporting reports to agencies on the mailing list on August 18 with a deadline
for responses by September 17. A total of 66 sets of information were mailed by
the Planning Department directly plus a further 15 sets were mailed by the State
Clearinghouse.

The State Office of Mine Reclamation (the OMR), accompanied
by the Planning Department and Company management, met on site for a due
diligence review on September 16, 2008. The OMR indicated that it would require
additional time beyond the September 17, 2008 deadline to prepare comments on
the Project.

The Planning Department received nine comment letters by
September 17, 2008 and two additional comment letters at the end of September
plus a twelfth comment letter more recently. The OMR submitted comments to the
Planning Department on September 30, 2008.

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The County selected RGP Planning and Development Services
(RGP) to continue with the preparation of the supplemental EIR. The agreement
with RGP was approved by the Kern County Board of Supervisors at its regular
meeting on October 14, 2008. The estimated cost of the work to be done by RGP is
$123,800 and the Company paid this amount on September 25, 2008.

A scoping meeting was held on site attended by RGP, the
Planning Department, and Company management.

The Company submitted responses to ten of the comment letters
referred to above to the Planning Department on November 27, 2008 and responses
to the OMRs comment letter on December 16, 2008.

RGP prepared a Progress Report, which the Planning Department
made available to the public on December 30, 2008.

The following two items are of note:

- The Company completed a number of studies and did significant work on site
  between 2005 and 2008 to document that the environmental setting for the
  Project had not changed since 1997. The studies have been submitted to the
  Planning Department.
- The Bureau of Land Management has confirmed that its Record of Decision
  approving the Plan of Operations under NEPA in November 1997 remains valid and
  that no additional reviews or approvals are required before the Company can
  proceed with the Project.

There are 87 conditions of approval listed in Exhibit E to
the CUPs and this includes a requirement to reclaim historical disturbances on
the Property. Site inspections are conducted annually to verify that the Company
is in compliance with the conditions of approval.

Air Quality

Background Information

The Project lies within the Southeast Desert Air Basin, which
falls under the jurisdiction of the Kern County Air Pollution Control District
(KCAPCD). The district is charged to regulate sources of air pollution within
the basin, pursuant to authority granted under the federal Clean Air Act.

The area is designated as unclassified for PM10emissions (that portion of the total suspended particulates less than 10
microns in size) and as a non-attainment area for ozone. The typically windy
conditions and very dry nature of the area are responsible for high background
PM10levels recorded at several nearby monitoring stations.

Fugitive dust from a mining operation on the Property, combined
with background dust, may result in unacceptable levels of PM10emissions in the surrounding areas, especially downwind, and this may
present the greatest potential environmental issue for the Project. A PM10level of 44 micrograms per cubic meter was projected by computer modeling
for a mining rate of 27 million t (30 million ton) in 1996. This level is below
the California attainment standard of 50 micrograms per cubic meter and the
Federal standard of 150 micrograms per cubic meter. However, the Company
believes that it will achieve compliance with applicable standards by a greater
margin, as the modeling methodology assumes worst-case conditions, which are
considered unlikely to be encountered in the actual operation based on the
planned use of commonly accepted dust control techniques in all phases of the
operation.

The Planning Department requested that the Air Quality
Assessment and Health Risk Assessment for the Project be redone in February 2009
to provide current information for the supplemental EIR and this work is
currently underway.

KCAPCD transferred an Emission Reduction Credit Certificate
from Cactus Gold Mines Company to the Project in February 1999 and this remains
valid.

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Authority To Construct & Permit To Operate

The Company had obtained seven Authority To Construct permits
dated March 16, 2002. These permits expired on March 16, 2004 and were not
renewed due to changes anticipated in the Project.

An engineering company based in Bakersfield was asked to assess
air quality for the Project in February 2006 and to obtain the Authority To
Construct permits in April 2006. The company did calculations and submitted a
report to the KCAPCD in September 2006. The Company submitted Applications for
Authority to Construct permits on June 8, 2007. The Authority To Construct
permits will be issued once the supplemental EIR is certified.

The Authority To Construct permits are converted to a Permit To
Operate after construction has been completed and subject to inspection by the
KCAPCD.

Meteorological Monitoring Station

The Company was required to install both upwind and downwind
meteorological monitoring stations before the startof production and
decided to proceed with the upwind monitoring station in May 2006 to add to the
background database. The station was designed by Air Sciences Inc., Golden,
Colorado and commissioned in September 2006. The KCAPCD approved the design of
the station in October 2006. Data is being recorded on a continuous basis and
quarterly reports are being issued to the KCAPCD.

The equipment for the downwind meteorological monitoring
station has been purchased and is in storage in Mojave.

Water Quality

The Project is located in the northern portion of the Antelope
Valley Groundwater Basin. The mean recorded annual rainfall in the surrounding
area is approximately 156 mm (6.14 in). Typical patterns of precipitation are
winter rains and summer thunderstorms and these tend to be short-lived and of
high intensity. The site is dominated by Soledad Mountain and surface drainage
patterns in the area are largely influenced by local topography. This varies
from steep, rugged hillsides at the upper elevations to a gently sloping desert
floor around the toe of Soledad Mountain. Runoff on the northern side of Soledad
Mountain is via a series of gullies or channels, which direct surface flows to
the north, northeast and northwest and eventually to the east to the Gloster and
Chaffee Hydrologic Areas of the Antelope Hydrologic Unit.

There are no springs or intermittent streams in the immediate
area. The closest intermittent stream is approximately 5 km (3 miles) to the
west. Evaporation rates are high. Groundwater is typically found at depths of 55
to 61m (180 to 200 ft) in the area north of the Project.

The Lahontan Regional Water Quality Control Board (the
Regional Board) is responsible for ensuring compliance with the federal Clean
Water Act and Californias Porter-Cologne Water Quality Act. The Company
submitted a Report of Waste Discharge (ROWD), prepared by a company based in
Bakersfield to the Regional Board in June 1997. The Regional Board adopted Board
Order No. 6-98-9 in March 1998 at a meeting held in Lancaster and this set the
Waste Discharge Requirements for the Project.

Revised Report Of Waste Discharge

The ROWD submitted in 1997 included a design for the heap leach
facility done before and in 1997. The Company and its consulting engineers
prepared an engineering review that set out significant differences between the
layout and designs prepared for the heap leach facility in 1997 and in 2005 and
made a presentation to the Regional Board in Victorville in May 2006. The
Regional Board requested that the Company submit a revised ROWD to reflect these
changes. The Company and its consulting engineers prepared and submitted a
revised ROWD to the Regional Board in March 2007.

The Regional Board has completed its assessment of the revised
ROWD and has prepared draft Waste Discharge Requirements for the Project. The
Regional Board will wait for confirmation from the Planning Department that the

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supplemental EIR has been certified before adopting a revised
Board Order and setting Waste Discharge Requirements for the Project.

Closure, Reclamation and Financial Assurance

Closure and reclamation will be done in accordance with the
requirements set out in the CUPs and an approved Surface Mining and Reclamation
Plan and as set out in the Board Order to be re-issued by the Regional Board.

The following general principles apply:

- Considerable experience gained in reclamation of other heap leach
  operations in the California deserts since the mid-1990s shows that
  reclamation can be completed successfully.
- The Surface Mining and Reclamation Plan will be an active plan with
  concurrent reclamation on one hand and alternative reclamation concepts to be
  sought and evaluated during the mine life on the other hand.
- Reclamation will proceed concurrently where feasible, but is nonetheless
  expected to require two years following ending of all mining and the
  processing and sale of aggregate and construction materials.
- The site drainage plan will be re-assessed to direct and thus control
  runoff to minimize erosion.
- Public safety will be a key concern to be addressed both while mining is
  underway and as part of closure.
- Post-closure monitoring will continue until revegetation targets are met
  with the ultimate goal of establishing a productive and self-staining
  eco-system.

The following points will have an impact on closure and
reclamation costs:

- The footprint required for Project facilities has been significantly
  reduced from the earlier Project concepts.
- A road to the top of Soledad Mountain will remain for access to public
  facilities and will not be reclaimed.
- Waste rock will be disposed of in mined-out phases of the open pit as part
  of a comprehensive waste rock management plan. A planned major waste rock dump
  to the south of Soledad Mountain has been eliminated and this will
  significantly reduce the total disturbed area that must be reclaimed.
- Leached residues will be rinsed and reclaimed on a single heap leach pad.
- The size and complexity of the crushing & screening plant has been
  significantly reduced with fewer structures that have to be dismantled and
  fewer concrete footings that have to be broken up or buried.
- The workshop and warehouse building and wash slab, security building, bulk
  fuel storage tanks, septic tank and leach field and the parking lot will find
  an approved, alternative industrial use and will not be dismantled nor does
  the site where these facilities are constructed have to be reclaimed.
- Two (or three) water supply wells will remain for future industrial or
  municipal use. The water supply infrastructure will be turned over to the
  Mojave Public Utility District to become part of the permanent facilities in
  the area.

Revegetation

Sites have been revegetated successfully elsewhere in the
California deserts, for example at the Castle Mountain Mine in San Bernardino
County, and it is expected that revegetation can be completed successfully for
the Project as per the detailed revegetation plan that has been prepared by the
Companys consulting engineers.

A summary of the proposed revegetation procedures is given
below:

- Two revegetation test plots were prepared and seeded north and south of
  Soledad Mountain in 2006 and 2007 respectively;
- Seed is being collected locally and a seed library has been established;
- Ongoing revegetation tests will be done and monitored to demonstrate that
  seed collected locally can be an effective source of seed;
- Seed collected locally will be supplemented by seed contained in growth
  media that has been stockpiled;
- Surfaces will be prepared to provide textures suitable for desert plants
  and micro-basins will be created to trap seed and moisture;

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- Hand seeding has been found to be effective and aerial (crop duster or
  helicopter) seeding can be used in areas that are inaccessible by vehicle or
  foot;
- Seeded areas will not require fertilizer and watering;
- Reclamation of disturbed areas will occur as soon as possible throughout
  the mine life;
- Control of runoff to minimize erosion will be a key to successful
  revegetation and
- Quantifiable goals for density and diversity of perennial species will be
  established.

Financial Assurances

The Company will be required to provide the following financial
assurances for the Project:

- By the State of California and Kern County for general reclamation on
  site;
- By the Regional Board for rinsing and reclamation of the leached residues
  on the heap and
- Unforeseen events financial assurance required by the Regional Board to
  provide for an unforeseen event that could contaminate surface or groundwater.

The Company provided reclamation financial assurance in the
form of a Payment Bond Certificate backed by a Certificate Of Deposit with Union
Bank of California in the amount of $271,808.00 on September 2, 2008. The
estimate for reclamation of historical disturbances on the property for 2009 is
$286,653. The financial assurance is reassessed annually.

Environmental, Safety and Health Policy

The Company has prepared an Environmental, Safety and Health
Policy and a management system to implement this Policy.

The Company expects to sign the International Cyanide
Management Code. The Code was developed under the auspices of the United Nations
Environment Program and the International Council on Metals and the Environment.
The International Cyanide Management Institute, a non-profit organization,
administers the Code. Signatories to the Code commit to follow the Principles
set out in Code and to follow the Standards of Practice. Companies are expected
to design, construct, operate and decommission their facilities consistent with
the requirements of the Code and must have their operations audited by an
independent third party. Audit results are made public.

Offices and Employees

The Companys principal executive offices are located in
Vancouver at 6411 Imperial Ave., West Vancouver, BC, V7W 2J5, Canada.

Item 1A. Risk Factors.

The following is a brief discussion of those distinctive or
special characteristics of the Companys operations and the industry in which it
operates, which may have a material impact on, or constitutes risk factors in
respect of, the Companys future financial performance and in respect of an
investment in the Company. These risk factors should be read in conjunction with
disclosure on business and risks appearing in this Form 10-K and elsewhere.

The Likelihood Of Continued Losses From Operations

The Company has had no revenue from operations and has incurred
cumulative losses from inception through December 31, 2008 of $49,417,584.
Losses are expected to continue until such time as the Company can economically
produce and sell gold and silver and aggregate from the Project. Continued
losses will require that the Company raise additional funds by equity or debt
financing, failing which it will not be able to continue operations.

20

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Ability To Continue As A Going Concern

The Company has had no revenues from operations since inception
and has a deficit of $49,417,584 accumulated during the exploration stage. In
addition we have significant costs associated with ongoing operations and
advancing the Project that we are presently funding primarily through the sale
of our common shares.

The continuation of the Company as a going concern is dependent
upon the continued financial support from its shareholders, the ability of the
Company to obtain necessary equity financing to achieve its operating
objectives, confirmation of the Companys interests in the underlying properties
and the attainment of profitable operations. Management cannot provide
assurances that such plans will occur. These factors raise substantial doubt
regarding the Companys ability to continue as a going concern. These financial
statements do not include any adjustments to the recoverability and
classification of recorded asset amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.

The Need for Significant Additional Financing

If approvals and permits are secured for the Project and a
production decision is made, the Company will need significant additional
financing to develop the Project into an operating mine and estimates that this
could range as high as $100 million plus working capital. The Company expects to
finance the construction and to secure the necessary working capital from either
additional sales of common shares, from bank or other borrowings or,
alternatively, through a joint venture. However, the Company has no commitment
for the underwriting of additional shares or for bank financing, and it is not a
party to any agreement or arrangement providing for a joint venture. Whether and
to what extent project financing can be secured will depend on a number of
factors, including gold and silver prices. Gold and silver prices fluctuate
widely and are affected by numerous factors beyond the Company's control, such
as the strength of the U.S. dollar and foreign currencies, global and regional
demand, and global or regional political or economic events. If financing is not
obtained, the Company will not be able to develop the Project and would be
forced to seek alternatives to its current business plan, including disposing of
its interests in the Property.

Passive Foreign Investment Company

The Company may be classified as a passive foreign investment
company. United States investors should seek independent advice from tax
advisors to discuss any tax consequences.

We must secure approvals and permits.

The Company must secure all approvals and permits as set out
above. The Company has been persistent in its efforts to secure approvals and
permits, however, there is no assurance that these can ultimately be secured and
this remains a significant risk.

Our ability to obtain mine financing is likely dependant
on the price of gold and silver remaining at current levels, which, given
historical fluctuations, can vary significantly.

Project financing will depend upon current price levels for
gold and silver being sustained for the foreseeable future. The current price
levels of gold and silver have not been attained since the early 1980s and there
is no guarantee that prices will remain at the current high levels. Gold prices
historically have fluctuated widely and are affected by numerous factors outside
of our control including industrial and retail demand, central bank lending,
sales and purchases of gold, forward sales of gold by producers and speculators,
levels of gold production, short-term changes in supply and demand because of
speculative hedging activities, confidence in the global monetary system,
expectations of the future rate of inflation, the strength of the U.S. dollar
(the currency in which the price of gold is generally quoted), interest rates
and global or regional political or economic events.

21

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The following table summarizes the historical prices for gold
and silver as at the closing dates noted, based on the p.m. London Fix Prices:

|Date            | Gold    | Silver
|--------------- | ------- | ------
|January 2, 2009 | $874.50 | $11.08
|January 2, 2008 | $840.75 | $14.93
|January 2, 2007 | $640.75 | $13.01
|January 3, 2006 | $530.00 | $9.040
|January 4, 2005 | $427.75 | $6.390
|January 2, 2004 | $415.25 | $5.985
|January 3, 2000 | $281.50 | $5.302

The agreements with landholders need ongoing
monitoring.

