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|As filed with
      the Securities and Exchange Commission on April 20, 2018
|----------------------------------------------------------------------------

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C. 20549

____________________

FORM 20-F
____________________

[   ] REGISTRATION STATEMENT PURSUANT TO SECTION
12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,2017

OR

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

OR

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



Commission file number 001-35278

Primero Mining Corp.(Exact name of Registrant as specified in its charter)

_________________

British Columbia, Canada(Jurisdiction
of incorporation or organization)

79 Wellington Street West, TD South Tower Suite 2100,
Toronto, ON, M5K 1H1, Canada (Address of principal executive offices)

Tamara Brown, Vice President, Corporate Development79 Wellington Street
West, TD South Tower Suite 2100, Toronto, ON, M5K 1H1, Canada
Telephone No.: (416) 814 3160 
e-mail: info@primeromining.com

(Name, Telephone, E-mail and/or Facsimile number and Address of
Company Contact Person) ___________________________________________

Securities registered or to be registered pursuant to Section
12(b) of the Act:

None___________________________________________

Securities registered or to be registered pursuant to Section
12(g) of the Act:

|Title of each class:            | Name of each exchange on which
      registered:
|------------------------------- | ------------------------------------------------
|Common Share, without par value | N/A                                             

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___________________________________________

Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act:

None___________________________________________

Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close of the period
covered by the annual report:

193,045,822 Shares of Common Stock

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]

If this is an annual or
transition report, indicate by check mark if the Registrant is not required to
file pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
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 Securities Exchange Act of 1934 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 whether
the Registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the Registrant was required
to submit and post such files). Yes [X]     No
[   ]

Indicate by check mark whether
the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.

|Large accelerated Filer [   ] | Accelerated Filer [   ] | Non-accelerated Filer [X]
|----------------------------- | ----------------------- | -------------------------

Indicate by check mark which
basis of accounting the Registrant has used to prepare the financial statements
included in this filing:

|U.S. GAAP [   ] | International Financial Reporting  | Other [   ]
|--------------- | ---------------------------------- | -----------
|                | Standards as issued by the         |            
|                | International Accounting Standards |            
|                | Board [X]                          |            

If Other has been checked in
response to the previous question, indicate by check mark which financial
statement item the Registrant has elected to follow. Item 17 [  
]     Item 18 [   ]

If this is an annual report, indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [   ]     No [X]

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Table of Contents

|ITEM
      1.  | Identity
      of Directors, Senior Management and Advisers   | 5 
|-------------- | ------------------------------------------------------------- | --
|ITEM
      2.  | Offer
      Statistics and Expected Timetable                 | 5 
|ITEM
      3.  | Key
      Information                                         | 5 
|A.             | Selected
      Consolidated Income Statement Data             | 5 
|B.             | Capitalization
      and Indebtedness                         | 6 
|C.             | Reasons
      for the Offer and Use of Proceeds               | 6 
|D.             | Risk
      Factors                                            | 6 
|ITEM
      4.  | Information
      on the Company                              | 20
|A.             | History
      and Development of the Company                  | 20
|B.             | Business
      Overview                                       | 27
|C.             | Organizational
      Structure                                | 38
|D.             | Property,
      Plant and Equipment                           | 38
|ITEM
      4A. | Unresolved
      Staff Comments                               | 43
|ITEM
      5.  | Operating
      and Financial Review and Prospects            | 43
|A.             | Operating
      Results                                       | 43
|B.             | Liquidity
      and Capital Resources                         | 60
|C.             | Research
      and Development, Patents and Licenses, etc.    | 69
|D.             | Trend
      Information                                       | 69
|E.             | Off-Balance
      Sheet Arrangements                          | 69
|F.             | Tabular
      Disclosure of Contractual Obligations           | 69
|G.             | Safe
      Harbor                                             | 69
|ITEM
      6.  | Directors,
      Senior Management and Employees              | 70
|A.             | Directors
      and Senior Management                         | 70
|B.             | Compensation                                                  | 75
|C.             | Board
      Practices                                         | 76
|D.             | Employees                                                     | 79
|E.             | Share
      Ownership                                         | 79
|ITEM
      7.  | Major
      Shareholders and Related Party Transactions       | 81
|A.             | Major
      Shareholders                                      | 81
|B.             | Related
      Party Transactions                              | 82
|C.             | Interests
      of Experts and Counsel                        | 82
|ITEM
      8.  | Financial
      Information                                   | 82
|A.             | Consolidated
      Statements and Other Financial Information | 82
|B.             | Significant
      Changes                                     | 84
|ITEM
      9.  | The
      Offer and Listing                                   | 84
|A.             | Offer
      and Listing Details                               | 84
|B.             | Plan
      of Distribution                                    | 84
|C.             | Markets                                                       | 84
|D.             | Selling
      Shareholders                                    | 87
|E.             | Dilution                                                      | 87
|F.             | Expenses
      of the Issue                                   | 87
|ITEM
      10. | Additional
      Information                                  | 87
|A.             | Share
      Capital                                           | 87
|B.             | Memorandum
      and Articles of Association                  | 87

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|C.              | Material
      Contracts                                                           | 90
|--------------- | ---------------------------------------------------------------------------------- | --
|D.              | Exchange
      Controls                                                            | 91
|E.              | Taxation                                                                           | 91
|F.              | Dividends
      and Paying Agents                                                  | 92
|G.              | Statement
      by Experts                                                         | 92
|H.              | Documents
      on Display                                                         | 92
|I.              | Subsidiary
      Information                                                       | 93
|ITEM
      11.  | Quantitative
      and Qualitative Disclosures about Market Risk                   | 93
|ITEM
      12.  | Description
      of Securities other than equity securities                       | 93
|ITEM
      13.  | Defaults,
      Dividend Arrearages and Delinquencies                              | 93
|ITEM
      14.  | Material
      Modifications to the Rights of Security Holders and Use of Proceeds | 93
|ITEM
      15.  | Controls
      and Procedures                                                      | 94
|ITEM
      16.  | Reserved                                                                           | 95
|ITEM
      16A. | Audit
      Committee Financial Expert                                             | 95
|ITEM
      16B. | Code
      of Ethics                                                               | 95
|ITEM
      16C. | Principal
      Accountant Fees and Services                                       | 95
|ITEM
      16D. | Exemptions
      from the Listing Standards for Audit Committees                   | 96
|ITEM
      16E. | Purchases
      of Equity Securities by the Issuer and Affiliated Purchasers       | 96
|ITEM
      16F. | Change
      in Registrants Certifying Accountant                                 | 96
|ITEM
      16G. | Corporate
      Governance                                                         | 96
|ITEM
      16H. | Mine
      Safety Disclosure                                                       | 97
|ITEM
      17.  | Financial
      Statements                                                         | 97
|ITEM
      18.  | Financial
      Statements                                                         | 97
|ITEM
      19.  | Exhibits                                                                           | 97
|Signature       |                                                                                    | 99

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INTRODUCTORY NOTES

GENERAL INFORMATION

This annual report on Form 20-F relates to the registered
common shares, no par value, of Primero Mining Corp. (the Common Shares).

In this annual report, except as otherwise indicated or as the
context otherwise requires, the Company, Primero, we, us and our
refers to Primero Mining Corp. and its subsidiaries.

PRESENTATION OF FINANCIAL AND OTHER DATA

We prepare our audited
consolidated financial statements in accordance with International Financial
Reporting Standards, or IFRS, as issued by the International Accounting
Standards Board, or the IASB. The financial information and related discussion
and analysis contained in this annual report on Form 20-F are presented in
United States dollars, except as otherwise specified. Unless otherwise
specified, the financial information analysis in this annual report on Form 20-F
is based on our consolidated financial statements as of December 31, 2017 and
2016 and for the three years ended December 31, 2017, included elsewhere in this
document. Percentages and some amounts in this annual report on Form 20-F have
been rounded for ease of presentation. Any discrepancies between totals and the
sums of the amounts listed are due to rounding.

CURRENCY TRANSLATION

In this annual report, references
to $, U.S. dollar or US$ are to the official currency of the United States
and references to Canadian dollar, C$ or CDN$ are to the legal currency of
Canada. References to pesos or MXN$ are to the Mexican peso.

CAUTIONARY STATEMENTS ABOUT FORWARD-LOOKING STATEMENTS

This annual report contains
forward-looking information and forward-looking statements within the meaning
of applicable United States and Canadian securities laws. All statements, other
than statements of historical fact, are forward-looking statements. Generally,
these forward-looking statements can be identified by the use of forward-looking
terminology such as believes, intends, may, will, should, plans,
anticipates, potential, expects, estimates, forecasts, budget,
likely, goal and similar expressions or statements that certain actions,
events or results may or may not be achieved or occur in the future. In some
cases, forward-looking information may be stated in the present tense, such as
in respect of current matters that may be continuing, or that may have a future
impact or effect. Forward-looking statements reflect current estimates, beliefs
and assumptions, which are based on our perception of historical trends, current
conditions and expected future developments, as well as other factors management
believes are appropriate in the circumstances. Our estimates, beliefs and
assumptions are inherently subject to significant business, economic,
competitive and other uncertainties and contingencies regarding future events
and as such, are subject to change. The Company can give no assurance that such
estimates, beliefs and assumptions will prove to be correct.

Forward-looking statements in
this annual report include those that relate to: the ability of the Company to
operate and expand production at the San Dimas Mine (the San Dimas Mine); the
ability of the Company to close the plan of arrangement (Arrangement) with
First Majestic Silver Corp. (First Majestic) pursuant to a definitive
arrangement agreement (the Arrangement Agreement); the termination of the
current stream and adoption of the new stream (as defined below); the timing and
receipt of required stock exchange and regulatory approvals for the Arrangement
in Canada and Mexico; the ability of First Majestic and Primero to satisfy, in a
timely manner, other conditions to, and to complete the Arrangement; the effect
of mining techniques and methods such as long-hole mining or changing labor
shifts; the ability to identify new Mineral Resources and convert Mineral
Resources into Mineral Reserves; the Companys ability to defend the validity of
the Advance Pricing Agreement (APA) against the legal claim from the Mexican
tax authorities seeking to nullify the APA; the Companys ability to pay taxes
in Mexico on realized silver prices; the impact of estimation methodologies on
mine and production planning; the ability to generate cash flows that exceed
requirements; the timing and amount of capital expenditures and costs; the
development of new mineral deposits; the Companys ability to repay the full
outstanding obligation under its Revolving Credit Facility (the RCF), if the Arrangement with
First Majestic is terminated for any reason; the Companys ability to meet its
financial obligations; the Companys intentions to raise additional capital as
needed; expected ore grades, recovery rates and through-put; the ability of the
Company to comply with environmental, safety and other regulatory requirements
as well as the Companys policies in respect thereof; expected or proposed
development or construction activities, and the expected costs thereof;
expectations regarding currency fluctuations; the timing and results of union
contract negotiations; title disputes relating to the Companys properties; the
timing and possible outcome of pending litigation including securities class
actions initiated against the Company in California; the Companys issuance of a
Notice of Intent to submit a claim to international arbitration pursuant to the
North American Free Trade Agreement (NAFTA); future prices of precious and
base metals; the ability of the Company to obtain and maintain government
approvals or permits in connection with the continued operation and development
of its operations; the impact of the acquisitions on the business and operations
of the Company; and the ability of the Company to maintain effective internal
control over financial reporting.

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Such forward-looking information
is based upon factors and assumptions that, while considered reasonable by the
Company as of the date of such statements, are inherently subject to
uncertainties and contingencies, and, if incorrect, could cause actual future
results to be materially different than expressed in the forward-looking
statements. The assumptions and factors which may prove to be incorrect,
include, but are not limited to: the specific assumptions set forth in this
annual report; the expectations and beliefs of management; assumptions relating
to the availability of suitable mining assets for acquisition on reasonable
terms; that the Company will close the Arrangement with First Majestic; that the
current silver stream arrangement will be terminated; that required stock
exchange and regulatory approvals for the Arrangement will be timely obtained;
that the Company will complete, in a timely manner, other conditions to the
Arrangement; that there are no significant disruptions affecting operations,
whether due to labor disruptions, supply disruptions, damage to or loss of
equipment, whether as a result of natural occurrences including flooding,
political changes, title issues, intervention by local landowners, loss of
permits, environmental concerns or otherwise; that development and expansion at
the Companys operations and project proceeds on a basis consistent with current
expectations and the Company does not change its development and exploration
plans; that the exchange rate between the Canadian dollar, the Mexican peso and
the United States dollar remain consistent with current levels or as set out in
this annual report; that prices for gold and silver remain consistent with the
Companys expectations; that prices for key mining supplies, including labor
costs and consumables, remain consistent with the Companys current
expectations; that production meets expectations and is consistent with
estimates; that plant, equipment and processes will operate as anticipated; that
there are no material variations in the current tax and regulatory environment
or the tax positions taken by the Company; that the Company will maintain access
to surface rights; that the Company will be able to obtain and maintain
government approvals or permits in connection with the continued operation and
development of its existing operations, development and exploration activities;
that the Company will be able to extend or repay the full outstanding obligation
under the RCF; that the Company will be able to meet its financial obligations;
and that the Company can access adequate financing, appropriate equipment and
sufficient labor, all at acceptable rates. No assurance can be given that these
assumptions will prove to be correct. These assumptions should be considered
carefully by readers. Readers are cautioned not to place undue reliance on the
forward-looking information and statements or the assumptions on which the
Companys forward-looking information and statements are based.

Forward-looking information is
subject to a variety of risks and uncertainties which could cause actual events
or results to differ from those reflected in the forward-looking statements.
Such risks include, but are not limited to: the volatility of prices of gold,
silver and other metals; uncertainty of Mineral Reserves, Mineral Resources,
Inferred Mineral Resources, uncertainty concerning the timing of closing the
Arrangement; the inability of the Company to receive required stock exchange and
regulatory approvals for the Arrangement; the inability to realize exploration
potential, mineral grades and mineral recovery estimates; uncertainty of future
production, delays in completion of expansion, exploration and development plans
for any reason including insufficient capital, delays in permitting, and labor
issues; our ability to defend the validity of the APA and defend against related
securities litigation; inability to maintain or acquire attractive mining
properties on terms it considers acceptable or at all; other risks inherent with
acquisitions including integration inefficiencies and potential unknown
liabilities associated therewith; the ability of the Company to comply with its
obligations under material agreements including financing agreements; the
inability of the Company to repay the full outstanding obligation under RCF, if
the Arrangement with First Majestic is terminated for any reason; the ability of
the Company to achieve projected gold and silver production, and gold and silver
grades; projected cash costs of production, development and exploration, and
capital expenditures may be greater than anticipated; currency fluctuations
beyond those that are typical or anticipated; limitations on insurance coverage; commercial viability of mineral deposits; inability
to complete any development projects for any reason; risks associated with the
adequacy of infrastructure, including interruptions in power supply; mining
risks, including unexpected formations, cave-ins and voids, which delay
operations or prevent extraction of material; risks associated with competition
in the mining industry; risks associated with the ability to retain key
executives and key operating personnel; risks associated with conflicting legal
obligations of directors and officers of the Company who are directors and/or
officers of other companies; risks associated with foreign operations; adverse
changes in labor laws or in the Companys labor relations, or labor disputes,
accidents or other adverse safety incidents; title disputes or claims; changes
in other regulations that result in increased costs; cost of environmental
expenditures and potential environmental liabilities; dissatisfaction or
disputes with local communities or first nations; and failure of plant,
equipment or processes to operate as anticipated. Should one or more of these
risks and uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described in
forward-looking statements.

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Readers are advised to carefully
review and consider the risk factors identified in this annual report under the
heading Risk Factors for a discussion of the factors that could cause the
Companys actual results, performance and achievements to be materially
different from any anticipated future results, performance or achievements
expressed or implied by the forward-looking statements. Readers are further
cautioned that the foregoing list of assumptions and risk factors is not
exhaustive and it is recommended that prospective investors consult the more
complete discussion of the Companys business, financial condition and prospects
that is included in this annual report. The forward-looking information and
statements contained in this annual report are made as of the date hereof and,
accordingly, are subject to change after such date. The Company does not
undertake any obligation to update any forward-looking information, except as,
and to the extent, required by applicable securities laws. The forward-looking
statements contained herein are expressly qualified by this cautionary
statement.

CAUTIONARY NOTES TO UNITED STATES INVESTORS CONCERNING
ESTIMATES OF MEASURED, INDICATED AND INFERRED RESOURCES

The disclosure in this annual
report uses terms that comply with reporting standards in Canada and certain
estimates are made in accordance with National Instrument 43-101 - Standards of
Disclosure for Mineral Projects (NI 43-101). NI 43-101 is a rule developed by
the Canadian Securities Administrators that establishes standards for all public
disclosure an issuer makes of scientific and technical information concerning
mineral projects. Unless otherwise indicated, all mineral reserve and mineral
resource estimates contained in or incorporated by reference in this annual
report have been prepared in accordance with NI 43-101. These standards differ
significantly from the requirements of the United States Securities and Exchange
Commission (the SEC), SEC Industry Guide 7 under the United States Securities
and Exchange Act of 1934 (the Exchange Act), as amended (SEC-Guide 7) and
mineral reserve and mineral resource information contained herein and
incorporated by reference herein may not be comparable to similar information
disclosed by U.S. companies.

Under SEC-Guide 7, mineralization
may not be classified as a reserve unless the determination has been made that
the mineralization could be economically and legally produced or extracted at
the time the reserve determination is made. Among other things, all necessary
permits would be required to be in hand or issuance imminent in order to
classify mineralized material as reserves under the SEC standards. Accordingly,
Mineral Reserve estimates contained in this annual report may not qualify as
reserves under SEC standards. In addition, disclosure of contained ounces is
permitted disclosure under Canadian regulations; however, the SEC only permits
issuers to report mineralization as in place tonnage and grade without reference
to unit measures.

This annual report also uses the
terms Mineral Resources, Indicated Mineral Resources and Inferred Mineral
Resources. See Introductory NotesCertain Defined Terms. We advise investors
that while such terms are recognized and required by Canadian securities laws,
the SEC does not recognize them. Inferred Mineral Resources have a great amount
of uncertainty as to their existence, and great uncertainty as to their economic
and legal feasibility. It cannot be assumed that all or any part of an Inferred
Mineral Resource will ever be upgraded to a higher category. Under Canadian
securities laws, estimates of Inferred Mineral Resources may not form the basis
of feasibility or other economic studies, except in limited circumstances.
Mineral Resources that are not Mineral Reserves do not have demonstrated
economic viability. None of the following mineralization has been demonstrated
to be ore nor is considered to be a Mineral Reserve. Investors are cautioned not
to assume that all or any part of Measured Mineral Resources or Indicated
Mineral Resources will ever be converted into Mineral Reserves.

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Investors are also cautioned not to assume that any part or all
of an Inferred Mineral Resource exists, or is economically or legally mineable.
See Item 3. Key Information  D. Risk Factors.

NI 43-101 also permits the
inclusion of disclosure regarding the potential quantity and grade, expressed as
ranges, of a target for further exploration provided that the disclosure (i)
states with equal prominence that the potential quantity and grade is conceptual
in nature, that there has been insufficient exploration to define a Mineral
Resource and that it is uncertain if further exploration will result in the
target being delineated as a Mineral Resource, and (ii) states the basis on
which the disclosed potential quantity and grade has been determined. Disclosure
regarding exploration potential has been included in this annual report. United
States investors are cautioned that disclosure of such exploration potential is
conceptual in nature by definition and there is no assurance that exploration of
the mineral potential identified will result in any category of Mineral
Resources being identified.

For the above reasons,
information contained in this annual report may not be comparable to similar
information disclosed by U.S. companies subject to the reporting and disclosure
requirements under the United States federal securities laws and the rules and
regulations promulgated thereunder.

CERTAIN DEFINED TERMS

Certain terms used herein are defined as follows:

Feasibility Study
    A Feasibility Study is a comprehensive technical and
      economic study of the selected development option for a mineral project
      that includes appropriately detailed assessments of applicable Modifying
      Factors together with any other relevant operational factors and detailed
      financial analysis that are necessary to demonstrate, at the time of
      reporting, that extraction is reasonably justified (economically
      mineable). The results of the study may reasonably serve as the basis for
      a final decision by a proponent or financial institution to proceed with,
      or finance, the development of the project. The confidence level of the
      study will be higher than that of a Pre-Feasibility Study.
      The term proponent captures issuers who may finance a project without
      using traditional financial institutions. In these cases, the technical
      and economic confidence of the Feasibility Study is equivalent to that
      required by a financial institution.Indicated Mineral Resource
    An Indicated Mineral Resource is that part of a Mineral
      Resource for which quantity, grade or quality, densities, shape and
      physical characteristics are estimated with sufficient confidence to allow
      the application of Modifying Factors in sufficient detail to support mine
      planning and evaluation of the economic viability of the deposit.
      Geological evidence is derived from adequately detailed and reliable
      exploration, sampling and testing and is sufficient to assume geological
      and grade or quality continuity between points of observation.
      An
      Indicated Mineral Resource has a lower level of confidence than that
      applying to a Measured Mineral Resource and may only be converted to a
      Probable Mineral Reserve.


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Mineralization may be classified as an Indicated Mineral
      Resource by the Qualified Person when the nature, quality, quantity and
      distribution of data are such as to allow confident interpretation of the
      geological framework and to reasonably assume the continuity of
      mineralization. The Qualified Person must recognize the importance of the
      Indicated Mineral Resource category to the advancement of the feasibility
      of the project. An Indicated Mineral Resource estimate is of sufficient
      quality to support a Pre-Feasibility Study which can serve as the basis
      for major development decisions.Inferred Mineral Resource
    An Inferred Mineral Resource is that part of a Mineral
      Resource for which quantity and grade or quality are estimated on the
      basis of limited geological evidence and sampling. Geological evidence is
      sufficient to imply but not verify geological and grade or quality
      continuity.
      An Inferred Mineral Resource has a lower level of confidence than that
      applying to an Indicated Mineral Resource and must not be converted to a
      Mineral Reserve. It is reasonably expected that the majority of Inferred
      Mineral Resources could be upgraded to Indicated Mineral Resources with
      continued exploration.An Inferred Mineral Resource is based on
      limited information and sampling gathered through appropriate sampling
      techniques from locations such as outcrops, trenches, pits, workings and
      drill holes. Inferred Mineral Resources must not be included in the
      economic analysis, production schedules, or estimated mine life in
      publicly disclosed Pre-Feasibility or Feasibility Studies, or in the Life
      of Mine plans and cash flow models of developed mines. Inferred Mineral
      Resources can only be used in economic studies as provided under NI 43-
      101. There may be circumstances, where appropriate sampling, testing, and
      other measurements are sufficient to demonstrate data integrity,
      geological and grade/quality continuity of a Measured or Indicated Mineral
      Resource, however, quality assurance and quality control, or other
      information may not meet all industry norms for the disclosure of an
      Indicated or Measured Mineral Resource. Under these circumstances, it may
      be reasonable for the Qualified Person to report an Inferred Mineral
      Resource if the Qualified Person has taken steps to verify the information
      meets the requirements of an Inferred Mineral Resource.Measured Mineral Resource
    A Measured Mineral Resource is that part of a Mineral
      Resource for which quantity, grade or quality, densities, shape, and
      physical characteristics are estimated with confidence sufficient to allow
      the application of Modifying Factors to support detailed mine planning and
  final evaluation of the economic viability of the deposit.


---

Geological evidence is derived from detailed and reliable
      exploration, sampling and testing and is sufficient to confirm geological
      and grade or quality continuity between points of observation.
      A Measured Mineral Resource has a higher level of confidence than that
      applying to either an Indicated Mineral Resource or an Inferred Mineral
      Resource. It may be converted to a Proven Mineral Reserve or to a Probable
      Mineral Reserve.Mineralization or other natural material of economic
      interest may be classified as a Measured Mineral Resource by the Qualified
      Person when the nature, quality, quantity and distribution of data are
      such that the tonnage and grade or quality of the mineralization can be
      estimated to within close limits and that variation from the estimate
      would not significantly affect potential economic viability of the
      deposit. This category requires a high level of confidence in, and
      understanding of, the geology and controls of the mineral deposit.Mineral Reserve
    Mineral Reserves are sub-divided in order of increasing
      confidence into Probable Mineral Reserves and Proven Mineral Reserves. A
      Probable Mineral Reserve has a lower level of confidence than a Proven
      Mineral Reserve.
      A Mineral Reserve is the economically mineable part of a Measured
      and/or Indicated Mineral Resource. It includes diluting materials and
      allowances for losses, which may occur when the material is mined or
      extracted and is defined by studies at Pre-Feasibility or Feasibility
      level as appropriate that include application of Modifying Factors. Such
      studies demonstrate that, at the time of reporting, extraction could
      reasonably be justified.The reference point at which Mineral Reserves
      are defined, usually the point where the ore is delivered to the
      processing plant, must be stated. It is important that, in all situations
      where the reference point is different, such as for a saleable product, a
      clarifying statement is included to ensure that the reader is fully
      informed as to what is being reported.
      The public disclosure of a Mineral Reserve must be demonstrated by a
      Pre-Feasibility Study or Feasibility Study.Mineral Reserves are those
      parts of Mineral Resources which, after the application of all mining
      factors, result in an estimated tonnage and grade which, in the opinion of
      the Qualified Person(s) making the estimates, is the basis of an
      economically viable project after taking account of all relevant Modifying
      Factors. Mineral
      Reserves are inclusive of diluting material that will be
      mined in conjunction with the Mineral Reserves and delivered to the
      treatment plant or equivalent facility. The term Mineral Reserve need
      not necessarily signify that extraction facilities are in place or
      operative or that all governmental approvals have been received. It does
      signify that there are reasonable expectations of such approvals.


---

Reference point refers to the mining or process point at which the
      Qualified Person prepares a Mineral Reserve. For example, most metal
      deposits disclose mineral reserves with a mill feed reference point. In
      these cases, reserves are reported as mined ore delivered to the plant and
      do not include reductions attributed to anticipated plant losses. In
      contrast, coal reserves have traditionally been reported as tonnes of
      clean coal. In this coal example, reserves are reported as a saleable
      product reference point and include reductions for plant yield
      (recovery). The Qualified Person must clearly state the reference point
      used in the Mineral Reserve estimate.Mineral Resource
    Mineral Resources are sub-divided, in order of increasing
      geological confidence, into Inferred, Indicated and Measured categories.
      An Inferred Mineral Resource has a lower level of confidence than that
      applied to an Indicated Mineral Resource. An Indicated Mineral Resource
      has a higher level of confidence than an Inferred Mineral Resource but has
      a lower level of confidence than a Measured Mineral Resource.
      A Mineral Resource is a concentration or occurrence of solid material
      of economic interest in or on the Earths crust in such form, grade or
      quality and quantity that there are reasonable prospects for eventual
      economic extraction. The location, quantity, grade or quality,
      continuity and other geological characteristics of a Mineral Resource are
      known, estimated or interpreted from specific geological evidence and
      knowledge, including sampling.
      Material of economic interest refers to diamonds, natural solid
      inorganic material, or natural solid fossilized organic material including
      base and precious metals, coal, and industrial minerals. The term
      Mineral Resource covers mineralization and natural material of intrinsic
      economic interest which has been identified and estimated through
      exploration and sampling and within which Mineral Reserves may
      subsequently be defined by the consideration and application of Modifying
      Factors. The phrase reasonable prospects for eventual economic
      extraction implies a judgment by the Qualified Person in respect of the
      technical and economic factors likely to influence
      the prospect of economic extraction. The Qualified Person
      should consider and clearly state the basis for determining that the
      material has reasonable prospects for eventual economic extraction.
      Assumptions should include estimates of cutoff grade and geological
      continuity at the selected cut-off, metallurgical recovery, smelter
      payments, commodity price or product value, mining and processing method
      and mining, processing and general and administrative costs. The Qualified
      Person should state if the assessment is based on any direct evidence and
      testing.


---

Interpretation of the word eventual in this context may vary
      depending on the commodity or mineral involved. For example, for some
      coal, iron, potash deposits and other bulk minerals or commodities, it may
      be reasonable to envisage eventual economic extraction as covering time
      periods in excess of 50 years. However, for many gold deposits,
      application of the concept would normally be restricted to perhaps 10 to
      15 years, and frequently to much shorter periods of time.Modifying Factors
    Modifying Factors are considerations used to convert
      Mineral Resources to Mineral Reserves. These include, but are not
      restricted to, mining, processing, metallurgical, infrastructure,
      economic, marketing, legal, environmental, social and governmental
      factors.Pre-Feasibility Study (Preliminary Feasibility Study)
    The CIM Definition Standards requires the completion of a
      Pre-Feasibility Study as the minimum prerequisite for the conversion of
      Mineral Resources to Mineral Reserves.
       A Pre-Feasibility Study is a comprehensive study of a range of options
      for the technical and economic viability of a mineral project that has
      advanced to a stage where a preferred mining method, in the case of
      underground mining, or the pit configuration, in the case of an open pit,
      is established and an effective method of mineral processing is
      determined. It includes a financial analysis based on reasonable
      assumptions on the Modifying Factors and the evaluation of any other
      relevant factors which are sufficient for a Qualified Person, acting
      reasonably, to determine if all or part of the Mineral Resource may be
      converted to a Mineral Reserve at the time of reporting. A Pre-Feasibility
      Study is at a lower confidence level than a Feasibility Study.Probable Mineral Reserve
    A Probable Mineral Reserve is the economically mineable
      part of an Indicated, and in some circumstances, a Measured Mineral
      Resource. The confidence in the Modifying Factors applying to a Probable
      Mineral Reserve is lower than that applying to a Proven Mineral Reserve.
       The Qualified Person(s) may elect, to convert Measured Mineral
      Resources to Probable Mineral Reserves if the confidence in the Modifying
      Factors is lower than that applied to a Proven Mineral Reserve. Probable
      Mineral Reserve estimates must be demonstrated to be economic, at
      the time of reporting, by at least a Pre- Feasibility Study.


---

Proven Mineral Reserve (Proved Mineral Reserve)
    A Proven Mineral Reserve is the economically mineable
        part of a Measured Mineral Resource. A Proven Mineral Reserve implies a
        high degree of confidence in the Modifying Factors.
      Application of the Proven Mineral Reserve category
        implies that the Qualified Person has the highest degree of confidence in
        the estimate with the consequent expectation in the minds of the readers
        of the report. The term should be restricted to that part of the deposit
        where production planning is taking place and for which any variation in
        the estimate would not significantly affect the potential economic
        viability of the deposit. Proven Mineral Reserve estimates must be
        demonstrated to be economic, at the time of reporting, by at least a
        Pre-Feasibility Study. Within the CIM Definition standards the term Proved
    Mineral Reserve is an equivalent term to a Proven Mineral Reserve.Qualified Person
    An individual who (a) is an engineer or geoscientist with
      at least five years of experience in mineral exploration, mine development
      or operation or mineral project assessment, or any combination of these;
      (b) has experience relevant to the subject matter of the mineral project
      and the technical report; and (c) is in good standing with a professional
      association and, in the case of a foreign association listed in Appendix A
      of the Canadian Securities Administrators in National Instrument 43-101
      - Standards of Disclosure for Mineral Projects, has the
corresponding designation in such Appendix A.


---

PART I

|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
      ADVISERS
|------- | -----------------------------------------------------------

Not applicable.

|ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- | ---------------------------------------

Not applicable.

|ITEM 3. | KEY INFORMATION
|------- | ---------------

The following financial
information of Primero is only a summary and should be read in conjunction with,
and is qualified in its entirety by reference to, our audited consolidated
financial statements and related notes which are included elsewhere in this
annual report on Form 20-F.

The tables below represent the
selected consolidated income statement and balance sheet data as at and for the
years ended December 31, 2017, 2016, 2015, 2014 and 2013 that has been derived
from our audited consolidated financial statements, which were prepared in
accordance with IFRS as issued by the IASB.

|A. | Selected Consolidated Income Statement Data
|-- | -------------------------------------------

Years ended December 31
    
    2017
    
    
    2016
    
    
    2015
    
    
    2014
    
    
    2013Financial Data (in thousands of US dollars
      except per share amounts)Revenues
    $
    91,769
    
    $
    147,581
    
    $
    213,192
    
    $
    198,864
    
    $
    200,326Earnings from mine operations
    
    2,056
    
    
    (55,799
    )
    
    53,484
    
    
    49,470
    
    
    76,226Net loss
    
    (409,685
    )
    
    (234,420
    )
    
    (106,910
    )
    
    (21,632
    )
    
    (4,045
    )Basic net loss per share from
      continuing operations
    
    (1.74
    )
    
    (0.65
    )
    
    (0.06
    )
    
    (0.14
    )
    
    (0.04
    )Diluted net loss per share from continuing
      operations
    
    (1.74
    )
    
    (0.65
    )
    
    (0.06
    )
    
    (0.14
    )
    
    (0.04
    )Weighted average shares
      outstanding (basic) (000s)
    
    191,738
    
    
    177,569
    
    
    162,341
    
    
    152,064
    
    
    108,528Weighted average shares outstanding (diluted)
      (000s)
    
    191,738
    
    
    177,569
    
    
    162,341
    
    
    152,064
    
    
    108,528


As of December 31,
    
    2017
    
    
    2016
    
    
    2015
    
    
    2014
    
    
    2013AssetsMining interests
    $
    125,050
    
    $
    577,920
    
    $
    790,118
    
    $
    881,480
    
    $
    636,253Total
      Assets
    $
    205,266
    
    $
    677,817
    
    $
    924,968
    
    $
    1,002,820
    
    $
    800,822LiabilitiesLong-term
      liabilities
    $
    91,134
    
    $
    130,472
    
    $
    190,213
    
    $
    190,213
    
    $
    94,039Total liabilities
    $
    145,535
    
    $
    216,687
    
    $
    254,835
    
    $
    254,835
    
    $
    139,732Equity
    $
    59,731
    
    $
    461,130
    
    $
    747,985
    
    $
    747,985
    
    $
    661,090


Primero did not pay a dividend in any of the years noted above.

Exchange Rates

5

---

The following table sets forth,
for the periods indicated, the high, low, average and closing rates of exchange
for US$1.00, expressed in Canadian dollars, reported by the Bank of Canada.

Year ended
      December 31April 2018(throughApril 19,2018)
    
    
    2017
    
    
    2016
    
    
    2015
    
    
    2014
    
    
    2013Low for the period
    $
    1.2288
    
    $
    1.2128
    
    $
    1.2536
    
    $
    1.1749
    
    $
    1.0614
    
    $
    0.9839High for the period
    
    1.3088
    
    
    1.3743
    
    
    1.4559
    
    
    1.3965
    
    
    1.1643
    
    
    1.0697Rate at the end of the period
    
    1.2633
    
    
    1.2545
    
    
    1.3427
    
    
    1.3840
    
    
    1.1601
    
    
    1.0636Average noon spot rate for the
      period(1)
    
    1.2654
    
    
    1.2986
    
    
    1.3245
    
    
    1.2785
    
    
    1.1117
    
    
    1.0299


________________________
Source: Bank of Canada

(1) Represents the average of the exchange rates
during the period.

|B. | Capitalization and Indebtedness
|-- | -------------------------------

Not applicable.

|C. | Reasons for the Offer and Use of Proceeds
|-- | -----------------------------------------

Not applicable.

|D. | Risk Factors
|-- | ------------

The operations of the Company are
speculative due to the high-risk nature of its business which is the
acquisition, financing, exploration, development and operation of precious
metals properties. The risk factors below, as well as other risks discussed in
this annual information form, could materially affect the Companys future
operating results and could cause actual events to differ materially from those
described in forward-looking statements relating to the Company. These risks are
broadly classified into these categories, financial and operational risks and
are not the only ones faced by the Company. Additional risks and uncertainties
not presently known to us or that we currently consider immaterial may also
impair our business operations. If any of these events actually occur, our
business, prospects, financial condition, cash flows and operating results could
be materially harmed.

While the Company has developed
an enterprise risk management policy and procedures to maintain risks within an
acceptable range and the Board of Directors of the Company (the Board)
maintains direct oversight of the enterprise risk management process, there is
no assurance that such measures will prevent risks from adversely affecting the
Companys business. Before deciding to invest in securities of the Company,
investors should consider carefully such risks and uncertainties.

Financial Risks

Indebtedness

As of December 31, 2017,
Primeros outstanding indebtedness included (i) the outstanding principal amount
under the RCF of $30.2 million, (ii) indebtedness under the 2015 Debentures (as
defined below), estimated to have a value of $47.6 million and for which the
outstanding principal amount is $75.0 million, and (iii) $0.1 million of finance
lease liabilities.

On March 30, 2017, the Company
amended the terms of its RCF to extend the maturity date from May 23, 2017 to
November 23, 2017 and to exclude all financial covenants until such extended
maturity date. The RCF continued to be secured by a charge over substantially
all of the Companys assets, but the extension was also conditional upon the lenders receiving a guarantee from Wheaton Precious Metals
Corp. (WPM) for a fee of $2.7 million payable at maturity. In connection with
the Companys strategic review process, the RCF was further extended multiple
times for short periods during the fourth quarter of 2017. On January 12, 2018,
the Company further extended its RCF maturity date to allow for the execution
and potential closing of the Arrangement Agreement.

6

---

During 2017, Primero drew down
$25.0 million under the RCF. Following the sales of the Black Fox Complex and
the Cerro del Gallo Project, the net proceeds were applied against the
outstanding RCF reducing the outstanding balance to $30.2 million as of December
31, 2017. The total net repayment against the RCF for the year 2017 was $19.8
million.

During 2016, the Company repaid
in full the $48.1 million outstanding balance of the 6.5% Convertible Debentures
assumed as part of the acquisition of Brigus Gold Corp., using $50.0 million
drawn on the RCF.

The Companys exposure to
interest rate risk is limited to the RCF, which is subject to a floating
interest rate. If the Arrangement with First Majestic is terminated for any
reason, there is significant uncertainty regarding Primeros ability to repay
the full outstanding obligation under the RCF upon maturity. Any Event of
Default under the RCF, including non-payment upon maturity, unless waived, would
trigger cross default provisions under the 2015 Debentures and the Amended and
Restated Silver Purchase Agreement (as defined below). This represents a
material uncertainty that casts substantial doubt on the ability of the Company
to continue as a going concern should such events materialize.

Primeros indebtedness could
limit its ability to borrow additional amounts for working capital, capital
expenditures, debt service requirements, execution of Primeros growth strategy
or other purposes or to capitalize on business opportunities and to react to
competitive pressures and adverse changes in government regulation. The
Companys ability to incur additional indebtedness is limited under the
RCF and the Amended and Restated Silver Purchase Agreement (as defined below)
and depends on the satisfaction of certain financial tests, which are typical
for a company such as Primero. These limitations restrict the additional
indebtedness that the Company may incur, with the result that the Company may
not be able to pursue capital expansions, additional exploration programs,
acquisitions, or other components of its future business plans.

Commodity Prices

The price of the Common Shares,
Primeros financial results and its exploration, development and mining
activities are significantly adversely affected by declines in the price of gold
and, to a lesser extent, silver. Gold and silver prices fluctuate widely and are
affected by numerous factors beyond Primeros control such as the sale or
purchase of metals by various central banks and financial institutions, interest
rates, exchange rates, inflation or deflation, fluctuations in the value of the
United States dollar and foreign currencies, global and regional supply and
demand, and the political and economic conditions of major metals-producing
countries throughout the world. The price of gold and silver has fluctuated
widely in recent years, and future significant price declines could cause
continued development of, and commercial production from, Primeros properties
to be uneconomic. Depending on the price of gold and silver, cash flow from
mining operations may not be sufficient and Primero could be forced to
discontinue production and may lose its interest in, or may be forced to sell,
some of its properties. Future production from the San Dimas Mine is dependent
on gold and silver prices that are adequate to make it economic.

In addition, Mineral Reserve
calculations and life-of-mine plans using significantly lower gold and silver
prices could result in material write-downs of Primeros investments in its
mining properties and increased amortization, reclamation and closure charges.

Challenge to the 2012 APA

Overview

In 2016, the Servicio de
Administración Tributaria (SAT) initiated a proceeding seeking to nullify the
APAwhich it issued to the Company in 2012. The APA confirmed the
Companys basis for paying taxes on the price it realized for certain silver
sales between 2010 to 2014. The Company received notice of this proceeding in
February 2016. If the SATs challenge is successful it is likely to have
a material adverse effect on the Companys business, financial condition and
results of operations.

7

---

Background

In 2004, affiliates of Goldcorp
Inc. (Goldcorp) entered into a Silver Purchase Agreement dated as of October
15, 2004 with Silver Wheaton (the Original Silver Purchase Agreement), in
connection with the San Dimas Mine and two other mines in Mexico. Under the
Original Silver Purchase Agreement, Goldcorp received cash and securities in
exchange for an obligation to sell the amount of silver extracted from the mines
at a price set forth in the Original Silver Purchase Agreement. In order to
satisfy its obligations under the Original Silver Purchase Agreement, sales were
made by Goldcorp through a non-Mexican subsidiary to WPMI (formerly called SW
Caymans) a Silver Wheaton company in the Caymans. Upon Primeros acquisition of
the San Dimas Mine, the Original Silver Purchase Agreement was restated as of
March 30, 2006, amended and restated as of August 6, 2010 (the Amended and
Restated Silver Purchase Agreement) and Primero assumed all of Goldcorps
obligations with respect to the San Dimas Mine under the Original Silver
Purchase Agreement. Primero did not receive any of the initial consideration
that was paid to Goldcorp under the Original Silver Purchase Agreement.

The provisions of the Amended and
Restated Silver Purchase Agreement require that, on a consolidated basis, the
Company sell to Silver Wheaton during a contract year (August 6th to the
following August 5th), 100% of the amount of silver produced from the San Dimas
Mine up to 6 million ounces and 50% of silver produced thereafter, at the lower
of (i) the current market price and (ii) $4.04 per ounce plus an annual increase
of 1% (the PEM Realized Price). In 2017, the contract price was $4.32. The
price paid by Silver Wheaton under the Amended and Restated Silver Purchase
Agreement represents the total value that the Company and its affiliates receive
for the sale of silver to Silver Wheaton. The Amended and Restated Silver
Purchase Agreement continues indefinitely in respect of any silver produced from
the San Dimas concessions.

The specific terms of the Amended
and Restated Silver Purchase Agreement require that the Company sell the silver
through one of its non-Mexican subsidiaries, Silver Trading Barbados (STB), to
WPMI. As a result, the Companys Mexican subsidiary that holds the San Dimas
concessions, Primero Empresa Minera (PEM), sells the required amount of silver
produced from the San Dimas concessions to STB to allow it to fulfill its
obligations under the Amended and Restated Silver Purchase Agreement.

When the Company initially
acquired the San Dimas Mine, the sales from PEM to STB were made at the spot
market price while the sales by STB to WPMI were at the PEM Realized Price,
which at that time was $4.04 per ounce. In order to reflect commercial realities
and the effects of the Amended and Restated Silver Purchase Agreement on the
Company on a consolidated basis, PEM amended the terms of sales of silver
between itself and STB and commenced to sell the amount of silver due under the
Amended and Restated Silver Purchase Agreement to STB at the PEM Realized Price.
For Mexican income tax purposes, PEM then recognized the revenue on these silver
sales on the basis of its actual realized revenue, which was the PEM Realized
Price.

APA

In order to provide the Company
with stability and assurances that the SAT would accept the PEM Realized Price
(and not the spot market silver price) as the proper price to use to calculate
Mexican income taxes, the Company applied for and received the APA from the SAT.
The APA confirmed the PEM Realized Price would be used as the Companys basis
for calculating taxes owed by the Company on the silver sold under the Amended
and Restated Silver Purchase Agreement. The Company believed that the function
of APA was to provide tax certainty and as a result made significant investments
in Mexico based on that certainty. Under Mexican law, an advanced pricing
agreement is valid for five years and therefore the APA represented the SATs
agreement to accept the PEM Realized Price as the basis for calculating taxes
for the tax years 2010 through 2014.

Challenge to APA for 2010  2014 tax years

In 2016, the SAT initiated a
legal proceeding seeking to nullify the APA. That legal proceeding does not
identify an alternative basis in the legal claim for calculating taxes on the
silver sold by PEM for which it receives the PEM Realized Price. If the SAT is
successful in retroactively nullifying the APA, the SAT may reassess PEM in
respect of its sales of silver in connection with the Amended and Restated
Silver Purchase Agreement for 2010 through 2014. The Company is an interested
party in this proceeding. While PEM would have rights of appeal in connection with any reassessments, if the legal proceeding is
finally concluded in favor of the SAT, the amount of additional taxes that the
SAT could charge PEM for the tax years 2010 through 2014 on the silver sold in
connection with the Amended and Restated Silver Purchase Agreement would likely
have a material adverse effect on the Companys results of operations, financial
condition and cash flows.

8

---

In June 2017, as part of the
ongoing annual audits of the PEM tax returns, the SAT issued an observations
letter for the 2010 tax year. In October 2017, the SAT issued an observations
letter for the 2011 tax year. An observations letter is issued to a taxpayer in
advance of a reassessment being issued, provides an outline of the SATs
position on matters under audit, and affords the taxpayer an opportunity to
respond to such position in advance of the reassessment being issued. In these
observations letters issued to PEM, the SAT made explicit its view that PEM
should pay taxes based on the market price of silver, rather than the PEM
Realized Price. As the Company continues to defend the APA in the Mexican legal
proceeding, the APA remains valid and the Company will vigorously dispute any
reassessment that may be issued in the future on a basis that assesses taxes on
its silver revenues that is inconsistent with the APA. The observations letters
do not represent a tax reassessment and no liability has been recognized in the
financial statements. The Company has submitted formal responses to both the
2010 and 2011 observation letters.

The Company intends to vigorously
defend the validity of the APA. In addition, the Company intends to explore
opportunities to minimize the potential impact on the Company in the event that
the SAT is successful in its legal claim to nullify the APA, but there is no
assurance that the Company will find or be able to implement a reasonable
solution.

While the Company continues to
vigorously defend the validity of the APA and its transfer pricing position, it
has also engaged in dialogue with the SAT seeking to resolve matters and bring
tax certainty through a negotiated solution. Primero has also had constructive
dialogue with the SAT in relation to outstanding VAT receivables and has
received VAT refunds since July 2017.

Uncertain Tax Treatment for Tax Years Following 2014

For the 2015, 2016 and 2017 tax
years, the Company continued to record its revenue from sales of silver for
purposes of Mexican tax accounting in a manner consistent with the APA on the
basis that the applicable facts and laws have not changed. The Companys legal
and financial advisors continue to believe that the Company has filed its tax
returns compliant with applicable Mexican law. Given the legal challenge by the
SAT against the APA for the 2010-2014 tax years and the Companys belief that it
is unlikely that the SAT will agree to an advance pricing agreement for the
2015-2019 tax years on terms similar to the challenged APA, it decided not to
file an application for a renewed APA in respect of 2015 and the four subsequent
years. To the extent the SAT determines that the appropriate price of silver
sales under the Amended and Restated Silver Purchase Agreement is significantly
different from the PEM Realized Price, although PEM would have rights of appeal
in connection with any reassessments, it is likely to have a material adverse
effect on the Companys business, financial condition and results of
operations.

Additional Capital

The mining, processing,
development and exploration of Primeros properties, may require substantial
additional financing. Failure to obtain sufficient financing may result in the
delay or indefinite postponement of exploration, development or production on
any or all of Primeros properties or even a loss of property interest. There
can be no assurance that additional capital or other types of financing will be
available if needed or that, if available, the terms of such financing will be
attractive to Primero. Restrictions on incurring additional indebtedness in the
Amended and Restated Silver Purchase Agreement, and in other agreements with
existing or future lenders including the RCF, may limit the ability of the
Company to borrow to finance acquisitions. Declines in gold and silver prices
could have the result of making additional capital unavailable to Primero.

9

---

Exchange Rate Fluctuations

Exchange rate fluctuations may
affect the costs incurred in the Companys operations. Gold is sold in U.S.
dollars and costs are incurred principally in U.S. dollars, Canadian dollars and
Mexican pesos. The appreciation of the Mexican peso or the Canadian dollar
against the U.S. dollar can increase the costs of gold production and capital
expenditures in U.S. dollar terms. The Company also holds cash that is
denominated in Canadian dollars and Mexican pesos which are subject to currency
risk. The Companys head office general and administrative expenses are mainly
denominated in Canadian dollars and are translated to U.S. dollars at the
average rate during the period, as such if the U.S. dollar appreciates as
compared to the Canadian dollar, the costs of the Company would decrease in U.S.
dollar terms. The Company is further exposed to currency risk through
non-monetary assets and liabilities of its Mexican and Canadian entities whose
taxable profit or loss is denominated in a non-U.S. dollar currency.

Capital Cost and Operational Cost Estimates

The Company prepares budgets and
estimates of cash costs and capital costs of production for its operations and
its main costs relating to material costs, personnel and contractor costs, and
energy costs. However, despite the Companys efforts to budget and estimate such
costs, as a result of the substantial expenditures involved in the development
of mineral projects and the fluctuation of costs over time, development projects
may be prone to material cost overruns. The Companys actual costs may vary from
estimates for a variety of reasons, including: short-term operating factors;
revisions to mine plans; risks and hazards associated with mining; natural
phenomena, such as inclement weather conditions, water availability, floods, and
earthquakes; and unexpected labor shortages or strikes. Operational costs may
also be affected by a variety of factors, including: changing waste-to-ore
ratios, ore grade metallurgy, labor costs, the cost of commodities, general
inflationary pressures and currency exchange rates. Many of these factors are
beyond the Companys control. Failure to achieve estimates or material increases
in costs could have an adverse impact on the Companys future cash flows,
business, results of operations and financial condition.

Furthermore, delays in the
construction and commissioning of mining projects or other technical
difficulties may result in additional capital expenditures being required. Any
delay in the development of a project or cost overruns or operational
difficulties once the project is fully developed may have a material adverse
effect on the Companys business, results of operations and financial condition.

Global Economic Conditions

Market events and conditions,
including recent political and social events in the global arena may adversely
affect Primeros business. In the last several years, the United States and
certain European countries have experienced significant political events that
have cast uncertainty on global financial and economic markets. NAFTA is
currently under renegotiation and the result is uncertain at this time. It is
unclear exactly what other actions the administration in the United States will
implement, and if implemented, how these actions may impact Canada and Mexico
and in particular, the mining industry. Any actions taken by the new United
States administration may have a negative impact on the Canadian economy and on
our business, financial condition and results of operations. In addition to the
political disruption in the United States, the citizens of the United Kingdom
recently voted to withdraw from the European Union and the government of the
United Kingdom has begun implementing such withdrawal. To the extent that
certain political actions taken in North America and elsewhere in the world
result in a marked decrease in free trade, access to personnel and freedom of
movement, it could have an adverse effect on the Companys ability to market its
products internationally, reduce access to skilled labour and negatively impact
the Companys business, operations, financial condition and the market value of
its shares. A change in federal, provincial or municipal governments in Canada
may have an impact on the directions taken by such governments on matters that
may impact the mining industry. Similarly, with the upcoming presidential
elections in Mexico this year, it remains uncertain as to whether a potential
change in administration would pose any risks to Mexicos mining industry, trade
relationships and growth outlook.

The Company is also exposed to
liquidity and various counterparty risks including, but not limited to: (i)
financial institutions that hold the Companys cash; (ii) the Companys
insurance providers; (iii) the Companys lenders; (iv) the Companys other
banking counterparties and (v) the Companys Value Added Tax (VAT) refund,
as to when or whether the VAT arrears is eventually reimbursed.
The Company is also exposed to liquidity risks in meeting its capital
expenditure requirements in instances where cash positions are unable to be
maintained or appropriate financing is unavailable. These factors may impact the
ability of the Company to obtain loans and other credit facilities in the future
and, if obtained, on terms attractive to the Company. As a result of this and
the uncertainty of the recent market volatility, the Companys planned growth
and the trading price of the Companys securities could either be adversely or
positively impacted.

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Effectiveness of Internal Control Over Financial
Reporting

The Company is required to
maintain and evaluate the effectiveness of its internal control over financial
reporting under National Instrument 52-109  Certification of Disclosure in
Issuers Annual and Interim Filings in Canada and under the Exchange Act in
the United States. There is no assurance that the Company will be able to
achieve and maintain the adequacy of its internal control over financial
reporting as such standards are modified, supplemented, or amended from time to
time, and the Company may not be able to ensure that it can conclude on an
ongoing basis that its internal control over financial reporting is effective.
The Companys failure to establish and maintain effective internal control over
financial reporting could result in the loss of investor confidence in the
reliability of its financial statements. In addition, any failure to implement
required new or improved controls, or difficulties encountered in their
implementation, could result in the Companys inability to meet its reporting
obligations. There can be no assurance that the Company will be able to
remediate material weaknesses, if any, identified in future periods, or maintain
all of the controls necessary for continued compliance, and there can be no
assurance that the Company will be able to retain sufficient skilled finance and
accounting personnel. No evaluation can provide complete assurance that the
Companys internal control over financial reporting will detect or uncover all
failures of persons within the Company to disclose material information
otherwise required to be reported.

Insurance and Uninsured Risks

Mining operations are subject to
a number of risks and hazards generally, including adverse environmental
conditions, industrial accidents, labor disputes, unusual or unexpected
geological conditions, ground or slope failures, cave-ins, changes in the
regulatory environment and natural phenomena such as inclement weather
conditions, floods, hurricanes and earthquakes. Such occurrences could result in
damage to mineral properties or production facilities, personal injury or death,
environmental damage to Primeros properties or the properties of others, delays
in mining, monetary losses and possible legal liability.

Although Primero plans to
maintain insurance to protect against certain risks in such amounts as it
considers reasonable, its insurance will not cover all the potential risks
associated with its operations. Primero may also be unable to maintain insurance
to cover these risks at economically feasible premiums. Insurance coverage may
not continue to be available or may not be adequate to cover any resulting
liability. Moreover, insurance against risks such as loss of title to mineral
property, environmental pollution, or other hazards as a result of exploration
and production is not generally available to Primero or to other companies in
the mining industry on acceptable terms. Primero might also become subject to
liability for pollution or other hazards for which it may not be able or, due to
the high cost of premiums, desirable to buy insurance. Losses from these events
may cause Primero to incur significant costs that could have a material adverse
effect on its financial performance and results of operations.

Operational Risks

Exploration, Development and Operating Risk

Primeros current activities are
directed towards mining operations and exploration projects at the San Dimas
Mine. Mining operations generally involve a high degree of risk. Primeros
operations are subject to all the hazards and risks normally encountered in the
exploration, development and production of gold and silver including unusual and
unexpected geological formations, seismic activity, rock bursts, cave-ins,
flooding and other conditions involved in the drilling and removal of material,
any of which could result in damage to, or destruction of, mines and other
producing facilities, causing delay or indefinite postponement of exploration,
development or production, damage to life or property, environmental damage and
possible legal liability. Other operational risks such as equipment failure or
failure of retaining dams around tailings disposal areas may result in
environmental pollution and consequent liability. Although appropriate
precautions to mitigate these risks are taken, the inherent risk remains.

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The exploration for and
development of mineral deposits involves significant risks which even a
combination of careful evaluation, experience and knowledge may not eliminate.
While the discovery of an ore body may result in substantial rewards, few
properties which are explored are ultimately developed into producing mines.
Major expenses may be required to locate and establish Mineral Resources and
Mineral Reserves, to develop metallurgical processes and to construct mining and
processing facilities at a particular site. It is difficult to ensure that the
exploration or development programs planned by Primero will ultimately result in
a profitable commercial mining operation. Whether a mineral deposit will be
commercially viable depends on a number of factors, some of which are: the
particular attributes of the deposit, such as size, grade, metallurgy and
proximity to infrastructure; metal prices which are highly cyclical; and
government regulations, including regulations relating to prices, taxes,
royalties, land tenure, land use, importing and exporting of minerals and
environmental protection.

The exact effect of these factors
cannot be accurately predicted, but the combination of any of these factors may
result in Primero not receiving an adequate return on invested capital. There is
no certainty that the expenditures made by Primero towards the search and
evaluation of mineral deposits will result in discoveries of commercial
quantities of ore.

Uncertainty in the Estimation of Mineral Reserves and
Mineral Resources

The figures for Mineral Reserves
and Mineral Resources contained in this annual report and used in the Companys
mine models and as presented for the San Dimas Mine, are estimates based on
geological interpretations and geological judgment and no assurance can be given
that the anticipated tonnages and grades will be achieved, that the indicated
level of recovery will be realized or that Mineral Reserves can be mined or
processed profitably. There are numerous uncertainties inherent in estimating
Mineral Reserves and Mineral Resources. Such estimation is a subjective process,
and the accuracy of any Mineral Reserve or Mineral Resource estimate is a
function of the quantity and quality of available data and tools, and of the
assumptions made and judgments used in engineering and geological
interpretation. Short-term operating factors relating to the Mineral Reserves,
such as the need for orderly development of the ore bodies or the processing of
new or different ore grades, may cause the mining operation to be unprofitable
in any particular period. In addition, there can be no assurance that gold or
silver recoveries in small scale laboratory tests will be duplicated in larger
scale tests under on-site conditions or during production. Fluctuation in gold
and, to a lesser extent, silver prices, results of drilling, metallurgical
testing and production and the evaluation of mine plans subsequent to the date
of any estimate may require revision of such estimate. The volume and grade of
Mineral Reserves mined and processed and recovery rates may not be the same as
currently anticipated. Any material reductions in estimates of Mineral Reserves
and Mineral Resources, or of Primeros ability to extract these Mineral
Reserves, could have a material adverse effect on Primeros results of
operations and financial condition including, without limitation, an impairment
loss and a write down of Primeros mining properties, discontinuance of
production, and loss of interest in, or sale of, some of Primeros properties.
In addition to other adverse consequences, recording an impairment loss and a
write-down may result in Primero breaching certain tangible net worth financial
covenants under the Revolving Credit Facility that could constitute an event of
default. See Introductory Notes  Cautionary Notes to United States Investors
Concerning Estimates of Measured, Indicated and Inferred Resources.

Uncertainty Relating to Inferred Mineral Resources and
Exploration Potential

Inferred Mineral Resources that
are not Mineral Reserves do not have demonstrated economic viability. Due to the
uncertainty which may attach to Inferred Mineral Resources, there is no
assurance that all Inferred Mineral Resources will be upgraded to Mineral
Resources with sufficient geological continuity to constitute Proven Mineral
Reserves or Probable Mineral Reserves as a result of continued exploration.
Exploration potential is conceptual in nature by definition and there is no
assurance that exploration of the mineral potential identified will result in
any category of Mineral Resources being identified.

Fluctuations in the prices of
gold and silver, results of drilling, metallurgical testing and production, and
the evaluation of studies, reports and plans subsequent to the date of any
estimate may require revision of such estimate. Any material reductions in
estimates of Mineral Resources or Mineral Reserves could have a material adverse
effect on the results of the Companys operations and financial condition.

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Need for Additional Mineral Reserves

Since all mines have limited
lives based on Mineral Reserves, Primero will be required to continually replace
and expand its Mineral Reserves as its mines produce gold and silver. Primeros
ability to maintain or increase its annual production of gold and silver will be
dependent in significant part on its ability to expand Mineral Reserves at
existing mines, to bring new mines into production and to complete acquisitions.
The ability to commence or continue these activities requires sufficient
financial resources to support these activities, and there is no assurance that
sufficient funds are or will be available to the Company.

Title to Property

Title to mineral properties
involves certain inherent risks due to the difficulties of determining the
validity of certain claims, as well as the potential for problems arising from
the frequently ambiguous conveyance history characteristic of many mineral
properties. There is no guarantee that title to Primeros properties will not be
challenged or impugned. Mineral property interests may be subject to prior
unrecorded agreements or transfers or the claims of local people and title may
be affected by undetected defects. There may be valid challenges to the title of
these properties which, if successful, could require the Company to modify its
operations and/or plans for development.

There can be no assurance that
the Company will be able to secure the grant or the renewal of mining
concessions on terms satisfactory to it, or that governments in the
jurisdictions in which Primeros properties are situated will not revoke or
significantly alter such permits or other tenures or that such mining
concessions will not be challenged or impugned. Third parties may have valid
claims underlying portions of the Companys interests and the mining concessions
may be subject to prior unregistered agreements or transfers and title may be
affected by undetected defects. If a title defect exists, it is possible that
the Company may lose all or part of its interest in the properties.

Use of Ejido-Owned Land

An Ejido is a communal
ownership of land recognized by the federal laws in Mexico. While mineral rights
are administered by the federal government through federally issued mining
concessions, access to surface rights is also required for mining operations. An
Ejido controls surface rights over its communal property through a board of
directors. An Ejido may sell or lease lands directly to a private entity and it
may also allow individual members of the Ejido to obtain title to specific
parcels of land and thus the right to sell or lease the land.

The San Dimas Mine uses Ejidos
lands pursuant to written agreements with local Ejidos. Some of these agreements
may be subject to renegotiation and changes to the existing agreements may
increase operating costs or have an impact on operations. In cases where access
to land is required for operations and an agreement cannot be reached with the
Ejido or land owner, Primero may seek access under Mexican law which provides
for priority rights for mining activities.

Certain of the properties
included in the San Dimas Mine and for which Primero holds legal title have been
subject to legal proceedings commenced by Ejidos seeking title to the property.
These proceedings in all cases were brought against previous owners of the
properties, either deceased individuals who, according to certain public deeds,
owned the properties more than 80 years ago, corporate entities that are no
longer in existence, or Goldcorp companies. As such, Primero initially has no
standing to participate in them and may not receive timely notice of such
actions brought decisions rendered.

Since acquiring the San Dimas
Mine, Primero has been aware of four such Ejidos actions, three of which have
been finally resolved in favour of Primeros interests. Primero continues to
challenge the fourth outstanding Ejidos legal claim to defend its position as
the legitimate owner of the subject property. If Primero is not successful in
this outstanding claim, the San Dimas Mine could face higher costs associated
with agreed or mandated payments that would be payable to the Ejidos for use of
the subject property. Further,there is no assurance thatEjidos
will not engage in legal proceedings to claim interests in properties owned by
Primero in the future.

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Indigenous Peoples and Local Communities

There are numerous international
and national laws, codes, resolutions, conventions, guidelines, policies and
other statements addressing the rights of indigenous peoples. The Company
currently operates in certain areas presently or previously used by indigenous
peoples. Many of the laws or statements impose obligations on government in
respect of the rights of indigenous people and some mandate or suggest
consultation with indigenous people regarding government actions which may
affect them, including the approval or grant of mining rights or permits. The
obligations of government and private parties to indigenous people continue to
evolve. The Companys current and future operations are subject to a risk that
one or more groups of indigenous people may oppose continued operation, further
development, or new development of the Companys projects or operations.

Surrounding communities and
landowners are also stakeholders who may seek to interfere with the Companys
operations and development activities. Such opposition may be directed through
legal or administrative proceedings, or expressed in manifestations such as
protests, roadblocks or other forms of public expression against the Companys
activities.

Government Regulations, Consents and Approvals

Exploration and development
activities and mining operations are subject to laws and regulations governing
health and work safety, employment standards, environmental matters, mine
development, prospecting, mineral production, exports, taxes, labour standards,
reclamation obligations and other matters. It is possible that future changes in
applicable laws, regulations, agreements or changes in their enforcement or
regulatory interpretation could result in changes in legal requirements or in
the terms of permits and agreements applicable to the Company or its properties
which could have a material adverse impact on the Companys operations and
exploration program and future development projects. Where required, obtaining
necessary permits and licences can be a complex, time consuming process and
there can be no assurance that required permits will be obtainable on acceptable
terms, in a timely manner or at all. The costs and delays associated with
obtaining permits and complying with these permits and applicable laws and
regulations could stop or materially delay or restrict the Company from
proceeding with the development of an exploration project or the operation or
further development of a mine. Any failure to comply with applicable laws and
regulations or permits, even if inadvertent, could result in interruption or
closure of exploration, development or mining operations or material fines,
penalties or other liabilities, which could have an adverse effect on the
business, financial condition or results of operation of the Company. Due to
stringent government regulation, the Company may experience difficulties in
obtaining permits for the use of explosives in Mexico and these difficulties
could interrupt its operations.

Health and Safety Hazards

The personnel involved in
Primeros mining operations are subject to many inherent health and safety risks
and hazards which could result in occupational illness or health issues,
personal injury and loss of life. Primero strives to advance safety performance
across all regions of its operations and projects to identify, minimize and
manage health and safety risks. Although precautions to mitigate these risks
have been taken, these risks cannot be eliminated and may adversely affect the
Companys business and operations.

Environmental Permitting Risks and Environmental
Hazards

Government approvals and permits
are currently, and may in the future be, required in connection with the
Companys mining operations. To the extent such approvals are required and not
obtained, Primero may be curtailed or prohibited from continuing its mining
operations or from proceeding with planned exploration or development of mineral
properties.

Failure to comply with applicable
laws, regulations and permitting requirements may result in enforcement actions
thereunder, including orders issued by regulatory or judicial authorities
causing operations to cease or be curtailed, and may include corrective measures
requiring capital expenditures, installation of additional equipment, or
remedial actions. Parties engaged in mining operations or in the exploration or
development of mineral properties may be required to compensate those suffering loss or damage by
reason of the mining activities and may have civil or criminal fines or
penalties imposed for violations of applicable laws or regulations.

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Amendments to current laws,
regulations and permits governing operations and activities of mining and
exploration companies, or more stringent implementation thereof, could have a
material adverse impact on Primero and its results of operations and cause
increases in exploration expenses, capital expenditures or production costs or
reduction in levels of production at producing properties or require abandonment
or delays in development of new mining properties.

Primeros operations may cause
damage to the environment, which could lead to government environmental
authorities imposing fines, total or partial closures, compensatory measures or
mandated investment in infrastructure. Examples of environmental damage that
could result from operations include, but are not limited to, industrial fires,
forest fires, oil spills, tailings dam spills, unforeseen emissions to the
atmosphere and hazardous material soil filtrations.

The potential exposure to
environmental risks may be significant and could have a material adverse effect
on the Company. Primero has $25 million of sudden and accidental pollution
coverage in its commercial general liability program. The policy can be
activated if the pollution is discovered and reported within 10 days. The policy
provides protection for third party bodily injury and/or property damage but not
first party losses. In addition, the policy does not cover any fines or
penalties or any costs of government mandated clean-up. All of the Companys
exploration, development and production activities are subject to regulation
under one or more of the various federal and provincial environmental laws and
regulations in Canada. Many of the regulations require the Company to obtain
permits for its activities. The Company must update and review its permits from
time to time, and is subject to environmental impact analyses and public review
processes prior to approval of the additional activities. It is possible that
future changes in applicable laws, regulations and permits or changes in their
enforcement or regulatory interpretation could have a significant impact on some
portion of its business, causing those activities to be economically
re-evaluated at that time. Those risks include, but are not limited to, the risk
that regulatory authorities may increase bonding requirements beyond the
Companys financial capabilities. See Item 3. Key Information  D. Risk Factors
 Financial Risks  Insurance and Uninsured Risks.

Environmental Permitting Risks and Environmental Hazards 
Mexico

Primeros mining operations are
subject to Mexican and applicable state environmental regulations. These
regulations mandate, among other things, the maintenance of air and water
quality standards and land reclamation. They also establish limitations on the
generation, transportation, storage and disposal of solid and hazardous waste.
Environmental legislation is evolving in a manner which will likely require
stricter standards and enforcement, increased fines and penalties for
non-compliance, more stringent environmental assessments of proposed projects
and a heightened degree of responsibility for companies and their officers,
directors and employees. There is no assurance that future changes in
environmental regulation, if any, will not adversely affect Primeros results of
operations. Environmental hazards may exist at the Companys properties which
are unknown to Primero at present and which have been caused by previous or
existing owners or operators of the properties. Primero did not complete an
environmental audit or other comparable environmental due diligence in
connection with the acquisition of the San Dimas Mine.

San Dimas Tailings Management Risks

Tailings containment sites which
existed at the time of Desarrollos Mineros San Luis, S.A. de C.V. (DMSL)
acquisition of the San Dimas Mine were not subjected to comprehensive
geotechnical investigation before construction, normal safety factors in dam
design, seepage monitoring or control, or controls on public or wildlife access
to cyanide solution ponds or pumping installations. Work was undertaken to
address the deficiencies with the tailings management aspect of the operations
and capital investments were carried out to upgrade the containment structures
and tailings operations and to remediate the Tayoltita tailings dam. In 2014, a
Technical Review and Risk Assessment of the Cupias tailing storage facility was
performed by Amec Foster Wheeler. The final assessment delivered in early 2015
showed that the facility exceeded the minimum factors of safety criteria for
static and seismic loading conditions for both the current and ultimate storage
configurations. An evaluation of the surface water management facilities did
however recommend that the ditches, diversion dam and other structures be modified to accommodate possible major storm events. The
engineering of these improvements was completed in 2015 with construction
started in 2017 and planned to continue until 2019.

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The Company anticipates that
further expenditures will be required to maintain compliance with applicable
environmental regulations, which are becoming more stringent and can be expected
to become more aligned with international guidelines in the future. The Company
will incur environmental liability for mining activities conducted both before
and after it acquired ownership of the San Dimas Mine. To the extent that the
Company is subject to unfunded or uninsured environmental liabilities, the
payment for such liabilities would reduce funds otherwise available and could
have a material adverse effect on the Company. Should the Company be unable to
fund fully the cost of remedying an environmental problem, the Company may be
required to suspend operations or enter into interim compliance measures pending
completion of required remediation, which could have a material adverse effect
on the Company.

The asset purchase agreement
entered into in connection with the acquisition of the San Dimas Mine does not
provide for any indemnities from DMSL against any potential environmental
liabilities, including, but not limited to, those that may arise from possible
failure of the San Antonio tailings dam. Primero has indemnified DMSL for any
future environmental claims or liabilities. See Item 4. Information on the
Company  B. Business Overview  Mining Activities  San Dimas Mine 
Environmental Matters.

Labor and Employment Matters

Union contracts for the San Dimas
Mine are renegotiated every two years, except for the compensation aspects,
which are reviewed annually. See See Item 4. Information on the Company  B.
Business Overview  Changes to Contracts. Production at the Companys
properties will continue to be dependent upon the ability of Primero to continue
to maintain good relations with its employees and the union. In addition,
relations between Primero and its employees may be impacted by changes in the
scheme of labour relations which may be introduced by the relevant governmental
authorities. Adverse changes in such legislation or in the relationship between
Primero with its employees and unions may have a material adverse effect on
Primeros business, results of operations and financial condition.

A strike action by unionized
employees resulted in a complete stoppage of mining and milling activities at
the San Dimas Mine from February 15, 2017 to April 22, 2017, which significantly
impacted 2017 production levels. With a new collective bargaining agreement
(CBA) in place, a phased restart was initiated on April 22, 2017.

Although the Company has reached
agreement with its union and places significant emphasis on maintaining a
positive relationship with the union and employees, should labour strikes and
work stoppages occur in the future, they may materially affect the Companys
operations and thereby adversely impact its future cash flows, earnings,
production and financial condition.

Foreign Operations Risks  Mexico

All of the Companys mining and
mineral exploration operations are currently conducted in Mexico, and as such
Primeros operations are exposed to various levels of political, economic and
other risks and uncertainties. These risks and uncertainties include, but are
not limited to, terrorism; organized crime; kidnapping and hostage taking;
extortion; military repression; theft; expropriation; extreme fluctuations in
currency exchange rates; high rates of inflation; labour unrest; the risks of
war or civil unrest; renegotiation or nullification of existing concessions,
licenses, permits and contracts; delays in obtaining or the inability to obtain
or maintain necessary governmental permits, opposition to mining from
environmental or other non-governmental organizations (whether or not grounded
in law, rule or non-binding statement of principles) in the form of legal
challenges, protest or activity targeted against the Company; illegal mining,
trespass and associated security threats and unsafe activities; changes in
royalty and taxation regimes; restrictions on foreign exchange and repatriation;
and changing political conditions, currency controls and governmental
regulations that favour or require the awarding of contracts to local
contractors or require foreign contractors to employ citizens of, or purchase
supplies from, a particular jurisdiction.

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The Company has taken a variety
of measures to protect its employees, contractors, property and facilities
against safety and security risks such as crime, illegal mining, kidnapping,
theft, vandalism and trespass. However, there can be no assurance that such
measures will be effective or that incidents of criminal activity, illegal
mining, theft, vandalism or trespass will not have an adverse impact on the
Companys operations, property or facilities, including the potential for harm
to people or property, increased costs, and disruptions to production and the
Companys ability to meet production goals.

Changes, if any, in mining,
taxation or investment policies, or shifts in political attitude in Mexico may
adversely affect Primeros operations or profitability. Operations may be
affected in varying degrees by government regulations with respect to, but not
limited to, restrictions on production, price controls, export controls,
currency remittance, income taxes, royalties, expropriation of property, foreign
investment, maintenance of claims, environmental legislation, land use, land
claims of local people, water use and mine safety.

Failure to comply strictly with
applicable laws, regulations and local practices relating to mineral right
applications and tenure, could result in loss, reduction or expropriation of
entitlements, or the imposition of additional local or foreign parties as joint
venture partners with carried or other interests. The occurrence of these
various factors and uncertainties cannot be accurately predicted and could have
an adverse effect on Primeros operations or profitability.

With the presidential elections
in Mexico looming in July 2018, it remains uncertain as to whether a potential
change in administration would pose any risks to Mexicos mining industry, trade
relationships and growth outlook, or to Primeros operations, profitability, or
its ability to resolve its outstanding tax matters through constructive dialogue
with the Mexican government. There continue to be risks relating to the
uncertain and unpredictable political environment in Mexico surrounding the
elections and how our business will be impacted.

The San Dimas Mine is in a remote
location and finding or hiring qualified people or obtaining all necessary
services for the Companys operations in Mexico is difficult. It is also
difficult to find or hire qualified people in the mining industry to work at San
Dimas or to obtain all the necessary services or expertise in Mexico or to
conduct operations on its projects at reasonable rates. If qualified people and
services or expertise cannot be obtained in Mexico, the Company may need to seek
and obtain those services from people located outside Mexico, which will require
work permits and compliance with applicable laws and could result in delays and
higher costs to the Company to conduct its operations in Mexico.

Infrastructure

Mining, processing, development
and exploration activities depend, to one degree or another, on adequate
infrastructure. Reliable roads, bridges, power sources and water supply are
important determinants which affect capital and operating costs. Unusual or
infrequent weather phenomena, terrorism, sabotage, government or other
interference in the maintenance or provision of such infrastructure could
adversely affect the Companys operations, financial condition and results of
operations. Any interruption in power supply or any interruption in water supply
due to, inter alia, periods of drought or low rainfall could adversely
impact the Companys operations.

Competition

The mining industry is
competitive in all of its phases. Primero faces strong competition from other
mining companies in connection with the acquisition of properties producing, or
capable of producing, precious and base metals. Many of these companies have
greater financial resources, operational experience and technical capabilities
than Primero. The ability of the Company to acquire mineral properties in the
future will depend not only on its ability to develop its present properties,
but also on its ability to identify and acquire suitable producing properties or
prospects for development or mineral exploration. In addition, the Company also
competes with its competitors over sourcing raw materials, supplies and services
used in connection with its mining operations, including skilled experience
workers and management.

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Business Arrangements

Primeros Board of Directors and
Primeros management continually review the Companys long-term strategic plan
and evaluate all alternatives to maximize stakeholders value. On January 12,
2018, the Company announced that it has entered into the Arrangement Agreement
with First Majestic, whereby First Majestic will acquire all of the issued and
outstanding common shares of Primero.

The closing of the Arrangement is
subject to applicable regulatory approvals including anti-trust clearance in
Mexico and the satisfaction of other customary conditions. There can be no
assurance that the Company will be able to obtain required regulatory approvals
for the Arrangement and complete, in a timely manner, other conditions to the
Arrangement. Should the Arrangement be modified, restructured or terminated by
either Primero or First Majestic, the market price of Primero shares or the
business and operations of Primero may be materially adversely affected.

Permitting

The Companys operations are
subject to receiving and maintaining permits (including environmental permits)
from appropriate governmental authorities. Although the Companys mining
operations currently have all required permits for their operations as currently
conducted, there is no assurance that delays will not occur in connection with
obtaining all necessary renewals of such permits for the existing operations,
additional permits for any possible future changes to operations, or additional
permits associated with new legislation. Furthermore, prior to any development
on any of its properties, the Company must receive permits from appropriate
governmental authorities. There can be no assurance that the Company will
continue to hold or obtain, if required, all permits necessary to develop or
continue operating at any particular property.

Limited Reinvestment in San Dimas

Primero does not have sufficient
cash to be reinvested in the San Dimas Mine due to its current financial
situation. The reduced development in the underground and exploration drilling
within the line and from surface may have an impact on the medium to long term
production capability of the operation.

Key Personnel

The Companys ability to
successfully operate its mining properties and execute on its business strategy
depends on its key executives and on certain operating personnel in Canada and
Mexico. The Companys ability to manage administration, production, exploration
and development activities, and hence its success, will depend in large part on
the efforts of these individuals. The Company cannot be certain that it will be
able to retain such personnel or attract a high calibre of personnel in the
future. As such, the loss of any key officer of the Company could have an
adverse impact on the Company, its business and its financial position. The
Company has not purchased any key-man insurance with respect to any of its
directors or officers as of the date hereof. The Company faces intense
competition for qualified personnel, and the loss of the services of one or more
of such key personnel could have a material adverse effect on the Companys
business or operations. In addition, the proposed Arrangement creates further
risk for the retention of key personnel.

Subsidiaries

Primero conducts operations
through Canadian and foreign (Barbadian, Luxembourger and Mexican) subsidiaries,
and a significant portion of its assets are held in such entities. Accordingly,
any limitation on the transfer of cash or other assets between the parent
corporation and such entities, or among such entities, could restrict Primeros
ability to fund its operations efficiently. Any such limitations, or the
perception that such limitations may exist now or in the future, could have an
adverse impact on Primeros valuation and stock price.

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Litigation

Class action lawsuits were filed
in February 2016 against the Company in the State of California seeking to
recover damages under the U.S. federal securities laws for certain shareholders.
The Company filed a motion to dismiss which was granted on January 30, 2017, and
the plaintiffs claims were dismissed without prejudice. The plaintiffs filed an
amended complaint on February 28, 2017. On July 14, 2017, the Companys motion
to dismiss the amended complaint was granted and the plaintiffs claims were
dismissed without prejudice. Rather than amending the complaint again, the
plaintiffs asked the federal court to enter final judgment and initiated an
appeal of the dismissal to the Ninth Circuit Court of Appeals on September 8,
2017. The parties have filed their briefs in this appeal and a ruling on the
appeal is expected in 2018. The Company will continue to vigorously defend these
class action lawsuits. The Company may also be, from time to time, involved in
various claims, legal proceedings and complaints arising in the ordinary course
of business. The Company cannot reasonably predict the likelihood or outcome of
these actions. If the Company is unable to resolve these disputes favorably, it
may have a material adverse impact on the Companys financial performance, cash
flow and results of operations. See Item 3. Key Information  D. Risk Factors 
Operational Risks  Use of Ejido-Owned Land and D. Risk Factors  Financial
Risks  Challenge to the 2012 APA.

Risk of Amended and Restated Silver Purchase Agreement

Pursuant to the Amended and
Restated Silver Purchase Agreement, Primero is required to sell to Wheaton
Precious Metals International Ltd. (WPMI), a wholly-owned subsidiary of WPM a
substantial portion of the silver produced from the San Dimas Mine at a current
price of approximately US$4.32 per ounce, which is significantly below market
price. This agreement imposes an unsustainable economic impact on the Company
and Primero together with its advisors, engaged in discussions with WPM to
renegotiate the terms of the Amended and Restated Silver Purchase Agreement
since 2013 and more intensively during 2016 and 2017. These discussions did not
result in any mutually satisfactory revision of the Amended and Restated Silver
Purchase Agreement as WPM would not agree to provide Primero with an acceptable
sustainable standalone business alternative. This was a determining factor that
led to the Companys strategic process and resulted in the pending Arrangement
with First Majestic.

The closing of the Arrangement
with First Majestic is subject to applicable regulatory approvals and the
satisfaction of other customary conditions. In the event that the Arrangement
with First Majestic is not completed or is terminated by either Primero or First
Majestic in certain circumstances, there can be no assurance that the Company
will be able to successfully renegotiate the terms of the Amended and Restated
Silver Purchase Agreement with WPM or to otherwise mitigate the adverse economic
effects.

Reputational Risk

Damage to Primeros reputation
can be the result of the actual or perceived occurrence of any number of events,
and could include any negative publicity, whether true or not. Companies are at
greater risk of losing control over how they are perceived in the marketplace
due to increased usage of social media and other web- based tools used to
generate, publish and discuss user-generated content and to connect with other
users. Although Primero believes that it operates in a manner that is respectful
to all stakeholders and that it places a great emphasis on protecting its image
and reputation, the Company does not ultimately have direct control over how it
is perceived by others. An impaired reputation may lead to increased challenges
in developing and maintaining community relations, resolving conflicts that may
arise with governmental authorities, decreased investor confidence and an
impediment to the Companys overall ability to advance its projects thereby
having a material adverse impact on the Companys results of operations,
financial condition and growth prospectus.

19

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|ITEM 4. | INFORMATION ON THE COMPANY
|------- | --------------------------

|A. | History and Development of the Company
|-- | --------------------------------------

1. CORPORATE STRUCTURE

Primero Mining Corp. is
incorporated under the British Columbia Business Corporations Act (the
Act). On August 6, 2010, the Company acquired the San Dimas Mine, mill and
related assets from DMSL and the shares of Silver Trading (Barbados) Limited
(Silver Trading) from Goldcorp Silver (Barbados) Ltd., each indirect,
wholly-owned subsidiaries of Goldcorp Inc. (Goldcorp). Effective January 1,
2015, Primero Mining Corp. and Primero Gold Canada Inc. amalgamated under the
name of Primero Mining Corp. Primero also holds exploration properties in Mexico
known as the San Dimas Southern Concessions and the Ventanas Property. The
Company previously owned a second producing property, the Black Fox mine,
located in the Township of Black River-Matheson, Ontario, Canada, which was sold
on October 6, 2017 along with properties adjacent to the Black Fox mine  Grey
Fox and Pike River, which together with the Black Fox mine and the Black Fox
mill, located on the Stock Mill property, comprised the Black Fox Complex (the
Black Fox Complex). See Item 4. Information on the Company  A. History and
Development of the Company  General Development of the Business  3. Three Year
History  Sale of Black Fox Mine and Complex.

On November 27, 2017, the Company
sold the Cerro del Gallo Project via the sale of all of the issued and
outstanding shares of the Companys wholly-owned subsidiary San Anton Resource
Corporation, the indirect owner of the project. See Item 4. Information on the
Company  A. History and Development of the Company  General Development of the
Business  3. Three Year History  Sale of Cerro del Gallo Project.

Primero has three principal,
wholly-owned subsidiaries: Primero Empresa Minera, S.A. de C.V. (Primero
Empresa), which is incorporated under the laws of Mexico; Silver Trading
(Barbados) Limited, which is incorporated under the laws of Barbados; and
Primero Mining Luxembourg s.à.r.l., which is incorporated under the laws of
Luxembourg. The following chart shows the organization of Primero and the
ownership of its mineral properties.

20

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|(1) | Martin Aguilar, the General Manager of the Company and a Mexican
  resident, holds one share to meet Mexican corporate legal requirements.                                             
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Primero Mining Luxembourg s.à.r.l. is a holding company used by the
      Company to finance its operations.                                                                           
|(3) | Primero Empresa Minera, S.A. de C.V. is the owner and operator of the
      San Dimas Mine.                                                                                            
|(4) | Silver Trading (Barbados) Limited is a trading and holding company.                                                                                                                    
|(5) | Primero Compañía Minera, S.A. de C.V. is a service company.                                                                                                                            
|(6) | Primero Servicios Mineros, S.A. de C.V. is a service company.                                                                                                                          
|(7) | Primero Transportes Aéreos, S.A. de C.V. is an air taxi service
      company. The remaining 11.25% of shares are held by a nominee to meet
      Mexican corporate legal requirements.
|(8) | Primero Auxiliares de Administración, S.A. de C.V. is a service
      company.                                                                                                         

The head office of Primero is
located at Suite 2100, 79 Wellington Street West, TD South Tower, Toronto,
Ontario, Canada, M5K 1H1, telephone (416) 814-3160, facsimile (416) 814-3170.
The Companys registered office is located at Suite 1500, 1055 West Georgia
Street, Vancouver, British Columbia, Canada, V6E 4N7, telephone (604) 689-9111,
facsimile (604) 685-7084. The Companys website address is
www.primeromining.com.

2. GENERAL DEVELOPMENT OF THE BUSINESS

Primero is a precious metals
producer which operates the San Dimas Mine located on the borders of Durango and
Sinaloa states in Mexico, approximately 150 kilometers west of the city of
Durango, Mexico. Primero is currently trading on the TSX under the symbol: P.
Primeros shares were listed on the New York Stock Exchange (NYSE) until
August 14, 2017. In addition, Primero has a convertible debenture trading on the
TSX under the symbol P.DB.V and common share purchase warrants trading on the
TSX under the symbol P.WT.C.

During 2015, the Company acquired
approximately 10,000 hectares of new concessions from the Mexican Mining
registry in the vicinity of the San Dimas and Ventanas concessions and in 2016
it further acquired a significant mineral concession area of approximately 30,192
hectares between the San Dimas Mine and the Ventanas exploration property,
thereby closing the gaps between these concessions (the Southern Concessions).

21

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Primeros Board of Directors and
Primeros management continually review the Companys long-term strategic plan
and evaluate all alternatives to maximize stakeholders value. Throughout 2017,
Primero conducted an extensive strategic review process, exploring all possible
opportunities and considering potential offers for some or all of its assets or
its shares. Primero sold its Black Fox Complex in October, 2017, and the Cerro
del Gallo Project in November, 2017 and the net proceeds from the sales of these
assets were used to permanently repay a portion of the outstanding amount owing
under its RCF.

On January 12, 2018, the Company
announced its friendly acquisition by First Majestic and that the two companies
had entered into the Arrangement Agreement whereby First Majestic will acquire
all of the issued and outstanding common shares of Primero. Under the terms of
the Arrangement Agreement, all of Primeros issued and outstanding common shares
will be exchanged for First Majestic common shares on the basis of 0.03325 of a
First Majestic common share for each Primero common share. On March 13, 2018,
the shareholders of Primero voted to approve the Arrangement with First
Majestic.

3. THREE YEAR HISTORY

Recent Developments

2018

Friendly Acquisition of Primero Mining and Restructured
Stream with Wheaton Precious Metals

The Arrangement Agreement between
Primero and First Majestic announced on January 12, 2018, marked the end of the
strategic review process commenced by Primero. Under the terms of the
Arrangement Agreement, all of Primeros issued and outstanding common shares
will be exchanged for First Majestic common shares on the basis of 0.03325 of a
First Majestic common share for each Primero common share. This implies
consideration of C$0.30 per Primero common share, representing a 200% premium,
based on the 20-day volume weighted average prices of the First Majestic and
Primero common shares on the Toronto Stock Exchange for the period ended January
10, 2018.

Concurrently with execution of
the Arrangement Agreement, First Majestic has entered into agreements with WPMI,
whereby, following closing of the Arrangement, the current silver streaming
interest at Primeros San Dimas silver-gold mine held by WPM will be terminated
and First Majestic and WPM will enter into a new stream arrangement based on 25%
of the gold equivalent production at San Dimas (the New Stream) with ongoing
payments of $600 per gold equivalent ounce delivered under the agreement. As
part of the transaction, WPM will receive 20,914,590 common shares of First
Majestic having an aggregate value of $151 million.

Extension of existing Revolving Credit Facility in
connection with proposed business combination

On January 12, 2018, the Company
announced that it had agreed to an extension of its RCF and the related
guarantee provided by WPM, both previously maturing on January 11, 2018, to the
earlier of (i) April 30, 2018, (ii) the closing of the Arrangement, and (iii)
the seventh business day following termination of the proposed Arrangement.