The Company monitors the status of agreements with landholders
on a regular basis in order to protect the Companys interests in the Property.
There can be no assurance that the Company will continue to be able to retain
its interests in the Property through negotiations with landowners, or that the
cost of retaining its interests will not increase significantly as a result of
future negotiations. The future of the Project is dependant upon maintaining
control of the Property. Without land and mineral rights, the Company has no
basis for continuing with its activities. While each and every property has its
own value and unique purpose in the overall mine plan, the feasibility of the
Project will depend on the Companys ability to maintain control of the Property
as a whole. Failure to keep property agreements in good standing may result in a
loss of control, which, if material to the Project, would prevent the Company
from developing the Project.

We rely extensively on the services of our President, Mr.
Lutz Klingmann, who has considerable current knowledge of our operations,
including the Soledad Mountain Project, and the loss of his services would
likely result in delay and cost associated with acquiring and training
additional management.

Since 2002, Mr. Lutz Klingmann, our President, has been largely
responsible for most of the operations of the Company, including work on the
Project. The successful development of the Project as currently envisioned by
management is dependent to a significant extent on the efforts and abilities of
Mr. Klingmann. Investors must be willing to rely to a significant extent on
managements discretion and judgment. We do not maintain key employee insurance
on Mr. Klingmann and the loss of his services would likely have an adverse
affect on Company operations and plans, until such time as a replacement can be
located and brought current on Company plans and operations.

The notes to our financial statements raise the issue of
our ability to continue as a going concern. The going concern basis of
presentation assumes that we will continue in operation for the foreseeable
future and will be able to realize our assets and discharge our liabilities and
commitments in the normal course of business.

The Company has had no revenues from operations since
inception, and has a deficit of $49,417,584 accumulated during the exploration
stage. In addition the Company has significant costs associated with ongoing
operations and advancing the Project that are presently being funded primarily
through the sale of the Companys common shares. The Companys ability to obtain
financing for ongoing activities and maintain solvency or to finance the
development of the Project, is dependent on equity market conditions, the market
for precious metals, the willingness of other parties to lend the Company money
or the ability to find a joint venture partner. There can be no assurance that
the Company will be successful at raising these funds, which in turn raises
substantial doubt about the Companys ability to continue as a going
concern.

Risks and Contingencies Associated with the Mining
Industry Generally

In addition to the risks noted above, the Company is subject to
all of the risks inherent in the mining industry, including environmental risks,
fluctuating metals prices, industrial accidents, labor disputes, unusual or
unexpected geologic formations, cave-ins, flooding, earth quakes and periodic
interruptions due to inclement weather. These

22

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risks could result in damage to, or destruction of, production
facilities, personal injury, environmental damage, delays, monetary losses and
legal liability. Although the Company maintains or can be expected to maintain
insurance within ranges of coverage consistent with industry practice, no
assurance can be given that such insurance will be available at economically
feasible premiums. Insurance against environmental risks (including pollution or
other hazards resulting from the disposal of waste products generated from
production activities) is not generally available to the Company or other
companies in the mining industry. If subjected to environmental liabilities, the
payment of such liabilities would reduce available funds. If the Company is
unable to fund fully the cost of remedying an environmental problem, the Company
might be required to suspend operations or enter into interim compliance
measures pending completion of remedial activities.

Most of our directors are ordinarily resident outside of
the United States and accordingly it may be difficult to effect service of
process on them, or to enforce any legal judgment against them.

With the exception of Thomas Clay, our directors namely Edward
G. Thompson, Chester Shynkaryk, Gordon C. Gutrath, and H. Lutz Klingmann are
residents of Canada. Consequently, it may be difficult for U.S. investors to
effect service of process within the U.S. upon these directors, or to realize in
the U.S. upon judgments of U.S. courts predicated upon civil liabilities under
the U.S. securities laws. A judgment of a U.S. court predicated solely upon such
civil liabilities would probably be enforceable in Canada by a Canadian court if
the U.S. court in which the judgment was obtained had jurisdiction, as
determined by the Canadian court, in the matter. There is substantial doubt
whether an original action could be brought successfully in Canada against any
of such directors predicated solely upon such civil liabilities.

Because our common shares will likely trade at prices
below $5.00 per share, and because we will not be listed on a national U.S.
exchange, there are additional regulations imposed on U.S. broker-dealers
trading in our shares that may make it more difficult for you to resell our
shares through a U.S. broker-dealer.

Because of U.S. rules that apply to shares with a market price
of less than $5.00 per share, known as the penny stock rules, investors will
find it more difficult to sell their securities in the U.S. through a U.S.
broker dealer. The penny stock rules will probably apply to trades in our
shares. These rules in most cases require a broker-dealer to deliver a
standardized risk disclosure document to a potential purchaser of the
securities, along with additional information including current bid and offer
quotations, the compensation of the broker-dealer and its salesperson in the
transaction, monthly account statements showing the market value of each penny
stock held in the customers account, and to make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchasers written agreement to the transaction.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

Land Ownership and Mining Rights

The Company acquired its initial property interests in 1985 and
has since acquired additional properties in the area. The Company holds or
controls via agreement 33 patented lode mining claims, 134 unpatented lode
mining claims, 1 patented millsite and 12 unpatented millsites. The Property is
located west of California State Highway 14 and lies largely south of Silver
Queen Road covering all of Section 6 and portions of Sections 5, 7 and 8 in
Township 10 North, Range 12 West; portions of Sections 1 and 12 in Township 10
North, Range 13 West; portions of Section 18 in Township 9 North, Range 12 West,
and portions of Section 32 in Township 11 North, Range 12 West, all from the San
Bernardino Baseline and Meridian.

The Company holds the properties under mining lease agreements
with 63 individual landholders, two groups of landholders and three incorporated
entities. The land required for the Project has therefore either been secured
under one of these agreements or is controlled by the Company through ownership
of the land in fee or where the Company holds patented and unpatented mining
claims or millsites. The mining lease agreements were entered into from 1986
onwards.

23

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The Company owns 626.6 acres of fee land in the area
surrounding Section 6. The land is required for the construction of the
ancillary facilities required for a mining operation, for the construction of
the heap leach pads and for waste rock disposal. The area that will be disturbed
by the Project is a 369 hectare-block (912 acres) within the total area of
approximately 366 hectares (3,500 acres) owned, held or controlled by the
Company. The Company also owns four residential properties with buildings north
of Silver Queen Road and four residential properties west of Soledad Mountain.

The Company is continuing with its efforts to purchase
additional fee land that will secure its land position in the area.

Significant Agreements

The Company previously held an option to purchase all of the
issued and outstanding shares of a privately held California corporation, the
Karma Wegmann Corporation. The Company exercised its rights and made full
payment of $875,000 under the option agreement and its amendments on June 26,
2006. Karma Wegmann Corporation held 6 patented mining claims, 6 unpatented
mining claims and 1 patented millsite and these were transferred to the
Subsidiary. The Company is required to pay a royalty of 1% of gross smelter
returns for a period of up to 60 years, not to exceed $60,000,000, upon
commencement of commercial production. Karma Wegmann Corporation was dissolved
on August 27, 2007.

The Company concluded an agreement to purchase 29.18 acres of
land required for the Phase 1 heap leach pad on August 1, 1996. The agreement
was with Southwestern Refining Corporation. The purchase price was $950,000 of
which $100,000 was paid in cash and $850,000 was secured by a promissory note
with a term of 180 months. The note was payable in monthly instalments of
$9,275. Interest on the outstanding balance was charged at prime rate plus 2 %.
A balloon payment of the principal amount owing, if any, and accrued but unpaid
interest, if any, was due on September 1, 2011. The principal amount owing,
recorded as a long-term debt plus current maturities in the financial
statements, was $549,040 as at December 31, 2006. The Company reached an
agreement with Southwestern Refining Corporation and made a balloon payment of
$700,725 to retire the long-term debt in full and final settlement of the
outstanding obligation. Full reconveyance of the promissory note was recorded in
the Kern County Official Records on November 1, 2007.

Title Review

The Company commissioned a formal title review of the Property
by a firm familiar with title matters in California in 1996. This title review
was updated in February 1998 and again in March 1999. A further title review was
completed by an independent landman in 2004 and no particular title problems
were identified.

Quiet Title Judgment

The ownership history is typically complex in historic mining
districts and title problems will exist. The Company obtained a Quiet Title
Judgment on May 15, 1999 and this resolved a majority of the title questions.
The effect of the Judgment was to clear the title to the interests in the
patented claims listed in the action and to cure the title defects of record,
providing security of title and thus greatly enhancing the value of the
properties.

The Company has determined that any remaining title questions
would not present a threat to the Project.

Land Survey

A U.S. mineral surveyor licensed in California has completed a
survey of the patented and unpatented lode mining claims in Section 6, T10N, R2W
and Section 32, T11N, R12W. A claim status map and Royalty Map have been
prepared. The Company has confirmed that there are no gaps in its land holdings
in the project area.

Royalties

The Company is required to make advance, minimum royalty
payments under a number of the mining lease agreements. With one exception, the
Company will receive a credit for the advance minimum royalty payments on

24

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commencement of commercial production. Most of the royalties
are of the net smelter return (NSR) type and are based on a sliding scale,
with the percentage amount of the royalty depending upon the ore grades on the
particular property to which the royalty relates. Weighted average royalty rates
will range from a low of 2.7 % to a high of 5.0% depending upon the area being
mined and gold and silver prices. The agreements also typically provide for an
additional royalty if non-mineral commodities, such as aggregates, are produced
and sold. The area of interest has been divided into 14 royalty groups and an
accurate Royalty Map is critical to ensure that future royalty payments can be
calculated and correctly paid to landholders. The Royalty Map has been prepared
by a U.S. mineral surveyor.

Property Interests Are In Good Standing

The Company made advance, minimum royalty payments of $100,000
to a landowner, Southwestern Refining Corporation, in 2004. The Company did not
however make the advance, minimum royalty payment of $100,000 to Southwestern
Refining Corporation in 2005. The Company reached an agreement with Southwestern
Refining Corporation on an amendment of the mining lease agreement to extend
this for a further twenty years and paid $100,000 for advance, minimum royalties
owed for 2005. No advance, minimum royalty payments were due for 2006 and 2007
under the amendment and the advance, minimum royalty payments were paid again
from April 2008 onwards. The Company will receive a credit representing 50 % of
all advance royalty paid and use it against future production royalties.

The Company had disclosed in its Form 10-K for the fiscal year
ended December 31, 2007 that not all property interests were in good standing.
The total advance minimum royalty owing to landholders was $714,137. The Company
contacted all landholders and paid $666,103 in second, third and fourth quarters
of 2008 with a further $48,034 payable to be paid to the remaining rightful
landholders. The advance minimum royalty owing for 2009 is approximately
$160,000.

A mining lease agreement with one group of landholders expired
in 2004 and the Company has prepared a new mining lease agreement for discussion
with the group of landholders. The proposed advance, minimum royalty payable to
the group of landholders starting in 2009 is $7,500 per year.

The future of the Project is dependant upon maintaining control
of the Property. Without land and mineral rights, the Company has no basis for
continuing with its activities. While each and every property has its own value
and unique purpose in the overall mine plan, the feasibility of the Project will
depend on the ability of the Company to maintain control of the Property as a
whole. A failure to keep property agreements in good standing may result in a
loss of control, which, if material to the Project, would prevent the Company
from developing the Project.

Item 3. Legal Proceedings.

To the best of our knowledge, there are no legal actions
pending, threatened or contemplated against the Company.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of the Companys
shareholders during the fourth quarter of 2008.

25

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PART II

Item 5. Market for Common Equity, Related Stockholder
Matters and Small Business Issuer Purchases of Equity Securities.

Market and Trading Price

The common shares of the Company are listed and traded on The
Toronto Stock Exchange under the trading symbol GQM. The high and low sales
prices of the common shares as traded on The Toronto Stock Exchange for the
calendar periods indicated are set out in the table below. All prices are
reported in Canadian dollars.

|Year ended December 31 | High           | Low  
|---------------------- | -------------- | -----
|2008                   | Fourth Quarter | $0.39
|                       | Third Quarter  | 0.96 
|                       | Second Quarter | 1.11 
|                       | First Quarter  | 1.29 
|2007                   | Fourth Quarter | $0.91
|                       | Third Quarter  | 0.92 
|                       | Second Quarter | 1.04 
|                       | First Quarter  | 1.10 

Exchange Rates

The following table sets forth, for the periods indicated,
certain exchange rates based on the noon buying rate in New York City for cable
transfers in Canadian dollars. Such rates are the number of Canadian dollars per
one (1) U.S. dollar and are the inverse of rates quoted by the Federal Reserve
Bank of New York for U.S. dollars per CDN$1.00. As of December 31, 2008, the
Federal Reserve Bank of New York discontinued the publication of foreign
exchange rates. The exchange rates in the table below for the periods January
2009 and February 2009 are the number of Canadian dollars per one (1) U.S.
dollar quoted by the Bank of Canada. On March 23, 2009, the exchange rate was
US$1.00 per CDN$1.2323. The high and low exchange rates for each month during
the previous six months were as follows:

|               | High   | Low   
|-------------- | ------ | ------
|February 2009  | 1.2890 | 1.2192
|January 2009   | 1.2741 | 1.1823
|December 2008  | 1.2971 | 1.1962
|November 2008  | 1.2850 | 1.1502
|October 2008   | 1.2935 | 1.0607
|September 2008 | 1.0797 | 1.0338

Exchange rate information as at each of the years ended
December 31, 2008 and 2007 is set out in the table below.

|                           | Year Ended December 31
|-------------------------- | ----------------------
|                           |                       
|                           | 2007                  
|Rate at end of Period      | 0.9881                
|Average Rate during Period | 1.0742                
|Low                        | 0.9168                
|High                       | 1.1852                

As of March 23, 2009, there were 271 registered holders of
record of the Companys common shares and an undetermined number of beneficial
holders.

26

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The common shares of the Company are also traded on the Pink
Sheets under the trading symbol GQMNF. The high and low sales prices of the
common stock as traded on the Pink Sheets for the calendar periods indicated are
set out in the table below. All prices are reported in U.S. dollars. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, markdown or commission and may not necessarily represent actual
transactions. The Pink Sheets has a limited and sporadic trading market and does
not constitute an established trading market.

|Year ended December 31 | High           | Low  
|---------------------- | -------------- | -----
|2008                   | Fourth Quarter | $0.35
|                       | Third Quarter  | 0.92 
|                       | Second Quarter | 1.10 
|                       | First Quarter  | 1.30 
|2007                   | Fourth Quarter | $0.92
|                       | Third Quarter  | 0.87 
|                       | Second Quarter | 0.91 
|                       | First Quarter  | 0.93 

Dividends

The Company has not declared dividends on its common shares
since inception.

Securities Authorized for Issuance Under Compensation Plans

The following table sets forth information as at December 31,
2008 respecting the compensation plans under which shares of the Companys
common stock are authorized to be issued.

|Plan Category                                                       | Number of securities to be issued
      upon exercise of outstanding options, warrants and rights
      (a) | Weighted-average exercise price
      of outstanding options, warrants and rights (b) | Number of securities 
      remaining available
      for future issuance under equity compensation plans (excluding
      securities reflected in column (a)) (c)
|------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders              | 2,300,000                                                                                                   | C$0.57                                                                                | 200,000                                                                                                                                                           
|Equity compensation plans not approved by security
      holders(1) | 1,950,000                                                                                                   | C$0.26                                                                                | 2,750,000                                                                                                                                                         
|Total                                                               | 4,250,000                                                                                                   | --                                                                                    | 2,950,000                                                                                                                                                         

(1) The directors have approved the 2008 Stock Option Plan
which reserves a maximum of 7,200,000 shares pursuant to the exercise of options
under the Plan. The adoption of the Plan is subject to the approval by
shareholders of the Company at the 2009 annual general meeting.

Sales of Unregistered Securities

During the fiscal year ended December 31, 2008, there were no
sales of unregistered securities by the Company.

Purchases of Equity Securities by the Company and Affiliated
Purchasers

Neither the Company nor an affiliate of the Company purchased
common shares of the Company in the year ending December 31, 2008, other than
through the exercise of options pursuant to the Companys 1996 Stock Option
Plan.

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Item 6. Selected Financial Data.

Not Applicable.

Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operation.

The following discussion of the operating results and financial
position of Golden Queen Mining Co. Ltd. (the Company) is dated March 27, 2009
and should be read in conjunction with the audited consolidated financial
statements of the Company for the year ended December 31, 2008 and the notes
thereto.

All amounts herein are in US$ unless otherwise noted.

The Soledad Mountain Project

The Company is proposing to develop a gold-silver, open pit,
heap leach operation on its Soledad Mountain property, located just outside the
town of Mojave in Kern County in southern California. Every element of the
Soledad Mountain Project (the Project) has been rethought and reengineered in
the past five years in an effort to find sound technical and cost-effective
solutions that will ensure a viable mining operation at foreseeable gold and
silver prices. The review has been supported and complimented by a substantial
amount of work done by independent engineers and contractors. This phase of the
technical work was completed toward the end of 2007.

Results of Operations

Following are the results of operations for the year ended
December 31, 2008.

The Company had no revenue from operations.

General and administrative expenses of $2,817,429 (2007 
1,907,159) were higher as work on the Project and the approvals and permitting
effort was accelerated in 2008.

The following significant costs were incurred during the year:

- Foreign exchange losses of $528,938 were incurred due to weakness in the
  Canadian dollar after mid-year;
- $666,103 for advance minimum royalties owing to landholders;
- $103,794 for ongoing maintenance of and data recovery from the
  meteorological station (2007 - $88,413);
- $5,213 for field checks of the meteorological station (2007 - $1,125);
- $37,837 for quarterly water sampling and analysis (2007 - $25,532);
- $428,012 for detailed engineering for the Phase 1 heap leach pad, for the
  associated site drainage plan and general support required for the approvals
  and permitting process (2007  $421,052);
- $226,926 for doing a major study on the occurrence of arsenic and a human
  health risk assessment and general support required for the approvals and
  permitting process (2007 - $328,871);
- $51,988 for laboratory work and data analysis on a study on the occurrence
  of arsenic (2007  $14,987);
- $115,504 for general engineering support (2007 - $310,058);
- $140,618 for drilling a third production water well west of Soledad
  Mountain;
- $9,985 for a pump test for the third water well;
- $15,900 and C$14,532 to evaluate and compare resin technology to the
  Merrill-Crowe zinc precipitation process for recovering gold/silver from
  pregnant solutions from the heap (2007 - $34,652 and C$5,166);
- $266,034 to two local contractors to complete cleanup work on site in 2008
  (2007- $40,177);
- $70,958 for a legal survey of lode mining claims and to prepare a set of
  maps (2007 - $43,863);
- $11,600 to an independent landman for work required to support the above
  survey (2007 - $5,495);
- $12,338 for a study to evaluate and quantify growth media on site;
- $31,431 for insurance premiums for 2008/2009 (2007/2008 - $32,373);

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- $163,725 for ongoing legal work on the rights of the Company to extract
  groundwater from a regional groundwater basin to supply the water required for
  the heap leach operation (2007 - $70,796);
- $77,089 for other legal fees (2007 - $85,983);
- $19,800 to the Bureau of Land Management for annual sustaining fees(2007 -
  $19,590);
- $31,273 to the State Water Resources Control Board for annual fees (2007 -
  $22,890);
- $200,392 to the Kern County Planning Department for work on the
  supplemental EIR (2007  $14,700);
- $57,433 for preparing promotional material and seeking public support for
  the Project (2007 - $0);
- $21,710 to an independent engineer for ongoing site support (2007 -
  $19,896);
- $119,750 for purchases of fee land and $5,871 for the associated fees
  (2007 - $80,000 + $5,096);
- C$124,102 for mine design (2007 - C$319,415 and $78,359 for mine design
  and the feasibility study);
- C$175,970 for engineering design and cost estimates for the
  crushing-screening plant (2007 - $0).
- C$64,646 for audit fees and preparation of tax returns (2007  C$125,223);
- C$13,162 for accounting fees (2007 - C$10,112);
- C$9,199 for costs incurred to print and distribute the materials for the
  annual general meeting;
- C$43,452 for legal fees (2007  C$39,870);
- C$18,135 for stock exchange fees (2007 - C$18,916).

Interest income of $107,956 (2007  $160,375) was lower by
$52,419 as there was less cash on deposit and interest rates were generally
lower during the year. There was no interest expense during the year.

The Company incurred a net loss of $3,996,777 (or $0.05 per
share) for the year as compared to a net loss of $2,006,482 (or $0.03 per share)
for 2007.

Summary of Quarterly Results

Results for the eight most recent quarters are set out in the
table below.

|Results for the quarter ending on:                                          | Dec. 31, 2008          | Sept. 30, 2008       | June 30, 2008          | March 31, 2008      
|--------------------------------------------------------------------------- | ---------------------- | -------------------- | ---------------------- | --------------------
|Item                                                                        | $                      | $                    | $                      | $                   
|Revenue Net income (loss) for the quarter Net
      income (loss) per share | Nil (1,223,439) (0.02) | Nil (923,380) (0.01) | Nil (1,224,663) (0.01) | Nil (625,295) (0.01)

|Results for the quarter ending on:                                          | Dec. 31, 2007          | Sept. 30, 2007     | June 30, 2007        | March 31, 2007      
|--------------------------------------------------------------------------- | ---------------------- | ------------------ | -------------------- | --------------------
|Item                                                                        | $                      | $                  | $                    | $                   
|Revenue Net income (loss) for the quarter Net
      income (loss) per share | Nil (1,001,548) (0.01) | Nil 117,884 (0.00) | Nil (798,478) (0.01) | Nil (324,340) (0.00)

The results of operations can vary from quarter to quarter
depending upon the nature, timing and cost of activities undertaken during the
quarter and whether or not the Company incurs gains or losses on foreign
exchange, grants stock options or makes end-of-year adjustments.

Reclamation Financial Assurance and Asset Retirement
Obligation

The Company provided reclamation financial assurance in the
form of an Irrevocable Payment Bond Certificate with Union Bank of California in
the amount of $271,808 on September 2, 2008. The financial assurance is
reassessed annually and the estimate for reclamation of historical disturbances
on the property is $286,653 for 2009.

The asset retirement obligation accrual is estimated at
$162,903 and this is shown as a liability on the consolidated balance sheet. The
actual obligation could differ materially from these estimates.

29

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Advance Minimum Royalties

The Company had disclosed in its Form 10-K for the fiscal year
ended December 31, 2007 that not all property interests were in good standing.
The total advance minimum royalty owing to landholders was approximately
$714,000. The Company contacted all landholders and paid $666,103 in second,
third and fourth quarters of 2008 with a further $48,034 payable to be paid to
the remaining rightful landowners. The advance minimum royalty owing for 2009 is
approximately $160,000.

A mining lease agreement with one group of landholders expired
in 2004 and the Company has prepared a new mining lease agreement for discussion
with the group of landholders. The proposed advance, minimum royalty payable to
the group of landholders starting in 2009 is $7,500 per year.

Off-balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Transactions With Related Parties

For the year ended December 31, 2008, $136,500 (2007 -
$126,450) was paid to Mr. H. Lutz Klingmann for services as President of the
Company, and $19,200 (2007 - $18,000) was paid to Mr. Chester Shynkaryk for
consulting services to the Company. No other compensation was paid or given
during the year for services rendered by the directors in such capacity, and no
additional amounts were payable at year-end under any standard arrangements for
committee participation or special assignments.

For the year ended December 31, 2008, four directors of the
Company were paid $1,861 (C$2,000) and one director was paid $2,000 in director
fees.

There were no other related party transactions during the
quarter ended September 30, 2008.

Fair Value of Financial Instruments

The carrying amount reported in the balance sheets for cash and
cash equivalents, receivables, accounts payable and accrued expenses
approximates fair value because of the immediate or short-term maturity of these
financial instruments. The company does not hold any bank or non-bank
asset-backed commercial paper. The fair value of the reclamation financial
assurance approximates carrying value because the stated interest rate reflects
recent market conditions. It is the opinion of management that the Company is
not exposed to significant interest, currency or credit risk arising from the
use of these financial instruments.

Liquidity and Capital Resources

The Company held $3,033,771 in cash and cash equivalents on
December 31, 2008.

The Company has no long-term debt.

Management plans to control costs and does not expect that
additional cash will be required (prior to securing production financing) beyond
cash currently on hand for ongoing work on approvals and permits for the
Project, for bringing current the remaining advance minimum royalties owing to
landholders, for additional property purchases, for ongoing work on site and for
general corporate purposes to the end of 2009.

30

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Outstanding Share Data

The number of shares issued and outstanding and the fully
diluted share position are set out in the table below.

Golden Queen Mining Co. Ltd.

|                                               | No. of     |                |            
|---------------------------------------------- | ---------- | -------------- | -----------
|Item                                           | Shares     |                |            
|Shares issued and outstanding on Dec. 31, 2007 | 78,440,883 |                |            
|Shares issued on conversion of warrants        | 7,200,000  |                |            
|Shares issued and outstanding on Dec. 31, 2008 | 85,640,883 | Exercise Price | Expiry Date
|                                               |            | C$0.35 &       | 9/02/10 &  
|Director and employee stock options            | 2,300,000  | C$0.77         | 20/04/11   
|Director and employee stock options            | 1,950,000  | C$0.26         | 28/01/14   
|Shares to be issued as a finders fee           | 100,000    | None           | None       
|Bonus shares to be issued to H. Lutz Klingmann | 300,000    | None           | None       
|Fully diluted on March 27, 2009                | 90,290,883 |                |            

The Companys authorized share capital is 100,000,000 common
shares with no par value.

Outlook

The Company plans to put the Project into production as an open
pit heap leach operation and to construct facilities to process ore at a rate of
4.5million t (5.0million ton) per year and these have been reduced from the
earlier planned mining rates. Projected mine life has increased from 7 years to
12 years. The Company also plans to produce and sell aggregate for an extended
period after gold and silver production from the heap leach operation has ended.
These plans are subject to management making a production decision. The Company
is actively working with the Kern County Planning Department to expedite the
review process and the supplemental EIR.

Management is evaluating financing options with a view to
making a production decision as soon as approvals and permits have been
secured.

If approvals and permits are secured for the Project and a
production decision is made, the Company will need significant additional
financing to develop the Project into an operating mine. Capital costs for
mining projects are increasing rapidly and the Company is currently
re-estimating these costs. The Company believes that financing for the Project
can be secured if gold and silver prices remain at or above $600.00/oz and
$12.50/oz respectively and these are the prices used for the feasibility study
base case cash flow projections. Gold and silver prices averaged $871.96/oz and
$14.99/oz in 2008 and closing prices on March 27, 2009 were $924.00/oz and
$13.34/oz respectively.

It is not expected that the Company will hedge any of its gold
or silver production.

The ability of the Company to put the Project into production
is subject to numerous risks, certain of which are disclosed above. Readers
should evaluate our prospects in light of these and other risk factors.

Subsequent Event

The Company prepared a new stock option plan (New Plan) to
replace its existing stock option plan. The New Plan provides a fixed number of
7,200,000 common shares of the Company that may be issued pursuant to the grant
of options. The exercise price of all stock options shall be determined by the
Companys Board of Directors, but it shall not be less than the last price at
which the Companys shares were issued prior to the award date or the closing
price on the day immediately preceding the award date. The expiry date of the
option shall be the date so fixed by

31

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the Board, unless the option holder dies or ceases to be
employed as a director or as a consultant prior to the date fixed by the Board.

On January 28, 2009, the Company granted 1,950,000 stock
options to directors, officers and consultants of the Company pursuant to the
New Plan. The options are exercisable at a price of C$0.26 per share for a
period of 5 years from the date of grant. The New Plan and the stock options
must be approved by the shareholders of the Company at the 2009 annual general
meeting.

Application of Critical Accounting
Estimates

The financial statements of our company have been prepared in
accordance with generally accepted accounting principles in the United States.
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which have been made using careful judgment.

The financial statements have, in managements opinion, been
properly prepared within reasonable limits of materiality and within the
framework of the significant accounting policies summarized below:

Mineral Property and Exploration Costs

Exploration costs are expensed as incurred. Development costs
are expensed until it has been established that a mineral deposit is
commercially mineable and a production decision has been made by our company to
implement a mining plan and develop a mine, at which point the costs
subsequently incurred to develop the mine on the property prior to the start of
mining operations are capitalized.

Our company capitalizes the cost of acquiring mineral property
interests, including undeveloped mineral property interests, until the viability
of the mineral interest is determined. Capitalized acquisition costs are
expensed if it is determined that the mineral property has no future economic
value. Exploration stage mineral interests represent interests in properties
that are believed to potentially contain (i) other mineralized material such as
measured, indicated or inferred resources with insufficient drill hole spacing
to qualify as proven and probable mineral reserves and (ii) other mine-related
or greenfield exploration potential that are not an immediate part of measured
or indicated resources. Our companys mineral rights are generally enforceable
regardless of whether proven and probable reserves have been established. Our
company has the ability and intent to renew mineral rights where the existing
term is not sufficient to recover undeveloped mineral interests.

Capitalized amounts (including capitalized development costs)
are also written down if future cash flows, including potential sales proceeds,
related to the mineral property are estimated to be less than the propertys
total carrying value. Management of our company reviews the carrying value of
each mineral property periodically, and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable.
Reductions in the carrying value of a property would be recorded to the extent
that the total carrying value of the mineral property exceeds its estimated fair
value. A write down of $1,270,366 in mineral property interests was recorded in
the year ended December 31, 2008.

Asset Retirement Obligations

In accordance with Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement Obligations (''SFAS 143''), the fair
value of an asset retirement cost, and corresponding liability, should be
recorded as part of the cost of the related long-lived asset and subsequently
allocated to expense using a systematic and rational method. Our company has
recorded an asset retirement obligation to reflect its legal obligations related
to future abandonment of its mineral property using estimated expected cash flow
associated with the obligation and discounting the amount using a
credit-adjusted, risk-free interest rate. At least annually, our companies
reassess the obligation to determine whether a change in any estimated
obligation is necessary. Our company has evaluated whether there are indicators
that suggest the estimated cash flows underlying the obligation have materially
changed. At December 31, 2008, an asset retirement obligation of $162,903 was
accrued on the financial statements.

Stock-based Compensation

Management has made significant assumptions and estimates
determining the fair market value of stock-based compensation granted to
employees and non-employees. These estimates have an effect on the stock-based

32

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compensation expense recognized and the additional paid-in
capital and share capital balances on our companys Balance Sheet. The value of
each option award is estimated on the date of grant using the Black-Scholes
option-pricing model. For non-employees, such amount is revalued on a quarterly
basis. To date, substantially all of our stock option grants have been to
directors. Increases in our share price will likely result in increased stock
option compensation expense. The Black-Scholes option-pricing model requires the
input of subjective assumptions, including the expected term of the option award
and stock price volatility. The expected term of options granted for the
purposes of the Black-Scholes calculation is the term of the award. These
estimates involve inherent uncertainties and the application of management
judgment.