Special meeting of shareholders and a meeting of
debetureholders

On February 9, 2018, the Company
announced that it planned to hold a special meeting (the Shareholder Meeting)
of its shareholders (the Shareholders) and a meeting of holders
(Debentureholders) of its 5.75% convertible unsecured subordinated debentures
(the Primero Debentures) due February 28, 2020 (the Debentureholder
Meeting), on March 13, 2018 at 9:00 a.m. (Toronto time) and 10:00 a.m. (Toronto
time) respectively. Shareholders and Debentureholders of record as of the close
of business on February 9, 2018 were eligible to vote at their respective
meetings.

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At the Shareholder Meeting,
Shareholders were asked to consider the proposed Arrangement between Primero and
First Majestic. Primeros Board of Directors unanimously recommended that
Shareholders vote in favor of the proposed Transaction (as defined below).

At the Debentureholder Meeting,
the Debentureholders were asked to consider the proposed amendment of the trust
indenture dated February 9, 2015, between Primero and Computershare Trust
Company of Canada (the Trust Indenture), to accelerate the maturity date of
the Primero Debentures to the next Business Day (as defined in the Trust
Indenture) following the effective date of the Arrangement (the Debenture
Amendment).

Primero mailed an information
circular with respect to the Arrangement and the Debenture Amendment to
Shareholders and Debentureholders of record as of February 9, 2018.

Leading Independent Proxy Advisory Firms Recommend Primero
Shareholders Vote in Favour of Proposed Arrangement

The Company on February 28, 2018
announced that Institutional Shareholder Services Inc. and Glass, Lewis &
Co., LLC, two leading proxy advisory firms, had recommended that Primero
shareholders vote forthe Arrangementat the
Shareholder Meeting to be held on March 13, 2018.

Shareholders and Debentureholders Vote in Favour of
Arrangement Resolutions

On March 13, 2018, the Company
announced that the Shareholders voted in favour of the Arrangement with First
Majestic by more than 99% of votes cast. In addition, Debentureholders, at their
meeting held on the same day, approved with 100 % of the votes cast, the
proposed amendment of the Trust Indenture to accelerate the maturity date of the
Primero Debentures to the next Business Day following the effective date of the
Arrangement.

The Arrangement is expected to
close in late April or early May 2018, subject to receipt of applicable
regulatory approvals and the satisfaction of other customary conditions. In the event that the Arrangement does not close by April 30, 2018, the Company will seek an extension of the RCF.

2017

Work Stoppage and resumption of operations at San Dimas

On February 15, 2017, the Company
announced that unionized employees at its San Dimas Mine in Mexico had initiated
a strike action which resulted in the complete stoppage of mining and milling
activities at the site. The stoppage resulted from the failure of the parties to
reach an agreement during the negotiation of the CBA.

On April 13, 2017, the Company
announced a new CBA with the National Union of Mine, Metal, Steel and Allied
Workers of the Mexican Republic (Sindicato Nacional de Trabajadores Mineros,
Metalúrgicos, Siderúrgicos y Similares de la República Mexicana) and that it had
successfully resolved the work stoppage of unionized employees. Operations
resumed on April 22, 2017.

Executive Leadership Change

On February 23, 2017, the Company
announced the appointment of Mr. Joseph Conway as Interim President and Chief
Executive Officer upon the departure of Mr. Ernest Mast as President and Chief
Executive Officer.

Strategic Review Process

On February 27, 2017, the Company
announced that the Board of Directors had commenced a strategic review process
to explore alternatives to improve shareholder value, including strategic
investments, joint ventures or asset sales and the sale of the Company.

23

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Extension of existing Revolving Credit Facility

On March 24, 2017, the Company
announced that it had agreed in principle with its lenders to an extension of
its existing RCF previously maturing on May 23, 2017. Upon completion of the
amending agreement, the maturity of the RCF was extended by six months to
November 23, 2017. The amending agreement excluded financial covenants in the
amended RCF during the six month extension period, to support the San Dimas
restart plan. WPM guaranteed amounts payable under the RCF for a fee of $2.6
million payable at maturity.

On March 31, 2017, the Company
announced that it had closed the extension of the maturity of the RCF with its
syndicate of lenders. On this same date, Primero drew down $10 million under the
RCF. An additional $15 million remained available for further drawdown provided
that the proceeds were used solely in connection with the restart of the San
Dimas operations, or otherwise any further drawdown required the consent of
WPM.

Ongoing Audits of PEM and Observation Letters Received

In June 2017, as part of the
ongoing annual audits of the PEM tax returns, the SAT issued an observations
letter for the 2010 tax year. In October 2017, the SAT issued an observations
letter for the 2011 tax year. In both observations letters, the SAT made
explicit its view that PEM should pay taxes based on the market price of silver.
The observations letters do not represent a tax reassessment and no liability
has been recognized in the financial statements. The Company has submitted its
formal response to both observations letters. The Company will vigorously
dispute any reassessment of taxes on its silver revenues that is inconsistent
with the APA. The Company is continuing a dialogue with the SAT to resolve its
tax matters. See Item 3  D. Risk Factors.

Sale of Black Fox Mine and Complex

On August 10, 2017, the Company
announced that it had entered into an agreement with McEwen Mining Inc.
(McEwen) to sell its interest in the Black Fox mine and associated assets
located near Timmins, Ontario, Canada. The Company on October 6, 2017, announced
the closing of the sale of the Black Fox mine and associated assets for a total
consideration of $32.5 million including a closing net working capital
adjustment of $2.5 million. This included $27.5 million in cash proceeds and the
release of $5.0 million from restricted cash that was pledged towards
environmental closure liabilities in the amount of $16.5 million, which were
assumed by McEwen. The proceeds net of closing costs from the sale of the Black
Fox Complex were used to permanently reduce the outstanding balance on the
Companys RCF. When released, the restricted cash was also applied to reduce the
outstanding balance of the RCF.

The results from operations for
the Black Fox Complex have been presented as discontinued operations in the
audited consolidated financial statements and managements discussion and
analysis (the MD&A) for the year ended 2017, which are available on SEDAR
at www.sedar.com.

Delist from the New York Stock Exchange, Shares Continue to
Trade on the Toronto Stock Exchange

On August 14, 2017, the Company
announced that it had received formal notification from the NYSE of its
intention to initiate delisting procedures for the Companys common shares,
pursuant to Section 802.01D of the Listed Company Manual. The NYSE had
determined that the Company was no longer suitable for listing based on
abnormally low price levels. Primero did not appeal the NYSEs decision. The
NYSE filed Form 25 (Notification of Removal from Listing and/or Registration
Under Section 12(b) of the Exchange Act) with the SEC.

The Companys Common Shares trade on the Toronto Stock Exchange
(TSX) under symbol P.

Management changes

On September 7, 2017, the Company
announced that Mr. Ryan Snyder had been promoted to the role of Chief Financial
Officer, effective September 15, 2017, and that Mr. Kevin Jennings had resigned
to pursue other opportunities.

24

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Sale of Cerro del Gallo Project

On November 14, 2017, the Company
announced that it had entered into an agreement with Argonaut Gold Inc. (TSX:
AR) (Argonaut) to sell its Cerro del Gallo development project (the Cerro del
Gallo Project) located in the state of Guanajuato in central Mexico (the
Transaction), for total consideration of US$15 million.

On November 27, 2017, the Company
announced the closing of the sale of the Cerro del Gallo Project to Argonaut,
via the sale of all of the issued and outstanding shares of San Anton Resource
Corporation, the indirect owner of the project. The sale proceeds, net of
closing costs, were used to permanently reduce the outstanding balance of RCF.

The results from operations for
the Cerro del Gallo Project have been presented as discontinued operations in
the audited consolidated financial statements and the MD&A for the year
ended 2017, which are available on SEDAR at www.sedar.com.

Extension of existing Revolving Credit Facility

On November 22, 2017, the Company
announced that it had agreed in principle with its lenders to an extension of
the RCF and the related guarantee provided by WPM, previously maturing on
November 23, 2017. The maturity of the RCF was extended to December 1, 2017,
providing the Company with the ability to continue negotiations surrounding its
previously announced strategic review process and the possible divestiture of
its San Dimas Mine in Mexico.

Similar announcements were made
on December 1, 2017, December 15, 2017 and on December 22, 2017, whereby the
Company agreed with its lenders to successive extensions of the maturity of its
RCF and related guarantee provided by WPM, to continue its strategic review
process and negotiations regarding the possible divestiture of its San Dimas
Mine in Mexico.

2016

Operational Challenges

The Company began 2016 with
efforts to create and sustain a safety-first culture at its operations.
Consequently, the Company implemented enhanced ground support standards at its
San Dimas Mine which directly impacted operations for the first quarter of 2016.
During the second quarter of 2016, production at the San Dimas Mine was impacted
by unexpected labor disruptions along with lower than planned grades which
resulted in a further update to the Companys production guidance. During the
third quarter of 2016, production at the San Dimas Mine was affected by
unplanned workers absences and lack of achievement of mine plans, which resulted
in reduced underground development rates and delayed certain ventilation
improvement projects, all of which contributed to a further reduction of the
Companys 2016 production guidance.

Legal Claims

On February 3, 2016, the Company
announced that it had received a legal claim from the SAT, seeking to nullify
the APA issued by the SAT in 2012. The APA confirmed the Companys basis for
paying taxes on realized silver prices for the years 2010 to 2014 and
represented the SATs agreement to accept that basis for those years. The legal
claim initiated by the SAT did not identify any different basis for paying
taxes. The Company believes this legal claim is without merit and it has since
vigorously defended the validity of its APA. See Item 3. Key Information  D.
Risk Factors.

In addition, a class action
lawsuit was filed in February 2016 against the Company in the State of
California seeking to recover damages under the U.S. federal securities laws for
certain shareholders. The Company filed a motion to dismiss which was granted on
January 30, 2017 and the plaintiffs claims were dismissed without prejudice.
The plaintiffs filed an amended complaint on February 28, 2017. On July 14,
2017, the Companys motion to dismiss the amended complaint was granted and the
plaintiffs claims were dismissed without prejudice. Rather than amending the
complaint again, the plaintiffs asked the federal court to enter final judgment
and initiated an appeal of the dismissal to the Ninth Circuit Court of Appeals
on September 8, 2017. The parties have filed their briefs in this appeal and a
ruling on the appeal is expected sometime in 2018. The Company will continue to
vigorously defend this class action lawsuit.

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Announcement of intentions to repay the Brigus Debentures

On February 10, 2016, the Company
announced its intention to redeem with cash its outstanding $48.1 million 6.5%
senior unsecured convertible debentures due March 31, 2016 (the Brigus
Debentures) and further announced that it had drawn $50 million under its
Revolving Credit Facility to satisfy the repayment of the Brigus Debentures. The
Brigus Debentures were paid on March 30, 2016.

NAFTA Dispute

On June 2, 2016, the Company
issued a Notice of Intent to submit a claim to international arbitration against
the Government of Mexico pursuant to Article 1119 of NAFTA. The Notice of Intent
highlighted the improper actions taken by the SAT, which proposed to revoke
legal rights previously granted to Primero and upon which Primero relied to
expand its investment in Mexico.

As Primero has been able to
engage in a constructive dialogue with the Mexican government regarding the
SATs legal claim against the APA, it has temporarily suspended the advancement
of international arbitration proceedings against the Mexican Government.

Acquisition of Mineral Concessions

On June 14, 2016, the Company
acquired a large concession area adjacent to its San Dimas Mine in Durango,
adding 30,192 hectares substantially covering the area between the San Dimas
Mine and the Ventanas exploration property. These new concessions are not
covered by the Amended and Restated Silver Purchase Agreement.

Prospectus Offering

On June 24, 2016, the Company
closed a bought deal underwritten prospectus financing with a syndicate of
underwriters, pursuant to which the Company issued 22,022,500 units of the
Company at a price of C$2.35 per unit for aggregate gross proceeds of
C$51,752,872. Each unit consisted of one Common Share of the Company and
one-half of one Common Share purchase warrant of the Company. Each whole warrant
entitles the holder to acquire one Common Share of the Company at a price of
C$3.35 per Common Share until June 25, 2018.

Executive Changes

On January 31, 2016, Mr. Ernest
Mast assumed the role of President and Chief Executive Officer and a director of
the Company, replacing Mr. Joseph Conway who retired as Chief Executive Officer
and assumed the role of Executive Vice Chairman of the Company.

On September 1, 2016, the Company
appointed Mr. Kevin Jennings as Chief Financial Officer replacing Ms. Wendy
Kaufman.

On October 6, 2016, the Company
appointed Mr. Damien Marantelli as Chief Operating Officer, replacing Mr.
Guillermo Adrian who was the Companys Vice President of Operations and was
killed in a plane crash reported on April 2, 2016.

26

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NYSE Notice

On December 27, 2016, the Company
announced that it had received formal notification from the NYSE of its
non-compliance with the NYSEs continued listing standards for minimum trading
price. Primeros shares were listed on the NYSE until August 14, 2017.

2015

Amalgamation

Effective January 1, 2015,
Primero Mining Corp. and Primero Gold Canada Inc. (formerly Brigus) amalgamated
under the name of Primero Mining Corp. under the Act.

Convertible Debenture Prospectus Offering

On February 9, 2015, the Company
announced the closing of an underwritten prospectus offering of $75 million
aggregate principal amount of 5.75% convertible unsecured subordinated
debentures (the 2015 Debentures), maturing on February 28, 2020. The 2015
Debentures are convertible into Common Shares at a conversion price of
approximately $6.55 per share, representing a conversion rate of 152.6718 Common
Shares per $1,000 principal amount of 2015 Debentures. Upon conversion, holders
will be entitled to receive accrued and unpaid interest up to, but excluding,
the date of conversion.

Executive Changes; Head Office Consolidation

As part of the Companys
evolution and focus on maintaining efficiency as it continued to grow, the
Company made the decision mid-2014 to consolidate its functions in a
Toronto-based head office, initiating the closure of its Vancouver office where
the corporate accounting and reporting team had previously been located. The
Company appointed Ms. Wendy Kaufman to the role of Chief Financial Officer based
in Toronto in September 2014. Further, on February 2, 2015, the Company
announced the appointment of Mr. Ernest Mast, as President and Chief Operating
Officer to fill the position that had been vacant since mid-October 2014 when
the prior Chief Operating Officer resigned to pursue another opportunity.

|B. | Business Overview
|-- | -----------------

Overview

Primero is a Canadian-based
precious metals producer with existing mining operations in Mexico. Primero
currently has one producing property, the San Dimas Mine, located in Mexicos
San Dimas district on the border of Durango and Sinaloa states. In addition,
Primero also holds exploration properties in Mexico known as the San Dimas
Southern Concessions and the Ventanas Property.

Product and Economic Dependence

The Companys principal products
are gold and silver. There are worldwide gold and silver markets into which the
Company can sell its products. The Company is not dependent on a particular
purchaser with regard to the sale of gold. A significant portion of its silver
produced at the San Dimas Mine is sold to SW Caymans (now WPMI) under the
Amended and Restated Silver Purchase Agreement. See See Item 4. Information on
the Company  B. Business Overview  Mining Activities  San Dimas Mine 
Amended and Restated Silver Purchase Agreement.

Seasonality

There are no material seasonality impacts on the Companys
business.

27

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Specialized Skills and Knowledge

Various aspects of the business
of the Company require specialized skills and knowledge in the areas of
international business, geology, engineering, exploration and development,
environmental, and corporate social responsibility. The Company has adequate
employees with extensive experience in these specialized areas, both in Mexico
and Canada to support the conduct of its business.

Competitive Conditions

The mining industry is
competitive in all of its aspects. Primero faces strong competition from other
mining companies in connection with the acquisition of properties producing, or
capable of producing, precious and base metals. Many of these companies have
greater financial resources, operational experience or technical capabilities
than Primero. In addition, the Company also competes with its competitors over
sourcing raw materials and supplies used in connection with its mining
operations, as well as for skilled experience workers and executives. See Item
3. Key Information  D. Risk Factors  Operational Risks  Competition.

Changes to Contracts

As of December 31, 2017, Primero
had 798unionized employees at the San Dimas Mine who are members
of two sections of one union: Sindicato Nacional de Trabajadores Mineros and
Metalúrgicos, Siderúrgicos y Similares de la República Mexicana. The union
contracts are renegotiated every two years, except for the compensation aspects,
which are reviewed every year. See Item 4. Information on the Company 
B. Business Overview  Business of Primero  Employees and Item 3. Key
Information  D. Risk Factors  Operational Risks  Labour and Employment
Matters.

Employees

As of December 31, 2017, the Company had the following
employees and contractors:

|                                   |  | Full-Time |  |  | Hourly  |  |  |             |  |  |       | 
|---------------------------------- |  | --------- |  |  | ------- |  |  | ----------- |  |  | ----- | 
|Location                           |  | Salaried  |  |  | (Union) |  |  | Contractors |  |  | Total | 
|Durango Office                     |  | 32        |  |  | Nil     |  |  | 2           |  |  | 34    | 
|San Dimas Mine (including Truchas) |  | 400       |  |  | 798     |  |  | 458         |  |  | 1,656 | 
|Toronto Office                     |  | 18        |  |  | Nil     |  |  | 4           |  |  | 22    | 
|Total                              |  | 450       |  |  | 798     |  |  | 464         |  |  | 1,712 | 

The total number of employees of
Primero has reduced substantially from the end of 2016. This is due to the sale
of both the Black Fox Complex and Cerro del Gallo Project as well as reductions
in San Dimas and Toronto reflecting an increased cost reduction focus.

Foreign Operations

All of the Companys mining and
mineral exploration operations are now conducted in Mexico, and as such,
Primeros operations are exposed to various levels of foreign political,
economic and other risks and uncertainties. See Item 3. Key Information  D.
Risk Factors  Operational Risks  Use of Ejido-Owned Land and Item 3. Key
Information  D. Risk Factors  Operational Risks  Foreign Operations Risks 
Mexico.

Environmental Protection

The activities of the Company are
subject to environmental laws and regulations which are evolving in a manner
that imposes progressively stricter standards and enforcement, increased fines
and penalties for non-compliance, more stringent environmental assessment of
proposed projects and an increased degree of responsibility for companies and
their officers, directors and employees.

28

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In particular, the Companys
mining, exploration and development activities are subject to various levels of
Mexican federal and state/provincial laws and regulations relating to the
protection of the environment, including requirements for closure and
reclamation of mining properties, with which the Company is currently in
material compliance. During the year ended December 31, 2017, the Company spent
$0.55 million at the San Dimas Mine on capital projects related to environmental
protection. Additionally, the Company accounted for its asset retirement
obligations, consisting of reclamation and closure costs of its mining
properties in its financial statements. See Item 4. Information on the Company
 B. Business Overview  Mining Activities  San Dimas Mine  Environmental
Matters, and Item 3. Key Information  D. Risk Factors  Operational Risks 
Environmental Permitting Risks and Environmental Hazards  Mexico.

Social and Environmental Policies

Primeros operating practices are
governed by the principles set out in its Health and Safety Policy, Environment
and Social Responsibility Policy and Code of Business Conduct and Ethics. The
Corporate Responsibility Committee of the Board provides oversight in
occupational health and safety, community relations, and environmental
management. Internal weekly and quarterly reporting tracks performance
indicators including human resources metrics, health and safety, environmental
monitoring, compliance with permits, materials inputs and outputs, and community
relations activities. Primeros Board and senior management team have committed
to the sustainability reporting process and report publicly on performance
through the Annual Sustainability Report and the Companys website.

The Company plans to continue to
implement and expand the corporate responsibility programs and stakeholder
engagement activities that have been initiated. In Tayoltita the Activa
Tayoltita year-long cultural and recreational activities included educational
and sporting events and regular use of the recreational parks. The ongoing
implementation of written agreements with local Ejidos in Mexico have generated
new employment and business opportunities in the communities. In 2016, the
Companys commitment to its diverse stakeholder base was reflected in the
adoption of a Diversity Policy, which can be found on the Companys website
www.primeromining.com, under Board and Committee Guidelines in the
Corporate Governance section.

In April2017, for the
sixth consecutive year, the Company was awarded the Distintivo ESR
(designation as a Socially Responsible Business) by the Mexican Center for
Philanthropy. The award is given to companies operating in Mexico that are
committed to sustainable economic, social and environmental operations in all
areas of corporate life, including business ethics, involvement with the
community and preservation of the environment.

Licensing

The Company is dependent on
permits and licences to operate its mines as discussed in Item 4. Information
on the Company  B. Business Overview Regulation. There are no additional
material industrial or commercial licences that the Company is dependent upon.

29

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MINERAL RESERVES AND MINERAL RESOURCES

Primeros total Mineral Reserves
and Mineral Resources at December 31, 2017, are shown in the tables below, and
are qualified by the more detailed disclosure set out in the following sections.

Total Mineral Reserves and Mineral Resources as at December
      31, 2017.Classification
    Property
    Tonnage (Mt)
    Gold Grade (g/t)
    Silver Grade (g/t)
    Contained Gold (koz)
    Contained Silver
      (koz)Mineral
      ReservesProven & Probable
    San Dimas
    4.1
    3.8
    304
    495
    39,662Total Proven &
      Probable
    
    
    
    
    495
    39,662Mineral ResourcesMeasured
      & Indicated
    San Dimas
    4.9
    5.1
    385
    811
    60,936Measured &Indicated
    Ventanas
    0.2
    2.5
    258
    12
    1,286Total
      Measured & Indicated
    
    
    
    
    823
    62,222Inferred
      Resources
    San Dimas
    6.9
    3.5
    319
    782
    70,859Inferred
      Resources
    Ventanas
    0.2
    2.3
    412
    17
    3,039Total Inferred Resources
    
    
    
    
    799
    73,898


See Notes to Mineral Reserves and Mineral Resources on pages 33
- 35.

MINING ACTIVITIES

San Dimas Mine

Except as indicated below, the
following description of the San Dimas Mine has been summarized from the
technical report entitled San Dimas Property, San Dimas District, Durango and
Sinaloa State, Mexico, Technical Report for Primero Mining Corp. dated April
18, 2014 (the San Dimas Technical Report), prepared in accordance with NI
43-101 by J. Morton Shannon, P. Geo., Rodney Webster, M.AIG, and Gabriel Voicu,
P. Geo, each a Qualified Person for the purposes of NI 43-101. Readers should
consult the San Dimas Technical Report to obtain further particulars regarding
the San Dimas Mine. The San Dimas Technical Report is available for review under
the Companys profile on SEDAR at www.sedar.com.

The scientific and technical
information after April 18, 2014 under the heading Mining Activities  San
Dimas Mine is based on information reviewed and approved by Dave Laudrum,
P.Geo., Senior Resource Manager for Primero.

30

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Amended and Restated Silver Purchase Agreement

As part of the acquisition of the
San Dimas Mine, Primero assumed the Amended and Restated Silver Purchase
Agreement. The Amended and Restated Silver Purchase Agreement governs purchases
of silver produced from the San Dimas Mine by SW Caymans (now WPMI). After
meeting its contractual obligations to WPMI, Primero is free to sell all other
produced silver at market prices. The following is a summary of the material
terms of the Amended and Restated Silver Purchase Agreement:

| | - | The term of the Amended and Restated Silver Purchase
      Agreement is for the life of the San Dimas Mine, with an initial term
      expiring October 15, 2029, and automatic renewals for additional terms of
      ten years each, subject to WPMIs right to terminate;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                             
| | - | Silver Trading sells annually (in a Contract Year) to
  WPMI an amount of refined silver (the Refined Silver) equal to:                                                                                                                                                 

| | o | all ounces produced of payable silver (Payable Silver)
      from the San Dimas Mine up to 6,000,000 ounces (the Threshold Number),
      and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                  
| | o | 50% of any additional ounces of Payable Silver in excess
      of the Threshold Number of ounces of Refined Silver for such Contract
      Year. 

| | - | The purchase price for the Refined Silver is equal to the
      lesser of (a) a fixed price of $4.04 plus an increase of one percent
      annually ($4.32 for 2017) and (b) the market price of Refined Silver at
      the time of sale;                                                                                                                                                                                                                                              
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | If, by October 15, 2031, 215 million ounces of Refined
      Silver (the Minimum Silver Amount) have not been sold and delivered to
      WPMI by Silver Trading under the Amended and Restated Silver Purchase
      Agreement (including amounts produced under predecessor agreements equal
      to approximately 37.25 million ounces as at April 30, 2010), then Silver
      Trading will be obligated to pay to WPMI an amount (the Minimum Silver
      Payment), equal to:

| | o | Minimum Silver Amount, less the number of ounces of
      Refined Silver actually sold and delivered to WPMI by October 15, 2031;
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                  
| |   | multiplied by                                                                                                                    
| |   |                                                                                                                                  
| | o | $0.50 per ounce;                                                                                                                 

provided that (a) default in payment
of the Minimum Silver Payment will not constitute an Event in Default under
the Amended and Restated Silver Purchase Agreement, and (b) Goldcorp will
indemnify Silver Trading for, and accordingly will be ultimately responsible
for, any amount paid in respect of the Minimum Silver Payment under an indemnity
agreement executed between Primero and Goldcorp, except to the extent that the
deficiency payment arises because Silver Trading did not comply with its
obligations to sell and deliver to WPMI silver required to be sold and delivered
under the Amended and Restated Silver Purchase Agreement (other than with
respect to the failure of Silver Trading to sell and deliver the Minimum Silver
Amount).

For additional information about
the Amended and Restated Silver Purchase Agreement, go to the Companys profile
on SEDAR at www.sedar.com.

31

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Historical Production

Historical mill production for the San Dimas Mine from 2003 to
2017 is summarized in the following table:

San Dimas Mine Production
    
    Grade
    Contained
      OuncesYear
    Tonnes
      (Mt)
    Gold
      (g/t)
    Silver
      (g/t)
    Gold
      (koz)
    Silver
      (koz)2003
    0.424
    5.3
    428
    71
    5,8252004
    0.398
    6.9
    525
    88
    6,7172005
    0.508
    7.4
    497
    121
    8,1152006
    0.689
    7.8
    438
    172
    9,7062007
    0.685
    6.3
    341
    138
    7,5012008
    0.657
    4.3
    259
    90
    5,4792009
    0.673
    5.4
    247
    116
    5,3562010(1)
    0.612
    4.5
    244
    88
    4,8032011
    0.663
    3.9
    226
    80
    4,6032012
    0.721
    3.9
    234
    88
    5,1342013
    0.767
    4.7
    258
    115
    6,3622014
    0.898
    4.7
    232
    134
    6,6062015
    0.993
    4.9
    274
    156
    8,7602016
    0.759
    3.9
    228
    94
    5,5642017
    0.445
    4.4
    296
    62
4,235


(1)    Primero acquired the San Dimas Mine on
August 6, 2010.

Drilling

Prior to Primeros acquisition of
the San Dimas Mine, all drilling was previously termed exploration drilling and
was intended to collect data well away from the underground development that was
intensively tested by channel sampling. Commencing in 2011, definition drilling
campaigns were designed to convert Inferred Mineral Resources to Indicated
Mineral Resources, and only drilling designed to test new targets was designated
as exploration drilling. The total drilling conducted in 2017 is shown in the
following table.

Area
    Number of
      Drill Holes
    MetresTunel San Fernando
    2
    849Santa Jessica
    66
    17,522Santa Regina
    22
    7,155Perez
    10
    2,452Sistema San Luis
    2
    399Victoria
    24
    7,142San Juanito
    3
    1,002San Rafael
    7
    2,583Alexa
    12
    2,226Trinidad
    3
    1,158Total
    151
42,487


32

---

Drill holes are typically drilled
to get the best intersection possible such that the intersected width is as
close as possible to the true width, while giving vertical coverage. Drilling
underground is achieved by drilling from one vein development to another, or
from specific drill stations established on development headings driven to
access the vein. Holes are typically 200 to 250 metres long and generally
between +/- 50o in dip, while surface drilling, targeting deep veins,
can be up to 1,000 metres long. Generally, fans are drilled on multiple sections
from one set up. Since October 2011, samples have been sent for analysis to the
SGS laboratory in Durango and bulk density measurements have been systematically
taken on core samples.

Mr. Dave Laudrum, P.Geo., Senior
Resource Manager, Primero and a Qualified Person for the purposes of NI 43-101
has reviewed the appropriate reports, and is of the opinion that the analytical
and database quality and the geological interpretations support the use of the
data in Mineral Resource and Mineral Reserve estimation, and in mine planning.

Mining Operations

The San Dimas Mine operation
includes four underground gold and silver mining areas: the West Block (San
Antonio mine); the Sinaloa Graben Block; the Central Block and the Arana Block
(the Santa Rita mine). Vein thickness varies from 0.1 metres to 8 metres with
the average approximately 1.9 metres. Some veins have a strike length of more
than 1,500 metres. Vein dips vary from about 35o to sub-vertical, the
latter being decidedly more prevalent. The general mining recovery factor is
about 95%, while that for sill mining is about 75%.

Typical mining of the vein
systems is by mechanized cut-and-fill and long-hole, using drill jumbos or
jacklegs, pneumatic long-hole drills and load-haul-dump machines, with primary
access provided by adits and internal ramps from an extensive tunnel system
under the steep, mountainous terrain.

The basis for ore haulage at San
Dimas is load-haul-dump (LHD) equipment feeding trucks for haulage to the
portal and then plant stockpiles. In the Tayoltita mine, the LHD equipment load
rail wagons for haulage to the Tayoltita mill crushing plant. Development waste
is generally moved to stopes as fill.

There is one milling facility at
Tayoltita to process the production from the active mining areas in San Dimas.
The Tayoltita mill has a conventional Merrill Crowe process flowsheet that
employs crushing and grinding followed by cyanidation and zinc precipitation for
recovery of gold and silver. San Dimas operates a dry stack tailings deposition
facility, which has a minimum of 9 year life at the current processing rate.

Recent Operating History for the San Dimas Mine

In 2017, Primero continued to
implement major safety initiatives which required that all workers in the
underground mine would only work under supported ground, and the systematic
installation of ground support is now a requirement in all active workplaces.
This initiative reduced production rates due to the time involved in installing
the ground support.

During 2017, the San Dimas Mine
produced 73,665 gold equivalent ounces (just below the Companys revised
guidance range of 75,000 to 90,000 gold equivalent ounces) and 60,167 ounces of
gold and 3,962,580 ounces of silver. Throughput at the San Dimas Mine in 2017
averaged 1,219 TPD (based on 365 day availability).

Environmental Matters

During the year ended December
31, 2017, the Company spent $0.55 million on capital projects related to
environmental protection. This included continued improvements to the tailings
storage areas and some surface water management structures. Ultragen,
engineering consultants specialized in mechanical and piping designs, reviewed
the tailings pipelines condition and original design and recommended a series of
modifications in order to improve the safety and durability of the pipelines.
The implementation of these measures was started in late 2014 and was completed
in the third quarter of 2016 (with the exception of modifications to the
tailings pipelines suspension bridge which will be completed in the fourth
quarter of 2018).

33

---

In 2015, a Technical Review and
Risk Assessment of the Cupias tailing storage facility was performed by Amec
Foster Wheeler. The stability evaluation of the storage facility currently in
use shows that the facility exceeds the minimum factors of safety criteria for
static and seismic loading conditions for both the current and ultimate storage
configurations. Preliminary evaluations of the current surface water management
facilities shows that the ditches, diversion dam and other structures require
modifications to accommodate possible major storm events. The engineering of
these improvements was completed in late 2015 and construction started in the
second quarter of 2017 with the modification of the ditches completed at the end
of the third quarter 2017. Following a planned visit to site in September 2017,
Amec Foster Wheeler recommended additional changes to the design of eastern dam
and the solution pond located at the east end of the facility. Modifications to
the design were completed at the end of 2017. Work on the eastern dam, spill way
and solution pond is planned to resume at the start of the second quarter 2018
with completion planned for 2019.

The San Dimas Mine is subject to
a full closure plan and reclamation of the site upon cessation of operations,
which would include all facilities currently being used (mill, hydro plant,
mines, surface infrastructure, power line, roads, dry tailings). The Company has
accrued a decommissioning liability consisting of reclamation and closure costs
for the San Dimas Mine. The undiscounted cash flow amount of the obligation was
$31.6 million at December 31, 2017 and the present value of the obligation was
estimated at $11.4 million, calculated using a discount rate of 7.39% and
reflecting payments made during and at the end of the mine life, which for the
purpose of this calculation, the Company has assumed is 17 years. In
respect of the decommissioning liability, San Dimas Mine expects to incur $2.2
million in 2019 and $2.0 million in 2020 to remediate the historical San Antonio
tailings, with the remainder of the expenditures to be incurred mainly at the
end of the mine life.

On November 3, 2017, a 1 PVC
pipe failed inside the process plant spraying process solution containing
cyanide over the perimeter wall. Approximately 1.5 cubic metres of cyanide
solution spilt onto adjacent soils and into the Piaxtla river. The Companys
emergency response plans addressed the spill and authorities were promptly
notified. The analysis of the equipment failure was completed and all
observations and recommendations have been closed out.

In addition, Primero is also
dealing with two past environmental liabilities: reclamation of old San Antonio
milling facilities and closure/reclamation of old San Antonio (Contraestacas)
tailings facilities. All work is expected to be completed in 2020.

San Antonio Tailings

Due primarily to the exhausted
capacity of the tailings dam, the San Antonio mill was closed in 2003. The
tailings dam site is located in a sharp curve in a steep walled river canyon
downstream of the remnants of the mill. The river was diverted through two
tunnels which were excavated in the canyon wall on the inside of the river bend.
A third tunnel for road access was excavated and also serves as an additional
channel for the river in high flow periods. In 2002, the then owner of the mine
(Wheaton River Minerals Ltd.) identified the San Antonio tailings dam as a risk
to failure due to a low safety factor in the dam, the risk associated with an
unknown hydrostatic head in the active tailings deposition area and possible
erosion due to a flood event in the adjacent river.

Since the shutdown of the San
Antonio mill operations, some of the risk has been removed by elimination of the
hydrostatic head in the dam and diversion of a local drainage channel. It has
been proposed that the dam safety factor be increased by extending the concrete
wall on the upstream side of the dam and protection of the downstream side by
covering it with mine waste rock. These measures would also decrease the
potential for erosion of the tailings. Some of this work was initiated while
options to close and reclaim the tailings dam were studied. DMSL received
approval to reclaim the San Antonio dam by stabilizing the tailings in their
current location after the submission of an environmental assessment, which
demonstrated the validity of the plan. A scale model was developed that through
a series of tests, determined the best design from the hydraulic aspect and to
determine if some of the design features needed to be augmented. During 2007, in
agreement with the design by Knight Piésold (international geotechnical
consultant), the emplacement of a rock filled berm began with about 60%
completed; however, the rains and lack of an access road significantly affected
progress. Further work was done in 2008 and subsequent years. Full closure of
the San Antonio old tailings facilities, which consists of completing a
downstream berm and spillway, is planned to be completed in 2020. See Item 3.
Key Information  D. Risk Factors  Operational Risk  San Dimas Tailings
Management Risks.

34

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Reserves and Resources

The San Dimas Mine is an
established property with a long operating history and a record of Mineral
Reserve replacement, Mineral Resource conversion and exploration success.

At the San Dimas Mine, the
Mineral Reserves and associated Mineral Resources were constrained in 64
individual geological models and block models. Mineral Resources were estimated
using GEMS software with ordinary kriging interpolation applied to major veins
and inverse distance squared interpolation applied to minor veins. Resources in
some additional minor veins were estimated using a polygonal method and included
in Inferred Mineral Resources. In addition to the GEMS models, Leapfrog
geological models were created for 22 of the main veins which honour the vein
contacts, the gold and silver grades, structural geology, quartz veining and
mineral alteration. Grade estimation was performed on 3 metre long by 3 metre
high by 0.5 metre wide blocks. Variable grade capping was applied to veins
supported by statistical analysis and visual checks.

To convert Mineral Resources to
Mineral Reserves, mining dilution was added and mining recovery factors were
applied on an individual vein basis and respecting mining methodology. For the
block-modelled veins, Measured Mineral Resources and Indicated Mineral Resources
were defined by combining several criteria such as a minimum of four drill holes
within 15 metres and 30 metres respectively, whereas Inferred Mineral Resources
were estimated with a minimum of 2 drill holes within 30 to 45 metres.

Primero used a constant bulk
density of 2.6 t/m3 for the estimation of the tonnes for all veins in
the December 2015, December 2016 and December 2017 estimates.

Due to the poor Quality
Assurance/Quality Control (QA/QC) results in 2011 and 2012, AMC Mining was
unable to classify any of the Mineral Resources as a Measured Mineral Resource.
Improved QA/QC methods and practices were implemented commencing in 2012 and
have continued since then. Commencing with the 2013 Mineral Resources estimate,
the Company has been able to classify Measured Mineral Resources. The Company
utilizes an external laboratory for all drill samples and the channel samples
that are used in Mineral Resources and Reserve estimates.

Samples assayed in an external
laboratory (SGS in Durango), are subject to a QA/QC process consisting of the
regular insertion of standard reference materials and blank materials.

Diamond drill core of BTW, BQ and
NQ diameter is cut in half and one half is submitted to SGS, which is an ISO
certified independent laboratory. Sample intervals have an average length of 0.7
metres and, in general, they are no longer than 1.5 metres, although
occasionally slightly longer intervals were used. In the laboratory, the samples
are dried, crushed and pulverized to 85% of the sample passing a 75 μm sieve.
Gold is analyzed by 30g fire assay with atomic absorption finish. Above 10g/t
gold fire assay the gold is analyzed with gravimetric finished. Silver is
analyzed by atomic absorption. Above 300g/t fire assay Ag is analyzed with
gravimetric finish. For exploration drilling an extra assay of ICP-OES 34
elements aqua regia digestion is done.

For the estimation of Mineral
Reserves, Primero has assumed that the current drill-jumbo and jackleg cut and
fill mining methods continue to be practised at the San Dimas Mine, with
respective minimum mining widths of 3 metres and 1 metre. The Company has
introduced the use of long-hole mining method at the San Dimas Mine, rather than
cut and fill on an increasing scale, with a minimum mining width of 1.5 metres.
For the purposes of Mineral Reserve estimation unplanned mining dilution on each
side of the planned mining width is assumed to be 0.2 metres for cut and fill
and 0.3 metres for long-hole mining. For each mining method, 0.2 metres of fill
floor dilution has been assumed. Overall average dilution, planned and
unplanned, is estimated at 45%. For the veins upon which the year-end 2017
Mineral Reserve estimate is based, the respective mined tonnes from jumbo,
jackleg and long-hole mining are estimated at 12%, 35% and 52%, respectively.
Other than for sill mining, average recovery throughout each mining block for
both cut and fill and long-hole mining has been assumed to be 95%. For sill
pillars, a factor of 75% has been used.

Commencing in 2016 the Company
has applied a two-pass cut-off grade at the San Dimas Mine. Firstly an all-in
sustaining cost cut-off grade was applied to highlight areas for inclusion in
the Mineral Reserve, followed by the application of an operating cost cut-off grade to highlight
additional incremental material for potential inclusion. The all-in sustaining
cost cut-off grade applied was 3.22 g/t gold equivalent (AuEq) and considers
direct operating costs and sustaining capital costs. The operating cut-off grade
next applied was 2.22 g/t AuEq and considers direct operating costs only. For
the 2017 Mineral Reserve, similar operational, revenue and cost assumptions have
been used.

35

---

Proven Mineral Reserves and
Probable Mineral Reserves for the San Dimas Mine at December 31, 2017 decreased
22,000 ounces of gold and 1.6 million ounces of silver from year-end 2016.

The results of the Mineral
Resource and Mineral Reserve estimation work are shown in the table below, which
shows a summary of the Mineral Resources and Mineral Reserves at December 31,
2017. As noted above, the Inferred Mineral Resource is a mix of block
modeled and polygonal estimates. The relevant cut-off and price data are shown
in the footnotes.

Classification
    Tonnage
      (Mt)
    Gold Grade
      (g/t)
    Silver
      Grade (g/t)
    Contained
      Gold(koz)
    Contained Silver
      (koz)Mineral ReservesProven
    1.2
    4.3
    364
    168
    14,118Probable
    2.8
    3.6
    279
    327
    25,544Proven & Probable
    4.1
    3.8
    304
    495
    39,662Mineral ResourcesMeasured & Indicated
    4.9
    5.1
    385
    811
    60,936Inferred
    6.9
    3.5
    319
    782
70,859


Notes to Mineral Reserve Statement:

1. Assumed gold price of US$1,200 per troy ounce and silver
price of US$17 per troy ounce. 2. A two-pass cut-off grade was applied at
San Dimas; first-pass of 3.22 g/t gold equivalent based on total all-in costs of
$118.00/t ($81/t direct costs and $37/t sustaining capital), and second-pass of
2.22 g/t gold equivalent based on direct operating costs only. Metal supply
contract obligations have been referenced in determining overall vein reserve
estimate viability. 3. Assumed processing recovery factors at San Dimas for
gold of 95% and silver of 92% were used in the cut-off grade calculation. 4.
Exchange rate assumed is MXN$18.00/US$ 1.00. 5. The Mineral Reserve
estimates for San Dimas Mine set out in the table above have been reviewed and
approved by Mr. Patrick McCann, P.Eng., Principal Engineer, Primero and a
Qualified Person (QP) for the purposes of National Instrument 43-101 (NI
43-101). 6. Mineral Reserves do not consider the silver purchase agreement
which exists with Silver Wheaton Corp. such that the first 6.0 million ounces
per annum of silver produced by the San Dimas Mine, plus 50% of the excess
silver above this amount, must be sold to Silver Wheaton Caymans at the lesser
of $4.32 per ounce (adjusted by 1% per year) and market prices.

Notes to Mineral Resource Statement:

|1. | Mineral Resources are total and include those resources converted to
      Mineral Reserves.                                                                                                                               
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Assumed gold price of US$1,200 per troy ounce and silver price of
      US$17 per troy ounce.                                                                                                                              
|3. | San Dimas cut-off grade of 2.0 g/t AuEq was applied.                                                                                                                                                                       
|4. | The Mineral Resource estimates for San Dimas Mine set out in the table
      above have been reviewed and approved by Mr. Dave Laudrum, P.Geo., Senior
  Resource Manager for Primero and QP for the purposes of NI 43-101.

Other than as described herein,
Primero is not aware of any known environmental, permitting, legal, title,
taxation, socio-economic, marketing, political or other relevant factors that
may materially affect the Mineral Resources.

36

---

Discontinued Operations

On October 6, 2017, the Company
closed the sale of the Black Fox Complex. The sale of the Cerro del Gallo
Project was closed on November 27, 2017. The results from operations for the
Black Fox Complex and Cerro del Gallo Project have been presented as
discontinued operations in the audited consolidated financial statements and the
MD&A for the year ended 2017, which are available on SEDAR at www.sedar.com.

Prior to the sale on October 6,
2017, the Black Fox mine produced 51,209 ounces of gold attributable to Primero.
A total of 606,250 tonnes of ore were milled from the underground and low grade
stockpile at an average grade of 2.73 g/t. The mining from underground
contributed 182,889 tonnes at an average grade of 6.20g/t.

For information on our
discontinued operations (Black Fox Complex and Cerro del Gallo Project) please
see our prior years annual reports.

DESCRIPTION OF THE MARKETS WHERE WE OPERATE

All of Primeros mining and
mineral exploration operations are now conducted in the San Dimas Mine, Mexico.
The San Dimas Mine operation includes four underground gold and silver mining
areas: the West Block (San Antonio mine); the Sinaloa Graben Block; the Central
Block and the Arana Block (the Santa Rita mine).

The Companys principal products
are gold and silver. There are worldwide gold and silver markets into which the
Company can sell its products. The Company is not dependent on a particular
purchaser with regard to the sale of gold. A significant portion of its silver
produced at the San Dimas Mine is sold to WPMI under the Amended and Restated
Silver Purchase Agreement. See See Item 4. Information on the Company  B.
Business Overview  Mining Activities  San Dimas Mine  Amended and Restated
Silver Purchase Agreement.

During 2017, the San Dimas Mine
produced 73,665 gold equivalent ounces (just below the Companys revised
guidance range of 75,000 to 85,000 gold equivalent ounces), and 60,167 ounces of
gold and 3,962,580 ounces of silver.

The following table presents the
breakdown of total revenues attributable to each of our products.

|                               |   | Year ended
      December 31 | 
|------------------------------ | - | ---------------------------- | 
|(in thousands of U.S. dollars) |   | 2017                         | 
|Mexico                         |   |                              | 
|Gold                           | $ | 74,979                       | 
|Silver                         |   | 16,790                       | 
|Canada                         |   |                              | 
|Gold                           |   | 65,828                       | 
|Total                          | $ | 157,597                      | 

REGULATION

Exploration and development
activities and mining operations are subject to laws and regulations governing
health and work safety, employment standards, environmental matters, mine
development, prospecting, mineral production, exports, taxes, labor standards,
reclamation obligations and other matters. It is possible that future changes in
applicable laws, regulations, agreements or changes in their enforcement or
regulatory interpretation could result in changes in legal requirements or in
the terms of permits and agreements applicable to the Company or its properties
which could have a material adverse impact on the Companys operations and
exploration program and future development projects. Where required, obtaining
necessary permits and licenses can be a complex, time consuming process and
there can be no assurance that required permits will be obtainable on acceptable
terms, in a timely manner or at all. The costs and delays associated with
obtaining permits and complying with these permits and applicable laws and
regulations could stop or materially delay or restrict the Company from
proceeding with the development of an exploration project or the operation or
further development of a mine. Any failure to comply with applicable laws and
regulations or permits, even if inadvertent, could result in interruption or
closure of exploration, development or mining operations or material fines,
penalties or other liabilities, which could have an adverse effect on the
business, financial condition or results of operation of the Company. Due to
stringent government regulation, the Company may experience difficulties in
obtaining permits for the use of explosives in Mexico and these difficulties
could interrupt its operations.

37

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Primero holds the appropriate
permits under local, State and Federal laws to allow mining operations at the
San Dimas Mine. The main environmental permit is the Licencia Ambiental Única
under which the mine operates its industrial facilities and is approved by the
Mexican Environmental Agency, the Secretaría de Medio Ambiente y Recursos
Naturales (SEMARNAT). The mine and mill expansion of the San Dimas Mine is also
covered by this permit. Other significant permits are those related to water
supply and water discharge rights and are approved by the National Water
Commission, the Comisión Nacional del Agua (CONAGUA) and the explosives
procurement and management permit approved and regulated by the National Defense
Department, the Secretaria Nacional de la Defensa (SEDENA). A waste rock project
was commenced in 2013 for which both the environmental impact study and the
technical justification were also approved by the SEMARNAT.

Primero is also subject to tax laws and royalty regulations in
Mexico. See Item 3. Key Information  D. Risk Factors  Financial Risks 
Challenges to the 2012 APA.

Prior to its disposition in 2017, the Black Fox mine in
Ontario, Canada was also subject to various regulations. At the Black Fox mine
and mill, the primary environmental permits necessary for the continuing
development and operation of the mine and mill included:

| |  | The Permit to Take Water. These are approved by the
      Ontario Ministry of Environment and Climate Change (MOECC) for the
      withdrawal of surface or ground water quantities in excess of 50 m3/day.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Environmental Compliance Approval/Air. These are
      approved by the MOECC for treatment and discharge of emissions to air,
      including management of dust and noise in emissions.               
| |  | The Environmental Compliance Approval/Industrial Sewage
      Works also approved by the MOECC and for collection, treatment, and
      discharge of wastewaters.                                          
| |  | A filed Closure Plan, including the posting of final
      assurance for closure. This is approved by the Ontario Ministry of
      Northern Development and Mines (MNDM).                                 

Primero is also subject to applicable corporate, securities and
tax laws in Canada, which are administered by the Canadian Securities
Administration and the Canada Revenue Agency, and securities laws of the Unites
States, which are administered by the Securities and Exchange Commission.

|C. | Organizational Structure
|-- | ------------------------

Primero has three principal,
wholly-owned subsidiaries: Primero Empresa, which is incorporated under the laws
of Mexico; Silver Trading (Barbados) Limited, which is incorporated under the
laws of Barbados; and Primero Mining Luxembourg s.à.r.l., which is incorporated
under the laws of Luxembourg.

|D. | Property, Plant and Equipment
|-- | -----------------------------

SAN DIMAS

Property Description and Location

The San Dimas Mine is located on
the borders of the Durango and Sinaloa states, approximately 125 km north-east
of Mazatlán, Sinaloa and 150 kilometres (km) west of the city of Durango,
Durango, in Mexico. The property is centered on latitude 24°06N and longitude
105°56W.

The San Dimas property consists
of 93 contiguous concessions covering approximately 28,423 hectares, having
expiry dates ranging from 2019 to 2055. As per Mexican requirements for grant of
tenure, the concessions comprising the San Dimas Mine have been surveyed on the ground
by a licensed surveyor. All appropriate payments have been made to the relevant
authorities and the licenses are in good standing. Primero has secured surface
rights by either acquisition of private and public land or by entering into
temporary occupation agreements with surrounding communities.

38

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In 2013, the Mexican federal
government introduced a mining royalty, effective January 1, 2014, based on 7.5%
of taxable earnings before interest and depreciation. In addition, precious
metals mining companies must pay a 0.5% royalty on revenues from gold, silver
and platinum.

Primero holds the appropriate
permits under local, State and Federal laws to allow mining operations at the
San Dimas Mine. The main environmental permit is the Licencia Ambiental Única
under which the mine operates its industrial facilities. The mine and mill
expansion of the San Dimas Mine is also covered by this permit. Other
significant permits are those related to water supply and water discharge
rights. A waste pad project was commenced in 2013 for which both the
environmental impact study and the technical justification were approved by the
Secretaría de Medio Ambiente y Recursos Naturales and the Mexican environmental
protection agency. In addition, permits were received from the Comisión Nacional
de Agua regarding the Piaxtla River diversion that is part of this waste pad
project. As of March 2014 the rivers course has been diverted through the new
canal and the aquatic life recovery had been achieved. The new waste pad
construction was completed in May 2014.

Access, Climate, Local Resources, Infrastructure and
Physiography

Access

Access to the San Dimas area is
by air or road from the city of Durango. By road the trip requires approximately
10 hours. Primero maintains a de Havilland Twin Otter aircraft and a helicopter,
both of which are based at Tayoltita. Travel from either Mazatlán or Durango to
Tayoltita requires an approximate half hour flight in the Twin Otter aircraft.
Most of the personnel and light supplies for the San Dimas Mine arrive on
Primeros regular flights from Mazatlán and Durango. Heavy equipment and
supplies are brought in by road from Durango.

Climate

The climate of the San Dimas area
is semi-tropical, characterized by relatively high temperatures and humidity,
with hot summers (maximum about 35° C) and mild winters. At higher elevations in
the Sierra, frosty nights occur in the winter (November to March). The majority
of the precipitation occurs in the summer (June through September); however,
tropical rainstorms during October to January can result in considerable
additional rainfall. The total average annual rainfall varies from about 66 to
108 cm. Weather does not affect the operations and mining is carried out
throughout the year.

Local Resources and Infrastructure

Mining at the San Dimas Mine is
done by a mixture of contract mining and Primero personnel. Tayoltita is the
most important population centre in the region with approximately 8,000
inhabitants, including mining personnel, and the population outside of this
centre is sparse. Subsistence farming, ranching, mining and timber cutting are
the predominant activities of the regions population.

Water for the mining operations
is obtained from wells and from the Piaxtla River. Water is also supplied by
Primero to the town of Tayoltita from an underground thermal spring at the Santa
Rita mine.

Electrical power is provided by a
combination of Primeros own hydro generation system  Las Truchas  and the
Mexican Federal Electricity Commission (CFE). Primero operates hydroelectric
and back-up diesel generators, which are interconnected with the MFPA. Since the
completion of the Las Truchas phase 2A expansion in August 2014, the
hydroelectric facility provides about 95% of the total requirement of the San
Dimas Mine during four months of the year. During the remaining eight months of
the year, corresponding to the dry season, the hydroelectric facility provides
approximately 50% of the San Dimas power requirements for operations and the
rest is supplied by the utility (CFE) and by diesel generators at
the mine site. The recent Las Truchas phase 2A expansion has increased the power
generation of the Las Truchas facility from 50 GW to 75 GW per year.

39

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The main infrastructure of the
San Dimas district consists of roads, a townsite, an airport, the crushing and
processing facilities of the Tayoltita mill, the old San Antonio mill, the
Tayoltita/Cupias and San Antonio tailings facilities, the Las Truchas hydro
generation facilities, a diesel power plant and the San Dimas Mine, which is
divided into five blocks: West Block (San Antonio Mine), Sinaloa Graben Block,
Central Block, the Tayoltita and Arana Blocks (Santa Rita Mine). The San Antonio
mill and tailings facilities are currently under reclamation. Primero holds
sufficient surface rights to support the San Dimas Mine operations, and
associated infrastructure. Environmental permits are required from various
federal, provincial, and municipal agencies, and are in place for all current
operations. No new permits are currently required for current exploration
activity and mining operations, but existing permit amendments are required from
time to time.

Physiography and Vegetation

The San Dimas district is located
in the central part of the Sierra Madre Occidental, a mountain range
characterized by very rugged topography with steep, often vertical walled
valleys and narrow canyons. Elevations vary from 2,400 metres above mean sea
level (amsl) on the high peaks to elevations of 400 metres amsl in the valley
floor of the Piaxtla River. Vegetation is dominated by pines, junipers and, to a
lesser extent, oaks at higher elevations while lower slopes and valleys are
covered with thick brush, cacti and grass.

History

Prior Ownership

The San Dimas property contains a
series of epithermal gold silver veins that have been mined intermittently since
1757. Modern mining began in the 1880s, when the American San Luis Mining
Company acquired the Tayoltita mine and American Colonel Daniel Burns took
control of the Candelaria mine and began working in the area, and has continued
under different owners to the present. By 1940, the San Luis Mining Company had
acquired the Candelaria and the Contraestaca mines.

A mining law introduced in 1959
in Mexico required the majority of a Mexican mining company to be held by a
Mexican entity and forced the sale of 51% of the shares of the San Luis Mining
Company to Mexicans. In 1961, the Minas de San Luis S.A. de C.V. was formed and
assumed operations of the mine. In 1978, the remaining 49% interest was obtained
by Luismin S.A. de C.V (Luismin).

In 2002, Wheaton River Minerals
Ltd. (Wheaton River) acquired the property and, in 2005, Wheaton River merged
with Goldcorp. Through its wholly-owned subsidiary, Primero Empresa, Primero
acquired the San Dimas Mine from subsidiaries of Goldcorp in August 2010. See
General Development of the Business  Three Year History  Acquisition of San
Dimas Mine.

Historical Exploration and Development Work

In the San Dimas mining district
there are historical records that mention workings since 1757, but it was not
until 1890 that there were formal operations by the San Luis Mining Company and
Mexican Candelaria Company. In 1904, the first cyanide mill in Mexico was built
at Tayoltita. By 1940, the Candelaria mine had been mined out.

In the 1960s, higher grade
discoveries led to the first deep drilling campaigns and to the initial long
tunnels. In 1975, the first 4.5 kilometre tunnel (deepest in the district) was
completed in the Tayoltita mine, this being an area where ore discoveries such
as the San Luis vein had taken place following the Favourable Zone concept
described under Deposits and Mineralization below, aided by field geology. In
the 1980s, American and Mexican groups commenced operations that led to the
first geophysical and geochemical exploration in the east Tayoltita-Santa Rita
block.

40

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By the late 1980s and early
1990s, the Favourable Zone concept and Ag/Au ratios supported by fluid
inclusion and thermal fusion studies led to discovery of the San Antonio and
Santa Rita deposits. After acquisition of the whole property by the Mexican
group there was a significant reduction in exploration activities throughout the
whole mining district.

In 2002, foreign investment
(mainly Canadian) returned and the operation was acquired as a whole, which
resulted in a substantial increase in drilling long drill-holes combined with
the development of long tunnels perpendicular to the general trend of veins.
Examples of these tunnels include San Luis, Santa Anita and Sinaloa Graben,
where significant intersections and new high grade veins, such as the Elia,
Aranza, Victoria and Alexa, were discovered.

Geological Setting

Regional Geology

The general geological setting of
the San Dimas district includes two major volcanic successions totalling
approximately 3,500 metres in thickness, which have been described the Lower
Volcanic Group (LVG) and the Upper Volcanic Group (UVG) and are separated by
an erosional and depositional unconformity.

The LVG is of Eocene age
predominantly composed of andesites and rhyolitic flows and tuffs and has been
locally divided into six units. The LVG outcrops along the canyons formed by
major westward drainage systems and has been intruded by younger members of the
batholith complex of granitic to granodioritic composition.

The Socavón rhyolite is the
oldest volcanic unit in the district, its lower contact destroyed by the
intrusion of the Piaxtla granite.

The overlying Productive Andesite
is more than 750 metres in thickness and has been divided into two varieties
based on grain size, but of identical mineralogy. One variety is fragmental
(varying from a lapilli tuff to coarse agglomerate), and the other has a
porphyritic texture (1 to 2 millimetres plagioclase phenocrysts).

Above the Productive Andesite,
the overlying Camichin unit, composed of purple to red interbedded rhyolitic and
andesite tuffs and flows, is more than 300 metres thick. It is the host rock of
most of the productive ore shoots of Patricia, Patricia 2, Santa Rita and other
lesser veins in the Santa Rita mine.

The Las Palmas Formation, at the
top of the LVG, consists of green conglomerates at the base and red arkoses and
shales at the top, with a total thickness of approximately 300 metres. This unit
outcrops extensively in the Tayoltita area. The lower contact between the LVG
and the underlying Productive Andesite is unconformable.

The predominant plutonic events
in the district resulted in intrusion of the LVG by granitic to granodioritic
intrusives, part of the Sinaloa composite batholith.

Other intrusives cutting the LVG
include the Intrusive Andesite, the Elena aplite and the Santa Rita dacitic
dikes. The even younger Bolaños rhyolite dike and the basic dikes intrude both
the LVG and UVG. Intrusive activity in the western portion of the Sierra Madre
Occidental has been dated continuously from 102 to 43 million years. The UVG
overlies the eroded surface of the LVG unconformably.

Local and Property Geology

In the San Dimas district, the
UVG is divided into a subordinate lower unit composed mainly of lavas of
intermediate composition called Guarisamey Andesite and an upper unit called the
Capping Rhyolite. The Capping Rhyolite is mainly composed of rhyolitic ash flows
and air-fall tuffs and is up to 1,500 metres thick in the eastern part of the
district; however, within most of the district it is about 1,000 metres thick.
The San Dimas district lies within an area of complex normal faulting along the
western edge of the Sierra Madre Occidental. Compressive forces first formed
predominantly east-west and east-northeast tension gashes that were later cut by
transgressive north-northwest striking slip faults. The strike-slip movements
caused the development of secondary north-northeast faults, with right lateral
displacement.

41

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Deposits and Mineralization

Deposits

The deposits of the San Dimas
district are high grade, silver-gold-epithermal vein deposits characterized by
low sulphidation and adularia-sericitic alteration. They were formed during the
final stages of igneous and hydrothermal activity from quartz-monzonitic and
andesitic intrusions.

Typical of epithermal systems,
the gold and silver mineralization at the San Dimas Mine exhibits a vertical
zonation with a distinct top and bottom that the prior owner of the mine termed
the Favourable Zone. At the time of deposition, this Favourable Zone was
deposited in a horizontal position paralleling the erosional surface of the LVG
on which the UVG was extruded.

This favourable, or productive,
zone at San Dimas Mine is some 300 metres to 600 metres in vertical extent and
can be correlated, based both on stratigraphic and geochronologic relationships,
from vein system to vein system and from fault block to fault block.

Mineralization

The mineralization is typical of
epithermal vein structures with banded and drusy textures. Within the San Dimas
district, the veins occupy east-west trending fractures except in the southern
part of Tayoltita where they strike mainly northeast and in the Santa Rita mine
where they strike north-northwest. The veins were formed in two different
systems. The east-west striking veins were the first system developed, followed
by a second system of north-northeast striking veins. Veins pinch and swell and
commonly exhibit bifurcation, horse-tailing and sigmoidal structures. The veins
vary from a fraction of a centimetre in width to 8 metres, but average 1.5
metres. They have been followed underground from a few metres in strike length
to more than 1,500 metres.

Three major stages of
mineralization have been recognized in the district: (1) early stage; (2) ore
forming stage; and (3) late stage quartz. Three distinct sub-stages of the ore
forming stage also have been identified, each characterized by distinctive
mineral assemblages with ore grade mineralization always occurring in the three
sub-stages: (1) quartz-chlorite-adularia; (2) quartz-rhodonite; and (3)
quartz-calcite.

The minerals characteristic of
the ore forming stage are composed mainly of white, to light grey, medium to
coarse grained crystalline quartz with intergrowths of base metal sulphides
(sphalerite, chalcopyrite and galena) as well as pyrite, argentite, polybasite,
stromeyerite, native silver and electrum.

The ore shoots within the veins
have variable strike lengths (5 to 600 metres); however, most average 150 metres
in strike length. Down-dip extensions of ore shoots are up to 200 metres but are
generally less than the strike length.

Exploration and Drilling

Historically, exploration of the
Favourable Zone at San Dimas Mine has been done both by diamond drilling and by
underground development work. Diamond drilling is predominantly done from
underground stations as both the rugged topography (i.e. access to surface drill
stations) and the great drilling distance from the surface locations to the
target(s) makes surface drilling both challenging and expensive. All exploration
drilling and the exploration underground development work are done both in-house
and by use of contractors.

Channel Sampling

While drilling and drifting are
now the predominant methods of exploration, underground channel sampling plays a
large role in the estimation of current Mineral Resources. Channel samples are
routinely taken every three metres in all development in vein, and stoping is
sampled every two rounds (6 metres). Sample limits within the vein are based on
texture and mineralogy changes. No sample is more than 1.2 metres in length and
the minimum sample width is 0.2 metres. A second cut is taken across the vein as
a validation and the results averaged for grade control purposes. A tarpaulin is
laid down below the sample line. The samples are taken as a rough channel along
the marked line, ensuring that the unit is sampled in a representative fashion,
with large slabs being broken and sub-sampled. The total sample which has
collected on the tarpaulin is broken with a hammer, mixed and quartered such
that a 2 kilogram sample is bagged and labelled with sample number and location
details. Samples are dispatched to the Primero Tayoltita Mine Laboratory (the
TAY Lab) and samples received by 1:00 p.m. are reported that day. Sketches of
the face sampled are filed, showing samples physical locations from surveying
and the measured width of each sample. Since January 2012, approximately 1/3 of
all channel samples and 100% of drillcore samples were sent to the independent
SGS laboratory in Durango. These samples had QA/QC procedures applied and were
of a standard that can be reliably used for estimation of Mineral Resources. The
vein mapping and channel sampling is continually plotted on plans and both used
for grade control and for Mineral Resource estimation. In 2013 all channel
samples collected and sent to SGS laboratory in Durango (approximately 1/3) were
subjected to QA/QC procedures.

42

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Reserves

See Item 4. Information on the Company  B. Business Overview
 Mining Activities  San Dimas Mine  Mineral Reserves and Mineral Resources.

Production Capacity

The production capacity of the
San Dimas mine is dependent upon both the availability of ore from the
underground mine and the capacity of the mill. The current sustainable
production capacity of the mill is approximately 2,750 tonnes per day. The
availability of ore from the underground mine is dependent upon the areas being
mined and external factors such as metal prices and foreign exchange. Mining
reserves are included in Item 4. Information on the Company  B. Business
Overview  Mining Activities  San Dimas Mine  Mineral Reserves and Mineral
Resources.

|ITEM 4A. | Unresolved Staff Comments
|-------- | -------------------------

None.

|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND
      PROSPECTS
|------- | --------------------------------------------------

The following managements
discussion and analysis of financial condition and results of operations should
be read in conjunction with our audited consolidated financial statements
included elsewhere in this annual report on Form 20-F. This annual report
contains forward-looking statements that involve risks and uncertainties.

Our actual results may differ
materially from those discussed in the forward-looking statements as a result of
various factors including, without limitation, those set forth in Introductory
Notes  Cautionary Statements about Forward-Looking Statements and the matters
set forth in this annual report generally.

We have prepared our audited
consolidated financial statements as of December 31, 2017 and 2016 and for the
three years ended December 31, 2017 in U.S. dollars and in accordance with IFRS
as issued by the IASB.

The financial information and
related discussion and analysis contained in this item are in accordance with
IFRS as issued by the IASB. The amounts are in million U.S. dollars, unless
otherwise stated.

|A. | Operating Results
|-- | -----------------

OVERVIEW OF THE BUSINESS

Primero is a Canadian-based
precious metals producer with operations in Mexico. The Company owns one
producing property, the San Dimas gold-silver mine, located in Mexicos San
Dimas district, on the border of Durango and Sinaloa states. In addition, the Company owns one
exploration property, Ventanas, located in Durango State, Mexico. On January 12,
2018, the Company announced that it entered into the Arrangement Agreement
whereby First Majestic will acquire all of the issued and outstanding common
shares of Primero. On March 13, 2018, the Arrangement Agreement was approved by
Primero shareholders. The Company is awaiting anti-trust clearance in Mexico and
the satisfaction of other customary conditions.

43

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The Company previously owned a
second producing property, the Black Fox mine, located in the Township of Black
RiverMatheson, Ontario, Canada, which was sold on October 6, 2017 along with
properties adjacent to the Black Fox mine - Grey Fox and Pike River, which
together with the Black Fox mine and the Black Fox mill, located on the Stock
Mill property, comprised the Black Fox Complex. On November 27, 2017, the Cerro
del Gallo gold-silver-copper project was sold, located in the state of
Guanajuato in central Mexico.

The profitability and operating
cash flow of the Company are affected by numerous factors, including its ability
to extend or replace its existing financing or secure future financing, the
amount of gold and silver produced and sold, market prices of gold and silver,
the price of metal under its existing streaming agreements, operating costs,
regulatory and environmental compliance, as well as currency exchange rates,
labor relations, political risks, and varying levels of taxation. The Company
seeks to manage these risks, but many of the factors affecting these risks are
beyond the Companys control.

The Companys shares are listed
on the Toronto Stock Exchange (TSX) under the symbol P and were listed on
the NYSE under the symbol PPP until August 14, 2017. In addition, Primero has
a convertible debenture trading on the TSX under the symbol P.DB.V and common
share purchase warrants trading on the TSX under the symbol P.WT.C.

SELECTED CONSOLIDATED ANNUAL INFORMATION

|Years ended December 31                                                |   | 2017      |   |   | 2016      |   |   | 2015      |  
|---------------------------------------------------------------------- | - | --------- | - | - | --------- | - | - | --------- | -
|Key Performance
      Data1                                            |   |           |   |   |           |   |   |           |  
|Tonnes of ore milled                                                   |   | 1,050,961 |   |   | 1,672,322 |   |   | 1,868,926 |  
|Produced                                                               |   |           |   |   |           |   |   |           |  
|Gold equivalent(
      ounces)                                         |   | 124,874   |   |   | 176,139   |   |   | 259,474   |  
|Gold (ounces)                                                          |   | 111,376   |   |   | 156,052   |   |   | 221,060   |  
|Silver (million
      ounces)                                          |   | 3.96      |   |   | 5.32      |   |   | 8.30      |  
|Sold                                                                   |   |           |   |   |           |   |   |           |  
|Gold (ounces)                                                          |   | 114,377   |   |   | 158,028   |   |   | 218,194   |  
|Silver (million ounces)                                                |   | 3.90      |   |   | 5.57      |   |   | 8.12      |  
|Average realized prices                                                |   |           |   |   |           |   |   |           |  
|Gold ($/ounce)2                                                        | $ | 1,231     |   | $ | 1,222     |   | $ | 1,136     |  
|Silver
      ($/ounce)2                                                | $ | 4.30      |   | $ | 4.68      |   | $ | 5.34      |  
|Total cash costs (per gold ounce)4                                     |   |           |   |   |           |   |   |           |  
|Gold equivalent
      basis                                            | $ | 862       |   | $ | 865       |   | $ | 637       |  
|By-product basis                                                       | $ | 813       |   | $ | 817       |   | $ | 548       |  
|All-in sustaining costs (per
      gold ounce)4                        | $ | 1,282     |   | $ | 1,333     |   | $ | 960       |  
|                                                                       |   |           |   |   |           |   |   |           |  
|Financial Data2(in thousands of U.S. dollars except per share amounts) |   |           |   |   |           |   |   |           |  
|Revenues3                                                              | $ | 91,769    |   | $ | 147,581   |   | $ | 213,192   |  
|Earnings from mine
      operations3                                   |   | 2,056     |   |   | 13        |   |   | 53,574    |  
|Net loss                                                               |   | (409,685  | ) |   | (234,420  | ) |   | (106,910  | )
|Basic net loss per share from
      continuing operations3             |   | (1.74     | ) |   | (0.65     | ) |   | (0.06     | )
|Diluted net loss per share from continuing
      operations3           |   | (1.74     | ) |   | (0.65     | ) |   | (0.06     | )
|Operating cash flows before
      working capital changes              |   | 22,633    |   |   | 15,267    |   |   | 62,125    |  
|Weighted average shares outstanding (basic)
      (000s)              |   | 191,738   |   |   | 177,569   |   |   | 162,341   |  
|Weighted average shares
      outstanding (diluted) (000s)            |   | 191,738   |   |   | 177,569   |   |   | 162,341   |  

44

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|As at December 31(in thousands of U.S. dollars) |   | 2017    |  |   | 2016    |  |   | 2015    | 
|----------------------------------------------- | - | ------- |  | - | ------- |  | - | ------- | 
|Assets                                          |   |         |  |   |         |  |   |         | 
|Mining
      interests3                         | $ | 125,050 |  | $ | 577,920 |  | $ | 790,118 | 
|Total assets                                    | $ | 205,266 |  | $ | 677,817 |  | $ | 924,968 | 
|Liabilities                                     |   |         |  |   |         |  |   |         | 
|Long-term
      liabilities3                    | $ | 91,134  |  | $ | 130,472 |  | $ | 162,427 | 
|Total
      liabilities                         | $ | 145,535 |  | $ | 216,687 |  | $ | 276,092 | 
|Equity                                          | $ | 59,731  |  | $ | 461,130 |  | $ | 648,876 | 

|1. | Inclusive of the Black Fox Complex classified as
      discontinued operations.                                                                                                                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Average realized gold and silver prices reflect the
      impact of the gold purchase agreement with Sandstorm at the Black Fox mine
      and the silver purchase agreement with Wheaton Precious Metals
      International Ltd. (WPMI), formerly Silver Wheaton Caymans at the San
      Dimas Mine (see Other Liquidity Considerations).
|3. | As reported per IFRS with Black Fox Complex and the Cerro
      del Gallo Project classified as discontinued operations.                                                                                                                                                                                                                        
|4. | See Non-GAAP Measurements.                                                                                                                                                                                                                                                                                                                    

HIGHLIGHTS

Operational Performance

| | Primeros consolidated production was 124,874 gold
      equivalent ounces in 2017 compared to 176,139 gold equivalent ounces in
      2016 and 259,474 gold equivalent ounces in 2015. Gold production was
      111,376 ounces in 2017 compared to 156,052 ounces in 2016 and 221,060
      ounces in 2015. Silver production was 3.96 million ounces from San Dimas
      in 2017 compared to 5.32 million ounces in 2016 and 8.30 million ounces in
      2015.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | For San Dimas, gold production of 60,167 ounces was at
      the bottom end of the guidance range of 60,000 to 70,000 ounces for the
      year. San Dimas gold equivalent production of 73,665 ounces was just below
      the guidance range of 75,000 to 85,000 ounces for 2017.                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | A strike action by unionized employees resulted in a
      complete stoppage of mining and milling activities at San Dimas from
      February 15, 2017 to April 22, 2017, which significantly impacted 2017
      production levels.                                                                                                                                                                                                                              

Corporate Developments

| | On January 12, 2018, the Company announced that it
      entered into the Arrangement Agreement whereby First Majestic will acquire
      all of the issued and outstanding common shares of Primero. Under the
      terms of the Arrangement Agreement, all of Primeros issued and
      outstanding common shares will be exchanged for First Majestic common
      shares on the basis of 0.03325 of a First Majestic common share for each
      Primero common share. This implies consideration of C$0.30 per Primero
      common share, based on the 20-day volume weighted average price of the
      First Majestic common shares on the Toronto Stock Exchange.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The Arrangement Agreement is the culmination of a
      strategic review process that was commenced by the Companys Board of
      Directors to explore alternatives to improve shareholder value. This
      strategic review process also resulted in the divesture of the Black Fox
      Complex and the Cerro de Gallo Project, as described below.                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | On March 13, 2018, the shareholders of Primero voted to
      approve the Arrangement with First Majestic. The Company is awaiting
      anti-trust clearance in Mexico. The Arrangement is expected to close in late April or early May 2018, subject to applicable regulatory approvals
  and the satisfaction of other customary conditions. In the event that the Arrangement does not close by April 30, 2018, the Company will seek an extension of the RCF.                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | On March 13, 2018, the holders of the 5.75% Convertible
      Debentures voted to approve an amendment to the maturity date of the
      debentures. Upon the closing of the Arrangement, the amendment of the
      trust indenture will accelerate the maturity date of the debentures to the
      next Business Day following the effective date of the Arrangement and will
      be paid at par plus accrued interest.                                                                                                                                                                                                                                                

45

---

| | Under the Arrangement, outstanding Primero stock options
      and warrants will be replaced with First Majestic securities on equivalent
      terms. All outstanding Phantom Share Units (PSUs) and Deferred Share
      Units (DSUs) will be settled in cash at C$0.30 per unit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | In October 2017, Primero closed the sale of its Black Fox
      Complex. After closing net working capital adjustments, Primero received
      total consideration of $32.3 million, comprising $27.5 million in cash
      proceeds and the release of approximately $4.8 million from restricted
      cash pledged towards environmental closure liabilities. The operations of
      Black Fox are reported under Discontinued Operations in the consolidated
      financial statements.                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  | In November 2017, the Company closed the sale of the
      Cerro del Gallo Project in exchange for consideration of $15 million in
      cash. The activities of the Cerro del Gallo Project are reported under
  Discontinued Operations in the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The net proceeds from the sales of both the Black Fox
      Complex and the Cerro del Gallo Project were applied to the RCF. As at
      December 31, 2017, the outstanding principal on the RCF was $30.2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | On March 30, 2017, the Company amended the terms of its
      RCF to extend the maturity date from May 23, 2017 to November 23, 2017 and
      exclude all financial covenants until the extended maturity date. The RCF
      continued to be secured by a charge over substantially all of the
      Companys asset and was guaranteed by WPM for a fee of $2.7 million
      payable at maturity. In connection with the strategic review process, the
      RCF was extended multiple times in the fourth quarter of 2017 and on
      January 12, 2018, the Company has further extended its RCF maturity date
      to allow for the execution of the Arrangement Agreement. WPM continues to
      guarantee the RCF through the current maturity date. The Company believes
      it has adequate liquidity to manage the business through the closing of
      the Arrangement.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | In June 2017, as part of the ongoing annual audits of the
      PEM tax returns, the SAT issued an observations letter for the 2010 tax
      year. In October 2017, the SAT issued an observations letter for the 2011
      tax year. The SAT made explicit its view that PEM should pay taxes based
      on the market price of silver. The observations letters do not represent a
      tax reassessment and no liability has been recognized in the financial
      statements. The Company has formally submitted its responses to both the
      2010 and 2011 observations letters and continues to believe it is paying
      taxes on the appropriate legal basis in Mexico.                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | As the Company continues to defend its APA in Mexican
      legal proceedings, the APA remains valid and the Company will vigorously
      dispute any reassessment that assesses taxes on its silver revenues that
      is inconsistent with the APA. The Company has also continued a dialogue
      with the SAT to seek resolution of its tax matters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | On July 14, 2017, the Companys motion to dismiss the
      amended complaint in the U.S. securities class action lawsuit originally
      filed in 2016 was granted and the plaintiffs claims were dismissed
      without prejudice. Rather than amend the complaint again, the plaintiffs
      asked the federal court to enter final judgment and initiated an appeal of
      the dismissal to the Ninth Circuit Court of Appeals on September 8, 2017.
      The parties have filed their briefs in this appeal and a ruling on the
      appeal is expected sometime in 2018. The Company intends to vigorously
      defend itself against this class action lawsuit.                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | In February 2017, the Company announced the appointment
      of Mr. Joseph Conway as Interim President and Chief Executive Officer
      following the departure of Mr. Ernest Mast. In September 2017, Mr. Ryan
      Snyder was appointed Chief Financial Officer of the Company following the
      resignation of Mr. Kevin Jennings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Financial Performance

| | Earnings from continuing mine operations, being the San
      Dimas Mine, for 2017 were $2.1 million compared to $0.01 million in 2016
      and $53.6 million in 2015. Despite a decrease in production, there was an
      increase in earnings due to a significant reduction in cost of sales
      during 2017.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

46

---

| | The Company incurred a net loss of $409.7 million ($2.14
      per share) including $398.8 million in non-cash impairment charges in
      2017, compared to a net loss of $234.4 million ($1.32 per share) in 2016
      which included $228.0 million in non-cash impairment charges in 2016 and a
      net loss of $106.9 million ($0.66 per share) in 2015 which included $104
      million in non-cash impairment charges in 2015.                                                                                                                                                                                                                                                                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Operating cash flows before changes in working capital
      was $22.6 million ($0.12 per share) in 2017 compared to $15.3 million
      ($0.09 per share) in 2016 mainly due to higher earnings from mine
      operations and lower taxes paid in Mexico. Working capital outflows were
      lower in 2017 at $0.1 million compared to $2.2 million in 2016. The
      decrease relates mainly to lower outflows relating to trade and other
      payables, partially offset by increased outflows in 2017 associated with
      inventories. In 2015, operating cash flows before changes in working
      capital was $62.1 million ($0.38 per share). The decrease from 2015 to
      2016 relates to lower cash generated from operations as a result of lower
      production levels combined with an increase in taxes paid.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Impairment charges of $399 million includes $304 million
      relating to the San Dimas Mine, $50 million relating to the Cerro del
      Gallo Project and $45 million relating to the Black Fox Complex. In 2016,
      impairment charges included $228 million, with $111 million at the San
      Dimas Mine and $117 million at Black Fox Complex. In 2015, impairment
      charges included $104 million, with $82 million at the Black Fox complex
      and $22 million at Cerro del Gallo.                                                                                                                                                                                                                                                                                                                                 

REVIEW OF ANNUAL CONSOLIDATED FINANCIAL INFORMATION

Years ended December 31, 2017, 2016 and 2015

Earnings from continuing mine operations comprises:

|                               |   | Year ended
      December 31 |  
|------------------------------ | - | ---------------------------- | -
|(in thousands of U.S. dollars) |   | 2017                         |  
|Gold revenue                   | $ | 74,979                       |  
|Silver revenue                 |   | 16,790                       |  
|Operating expenses             |   | (67,280                      | )
|Depreciation and depletion     |   | (22,433                      | )
|Earnings from mine operations  | $ | 2,056                        |  

The table below sets out variances in the key drivers of
earnings from mine operations for the year ended December 31, 2017 compared with
the year ended December 31, 2016 and December 31, 2015:

|                                            |   | Year ended  |  
|------------------------------------------- | - | ----------- | -
|(in thousands of U.S. dollars)              |   | December 31 |  
|Earnings from mine
      operations in 2015 | $ | 53,574      |  
|Differences:                                |   |             |  
|Revenue                                     |   |             |  
|Higher realized gold price                  |   | 9,406       |  
|Lower ounces of
      gold sold             |   | (57,643     | )
|Lower realized silver price                 |   | (3,702      | )
|Lower ounces of
      silver sold           |   | (13,672     | )
|Lower operating expenses                    |   | 3,330       |  
|Lower depreciation and depletion            |   | 8,720       |  
|Earnings from mine operations in 2016       | $ | 13          |  
|Differences:                                |   |             |  
|Revenue                                     |   |             |  
|Higher realized
      gold price            |   | 870         |  
|Lower ounces of gold sold                   |   | (47,444     | )
|Lower realized
      silver price           |   | (1,468      | )
|Lower ounces of silver sold                 |   | (7,770      | )
|Lower operating expenses                    |   | 33,172      |  
|Lower depreciation and depletion            |   | 24,683      |  
|Earnings from mine operations in 2017       | $ | 2,056       |  

47

---

Revenue

Gold revenue decreased by $46.6 million and silver revenue
decreased by $9.2 million in 2017 compared to 2016 primarily as a result of
lower production at San Dimas. Production was impacted by the union strike and a
work slow-down in July during annual bonus negotiations. Gold revenue decreased
by $48.2 million and silver revenue decreased by $17.4 million in 2016 from 2015
also primarily as a result of reduced production output at San Dimas.

Operating expenses

Operating expenses decreased in 2017 by $33.2 million due to
the reduction in mining and milling activity levels. Operating expenses
decreased in 2016 by $3.3 million, resulting mainly from lower mine extracting
activities, reduced performance bonuses and the weakening peso at San Dimas.

Depreciation and depletion

Depreciation and depletion was $22.4 million in 2017, a
decrease of $24.7 million from 2016 due to lower production levels in 2017 and
the impact of the impairments recognized in Q4 2016 and Q2 2017. Depreciation
and depletion was $47.1 million in 2016, a decrease of $8.7 million from 2015
due to lower production in 2016.

A summary income statement follows:

|                                                                 |   | Year ended
      December 31 |  
|---------------------------------------------------------------- | - | ---------------------------- | -
|(in thousands of U.S. dollars)                                   |   | 2017                         |  
|                                                                 |   |                              |  
|Earnings from mine operations                                    | $ | 2,056                        |  
|Impairment charge                                                |   | (303,858                     | )
|Exploration expenses                                             |   | (1,345                       | )
|Share-based compensation                                         |   | (4,149                       | )
|General and administrative
      expenses                        |   | (11,479                      | )
|Idle and restart costs incurred during strike
      at San Dimas |   | (6,207                       | )
|Other charges                                                    |   | (7,044                       | )
|Transaction costs                                                |   | -                            |  
|Interest and finance expense                                     |   | (11,285                      | )
|Mark-to-market gain on convertible debentures
      & warrants   |   | (5,897                       | )
|Other (expense) income                                           |   | (355                         | )
|Income tax recovery                                              |   | 4,393                        |  
|Net loss from continuing operations                              |   | ($333,376                    | )

Impairment Charges

As part of the strategic review process carried out in 2017,
the Company received several proposals during the second quarter of 2017 that
identified that the carrying value of its CGUs exceeded their fair value. During
the second quarter of 2017, the Company recorded an impairment of $285 million,
which comprised impairments of $195 million for the San Dimas Mine, $40 million
for the Black Fox Complex and $50 million for the Cerro del Gallo Project.
During the third quarter of 2017, an additional impairment of $5 million was
recorded for the Black Fox Complex to align with the actual net proceeds from
its disposition during the fourth quarter of 2017. During the fourth quarter,
the Company recorded an additional impairment of $109 million relating to the
San Dimas Mine as the negotiation process that led to the Arrangement Agreement
identified that the carrying value of the San Dimas Mine exceeded the
recoverable amount. The carrying value of the San Dimas CGU as at December 31,
2017 is now aligned to the approximate value implied in the Arrangement
Agreement.

48

---

In 2016, impairment charges were recognized in relation to San
Dimas and the Black Fox Complex based on updated life-of-mine plans. In 2015,
impairment charges were recognized in relation to Black Fox Complex based on
declining gold prices and changes in internal mines plans. The 2015 Cerro del
Gallo impairment was based on a decision to delay the construction of the
project due to economic conditions. The impairment charges associated with Black
Fox Complex and Cerro del Gallo have been included in discontinued
operations.

|                               |   | Year ended
      December 31 | 
|------------------------------ | - | ---------------------------- | 
|(in thousands of U.S. dollars) |   | 2017                         | 
|                               |   |                              | 
|San Dimas                      | $ | 303,858                      | 
|Black Fox Complex              |   | 44,963                       | 
|Cerro del Gallo                |   | 50,000                       | 
|                               | $ | 398,821                      | 

Share-based Compensation

Share-based compensation includes amortization on
equity-settled plans and marked-to-market adjustments on the value of units in
the Companys cash-settled plans. The 2017 decrease is attributed to the decline
in the Companys share price and a reduction in the value of grants issued.

General and Administrative Expenses

|                                                |   | Year ended
      December 31 | 
|----------------------------------------------- | - | ---------------------------- | 
|(in thousands of U.S. dollars)                  |   | 2017                         | 
|Salaries and wages                              | $ | 5,053                        | 
|Rent and office costs                           |   | 792                          | 
|Legal, accounting and
      consulting services |   | 2,369                        | 
|Directors fees and expenses                    |   | 1,357                        | 
|Other general and administrative expenses       |   | 1,908                        | 
|                                                | $ | 11,479                       | 

General and administrative expenses were $11.5 million in 2017
compared to $13.5 million in 2016 and $19.0 million in 2015. The decrease in
expenses was primarily due to lower head count and employee related costs in
2017 as compared to 2016 as a result of efforts to reduce spending as part of
the strategic review. The decrease in 2016 expenses from 2015 was primarily due
to lower bonuses recognized in 2016, salaries paid to the former Vancouver
finance team in 2015 and the reduction in the number of executives in 2016.

Other Charges

|                                                                 |   | Year ended December 31 | 
|---------------------------------------------------------------- | - | ---------------------- | 
|(in thousands of U.S. dollars)                                   |   | 2017                   | 
|Legal expenses associated with proceedings in
      Mexico       | $ | 1,103                  | 
|Employee severance payments                                      |   | 2,120                  | 
|Legal and advisory costs relating to
      financing initiatives |   | 647                    | 
|Advisory fees associated with
      strategic review process     |   | 2,023                  | 
|Loss
      on disposition of Cerro del Gallo                     |   | 1,151                  | 
|                                                                 | $ | 7,044                  | 

49

---

Other charges in 2017 include legal expenses associated with
proceedings in Mexico, advisory fees associated with the strategic review
process and severance payments to former employees.

Interest and Finance Expenses

Interest and finance expense increased by $2.5 million in 2017
as compared to 2016, primarily due to the guarantee fee incurred on the
revolving credit facility and higher RCF interest charges. Interest and finance
expenses include accretion costs. Expenses decreased by $2.7 million in 2016
compared to 2015, primarily due to the repayment in full of the 6.5% Convertible
Debentures. Interest and finance expenses include accretion costs.

Mark-to-Market Gain on Convertible Debentures and
Warrants

In June 2016, the Company recognized a warrant liability in
connection with the equity offering which is, along with the 5.75% Convertible
Debenture, measured at fair value and marked-to-market each period based on the
corresponding trading price. The Company recognized a gain of $4.9 million from
the 5.75% Convertible Debentures and $1.0 million from the common share purchase
warrants during 2017 (2016 - $9.0 million gain from the 5.75% Convertible
Debentures and $3.6 million from the common share purchase warrants, 2015 -
$13.5 million gain from the 5.75% Convertible Debenture).

Other income (expense)

Other income (expense) includes foreign exchange gains and
losses, gains on the 6.5% convertible debenture derivative liability and other
items. The Company recorded a foreign exchange loss of $0.1 million in 2017
compared to a loss of $0.2 million in 2016 and $2.8 million gain in 2015.
Foreign exchange gains and losses result primarily from the translation of
Mexican peso denominated and Canadian dollar denominated asset retirement
obligations offset by foreign exchange losses from the peso denominated taxes
receivable. In 2017, the Mexican peso and the Canadian dollar strengthened
relative to the U.S. dollar (the Companys functional currency). In 2016, the
Mexican peso depreciated while the Canadian dollar strengthened relative to the
U.S. dollar (the Companys functional currency). In 2015, both the Mexican peso
and the Canadian dollar depreciated relative to the U.S. dollar.

Income tax expense

|                                         |   | Year ended
      December 31 |  
|---------------------------------------- | - | ---------------------------- | -
|(in thousands of U.S. dollars)           |   | 2017                         |  
|Current tax expense                      |   |                              |  
|Mining royalty at San Dimas              | $ | -                            |  
|Other current tax                        |   | 3,298                        |  
|                                         | $ | 3,298                        |  
|Deferred tax expense
      (recovery)    |   |                              |  
|Withholding tax on intercompany interest | $ | 3,418                        |  
|San Dimas change in tax basis            |   | 909                          |  
|Mining royalty at San Dimas              |   | (12,018                      | )
|Tax on recovery on expiry of warrants    |   | -                            |  
|                                         |   | ($7,691                      | )
|Total                                    |   | ($4,393                      | )

San Dimas pays income taxes based on its Mexican peso financial
statements, which include foreign exchange and other income items (permanent
differences) different than the U.S. dollar reporting financial statements. In
addition, foreign exchange losses are recognized in deferred income tax expense
when the Mexican peso denominated deferred income tax balance is translated to
its U.S. dollar reporting currency. In 2017 this increased deferred tax recovery
by $6.5 million (2016  decrease of $26.6 million, 2015 - $25.4 million). The
increase in San Dimas tax basis reflects the impact of this foreign exchange and
inflation on the San Dimas deferred income tax balances and the impact of higher book to tax depreciation. The volatility
of the exchange rate between the Mexican peso and the U.S. dollar can result in
significant adjustments to deferred tax expense.