Recently Issued Accounting Standards

In March 2008, the FASB issued SFAS Statement No. 161,
Disclosures about Derivative Instruments and Hedging Activities (SFAS
161).The new standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entitys financial
position, financial performance and cash flows. It is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The Company is currently evaluating
the impact of the provisions of SFAS No. 161.

In May 2008, the FASB issued SFAS Statement No. 162, The
Hierarchy of Generally Accepted Accounting Principles (SFAS 162). The new
standard is intended to improve financial reporting by identifying a consistent
framework, or hierarchy, for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with US
generally accepted accounting principles (GAAP) for non-governmental entities.
SFAS 162 is not expected to have a material impact on the Companys consolidated
financial statements.

In May 2008, the FASB issued SFAS Statement No. 163,
Accounting for Financial Guarantee Insurance Contracts (FASB 163). The new
standard clarifies how FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises, applies to financial guarantee insurance contracts
issued by insurance enterprises, including the recognition and measurement of
premium revenue and claim liabilities. It also requires expanded disclosures
about financial guarantee insurance contracts. The Statement is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years, except for disclosures about
the insurance enterprises risk-management activities. Disclosures about the
insurance enterprises risk-management activities are effective the first period
beginning after issuance of the Statement. SFAS 163 is not expected to have a
material impact on the Companys consolidated financial statements.

Disclosure and Internal Controls and
Procedures

Managements Evaluation of Disclosure Controls and
Procedures

Our management, including our principal executive officer who
is also our principal financial officer, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e))
as of the end of the period covered by this report. Based on that evaluation,
our principal executive officer and principal financial officer concluded that
as of the end of the period covered by this report, we have maintained effective
disclosure controls and procedures in all material respects, including those
necessary to ensure that information required to be disclosed in reports filed
or submitted with the SEC (i) is recorded, processed, and reported within the
time periods specified by the SEC, and (ii) is accumulated and communicated to
management, including our principal executive officer and principal financial
officer, as appropriate to allow for timely decision regarding required
disclosure.

There have been no changes in our internal control over
financial reporting that occurred during the last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

Managements Report on Internal Control over Financial
Reporting

Our management is responsible for establishing and maintaining
effective internal control over financial reporting as defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934. The Companys internal control
over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the

33

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preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Companys internal
control over financial reporting as of December 31, 2008 using the criteria set
forth in Internal Control  Integrated Frameworkissued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management believes that, as of December 31, 2008, the Companys
internal control over financial reporting was not effective based on those
criteria. Based on the assessment, management has noted the following in regards
to its internal controls:

| | a) | The Company does not review certain expenditures in a
      U.S. bank account on a regular basis; and                          
| | -- | -------------------------------------------------------------------------------------------------------------------------------
| | b) | The Company does not have the proper procedure for
      recording and reporting changes in the US dollar to Canadian
  dollar.

The Companys management has and continues to take action to
correct the known deficiencies and it plans to remain vigilant and to implement
improvements, as needed, to ensure that its internal control over financial
reporting is effective. These efforts include formalizing the assessment process
by identifying and scheduling periodic internal testing of the various systems
and process involved in its internal control over financial reporting.

This annual report does not include an attestation report of
the Companys registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by the
Companys registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
managements report in this annual report.

Qualified Person and Caution With Respect to
Forward-looking Statements

Mr. H. Lutz Klingmann, P.Eng., the president of the Company, is
a qualified person for the purposes of National Instrument 43-101 and has
reviewed and approved the technical information in this MD&A.

This MD&A contains certain forward-looking statements,
which relate to the intent, belief and current expectations of the Companys
management. These forward-looking statements are based upon numerous assumptions
that involve risks and uncertainties and other factors that may cause actual
results to differ materially from those indicated by such forward-looking
statements. Such factors include among other things the receipt of required
approvals and permits, the costs of and availability of sufficient capital to
fund the projects to be undertaken by the Company, commodity prices and other
factors. Readers are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date the statements were
made.

Caution to U.S. Investors

We advise U.S. investors that while the terms measured
resources, indicated resources and inferred resources are recognized and
required by Canadian regulations, the U.S. Securities and Exchange Commission
does not recognize these terms. U.S. investors are cautioned not to assume that
any part or all of the material in the mineral resource categories will be
converted into mineral reserves.

Additional Information

Further information on Golden Queen Mining Co. Ltd. is
available on the SEDAR web site at www.sedar.com and on the Companys web site at www.goldenqueen.com.

Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.

None.

34

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Item 8. Financial Statements and Supplementary Data.

The Consolidated Financial Statements of the Company and the
notes thereto are attached to this report following the signature page and
Certifications.

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.

None.

Item 9A(T). Controls and Procedures.

Managements Evaluation of Disclosure Controls and
Procedures

Our management, including our principal executive officer who
is also our principal financial officer, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e))
as of the end of the period covered by this report. Based on that evaluation,
our principal executive officer and principal financial officer concluded that
as of the end of the period covered by this report, we have maintained effective
disclosure controls and procedures in all material respects, including those
necessary to ensure that information required to be disclosed in reports filed
or submitted with the SEC (i) is recorded, processed, and reported within the
time periods specified by the SEC, and (ii) is accumulated and communicated to
management, including our principal executive officer and principal financial
officer, as appropriate to allow for timely decision regarding required
disclosure.

There have been no changes in our internal control over
financial reporting that occurred during the last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

Managements Report on Internal Control over Financial
Reporting

Our management is responsible for establishing and maintaining
effective internal control over financial reporting as defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934. The Companys internal control
over financial reporting is 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.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Companys internal
control over financial reporting as of December 31, 2008 using the criteria set
forth in Internal Control  Integrated Frameworkissued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management believes that, as of December 31, 2008, the Companys
internal control over financial reporting was not effective based on those
criteria. Based on the assessment, management has noted the following in regards
to its internal controls:

| | c) | The Company needs to reassess and improve internal
      controls for compliance with Canadian Multilateral Instrument 52-109 and
      Item 404 under the U.S. Sarbanes Oxley Act; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | d) | The Companys procedure for recording and reporting
      changes in the US dollar to Canadian dollar exchange rate needs to be
      improved upon.                                   

The Companys management has and continues to take action to
correct the known deficiencies and it plans to remain vigilant and to implement
improvements, as needed, to ensure that its internal control over financial
reporting is effective. These efforts include formalizing the assessment process
by identifying and scheduling periodic internal testing of the various systems
and process involved in its internal control over financial reporting.

This annual report does not include an attestation report of
the Companys registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by the

35

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Companys registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
Company to provide only managements report in this annual report.

Item 9B. Other Information

None.

PART III

Information with respect to Items 10 through 14 is set forth in
the definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or before May 1, 2009 and is incorporated herein by reference. If
the definitive Proxy Statement cannot be filed on or before May 1, 2009, the
issuer will instead file an amendment to this Form 10 K disclosing the
information with respect to Items 10 through 14.

36

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PART IV

Item 15. Exhibits

(a) Exhibits

|Exhibit |  | Description of Exhibit                                                                                                                                                                                   |  | Manner of Filing                                                                                                                                                             
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |  |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|        |  |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|3.1     |  | Certificate of
        Incorporation, Articles of Incorporation, Memorandum, and all current
        amendments thereto of the registrant under the Company Act of British
        Columbia, as amended. |  | Incorporated
        by reference to Exhibit 3.1 to the Form 10- SB of the Company, filed with
        the SEC on November 21, 1996 and amendments thereto (the Form 10-SB)
|        |  |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|10.1    |  | Lease dated October
        20, 1994 between the Subsidiary and William J. Warner with respect to
        certain property within the project area.                                                      |  | Incorporated
        by reference to Exhibit 10.5 to the Form 10- SB                                                                                                         
|        |  |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|10.2    |  | Lease dated September
        19, 1994 between the Subsidiary and Western Centennials, Inc., with respect
        to certain property within the project area.                                           |  | Incorporated
        by reference to Exhibit 10.6 to the Form 10- SB                                                                                                         
|        |  |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|10.3    |  | 1996 Stock option
        plan of the registrant, as amended.                                                                                                                                            |  | Incorporated
        by reference to Exhibit 10.13 to the Form 10- SB                                                                                                        
|        |  |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|21.1    |  | Subsidiaries
        of the Registrant.                                                                                                                                                                  |  | Incorporated
        by reference to Exhibit 24.0 to the Form 10- SB                                                                                                         
|        |  |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|23.1    |  | Consent
      of BDO Dunwoody, LLP                                                                                                                                                                       |  | Filed
      herewith                                                                                                                                                         
|        |  |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|31.1    |  | Rule
      13a-14(a)/15(d)-14(a) Certification                                                                                                                                                           |  | Filed
      herewith                                                                                                                                                         
|        |  |                                                                                                                                                                                                          |  |                                                                                                                                                                              
|32.1    |  | Section
      1350 Certification                                                                                                                                                                         |  | Filed
      herewith                                                                                                                                                         

37

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

|GOLDEN QUEEN MINING CO. LTD. |                                      
|---------------------------- | -------------------------------------
|                             |                                      
|By:                          | /s/ H.
      Lutz Klingmann          
|                             | H. Lutz Klingmann                    
|                             | President and Chief Executive Officer
|                             |                                      
|                             | Date: March 31, 2009                 

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

|Signature                   | Title                                                   | Date          
|--------------------------- | ------------------------------------------------------- | --------------
|                            |                                                         |               
|                            |                                                         |               
|                            | President, Principal Executive Officer,
      Principal | March 31, 2009
|/s/ H. Lutz
      Klingmann | Financial Officer, and Director                         |               
|H. Lutz Klingmann           |                                                         |               
|                            |                                                         |               
|                            |                                                         |               
|/s/ Edward
      Thompson   | Director                                                | March 31, 2009
|Edward Thompson             |                                                         |               
|                            |                                                         |               
|                            |                                                         |               
|/s/ Chester
      Shynkaryk | Director                                                | March 31, 2009
|Chester Shynkaryk           |                                                         |               
|                            |                                                         |               
|                            |                                                         |               
|/s/ Gordon Gutrath          | Director                                                | March 31, 2009
|Gordon Gutrath              |                                                         |               
|                            |                                                         |               
|                            |                                                         |               
|/s/ Thomas Clay             | Director                                                | March 31, 2009
|Thomas Clay                 |                                                         |               

38

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|                      | BDO DunwoodyLLP               | 600 Cathedral Place
|--------------------- | ----------------------------- | -------------------
|Chartered Accountants | 925 West Georgia Street      
|                      | Vancouver, BC, Canada V6C 3L2
|                      | Telephone: (604) 688-5421    
|                      | Telefax: (604) 688-5132      
|                      | E-mail:vancouver@bdo.ca      
|                      | www.bdo.ca                   

|                                                             
|-------------------------------------------------------------
|Report of Independent Registered Public
      Accounting Firm
|                                                             

To the Shareholders ofGolden Queen Mining Co. Ltd. (An
exploration stage company)

We have audited the accompanying consolidated balance sheets of
Golden Queen Mining Co. Ltd. (an exploration stage company), as of December 31,
2008 and 2007, and the consolidated statements of loss, changes in shareholders
equity, (capital deficit) and cash flows for the years then ended. We have also
audited the statements of loss, changes in shareholders equity (capital
deficit), and cash flows for the period from inception (November 21, 1985)
through December 31, 2008, except that we did not audit these financial
statements for the period from inception (November 21, 1985) through May 31,
1996; those statements were audited by other auditors whose report dated July
12, 1996, expressed an unqualified opinion on those statements. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. Our opinion, insofar as it relates to the
amounts for the period from inception (November 21, 1985) through May 31, 1996,
is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, based on our audits and the report of other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects the financial position of Golden Queen Mining
Co. Ltd., as of December 31, 2008 and 2007, and the results of its operations
and its cash flows for the years then ended and for the period from inception
(November 21, 1985) through December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company had a $49,417,584
deficit accumulated during the exploration stage as of December 31, 2008. These
conditions raise substantial doubt about the Companys ability to continue as a
going concern. Managements plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/s/ BDO Dunwoody LLP

Chartered Accountants Vancouver, Canada March 27,
2009

---

|GOLDEN QUEEN MINING CO. LTD.  
|------------------------------
|(An exploration stage company)
|Consolidated Balance Sheets   
|(US dollars)                  

|                                                       |   | December 31, |   |   | December 31, |  
|------------------------------------------------------ | - | ------------ | - | - | ------------ | -
|                                                       |   | 2008         |   |   | 2007         |  
|Assets                                                 |   |              |   |   |              |  
|                                                       |   |              |   |   |              |  
|Current assets:                                        |   |              |   |   |              |  
|Cash and
      cash equivalents                        | $ | 3,033,771    |   | $ | 2,796,190    |  
|Receivables                                            |   | 20,051       |   |   | 43,543       |  
|Prepaid
      expenses and other current assets        |   | 19,846       |   |   | 21,445       |  
|                                                       |   |              |   |   |              |  
|Total current assets                                   |   | 3,073,668    |   |   | 2,861,178    |  
|                                                       |   |              |   |   |              |  
|Property and equipment,
      net (Note 2)             |   | 211,940      |   |   | 218,067      |  
|Reclamation financial assurance (Note
      3)         |   | 271,808      |   |   | 266,692      |  
|                                                       |   |              |   |   |              |  
|Total Assets                                           | $ | 3,557,416    |   | $ | 3,345,937    |  
|                                                       |   |              |   |   |              |  
|Liabilities and Shareholders Equity                   |   |              |   |   |              |  
|                                                       |   |              |   |   |              |  
|Current liabilities:                                   |   |              |   |   |              |  
|Accounts
      payable                                 | $ | 172,702      |   | $ | 135,949      |  
|Advance minimum royalties
      (Note 8)               |   | 48,034       |   |   | 72,484       |  
|Accrued
      liabilities                              |   | 76,341       |   |   | 81,751       |  
|                                                       |   |              |   |   |              |  
|Total current
      liabilities                        |   | 297,077      |   |   | 290,184      |  
|                                                       |   |              |   |   |              |  
|Asset retirement
      obligations (Note 7)            |   | 162,903      |   |   | 145,965      |  
|                                                       |   |              |   |   |              |  
|Total liabilities                                      |   | 459,980      |   |   | 436,149      |  
|                                                       |   |              |   |   |              |  
|Shareholders equity:                                  |   |              |   |   |              |  
|Preferred shares, no par
      value, 3,000,000 shares |   |              |   |   |              |  
|authorized; no shares outstanding                      |   |              |   |   |              |  
|Common shares, no par
      value, 100,000,000 shares  |   |              |   |   |              |  
|authorized; 85,640,883 (2007  78,440,883) shares      |   |              |   |   |              |  
|issued and
      outstanding (Note 6)                  |   | 48,677,903   |   |   | 44,493,478   |  
|Additional paid-in capital                             |   | 3,837,117    |   |   | 3,837,117    |  
|Deficit accumulated
      during the exploration stage |   | (49,417,584  | ) |   | (45,420,807  | )
|                                                       |   |              |   |   |              |  
|Total shareholders equity                             |   | 3,097,436    |   |   | 2,909,788    |  
|                                                       |   |              |   |   |              |  
|Total liabilities and shareholders equity             | $ | 3,557,416    |   | $ | 3,345,937    |  

Financial Condition and Ability to Continue as a Going Concern
(Note 1)

Commitments and contingencies (Notes 4, 7 and 8)

Subsequent Event (Note 11)

Approved by the Directors:

|/s/ H. Lutz Klingmann       |  | /s/ Chester Shynkaryk      
|--------------------------- |  | ---------------------------
|H. Lutz Klingmann, Director |  | Chester Shynkaryk, Director

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements

p2

---

|GOLDEN QUEEN MINING CO. LTD.   
|-------------------------------
|(An exploration stage company) 
|Consolidated Statements of Loss
|(US dollars)                   

|                                                   |   |              |   |   |              |   |   | Cumulative        |  
|-------------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ----------------- | -
|                                                   |   |              |   |   |              |   |   | Amounts From      |  
|                                                   |   |              |   |   |              |   |   | Date of Inception |  
|                                                   |   | Year Ended   |   |   | Year Ended   |   |   | (November 21,     |  
|                                                   |   | December 31, |   |   | December 31, |   |   | 1985) through     |  
|                                                   |   | 2008         |   |   | 2007         |   |   | December 31, 2008 |  
|                                                   |   |              |   |   |              |   |   |                   |  
|General and administrative expenses                | $ | (2,817,429   | ) | $ | (1,907,159   | ) | $ | (17,480,847       | )
|Asset impairment loss                              |   | (1,270,366   | ) |   | (246,283     | ) |   | (31,967,694       | )
|Adjustment to asset retirement obligation
      on |   |              |   |   |              |   |   |                   |  
|changes in cash flow estimates (Note
      7)      |   | 275          |   |   | (1,485       | ) |   | 230,465           |  
|Accretion expense                                  |   | (17,213      | ) |   | (11,930      | ) |   | (47,602           | )
|Gain on settlement of debt                         |   | -            |   |   | -            |   |   | 136,627           |  
|Abandoned mineral interests                        |   | -            |   |   | -            |   |   | (277,251          | )
|                                                   |   |              |   |   |              |   |   |                   |  
|                                                   |   | (4,104,733   | ) |   | (2,166,857   | ) |   | (49,406,302       | )
|                                                   |   |              |   |   |              |   |   |                   |  
|Interest expense                                   |   | -            |   |   | -            |   |   | (913,098          | )
|Interest income                                    |   | 107,956      |   |   | 160,375      |   |   | 1,589,917         |  
|                                                   |   |              |   |   |              |   |   |                   |  
|Net loss                                           | $ | (3,996,777   | ) | $ | (2,006,482   | ) | $ | (48,729,483       | )
|                                                   |   |              |   |   |              |   |   |                   |  
|Net loss per share - basic and diluted             | $ | (0.05        | ) | $ | (0.03        | ) |   |                   |  
|                                                   |   |              |   |   |              |   |   |                   |  
|Weighted average common shares                     |   |              |   |   |              |   |   |                   |  
|outstanding                                        |   | 85,539,184   |   |   | 78,339,184   |   |   |                   |  

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements

p3

---

|GOLDEN QUEEN MINING CO. LTD.                                                      
|----------------------------------------------------------------------------------
|(An exploration stage company)                                                    
|Consolidated Statements of Changes in Shareholders
      Equity (Capital Deficit)
|(US dollars)                                                                      

|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   | Deficit           |   |   | Total           |  
|----------------------------------------- |  | ---------- |  | - | ---------- |  | - | ------------ |  | - | ---------- |  | - | ----------------- | - | - | --------------- | -
|                                          |  |            |  |   |            |  |   |              |  |   | Additional |  |   | Accumulated       |   |   | Shareholders   |  
|From the Date of Inception (November      |  | Common     |  |   |            |  |   | Stock        |  |   | Paid-in    |  |   | During the        |   |   | Equity (Capital |  
|21,
      1985) through December 31, 2008 |  | Shares     |  |   | Amount     |  |   | Subscription |  |   | Capital    |  |   | Exploration Stage |   |   | Deficit)        |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|November 21, 1985                         |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 1,425,001  |  | $ | 141,313    |  | $ | -            |  | $ | -          |  | $ | -                 |   | $ | 141,313         |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (15,032           | ) |   | (15,032         | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1986                     |  | 1,425,001  |  |   | 141,313    |  |   | -            |  |   | -          |  |   | (15,032           | ) |   | 126,281         |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 550,000    |  |   | 256,971    |  |   | -            |  |   | -          |  |   | -                 |   |   | 256,971         |  
|Issuance of common shares for mineral     |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|property                                  |  | 25,000     |  |   | 13,742     |  |   | -            |  |   | -          |  |   | -                 |   |   | 13,742          |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (58,907           | ) |   | (58,907         | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1987                     |  | 2,000,001  |  |   | 412,026    |  |   | -            |  |   | -          |  |   | (73,939           | ) |   | 338,087         |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 1,858,748  |  |   | 1,753,413  |  |   | -            |  |   | -          |  |   | -                 |   |   | 1,753,413       |  
|Net income for the year                   |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | 38,739            |   |   | 38,739          |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1988                     |  | 3,858,749  |  |   | 2,165,439  |  |   | -            |  |   |            |  |   | (35,200           | ) |   | 2,130,239       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 1,328,750  |  |   | 1,814,133  |  |   | -            |  |   | -          |  |   | -                 |   |   | 1,814,133       |  
|Issuance of common shares for mineral     |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|property                                  |  | 100,000    |  |   | 227,819    |  |   | -            |  |   | -          |  |   | -                 |   |   | 227,819         |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (202,160          | ) |   | (202,160        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1989                     |  | 5,287,499  |  |   | 4,207,391  |  |   | -            |  |   | -          |  |   | (237,360          | ) |   | 3,970,031       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 1,769,767  |  |   | 2,771,815  |  |   | -            |  |   | -          |  |   | -                 |   |   | 2,771,815       |  
|Issuance of common shares for mineral     |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|property                                  |  | 8,875      |  |   | 14,855     |  |   | -            |  |   | -          |  |   | -                 |   |   | 14,855          |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (115,966          | ) |   | (115,966        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1990                     |  | 7,066,141  |  |   | 6,994,061  |  |   | -            |  |   | -          |  |   | (353,326          | ) |   | 6,640,735       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Net income for the year                   |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | 28,706            |   |   | 28,706          |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1991                     |  | 7,066,141  |  |   | 6,994,061  |  |   | -            |  |   | -          |  |   | (324,620          | ) |   | 6,669,441       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (157,931          | ) |   | (157,931        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1992                     |  | 7,066,141  |  |   | 6,994,061  |  |   | -            |  |   | -          |  |   | (482,551          | ) |   | 6,511,510       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (285,391          | ) |   | (285,391        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1993                     |  | 7,066,141  |  |   | 6,994,061  |  |   | -            |  |   | -          |  |   | (767,942          | ) |   | 6,226,119       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 5,834,491  |  |   | 1,536,260  |  |   | -            |  |   | -          |  |   | -                 |   |   | 1,536,260       |  
|Share issuance costs                      |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (18,160           | ) |   | (18,160         | )
|Issuance of common shares for mineral     |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|property                                  |  | 128,493    |  |   | 23,795     |  |   | -            |  |   | -          |  |   | -                 |   |   | 23,795          |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (158,193          | ) |   | (158,193        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1994                     |  | 13,029,125 |  |   | 8,554,116  |  |   | -            |  |   | -          |  |   | (944,295          | ) |   | 7,609,821       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 648,900    |  |   | 182,866    |  |   | -            |  |   | -          |  |   | -                 |   |   | 182,866         |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (219,576          | ) |   | (219,576        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1995                     |  | 13,678,025 |  |   | 8,736,982  |  |   | -            |  |   | -          |  |   | (1,163,871        | ) |   | 7,573,111       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 2,349,160  |  |   | 2,023,268  |  |   | -            |  |   | -          |  |   | -                 |   |   | 2,023,268       |  
|Issuance of common shares for debt        |  | 506,215    |  |   | 662,282    |  |   | -            |  |   | -          |  |   | -                 |   |   | 662,282         |  
|Issuance of 5,500,000 special warrants    |  | -          |  |   | 9,453,437  |  |   | -            |  |   | -          |  |   | -                 |   |   | 9,453,437       |  
|Special warrants issuance costs           |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (100,726          | ) |   | (100,726        | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (426,380          | ) |   | (426,380        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1996                     |  | 16,533,400 |  | $ | 20,875,969 |  | $ | -            |  | $ | -          |  | $ | (1,690,977        | ) | $ | 19,184,992      |  

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements

p4

---

|GOLDEN QUEEN MINING CO. LTD.                                                      
|----------------------------------------------------------------------------------
|(An exploration stage company)                                                    
|Consolidated Statements of Changes in Shareholders
      Equity (Capital Deficit)
|(US dollars)                                                                      

|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   | Deficit           |   |   | Total           |  
|----------------------------------------- |  | ---------- |  | - | ---------- |  | - | ------------ | - | - | --------------- | - | - | ----------------- | - | - | --------------- | -
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   | Accumulated       |   |   | Shareholders   |  
|From the Date of Inception (November      |  | Common     |  |   |            |  |   | Stock        |   |   | Additional      |   |   | During the        |   |   | Equity (Capital |  
|21,
      1985) through December 31, 2008 |  | Shares     |  |   | Amount     |  |   | Subscription |   |   | Paid-in Capital |   |   | Exploration Stage |   |   | Deficit)        |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Balance, carried forward from previous    |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|page                                      |  | 16,533,400 |  | $ | 20,875,969 |  | $ | -            |   | $ | -               |   | $ | (1,690,977        | ) | $ | 19,184,992      |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 18,000     |  |   | 10,060     |  |   | -            |   |   | -               |   |   | -                 |   |   | 10,060          |  
|Issuance of common shares for special     |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|warrants                                  |  | 5,500,000  |  |   | -          |  |   | -            |   |   | -               |   |   | -                 |   |   | -               |  
|Special warrants issuance costs           |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (123,806          | ) |   | (123,806        | )
|Net loss for the period                   |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (348,948          | ) |   | (348,948        | )
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Balance, December 31, 1996                |  | 22,051,400 |  |   | 20,886,029 |  |   | -            |   |   | -               |   |   | (2,163,731        | ) |   | 18,722,298      |  
|Issuance of common shares for cash        |  | 157,000    |  |   | 157,050    |  |   | -            |   |   | -               |   |   | -                 |   |   | 157,050         |  
|Issuance of 3,500,000 special warrants    |  | -          |  |   | 5,287,315  |  |   | -            |   |   | -               |   |   | -                 |   |   | 5,287,315       |  
|Issuance of common shares for special     |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|warrants                                  |  | 3,500,000  |  |   | -          |  |   | -            |   |   | -               |   |   | -                 |   |   | -               |  
|Options to non-employee directors         |  | -          |  |   | -          |  |   | -            |   |   | 70,200          |   |   | -                 |   |   | 70,200          |  
|Special warrants issuance costs           |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (163,313          | ) |   | (163,313        | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (1,047,869        | ) |   | (1,047,869      | )
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Balance, December 31, 1997                |  | 25,708,400 |  |   | 26,330,394 |  |   | -            |   |   | 70,200          |   |   | (3,374,913        | ) |   | 23,025,681      |  
|Issuance of common shares upon            |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|exercise of warrants                      |  | 1,834,300  |  |   | 857,283    |  |   | -            |   |   | -               |   |   | -                 |   |   | 857,283         |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|conversion of debt                        |  | 2,017,941  |  |   | 1,000,000  |  |   | -            |   |   | -               |   |   | -                 |   |   | 1,000,000       |  
|Share issuance costs                      |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (6,060            | ) |   | (6,060          | )
|Issuance of common shares for cash        |  | 5,236,000  |  |   | 2,439,753  |  |   | -            |   |   | -               |   |   | -                 |   |   | 2,439,753       |  
|Options and re-priced options to non-     |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|employee directors                        |  | -          |  |   | -          |  |   | -            |   |   | 107,444         |   |   | -                 |   |   | 107,444         |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (971,595          | ) |   | (971,595        | )
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Balance, December 31, 1998                |  | 34,796,641 |  |   | 30,627,430 |  |   | -            |   |   | 177,644         |   |   | (4,352,568        | ) |   | 26,452,506      |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Issuance of 13,250,000 special warrants   |  | -          |  |   | 3,350,915  |  |   | -            |   |   | -               |   |   | -                 |   |   | 3,350,915       |  
|Special warrants issuance costs           |  | -          |  |   |            |  |   | -            |   |   | -               |   |   | (166,620          | ) |   | (166,620        | )
|Issuance of common shares for             |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|special warrants                          |  | 13,250,000 |  |   | -          |  |   | -            |   |   | -               |   |   | -                 |   |   | -               |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (564,657          | ) |   | (564,657        | )
|Balance, December 31, 1999                |  | 48,046,641 |  |   | 33,978,345 |  |   | -            |   |   | 177,644         |   |   | (5,083,845        | ) |   | 29,072,144      |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Cumulative effect of change in            |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|accounting for stock options              |  | -          |  |   | -          |  |   | -            |   |   | (177,644        | ) |   | -                 |   |   | (177,644        | )
|Stock subscription                        |  | -          |  |   | -          |  |   | 200,000      |   |   | -               |   |   | -                 |   |   | 200,000         |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (28,708,276       | ) |   | (28,708,276     | )
|Balance, December 31, 2000                |  | 48,046,641 |  |   | 33,978,345 |  |   | 200,000      |   |   | -               |   |   | (33,792,121       | ) |   | 386,224         |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|conversion of debt                        |  | 406,250    |  |   | 65,000     |  |   | -            |   |   | -               |   |   | -                 |   |   | 65,000          |  
|Issuance of common shares for             |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|conversion of stock
      subscription    |  | 1,538,462  |  |   | 200,000    |  |   | (200,000     | ) |   | -               |   |   | -                 |   |   | -               |  
|Share issuance costs                      |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (3,337            | ) |   | (3,337          | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (262,059          | ) |   | (262,059        | )
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Balance, December 31, 2001                |  | 49,991,353 |  | $ | 34,243,345 |  | $ | -            |   | $ | -               |   | $ | (34,057,517       | ) | $ | 185,828         |  

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements.