50

---

The Companys Mexican operations in 2017 generated a current
tax of $2.1 million in comparison with the current tax expense of $0.1 million
in 2016 and $17.8 million in 2015. In addition, San Dimas current income taxes
have increased because of lower tax depreciation than accounting depreciation.
See Note 15 to the December 31, 2017 consolidated financial statements for a
full reconciliation of annual income taxes at the statutory rate to the income
tax recovery or expense in the statement of operations and comprehensive loss.

The mining royalty is deductible for tax purposes and is
calculated as 7.5% of a royalty base. The royalty base being taxable revenues
for income tax purposes (except interest and inflationary adjustment), less
allowable deductions for income tax purposes (except interest, inflationary
adjustment, depreciation and mining fees), less prospecting and exploration
expenses of the year.

The Company has taken the position that the royalty is an
income tax as it is based on a measure of revenue less certain specified costs.
On substantial enactment, a taxable temporary difference arose, as mining assets
and financial assets/liabilities had a book basis but no tax basis for purposes
of the royalty. The Company has recognized a net deferred tax liability of $7.5
million as at December 31, 2017 in respect of this royalty (2016 - $22.3
million, 2015 - $28.7 million). This deferred tax liability will be drawn down
to $nil as a reduction to tax expense over the life of mine as the mine and its
related assets are depleted/depreciated. In 2017, the liability was reduced by
$14.8 million (2016-$6.4 million, 2015 - $3.9 million).

REVIEW OF OPERATIONS

San Dimas Mine

|                                             |   | Year ended
      December 31 | 
|-------------------------------------------- | - | ---------------------------- | 
|                                             |   | 2017                         | 
|                                             |   |                              | 
|Key Performance Data                         |   |                              | 
|Tonnes of ore mined                          |   | 437,918                      | 
|Tonnes of ore milled                         |   | 444,711                      | 
|Tonnes of ore milled per day                 |   | 1,555                        | 
|Average mill head grade (grams/tonne)        |   |                              | 
|Gold                                         |   | 4.36                         | 
|Silver                                       |   | 296                          | 
|Average gold recovery rate (%
      )        |   |                              | 
|Gold                                         |   | 97%                          | 
|Silver                                       |   | 94%                          | 
|Produced                                     |   |                              | 
|Gold equivalent
      (ounces)               |   | 73,665                       | 
|Gold (ounces)                                |   | 60,167                       | 
|Silver (million
      ounces)                |   | 3.96                         | 
|Sold                                         |   |                              | 
|Gold (ounces)                                |   | 59,481                       | 
|Silver at fixed price (million
      ounces) |   | 3.90                         | 
|Silver at spot
      (million ounces)        |   | -                            | 
|Average realized price (per ounce)           |   |                              | 
|Gold                                         | $ | 1,261                        | 
|Silver1                                      | $ | 4.30                         | 
|Total cash costs (per gold
      ounce)2     |   |                              | 
|Gold equivalent basis                        | $ | 939                          | 
|By product basis                             | $ | 867                          | 
|All in sustaining costs (per
      ounce)3   | $ | 1,216                        | 
|Revenue ($000s)                             | $ | 91,769                       | 
|Earnings from mine operations ($000s)       | $ | 2,169                        | 

51

---

|1. | Average realized silver prices reflect the impact of the silver
  purchase agreement with WPMI (see Other Liquidity Considerations).                                                      
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | See Non-GAAP Measures.                                                                                                                                                                    
|3. | For the purposes of calculating all-in sustaining costs at individual
      mine sites, the Company does not include corporate general and
administrative expenses. See Non-GAAP Measures.

Production during 2017 was impacted by a strike action taken by
unionized employees between February 15, 2017 and April 17, 2017. With a new CBA
in place, a phased restart was initiated on April 22, 2017. San Dimas continued
to implement its production ramp-up plan through the remainder of the year.

Production was also limited in July 2017 due to periods of
inactivity during the negotiation of the 2016 annual workers bonus (PTU
Bonus). Since the conclusion of these negotiations, the site has experienced an
improvement in worker alignment.

Gold equivalent production in 2017 totaled 73,665 ounces, which
consisted of 60,167 gold ounces and 3.96 million silver ounces. This compares to
113,968 gold equivalent ounces produced in 2016 and 189,769 gold equivalent
ounces produced in 2015. Realized head grades in 2017 were 4.36 grams per tonne
of gold and 296 grams per tonne of silver, approximately 11% and 30% higher for
gold and silver, respectively, compared to 2016. The increased head grades were
the result of a specific mining focus on production from the high-quality veins
at San Dimas. However, this did not fully offset the lower availability of
run-of-mine ore during 2017 resulting from the closure of many lower grade
veins, the strike, and low worker productivity during the negotiations for the
annual bonus.

All silver sold during 2017 was delivered to WPMI under the
silver purchase agreement. The threshold limit under the silver purchase
agreement for the 2017 contract year (August 6 of a year to August 5 of the
following year) was 6.0 million ounces of silver. The annual threshold was not
exceeded for the year-ended August 5, 2017. As of December 31, 2017, the Company
has delivered 2.3 million ounces of silver towards the current annual threshold.

Capital expenditures during 2017 were $21.8 million and focused
mainly on underground development. Due to liquidity constraints, exploration
drilling and drifting in 2017 were below historical levels.

Black Fox1(discontinued
operations)

|                                             |   | Year ended December 31 | 
|-------------------------------------------- | - | ---------------------- | 
|                                             |   | 2017                   | 
|Key Performance Data                         |   |                        | 
|Open pit mining                              |   |                        | 
|Tonnes of ore mined                          |   | -                      | 
|Strip ratio                                  |   | -                      | 
|Average gold grade (grams/tonne)             |   | -                      | 
|Underground mining                           |   |                        | 
|Tonnes of ore mined                          |   | 182,889                | 
|Average gold
      grade (grams/tonne)       |   | 6.20                   | 
|Tonnes increase (decrease) in stock pile     |   | 423,361                | 
|Tonnes processed                             |   |                        | 
|Tonnes of ore milled                         |   | 606,250                | 
|Tonnes of ore
      milled per day           |   | 2,221                  | 
|Average mill head grade
      (grams/tonne)  |   | 2.73                   | 
|Average gold
      recovery rate (% )        |   | 96%                    | 
|Produced                                     |   |                        | 
|Gold (ounces)                                |   | 51,209                 | 
|Sold                                         |   |                        | 
|Gold at spot
      price (ounces)            |   | 50,264                 | 
|Gold at fixed price (ounces)                 |   | 4,632                  | 
|Average realized gold
      price2           |   |                        | 
|Gold price (per ounce)                       | $ | 1,199                  | 
|Gold at spot
      price (per ounce)         | $ | 1,251                  | 
|Gold at fixed price (per ounce)              | $ | 531                    | 
|Total cash costs (per gold
      ounce)3     | $ | 750                    | 
|All-in sustaining costs (per
      ounce)4   | $ | 1,031                  | 
|Revenue ($000s)                             | $ | 65,828                 | 
|Earnings (loss) from mine operations (000s) | $ | 18,578                 | 

52

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|1. | The Black Fox Complex has been classified as discontinued operations.                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Average realized gold prices reflect the impact of the gold purchase
      agreement with Sandstorm (see Other Liquidity Considerations).                                                       
|3. | See Non-GAAP Measures.                                                                                                                                                                          
|4. | For the purposes of calculating all-in sustaining costs at individual
      mine sites, the Company does not include corporate general and
      administrative expenses. See Non-GAAP Measures.

The Black Fox mine produced 51,209 ounces of gold in the first
nine-months of 2017, the production period attributable to Primero, with
underground mining focused on the Deep Central Zone.

On October 6, 2017, the Black Fox Complex was sold to McEwen as
part of Primeros strategic review process. All metal production subsequent to
September 30, 2017 is attributable to McEwen.

FINANCIAL CONDITION REVIEW

During the first quarter of 2017, the Company amended the terms
of the RCF to extend its maturity from May 23, 2017 to November 23, 2017 and
exclude all financial covenants until the extended maturity date. The maturity
date was subsequently extended for several short periods in order to facilitate
Primeros ongoing discussions regarding possible strategic transactions. With
the signing of the Arrangement Agreement, the maturity has been extended to the
earliest of the following dates:

| | i.   | The date on which the Arrangement is completed,                                              
| | ---- | ---------------------------------------------------------------------------------------------
| | ii.  | The date that is seven business days after the Arrangement Agreement
      is terminated, and
| | iii. | April 30, 2018                                                                               

The RCF has been guaranteed by WPM. A guarantee fee of $2.7
million was paid in December 2017 for the initial extension period. Subsequent
to this date, as WPM continues to guarantee the RCF and a daily guarantee fee of
approximately $5 thousand continues to accrue.

In 2017, the Board commenced a strategic review process to
explore alternatives to improve shareholder value. This process ultimately
resulted in the sale of the Black Fox Complex in Q4 2017, the sale of the Cerro
del Gallo Project in Q4 2017, and the Arrangement Agreement to sell Primero to
First Majestic, announced on January 12, 2018.

On March 13, 2018, the Arrangement was approved by Primero
shareholders. On March 13, 2018, the holders of the 5.75% convertible debentures
voted to approve an amendment to the maturity date of the debentures to the day
following the closing date of the Arrangement with full principal and accrued
interest paid on this date. The Company is awaiting anti-trust clearance in
Mexico. The Arrangement is expected to close in late April or early May 2018,
subject to applicable regulatory approvals and the satisfaction of other
customary conditions. In the event that the Arrangement does not close by April 30, 2018, the Company will seek an extension of the RCF.

Primero did not generate enough cash from operations to support
its investing activities during 2017. The Company has sufficient cash on hand to
support the business through to the expected close of the arrangement with First
Majestic. If the transaction closes as planned, management believes First
Majestic will have sufficient funding to satisfy all commitments of Primero and
its subsidiaries.

53

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If the Arrangement Agreement with First Majestic is terminated
for any reason, there is significant uncertainty that Primero will have
sufficient funds to repay the full outstanding obligation under the RCF upon
maturity, which would allow the lenders to exercise their rights under the RCF.
The Company notes that any Event of Default under the RCF, unless waived, would
trigger cross default provisions under the 2015 Debentures and the Amended and
Restated Silver Purchase Agreement. This represents a material uncertainty that
casts substantial doubt on the ability of the Company to continue as a going
concern.

Key financial ratios the Company uses to assess financial
capacity are shown in the net asset table below.

|                                                                |   | Year ended December 31 | 
|--------------------------------------------------------------- | - | ---------------------- | 
|(in thousands of U.S. dollars except
      ratios and per share |   |                        | 
|amounts)                                                        |   | 2017                   | 
|                                                                |   |                        | 
|Cash and cash equivalents                                       | $ | 20,966                 | 
|Other current assets                                            |   | 58,340                 | 
|Non-current assets                                              |   | 125,960                | 
|Total assets                                                    | $ | 205,266                | 
|                                                                |   |                        | 
|Current liabilities (excluding current debt)                    | $ | 24,091                 | 
|Non-current liabilities
      (excluding long-term debt)        |   | 43,509                 | 
|Current debt                                                    |   | 30,310                 | 
|Long-term debt                                                  |   | 47,625                 | 
|Total liabilities                                               | $ | 145,535                | 
|                                                                |   |                        | 
|Total shareholders equity                                      | $ | 59,731                 | 
|Total equity                                                    | $ | 59,731                 | 
|                                                                |   |                        | 
|Total common shares
      outstanding1                          |   | 193,045,822            | 
|Total options outstanding1                                      |   | 6,811,316              | 
|Total common share purchase
      warrants outstanding          |   | 11,011,250             | 
|                                                                |   |                        | 
|Key financial ratios                                            |   |                        | 
|Current ratio2                                                  |   | 1.46                   | 
|Total
      liabilities-to-equity3                              |   | 2.44                   | 
|Debt-to-total capitalization4                                   |   | 0.57                   | 

|1. | As at the date of this annual report, the Company had 193,045,822
      common shares outstanding, the total number of options outstanding was
      6,674,325 of which 4,943,920 are exercisable.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Current ratio is calculated as (cash and cash equivalents + other
      current assets) ÷ (current liabilities + current debt).                                                                   
|3. | Total liabilities-to-equity is calculated as total liabilities ÷ total
      equity.                                                                                                              
|4. | Debt-to-total capitalization is calculated as (current debt +
  long-term debt) ÷ (current debt + long-term debt + total equity).                                                                 

The Companys net assets (equity) as at December 31, 2017 were
$60 million compared to $461 million as at December 31, 2016 and $648.9 million
as at December 31, 2015. The current ratio has increased from December 31, 2016
and December 31, 2015 as a result of maintaining cash on hand during the years
and decreased current debt due to additional funds received from the sale of
assets.

NON-GAAP MEASURES

The Company has included certain non-GAAP performance measures
throughout this document. These performance measures are employed by management
to assess the Companys operating and financial performance and to assist in
business decision-making. The Company believes that, in addition to conventional
measures prepared in accordance with GAAP, certain investors and other
stakeholders use this information to evaluate the Companys operating and
financial performance; however, these non-GAAP performance measures do not have
any standardized meaning. Accordingly, these performance measures are intended
to provide additional information and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP.

54

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Cash Costs Per Gold Ounce

The Company has included the non-GAAP performance measures of
total cash costs per gold ounce on a gold equivalent ounce and by-product basis,
throughout this document. The Company reports total cash costs on a production
basis. In the gold mining industry, this is a common performance measure but
does not have any standardized meaning. In presenting cash costs on a production
basis, the Company follows the original recommendations of the Gold Institute
Production Cost Standard. The Company believes that, in addition to conventional
measures prepared in accordance with GAAP, certain investors use this
information to evaluate the Companys performance and ability to generate cash
flow. Accordingly, it is intended to provide additional information and should
not be considered in isolation or as a substitute for measures of performance
prepared in accordance with GAAP. The following table provides a reconciliation
of total cash costs per gold equivalent ounce and total cash costs per gold
ounce on a by-product basis to operating expenses (the nearest GAAP measure) per
the consolidated financial statements.

|                                                                        |   | Year ended December 31 |  
|----------------------------------------------------------------------- | - | ---------------------- | -
|(in thousands of U.S. dollars except for per ounce amounts)             |   | 2017                   |  
|Operating expenses per the
      consolidated financial(1)statements    | $ | 67,280                 |  
|Operating expenses per discontinued operation
      in the consolidated |   |                        |  
|financial statements                                                    |   | 39,982                 |  
|Share-based compensation included in
      operating expenses           |   | (702                   | )
|Inventory movements and adjustments(2)                                  |   | 1,058                  |  
|Total cash operating costs                                              | $ | 107,618                |  
|Ounces of gold produced                                                 |   | 111,376                |  
|Gold equivalent ounces of silver produced                               |   | 13,498                 |  
|Gold equivalent ounces produced                                         |   | 124,874                |  
|Total cash costs per gold equivalent
      ounce                        | $ | 862                    |  
|Total cash operating costs                                              | $ | 107,618                |  
|By-product silver credits                                               |   | (17,039                | )
|Cash costs, net of
      by-product credits                             | $ | 90,579                 |  
|Ounces of gold produced                                                 |   | 111,376                |  
|Total by-product cash costs per gold ounce produced                     | $ | 813                    |  

|(1) | Costs incurred during the strike at San Dimas were excluded in
      calculating operating expenses. These costs consist of non- union labor,
      costs of running the camp, security and fixed costs such as licenses and
      utility tariff charges.             
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                        
|(2) | Inventory adjustments in the year ended December 31, 2016 includes
      additional costs incurred due to the abnormal production level resulting
      from the ground support initiatives and a significant draw down of
      finished goods inventory at San Dimas.

Gold equivalent ounces of silver produced for the San Dimas
Mine are computed as silver ounces produced multiplied by the ratio of the
average realized silver price to the average realized gold price during each
quarter. The computations are shown below.

|                                                      |   | Year ended
      December 31 | 
|----------------------------------------------------- | - | ---------------------------- | 
|                                                      |   | 2017                         | 
|                                                      |   |                              | 
|Silver ounces produced
      (millions) (A)           |   | 3.96                         | 
|Average realized silver price (B)                     | $ | 4.30                         | 
|Average realized gold price
      (C )                | $ | 1,261                        | 
|Gold
      equivalent ounces of silver (A) x (B)/(C ) |   | 13,498                       | 

55

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By-product silver credits are calculated as silver ounces
produced multiplied by the average realized silver price ( (A) X (B) ) in the
table above.

Management uses total cash costs per gold equivalent ounce and
by-product cash costs per gold ounce to monitor the operating performance of its
mines and to assess the attractiveness of potential acquisition targets.
Management also believes these measures provide investors and analysts with
useful information about the Companys underlying cash costs of operations and
the impact of by-product credits on the Companys cost structure is a relevant
metric used to understand the Companys operating profitability and ability to
generate cash flow. When deriving the production costs associated with an ounce
of gold, the Company includes byproduct credits as the Company considers that
the cost to produce the gold is reduced as a result of the by-product sales
supplementary to the gold production process, thereby allowing management and
the Companys other stakeholders to assess the net costs of gold production.

All-in Sustaining Costs per Gold Ounce

The World Gold Council (WGC) guidance notes on non-GAAP
metrics available to companies in the gold industry to use to report their costs
in an effort to encourage improved understanding of the total costs associated
with mining an ounce of gold. The WGC is a market development organization for
the gold industry and is an association whose membership comprises leading gold
mining companies, including Primero. The WGC is not a regulatory industry
organization. The WGC worked with its member companies to develop the definition
of all-in sustaining costs per gold ounce, which it believes to be helpful to
investors, governments, local communities and other stakeholders in
understanding the economics of gold mining.

The Company has adopted the reporting of all-in sustaining
costs per gold ounce. This metric is a non-GAAP performance measure. The
Company reports this measure on a gold ounces produced basis.

The Company presents all-in sustaining costs because it
believes that it more fully defines the total current cost associated with
producing gold. The Company also believes that this measure allows investors and
other stakeholders of the Company to better understand its costs of producing
gold and better assess the Companys ability to generate cash flow from current
operations. Management also uses all-in sustaining costs in evaluating the
efficiency of its operations because it believes that IFRS measures, such as
operating expenses, do not capture all of the costs incurred to discover,
develop, and sustain gold production. As the measure seeks to reflect the full
cost of gold production from current operations, it does not include capital
expenditures attributable to development projects or mine expansions,
exploration and evaluation costs attributable to growth projects, income tax
payments and financing costs. In addition, the calculation of all-in sustaining
costs does not include depreciation and depletion expense as it does not reflect
the impact of expenditures incurred in prior periods. Even though this measure
is not representative of all of the Companys cash expenditures, management
believes that it is a useful measure in allowing it to analyze the efficiency of
its current gold mining operations.

The following table provides a reconciliation of all-in
sustaining costs per gold ounce cash cost, net of by-product credits for year
ended December 31, 2017, 2016 and 2015:

|                                                            |   | Year ended December 31 | 
|----------------------------------------------------------- | - | ---------------------- | 
|(in thousands of U.S. dollars except for per ounce amounts) |   | 2017                   | 
|                                                            |   |                        | 
|Cash costs, net of by-product
      credits                 | $ | 90,579                 | 
|Corporate general and administrative expenses               |   | 15,880                 | 
|Reclamation cost accretion                                  |   | 943                    | 
|Sustaining capital expenditures                             |   | 35,397                 | 
|All-in sustaining
      costs                               | $ | 142,799                | 
|Ounces of gold produced                                     |   | 111,376                | 
|All-in sustaining costs per gold ounce                      | $ | 1,282                  | 

56

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All-in sustaining costs adjust cash costs, net of by-product
credits, for corporate general and administrative expenses, reclamation cost
accretion and sustaining capital expenditures. Corporate general and
administrative expenses are included as a line item on the Companys statement
of operations. Sustaining capital expenditures and reclamation cost accretion
are not line items on the Companys financial statements.

Sustaining capital expenditures are defined as those capital
expenditures which do not increase annual gold ounce production at a mine site
and exclude all expenditures at the Companys projects and certain expenditures
at the Companys operating sites which are deemed expansionary in nature.

Reclamation cost accretion represents the growth in the
Companys decommissioning liability due to the passage of time. This amount does
not reflect cash outflows but it is considered to be representative of the
periodic costs of reclamation and remediation. Reclamation cost accretion is
included in finance expense in the Companys condensed consolidated statements
of operations and comprehensive loss.

The Companys exploration program comprises delineation
drilling, exploration drilling, exploration drifting and regional exploration.
The costs related to delineation drilling, exploration drilling and exploration
drifting are included in all-in sustaining costs. The regional exploration
program is designed to identify new mineral targets on the Companys extensive
land holdings in order to grow production rather than sustain production.

RELATED PARTY TRANSACTIONS

The Companys related parties include its subsidiaries,
associates over which it exercises significant influence, and key management
personnel. During its normal course of operation, the Company enters into
transactions with its related parties for goods and services. The Companys
related party transactions are described in Note 23 to the Companys annual
consolidated financial statements for the year ended December 31, 2017.

ACCOUNTING PRONOUNCEMENTS

The Company continually monitors the issuance by the IASB of
new and revised accounting pronouncements which may have an impact on the
accounting, presentation and disclosure of transactions underlying the Companys
consolidated financial statements. New and revised pronouncements issued which
may have an impact in the future on the Company are described in Note 2 to the
Companys annual consolidated financial statements for the year ended December
31, 2017.

CRITICAL ACCOUNTING POLICIES

The Companys consolidated financial statements are prepared in
accordance with IFRS as issued by the International Accounting Standards Board.
The significant accounting policies applied are described in Note 2 to the
Companys annual consolidated financial statements for the year ended December
31, 2017.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of these financial statements requires
management to make judgments, estimates and assumptions that affect the reported
amounts of revenues, expenses, assets, and liabilities at the date of the
financial statements. If in future such judgements, estimates and assumptions,
which are based on managements experience and knowledge of the relevant facts
and circumstances at the date of the financial statements, deviate materially
from actual circumstances, the original judgements, estimates and assumptions
will be modified as appropriate in the period in which the circumstances change.

57

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a) Accounting Estimates

The significant assumptions about the future and other major
sources of estimation uncertainty as at the end of the reporting period that
have a significant risk of resulting in a material adjustment to the carrying
amounts of the Companys assets and liabilities are as follows:

(i) Estimated Recoverable Reserves and Resources

The Company estimates its Proven Mineral Reserves and Probable
Mineral Reserves and Measured Mineral Resources and Indicated Mineral Resources
and Inferred Mineral Resources based on information compiled by appropriately
qualified persons. Estimated ounces from mineral reserves and resources as well
as estimates for exploration potential are included in the Companys estimation
of future cash flows. These cash flows are based on factors such as estimates of
foreign exchange rates, commodity prices, future capital requirements and
production costs along with geological assumptions and judgments made in
estimating the size and grade of the ore body. Changes in estimated ounces may
impact the carrying value of assets, reclamation and remediation obligations,
recognition of deferred tax amounts, depreciation and depletion, and impairment
charges.

(ii) Determination of Useful Lives of Property, Plant and
Equipment

Property, plant and equipment are depreciated to their
estimated residual value over the estimated useful life of the asset. Should the
actual useful life of the property, plant or equipment vary, future depreciation
charges may change.

(iii) Impairment Charges

Non-current assets are tested for impairment if there is an
indicator of impairment. The impairment analysis generally requires the use of
estimates and assumptions, including amongst others, long-term commodity prices,
discount rates, length of mine life, future production levels, future operating
costs, future capital expenditures and tax estimates. The estimates and
assumptions are subject to risk and uncertainty; hence, there is the possibility
that changes in circumstances will alter these projections, which may impact the
recoverable amount of the assets. In such circumstances the carrying value of
the assets may be impaired or a prior periods impairment charge reversed with
the impact recorded in the statements of operations and comprehensive loss.

(iv) Decommissioning Liability

The Companys accounting policy for the recognition of accrued
site closure costs requires significant estimates and assumptions such as the
requirements of the relevant legal and regulatory framework, the magnitude of
possible disturbance and the timing, extent and costs of required closure,
rehabilitation activity and applicable discount rates. Changes to these
estimates and assumptions may result in actual expenditures in the future
differing from the amounts currently provided. The decommissioning liability is
periodically reviewed and updated based on the available facts and
circumstances.

(v) Income Taxes

The Company is periodically required to estimate the tax basis
of assets and liabilities. Where applicable tax laws and regulations are either
unclear or subject to varying interpretations, it is possible that changes in
these estimates could occur that materially affect the amounts of deferred
income tax assets and liabilities recorded in the financial statements. Changes
in deferred tax assets and liabilities generally have a direct impact on
earnings in the period of change. Each period, the Company evaluates the
likelihood of whether some portion or all of each deferred tax asset will not be
realized. This evaluation is based on historic and future expected levels of
taxable income, the pattern and timing of reversals of taxable temporary timing
differences that give rise to deferred tax liabilities, and tax planning
initiatives. Levels of future taxable income are affected by, among other
things, the market price for gold and silver, production costs, quantities of
proven and probable reserves, interest rates and foreign currency exchange
rates.

58

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(vi) Valuation of Inventory

All inventory, other than supplies, is valued at the lower of
average cost or net realizable value. Management is required to make various
estimates and assumptions to determine the value of stockpiled ore, in-circuit
inventories and doré inventories. The estimates and assumptions include surveyed
quantities of stockpiled ore, in-circuit process volumes, gold and silver
contents of both, costs to recover saleable ounces, recoverable ounces once
processed and the price per ounce of gold or silver when ounces of gold and
silver are expected to be recovered and sold.

vii) Share-based Compensation

The Company makes certain estimates and assumptions when
calculating the fair values of share-based compensation granted. The significant
estimations and assumptions include expected volatility, expected life, expected
dividend rate and risk-free rate of return.

b) Accounting Judgments

The critical judgments that the Companys management have made
that have the most significant effect on the amounts recognized in the Companys
consolidated financial statements are as follows:

(i) Functional Currency

The determination of a subsidiarys functional currency often
requires significant judgment where the primary economic environment in which an
entity operates may not be clear. This can have a significant impact on the
consolidated results of the Company.

(ii) Tax Ruling in Mexico

On October 4, 2012, PEM received a ruling (the APA Ruling)
from the SAT, which confirmed the appropriate price for sales of silver under
the Amended and Restated Silver Purchase Agreement (see note 15 (c) for further
information). Under Mexican tax law, an advance pricing agreement ruling is
generally applicable for up to a five year period (which in the Companys case,
covered the year in which the ruling application was filed, the immediately
preceding year and the three subsequent years). The Companys APA Ruling covered
the five years ended December 31, 2014.

In February 2016, PEM received a legal claim from the Mexican
tax authority seeking to nullify the APA. The legal claim initiated does not
identify any different basis for paying taxes, nor have any tax reassessments
been received from the SAT. The Company intends to vigorously defend the
validity of its APA. The Company has filed procedural and substantive responses
to the claim. The procedural response is a challenge against the admission of
SATs claim. The substantive response contains the Companys response to the
SATs claim. If the SAT is successful in retroactively nullifying the APA, the
SAT may seek to audit and reassess PEM in respect of its sales of silver in
connection with the Silver Purchase Agreement for 2010 through 2014. If SAT is
successful in retroactively nullifying the APA and issuing reassessments, it
would likely have a material adverse effect on the Companys results of
operations, financial condition and cash flows. PEM would have rights of appeal
in connection with any reassessments.

In June 2017, as part of the ongoing annual audits of the PEM
tax returns, the SAT issued an observations letter for the 2010 tax year. An
observations letter is issued to a taxpayer in advance of a reassessment being
issued, provides an outline of the SATs position on matters under audit, and
affords the taxpayer an opportunity to respond to such position in advance of
the reassessment being issued. In this observations letter issued to PEM, the
SAT made explicit its view that PEM should pay taxes based on the market price
of silver which, if successfully applied to its 2010 taxation year, would make
PEM liable for an additional $8.5 million of taxes before penalties or interest.
As the Company continues to defend the APA in the Mexican legal proceeding, the
APA remains valid and the Company will vigorously dispute any reassessment that
may be issued in the future on a basis that assesses taxes on its silver revenues that is inconsistent with the APA. The
observations letter does not represent a tax reassessment and no liability has
been recognized in the financial statements.

59

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In October 2017, the SAT issued an observations letter for the
2011 tax year, with the same explicit view that PEM should pay taxes on the
market price of silver, which if successfully applied to its 2011 taxation year,
would make PEM liable for an additional $23.4 million of taxes before penalties
or interest. The Company has submitted its formal response to both the 2010 and
the 2011 observations letters.

While the Company continues to believe its tax filing position
based upon the APA is correct, should the Company ultimately be required to pay
tax on its silver revenues based on market prices without any mitigating
adjustments, the incremental income tax for the years 2012-2017 would be in the
range of $130 - $145 million, before interest or penalties.

While the Company continues to vigorously defend the validity
of the APA and its transfer pricing position, it is also engaging in dialogue
with the SAT seeking to resolve matters and bring tax certainty through a
negotiated solution. Primero has also had constructive dialogue with the SAT in
relation to outstanding VAT receivables and has received $15.2 million of VAT
refunds since July 2017.

Since January 1, 2015, the Company has continued to record its
revenue from the sale of silver for purposes of Mexican tax accounting in a
manner consistent with the APA, on the basis that the applicable facts and laws
have not changed. The Companys legal and financial advisors continue to believe
that the Company has filed its tax returns compliant with applicable Mexican
law. To the extent the SAT determines that the appropriate price of silver sales
under the Silver Purchase Agreement is significantly different from the realized
price and while PEM would have rights of appeal in connection with any
reassessments, it is likely to have a material adverse effect on the Companys
business, financial condition and results of operations.

|B. | Liquidity and Capital Resources
|-- | -------------------------------

ANALYSIS OF CASH FLOWS FOR THE YEARSENDED
DECEMBER 31, 2017, 2016 AND 2015

Sources and uses of cash

|                                                                      |   | Year ended
      December 31 |  
|--------------------------------------------------------------------- | - | ---------------------------- | -
|(in thousands of U.S. dollars)                                        |   | 2017                         |  
|Cash flow:                                                            |   |                              |  
|Provided by operating
      activities before working capital changes | $ | 22,633                       |  
|Changes in non-cash working capital                                   |   | (82                          | )
|Provided by operating
      activities                                |   | 22,551                       |  
|Used in investing activities                                          |   | 4,518                        |  
|Provided by financing activities and other                            |   | (25,978                      | )
|Increase (decrease) in cash                                           | $ | 1,091                        |  

Operating activities

Primeros cash flows from operating activities before working
capital changes were higher in 2017 compared to 2016 as a result of lower taxes
paid in relation to San Dimas, partially offset by lower cash earnings from
operations due to the impact of the strike at San Dimas. The decrease in 2016
from 2015 was due to lower gold production and sales at both San Dimas and Black
Fox and significantly higher income tax installments by PEM compared to 2015.

Changes in non-cash working capital were a cash outflow of $0.1
million in 2017 compared with $2.2 million in 2016 and $1.5 million in 2015. The
cash outflow during the year was mainly due to a reduction in trade and other
payables, largely offset by a decrease in value added and
income tax receivable. At the end of 2017 the Company has $22 million of VAT and
$19 million of income taxes pending for refund.

60

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Investing activities

Cash used in investing activities are mostly capital
expenditures as shown in the table below.

|                                           |   | Year ended
      December 31 | 
|------------------------------------------ | - | ---------------------------- | 
|(in millions of U.S. dollars)              |   | 2017                         | 
|Capital Expenditures                       |   |                              | 
|San Dimas Underground
      Development    | $ | 15.0                         | 
|San Dimas Sustaining Capital               |   | 2.5                          | 
|San Dimas Projects                         |   | -                            | 
|San Dimas Sub Total                        | $ | 17.5                         | 
|Black Fox Underground
      Development    |   | 9.9                          | 
|Black Fox Sustaining Capital               |   | 1.5                          | 
|Black Fox Projects                         |   | -                            | 
|Black Fox Complex Sub Total                | $ | 11.4                         | 
|Cerro del Gallo Development                |   | -                            | 
|Total Capital Expenditures                 | $ | 28.9                         | 
|                                           |   |                              | 
|Capitalized Exploration Expenditures       |   |                              | 
|San Dimas Diamond Drilling                 | $ | 3.8                          | 
|San Dimas Drifting                         |   | 0.5                          | 
|San Dimas Regional Diamond Drilling        |   | -                            | 
|San Dimas Sub Total                        | $ | 4.3                          | 
|Black Fox Diamond Drilling                 |   | 3.0                          | 
|Regional Exploration                       |   | 0.5                          | 
|Black Fox Complex Sub Total                | $ | 3.5                          | 
|Total Capitalized Exploration Expenditures | $ | 7.8                          | 
|TOTAL CAPITAL EXPENDITURES                 | $ | 36.7                         | 

San Dimas capital spending during 2017 focused on underground
development. In order to conserve cash, the capital plan for San Dimas
prioritized only the expenditures required to maintain current operating levels
for the current year. The majority of exploration activity aimed at new reserve
generation was deferred.

Prior to the sale of the Black Fox Complex, Black Fox capital
spending mainly relating to underground development costs in the Deep Central
Zone. The Company closed the Black Fox sale transaction on October 6, 2017.

Financing Activities

During 2017, Primero drew down $25.0 million under the RCF.
Following the sales of the Black Fox Complex and the Cerro del Gallo Project,
the net proceeds were applied against the outstanding RCF reducing the
outstanding balance to $30.2 million as at December 31, 2017. The total net
repayment against the RCF for the 2017 year was $19.8 million.

During 2016, the Company repaid in full the $48.1 million
outstanding balance of the 6.5% Convertible Debentures assumed on the
acquisition of Brigus Gold Corp. using $50.0 million drawn on the RCF. The
Company completed an equity offering pursuant to which the Company issued
22,022,500 Units of the Company at a price of C$2.35 per Unit for aggregate
gross proceeds of C$51,752,875. Each Unit consisted of one common share of
Primero and one-half of one common share purchase warrant of the Company. Each
whole warrant entitles the holder to acquire one common share of the Company at
a price of C$3.35 per common share until June 25, 2018.

61

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Debt

|                                      |   | As at             |  |   | As at             |  |   | As at             | 
|------------------------------------- | - | ----------------- |  | - | ----------------- |  | - | ----------------- | 
|(in thousands of U.S. dollars)        |   | December 31, 2017 |  |   | December 31, 2016 |  |   | December 31, 2015 | 
|Current debt                          |   |                   |  |   |                   |  |   |                   | 
|Revolving credit facility
      (RCF) | $ | 30,201            |  | $ | 49,639            |  | $ | -                 | 
|6.5% convertible debentures           |   | -                 |  |   | -                 |  |   | 47,751            | 
|Finance lease liabilities             |   | 109               |  |   | 1,202             |  |   | 4,666             | 
|Total current debt                    |   | 30,310            |  |   | 50,841            |  |   | 52,417            | 
|Long-term debt                        |   |                   |  |   |                   |  |   |                   | 
|5.75% convertible debentures          | $ | 47,625            |  | $ | 52,500            |  | $ | 61,500            | 
|Finance lease liabilities             |   | -                 |  |   | 406               |  |   | 1,227             | 
|Total long-term debt                  |   | 47,625            |  |   | 52,906            |  |   | 62,727            | 
|Total debt                            | $ | 77,935            |  | $ | 103,747           |  | $ | 115,144           | 

Shareholders Equity

Shares Issued

During the year ended December 31, 2017, the Company issued
2,543,773 common shares for the settlement of vested PSUs under the 2013 PSU
Plan and the Directors PSU Plan; 993,684 common shares for severance and other
employee payments.

Outstanding Share Data

As at December 31, 2017, the Company had 193,045,822 common
shares outstanding (189,508,365 as at December 31, 2016, 164,185,807 as at
December 31, 2015). As at the date of this MD&A, the Company had 193,045,822
common shares outstanding.

Options

As at December 31, 2017, the Company had 6,811,316 options
outstanding with a weighted average exercise price of C$3.04; of these 4,048,197
were exercisable at a weighted average exercise price of C$4.13. As at the date
of this MD&A, the total number of options outstanding was 6,674,325, of
which 4,338,184 are exercisable.

Common Share Purchase Warrants

As at December 31, 2016, the Company had 11,011,250 common
share purchase warrants outstanding. Each warrant entitles the holder to acquire
one common share of the Company at an exercise price of $3.35 until its expiry
date of June 25, 2018.

PSUs Exercisable into Common Shares

As at December 31, 2017 and the date of this MD&A, the
Company had 74,627 Directors PSUs outstanding which vested on December 1, 2017
for which settlement is pending the closing of the arrangement with First
Majestic. Pursuant to the Arrangement Agreement each Directors PSU outstanding
immediately before completion of the arrangement shall be deemed to be fully
vested and each holder thereof shall be paid a cash payment in an amount equal
to $0.30 per Directors PSU. A director holding Director PSUs would otherwise be
entitled to elect to receive, at vesting either (1) a cash amount equal to the
number of Director PSUs that vest multiplied by the volume weighted average
trading price per common share over the five preceding trading days, (2) the
number of common shares equal to the number of Directors PSUs (subject to the
total number of common shares issuable at any time under the Directors PSU
Plan, combined with all other common shares issuable under any other equity compensation arrangements then in place, not exceeding 10% of
the total number of issued and outstanding common shares of the Company), or (3)
a combination of cash and shares. If no election is made, the Company will pay
out such Directors PSUs in cash.

62

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As at December 31, 2017 and the date of this MD&A, the
Company had 5,182,621 PSUs outstanding under the 2013 PSU Plan (2013 PSUs),
which, by their terms, would vest and expire between February 18, 2017, and
December 31, 2020. Pursuant to the Arrangement Agreement, however, each 2013 PSU
outstanding immediately before completion of the arrangement shall be deemed to
be fully vested and each holder thereof shall be paid a cash payment in an
amount equal to $0.30 per 2013 PSU. A person holding 2013 PSUs would otherwise
entitled to receive at vesting, at the Companys option, either (1) a cash
amount equal to the number of 2013 PSUs that vest multiplied by the volume
weighted average trading price per common share over the five preceding trading
days, (2) the number of common shares equal to the number of 2013 PSUs (subject
to the total number of common shares issuable at any time under the 2013 PSU
Plan, combined with all other common shares issuable under any other equity
compensation arrangements then in place, not exceeding 10% of the total number
of issued and outstanding common shares of the Company) or (3) a combination of
cash and shares.

Deferred Share Units

As at December 31, 2017 and the date of this annual report, the
Company had 315,790 deferred share units (DSUs) outstanding under the deferred
share unit plan which vest between May 25, 2015 and May 25, 2020. Pursuant to
the Arrangement Agreement each DSU outstanding immediately before completion of
the arrangement shall be deemed to be fully vested and each holder thereof shall
be paid a cash payment in an amount equal to $0.30 per DSU. A person holding
DSUs under this plan would otherwise be entitled to receive at vesting, either a
cash payment equal to the redemption value of the DSUs, shares issued from
treasury equal to the number of DSUs, shares purchased on the stock exchange, or
any combination of these, such that the cash payment plus number of shares
delivered have a value equal to the redemption value of the DSUs. The choice of
settlement is solely at the Companys discretion. The redemption value is
calculated by the number of DSUs redeemed multiplied by the weighted average
price per share traded on the TSX over the last five trading days preceding the
redemption date.

Cash requirements

The following table summarizes the contractual maturities of
the Companys financial liabilities and operating and capital commitments:

As atDecember 31, 2017
    
    
    As at
    
    
    As atDec. 31, 2016
    
    
    Dec. 31, 2015Within 1
    
    
    2-5
    
    
    Over 5
    
    
    Total
    
    
    Total
    
    
    Total(in thousands of U.S. dollars)
    
    year
    
    
    years
    
    
    yearsTrade and other payables and
      accrued liabilities
    $
    19,593
    
    $
    -
    
    $
    -
    
    $
    19,593
    
    $
    31,667
    
    $
    44,307Share based payments
    
    71
    
    
    -
    
    
    -
    
    
    71
    
    
    115
    
    
    6616.5% Convertible debentures
      and interest
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    
    
    
    49,6805.75% Convertible debentures and interest
    
    4,313
    
    
    80,010
    
    
    -
    
    
    84,323
    
    
    88,635
    
    
    92,959Revolving line of credit and
      interest
    
    30,657
    
    
    -
    
    
    -
    
    
    30,657
    
    
    50,811
    
    
    -Finance lease payments
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,608
    
    
    5,893Minimum rental and operating
      lease payments
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    3,218
    
    
    3,630Reclamation and closure cost obligations
    
    -
    
    
    5,004
    
    
    25,711
    
    
    30,715
    
    
    50,173
    
    
    60,637Commitment to purchase plant and equipment
    
    122
    
    
    -
    
    
    -
    
    
    122
    
    
    516
    
    
    5,689Total
    $
    54,756
    
    $
    85,014
    
    $
    25,711
    
    $
    165,481$
    
    
    226,743
    
    $
    263,456


63

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Other Liquidity Considerations

APA Ruling

In February 2016 the Mexican tax authority, the SAT, initiated
a proceeding seeking to nullify the APA which it issued to the Company in 2012.
The APA confirmed the Companys basis for paying taxes on the price it realized
for certain silver sales between 2010 to 2014. If the SATs challenge is
successful it is likely to have a material adverse effect on the Companys
business, financial condition and results of operations.

In June 2017, as part of the ongoing annual audits of the PEM
tax returns, the SAT issued an observations letter for the 2010 tax year. An
observations letter is issued to a taxpayer in advance of a reassessment being
issued, provides an outline of the SATs position on matters under audit, and
affords the taxpayer an opportunity to respond to such position in advance of
the reassessment being issued. In this observations letter issued to PEM, the
SAT made explicit its view that PEM should pay taxes based on the market price
of silver which, if successfully applied to its 2010 taxation year, would make
PEM liable for an additional $8.5 million of taxes before penalties or interest.
As the Company continues to defend the APA in the Mexican legal proceeding, the
APA remains valid and the Company will vigorously dispute any reassessment that
may be issued in the future on a basis that assesses taxes on its silver
revenues that is inconsistent with the APA. The observations letter does not
represent a tax reassessment and no liability has been recognized in the
financial statements.

In October 2017, the SAT issued an observations letter for the
2011 tax year, with the same explicit view that PEM should pay taxes based on
the market price of silver, which if successfully applied to its 2011 taxation
year, would make PEM liable for an additional $23.4 million of taxes before
penalties or interest. The Company has submitted formal responses to both the
2010 and 2011 observation letters.

While the Company continues to believe its tax filing position
based upon the APA is correct, should the Company ultimately be required to pay
tax on its silver revenues based on market prices without any mitigating
adjustments, the incremental income tax for the years 2012-2017 would be in the
range of $130 - $145 million, before interest or penalties.

The Company vigorously defends the validity of the APA and has
filed procedural and substantive responses to the claim. In addition, the
Company intends to explore opportunities to minimize the potential impact on the
Company in the event that the SAT is successful in its legal claim to nullify
the APA, but there is no assurance that the Company will find or be able to
implement a reasonable solution.

While the Company continues to vigorously defend the validity
of the APA and its transfer pricing position, it is also engaging in dialogue
with the SAT seeking to resolve matters and bring tax certainty through a
negotiated solution. Primero has also had constructive dialogue with SAT in
relation to outstanding VAT receivables and has received $15.2 million of VAT
refunds since July 2017.

Other

In 2016, the Company and certain officers were served with a
class action lawsuit that was filed earlier in the year in federal court in the
State of California seeking to recover damages for investors in the Companys
common shares under the U.S. federal securities laws. On July 14, 2017, the
Companys motion to dismiss the amended complaint was granted and the
plaintiffs claims were dismissed without prejudice. The plaintiff filed a
notice of appeal of the dismissal order on September 8, 2017. The parties have
filed their briefs in this appeal and a ruling on the appeal is expected
sometime in 2018. The Company intends to vigorously defend this class action
lawsuit.