p5

---

|GOLDEN QUEEN MINING CO. LTD.                                                      
|----------------------------------------------------------------------------------
|(An exploration stage company)                                                    
|Consolidated Statements of Changes in Shareholders
      Equity (Capital Deficit)
|(US dollars)                                                                      

|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   | Deficit           |   |   | Total           |  
|----------------------------------------- |  | ---------- |  | - | ---------- |  | - | ------------ |  | - | --------------- |  | - | ----------------- | - | - | --------------- | -
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   | Accumulated       |   |   | Shareholders   |  
|From the Date of Inception (November      |  | Common     |  |   |            |  |   | Stock        |  |   | Additional      |  |   | During the        |   |   | Equity (Capital |  
|21,
      1985) through December 31, 2008 |  | Shares     |  |   | Amount     |  |   | Subscription |  |   | Paid-in Capital |  |   | Exploration Stage |   |   | Deficit)        |  
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Balance, carried forward from previous    |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|page                                      |  | 49,991,353 |  | $ | 34,243,345 |  | $ | -            |  | $ | -               |  | $ | (34,057,517       | ) | $ | 185,828         |  
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of options                       |  | 290,000    |  |   | 37,234     |  |   | -            |  |   | -               |  |   | -                 |   |   | 37,234          |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of warrants                      |  | 1,520,836  |  |   | 243,334    |  |   | -            |  |   | -               |  |   | -                 |   |   | 243,334         |  
|Stock option compensation                 |  | -          |  |   | -          |  |   | -            |  |   | 21,456          |  |   | -                 |   |   | 21,456          |  
|Share issuance costs                      |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (4,216            | ) |   | (4,216          | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (347,603          | ) |   | (347,603        | )
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Balance, December 31, 2002                |  | 51,802,189 |  |   | 34,523,913 |  |   | -            |  |   | 21,456          |  |   | (34,409,336       | ) |   | 136,033         |  
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of options                       |  | 100,000    |  |   | 24,379     |  |   | -            |  |   | -               |  |   | -                 |   |   | 24,379          |  
|Equity component of convertible notes     |  | -          |  |   | -          |  |   | -            |  |   | 375,000         |  |   | -                 |   |   | 375,000         |  
|Stock option compensation                 |  | -          |  |   | -          |  |   | -            |  |   | 127,326         |  |   | -                 |   |   | 127,326         |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (744,516          | ) |   | (744,516        | )
|Balance, December 31, 2003                |  | 51,902,189 |  |   | 34,548,292 |  |   | -            |  |   | 523,782         |  |   | (35,153,852       | ) |   | (81,778         | )
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 8,000,000  |  |   | 3,036,282  |  |   | -            |  |   | -               |  |   | -                 |   |   | 3,036,282       |  
|Issuance of common shares for             |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|convertible notes                         |  | 978,260    |  |   | 225,000    |  |   | -            |  |   | -               |  |   | -                 |   |   | 225,000         |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of options                       |  | 200,000    |  |   | 55,861     |  |   | -            |  |   | -               |  |   | -                 |   |   | 55,861          |  
|Share issuance costs                      |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (38,975           | ) |   | (38,975         | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (1,772,250        | ) |   | (1,772,250      | )
|Balance, December 31, 2004                |  | 61,080,449 |  |   | 37,865,435 |  |   | -            |  |   | 523,782         |  |   | (36,965,077       | ) |   | 1,424,140       |  
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of options                       |  | 110,000    |  |   | 21,049     |  |   | -            |  |   | -               |  |   | -                 |   |   | 21,049          |  
|Stock option compensation                 |  | -          |  |   | -          |  |   | -            |  |   | 48,592          |  |   | -                 |   |   | 48,592          |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (1,476,324        | ) |   | (1,476,324      | )
|Balance, December 31, 2005                |  | 61,190,449 |  |   | 37,886,484 |  |   | -            |  |   | 572,374         |  |   | (38,441,401       | ) |   | 17,457          |  
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|private placement                         |  | 7,200,000  |  |   | 1,614,716  |  |   | -            |  |   | 1,520,899       |  |   | -                 |   |   | 3,135,615       |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of options                       |  | 100,000    |  |   | 30,853     |  |   | -            |  |   | -               |  |   | -                 |   |   | 30,853          |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of warrants                      |  | 8,978,260  |  |   | 4,659,173  |  |   | -            |  |   | -               |  |   | -                 |   |   | 4,659,173       |  
|Issuance of common shares for             |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|convertible notes                         |  | 652,174    |  |   | 150,000    |  |   | -            |  |   | 39,917          |  |   | -                 |   |   | 189,917         |  
|Stock option compensation                 |  | -          |  |   | -          |  |   | -            |  |   | 814,810         |  |   | -                 |   |   | 814,810         |  
|Modification of warrants                  |  | -          |  |   | -          |  |   | -            |  |   | 889,117         |  |   | -                 |   |   | 889,117         |  
|Share issuance costs                      |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (62,888           | ) |   | (62,888         | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (4,910,036        | ) |   | (4,910,036      | )
|Balance, December 31, 2006                |  | 78,120,883 |  |   | 44,341,226 |  |   | -            |  |   | 3,837,117       |  |   | (43,414,325       | ) |   | 4,764,018       |  
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Issuance of common shares for exercise    |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|of options (Note 6)                       |  | 290,000    |  |   | 127,652    |  |   | -            |  |   | -               |  |   | -                 |   |   | 127,652         |  
|Issuance of common shares for property    |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|(Note 6)                                  |  | 30,000     |  |   | 24,600     |  |   | -            |  |   | -               |  |   | -                 |   |   | 24,600          |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (2,006,482        | ) |   | (2,006,482      | )
|Balance, December 31, 2007                |  | 78,440,883 |  |   | 44,493,478 |  |   | -            |  |   | 3,837,117       |  |   | (45,420,807       | ) |   | 2,909,788       |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of warrants (Note 6)             |  | 7,200,000  |  |   | 4,184,425  |  |   | -            |  |   | -               |  |   | -                 |   |   | 4,184,425       |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (3,996,777        | ) |   | (3,996,777      | )
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Balance, December 31, 2008                |  | 85,640,883 |  | $ | 48,677,903 |  | $ | -            |  | $ | 3,837,117       |  | $ | (49,417,584       | ) | $ | 3,097,436       |  

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements

p6

---

|GOLDEN QUEEN MINING CO. LTD.         
|-------------------------------------
|(An exploration stage company)       
|Consolidated Statements of Cash Flows
|(US dollars)                         

|                                          |   |              |   |   |              |   |   | Cumulative Amounts     |  
|----------------------------------------- | - | ------------ | - | - | ------------ | - | - | ---------------------- | -
|                                          |   |              |   |   |              |   |   | From Date of Inception |  
|                                          |   | Year Ended   |   |   | Year Ended   |   |   | (November 21, 1985)    |  
|                                          |   | December 31, |   |   | December 31, |   |   | through December 31,   |  
|                                          |   | 2008         |   |   | 2007         |   |   | 2008                   |  
|Operating activities:                     |   |              |   |   |              |   |   |                        |  
|Net loss                                  | $ | (3,996,777   | ) | $ | (2,006,482   | ) | $ | (48,729,483            | )
|Adjustments to reconcile net loss to cash |   |              |   |   |              |   |   |                        |  
|(used in) operating
      activities:     |   |              |   |   |              |   |   |                        |  
|Asset impairment loss                     |   | -            |   |   | 246,283      |   |   | 30,697,328             |  
|Abandoned mineral interests               |   | -            |   |   | -            |   |   | 277,251                |  
|Amortization and depreciation             |   | 6,127        |   |   | 6,137        |   |   | 455,777                |  
|Amortization of debt discount             |   | -            |   |   | -            |   |   | 375,000                |  
|Adjustment to asset retirement obligation |   |              |   |   |              |   |   |                        |  
|based on changes
      in cash flow       |   |              |   |   |              |   |   |                        |  
|estimates                                 |   | (275         | ) |   | 1,485        |   |   | (230,465               | )
|Accretion expense                         |   | 17,213       |   |   | 11,930       |   |   | 47,602                 |  
|Gain on disposition of property and       |   |              |   |   |              |   |   |                        |  
|equipment                                 |   | -            |   |   | -            |   |   | (10,032                | )
|Stock option compensation                 |   | -            |   |   | -            |   |   | 1,012,184              |  
|Financing charges related to              |   |              |   |   |              |   |   |                        |  
|modification of warrants                  |   | -            |   |   | -            |   |   | 889,117                |  
|Mineral property expenditures             |   | -            |   |   | -            |   |   | (22,395,449            | )
|Changes in assets and liabilities:        |   |              |   |   |              |   |   |                        |  
|Receivables                               |   | 23,492       |   |   | (11,305      | ) |   | (20,051                | )
|Prepaid expenses and other current        |   |              |   |   |              |   |   |                        |  
|assets                                    |   | 1,599        |   |   | (1,277       | ) |   | (106,756               | )
|Accounts payable and accrued liabilities  |   | 31,343       |   |   | (40,551      | ) |   | 288,960                |  
|Royalty and mining rights
      payable   |   | (24,450      | ) |   | (107,499     | ) |   | 48,034                 |  
|                                          |   |              |   |   |              |   |   |                        |  
|Cash used in operating activities         |   | (3,941,728   | ) |   | (1,901,279   | ) |   | (37,400,983            | )
|                                          |   |              |   |   |              |   |   |                        |  
|Investing activities:                     |   |              |   |   |              |   |   |                        |  
|Purchase of mineral properties            |   | -            |   |   | (221,683     | ) |   | (6,365,092             | )
|Deposits on mineral properties            |   | -            |   |   | -            |   |   | (1,017,551             | )
|Purchase of reclamation bonds             |   | (5,116       | ) |   | (21,355      | ) |   | (271,808               | )
|Purchase of property and
      equipment  |   | -            |   |   | -            |   |   | (1,313,838             | )
|Proceeds from sale of property and        |   |              |   |   |              |   |   |                        |  
|equipment                                 |   | -            |   |   | -            |   |   | 47,153                 |  
|                                          |   |              |   |   |              |   |   |                        |  
|Cash used in investing activities         |   | (5,116       | ) |   | (243,038     | ) |   | (8,921,136             | )

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements

p7

---

|GOLDEN QUEEN MINING CO. LTD.                     
|-------------------------------------------------
|(An exploration stage company)                   
|Consolidated Statements of Cash Flows (Continued)
|(US dollars)                                     

|                                     |   |              |  |   |              |   |   | Cumulative Amounts     |  
|------------------------------------ | - | ------------ |  | - | ------------ | - | - | ---------------------- | -
|                                     |   |              |  |   |              |   |   | From Date of Inception |  
|                                     |   | Year Ended   |  |   | Year Ended   |   |   | (November 21, 1985)    |  
|                                     |   | December 31, |  |   | December 31, |   |   | through December 31,   |  
|                                     |   | 2008         |  |   | 2007         |   |   | 2008                   |  
|                                     |   |              |  |   |              |   |   |                        |  
|Financing activities:                |   |              |  |   |              |   |   |                        |  
|Borrowing under long-term debt       |   | -            |  |   | -            |   |   | 3,918,187              |  
|Payment of long-term debt            |   | -            |  |   | (700,725     | ) |   | (2,105,905             | )
|Proceeds from convertible debt       |   | -            |  |   | -            |   |   | 440,000                |  
|Issuance of common shares for cash   |   | -            |  |   | -            |   |   | 19,840,656             |  
|Share issuance costs                 |   | -            |  |   | -            |   |   | (688,101               | )
|Issuance of special warrants         |   | -            |  |   | -            |   |   | 18,091,667             |  
|Issuance of common shares upon       |   |              |  |   |              |   |   |                        |  
|exercise of stock options            |   | -            |  |   | 127,652      |   |   | 158,505                |  
|Issuance of common shares upon       |   |              |  |   |              |   |   |                        |  
|exercise of warrants                 |   | 4,184,425    |  |   | -            |   |   | 9,700,881              |  
|                                     |   |              |  |   |              |   |   |                        |  
|Cash provided by (used in) financing |   |              |  |   |              |   |   |                        |  
|activities                           |   | 4,184,425    |  |   | (573,073     | ) |   | 49,355,890             |  
|                                     |   |              |  |   |              |   |   |                        |  
|Net change in cash and cash          |   |              |  |   |              |   |   |                        |  
|equivalents                          |   | 237,581      |  |   | (2,717,390   | ) |   | 3,033,771              |  
|                                     |   |              |  |   |              |   |   |                        |  
|Cash and cash equivalents,           |   |              |  |   |              |   |   |                        |  
|beginning balance                    |   | 2,796,190    |  |   | 5,513,580    |   |   | -                      |  
|                                     |   |              |  |   |              |   |   |                        |  
|Cash and cash equivalents,           |   |              |  |   |              |   |   |                        |  
|ending balance                       | $ | 3,033,771    |  | $ | 2,796,190    |   | $ | 3,033,771              |  

Supplemental Cash Flows Information (Note 10)

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements

p8

---

|GOLDEN QUEEN MINING CO. LTD.  
|------------------------------
|(An exploration stage company)
|Summary of Accounting Policies
|(US dollars)                  

Nature of Business. Golden Queen Mining Co. Ltd.
(Golden Queen or the Company) is engaged in acquiring and maintaining gold
and silver mining properties for exploration, future development and production.
The Company was formed on November 21, 1985. Since its inception, the Company
has been in the exploration stage. Planned activities involve bringing to
production a precious metals mine located in the Mojave Mining District, Kern
County, California.

Principles of Consolidation.These
consolidated financial statements include the accounts of Golden Queen, a
British Columbia corporation, and its wholly-owned subsidiary, Golden Queen
Mining Company, Inc. (the Subsidiary), a United States (State of California)
corporation and, until its dissolution on August 27, 2007, the Karma Wegmann
Corporation (See Note 4).

Generally Accepted Accounting Principles. The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.

Cash and Cash Equivalents. For purposes of
balance sheet classification and the statements of cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. In response to the global financial
crisis of 2008, effective on October 3, 2008, the Emergency Economic
Stabilization Act of 2008 (Act) was created in the U.S. The Act temporarily
increased the federal deposit insurance coverage (FDIC) from $100,000 to
$250,000 per depositor until December 31, 2009.

The Company places its cash and cash equivalents with high
quality financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution. At times, such investments may be in
excess of FDIC insurance limits. To date, the Company has not experienced a loss
or lack of access to its invested cash and cash equivalents. However, no
assurance can be provided that access to the Companys invested cash and cash
equivalents will not be impacted by adverse economic conditions in the financial
markets.

Property and Equipment. Property and
equipment are stated at the lower of cost or net realizable value less
accumulated depreciation. Depreciation is provided by the straight-line method
over the estimated service lives of the respective assets, which range from 5 to
30 years, as follows:

|Buildings              | 20 years    
|---------------------- | ------------
|Furniture and Fixtures | 5 years     
|Equipment              | 5 years     
|Automobiles            | 3 to 5 years
|Rental Properties      | 30 years    

Mineral Properties. Mineral properties
includes the cost of advance minimum royalty payments, the cost of capitalized
property leases, and the cost of property acquired either by cash payment, the
issuance of term debt or common shares. Expenditures for exploration on specific
properties with no proven reserves are written off as incurred. Mineral property
costs will be amortized against future revenues or charged to operations at the
time the related property is determined to have impairment in value.

Carrying Value of Mineral Interests.The
cost of acquiring mineral property interests is capitalized. Capitalized
acquisition costs are expensed in the period in which it is determined that the
mineral property has no future economic value. Capitalized amounts may also be
written down if future cash flows, including potential sales proceeds related to
the property, are estimated to be less than the carrying value of the property.
The Company reviews the carrying value of mineral property interests
periodically, and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable, reductions in the carrying value of each
property would be recorded to the extent the carrying value of the investment
exceeds the propertys estimated fair value (Note 3).

Exploration and Development Expenditures.
Exploration and development expenditures are expensed as incurred. Once a
mineral reserve has been established, all future development costs will be
capitalized and charged to operations on a unit-of-production method based on
estimated recoverable reserves.

p9

---

|GOLDEN QUEEN MINING CO. LTD   
|------------------------------
|(An exploration stage company)
|Summary of Accounting Policies
|(US dollars)                  

Valuation of Long-lived Assets. Statement of
Financial Accounting Standards ("SFAS") No. 144 requires recognition of
impairment of long-lived assets in the event the net book value of such assets
exceeds the estimated undiscounted future cash flows attributable to such
assets. It requires that those long-lived assets to be disposed of by sale are
to be measured at the lower of carrying amount or fair value less cost of sale
whether reported in continuing operations or in discontinued operations. In
accordance with the provisions of SFAS No. 144, the Company reviews the carrying
value of its mineral properties on a regular basis. Estimated undiscounted
future cash flow from the mineral properties is compared with the current
carrying value in order to determine if an impairment exists. Reductions to the
carrying value, if necessary, are recorded to the extent the net book value of
the property exceeds the estimate of future discounted cash flow or liquidation
value.

Foreign Currency Translation.Golden Queen
has adopted the United States dollar as its reporting currency for its financial
statements prepared after May 21, 1996 as the United States dollar is the
currency of the primary economic environment in which Golden Queen and the
Subsidiary conduct business and is considered the appropriate functional
currency for the Companys operations. Balances held in Canadian dollars are
re-measured into the functional currency in accordance with SFAS No. 52,
Foreign Currency Translation (SFAS 52). Assets and liabilities in foreign
currencies are generally translated into US dollars at the rates ruling at the
balance sheet date. Revenues and expenses are translated at average rates for
the year. Where amounts denominated in a foreign currency are converted into
dollars by remittance or repayment, the realized exchange differences are
included in other income. The exchange rates prevailing at December 31, 2008 and
December 31, 2007 were $1.22 and $0.99 stated in Canadian dollars per one US
dollar respectively. The average rates of exchange during the years ended
December 31, 2008 and December 31, 2007 were $1.07 and $1.07 stated in Canadian
dollars per one US dollar respectively.

Loss Per Share.The Company computes and
discloses loss per share in accordance with SFAS No. 128, Earnings per Share
(SFAS 128), which requires dual presentation of basic loss per share and
diluted loss per share on the face of all income statements presented for all
entities with complex capital structures. Basic loss per share is computed as
net loss divided by the weighted average number of common shares outstanding for
the period. Diluted loss per share reflects the potential dilution that could
occur from common shares issuable through stock options and warrants. Since the
Companys stock options and warrants are anti-dilutive for all periods
presented, there is no difference between basic and diluted loss per share as
presented. A total of 2,300,000 and 9,500,000 common shares were issuable
pursuant to such stock options and warrants at December 31, 2008 and 2007,
respectively.

Asset Retirement Obligations. The Company
follows the requirements of SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). The Company records the fair value of an asset
retirement obligation as a liability in the period in which it incurs a legal
obligation associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development, and/or normal use of the
assets. The obligation is measured initially at fair value using present value
methodology, and the resulting costs capitalized into the carrying amount of the
related asset. In subsequent periods, the liability will be adjusted for any
changes in the amount or timing of the underlying future cash flows. Capitalized
asset retirement costs are depreciated on the same basis as the related asset
and the discount accretion of the liability is included in determining the
results of operations.

Estimates.The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make 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 reporting period. Significant estimates have been made by
management in several areas including the recoverability of mineral properties,
reclamation reserves and valuation of stock options. Actual results could differ
from those estimates.

Fair Value of Financial Instruments. The
carrying amounts reported in the balance sheets for cash and cash equivalents,
receivables, accounts payable and accrued liabilities approximates fair value
because of the immediate or short-term maturity of these financial instruments.
The fair value of the reclamation financial assurance approximates the carrying
value because the stated interest rates reflect recent market conditions or
because the rates are variable in nature.

p10

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(An exploration stage company)            
|Notes to Consolidated Financial Statements
|(US dollars)                              

Stock Option PlanUnder the amended 1996 stock
option plan, the Company may grant options to purchase up to 3,300,000 shares of
common stock to officers, directors and employees. The exercise price for all
stock options is the closing price of the Companys common shares in Canadian
dollars as traded on the Toronto Stock Exchange on the date of grant. Options
issued to directors vest immediately. For all other options, the right to
exercise vests over a two year period in equal increments on the date of grant
and on each of the first two anniversaries of such date. All stock options
granted and outstanding as at December 31, 2008 expire at a date determined by
the Companys Board of Directors, not exceeding five years from the date of
grant, or after 39 months from the date of grant if not specified.

New Accounting Pronouncements

SFAS 141 (revised 2007) - On December 4, 2007, the FASB issued
SFAS No. 141 (Revised 2007), Business Combinations (SFAS No.141). Statement
No. 141R will significantly change the accounting for business combinations.
Under Statement No. 141R, an acquiring entity will be required to recognize all
the assets acquired and liabilities assumed in a transaction at the
acquisition-date fair value with limited exceptions. Statement No. 141R will
change the accounting treatment for certain specific items, including:

- Acquisition costs will generally be expensed as incurred;
- Non-controlling interests (formerly known as minority interests - see
  Statement No. 160 discussion below) will be valued at fair value at the
  acquisition date;
- Acquired contingent liabilities will be recorded at fair value at the
  acquisition date and subsequently measured at either the higher of such amount
  or the amount determined under existing guidance for non- acquired
  contingencies;
- In-process research and development will be recorded at fair value as an
  indefinite-lived intangible asset at the acquisition date;
- Restructuring costs associated with a business combination will generally
  be expensed subsequent to the acquisition date; and
- Changes in deferred tax asset valuation allowances and income tax
  uncertainties after the acquisition date generally will affect income tax
  expense.

Statement No. 141R also includes a substantial number of new
disclosure requirements. Statement No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. Earlier
adoption is prohibited. Accordingly, a calendar year-end company is required to
record and disclose business combinations following existing GAAP until January
1, 2009. The Company is currently evaluating the impact of the provisions of
SFAS No. 141R.

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework
for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. This
Statement does not require any new fair value measurements, but provides
guidance on how to measure fair value by providing a fair value hierarchy used
to classify the source of the information. SFAS No.157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007
and interim periods within those fiscal years. In February 2008, the FASB issued
FASB Staff Position (FSP) No. SFAS 157-2, which delays the effective date of
certain provisions of FASB No. 157 relating to non-financial assets and
liabilities measured at fair value on a non-recurring basis until fiscal years
beginning after November 15, 2008. The full adoption of SFAS No. 157 is not
expected to have a material impact on our consolidated financial statements or
results of operations. The provisions of SFAS 157 are effective for fiscal years
beginning after November 15, 2007. The adoption of SFAS 157 for our financial
assets and liabilities did not have an impact on our financial position or
operating results.

p11

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(An exploration stage company)            
|Notes to Consolidated Financial Statements
|(US dollars)                              

New Accounting Pronouncements - Continued

SFAS 159 - On February 15, 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities, including
an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 creates a fair
value option allowing an entity to irrevocably elect fair value as the initial
and subsequent measurement attribute for certain financial assets and financial
liabilities, with changes in fair value recognized in earnings as they occur.
SFAS 159 also requires an entity to report those financial assets and financial
liabilities measured at fair value in a manner that separates those reported
fair values from the carrying amounts of assets and liabilities measured using
another measurement attribute on the face of the statement of financial
position. Lastly, SFAS 159 requires an entity to provide information that would
allow users to understand the effect on earnings of changes in the fair value on
those instruments selected for the fair value election. SFAS 159 is effective
for fiscal years beginning after November 15, 2007, with early adoption
permitted. . The implementation of SFAS 159 did not have any impact on the
Companys consolidated balance sheets and statements of loss.

SFAS 160, Non-controlling Interests in Consolidated Financial
Statements - An Amendment of ARB No. 51 (SFAS No. 160). In December 4, 2007,
the FASB issued FASB Statement No. 160, Non-controlling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51. SFAS No. 160
establishes new accounting -and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a subsidiary.
Specifically, this statement requires the recognition of a non-controlling
interest (minority interest) as equity in the consolidated financial statements
and separate from the parent equity. The amount of net income attributable to
the non-controlling interest will be included in consolidated net income on the
face of the income statement. SFAS No. 160 clarifies that changes in a parents
ownership interest in a subsidiary that do not result in deconsolidation are
equity transactions, if the parent retains its controlling financial interest.
In addition, this statement requires that a parent recognize a gain or loss in
net income when a subsidiary is deconsolidated. Such gain or loss will be
measured using the fair value of the non-controlling equity investment on the
deconsolidation date. SFAS No. 160 also includes expanded disclosure
requirements regarding the interests of the parent and its non-controlling
interest.

Statement No. 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008 and
earlier adoption is prohibited. The Company is currently evaluating the impact
of the provisions of SFAS No. 160.

In March 2008, the FASB issued SFAS Statement No. 161,
Disclosures about Derivative Instruments and Hedging Activities (SFAS
161).The new standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entitys financial
position, financial performance and cash flows. It is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The Company is currently evaluating
the impact of the provisions of SFAS No. 161.

In May 2008, the FASB issued SFAS Statement No. 162, The
Hierarchy of Generally Accepted Accounting Principles (SFAS 162). The new
standard is intended to improve financial reporting by identifying a consistent
framework, or hierarchy, for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with US
generally accepted accounting principles (GAAP) for non-governmental entities.
SFAS 162 is not expected to have a material impact on the Companys consolidated
financial statements.

In May 2008, the FASB issued SFAS Statement No. 163,
Accounting for Financial Guarantee Insurance Contracts (FASB 163). The new
standard clarifies how FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises, applies to financial guarantee insurance contracts
issued by insurance enterprises, including the recognition and measurement of
premium revenue and claim liabilities. It also requires expanded disclosures
about financial guarantee insurance contracts. The Statement is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years, except for disclosures about
the insurance enterprises risk-management activities. Disclosures about the
insurance enterprises risk-management activities are effective the first period
beginning after issuance of the Statement. SFAS 163 is not expected to have a
material impact on the Companys consolidated financial statements.

p12

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(An exploration stage company)            
|Notes to Consolidated Financial Statements
|(US dollars)                              

1. Financial Condition and Ability to Continue as a
Going-Concern

These financial statements have been prepared on a going
concern basis, which assumes the Company will continue to realize its assets and
discharge its liabilities and commitments in the normal course of business. The
Company has not generated revenues and has accumulated losses of $49,417,584
since inception and is unlikely to generate earnings in the immediate or
foreseeable future. The continuation of the Company as a going concern is
dependent upon the continued financial support from its shareholders, the
ability of the Company to obtain necessary equity and/or debt or joint venture
financing to fund construction of the operating facility on its Soledad Mountain
Property (the Property) in the Mojave Mining District, Kern County, California
once a production decision has been made.

Management cannot provide assurances that such plans will
occur. These factors raise substantial doubt regarding the Companys ability to
continue as a going concern. These financial statements do not include any
adjustments to the recoverability and classification of recorded asset amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.

2. Property and Equipment

|Property and equipment consists of: |   |          |   |   |          |  
|----------------------------------- | - | -------- | - | - | -------- | -
|                                    |   | 2008     |   |   | 2007     |  
|Buildings                           | $ | 26,360   |   | $ | 26,360   |  
|Furniture and fixtures              |   | 56,090   |   |   | 56,090   |  
|Automobiles                         |   | 21,401   |   |   | 21,401   |  
|Rental properties                   |   | 313,635  |   |   | 313,635  |  
|Property and equipment, cost        |   | 417,486  |   |   | 417,486  |  
|Less accumulated depreciation       |   | (205,546 | ) |   | (199,419 | )
|Property and equipment, net         | $ | 211,940  |   | $ | 218,067  |  

3. Mineral Properties

The Company formerly capitalized amounts which were paid to
acquire property rights and for professional services rendered in the
exploration, drilling, sampling, engineering and other related technical,
managerial and professional services toward the evaluation and development of
its Property. The Companys investment in mineral properties in the amount of
$30,284,585 (2007 - $28,997,281) was fully provided for by the year ended
December 31, 2008.

|                                         |   | 2008        |   |   | 2007        |  
|---------------------------------------- | - | ----------- | - | - | ----------- | -
|Exploration and development expenditures | $ | 21,015,506  |   | $ | 21,015,506  |  
|Properties                               |   | 5,770,054   |   |   | 5,235,021   |  
|Advance minimum royalty                  |   | 3,122,907   |   |   | 2,387,574   |  
|Asset retirement obligations             |   | 376,118     |   |   | 359,180     |  
|Asset impairment loss                    |   | (30,284,585 | ) |   | (28,997,281 | )
|Total                                    | $ | -           |   | $ | -           |  

p13

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(An exploration stage company)            
|Notes to Consolidated Financial Statements
|(US dollars)                              

3. Mineral Properties - Continued

As at December 31, 2008, the Company had provided reclamation
financial assurance to the Bureau of Land Management, the State and Kern County
totaling $271,808 (2007 - $266,692). This deposit earns interest at 0.4% per
annum and is not available for working capital purposes.

During the year ended December 31, 2007 the Company acquired
mineral property interests for cash payments of $221,683 and the issue of 30,000
common shares valued at $24,600.

4. Other Assets

On April 1, 1995, the Company acquired, through the Subsidiary,
an option to purchase all of the issued and outstanding shares of a privately
held California corporation holding an interest in a previously uncontracted
tract of land, which expanded the size of the Property. The option called for an
initial non-refundable payment of $100,000 in exchange for access to the
property to evaluate the presence of mineral reserves for a period of nine
months. At the end of the nine-month period, the Company chose to exercise its
option to purchase the shares of the corporation by making the initial purchase
payment of $250,000. This was followed by a second payment of $500,000 on July
1, 1997. An additional $750,000 was due upon reaching sustained production or
July 1, 1999, whichever came first. In June 1999, the Subsidiary and the private
corporation amended the original agreement to allow for a one-year extension in
exchange for $75,000, which was paid by the Subsidiary on June 30, 1999. The
Company extended the amended agreement to July 2001 with another extension
payment on July 7, 2000 of $75,000. These extension payments did not apply to
the overall purchase price.

The Company anticipated its inability to make the extension
payment scheduled for July 1, 2001, and on August 10, 2001, signed a second
amendment to the original stock purchase agreement. This amendment suspended all
terms and obligations of the Company as set forth in the original agreement and
the first amendment. Further, the amendment required the Company to recognize a
liability of $35,000, on or before July 1, 2001, and on each successive
anniversary date for up to five years. To extend the termination date of the
agreement, $10,000 of the liability was to be paid in cash, and the balance of
$25,000 was to be accrued, without interest, payment of which was deferred until
the final stock purchase payment is made. Each July, beginning in 2001, the
Company made the required cash payments of $10,000, accrued the liability
balances of $25,000, and extended the termination date of the agreement by one
year, each year, with the termination date of the agreement on July 1, 2006.

The Company concluded the purchase of shares for an amount of
$875,000 before the due date of July 1, 2006. The properties owned by Karma
Wegmann Corporation were transferred to Golden Queen Mining Co., Inc. and
management determined to write down the amount of $875,000 in 2006. The Karma
Wegmann Corporation was wound-up on August 27, 2007.

The Company is required to pay a royalty of 1% of gross smelter
returns for a period of up to 60 years, not to exceed $60,000,000, upon
commencement of commercial production from the Property formerly owned by Karma
Wegmann Corporation. As of December 31, 2008, the Company has not incurred any
royalty as the Property has not been in production.

p14

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(An exploration stage company)            
|Notes to Consolidated Financial Statements
|(US dollars)                              

5.Income Taxes

The tax effects of the temporary differences that give rise to
the Company's deferred tax assets and liabilities are as follows:

|                                                        |   | 2008        |   |   | 2007       |  
|------------------------------------------------------- | - | ----------- | - | - | ---------- | -
|                                                        |   |             |   |   |            |  
|Net operating and capital losses                        | $ | 8,777,000   |   | $ | 8,223,900  |  
|Property, plant and equipment                           |   | 321,000     |   |   | 240,600    |  
|Mineral properties and deferred exploration
      costs |   | 1,539,000   |   |   | 842,000    |  
|Asset retirement obligations                            |   | 60,000      |   |   | 49,500     |  
|Undeducted financing costs                              |   | 9,000       |   |   | 14,000     |  
|Valuation allowance                                     |   | (10,706,000 | ) |   | (9,370,000 | )
|                                                        |   |             |   |   |            |  
|Deferred tax assets (liabilities)                       | $ | -           |   | $ | -          |  

The tax benefit of net operating losses carried forward and the
associated valuation allowance were reduced by $168,000 (2007 - $288,000),
representing the tax effect of losses which expired in the year.