In the observations letters for both the 2010 and 2011 tax
years the SAT raised queries with respect to certain intercompany transactions
and the Company has provided the pertinent information for 2010 and 2011. The
observations letters do not represent a tax reassessment and no liability has
been recognized in the financial statements.

64

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Dividend Report and Policy

The Company has not paid any dividends since incorporation and
currently has no plans to pay dividends.

Capital management

The Companys primary objective in managing capital is to
ensure sufficient liquidity through the conclusion of the Arrangement Agreement
with First Majestic.

The Companys capital items are the following:

|                                  |   | December 31 |  |  | December 31 |  |   | December 31 | 
|--------------------------------- | - | ----------- |  |  | ----------- |  | - | ----------- | 
|(in thousands of U.S. dollars)    |   | 2017        |  |  | 2016        |  |   | 2015        | 
|Cash and cash equivalents         | $ | 20,966$     |  |  | 19,875      |  | $ | 45,601      | 
|Undrawn revolving credit facility |   | 4,799       |  |  | 25,000      |  |   | 75,000      | 
|Current debt                      |   | 30,310      |  |  | 50,841      |  |   | 52,417      | 
|Long-term debt                    |   | 47,625      |  |  | 52,906      |  |   | 62,727      | 
|Shareholders equity              |   | 59,731      |  |  | 461,130     |  |   | 648,876     | 

To support the Companys capital management objectives, the
Company manages its capital structure and makes adjustments to it within the
context of the Companys strategy, economic conditions and risk characteristics
of its underlying assets. To maintain or adjust its capital structure, the
Company may attempt to issue shares, adjust the amount of debt or enter into new
debt. The Company does not currently pay out dividends. Utilization of the
undrawn RCF requires consent from WPM.

As at December 31, 2017, the Company was not subject to any
financial covenants and was in compliance with all non-financial covenants.

FINANCIAL INSTRUMENTS

The Companys financial instruments at December 31, 2017
consist of cash and cash equivalents, restricted cash, trade and other
receivables, an equity investment in Fortune Bay, trade and other payables, and
debt.

At December 31, 2017, the carrying amounts of cash and cash
equivalents, restricted cash, trade and other receivables, trade and other
payables and the RCF are considered to be a reasonable approximation of their
fair values due to their short-term nature. The fair value of the financial
lease liabilities approximate their carrying value as the interest rate implicit
in the leases approximate current market rates.

Derivative Instruments - Embedded Derivatives

Financial instruments and non-financial contracts may contain
embedded derivatives, which are required to be accounted for separately at fair
value as derivatives when the risks and characteristics of the embedded
derivatives are not closely related to those of their host contract and the host
contract is not carried at fair value. The Company regularly assesses its
financial instruments and non-financial contracts to ensure that any embedded
derivatives are accounted for in accordance with its policy. There were no
material embedded derivatives requiring separate accounting at December 31,
2017, December 31, 2016, or December 31, 2015 other than those discussed below.

The convertible debentures assumed with the acquisition of
Brigus were considered to contain an embedded derivative liability which was
initially recognized at fair value using an option pricing model, and was
subsequently measured at fair value each period during the term of the
debentures.

The 5.75% convertible debentures issued by the Company on
February 9, 2015 (Note 10 (c)) are considered to contain multiple embedded
derivatives. These debentures and all related derivatives were accounted for as
one instrument which was initially recognized at fair value and
will subsequently be measured at fair value for each period during the term of
the debentures. During the year ended December 31, 2017 a mark to market gain of
$4.9 million (2016  $9.0 million, 2015 - $13.5 million) was recognized in
relation to the debentures.

65

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The common share purchase warrants issued by the Company on
June 24, 2016 are considered derivative liabilities and were initially
recognized at fair value and are subsequently measured at fair value during the
term of the warrants. During the year ended December 31, 2017, a mark-to-market
gain of $1.0 million (2016 - $3.6 million, 2015 - $nil) was recognized in
relation to the common share purchase warrants.

Fair value measurements of financial assets and liabilities
recognized on the Consolidated Statements of Financial Position

The categories of the fair value hierarchy that reflect the
significance of inputs used in making fair value measurements are as follows:

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

The levels in the fair value hierarchy by which the Companys
financial assets and liabilities are measured and recognized at fair value on a
recurring basis are as follows:

|                                      |   | December 31 |  |   | December 31 |  |   | December 31 | 
|------------------------------------- | - | ----------- |  | - | ----------- |  | - | ----------- | 
|Level 1(in thousands of U.S. dollars) |   | 2017        |  |   | 2016        |  |   | 2015        | 
|Investment in Fortune Bay
      (1)   | $ | 910         |  | $ | 1,160       |  | $ | 525         | 
|5.75% convertible debentures (2,3)    |   | 47,625      |  |   | 52,500      |  |   | 61,500      | 
|Warrant liability (2)                 |   | 44          |  |   | 1,066       |  |   | -           | 

|(1) | Fortune Bay is a publicly-listed company and the fair value is based
      on the trading price of its shares as at the date of the statement of
      financial position.                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The fair value of the 5.75% convertible debentures and warrant
      liability are calculated using the market price on the TSX as at the date
      of the statement of financial position.                                                                            
|(3) | On March 13, 2018, the holders of the 5.75% convertible debentures
      voted to approve an amendment to the maturity date of the debentures to
      the day following the closing date of the Arrangement with full principal
      of $75 million paid on this date.

At December 31, 2017, there were no financial assets or
liabilities measured and recognized on the consolidated statements of financial
position at fair value that would be categorized as Level 3 in the fair value
hierarchy (December 31, 2016  $nil, December 31, 2015 - $nil).

Financial Instruments Risk

The following describes the types of financial instrument risks
to which the Company is exposed and its objectives and policies for managing
those risk exposures:

Credit Risk

Credit risk is the risk that the counterparty to a financial
instrument will cause a financial loss for the Company by failing to discharge
its obligations. Credit risk is primarily associated with trade and other
receivables; however, it also arises on cash and cash equivalents and restricted
cash. To mitigate exposure to credit risk on financial assets, the Company
ensures non-related counterparties demonstrate minimum acceptable credit
worthiness and ensures liquidity of available funds.

The Company closely monitors its financial assets and does not
have any significant concentration of credit risk with non-related parties. The
Company invests its cash and cash equivalents in highly rated financial
institutions and sells its products exclusively to organizations with strong credit
ratings. The credit risk associated with trade receivables at December 31, 2017
is considered to be negligible. The Company expects the outstanding value added
tax receivable from the Mexican tax authorities to be refunded or be offset
against future tax payments. Approximately $15.2 million was refunded since July
2017.

66

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The Companys maximum exposure to credit risk at December 31,
2017, 2016, and 2015 is as follows:

|(in thousands of U.S. dollars)           |   | 2017   |  |   | 2016   |  |   | 2015   | 
|---------------------------------------- | - | ------ |  | - | ------ |  | - | ------ | 
|Cash and restricted cash                 | $ | 20,966 |  | $ | 24,452 |  | $ | 51,521 | 
|Trade and other receivables              |   | 1,241  |  |   | 1,962  |  |   | 1,793  | 
|Current and non-current taxes receivable |   | 40,789 |  |   | 41,838 |  |   | 30,689 | 
|                                         | $ | 62,996 |  | $ | 68,252 |  | $ | 84,003 | 

Liquidity Risk

Liquidity risk is the risk that the Company will encounter
difficulty in meeting obligations associated with its financial liabilities that
are settled by delivering cash or another financial asset. The Companys
objectives and key guidelines for capital management, including management of
long-term debt, are described in note 21 to the Companys annual consolidated
financial statements for the year ended December 31, 2017.

If the Arrangement Agreement to sell the Company to First
Majestic is terminated for any reason, there would be significant uncertainty as
to whether the Company could discharge its commitments as they come due from
cash from operations and collection of receivables without an extension of the
RCF maturity date or other form of re-financing.

The table below shows the Companys liquidity risk profile at
December 31, 2017:

|                                                     |   | Within 1 |   |   | 2-5      |   |   |           |  
|---------------------------------------------------- | - | -------- | - | - | -------- | - | - | --------- | -
|(in thousands of U.S. dollars)                       |   | year     |   |   | years    |   |   | Total     |  
|                                                     |   |          |   |   |          |   |   |           |  
|Cash and cash equivalents                            | $ | 20,966   |   | $ | -        |   | $ | 20,966    |  
|Trade and other payables                             |   | (19,593  | ) |   | -        |   |   | (19,593   | )
|Revolving credit facility
      balance and interest |   | (30,657  | ) |   | -        |   |   | (30,657   | )
|Finance lease liabilities                            |   | (109     | ) |   | -        |   |   | (109      | )
|5.75% Convertible debentures and interest            |   | (4,313   | ) |   | (80,010  | ) |   | (84,323   | )
|Total                                                |   | ($33,706 | ) |   | ($80,010 | ) |   | ($113,716 | )

Refer to note 2(b) to the Companys annual consolidated
financial statements for the Companys plans to address liquidity risk
associated with the current working capital deficiency. The Company has entered
into commercial leases on certain types of equipment and office space which have
been classified as operating leases. These leases have terms of between 1 and 6
years. There are no restrictions placed on the Company as a result of entering
into these leases. Some of the leases contain renewal or purchase options at the
end of the lease. The total operating lease expense from continuing operations
during the year ended December 31, 2017 was $0.9 million (2016 - $0.8 million,
2015 - $1.2 million).

Market Risk

(i) Currency Risk

Currency risk is the risk that the fair values or future cash
flows of the Companys financial instruments will fluctuate because of changes
in foreign currency exchange rates. Exchange rate fluctuations may affect the
costs incurred in the Companys operations. Gold is sold in U.S. dollars and
costs are incurred principally in U.S. dollars, Canadian dollars and Mexican
pesos. The appreciation of the Mexican peso or the Canadian dollar against the
U.S. dollar can increase the costs of gold production and capital
expenditures in U.S. dollar terms. The Company also holds cash that is
denominated in Canadian dollars and Mexican pesos which are subject to currency
risk. The Companys head office general and administrative expenses are mainly
denominated in Canadian dollars and are translated to U.S. dollars at the
average rate during the period and as such if the U.S. dollar appreciates as
compared to the Canadian dollar, the costs of the Company would decrease in U.S.
dollar terms. The Company is further exposed to currency risk through
non-monetary assets and liabilities of its Mexican entities whose taxable profit
or loss is denominated in a non-U.S. dollar currency. Changes in exchange rates
give rise to temporary differences resulting in a deferred tax liability or
asset with the resulting deferred tax charged or credited to income tax expense.

67

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During the year ended December 31, 2017, the Company recognized
a loss of $4.5 million on foreign exchange (2016  loss of $1.0 million, 2015 
gain of $0.1 million). Based on the above net exposures at December 31, 2017, a
10% depreciation or appreciation of the Mexican peso against the U.S. dollar
would result in a $1.6 million increase or decrease in the Companys before-tax
net loss from continuing operations (2016 - $1.4 million, 2015 - $0.03 million);
and a 10% depreciation or appreciation of the Canadian dollar against the U.S.
dollar would result in a $0.2 million increase or decrease in the Companys
before-tax net loss from continuing operations (2016 - $2.7 million, 2015 - $1.6
million).

The Company does not currently use derivative instruments to
reduce its exposure to currency risk, however, management monitors its differing
currency needs and tries to reduce its exposure to currency risks through
exchanging currencies at what are considered to be optimal times.

(ii) Interest Rate Risk

Interest rate risk is the risk that the fair values and future
cash flows of the financial instruments will fluctuate because of changes in
market interest rates. The exposure to interest rates is monitored. The
Companys exposure to interest rate risk is limited to the revolving credit
facility which is subject to a floating interest rate. An increase or decrease
of 100 basis points in the interest rate would result in a decrease or increase
in profit before tax of $0.3 million (assuming $30.2 million drawn on the line
of credit).

(iii) Price Risk

Price risk is the risk that the fair value or future cash flows
of the Companys financial instruments will fluctuate because of changes in
commodity prices. Profitability depends on sales prices for gold and silver.
Metal prices are affected by numerous factors such as the sale or purchase of
gold and silver by various central banks and financial institutions, interest
rates, exchange rates, inflation or deflation, fluctuations in the value of the
U.S. dollar and foreign currencies, global and regional supply and demand, and
the political and economic conditions of major producing countries throughout
the world.

The table below summarizes the impact on profit before-tax for
a 10% change in the average commodity price achieved by the Company during the
year. The analysis is based on the assumption that the gold and silver prices
move 10% with all other variables held constant.

|(in thousands of U.S. dollars) |   | 2017    |   |   | 2016    |   |   | 2015    |  
|------------------------------ | - | ------- | - | - | ------- | - | - | ------- | -
|Gold price                     |   |         |   |   |         |   |   |         |  
|10% increase                   | $ | 14,081  |   | $ | 14,084  |   | $ | 18,091  |  
|10% decrease                   |   | (14,081 | ) |   | (14,084 | ) |   | (18,091 | )
|Silver price                   |   |         |   |   |         |   |   |         |  
|10% increase                   | $ | -       |   | $ | 222     |   | $ | 938     |  
|10% decrease                   |   | -       |   |   | (222    | ) |   | (938    | )

68

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|C. | Research and Development, Patents and Licenses, etc.
|-- | ----------------------------------------------------

Primero does not carry out any research and development
activities. Please refer to Item 5A and Item 5B above for a discussion of the
expenditures that the Company has incurred in connection with its business
activities.

|D. | Trend Information
|-- | -----------------

Trends that are considered by Primero to be reasonably likely
to have a material effect on our results of operations are discussed under
Operating Results in Item 5.A and Liquidity and Capital Resources in Item
5.B. Further, financial and operational risks discussed under Risk Factors in
Item 3.D could materially affect the Companys future operating results and
could impair business operations. If any of these events actually occur, our
business, prospects, financial condition, cash flows and operating results could
be materially impacted.

|E. | Off-Balance Sheet Arrangements
|-- | ------------------------------

The Company does not have any off-balance sheet arrangements,
other than the potential availability of the undrawn $4.8 million under the RCF.
The Company is not anticipating drawing down the remaining balance since it has
entered into the Arrangement Agreement with First Majestic.

|F. | Tabular Disclosure of Contractual Obligations
|-- | ---------------------------------------------

The following table outlines the current obligations of the
Company as of December 31, 2017:

Payments due by periodContractual
      Obligations(in thousands of U.S.dollars)
    
    Total
    
    
    < 1 year
    
    
    1  3 years
    
    
    3  5 years
    
    
    > 5 yearsTrade and other payables and
      accrued liabilities
    
    19,593
    
    
    19,593
    
    
    -
    
    
    -
    
    
    -Share based payments
    
    71
    
    
    71
    
    
    -
    
    
    -
    
    
    -5.75% Convertible debentures
      and interest
    
    84,323
    
    
    4,313
    
    
    80,010
    
    
    -
    
    
    -Revolving line of credit and interest
    
    30,657
    
    
    30,657
    
    
    -
    
    
    -
    
    
    -Reclamation and closure cost
      obligations
    
    30,715
    
    
    -
    
    
    5,004
    
    
    -
    
    
    25,711Commitment to purchase plant and equipment
    
    122
    
    
    122
    
    
    -
    
    
    -
    
    
    -Total
    
    165,481
    
    
    54,756
    
    
    85,014
    
    
    -
    
    
    25,711


|G. | Safe Harbor
|-- | -----------

Certain statements contained in
the foregoing operating results and elsewhere in this annual report on Form 20-F
constitutes forward-looking statements. Such forward-looking statements involve
a number of known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of Primero to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date the statements were made, and readers are advised to
consider such forward-looking statements in light of the risks set forth below.
See Introductory NotesCautionary Statements about Forward-Looking Statements.

69

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Risk factors that could affect
our future results include, but are not limited to, risks inherent in mineral
exploration activities and other operating and development risks, financial
risk, shareholder dilution from additional equity financings, competition,
environmental regulations, changes to reclamation requirements, volatility and
sensitivity to market prices for precious and base metals, the impact of changes
in foreign currencies exchange rates, political risk, changes in government
regulation and policies including trade laws and policies, demand for precious
and base metals, and receipt of permits and approvals from governmental
authorities.

|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- | ------------------------------------------

|A. | Directors and Senior Management
|-- | -------------------------------

The following table is as of the
date of this annual report and sets out the name, province/state of residence,
positions and/or offices held with the Company, and principal occupations of
each person who is a director and/or an executive officer of the Company, as
well as the period during which each person, if applicable, has been a director
of the Company.

The term of office of each
director of the Company ends immediately before the election of directors at the
annual meeting of shareholders each year.

Name and Residence
    Age
    Position(s) with theCompany
    PrincipalOccupation
    Director SinceJOSEPH CONWAY(1)(2)Ontario, Canada
    60
    Vice Chairman, Interim President and
      Chief Executive Officer
    Vice Chairman, Interim President and
      Chief Executive Officer
    June 28, 2010DAVID DEMERS(3)(4)British Columbia,
      Canada
    62
    Director
    Consultant, Crocus Advisors Ltd.
    October 29, 2008GRANT EDEY (2) (4) (5)Ontario, Canada
    68
    Director
    Corporate Director
    June 28, 2010PATRICIA A. FORTIER(2)(4)(6)Ontario,
      Canada
    63
    Director
    Former Canadian diplomat
    November 1, 2016BRAD MARCHANT (2)(5)British Columbia,
      Canada
    61
    Director
    Corporate Director
    June 26, 2013WADE NESMITH British Columbia, Canada
    66
    Chairman and Director
    Chairman of the Company
    October 29, 2008ROBERT A. QUARTERMAIN (2)(3)British
      Columbia, Canada
    63
    Director
    Executive Chairman and Director of
      Pretium Resources Inc.
    June 28, 2010MICHAEL RILEY(3)(5)British Columbia,
      Canada
    66
    Director
    Corporate Director
    April 22, 2010


70

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Name and Residence
    Age
    Position(s) with
      the Company
    Principal
      Occupation
    Director SinceTAMARA BROWN(1)Ontario,
      Canada
    45
    Vice President, Corporate
      Development
    Vice President, Corporate
      Development of the Company
    N/AH. MAURA LENDON(1)Ontario,
      Canada
    55
    Chief General Counsel and
      Corporate Secretary
    Chief General Counsel and
      Corporate Secretary of the Company
    N/AJAMES MALLORY, Ontario, Canada
    59
    Vice President, Corporate
      Responsibility
    Vice President, Corporate
      Responsibility
    N/ADAMIEN MARANTELLI(1)Ontario,
      Canada
    57
    Chief Operating Officer
    Chief Operating Officer of
      the Company
    N/ARYAN SNYDER(1)(7)Ontario,
      Canada
    35
    Chief Financial Officer
    Chief Financial Officer of
      the Company
    N/ALOUIS TONER Quebec, Canada
    58
    Vice President, Project
      Development and Construction
    Vice President, Project
      Development and Construction
N/A


|(1) | Member of the Disclosure Committee.                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Member of the Technical and Corporate Responsibility Committee,
      formerly known as the Corporate Responsibility Committee. Mr. Conway was
      appointed to the Technical Corporate Responsibility Committee on February
      17, 2016. Mr. Marchant is the Chair of the Technical and Corporate
      Responsibility Committee.
|(3) | Member of the Human Resources Committee. Mr. Quartermain is the Chair
      of the Human Resources Committee.                                                                                                                                                                                                                          
|(4) | Member of the Governance and Nominating Committee. Mr. Demers is the
      Chair of the Governance and Nominating Committee.                                                                                                                                                                                                           
|(5) | Member of the Audit Committee. Mr. Riley is the Chair of the Audit
      Committee.                                                                                                                                                                                                                                                    
|(6) | Ms. Fortier was appointed to the Governance & Nominating Committee
      and the Technical and Corporate Responsibility Committee, effective
      November 1 and ratified by the Board on November 8, 2016.                                                                                                                           
|(7) | Mr. Snyder was promoted to the role of Chief Financial Officer
      effective September 15, 2017.                                                                                                                                                                                                                                     

Principal Occupations and Other Information about Primeros
Directors and Executive Officers

The principal occupations of each
of the Companys directors and executive officers within the past five years are
disclosed in the biographies set forth below.

Joseph Conway  Vice Chairman, Interim President and
Chief Executive Officer

Mr. Conway was appointed Interim
President and Chief Executive Officer upon the departure of Mr. Ernest Mast as
President and Chief Executive Officer effective March 6, 2017. Mr. Conway was
appointed President and Chief Executive Officer of the Company on June 1, 2010,
and has been a director of the Company since June 28, 2010. Mr. Conway ceased to
be President of Primero on February 2, 2015, and retired from his position as
Chief Executive Officer on January 31, 2016. Effective February 1,
2016, he became Executive Vice Chairman of the Company. He has also been a
director of Orezone Gold Corporation since October 2014. Mr. Conway was a
non-executive director of Santana Mineral Limited from June 2013 to November
2015. Mr. Conway was a director of Dalradian Resources Inc. from June 2010 to
May 2013. He served as President and Chief Executive Officer and a director of
IAMGOLD Corporation (IAMGOLD) from January 2003 until January 2010 and was a
director of IAMGOLD from January 2004 until December 2009. Mr. Conway was
President, Chief Executive Officer and a director of Repadre Capital Corporation
from September 1995 until January 2003. From 1989 until 1995, he was Vice
President and a director of Nesbitt Burns, a Canadian investment dealer. He was
a stock analyst with Walwyn Stodgell Cochran and Murray from 1987 to 1989, and a
mine and exploration geologist from 1981 to 1985. Mr. Conway has a Bachelor of
Science degree from Memorial University and a Master of Business Administration
degree from Dalhousie University.

71

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David Demers  Director

Mr. Demers has been a director of
the Company since October 28, 2008. He was one of the founding members of
Westport Fuel Systems, a University of British Columbia spinoff company that has
grown into the worlds leading alternative fuels automotive systems company,
supplying CNG and LNG systems to many of the worlds leading manufacturers of
cars and commercial vehicles. Mr. Demers served as CEO and a director of
Westport from 1996 until July 2016, when it merged with Fuel Systems Solutions
of New York. Mr. Demers has worked as a Director of a number of technology
start-ups, including EnWave (TSX:ENW) as it was spun out of the University of
British Columbia until it completed its initial public offering, and was Chair
of BrightSide which was sold to Dolby. He also served as a Director of Clean
Energy Fuels (CLNE) through its NASDAQ listing. Mr. Demers obtained a Bachelor
of Science (Physics) in 1976 and a Juris Doctor in 1978, both from the
University of Saskatchewan.

Grant Edey  Director

Mr. Edey has been a director of
the Company since June 28, 2010. He was President and Chief Executive Officer of
Khan Resources Inc. from July 2010 to May 2017. Mr. Edey was Chief Financial
Officer of IAMGOLD from 2002 until August 2007. From 1996 until 2002, he was the
Vice President, Finance, Chief Financial Officer and Corporate Secretary of
Repadre Capital Corporation. Before joining Repadre Capital Corporation, Mr.
Edey held senior positions with Strathcona Mineral Services Limited, TransCanada
Pipelines Limited, Eldorado Nuclear Limited, Rio Algom Limited and INCO Limited.
Mr. Edey has a Master of Business Administration from the University of Western
Ontario and a Bachelor of Science (Mining Engineering) degree from Queens
University.

Patricia A. Fortier  Director

Ms. Fortier has been a director
of the Company since November 1, 2016. Ms. Fortier is a former Canadian diplomat
whose career has focused on political relations, governance, international
security, and trade and investment  notably involved with the extractive and
defence industries abroad. She became a Fellow of the Canadian Global Affairs
Institute in April 2017 and Senior Fellow at University of Ottawas Graduate
School of Public and International Affairs in September 2017. In February 2017
she became a member of the board of the Retired Heads of Mission Association of
Canada, the official grouping for all former Canadian Ambassadors. Her last post
in government was as Assistant Deputy Minister responsible for Consular,
Security, and Legal Affairs in Global Affairs Canada. Ms. Fortier was the past
Canadian Ambassador to Peru and Bolivia and the Canadian Ambassador to the
Dominican Republic. She was also the Minister-Counsellor (Political) at the
Canadian Embassy in Washington, D.C. Ms. Fortiers past work abroad includes
being Senior Advisor to the OAS Electoral Observation Mission to Peru and Chief
Advisor to the High Level Mission to Peru. In Costa Rica, she worked with
international NGOs on climate change (Earth Council) and human rights/democracy
(Instituto Interamericano de los Derechos Humanos). Other diplomatic postings
included Chile, the Canadian mission to the United Nations in New York, India,
Kenya and Zambia. She was also a member of the board of the Pearson Peacekeeping
Centre. Ms. Fortier has a Masters degree in Public Administration and a BA
(Honours) from Queens University and was a Weatherhead Fellow at Harvard
University. She is fluent in English, Spanish and French.

72

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Brad Marchant  Director

Mr. Marchant has been a director
of the Company since June 2013. He is co-founder of Triton Mining Corporation
and successfully took the Limon mine in Nicaragua from exploration through to
production and expansion. Mr. Marchant has over 40 years of experience in the
mining and environmental industry both in management and as a director. He has
worked with numerous mining and technology companies including Coastech Research
Inc., Triton Mining Corporation, Placer Dome Ltd., Equity Silver Mines Ltd.,
Enterra Feed Corporation and Wabush Mines Ltd. He also founded a new water
treatment company, BioteQ Environmental Technologies Inc., which is focused on
finding water treatment solutions for mining companies experiencing
metallurgical and environmental challenges. Mr. Marchant has a B.Sc. in
Biochemistry from the University of New Brunswick and a M.A.Sc. in Mining and
Mineral Process Engineering from the University of British Columbia. Mr.
Marchants extensive industry experience and operations expertise make him a
valued member of the Companys Audit Committee and also the chair of the
Technical and Corporate Responsibility Committee.

Wade Nesmith  Director and Chairman of the Board

Mr. Nesmith is the founder of the
Company, Chairman of the Board, and a director of Primero. He acted as President
from October 29, 2008 to September 28, 2009, and Chief Executive Officer from
October 29, 2008 to June 1, 2010, at which time he was appointed Executive
Chairman of the Board. On March 15, 2012, Mr. Nesmith resigned as Executive
Chairman of the Board and was appointed Chairman of the Board. He was the
President, Chief Executive Officer, Chief Financial Officer and a director of
0777551 B.C. Ltd., a private company that was a predecessor to the Company, from
December 2006 to December 2009. Mr. Nesmith is also a director of Westport Fuel
Systems Inc., a NASDAQ and TSX listed technology company involved in the
creation and manufacture of fuel systems that use gaseous fuels. Mr. Nesmith
obtained his Bachelor of Law degree from York University  Osgoode Hall, Ontario
in 1977. He is the former Superintendent of Brokers for the Province of British
Columbia from 1989 until 1992. He was a senior partner, specializing in
securities law, with Lang Michener LLP (now McMillan LLP) from 1993 until 1998,
and an Associate Counsel at Lang Michener LLP (now McMillan LLP) from January
2004 to December 2007. He was an executive with Westport Innovations Inc. from
1998 until 2003, helping to lead their public markets activities and retiring as
President, Westport Europe. He was a founding director of Silver Wheaton Corp.
(TSX, NYSE), serving from 2004 to 2016.

Robert A. Quartermain  Director

Dr. Quartermain, D.Sc., has been
a director of the Company since June 28, 2010 and has worked in the resource
industry since 1976. He is Executive Chairman and a director of Pretium
Resources Inc. since October 2010. He served as President and Chief Executive
Officer of Silver Standard Resources Inc. from January 1985 until January 2010
and worked for Teck Corp. from 1981 to 1984. Dr. Quartermain has a Bachelor of
Science degree in geology from the University of New Brunswick, and a Master of
Science degree in mineral exploration from Queens University. He was awarded an
honorary Doctor of Science degree from the University of New Brunswick in May
2009.

Michael Riley  Director

Mr. Riley has been a director
since April 2010. He retired as a senior auditor partner from Ernst & Young
LLP in September 2006 after more than 25 years with the firm. He became a
partner in the firms Montreal office in 1985, where he worked with clients in
the retail, pharmaceutical, manufacturing and resource industries. He relocated
to the firms Vancouver office in 1995, where his responsibilities included
serving as the lead audit engagement partner for the offices largest Canadian
and US listed public company clients in mining, transportation and banking.
During that time, he also lead the offices M&A due diligence practice for 2
years. He has previously been a director for several organizations, including
the British Columbia Lottery Corporation, CanAlaska Uranium Ltd., Seacliff
Construction Corp., the Vancouver Symphony Society, The Heart & Stroke
Foundation of British Columbia & Yukon and the BCAA Road Safety Foundation.
Mr. Riley graduated with a Bachelor of Commerce Degree from Concordia University
in 1975 majoring in operations research and quantitative methods. He also holds
a graduate diploma in public accounting from McGill University attained in 1977
and continues to hold the Canadian CPA CA designation as a member of both the BC
and Quebec CPA professional bodies. Mr. Rileys accounting background, financial sophistication and auditing
expertise are valuable assets to the Companys Audit Committee.

73

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Tamara Brown  Vice President, Corporate
Development

Ms. Brown has been Vice
President, Investor Relations of the Company since June 1, 2010. Ms. Brown was
later appointed Vice President of Corporate Development of the Company on
October 16, 2015. From April 2009 to April 2010, Ms. Brown was Director of
Investor Relations for IAMGOLD where she was responsible for all aspects of
investor relations including being a member of its disclosure committee.
Previously, Ms. Brown was an investor relations consultant for several junior
exploration companies, partner of a boutique investment banking firm and a
professional engineer in the mining industry. She graduated with a Bachelor of
Engineering degree from Curtin University in Australia and has completed the
Chartered Business Valuator course at York University. She holds directorships
in the Boards of Superior Gold Inc. and Eastmain Resources Inc.

H. Maura Lendon Chief General Counsel and Corporate
Secretary

Ms. Lendon has been Chief General
Counsel and Corporate Secretary of the Company since March 29, 2012. Prior to
that, she held senior legal roles, including as Senior Vice President, Corporate
Services, Chief Legal Officer and Corporate Secretary of HudBay Minerals Inc.
From 2004 to April 2008, she was Chief Counsel, Canada and Chief Privacy Officer
Canada of AT&T. Ms. Lendon holds a Master of Laws from Osgoode Hall Law
School, a Master of Business Administration from the Richard Ivey School of
Business and a Bachelor of Laws from University of Western Ontario. She has been
a member of the Ontario Bar since 1990.

James Mallory  Vice President, Corporate Responsibility

Mr. Mallory was appointed Vice
President Corporate Responsibility of the Company on March 1, 2014. From April
2011 to July 2013, Mr. Mallory was Vice-President, Operations & Social
Responsibility at South American Silver, during which time he was responsible
for social responsibility programs in Bolivia and Chile. From May 2009 to March
2011 he was Vice President Sustainability for Silver Standard Resources
overseeing environmental and community relations initiatives for projects in
Mexico, Argentina and Peru. Previously from June 2006 to January 2009 Mr.
Mallory was General Manager with Nova Gold Resources responsible for relations
with the BC First Nations (2006-2007) and later as General Manager of Operations
in Nome, Alaska. Mr. Mallory started his career with Placer Dome and has 40
years of mining industry experience including 13 years of international service
in Chile.

Damien Marantelli  Chief Operating Officer

Mr. Marantelli was appointed
Chief Operating Officer in October 2016. Mr. Marantelli, an experienced mining
engineer, brings over 37 years of international experience in the mining
industry where he has successfully managed development, construction and
operations across a variety of commodities. Previously, Mr. Marantelli held the
roles of General Manager of the Sentinel copper mine in development by First
Quantum Minerals, Managing Director of First Quantums (previously Inmets) Las
Cruces copper mine, and the Managing Director of the Çayeli underground copper
and zinc mine. Prior to his experiences with First Quantum/Inmet, Mr. Marantelli
was the General Manager of BHP Billitons (previously WMC Resources) Mount Keith
operations and General Manager with Leinster Underground. Mr. Marantelli
received a Diploma of Engineering (Mining) from the Royal Melbourne Institute of
Technology, and a Diploma of Business (Frontline Management) from Excel
Consulting Australia.

74

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Ryan Snyder, Chief Financial Officer

Mr. Snyder was appointed Chief
Financial Officer in September 2017. Mr. Snyder was previously Primeros
Director of Finance and Treasurer and has an extensive background in financial
management, reporting, treasury, and strategy development. Prior to working for
Primero, he held progressively senior roles at Inmet Mining Corporation (now
First Quantum Minerals Ltd.) and Enirgi Group Corporation, after starting his
career at KPMG LLP. Ryan is a Chartered Professional Accountant with a Bachelor
of Commerce from Queens University.

Louis Toner  Vice President, Project Development and
Construction

Mr. Toner was appointed Vice
President, Project Development and Construction of the Company on July 29, 2013.
He brings over 35 years of engineering and construction management experience
ranging from small and medium sized brownfield projects to large-scale
greenfield projects. Previously, Mr. Toner worked with BBA Inc., Lafarge Canada
Inc., and SNC-Lavalin International Inc. Mr. Toner holds a B.Eng. Civil
Engineering from McGill University and is fluent in French, English and Spanish.
He is a member of the Ordre des ingénieurs du Québec (OIQ) and the Association
of Professional Engineers and Geoscientists of New Brunswick.

|B. | Compensation
|-- | ------------

The aggregate remuneration of all
members of the Board of Directors and Executive Officers of Primero in 2017 for
services in all capacities is presented below:

Name and current
      principal position
    Salary (CDN$)
    Share-based
      awards(1) (CDN$)
    Option-based
      awards(1) (CDN$)
    Annual
      incentive plans (CDN$)
    Total
      compensation (CDN$)Joseph F. Conway(2)Interim President
      and CEO
    486,265
    150,000
    -
    -
    636,265Damien Marantelli COO
    450,000
    -
    -
    209,000
    659,000Ryan Snyder CFO(3)
    244,375
    -
    -
    120,000
    364,375Maura Lendon CGC and Corporate Secretary
    400,000
    -
    -
    166,000
    566,000Tamara Brown VP, Corporate Development
    350,000
    -
    -
    148,000
    498,000


|1. | Long-term incentive awards are typically made following year end
      performance assessments. None were made in respect of 2017 in view of the
      pending acquisition by First Majestic.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | A portion of Mr. Conway`s compensation relates to his services as a
      director.                                                                                                          
|3. | Compensation for Mr. Snyder includes compensation received prior to
      his appointment as CFO.                                                                                            

Name and current
      position
    Fees earned
      (CDN$)
    Share-based
      awards (CDN$)
    Total
      compensation (CDN$)Wade Nesmith Chairman
    258,500
    200,000
    458,500Brad Marchant Director
    132,000
    100,000
    232,000David R. Demers Director
    161,833
    100,000
    261,833Grant Edey Director
    119,000
    100,000
    219,000Mike Riley Director
    164,500
    100,000
    264,500Robert A. Quartermain Director
    138,000
    100,000
    238,000Patricia A. Fortier Director
    132,500
    100,000
232,500


75

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|C. | Board Practices
|-- | ---------------

During 2017, our management held
individual and group meetings with shareholders, investors and analysts to talk
about the performance of our business and our opportunities for growth both in
the short-term as well as in the future. We hosted quarterly conference calls,
transmitted simultaneously on the Internet, to clarify financial and operating
results as well as answered questions from the investment community.

Mr. Nesmith, as a non-executive
director and Chairman of the Board is compensated according to a letter
agreement dated March 15, 2015 (the Chairmans Agreement). The
Chairmans Agreement sets the Chairmans annual cash retainer and equity
retainer to be two times the annual cash and equity retainers, respectively, for
independent directors. The Chairmans Agreement has a five year term and was
entered into as part of the Boards succession planning initiatives in relation
to the roles of CEO and Chairman. In recognition of Mr. Nesmiths role as the
founder of the Company and to oversee the development and execution of
succession plans for both the CEO and the Chairman roles, pursuant to the
Chairmans Agreement, he was granted a retirement allowance of deferred share
units (DSUs) equal to $1.5 million (as at the date of award) under a deferred
share unit plan (the DSU Plan). The DSUs vest in equal amounts annually over a
five (5) year period and will be redeemable subject to the terms and conditions
of the DSU Plan.

Effective February 1, 2016, Mr.
Conway retired as CEO and assumed the role of Vice Chairman of the Board
pursuant to an engagement agreement dated January 21, 2016 (the Vice Chairmans
Agreement). The Vice Chairmans Agreement sets his annual cash retainer at
$125,000, mid-way between the cash retainers for the Chairman and for
independent directors, and the value of his equity retainer was determined by
the Board (with Mr. Conway recused) to also be mid-way between the between the
cash retainers for the Chairman and for independent directors. The Vice
Chairmans Agreement has a three year term and was also entered into as part of
the Boards succession planning initiatives in relation to the roles of CEO and
Chairman. Upon assuming the role of Interim CEO on March 6, 2016, by resolution
of the Board, Mr. Conways compensation for such temporary role was set at an
annualized compensation rate of $500,000 (without any annual or long term
incentive), payable in lieu of his Vice Chairman cash retainer. While performing
this temporary engagement, however, Mr. Conway will continue to receive his
equity-based retainer as Vice Chairman.

The term of office of each
director of the Company ends immediately before the election of directors at the
annual meeting of shareholders each year. All directors are subject to annual
re-election by shareholders at the Companys annual general meeting and there
are no other contracts in relation to directors services except as set forth
above in relation to the Chairman and Vice Chairman.

The Board facilitates the
exercise of independent supervision over management by ensuring representation
on the Board by directors who are independent of management. Directors are
considered to be independent if they have no direct or indirect material
relationship with the Company.

Pursuant to the Companys
governance principles, the Board has followed the practice of meeting in
executive session without management present at all scheduled Board meetings. In
addition, where a matter under consideration at a Board meeting warrants it and to ensure that
free and candid discussions can take place, the Chairman may request one or more
members of management or non-independent directors to withdraw during the
discussion of that matter. The Chairman may also call meetings of independent
directors at the request of any independent director, on his own initiative, or
in a situation whereby a conflict of interest arises with any director and such
director should abstain from any vote regarding such matter.

76

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The meetings of independent
directors are chaired by the Chairman. The meetings provide an opportunity for
independent directors to raise issues that they do not wish to discuss in the
presence of management. When such meetings are held at the commencement of the
meeting, independent directors are able to discuss matters preparatory to the
meeting and, when held at the conclusion of the Board meeting, independent
directors are able to discuss any issues that may have arisen during the Board
meeting. Throughout 2017, the majority of the Board meetings included an in
camera session of independent directors at the beginning or end of the meeting,
and some meetings included in camera sessions both at the beginning and end of
the meeting.

There are currently four
committees of the Board: (a) the Audit Committee, (b) the Human Resources
Committee, (c) the Governance and Nominating Committee, and (d) the Technical
and Corporate Responsibility Committee.

Audit Committee

Audit Committee Charter

The Audit Committee is ultimately
responsible for the policies and practices relating to integrity of financial
and regulatory reporting, as well as internal controls to achieve the objectives
of safeguarding of corporate assets; reliability of information; and compliance
with policies and laws.

The Audit Committees charter
sets out its mandate and responsibilities, and can be found in the Companys
management information circular or on the Companys website
www.primeromining.com.

Composition of Audit Committee

The Audit Committee is currently
comprised of three directors, Michael Riley, Grant Edey and Brad Marchant, all
of whom are both independent and financially literate according to the Boards
independence standards as set out in the Companys Board Guidelines and
applicable Canadian and U.S. securities laws and regulations. Michael Riley, the
Chair of the Audit Committee, is also an audit committee financial expert
under the Exchange Act regulations.

Relevant Education and Experience

For a description of the
education and experience of each audit committee member that is relevant to the
performance of his responsibilities as an audit committee member, see Item 6.
Directors, Senior Management and Employees  A. Directors and Senior Management
 Principal Occupations and Other Information about Primeros Directors and
Executive Officers. Such education and experience provides each member with:

| |  | an understanding of the accounting principles used by the
      Company to prepare its financial statements;                                                                                                                                                                                                                          
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                       
| |  | the ability to assess the general application of such
      accounting principles in connection with the accounting for estimates,
      accruals and reserves;                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                       
| |  | experience preparing, auditing, analyzing or evaluating
      financial statements that present a breadth and level of complexity of
      accounting issues that are generally comparable to the breadth and
      complexity of issues that can reasonably be expected to be raised by the
      Companys financial statements, and
| |   |                                                                                                                                                                                                                                                                                                                                       
| |  | an understanding of internal controls and procedures for
      financial reporting.                                                                                                                                                                                                                                                   

77

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Pre-Approval Policies and Procedures

The Audit Committees charter
sets out responsibilities regarding the provision of non-audit services by the
Companys external auditor. This policy encourages consideration of whether the
provision of services other than audit services is compatible with maintaining
the auditors independence and requires Audit Committee pre-approval of
permitted audit and audit-related services.

Human Resources Committee

Human Resources Committee Charter

The Human Resources Committee
assists the Board in fulfilling its responsibilities relating to human resources
and compensation issues. This committee is responsible for establishing a plan
of continuity for members of senior management and for ensuring that the Company
has an executive compensation plan that is both motivational and competitive to
enable the Company to attract, retain and inspire performance of management of a
quality and nature that will enhance the sustainable profitability and growth of
the Company. The Human Resources Committee is also responsible for reviewing and
making recommendations to the Board with respect to the compensation philosophy
and guidelines for the Company, and for ensuring the production of an annual
report on executive compensation for review and approval by the Board. This
committee reviews the terms of reference and corporate goals and objectives of
the Chief Executive Officer, Chairman, and Vice Chairman and leads the annual
evaluation process of performance of the Chief Executive Officer, Chairman and
Vice Chairman. It also reviews and recommends compensation for directors,
benefit plans, incentive awards and terms of employment agreements, and
administers the Companys equity-based compensation plans for employees and
directors.

Composition of Human Resources Committee

The Human Resources Committee is
currently comprised of three directors, Robert Quartermain, David Demers and
Michael Riley. Mr. Quartermain is the Chair of the Human Resources Committee.

Governance and Nominating Committee

Governance and Nominating Committee Charter

The Governance and Nominating
Committee enhances the Companys performance by providing a focus on governance.
It also assesses and makes recommendations relating to effectiveness of the
Board. This committee is responsible for establishing and leading the process
for identifying, recruiting, appointing, re-appointing and providing ongoing
development for directors. As part of its mandate, this committee, among other
things, develops and reviews a long-term plan for Board composition, reviews the
Boards relationship with management to ensure the Board functions
independently, develops criteria for directors, recommends nominees for election
as directors and for appointment to committees and reviews and monitors
orientation and education of directors.

Composition of Governance and Nominating Committee

The Governance and Nominating
Committee is currently comprised of three directors, David Demers, Grant Edey
and Patricia Fortier. Mr. Demers is the Chair of the Governance and Nominating
Committee.

Technical and Corporate Responsibility Committee

Technical and Corporate Responsibility Committee Charter

The Corporate Responsibility
Committee was renamed the Technical and Corporate Responsibility Committee
effective March 14, 2017. This committee assists the Board in fulfilling its
oversight responsibilities with respect to: (i) the technical and operational
aspects of the Companys mine, development, and exploration sites and programs,
including all geological and engineering issues; and (ii) the
Companys environmental, safety and health, and corporate social responsibility
policies and programs, and related performance.

78

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Composition of Technical and Corporate Responsibility
Committee

The Technical and Corporate
Responsibility Committee is currently comprised of five directors, Brad
Marchant, Robert Quartermain, Joseph Conway, Patricia Fortier and Grant Edey.
Mr. Marchant is the Chair of the Technical and Corporate Responsibility
Committee.

|D. | Employees
|-- | ---------

As of December 31, 2017, the Company had the following
employees and contractors:

|                                   |  | Full-Time |  |  | Hourly  |  |  |             |  |  |       | 
|---------------------------------- |  | --------- |  |  | ------- |  |  | ----------- |  |  | ----- | 
|Location                           |  | Salaried  |  |  | (Union) |  |  | Contractors |  |  | Total | 
|Durango Office                     |  | 32        |  |  | Nil     |  |  | 2           |  |  | 34    | 
|San Dimas Mine (including Truchas) |  | 400       |  |  | 798     |  |  | 458         |  |  | 1,656 | 
|Toronto Office                     |  | 18        |  |  | Nil     |  |  | 4           |  |  | 22    | 
|Total                              |  | 450       |  |  | 798     |  |  | 464         |  |  | 1,712 | 

The total number of employees of
Primero has reduced substantially from the end of 2016. This is due to the sale
of both the Black Fox Complex and Cerro del Gallo Project as well as reductions
in San Dimas and Toronto reflecting an increased cost reduction focus.

As at December 31, 2017, Primero
had 798 unionized employees at the San Dimas Mine who are members of two
sections of one union: Sindicato Nacional de Trabajadores Mineros and
Metalúrgicos, Siderúrgicos y Similares de la República Mexicana. The union
contracts are renegotiated every two years, except for the compensation aspects,
which are reviewed every year.

On February 15, 2017, the Company
announced that unionized employees at its San Dimas Mine in Mexico had initiated
a strike action which resulted in the complete stoppage of mining and milling
activities at the site. The stoppage resulted from the failure of the parties to
reach an agreement during the negotiation of the CBA. On April 13, 2017, the
Company announced a new CBA with the National Union of Mine, Metal, Steel and
Allied Workers of the Mexican Republic (Sindicato Nacional de Trabajadores
Mineros, Metalúrgicos, Siderúrgicos y Similares de la República Mexicana) and
that it had successfully resolved the work stoppage of unionized employees,
operations resumed on April 22, 2017.

|E. | Share Ownership
|-- | ---------------

As of the date of this annual
report, the directors and executive officers of the Company, as a group,
beneficially own, directly or indirectly, or exercise control or direction over
2,333,154 Common Shares, being 1.21% of the issued Common Shares on a
non-diluted basis. The statement as to the number of Common Shares beneficially
owned, directly or indirectly, or over which control or direction is exercised
by the directors and executive officers of the Company, as a group, is based
upon information furnished by the directors and executive officers.

The following table provides
securities ownership information for our directors and executive officers as of
the date of the date of the annual report:

79

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DIRECTOR/EXECUTIVE
OFFICER
    COMMON 
      SHARES
    PSUS AND 
      DSUS
    OPTIONS
    WARRANTS
    DEBENTURESJOSEPH CONWAY
    974,994
    1,318,218
    727,941
    Nil
    300DAVID DEMERS
    283,894
    164,223
    Nil
    Nil
    NilGRANT EDEY
    79,743
    164,223
    Nil
    Nil
    50PATRICIA A. FORTIER
    Nil
    145,587
    Nil
    Nil
    NilBRAD MARCHANT
    59,683
    164,223
    Nil
    Nil
    NilWADE NESMITH
    550,226
    644,237
    100,000
    Nil
    NilROBERT A. QUARTERMAIN
    68,391
    164,223
    Nil
    Nil
    NilMICHAEL RILEY
    74,948
    164,223
    Nil
    Nil
    NilTAMARA BROWN
    62,143
    201,407
    772,671
    Nil
    NilH. MAURA LENDON
    85,265
    278,042
    1,074,657
    Nil
    45JAMES MALLORY
    40,338
    126,836
    539,360
    Nil
    NilDAMIEN MARANTELLI
    Nil
    434,282
    608,892
    Nil
    NilRYAN SNYDER
    Nil
    177,173
    Nil
    Nil
    NilLOUIS TONER
    53,529
    175,019
    677,984
    Nil
    Nil


As of the date of this annual
report, the Company also had outstanding obligations to issue up to an aggregate
of 17,685,575 Common Shares in respect of options and warrants as follows:

| | stock options to purchase 6,674,325 Common
      Shares at a price ranging from CDN$0.75 to CDN$7.95 expiring between
      February 18, 2019 and March 24, 2022:
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

Grant Date
    Expiry Date
    Award Type
    Grant Price
    At April 20, 2017
      Outstanding09-Jul-2009
    09-Jul-2019
    Stock Option
    $2.70
    160,00018-Feb-2014
    18-Feb-2019
    Stock Option
    $7.40
    617,83228-Mar-2014
    28-Mar-2019
    Stock Option
    $7.95
    58,81610-Nov-2014
    10-Nov-2019
    Stock Option
    $4.11
    164,75717-Feb-2015
    17-Feb-2020
    Stock Option
    $4.19
    1,540,58923-Feb-2016
    23-Feb-2021
    Stock Option
    $2.95
    1,967,18821-Nov-2016
    21-Nov-2021
    Stock Option
    $1.36
    347,93824-Mar-2017
    24-Mar-2022
    Stock Option
    $0.75
    1,817,205TOTAL
    
    
    
    6,674,325


; and

| | warrants to purchase an aggregate of 11,011,250
  Common Shares at a price of CDN$3.35, expiring on June 25, 2018.
|- | ------------------------------------------------------------------------------------------------------------------

In addition, as of the date of
this annual report, the Company also had outstanding obligations to issue up to
11,450,385 Common Shares in respect of convertible debentures.

80

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|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY
      TRANSACTIONS
|------- | -------------------------------------------------------

|A. | Major Shareholders
|-- | ------------------

To the knowledge of the directors
and officers of Primero, the following shareholders of Primero own more than 5%
of Primeros common shares at December 31, 2017:

| |                                |  |             |  |  | % of Outstanding | 
| | ------------------------------ |  | ----------- |  |  | ---------------- | 
| | Institution Name               |  | Shares Held |  |  | Shares           | 
| | Donald Smith & Co.,
      Inc. |  | 17,920,695  |  |  | 9.32%            | 
| | RBC Dominion Securities, Inc   |  | 13,147,000  |  |  | 6.84%            | 

All holders of Primero common
shares have equal voting rights. To the best of Primeros knowledge, Primero was
not directly or indirectly owned or controlled by another corporation, by any
foreign government or by any other natural or legal person severally or
jointly.

On January 12, 2018, the Company
announced that it entered into the Arrangement Agreement whereby First Majestic
will acquire all of the issued and outstanding common shares of Primero. Under
the terms of the Arrangement Agreement, all of Primeros issued and outstanding
common shares will be exchanged for First Majestic common shares on the basis of
0.03325 of a First Majestic common share for each Primero common share (the
"Exchange Ratio").

Concurrent with execution of the
Arrangement Agreement, First Majestic has entered into agreements with WPMI, a
wholly-owned subsidiary of WPM whereby, following closing of the Arrangement,
the current silver streaming interest at San Dimas held by WPM will be
terminated and First Majestic and WPM will enter into a new stream arrangement
based on 25% of the gold equivalent production at San Dimas (the "New Stream")
with ongoing payments of $600 per gold equivalent ounce delivered under the
agreement. As part of the transaction, WPM will receive 20,914,590 common shares
of First Majestic having an aggregate value of $151 million.

The Arrangement will also provide
for the issuance by First Majestic of an aggregate of approximately 226,476
replacement stock options (assuming no exercise of existing Primero options) to
Primero optionholders who do not exercise their Primero options prior to the
effective time of the Arrangement, at exercise prices adjusted by the Exchange
Ratio. Under the Arrangement all existing warrants of Primero will become
exercisable to acquire First Majestic common shares at exercise prices adjusted
by the Exchange Ratio. The Arrangement will also provide that upon the
Arrangement becoming effective all existing deferred share units and phantom
share units of Primero will be paid out in cash in an amount equal to C$0.30 per
deferred share unit or phantom share unit.

Certain additional amounts
payable in connection with the Arrangement, include repayment of all amounts
owing under Primero's existing RCF and the expected repayment of Primero's $75
million of outstanding convertible debentures.

On March 13, 2018, the
Arrangement was approved by Primero shareholders. The Company is awaiting
antitrust clearance in Mexico. The Arrangement is expected to close in late April or early May 2018, subject to applicable regulatory approvals and the
satisfaction of other customary conditions. In the event that the Arrangement does not close by April 30, 2018, the Company will seek an extension of the RCF.

On March 13, 2018, the
debentureholders voted to approve an amendment to the maturity date of the
debentures. Upon the closing of the Arrangement, the amendment of the trust
indenture will accelerate the maturity date of the Primero Debentures to the
next Business Day (as defined in the trust indenture) following the effective
date of the Arrangement.

81

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|B. | Related Party Transactions
|-- | --------------------------

The only related party
transactions entered into by the Company relate to the compensation paid to
Directors and Executive Officers as disclosed in Item 6. Directors, Senior
Management and Employees  B. Compensation. All of the compensation paid to key
management personnel was equivalent to that which would have been incurred in an
arms length transaction.

Other than disclosed above, there
have not been transactions during the 2017 year which have materially affected
or will materially affect Primero in which any director, executive officer, or
beneficial holder of more than 5% of the outstanding common stock, or any of
their respective relatives, spouses, associates or affiliates has had or will
have any direct or material interest.

Conflicts of Interest

Some of the Companys directors
and officers also serve as directors of one or more other resource companies
involved in mineral exploration and/or development. It may occur from time to
time that as a consequence of his activity in the mineral industry and serving
on such other boards that a director may become aware of potential resource
property opportunities which are of interest to more than one of the companies
on whose boards that person serves. Accordingly, situations may arise in the
ordinary course that involve a director in an actual or potential conflict of
interest as well as issues in connection with the general obligation of a
director to make corporate opportunities available to the company on which the
director serves. In all such events, any director who might have a disclosable
financial interest in a contract or transaction by virtue of office, employment
or security holdings or other such interest in another company or in a property
interest under consideration by the Primero Board, would be obliged to abstain
from voting as a Primero director in respect of any transaction involving that
other company(s) or in respect of any property in which an interest is held by
him. The directors will use their best business judgment to help avoid
situations where conflicts or corporate opportunity issues might arise and they
must at all times fulfill their duties to act honestly and in the best interests
of Primero. At this time the Board is not aware of any existing or potential
material conflict of interest between the Company or a subsidiary of the Company
and any director. See Item 3. Key Information  D. Risk Factors.

|C. | Interests of Experts and Counsel
|-- | --------------------------------

Not applicable.

|ITEM 8. | FINANCIAL INFORMATION
|------- | ---------------------

|A. | Consolidated Statements and Other Financial Information
|-- | -------------------------------------------------------

See Item 3. Key Information - A.
Selected Consolidated Income Statement Data and Item 18. Financial
Statements.

Legal Proceedings

Ejidos

An Ejido is a communal ownership
of land recognized by the federal laws in Mexico. While mineral rights are
administered by the federal government through federally issued mining
concessions, access to surface rights is also required for mining operations. An
Ejido controls surface rights over its communal property through a board of
directors. An Ejido may sell or lease lands directly to a private entity and it
may also allow individual members of the Ejido to obtain title to specific
parcels of land and thus the right to sell or lease the land.

The San Dimas Mine uses Ejidos
lands pursuant to written agreements with Ejidos. Some of these agreements may
be subject to renegotiation and changes to the existing agreements may increase
operating costs or have an impact on operations. In cases where access to land
is required for operations and an agreement cannot be reached with the land owner, Primero may seek access under Mexican law
which provides for priority rights for mining activities.

82

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Certain of the properties
included in the San Dimas Mine and for which Primero holds legal title have been
subject to legal proceedings commenced by Ejidos seeking title to the property.
These proceedings in all cases were brought against previous owners of the
properties, either deceased individuals who, according to certain public deeds,
owned the properties more than 80 years ago, corporate entities that are no
longer in existence, or Goldcorp companies. As such, Primero initially has no
standing to participate in them and may not receive timely notice of such
actions brought decisions rendered.

Since acquiring the San Dimas
Mine, Primero has been aware of four such Ejidos actions, three of which have
been finally resolved in favour of Primeros interests. Primero continues to
challenge the fourth outstanding Ejidos legal claim to defend its position as
the legitimate owner of the subject property. If Primero is not successful in
this outstanding claim, the San Dimas Mine could face higher costs associated
with agreed or mandated payments that would be payable to the Ejidos for use of
the subject property. Further,there is no assurance thatEjidos
will not engage in legal proceedings to claim interests in properties owned by
Primero in the future.

Tax Matters

On February 3, 2016, the Company
announced that it had received a legal claim from the SAT, seeking to nullify
the APA issued by the SAT in 2012. The APA confirmed the Company's basis for
paying taxes on realized silver prices for the years 2010 to 2014 and
represented the SAT's agreement to accept that basis for those years. The legal
claim initiated by the SAT did not identify any different basis for paying
taxes. The Company believes this legal claim is without merit and it has since
vigorously defended the validity of its APA. See Item 3. Key Information  D.
Risk Factors  Financial Risks  Challenge to the 2012 APA.

Labor Matters

No legal or arbitration
proceedings exist relating to labor or employees, having significant effects on
the companys financial position or profitability.

Civil Claims

The Company is aware of class
action lawsuits having been filed in February 2016 against the Company in the
State of California seeking to recover damages for investors in the Companys
common shares under the U.S. federal securities laws. The Company filed a motion
to dismiss which was granted on January 30, 2017. The plaintiffs claims were
dismissed without prejudice and the plaintiffs filed an amended complaint on
February 28, 2017. On July 14, 2017, the Companys motion to dismiss the amended
complaint was granted and the plaintiffs claims were dismissed without
prejudice. Rather than amending the complaint again, the plaintiffs asked the
federal court to enter final judgment and initiated an appeal of the dismissal
to the Ninth Circuit Court of Appeals on September 8, 2017. The parties have
filed their briefs in this appeal and a ruling on the appeal is expected
sometime in 2018. The Company will continue to vigorously defend this class
action lawsuit.

Environmental Matters

No legal or arbitration proceedings exist relating to
environmental matters, having significant effects on the companys financial
position or profitability.

Dividends and Dividend Policy

The Company has not paid
dividends since its incorporation. The future payment of dividends or
distributions will be dependent upon the financial requirements to fund future
growth, the financial condition of the Company and other factors the Board may
consider appropriate in the circumstances. The Company is not aware of any
restrictions that could prevent the paying of dividends or distributions,
but there is no current intention to declare any dividends or distributions.

83

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|B. | Significant Changes
|-- | -------------------

Except as otherwise disclosed in
our audited consolidated financial statements and in this annual report, there
have been no significant changes in our business, financial conditions or
results in December 31, 2017.

|ITEM 9. | THE OFFER AND LISTING
|------- | ---------------------

|A. | Offer and Listing Details
|-- | -------------------------

Not applicable. Information
regarding the price history of the stock listed as required by Item 9.A.4 is set
forth below in Item 9. The Offer and Listing - C. Markets.

|B. | Plan of Distribution
|-- | --------------------

Not applicable.

|C. | Markets
|-- | -------

Common Shares

The Companys Common Shares are
traded on the TSX under the symbol P. The Companys Common Shares were listed
on the NYSE until August 14, 2017. The Company continues to trade on the OTC
Pink Market under the symbol PPPMF.

The following table shows the
high and low trading prices and monthly trading volume of the Common Shares of
Primero on the TSX for the periods listed:

|Period    |   | High (CDN$) |  |   | Low (CDN$) |  |  | Volume     | 
|--------- | - | ----------- |  | - | ---------- |  |  | ---------- | 
|2017      |   |             |  |   |            |  |  |            | 
|January   | $ | 1.14        |  | $ | 0.98       |  |  | 427,703    | 
|February  |   | 1.21        |  |   | 0.82       |  |  | 625,156    | 
|March     |   | 0.86        |  |   | 0.70       |  |  | 470,452    | 
|April     |   | 0.84        |  |   | 0.61       |  |  | 429,504    | 
|May       |   | 0.74        |  |   | 0.50       |  |  | 631,540    | 
|June      |   | 0.54        |  |   | 0.43       |  |  | 508,712    | 
|July      |   | 0.47        |  |   | 0.39       |  |  | 245,395    | 
|August    |   | 0.47        |  |   | 0.11       |  |  | 1,665,372  | 
|September |   | 0.12        |  |   | 0.08       |  |  | 884,913    | 
|October   |   | 0.09        |  |   | 0.08       |  |  | 423,120    | 
|November  |   | 0.10        |  |   | 0.08       |  |  | 473,022    | 
|December  |   | 0.10        |  |   | 0.09       |  |  | 466,036    | 
|2018      |   |             |  |   |            |  |  |            | 
|January   |   | 0.30        |  |   | 0.09       |  |  | 2,512,244  | 
|February  |   | 0.23        |  |   | 0.19       |  |  | 11,877,972 | 

84

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|Period             |  | High (CDN$) |  |  | Low (CDN$) |  |  | Volume    | 
|------------------ |  | ----------- |  |  | ---------- |  |  | --------- | 
|March              |  | 0.27        |  |  | 0.21       |  |  | 7,645,875 | 
|April 1  April 19 |  | 0.28        |  |  | 0.24       |  |  | 8,280,383 | 

Warrants

The Companys warrants are traded
on the TSX under the symbol P.WT.C. The warrants commenced trading on June 24,
2016.

The following table shows the
high and low trading prices and monthly trading volume of the warrants of
Primero on the TSX for the periods listed:

|P.WT.C             |   |             |  |   |            |  |  |         | 
|------------------ | - | ----------- |  | - | ---------- |  |  | ------- | 
|Period             |   | High (CDN$) |  |   | Low (CDN$) |  |  | Volume  | 
|2017               |   |             |  |   |            |  |  |         | 
|January            | $ | 0.20        |  | $ | 0.14       |  |  | 197,350 | 
|February           |   | 0.18        |  |   | 0.08       |  |  | 632,500 | 
|March              |   | 0.09        |  |   | 0.05       |  |  | 638,750 | 
|April              |   | 0.05        |  |   | 0.03       |  |  | 65,250  | 
|May                |   | 0.05        |  |   | 0.03       |  |  | 167,500 | 
|June               |   | 0.05        |  |   | 0.01       |  |  | 235,300 | 
|July               |   | 0.03        |  |   | 0.02       |  |  | 72,000  | 
|August             |   | 0.04        |  |   | 0.01       |  |  | 755,311 | 
|September          |   | 0.01        |  |   | 0.01       |  |  | 494,000 | 
|October            |   | 0.02        |  |   | 0.01       |  |  | 366,500 | 
|November           |   | 0.01        |  |   | 0.01       |  |  | 187,300 | 
|December           |   | 0.01        |  |   | 0.01       |  |  | 195,000 | 
|2018               |   |             |  |   |            |  |  |         | 
|January            |   | 0.03        |  |   | 0.01       |  |  | 822,700 | 
|February           |   | 0.01        |  |   | 0.01       |  |  | 103,700 | 
|March              |   | 0.01        |  |   | 0.01       |  |  | 54,000  | 
|April 1  April 19 |   | 0.01        |  |   | 0.01       |  |  | 723,560 | 

Convertible Debentures

The Companys 2015 Debentures are
traded on the TSX under the symbol P.DB.V.

The following table shows the
high and low trading prices and monthly trading volume of the convertible
debentures of Primero on the TSX for the periods listed:

85

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|P.DB.V
    Period  |   | High (CDN$) |  |   | Low (CDN$) |  |  | Volume    | 
|------------------ | - | ----------- |  | - | ---------- |  |  | --------- | 
|2017               |   |             |  |   |            |  |  |           | 
|January            | $ | 68.00       |  | $ | 65.00      |  |  | 65,000    | 
|February           |   | 70.00       |  |   | 57.01      |  |  | 5,215,000 | 
|March              |   | 62.00       |  |   | 55.00      |  |  | 4,967,000 | 
|April              |   | 68.00       |  |   | 60.00      |  |  | 150,000   | 
|May                |   | 70.79       |  |   | 64.00      |  |  | 277,000   | 
|June               |   | 63.00       |  |   | 60.00      |  |  | 8,916,000 | 
|July               |   | 62.00       |  |   | 58.00      |  |  | 5,288,000 | 
|August             |   | 63.25       |  |   | 50.00      |  |  | 4,337,000 | 
|September          |   | 65.00       |  |   | 61.00      |  |  | 2,240,000 | 
|October            |   | 65.00       |  |   | 63.00      |  |  | 1,359,000 | 
|November           |   | 66.50       |  |   | 63.00      |  |  | 1,694,250 | 
|December           |   | 65.00       |  |   | 63.50      |  |  | 426,000   | 
|2018               |   |             |  |   |            |  |  |           | 
|January            |   | 99.75       |  |   | 62.50      |  |  | 7,226,000 | 
|February           |   | 100.00      |  |   | 88.00      |  |  | 4,103,000 | 
|March              |   | 99.13       |  |   | 98.03      |  |  | 7,472,000 | 
|April 1  April 19 |   | 99.00       |  |   | 98.00      |  |  | 288,000   | 

PRIOR SALES

During the financial year ended
December 31, 2017, Primero issued or granted the following Common Shares or
securities convertible into Common Shares:

Date of Issuance
    Number and Type
      of Securities Issued
    Issue or Exercise
      Price Per Security (CDN$)February 17, 2017
    57,207 Common
      Shares(2)
    $1.00February 23, 2017
    11,300 Common
      Shares(2)
    $0.89March 2, 2017
    590,657 Common
      Shares(3)
    $0.82March 6, 2017
    762,454 Common
      Shares(2)
    $0.74March 24, 2017
    2,771,877 PSUs
    $0.75March 24, 2017
    2,057,589 Stock Options
    $0.76March 27, 2017
    259,041 Common
      Shares(2)
    $0.76March 27, 2017
    95,395 PSUs
    $0.76March 28, 2017
    80,217 Common
      Shares(2)
    $0.74March 28, 2017
    46,474 PSUs
    $0.78March 29, 2017
    49,658 Common
      Shares(2)
    $0.73March 29, 2017
    49,658 PSUs
    $0.73March 31, 2017
    304,574 Common
      Shares(2)
    $0.75April 3, 2017
    30,987 Common
      Shares(2)
  $0.74April 3, 2017
    30,987 PSUs
    $0.74April 4, 2017
    46,875 PSUs
    $0.74April 4, 2017
    46,875 Common Shares(2)
    $0.73April 5, 2017
    46,246 Common Shares(2)
    $0.73April 5, 2017
    46,246 PSUs
    $0.73April 6, 2017
    42,852 PSUs
    $0.73April 6, 2017
    42,852 Common Shares(2)
    $0.73April 7, 2017
    44,540 PSUs
    $0.74April 7, 2017
    44,540 Common Shares(2)
    $0.73May 11, 2017
    633,329 PSUs
    $0.75(4)May 12, 2017
    202,608 Common Shares(2)
    $0.72May 15, 2017
    39,661 Common Shares(2)
    $0.68May 29, 2017
    12,231 Common Shares(2)
    $0.60May 31, 2017
    13,258 Common Shares(2)
    $0.51June 16, 2017
    4,721 Common Shares(2)
    $0.46August 14, 2017
    602,579 PSUs
    $0.75(4)August 21, 2017
    161,521 Common Shares(2)
    $0.13October 3, 2017
    506,551 Common Shares(2)
    $0.09November 16, 2017
    46,297 Common Shares(2)
    $0.09November 30, 2017
    219,598 Common Shares(2)
    $0.09December 13, 2017
    4,943 Common Shares(2)
    $0.09 86   Notes:(1)
    Price per Security refers to the share price at the closing of the
      day before the date of grant in the case of Primero options and Primero
      PSUs and the market price at the time of issuance in the case of Primero
      shares.(2)
  Issuance of Primero shares in connection with vested Primero PSUs.(3)
    Issuance of Primero shares in connection with severance entitlement of
      former President and Chief Executive Officer Ernest Mast.(4)
    Reflects the price utilized by the Primero Board to determine the
      quantity of units issued.  D.
    Selling Shareholders Not applicable. E.
    Dilution Not applicable. F.
    Expenses of the Issue Not applicable. ITEM 10.
    **ADDITIONAL
      INFORMATION**  A.
    Share Capital Not applicable. B.
    Memorandum and Articles of Association Articles of Association 87   Primero Mining Corp. is
incorporated under the Act. Effective January 1, 2015, Primero Mining Corp. and
Primero Gold Canada Inc. amalgamated under the name of Primero Mining Corp.
under Incorporation No. BC1023633. The Companys articles of association (the
Companys Articles) were last amended by shareholder resolution passed at the
Annual General and Special Meeting held on May 6, 2015. The Companys Articles
do not contain a description or place any restrictions on the Companys objects
and purposes. For more information, see the Consolidated Articles filed as
Exhibit 1.1 to this Form 20-F. Disclosure of Interest of Directors The Companys Articles provide
that a director or senior officer who holds a disclosable interest (as that term
is used in the Act) in a contract or transaction into which the Company has
entered or proposes to enter is liable to account to the Company for any profit
that accrues to the director or senior officer under or as a result of the
contract or transaction only if and to the extent provided in the Act. Further, a director who holds a
disclosable interest in a contract or transaction into which the Company has
entered or proposes to enter is not entitled to vote on any directors
resolution to approve that contract or transaction, unless all the directors
have a disclosable interest in that contract or transaction, in which case any
or all of those directors may vote on such resolution. Such director who is
present at the meeting of directors at which the contract or transaction is
considered for approval may be counted in the quorum at the meeting whether or
not the director votes on any or all of the resolutions considered at the
meeting. The Companys Articles provide
that a director or senior officer who holds any office or possesses any
property, right or interest that could result, directly or indirectly, in the
creation of a duty or interest that materially conflicts with that individuals
duty or interest as a director or senior officer, must disclose the nature and
extent of the conflict as required by the Act. Remuneration of Directors The Companys Articles provide
that the Board will from time to time determine the remuneration to be paid to
the directors. The Company must reimburse each director for the reasonable
expenses that he or she may incur in and about the business of the Company. The
Board may also by resolution, award special remuneration to any director for
undertaking any professional or other services on Companys behalf that in the
opinion of the Board are outside the ordinary duties of a director, Borrowing
Powers of Directors The Companys Articles provide that the directors may: (a)
borrow money in the manner and amount, on the security, from the sources and on
the terms and conditions that they consider appropriate; (b) issue bonds,
debentures and debt obligations either outright or as security for any liability
or obligation of the Company or any other person and at such discounts or
premiums and on such other terms as they consider appropriate; (c) guarantee the
repayment of money by any other person or the performance of any obligation of
any other person; and (d) mortgage, charge, whether by way of specific or
floating charge, grant a security interest in, or give other security on, the
whole or any part of the present and future assets and undertaking of the
Company. Alteration to the Articles can be carried out in accordance with the
Act by way of passing resolutions. Retirement/Age Limit of Directors The Company does not have a
retirement age policy for its directors. The Company believes that imposing term
limits on its directors would be unduly restrictive and not in the best
interests of the Company, and could become an arbitrary mechanism for removing
directors which could result in valuable and experienced directors being forced
to leave the Board solely because of length of service. Therefore, the Company
has decided not to adopt specific term limits for the directors on its Board,
but rely instead upon effective annual assessments to ensure the ongoing
efficacy of individual directors and the Board and its committees as a whole.
Qualification Shares A director is not required to
hold a share in the capital of the Company as qualification for his or her
office but must be qualified as required by the Act to become, act or continue
to act as a director. 88   Shares and Shareholders The Companys Articles provide
that no share may be issued until it is fully paid. Subject to the rights of the
holders of the preferred shares of the Company, holders of Common Shares of the
Company are entitled to dividends if, as and when declared by the directors.
Holders of Common Shares of the Company are entitled to one vote per Common
Share at meetings of shareholders except at meetings at which only holders of a
specified class of shares are entitled to vote. Upon liquidation, dissolution or
winding-up of the Company, subject to the rights of holders of preferred shares,
holders of Common Shares of the Company are to share rateably in the remaining
assets of the Company as are distributable to holders of Common Shares. The
Common Shares are not subject to call or assessment rights, redemption rights,
rights regarding purchase for cancellation or surrender, or any pre-emptive or
conversion rights. Preferred shares may be issued from time to time in one or
more series, ranking equally on winding-up, to repayment of the amount paid up
on such shares, and to carry and be subject to, as a class, the following
special rights and restrictions pertaining to (but not limited to) dividends,
redemption or purchase rights, rights of retraction, rights of conversion, terms
and conditions of any share purchase plan or sinking fund, rights upon
dissolution of the Company, and voting, as the directors of the Company may,
from time to time, determine by resolution. Currently the preferred shares rank
in priority over Common Shares as to dividends and return of paid up capital
upon dissolution or winding up of the Company. Holders of preferred shares are
not entitled to notice or to vote at meetings of shareholders (except where
holders of a specified class or series are entitled to a separate vote in
accordance with the Act. The Company may at any time purchase for cancellation
or redeem the preferred shares that may be issued and holders of preferred
shares may require the Company to retract such shares in accordance with the
terms upon which such have been issued. The special rights and restrictions
attaching to the Common shares and the Preferred shares are set forth in Part 27
of the Articles. Majority Voting Policy for Directors Companys Board has adopted a
policy stipulating that if the votes in favour of the election of a nominee
director at a shareholders meeting represent less than a majority of the shares
voted and withheld, the nominee will submit his or her resignation promptly
after the meeting to the Board, to be effective upon acceptance by the Board.
The Governance and Nominating Committee will review the circumstances of the
election and make a recommendation to the Board as to whether or not to accept
the tendered resignation. The Board will determine whether or not to accept the
tendered resignation as soon as reasonably possible and in any event within 90
days of the election. Subject to any corporate law restrictions, the Board may
fill any resulting vacancy through the appointment of a new director. The
nominee will not participate in any Governance and Nominating Committee or Board
deliberations on the offered resignation. This policy does not apply in
circumstances involving contested director elections. Meetings of Shareholders The Act requires the Company to
call an annual shareholders meeting not later than 15 months after holding the
last preceding annual meeting and permits the Company to call a special
shareholders meeting at any time. Further, in accordance with the Act, the
holders of not less than 5% of the Companys shares carrying the right to vote
at a meeting sought to be held may requisition the directors to call a special
shareholders meeting for the purpose stated in the requisition. The Company is
required to mail a notice of the date, time and location of any meeting of
shareholders, including proxy related materials in the manner provided in the
Articles, the Act and applicable securities legislations. The directors set a
date as the record date for the purpose of determining shareholders entitled to
receive notices of any meeting of shareholders and to vote at any such meetings.
The Companys Articles provide that a quorum of two shareholders in person or
represented by proxy holding or representing, in the aggregate, at least 5% of
the Companys issued shares entitled to be voted at the meeting. In addition to
shareholders and their duly appointed proxies and corporate representatives, the
Companys directors, president, secretary, lawyers, auditors and invitees of
directors, are entitled to be admitted to the Companys annual and special
shareholders meetings, provided that any such person is not be counted in the
quorum and is not entitled to vote at the meeting unless that person is a
shareholder or proxy holder entitled to vote at the meeting. Disclosure of Share Ownership and Changes in Capital The Company complies with insider
transaction reporting obligations required under the Canadian Securities
legislation. In addition, the Company has adopted share ownership guidelines
setting minimum shareholding requirements for its directors and officers. The
policy also disallows directors and officers from engaging in hedging against
declines in value of the Companys equity securities. Directors share ownership
information is disclosed in Companys management information circular sent out
to shareholders prior to holding annual and special shareholder meetings. 89   Provisions concerning the
alteration of authorized share structure is set forth in Article 9.1. There are no limitations on the
rights to own securities, including the rights of non-resident or foreign
shareholders to hold or exercise voting rights on the securities imposed by the
Act or by the constating document of the Company. There is no provision in the
Company's Articles that would have an effect of delaying, deferring or
preventing a change in control of the Company and that would operate only with
respect to a merger, acquisition or corporate restructuring involving the
Company (or any of its subsidiaries). C.
    Material Contracts The material contracts, other
than contracts entered into in the ordinary course of business, to which the
Company is a party, for the two years immediately preceding publication of this
annual report, are the following: (a)
    Credit Agreement, dated May 23, 2014, between the Company
      and a syndicate of lenders led by Bank of Montreal as Administrative Agent
      (as amended pursuant to a first amending agreement dated December 22,
      2014, a second amending agreement dated February 5, 2015, a third amending
      agreement dated December 31, 2015, a fourth amending agreement dated
      December 28, 2016, a fifth amending agreement dated March 30, 2017, a
      sixth amending agreement dated October 2, 2017, a seventh amending
      agreement dated November 23, 2017, an eighth amending agreement dated
      November 23, 2017, a ninth amending agreement dated November 30, 2017, a
      tenth amending agreement dated December 15, 2017, an eleventh amending
      agreement dated December 22, 2017 and a twelfth amending agreement dated
      January 11, 2018). See Item 3. Key Information  D. Risk Factors 
      Financial Risks  Indebtedness.(b)
    Trust Indenture, dated February 9, 2015, between the
      Company and Computershare Trust Company of Canada. See Item 4.
      Information on the Company  A. History and Development of the Company 
      3. Three Year History  Recent Developments  2015  Convertible Debenture
      Prospectus Offering.(c)
    Second amended and restated silver purchase agreement
      among Silver Trading, SW Caymans, the Company and Silver Wheaton dated as
      of August 6, 2010. See Item 3. Key Information  D. Risk Factors 
      Financial Risks  Challenges to the 2012 APA and Item 4. Information on
      the Company  B. Business Overview  Mining Activities  San Dimas Mine 
      Amended and Restated Silver Purchase Agreement.(d)
    Deed of indemnity among Silver Trading, the Company and
      Goldcorp, dated as of August 6, 2010 entered into in connection with the
      Amended and Restated Silver Purchase Agreement pursuant to which the
      Company agreed to (i) reimburse Goldcorp for certain amounts paid or
      payable by Goldcorp to SW Caymans pursuant to Goldcorps guarantee and
      (ii) indemnify and save harmless Goldcorp from and against certain losses
      of Goldcorp that arise out of or relate to SW Caymans pursuant to
      Goldcorps guarantee. See Item 3. Key Information  D. Risk Factors 
      Financial Risks  Challenges to the 2012 APA and Item 4. Information on
      the Company  B. Business Overview  Mining Activities  San Dimas Mine 
      Amended and Restated Silver Purchase Agreement.(e)
    Asset Purchase Agreement dated August 25, 2017, between
      the Company and McEwen Mining Inc. See Item 4. Information on the Company
       A. History and Development of the Company  3. Three Year History 
  Recent Developments  2017  Sale of Black Fox Mine and Complex. 90    (f)
    Arrangement Agreement dated January 11, 2018 between the
      Company and First Majestic Silver Corp. See Item 4. Information on the
      Company  A. History and Development of the Company  3. Three Year
      History  Recent Developments  2018  Friendly Acquisition of Primero
  Mining and Restructured Stream with Wheaton Precious Metals.  D.
    Exchange Controls See Item 3. Key Information - A.
Selected Consolidated Income Statement Data - Exchange Rates. E.
    Taxation Certain Canadian Federal Income Tax Consequences The following summarizes the
principal Canadian federal income tax consequences applicable to the holding and
disposition of common shares in the capital of the Company by a holder who, for
purposes of the Income Tax Act (Canada) (the Tax Act) and the Canada United
States Income Tax Convention, 1980, as amended (the Canada-U.S. Tax
Convention), is resident in the United States, beneficially holds the common
shares as capital property and does not use or hold the common shares in the
course of carrying on a business in Canada (a U.S. Holder). The common shares
will generally be considered to be capital property unless the U.S. Holder holds
the common shares in the course of carrying on a business, or acquires the
common shares in a transaction or transactions considered to be an adventure in
the nature of trade. This summary is based on the
current provisions of the Tax Act, the regulations thereunder, all amendments
thereto publicly proposed by the government of Canada, the published
administrative practices of the Canada Revenue Agency and the current provisions
of the Canada-U.S. Tax Convention. This summary does not otherwise take into
account or anticipate any changes in law, whether by way of legislative,
judicial or administrative action or interpretation, nor does it address any
provincial, territorial or foreign (including without limitation, any United
States) tax considerations. This summary is of a general
nature only and it is not intended to be, nor should it be construed to be,
legal or tax advice to any particular U.S. Holder. Accordingly, U.S. Holders are
urged to consult with their own tax advisors about the specific tax consequences
of acquiring, holding and disposing of common shares. Disposition of Common Shares and Capital Gains: A U.S. Holder will generally not
be subject to tax under the Tax Act in respect of a capital gain realized on the
disposition or deemed disposition of a common share, unless the common share
constitutes taxable Canadian property to the U.S. Holder for purposes of the
Tax Act. Provided that the common shares are listed on a designated stock
exchange for purposes of the Tax Act (which includes the TSX) at the time of
disposition, the common shares will generally not constitute taxable Canadian
property to a U.S. Holder unless, at any time during the 60-month period
immediately preceding the disposition (i) the U.S. Holder, together with persons
with whom the U.S. Holder does not deal at arms length for the purposes of
the Tax Act, owned 25% or more of the issued shares of any class of shares of
the Company and (ii) more than 50% of the fair market value of the common shares
was derived directly or indirectly from one or a combination of real or
immovable property situated in Canada, Canadian resource properties or timber
resource properties (as such terms are defined in the Tax Act), or options or
interests in respect of any such properties. Provided the common shares are
listed at the time of disposition on the TSX or other recognized stock
exchange (which includes the TSX) for purposes of the Tax Act, a U.S. Holder
who disposes of common shares will not be required to satisfy the obligations
imposed under Section 116 of the Tax Act and, as such, the purchaser of such
shares will not be required to withhold any amount on the purchase price paid
and the US Holder will not have to apply to obtain a certificate of compliance
related to the disposition of the common shares. 91   U.S. Holders whose common shares may constitute taxable
Canadian property should consult their own tax advisors. Certain United States Federal Income Tax Consequences: The following is a general
summary of certain material U.S. federal income tax considerations applicable to
a U.S. Holder (as defined below) arising from and relating to the acquisition,
ownership and disposition of common shares. This summary is for general
information purposes only and does not purport to be a complete analysis or
listing of all potential U.S. federal income tax considerations that may apply
to a U.S. Holder arising from and relating to the acquisition, ownership, and
disposition of common shares. In addition, this summary does not take into
account the individual facts and circumstances of any particular U.S. Holder
that may affect the U.S. federal income tax consequences to such U.S. Holder,
including, without limitation, specific tax consequences to a U.S. Holder under
an applicable income tax treaty. Accordingly, this summary is not intended to
be, and should not be construed as, legal or U.S. federal income tax advice with
respect to any U.S. Holder. This summary does not address the U.S. federal
alternative minimum, U.S. federal estate and gift, U.S. state and local, and
non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and
disposition of common shares. In addition, except as specifically set forth
below, this summary does not discuss applicable tax reporting requirements. Each
prospective U.S. Holder should consult its own tax advisors regarding the U.S.
federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S.
state and local, and non-U.S. tax consequences relating to the acquisition,
ownership and disposition of common shares. Reporting Obligations for Certain U.S. Holders Certain U.S. holders that hold
certain specified foreign financial assets, including stock in a foreign
corporation, with values in excess of certain thresholds are required to file
IRS Form 8938 with their federal income tax return. Such form requires
disclosure of information concerning such foreign assets, including the value of
the assets. Failure to file the form when required is subject to penalties. An
exemption from reporting applies to foreign assets held through a U.S. financial
institution, generally including a non-U.S. branch or subsidiary of a U.S.
institution and a U.S. branch of a non-U.S. institution. U.S. holders are
encouraged to consult their tax advisors regarding the possible application of
this disclosure requirement to their investment in our common shares. THE PRECEDING DISCUSSION OF U.S.
FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX
ADVICE. ACCORDINGLY, EACH INVESTOR SHOULD CONSULT ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF PRIMERO
COMMON SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL,
FOREIGN OR OTHER TAX LAWS AND OF ANY PROPOSED CHANGES IN APPLICABLE LAW. F.
    Dividends and Paying Agents Not applicable. G.
    Statement by Experts Not applicable. H.
    Documents on Display We are subject to the
informational requirements of the U.S. Securities Exchange Act of 1934.
Accordingly, we are required to file reports and other information with the SEC,
including annual reports on Form 20-F and certain other reports on Form 6-K
containing the information that we make public under Canadian law, file with the
Canadian stock exchanges or distribute to shareholders. You may inspect and copy
reports and other information to be filed with the SEC at the public reference
facilities maintained by the SEC at 100 F Street, N.W., Washington D.C. 20549
and at the SECs regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 233 Broadway, New York, New York 10279. Copies of
the materials may be obtained from the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The public may obtain information on the operation of
the SECs Public Reference Room by calling the SEC in the United States at
1-800-SEC-0330. In addition, the SEC maintains an Internet website at http://www.sec.gov, from which you can electronically access the
registration statement and its materials. 92   As a foreign private issuer, we
are exempt from the rules under the Exchange Act prescribing the furnishing and
content of proxy statements and will not be required to file proxy statements
with the SEC, and its officers, directors and principal shareholders will be
exempt from the reporting and short swing profit recovery provisions contained
in Section 16 of the Exchange Act. You may obtain documents from us
by requesting them in writing, at the following electronic mailing address or by
telephone: Investor RelationsTelephone: (416) 814-3160Email: info@primeromining.com  I.
    Subsidiary Information Not applicable. ITEM 11.
    **QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT MARKET RISK** Please see Item 5. Operating and
Financial Review and Prospects  B. Liquidity and Capital Resources  Financial
Instruments Risk  Market Risks. ITEM 12.
    **DESCRIPTION OF SECURITIES
      OTHER THAN EQUITY SECURITIES** Not applicable PART II ITEM 13.
    **DEFAULTS, DIVIDEND
      ARREARAGES AND DELINQUENCIES** Primero is in compliance with all contracts and agreements. The
Company does not currently pay dividends. ITEM 14.
    MATERIAL MODIFICATIONS TO THE RIGHTS OF
      SECURITY HOLDERS AND USE OF PROCEEDS  14. **A.-B.**
Modifications to the Rights of Security Holders Holders of the Primero Debentures
at a special meeting held on March 13, 2018 approved the proposed amendment of
the Trust Indenture to accelerate the maturity date of the Primero Debentures to
the next Business Day (as defined in the Trust Indenture) following the
effective date of the Arrangement involving, among other things, the acquisition
by First Majestic of all of the outstanding shares of Primero. Furthermore, each Primero option
which is outstanding and has not been duly exercised prior to the effective date
of the Arrangement (whether vested or unvested), notwithstanding the terms of
the Primero options, shall be unconditionally vested and exercisable in full,
and such Primero option will be exchanged for a replacement option to purchase
from First Majestic under the same exchange ratio as First Majestic shares are
entitled to. Each holder of a Primero warrant
outstanding immediately prior to the effective date of the Arrangement shall
receive (and such holder shall accept), upon the exercise of such holders
Primero warrant, in lieu of each Primero share to which such holder was
theretofore entitled, such number of First Majestic shares as is equal to the
exchange ratio (and when aggregated with an exercise of other similar Primero
warrants resulting in a fraction of a First Majestic share, they all shall be
rounded down to nearest whole number of First Majestic shares) provided, however, the exercise price per First Majestic share shall be
equal to the current exercise price per Primero share divided by the exchange
ratio. Each Primero warrant shall continue to be governed by and be subject to
the terms of the Primero warrant indenture and any applicable supplemental
indenture executed thereunder. 93   Pursuant to the Arrangement
Agreement, each Directors PSU outstanding immediately before completion of the
arrangement shall be deemed to be fully vested and each holder thereof shall be
paid a cash payment in an amount equal to $0.30 per Directors PSU. In addition,
each DSU outstanding immediately before completion of the arrangement shall be
deemed to be fully vested and each holder thereof shall be paid a cash payment
in an amount equal to $0.30 per DSU. 14.**C**. Not applicable. 14.**D.** Not applicable. 14.**E.**
    Use of Proceeds Not applicable. ITEM 15.
CONTROLS AND PROCEDURES  (a)
    Disclosure Controls and Procedures. Disclosure controls and
procedures form a framework designed to provide reasonable assurance that
information disclosed publicly fairly presents in all material respects the
financial condition, results of operations, and cash flows of the Company for
the periods presented in this annual report. The Companys disclosure controls
and procedures framework includes processes designed to ensure that material
information relating to the Company, including its consolidated subsidiaries, is
made known to management by others within those entities to allow timely
decisions regarding required disclosure. The Companys management, with
the participation of its CEO and CFO, has evaluated the design, operation and
effectiveness of the Companys disclosure controls and procedures. Based on the
results of that evaluation, the Companys CEO and CFO have concluded that, as of
the end of the period covered by this report, the Companys disclosure controls
and procedures were effective to provide reasonable assurance that the
information required to be disclosed by the Company in its annual filings,
interim filings or other reports filed or submitted by it under securities
legislation is recorded, processed, summarized and reported, within the time
periods specified in the securities legislation, and is accumulated and
communicated to the Companys management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required disclosure. (b)
    Managements Report on Internal Control over Financial
      Reporting. The Companys management, with
the participation of its CEO and CFO, is responsible for establishing and
maintaining adequate internal control over financial reporting. The Companys
internal control over financial reporting is a process designed or under the
supervision of, the CEO and CFO, and effected by the Companys Board of
Directors, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS. The Companys internal control over financial
reporting includes policies and procedures that:     
      pertain to the maintenance of records that accurately and fairly reflect,
      in reasonable detail, the transactions and dispositions of assets of the
      Company;    
      provide reasonable assurance that transactions are recorded as necessary
      to permit preparation of financial statements in accordance with IFRS and
      that the Companys receipts and expenditures are made only in accordance
  with authorizations of management and the Companys directors; and 94        
      provide reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of the Companys assets that
      could have a material effect on the Companys consolidated financial
      statements. Management assessed the
effectiveness of Primeros internal control over financial reporting as of
December 31, 2017, based on the criteria set forth in Internal Control 
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on its assessment, management concluded
that the Companys internal control over financial reporting was effective as of
December 31, 2017. Readers are cautioned that any
controls and procedures, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Due to the inherent limitations in all controls systems, they
cannot provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been prevented or detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by unauthorized override of the
control. The design of any control system also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Accordingly, because of the inherent limitations in a cost
effective control system, misstatements due to error or fraud may occur and not
be detected. (c)
    Attestation Report of the Independent Registered Public Accounting
      Firm. The effectiveness of Primeros
internal control over financial reporting as of December 31, 2017 has been
audited by KPMG LLP, Primeros independent registered public accounting
firm. (d)
  Changes in Internal Control over Financial Reporting. During the year ended December
31, 2017, there were no changes in the Companys internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting. ITEM 16.
  **RESERVED**  ITEM 16A.
    **Audit Committee Financial
      Expert** The Audit Committee is currently
comprised of three directors, Michael Riley, Grant Edey and Brad Marchant, all
of whom are both independent and financially literate according to the Boards
independence standards as set out in the Companys Board Guidelines and
applicable Canadian and U.S. securities laws and regulations. Michael Riley, the
Chair of the Audit Committee, is also an audit committee financial expert
under the U.S. Securities and Exchange Act regulations. ITEM 16B.
    Code of Ethics Our Board has adopted a Code of
Ethics applicable to our directors, officers and employees, including our
principal executive officer and principal financial officer. The Code of Ethics
can be found at www.primeromining.com. Information found at this website is not
incorporated by reference into this document. ITEM 16C.
  Principal Accountant Fees and Services Audit Fees For the financial years ended
December 31, 2017 and 2016, the Company paid the external auditor,
CDN$832,999and CDN$839,575, respectively, as detailed below: 95    **Year Ended December
    31**Nature of Services
    