The provision for income taxes differs from the amount
established using the statutory income tax rate as follows:

|                                                     |   | 2008       |   |   | 2007     |  
|---------------------------------------------------- | - | ---------- | - | - | -------- | -
|                                                     |   |            |   |   |          |  
|Income benefit at C$ statutory rate                  | $ | (1,239,000 | ) | $ | (683,000 | )
|Foreign income taxes at other than C$ statutory rate |   | (92,000    | ) |   | (1,000   | )
|Effect of reduction in statutory rate                |   | 163,000    |   |   | 353,300  |  
|Other difference                                     |   | -          |   |   | 27,700   |  
|Increase in valuation allowance                      |   | 1,168,000  |   |   | 303,000  |  
|                                                     |   |            |   |   |          |  
|Future income tax recovery                           | $ | -          |   | $ | -        |  

The Companys future tax assets include approximately $29,000
(2007 - $50,000) related to deductions for share issue costs in excess of
amounts deducted for financial reporting purposes. If and when the valuation
allowance related to these amounts is reversed, the Company will recognize this
benefit as an adjustment to share capital as opposed to income tax expense in
the Statement of Loss. The valuation allowance as at December 31, 2008 was
increased by $nil (2007 - $nil), representing the tax effect of the unamortized
share issuance costs incurred in the period.

The Company evaluates its valuation allowance requirements
based on projected future operations. When circumstances change and this causes
a change in managements judgment about the recoverability of future tax assets,
the impact of the change on the valuation allowance is reflected in current
income. As management of the Company does not currently believe that it is more
likely than not that the Company will receive the benefit of this asset, a
valuation allowance equal to the future tax asset has been established at both
December 31, 2008 and December 31, 2007.

As at December 31, 2008, the Company had net operating loss
carry-forwards available to reduce taxable income in future years as
follows:

|Country                 | Amount      | Expiration Dates
|----------------------- | ----------- | ----------------
|                        |             |                 
|United States  Federal | $20,610,000 | 2009 - 2028     
|Canada (C$)             | $5,519,000  | 2009 - 2028     

These financial statements do not reflect the potential effect
on future income taxes of the application of these losses.

p15

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(An exploration stage company)            
|Notes to Consolidated Financial Statements
|(US dollars)                              

5.Income Taxes - Continued

In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes,(FIN 48). FIN 48 clarifies
the accounting for uncertainty in income taxes recognized in an enterprises
financial statements in accordance with SFAS No. 109, Accounting for Income
Taxes, (SFAS 109), and prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The Company adopted FIN
48 effective January 1, 2007. The Company has evaluated its tax positions for
the years ended December 31, 2008 and 2007 and determined that it has no
uncertain tax positions requiring financial statement recognition.

Under FIN 48, the impact of an uncertain income tax position on
income tax expense must be recognized at the largest amount that is
more-likely-than-not to be sustained. An uncertain income tax position will not
be recognized if it has less than a 50% likelihood of being sustained. Because
of the Companys recent history of operating losses, management believes that
recognition of the deferred tax assets arising from the above-mentioned future
tax benefits is currently not likely to be realized and, accordingly, has
provided a 100% valuation allowance against its net deferred tax assets due to
the uncertainty surrounding the realization of such assets.

6. Share capital

Common shares

In January 2008, warrants were exercised and the Company issued
7,200,000 common shares at C$0.60 per share for proceeds of $4,184,425
(C$4,320,000).

In November 2007, the Company issued 30,000 common shares at
$24,600 (C$0.81 per share, the closing price at the date of agreement) for the
acquisition of a property in Mojave, Kern County, California.

In 2007, stock options were exercised and the Company issued
290,000 common shares at C$0.50 per share for proceeds of $127,652
(C$145,000).

Stock options

As disclosed in the Summary of Accounting Policies, the Company
adopted SFAS No.123R commenced on January 1, 2006. Effective with the adoption
SFAS No.123R, the Company has elected to use the Black-Scholes option pricing
model to determine the fair value of stock options granted. In accordance with
SFAS No. 123R for employees, the compensation expense is amortized on a
straight-line basis over the requisite service period which approximates the
vesting period. Compensation expense for stock options granted to non-employees
is amortized over the contract services period or, if none exists, from the date
of grant until the options vest. Compensation associated with unvested options
granted to non-employees is re-measured on each balance sheet date using the
Black-Scholes option pricing model.

The expected volatility of options granted has been determined
using the method described under SFAS No. 123R using the historical stock price.
The Company uses historical data to estimate option exercise, forfeiture and
employee termination within the valuation model. For non-employees, the expected
term of the options approximates the full term of the options. The risk-free
interest rate is based on a treasury instrument whose term is consistent with
the expected term of the stock options. The Company has not paid and does not
anticipate paying dividends on its common stock; therefore, the expected
dividend yield is assumed to be zero. In addition, SFAS No. 123R requires
companies to utilize an estimated forfeiture rate when calculating the expense
for the reporting period. Based on its best estimate, management applied the
estimated forfeiture rate of Nil in determining the expense recorded in the
accompanying Consolidated Statements of Loss.

p16

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(An exploration stage company)            
|Notes to Consolidated Financial Statements
|(US Dollars)                              

6. Share capital - Continued

Stock options - continued

The following is a summary of stock option activity during the
years ended December 31, 2008 and 2007:

|                                     |  |           |   |  | Weighted Average         | 
|------------------------------------ |  | --------- | - |  | ------------------------ | 
|                                     |  | Shares    |   |  | Exercise Price per Share | 
|Options outstanding, January 1, 2007 |  | 2,590,000 |   |  | C$0.56                   | 
|Exercised                            |  | (290,000  | ) |  | C$0.50                   | 
|Options outstanding and exercisable, |  |           |   |  |                          | 
|December 31, 2007 and 2008           |  | 2,300,000 |   |  | C$0.57                   | 

As at December 31, 2008 the aggregate intrinsic value of the
outstanding exercisable options was $Nil (2007 -$617,580 (C$617,580)). The total
intrinsic value of 290,000 options exercised during 2007 was approximately
$134,000.

There is no unamortized compensation expense as at December 31,
2008 and 2007 as all the outstanding options vested at the grant date.

The following table summarizes information about stock options
outstanding and exercisable at December 31, 2008:

|                |  | Weighted         |  |  | Weighted | 
|--------------- |  | ---------------- |  |  | -------- | 
|Number          |  | Average          |  |  | Average  | 
|Outstanding and |  | Contractual Life |  |  | Exercise | 
|Exercisable     |  | (Years)          |  |  | Price    | 
|1,100,000       |  | 2.09             |  |  | C$0.35   | 
|1,200,000       |  | 3.30             |  |  | C$0.77   | 
|2,300,000       |  | 2.72             |  |  | C$0.57   | 

Warrants

The following is a summary of warrant activity during the years
ended December 31, 2007 and 2008:

|                                                  |  |            |   |  | Weighted Average         |  |  | Average Contractual | 
|------------------------------------------------- |  | ---------- | - |  | ------------------------ |  |  | ------------------- | 
|                                                  |  | Shares     |   |  | Exercise Price per Share |  |  | Life
      (Years)  | 
|                                                  |  |            |   |  |                          |  |  |                     | 
|Outstanding and exercisable , January 1, 2007 and |  |            |   |  |                          |  |  |                     | 
|December 31, 2007                                 |  | 7,200,000  |   |  | C$0.60                   |  |  | 1.07                | 
|Exercised                                         |  | (7,200,000 | ) |  | C$0.60                   |  |  | 1.07                | 
|                                                  |  |            |   |  |                          |  |  |                     | 
|Outstanding and exercisable, December 31, 2008    |  | -          |   |  | -                        |  |  | -                   | 

p17

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|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(An exploration stage company)            
|Notes to Consolidated Financial Statements
|(US Dollars)                              

7. Asset Retirement Obligations

The Company is required to provide the Bureau of Land
Management, the State Office of Mine Reclamation and Kern County with a revised
reclamation cost estimate once per year. The financial assurance is adjusted
once the cost estimate is approved (Note 3).

The Company estimated its asset retirement obligation based on
  its understanding of the requirements to reclaim, and clean up its Property.
  The Company estimated that total payments of approximately $376,357 over three
  years commencing in 2017 would be required to complete the retirement obligations.
  In determining the estimated initial present value of the obligation, a discount
  factor of 9.0% (the credit-adjusted risk-free rate), and an inflation rate of
  3.0% were used. The asset portion of the retirement obligation was written off
  in 2004. The asset retirement obligation accrual required management to make
  significant estimates and assumptions. Actual results could materially differ
  from these estimates. The liability for accrued asset retirement obligations
  is comprised as follows:

|                              |   | 2008    |   |   | 2007    | 
|----------------------------- | - | ------- | - | - | ------- | 
|Beginning of the year         | $ | 145,965 |   | $ | 132,550 | 
|Change in cash flow estimates |   | (275    | ) |   | 1,485   | 
|Accretion expense             |   | 17,213  |   |   | 11,930  | 
|End of the year               | $ | 162,903 |   | $ | 145,965 | 

8. Commitments and Contingencies

The Company has acquired a number of properties outright and
has acquired exclusive rights to explore, develop and mine the Property under
various agreements with landowners.

Agreements are typically subject to sliding scale royalties on
net smelter returns ranging from 1 % to 5 %.

The Company ceased making property payments and advance minimum
royalty payments after successfully concluding moratorium agreements with a
number of the landowners in 2000. The moratorium agreements expired toward the
end of 2003. The total advance minimum royalty owing from 2003 to the end of
2008 was $714,137. The Company contacted the landholders and has paid a total of
$666,103 during the year. As of December 31, 2008, the advance royalty minimum
royalty of $48,034 is to be paid to the remaining rightful landholders. The
total advance minimum royalty owing for 2009 is expected to be approximately
$160,000.

In 2007, the Company reached an agreement with a landowner to
amend the terms of the lease agreement. Under the terms of the amendment, the
Company has been granted an extension of twenty years and has paid $100,000 owed
from 2005. In addition, the Company is not required to pay advance minimum
royalty during the two year period until April 23, 2008 and the Company will
receive a credit representing 50% of all advance minimum royalty paid and use it
against the future production royalties. The Company recommenced the advance
minimum royalty payment, and paid the landowner $100,000 in 2008.

A mining lease agreement with a group of landholders expired in
2004. The Company is currently in discussions with a group of landholders in an
effort to reach a new agreement.

The Company has agreed to issue 100,000 common shares as a
finders fee upon commencement of commercial production on the Property in
connection with certain property acquisitions.

In a prior year, the Company entered into an agreement with the
President of the Company to issue 300,000 bonus shares upon the completion of
certain milestones. Upon receipt by the Company of a bankable feasibility study
and the decision to place the Property into commercial production, a bonus of
150,000 common shares is to be issued. Upon commencement of commercial
production on the Property, a bonus of 150,000 common shares is to be issued. As
at December 31, 2008, the milestones had not been reached and no accrual was
made in connection with these arrangements.

p18

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(An exploration stage company)            
|Notes to Consolidated Financial Statements
|(US Dollars)                              

9. Related Party Transactions

Except as noted elsewhere in these financial statements,
related party transactions are disclosed as follows:

For the year ended December 31, 2008, the Company paid $136,500
(2007 - $126,450) to the President of the Company for his services, and paid
$19,200 (2007 - $18,000) to a director of the Company for his consulting
services to the Company. The Company did not pay or give other consideration
during the year for services rendered by the directors in such capacity, and no
additional amounts were payable at year-end under any standard arrangements for
committee participation or special assignments.

For the year ended December 31, 2008, the Company paid $1,861
(2007 - $1,861) to each of the four directors and $2,000 (2007 - $2,000) to a
director as directors fees.

The above noted transactions were in the normal course of
operations, and were measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.

10. Supplementary disclosures of cash flow
information

|                                          |   |              |  |   |              |  |   | Cumulative        | 
|----------------------------------------- | - | ------------ |  | - | ------------ |  | - | ----------------- | 
|                                          |   |              |  |   |              |  |   | Amounts From Date | 
|                                          |   |              |  |   |              |  |   | of Inception      | 
|                                          |   | Year ended   |  |   | Year ended   |  |   | (November 21,     | 
|                                          |   | December 31, |  |   | December 31, |  |   | 1985) through     | 
|                                          |   | 2008         |  |   | 2007         |  |   | December 31, 2008 | 
|                                          |   |              |  |   |              |  |   |                   | 
|Cash paid during period for:              |   |              |  |   |              |  |   |                   | 
|Interest                                  | $ | -            |  | $ | -            |  | $ | 1,192,911         | 
|Income taxes                              | $ | -            |  | $ | -            |  | $ | -                 | 
|                                          |   |              |  |   |              |  |   |                   | 
|Non-cash financing and investing          |   |              |  |   |              |  |   |                   | 
|activities:                               |   |              |  |   |              |  |   |                   | 
|Stock option compensation                 | $ | -            |  | $ | -            |  | $ | 197,374           | 
|Financing
      charges related to        |   |              |  |   |              |  |   |                   | 
|modification of warrants term             | $ | -            |  | $ | -            |  | $ | 889,117           | 
|Exchange of
      notes for common        |   |              |  |   |              |  |   |                   | 
|shares                                    | $ | -            |  | $ | -            |  | $ | 1,727,282         | 
|Exchange of note
      for future royalty |   |              |  |   |              |  |   |                   | 
|payments                                  | $ | -            |  | $ | -            |  | $ | 150,000           | 
|Common shares
      issued for mineral    |   |              |  |   |              |  |   |                   | 
|property                                  | $ | -            |  | $ | 24,600       |  | $ | 304,811           | 
|Mineral property
      acquired through   |   |              |  |   |              |  |   |                   | 
|the
      issuance of long-term debt      | $ | -            |  | $ | -            |  | $ | 1,084,833         | 
|Common shares
      issued upon           |   |              |  |   |              |  |   |                   | 
|conversion
      of convertible debt      | $ | -            |  | $ | -            |  | $ | 414,917           | 
|Asset retirement
      obligations        | $ | 16,938       |  | $ | 13,415       |  | $ | 162,903           | 

p19

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(An exploration stage company)            
|Notes to Consolidated Financial Statements
|(US Dollars)                              

11. Subsequent Event

The Company prepared a new stock option plan (New Plan) to
replace its existing stock option plan. The New Plan provides a fixed number of
7,200,000 common shares of the Company that may be issued pursuant to the grant
of options. The exercise price of all stock options shall be determined by the
Companys Board of Directors, but it shall not be less than the last price at
which the Companys shares were issued prior to the award date or the closing
price on the day immediately preceding the award date. The expiry date of the
option shall be the date so fixed by the Board, unless the option holder dies or
ceases to be employed as a director or as a consultant prior to the date fixed
by the Board.

On January 28, 2009, the Company granted 1,950,000 stock
options to directors, officers and consultants of the Company pursuant to the
New Plan. The options are exercisable at a price of C$0.26 per share for a
period of 5 years from the date of grant. The New Plan and the stock options
must be approved by the shareholders of the Company at the 2009 annual general
meeting.

p20

---