    2017
    (1)
    
    2016
    (1)Audit Fees(2)
    $
    670,762
    
    
    761,142Audit-Related Fees
    
    -
    
    
    -Tax Fees
    
    162,237
    
    
    78,433All
      Other Fees
    
    -
    
    
    -Total
    $
    832,999
    
    $
    839,575 Notes: (1)
    All amounts in Canadian dollars.(2)
    Audit fees represent the aggregate fees billed for each
      of the last two fiscal years for professional services rendered by the
      principal accountant for the review and audit of the Companys interim and
      annual financial statements or services that are normally provided by the
      accountant in connection with statutory and regulatory filings or
    engagements for those fiscal years. Audit-Related Fees Audit-related fees represent the
aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit or review of the Companys financial statements and are
not reported under Audit Fees above. Tax Fees Tax fees representthe
aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning. All Other Fees Other fees would include
transaction related services. Pre-Approval Policies and Procedures The Audit Committees charter
sets out responsibilities regarding the provision of non-audit services by the
Companys external auditor. This policy encourages consideration of whether the
provision of services other than audit services is compatible with maintaining
the auditors independence and requires Audit Committee pre-approval of
permitted audit and audit-related services. ITEM 16D.
    **Exemptions from the Listing Standards
      for Audit Committees** Not applicable. ITEM 16E.
    Purchases of Equity Securities by the Issuer
      and Affiliated Purchasers There were no purchases of
Primeros securities by the Company or any affiliated purchasers during
2017. ITEM 16F.
    Change in Registrants Certifying
      Accountant None. ITEM 16G. Corporate Governance Not applicable. 96    ITEM 16H.
  **Mine Safety Disclosure** Not applicable. PART III ITEM 17.
  **FINANCIAL STATEMENTS** See Item 18. Financial
Statements. ITEM 18.
  **FINANCIAL STATEMENTS** See our audited consolidated
financial statements beginning on Page F-1. ITEM 19.
**EXHIBITS**  1.1
    Primero Mining Corp. Articles of Incorporation2.1
    Trust Indenture, dated February 9, 2015, between the
      Company and Computershare Trust Company of Canada for the 5.75%
      Convertible Debentures4.1
    Credit Agreement, dated May 23, 2014, between the Company
      and a syndicate of lenders led by Bank of Montreal as Administrative Agent
      (as amended pursuant to a first amending agreement dated December 22,
      2014, a second amending agreement dated February 5, 2015, a third amending
      agreement dated December 31, 2015, a fourth amending agreement dated
      December 28, 2016, a fifth amending agreement dated March 30, 2017, a
      sixth amending agreement dated October 2, 2017, a seventh amending
      agreement dated November 23, 2017, an eighth amending agreement dated
      November 23, 2017, a ninth amending agreement dated November 30, 2017, a
      tenth amending agreement dated December 15, 2017, an eleventh amending
      agreement dated December 22, 2017 and a twelfth amending agreement dated
      January 11, 2018)4.2
    Arrangement Agreement, dated January 11, 2018, between
      the Company and First Majestic Silver Corp.4.3
    Second Amended and Restated Silver Purchase Agreement
      among Silver Trading (Barbados), SW Caymans (now Wheaton Precious Metals
      International), the Company and Silver Wheaton (now Wheaton Precious
      Metals) dated August 6, 2010 (previously filed as an exhibit to the
      Companys Form 40-F filed August 11, 2011)4.4
    Deed of Indemnity among Silver Trading (Barbados), the
      Company and Goldcorp Inc., dated August 6, 2010 (previously filed as an
      exhibit to the Companys Form 40-F filed August 11, 2011)4.5
    Asset Purchase Agreement for the Black Fox Complex with
      McEwen Mining Inc., dated August 25, 20174.6
    Primero DSU Plan (previously filed as an exhibit to the Company's Form 6-K
      filed March 27,2015)4.7
    Primero PSU Plan (previously filed as an exhibit to the
      Companys Form 6-K filed April 19, 2016)4.8
    Primero Stock Option Plan (previously filed as an exhibit
      to the Companys Form 6-K filed April 5, 2016)8.1
    List of Material Subsidiaries 97    12.1
    Certification pursuant to Rule
      13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a))
      of Chief Executive Officer.12.2
    Certification pursuant to Rule
      13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a))
      of Chief Financial Officer.13.1
    Certification pursuant to 18
      U.S.C. 1350 of Chief Executive Officer.13.2
    Certification pursuant to 18
      U.S.C. 1350 of Chief Financial Officer.19.1
    Consent of Expert - Dave Laudrum, P.Geo.19.2
    Consent of Expert - Patrick McCann, P.Eng.19.3
    Consent of Expert - John Morton Shannon, P.Geo.19.4
    Consent of Expert - Gabriel Voicu, P.Geo.19.5
    Consent of Expert - Rodney Webster, M.AIG
 98   SIGNATURE The Company hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on Form 20-F on its behalf. PRIMERO MINING CORP.By:
    /s/  Joseph ConwayName:
    Joseph ConwayTitle:
    Interim President and Chief Executive
      Officer Dated: April 20, 2018 99   TABLE OF CONTENTS Managements
      Responsibility for Financial Reporting
    1Report
      of Independent Registered Public Accounting Firm
    2
      - 5Consolidated
      statements of operations and comprehensive loss
    6Consolidated
      statements of financial position
    7Consolidated
      statements of changes in equity
    8Consolidated
      statements of cash flows
    9Notes
      to the consolidated financial statements
    10
      - 54    MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING Managements Report on Financial Statements The consolidated financial statements of Primero Mining Corp.
  have been prepared by, and are the responsibility of the Companys management.
  The consolidated financial statements are prepared in accordance with
  International Financial Reporting Standards (IFRS) as issued by the
  International Accounting Standards Board (IASB) and reflect managements best
  estimates and judgments based on information currently available. In the opinion
  of management, the accounting practices utilized are appropriate in the
  circumstances and the consolidated financial statements fairly reflect the
  financial position and results of operations of the Company. The Board of Directors is responsible for ensuring management
  fulfills its financial reporting responsibilities. The Audit Committee meets
  with the Companys management and external auditors to discuss the results of
  the audit and to review the consolidated financial statements prior to the Audit
  Committees submission to the Board of Directors for approval. The Audit
  Committee also reviews the quarterly financial statements and recommends them
  for approval to the Board of Directors, reviews with management the Companys
  systems of internal control, and reviews the scope of the external auditors
  audit and non-audit work. The Audit Committee is composed entirely of directors
  not involved in the daily operations of the Company who are thus considered to
  be free from any relationship that could interfere with their exercise of
  independent judgment as a committee member. The consolidated financial statements have been audited by KPMG
  LLP and their report outlines the scope of their examination and gives their
  opinion on the consolidated financial statements. /s/ Joseph F. Conway
    
    /s/ Ryan SnyderJoseph F. Conway
    
    Ryan
      SnyderPresident and Chief Executive Officer
    
    Chief Financial OfficerApril 19, 2018
    
    April 19, 2018 1   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Primero
  Mining Corp. Opinion on the Financial Statements We have audited the accompanying consolidated statements of
  financial position of Primero Mining Corp. (the "Company") as of December 31,
  2017, and 2016, the related consolidated statements of operations and
  comprehensive loss, changes in equity and cash flows for each of the three years
  in the period ended December 31, 2017, and the related notes (collectively
  referred to as the " consolidated financial statements"). In our opinion, the consolidated financial statements present
  fairly, in all material respects, the financial position of the Company as of
  December 31, 2017, and 2016, and its financial performance and its cash flows
  for each of the three years in the period ended December 31, 2017, in conformity
  with International Financial Reporting Standards as issued by the International
  Accounting Standards Board. Material Uncertainty Related to Going Concern Without qualifying our opinion on the financial statements, we
  draw attention to Note 2 b) to the financial statements, which indicates that
  the Company`s cash and liquidity position may not be sufficient to meet its
  obligations as they become due. This condition, along with other matters as set
  forth in Note 2 b), indicate the existence of material uncertainties that cast
  substantial doubt on the Companys ability to continue as a going concern. Report on Internal Control over Financial Reporting We also have audited, in accordance with the standards of the
  Public Company Accounting Oversight Board (United States), the Companys
  internal control over financial reporting as of December 31, 2017, based on the
  criteria established in Internal Control  Integrated Framework (2013) issued by
  the Committee of Sponsoring Organizations of the Treadway Commission, and our
  report dated April 19, 2018 expressed an unqualified opinion on the
  effectiveness of the Companys internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the
  Company's management. Our responsibility is to express an opinion on the
  Company's financial statements based on our audits. We are a public accounting firm registered with the Public
  Company Accounting Oversight Board (United States) (PCAOB) and are required to
  be independent with respect to the Company in accordance with the U.S. federal
  securities laws and the applicable rules and regulations of the Securities and
  Exchange Commission and the PCAOB. 2   We conducted our audits in accordance with the standards of the
  PCAOB. Those standards require that we plan and perform the audit to obtain
  reasonable assurance about whether the financial statements are free of material
  misstatement, whether due to error or fraud. Our audits included performing
  procedures to assess the risks of material misstatement of the financial
  statements, whether due to error or fraud, and performing procedures that
  respond to those risks. Such procedures included examining, on a test
  basis, evidence regarding the amounts and disclosures in the financial
  statements. Our audits also included evaluating the accounting principles used
  and significant estimates made by management, as well as evaluating the overall
  presentation of the financial statements. We believe that our audits provide a
  reasonable basis for our opinion.  Chartered Professional Accountants, Licensed Public Accountants We have served as Companys auditor since 2015. Toronto, Canada April 19, 2018 3   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Primero
  Mining Corp. Opinion on Internal Control Over Financial
  Reporting We have audited Primero Mining Corp.s (the Company) internal
  control over financial reporting as of December 31, 2017, based on the criteria
  established inInternal Control  Integrated Framework (2013) issued by
  the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material
  respects, effective internal control over financial reporting as of December 31,
  2017, based on the criteria established in Internal Control  Integrated
    Framework (2013) issued by the Committee of Sponsoring Organizations of the
  Treadway Commission. Report on the Financial Statements We also have audited, in accordance with the standards of the
  Public Company Accounting Oversight Board (United States) (PCAOB), the
  consolidated statements of financial position of the Company as of December 31,
  2017, and 2016, the related consolidated statements of operations and
  comprehensive loss, changes in equity and cash flows for each of the three years
  in the period ended December 31, 2017, and the related notes (collectively
  referred to as the "consolidated financial statements") and our report dated
  April 19, 2018 expressed an unqualified opinion on those consolidated financial
  statements. Basis for Opinion The Companys management is responsible for maintaining
  effective internal control over financial reporting and for its assessment of
  the effectiveness of internal control over financial reporting, included under
  item 15 in the Company`s Annual Report on Form 20-F for the year ended December
  31, 2017. Our responsibility is to express an opinion on the Companys internal
  control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and
  are required to be independent with respect to the Company in accordance with
  the U.S. federal securities laws and the applicable rules and regulations of the
  Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the
  PCAOB. Those standards require that we plan and perform the audit to obtain
  reasonable assurance about whether effective internal control over financial
  reporting was maintained in all material respects. Our audit of internal control
  over financial reporting included obtaining an understanding of internal control
  over financial reporting, assessing the risk that a material weakness exists,
  and testing and evaluating the design and operating effectiveness of internal
  control based on the assessed risk. Our audit also included performing such
  other procedures as we considered necessary in the circumstances. We believe
  that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over
  Financial Reporting A companys internal control over financial reporting is a
  process designed to provide reasonable assurance regarding the reliability of
  financial reporting and the preparation of financial statements for external
  purposes in accordance with generally accepted accounting principles. A
  companys internal control over financial reporting includes those policies and
  procedures that (1) pertain to the maintenance of records that, in reasonable
  detail, accurately and fairly reflect the transactions and dispositions of the
  assets of the company; (2) provide reasonable assurance that transactions are
  recorded as necessary to permit preparation of financial statements in
  accordance with generally accepted accounting principles, and that receipts and
  expenditures of the company are being made only in accordance with
  authorizations of management and directors of the company; and (3) provide
  reasonable assurance regarding prevention or timely detection of unauthorized
  acquisition, use, or disposition of the companys assets that could have a
  material effect on the financial statements. 4   Because of its inherent limitations, internal control over
  financial reporting may not prevent or detect misstatements. Also, projections
  of any evaluation of effectiveness to future periods are subject to the risk
  that controls may become inadequate because of changes in conditions, or that
  the degree of compliance with the policies or procedures may deteriorate.  Chartered Professional Accountants, Licensed Public Accountants Toronto, Canada April 19, 2018 5    PRIMERO MINING CORP.CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE LOSSFOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015(IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT FOR SHARE
      AND PER SHARE AMOUNTS)  Year ended
      December 31Notes
    
    
    2017
    
    
    2016
    
    
    2015Revenue
    
    7
    
    $
    91,769
    
    $
    147,581
    
    $
    213,192Operating expenses
    
    
    
    
    (67,280
    )
    
    (100,452
    )
    
    (103,782
    )Depreciation and depletion
    
    
    
    
    (22,433
    )
    
    (47,116
    )
    
    (55,836
    )Total cost of sales
    
    
    
    
    (89,713
    )
    
    (147,568
    )
    
    (159,618
    )Earnings from mine operations
    
    
    
    
    2,056
    
    
    13
    
    
    53,574Mining interest impairment charge
    
    4
    
    
    (303,858
    )
    
    (111,000
    )
    
    -Exploration expenses
    
    
    
    
    (1,345
    )
    
    (1,885
    )
    
    (1,690
    )Share-based compensation
    
    
    
    
    (4,149
    )
    
    (7,049
    )
    
    (7,144
    )General and administrative
      expenses
    
    11
    
    
    (11,479
    )
    
    (13,529
    )
    
    (19,021
    )Idle and restart costs incurred during strike
      at San Dimas
    
    
    
    
    (6,207
    )
    
    -
    
    
    -Other charges
    
    12
    
    
    (7,044
    )
    
    (4,725
    )
    
    (2,702
    )Loss from operations
    
    
    
    
    (332,026
    )
    
    (138,175
    )
    
    23,017Transaction costs
    
    
    
    
    -
    
    
    (679
    )
    
    (4,416
    )Interest and finance expenses
    
    13
    
    
    (11,285
    )
    
    (8,761
    )
    
    (11,498
    )Mark-to-market gain on
      debentures & warrants
    
    
    
    
    5,897
    
    
    12,610
    
    
    13,500Other expenses
    
    14
    
    
    (355
    )
    
    (427
    )
    
    (1,869
    )Loss before income taxes
    
    
    
    
    (337,769
    )
    
    (135,432
    )
    
    18,734Income tax recovery (expense)
    
    15
    
    
    4,393
    
    
    19,938
    
    
    (27,991
    )Net loss from continuing operations
    
    
    
    
    (333,376
    )
    
    (115,494
    )
    
    (9,257
    )Net
      loss from discontinued operations, net of income taxes
    
    5
    
    
    (76,309
    )
    
    (118,926
    )
    
    (97,653
    )Net loss for the year
    
    
    
    
    ($409,685
    )
    
    ($234,420
    )
    
    ($106,910
    )Other comprehensive loss, net of taxItems that may be
      subsequently reclassified to profit or loss:Exchange differences on translation of
      foreign operations, net of tax of $nil
    
    
    
    
    3,099
    
    
    (102
    )
    
    (5
    )Unrealized (loss) gain on investment in
      Fortune Bay, net of tax of $nil
    
    
    (250
    )
    
    1,058
    
    
    516Total comprehensive loss for the year
    
    
    
    
    ($406,836
    )
    
    ($233,464
    )
    
    ($106,399
    )Basic and diluted loss per
      share from continuing operations
    
    
    
    
    ($1.74
    )
    
    ($0.65
    )
    
    ($0.06
    )Basic and diluted loss per share from
      discontinued operations
    
    
    
    
    ($0.40
    )
    
    ($0.67
    )
    
    ($0.60
    )Basic and diluted loss per share including discontinued
      operations
    
    
    
    
    ($2.14
    )
    
    ($1.32
    )
    
    ($0.66
    )Weighted average number of common shares
      outstandingBasic
    
    
    
    
    191,738,274
    
    
    177,569,024
    
    
    162,340,566Diluted
    
    
    
    
    191,738,274
    
    
    177,569,024
    
    
    162,340,566 See accompanying notes to the consolidated financial statements. 6    PRIMERO MINING CORP.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(IN THOUSANDS OF UNITED STATES DOLLARS)  December 31
    
    
    December 31Notes
    
    
    2017
    
    
    2016AssetsCurrent assetsCash and cash
      equivalents
    
    19
    
    $
    20,966
    
    $
    19,875Trade and other receivables
    
    
    
    
    1,241
    
    
    1,962Value added and income
      taxes receivable
    
    
    
    
    40,789
    
    
    34,494Prepaid expenses
    
    
    
    
    2,642
    
    
    3,893Inventories
    
    8
    
    
    13,668
    
    
    22,829Total current assets
    
    
    
    
    79,306
    
    
    83,053Non-current assetsRestricted cash
    
    
    
    
    -
    
    
    4,577Mining interests
    
    4,9
    
    
    125,050
    
    
    577,920Deferred tax asset
    
    
    
    
    -
    
    
    3,763Long term stock pile
    
    8
    
    
    -
    
    
    -Value added tax receivable
    
    
    
    
    -
    
    
    7,344Other non-current assets
    
    
    
    
    910
    
    
    1,160Total assets
    
    
    
    $
    205,266
    
    $
    677,817LiabilitiesCurrent liabilitiesTrade and other payables
    
    
    
    $
    19,593
    
    $
    31,781Income tax payable
    
    
    
    
    3,298
    
    
    1,558Other taxes payable
    
    
    
    
    1,200
    
    
    2,035Current portion of long-term debt
    
    10
    
    
    30,310
    
    
    50,841Total current liabilities
    
    
    
    
    54,401
    
    
    86,215Non-current liabilitiesOther taxes payable
    
    
    
    
    18,805
    
    
    14,120Deferred tax liability
    
    
    
    
    7,457
    
    
    28,428Decommissioning liability
    
    20
    
    
    11,646
    
    
    29,790Long-term debt
    
    10
    
    
    47,625
    
    
    52,906Warrant liability
    
    17 (a)
    
    
    44
    
    
    1,066Other long-term liabilities
    
    
    
    
    5,557
    
    
    4,162Total liabilities
    
    
    
    $
    145,535
    
    $
    216,687Shareholders' equityShare capital
    
    17 (a)
    
    $
    915,641
    
    $
    908,923Shares reserved for future issuance
    
    17 (a)
    
    
    243
    
    
    297Contributed surplus
    
    17 (b)
    
    
    57,630
    
    
    58,857Accumulated other comprehensive loss
    
    
    
    
    (845
    )
    
    (3,694
    )Deficit
    
    
    
    
    (912,938
    )
    
    (503,253
    )Total shareholders' equity
    
    
    
    $
    59,731
    
    $
    461,130Total liabilities and shareholders' equity
    
    
    
    $
    205,266
    
    $
    677,817 Basis of Presentation and Going concern (Note 2 b)) 
  Commitments and contingencies (Note 24) 
  Subsequent events (Note 25) See accompanying notes to the consolidated financial
  statements. Approved on behalf of the Board of Directors /s/ Joseph F. Conway
    
    /s/ Michael E. RileyJoseph F. Conway,
      Director
    
    Michael E. Riley, Director 7    PRIMERO MINING CORP.CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT FOR NUMBER
      OF COMMON SHARES)  AccumulatedShare capital
    
    
    Shares reserved
    
    
    
    
    
    
    
    
    otherfor future
    
    
    Warrants
    
    
    Contributed
    
    
    comprehensiveNotes
    
    
    Shares
    
    
    Amount
    
    
    issuance
    
    
    reserve
    
    
    surplus
    
    
    loss
    
    
    Deficit
    
    
    Total equityBalance, January 1,
      2015
    
    
    
    
    161,555,875
    
    $
    858,761
    
    $
    -
    
    $
    34,782
    
    $
    21,526
    
    
    ($5,161
    )
    
    ($161,923
    )
    $
    747,985Shares issued forExercise of stock
      options
    
    
    
    
    300,000
    
    
    1,120
    
    
    -
    
    
    -
    
    
    (294
    )
    
    -
    
    
    -
    
    
    826PSUs settled in shares
    
    
    
    
    963,164
    
    
    4,364
    
    
    -
    
    
    -
    
    
    (4,404
    )
    
    -
    
    
    -
    
    
    (40
    )Flow-through agreement
    
    
    
    
    1,366,768
    
    
    3,130
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    3,130Expiry of warrants, net of tax
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    (34,782
    )
    
    30,046
    
    
    -
    
    
    -
    
    
    (4,736
    )Reclassification of
      unrealized loss oninvestment in Fortune Bay
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    456
    
    
    -
    
    
    456Foreign currency translation
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (5
    )
    
    -
    
    
    (5
    )Unrealized gain on investment in Fortune Bay
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    60
    
    
    -
    
    
    60Share-based compensation
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    8,110
    
    
    -
    
    
    -
    
    
    8,110Loss
      for the period
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (106,910
    )
    
    (106,910
    )Balance, December 31, 2015
    
    
    
    
    164,185,807
    
    $
    867,375
    
    $
    -
    
    $
    -
    
    $
    54,984
    
    
    ($4,650
    )
    
    ($268,833
    )
    $
    648,876Balance, January 1,
      2016
    
    
    
    
    164,185,807
    
    $
    867,375
    
    $
    -
    
    $
    -
    
    $
    54,984
    
    
    ($4,650
    )
    
    ($268,833
    )
    $
    648,876Shares issued forPublic equity offering
    
    
    
    
    22,022,500
    
    
    33,047
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    33,047Acquisition of mining concessions
    
    
    
    
    1,854,271
    
    
    3,540
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    3,540PSUs settled in shares
    
    
    
    
    1,445,787
    
    
    4,961
    
    
    -
    
    
    -
    
    
    (4,851
    )
    
    -
    
    
    -
    
    
    110Common shares reserved for future issuance
    
    
    
    
    -
    
    
    -
    
    
    297
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    297Other comprehensive income,
      net of tax
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    956
    
    
    -
    
    
    956Share-based compensation
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    8,724
    
    
    -
    
    
    -
    
    
    8,724Loss for the year
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (234,420
    )
    
    (234,420
    )Balance, December 31, 2016
    
    
    
    
    189,508,365
    
    $
    908,923
    
    $
    297
    
    $
    -
    
    $
    58,857
    
    
    ($3,694
    )
    
    ($503,253
    )
    $
    461,130Balance, January 1, 2017
    
    
    
    
    189,508,365
    
    $
    908,923
    
    $
    297
    
    $
    -
    
    $
    58,857
    
    
    ($3,694
    )
    
    ($503,253
    )
    $
    461,130Shares issued forPSUs settled in shares
    
    17 (a)
    
    
    2,543,773
    
    
    6,117
    
    
    -
    
    
    -
    
    
    (6,117
    )
    
    -
    
    
    -
    
    
    -Severance and other
      employee payments
    
    17 (a)
    
    
    993,684
    
    
    601
    
    
    -
    
    
    -
    
    
    (5
    )
    
    -
    
    
    -
    
    
    596Release of common shares reserved for future
      issuance
    
    
    
    
    -
    
    
    -
    
    
    (54
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (54
    )Other comprehensive income,
      net of tax
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    2,849
    
    
    -
    
    
    2,849Share-based compensation
    
    17 (c)
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    4,895
    
    
    -
    
    
    -
    
    
    4,895Loss for the year
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (409,685
    )
    
    (409,685
    )Balance, December 31, 2017
    
    
    
    
    193,045,822
    
    $
    915,641
    
    $
    243
    
    $
    -
    
    $
    57,630
    
    
    ($845
    )
    
    ($912,938
    )
    $
    59,731 Total comprehensive loss was $406.8 million for the year ended
  December 31, 2017 (December 31, 2016  loss of $233.5 million, December 31, 2015
  - $106.4 million) . See accompanying notes to the consolidated financial
  statements. 8    PRIMERO MINING CORP.CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015(IN THOUSANDS OF UNITED STATES DOLLARS)  Year ended December 31Notes
    
    
    2017
    
    
    2016
    
    
    2015Operating activitiesLoss before income taxes
    
    
    
    
    ($337,769
    )
    
    ($135,432
    )
    $
    18,734Loss before income taxes,
      from discontinued operations
    
    5
    
    
    (82,020
    )
    
    (120,452
    )
    
    (105,247
    )Adjustments for:Mining
      interests impairment charge
    
    4
    
    
    398,821
    
    
    228,000
    
    
    104,000Depreciation and
      depletion
    
    
    
    
    29,703
    
    
    63,329
    
    
    77,238Share-based compensation expense
    
    
    
    
    4,875
    
    
    8,586
    
    
    8,938Payments made under the
      Phantom Share Unit Plan
    
    
    
    
    -
    
    
    (377
    )
    
    (4,245
    )Mark-to-market gain on convertible debentures
    
    
    
    
    (4,875
    )
    
    (9,000
    )
    
    (13,500
    )Mark-to-market gain on
      warrant liability
    
    
    
    
    (1,022
    )
    
    (3,610
    )
    
    -Write-down of inventory
    
    
    
    
    -
    
    
    1,040
    
    
    3,048Unrealized foreign
      exchange loss (gain)
    
    
    
    
    5,329
    
    
    2,390
    
    
    (4,743
    )Taxes
      paid
    
    
    
    
    (4,027
    )
    
    (29,625
    )
    
    (15,104
    )Other
    
    
    
    
    2,199
    
    
    975
    
    
    (1,007
    )Other adjustmentsTransaction costs (disclosed in financing
      activities)
    
    
    
    
    -
    
    
    232
    
    
    3,651Finance income (disclosed in
      investing activities)
    
    
    
    
    (41
    )
    
    (88
    )
    
    (111
    )Finance expense
    
    
    
    
    11,460
    
    
    9,299
    
    
    11,514Operating cash flow before
      working capital changes
    
    
    
    
    22,633
    
    
    15,267
    
    
    83,166Changes in non-cash working capital
    
    16
    
    
    (82
    )
    
    (2,158
    )
    
    (1,537
    )Cash provided by operating activities
    
    
    
    $
    22,551
    
    $
    13,109
    
    $
    81,629Investing activitiesExpenditures on mining
      interests - San Dimas
    
    
    
    
    ($22,410
    )
    
    ($37,446
    )
    
    ($62,695
    )Expenditures on mining interests - Black Fox
    
    
    
    
    (13,235
    )
    
    (29,956
    )
    
    (33,880
    )Expenditures on mining
      interests - Other
    
    
    
    
    (206
    )
    
    (271
    )
    
    (3,147
    )Proceeds from dispositions, net
    
    
    
    
    40,369
    
    
    -
    
    
    -Cash provided by (used in) investing activities
    
    
    
    $
    4,518
    
    
    ($67,673
    )
    
    ($99,722
    )Financing activitiesProceeds from equity offering
    
    17 (a)
    
    $
    -
    
    $
    39,958
    
    $
    -Transaction costs on equity offering
    
    17 (a)
    
    
    -
    
    
    (2,464
    )
    
    -Net (repayment)/drawdown on
      revolving credit facility
    
    10 (a)
    
    
    (19,799
    )
    
    50,000
    
    
    -Repayment of convertible debenture
    
    10 (c)
    
    
    -
    
    
    (48,116
    )
    
    -Repayment of revolving credit
      facility
    
    
    
    
    -
    
    
    -
    
    
    (40,000
    )Payments on capital leases
    
    
    
    
    (1,116
    )
    
    (4,497
    )
    
    (5,715
    )Funds released from
      reclamation bond
    
    
    
    
    4,799
    
    
    1,564
    
    
    9,846Interest paid
    
    
    
    
    (9,954
    )
    
    (7,493
    )
    
    (6,267
    )Proceeds from exercise of
      options
    
    
    
    
    -
    
    
    -
    
    
    828Proceeds from issuance of flow-through shares
    
    
    
    
    -
    
    
    -
    
    
    4,340Issuance of convertible debt
    
    
    
    
    -
    
    
    -
    
    
    75,000Transaction costs on issuance of convertible debt
    
    
    
    
    -
    
    
    -
    
    
    (3,651
    )Cash (used in) provided by financing activities
    
    
    
    
    ($26,070
    )
    $
    28,952
    
    $
    34,381Effect of foreign exchange rate changes on cash
    
    
    
    $
    92
    
    
    ($114
    )
    $
    1,924Increase (decrease) in cash
    
    
    
    $
    1,091
    
    
    ($25,726
    )
    $
    18,212Cash, beginning of year
    
    
    
    
    19,875
    
    
    45,601
    
    
    27,389Cash, end of year
    
    
    
    $
    20,966
    
    $
    19,875
    
    $
    45,601 See accompanying notes to the consolidated financial
  statements. 9    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)  1.
    Corporate information Primero Mining Corp. (Primero or the Company) is a publicly
  traded company, listed on the Toronto Stock Exchange and previously listed on
  the New York Stock Exchange until August 14, 2017. Its registered office is
  Suite 1500, 1055 West Georgia Street, Vancouver, British Columbia. The Corporate
  address is Suite 2100, 79 Wellington Street West, Toronto, Ontario. The Company
  owns one producing property, the San Dimas gold-silver mine in the San Dimas
  district of Mexico, and previously owned a second producing property, the Black
  Fox gold mine and adjoining properties in Timmins, Ontario, Canada (the Black
  Fox Complex) which was sold in 2017 and has been reported as discontinued
  operations in these consolidated financial statements. The Company also has one
  project in the exploration stage, Ventanas located in Mexico. The Company
  previously owned a property in the development stage, the Cerro del Gallo
  project in Mexico which was sold in 2017 and has been reported as discontinued
  operations in these consolidated financial statements. 2.
    Basis of preparation and summary of significant
      accounting policies a) Statement of compliance These consolidated financial statements, as at and for the
  years ended December 31, 2017, 2016 and 2015, of the Company have been prepared
  in accordance with International Financial Reporting Standards (IFRS) as
  issued by the International Accounting Standards Board (IASB). These consolidated financial statements were approved by the
  Companys Board of Directors on April 19, 2018. b) Basis of presentation and going concern These consolidated financial statements have been prepared on a
  going concern basis, under the historical cost basis, except for the certain
  financial instruments which are presented at fair value. Certain prior year
  balances have been reclassified to conform with the current year presentation. In 2017, the Companys Board of Directors commenced a strategic
  review process to explore alternatives to improve shareholder value. This
  process ultimately resulted in the sale of the Black Fox Complex in October
  2017, the sale of the Cerro del Gallo project in November 2017, and a definitive
  arrangement agreement (the "Arrangement Agreement") to sell Primero to First
  Majestic Silver Corp. (First Majestic), announced on January 12, 2018. Refer
  to note 25 for additional details. On March 13, 2018, the Arrangement was approved by Primero
  shareholders. On March 13, 2018, the holders of the 5.75% convertible debentures
  voted to approve an amendment to the maturity date of the debentures to the day
  following the closing date of the Arrangement with full principal paid on this
  date. The Company is awaiting anti-trust clearance in Mexico. The Arrangement is
  expected to close in late April or early May 2018, subject to applicable
  regulatory approvals and the satisfaction of other customary conditions. In the event that the Arrangement does not close by April 30, 2018, the Company will seek an extension of the revolving credit facility ("RCF"). Primero did not generate enough cash from operations to support
  its investing activities during 2017. The Company has sufficient cash on hand to
  support the business through to the expected close of the Arrangement with First
  Majestic. If the transaction closes as planned, management believes First Majestic will have sufficient funding
  to satisfy all commitments of Primero and its subsidiaries. 10    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) If the Arrangement Agreement with First Majestic is terminated
  for any reason, there is significant uncertainty that Primero will have
  sufficient funds to repay the full outstanding obligation under the RCF upon maturity, which would allow the lenders to exercise
  their rights under the RCF (see notes 9 and 10). An Event of Default under the
  RCF, unless waived, would trigger cross default provisions under the convertible
  debentures and the Silver Purchase Agreement. The above noted factors represent a material uncertainty that
  casts substantial doubt on the ability of the Company to continue as a going
  concern. These financial statements do not include the adjustments to the
  amounts and classification of assets and liabilities that would be necessary
  should the Company be unable to continue as a going concern. These adjustments
  may be material. These consolidated financial statements include the accounts of
  the Company and its subsidiaries from their respective dates of acquisition. All
  intragroup balances and transactions between entities of the group have been
  eliminated in full. The Companys significant subsidiaries, which are all wholly
  owned, are: Subsidiary
    Location
    PropertyPrimero Empresa Minera, S.A. de C.V. ("PEM ")
    Mexico
    San Dimas Mine and VentanasSilver Trading (Barbados) Limited ("STB")
    Barbados
    -Primero Mining
      Luxem bourg S.a.r.l.
    Luxembourg
    -Subsidiary
      Disposed of in 2017
    Location
    PropertySan Anton de las Minas, S.A. de C.V.
    Mexico
    Cerro
      del Gallo Project The results of discontinued operations, comprising the Black
  Fox Complex and Cerro del Gallo, included in the consolidated statement of
  operations and comprehensive loss for the years ended December 31, 2017, 2016
  and 2015 are disclosed in note 5. The comparative periods have been recast
  accordingly. c) Functional and presentation currency The functional and presentation currency of the Company is the
  U.S. dollar. The functional currency of PEM and STB is the U.S. dollar. The
  functional currency of San Anton de las Minas S.A. de C.V. prior to its
  disposition was the U.S. dollar. The functional currency of Primero Mining
  Luxembourg S.a.r.l. is the Mexican peso. For entities using U.S. dollars as the functional currency, all
  monetary assets and liabilities denominated in a currency other than the U.S.
  dollar are translated at current exchange rates at each balance sheet date and
  the resulting adjustments are included in a separate line item under other
  income (expenses). Revenue and expense in foreign currencies are translated
  using the exchange rates at the date of the transaction. The accounts of Primero Mining Luxembourg S.a.r.l. are
  translated into the U.S. dollar presentation currency as follows: all assets and
  liabilities are translated at the exchange rate prevailing at the statement of
  financial position date; equity balances are translated at the rates of exchange
  at the transaction dates, and all items included in the statement of operations
  are translated using the annual average exchange rates unless there
  are significant fluctuations in the exchange rate, in which case the rate at the
  date of transaction is used. All differences arising upon the translation to the
  presentation currency are recorded in the foreign currency translation reserve
  within accumulated other comprehensive loss; there is no tax impact of this
  translation. 11    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) d) Revenue recognition Revenue is derived from the sale of gold and silver. Revenue is
  recognized on individual contracts when there is persuasive evidence that all of
  the following criteria are met: 
    the significant risks and rewards of ownership
      have been transferred to the buyer;
    neither continuing managerial involvement to the degree
      usually associated with ownership nor effective control over the goods
      sold have been retained;
    the amount of revenue and costs to sell can be
      measured reliably;
    it is probable that the economic benefits associated with
      the transaction will flow to the Company and collectability of proceeds is
      reasonably assured. All of these criteria are met based on the contract with the
  respective buyers which generally coincides with the receipt of the sales
  proceeds. Sales prices are based on the terms of the contract or at spot
  prices. e) Inventories Inventories including finished goods (gold and silver),
  work-in-progress, and stockpiled ore are valued at the lower of average
  production cost and net realizable value. Net realizable value is calculated as
  the estimated price at the time of sale less estimated future production costs
  to convert the inventories into saleable form. Ore extracted from a mine is stockpiled and subsequently
  processed into finished goods. Production costs including mining and milling
  costs, applicable overhead costs, depreciation and depletion are capitalized to
  inventory depending on its current location and condition. Inventories of
  stockpiled ore that are not expected to be processed in the next year are
  classified as non-current inventories. Inventories also include supplies, which are valued at the
  lower of average cost or replacement cost. f) Financial instruments All financial instruments are required to be measured at fair
  value on initial recognition. Measurement in subsequent periods depends upon
  whether the financial instrument is classified as fair value through profit or
  loss (FVTPL), available-for-sale, held-to-maturity, loans and receivables, or
  other liabilities. Financial instruments classified as FVTPL are measured at fair
  value with gains and losses recognized in the statement of operations and
  comprehensive loss. The 5.75% convertible debentures and warrant liability are
  classified as FVTPL and measured at fair value based on their trading price.
  Financial assets classified as held-to-maturity, loans and receivables, and
  financial liabilities classified as other liabilities, are measured at amortized
  cost. Trade and other receivables, cash and cash equivalents, and restricted
  cash are classified as loans and receivables, and are measured at amortized cost. Trade and
  other payables, and the RCF are classified as other financial liabilities, and
  are also measured at amortized cost. 12    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) Transaction costs in respect of financial assets and
  liabilities which are measured at FVTPL are recognized in the statement of
  operations and comprehensive loss immediately. Transaction costs in respect of
  other financial instruments are included in the initial carrying value of the
  financial instrument. A financial asset is classified as available-for-sale when: (i)
  it is not classified as a loan and receivable, a held-to-maturity investment or
  at FVTPL; or (ii) it is designated as available-for-sale on initial recognition.
  The Companys equity investment in Fortune Bay (included in other non-current
  assets) is classified as available-for-sale and is measured at fair value with
  mark-to-market gains and losses recognized in other comprehensive income (OCI).
  When available-for-sale investments in marketable securities and equity
  securities are derecognized, the cumulative mark-to-market gains or losses that
  had been previously recognized in OCI are reclassified to earnings for the
  period. When there is objective evidence that an available-for-sale financial
  asset is impaired, the cumulative loss that had been previously recognized in
  OCI is reclassified to earnings for the period. The Company may enter into derivative contracts or financial
  instruments and non-financial contracts containing embedded derivatives.
  Embedded derivatives are required to be accounted for separately at fair value
  as derivatives when the risks and characteristics of the embedded derivatives
  are not closely related to those of their host contract, and the host contract
  is not designated as FVTPL. These embedded derivatives are measured at fair
  value with changes in fair value recognized in earnings for the period. Derecognition A financial asset (or, where applicable, a part of a financial
  asset or part of a group of similar financial assets) is derecognized when: 
    The rights to receive cash flows from the asset
      have expired, or
    The Company has transferred its rights to receive cash
      flows from the asset or has assumed an obligation to pay the received cash
      flows in full without material delay to a third party under a
      pass-through arrangement; and either (a) the Company has transferred
      substantially all the risks and rewards of the asset, or (b) the Company
      has neither transferred nor retained substantially all the risks and
      rewards of the asset, but has transferred control of the asset. Continuing involvement that takes the form of a guarantee over
  the transferred asset is measured at the lower of the original carrying amount
  of the asset and the maximum amount of consideration that the Company could be
  required to pay under the guarantee. g) Mining interests The Company categorizes mining interests based on the type of
  asset and/or the stage of operation, development or exploration of the
  property. Land, buildings, plant and equipment includes land, mobile and
  stationary equipment, and refining and processing facilities for all properties
  regardless of their stage of development or operation. 13    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) Mineral properties include: 
    Development and operating properties which include
      capitalized development and stripping costs, cost of assets under
      construction, capitalized exploration and evaluation costs and mineral
      interests for those properties currently in operation for which
      development has commenced or for which technical feasibility and
      commercial viability have been determined; and
    Pre-development properties which include exploration and
      evaluation costs and mineral interests for those properties for which
      development has not commenced. Land, buildings, plant and equipment Upon initial acquisition, land, buildings, plant and equipment
  are valued at cost, being the purchase price and the directly attributable costs
  of acquisition or construction required to bring the asset to the location and
  condition necessary for the asset to be capable of operating in the manner
  intended by management. In subsequent periods, buildings, plant and equipment are
  stated at cost less accumulated depreciation and accumulated impairment charges.
  Land is stated at cost less any impairment in value and is not depreciated. Buildings, plant and equipment are depreciated (net of residual
  value) using the straight-line method based on estimated useful lives. Where significant components of an asset have differing useful
  lives, depreciation is calculated on each separate component. The estimated
  useful life of each item or part has due regard to both its own physical life
  limitations and the present assessment of economically recoverable reserves of
  the mine property at which the item is located, and to possible future
  variations in those assessments. Estimates of remaining useful lives and
  residual values are reviewed annually. Changes in estimates which affect
  depreciation are accounted for prospectively. The expected useful lives are as follows: Plant and buildings
    5 years to life of mineEquipment and vehicles
    4 years to life of mineComputer equipment
    3 to 5 years Mining properties The cost of acquiring mineral reserves and mineral resources is
  capitalized in the statement of financial position as incurred. Mine development costs incurred to develop areas of the mine
  which will be mined in future periods are capitalized and depleted when the
  related mining area is mined. Mine development costs incurred to prepare current
  production areas are considered operating expenses and expensed in the year as
  incurred. Mining properties are depleted using the units-of-production
  method over the mines estimated proven and probable reserves and, if
  appropriate, an estimate of the portion of resources expected to be classified
  as reserves. Depletion is calculated on a mine-by-mine basis. 14    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) The Companys depletion estimation methodology allocates mining
  properties from operating mines into a depletable component and a non-depletable
  component upon initial acquisition. The value assigned to the depletable
  component is equal to the value assigned to the proven and probable reserves and
  a portion of resources of the asset. The value assigned to the non-depletable
  component is the value assigned to the exploration potential of the asset and
  the remaining resources not included in the depletable component. Values
  allocated to both the depletable and non-depletable components may be adjusted
  prospectively when there has been a significant change in the reserves,
  resources and/or exploration potential or when impairment charges have been
  recorded. The allocation of values to the proven and probable reserves,
  resources and exploration potential of the asset are based on the discounted
  cash flow analysis of the Companys future expected cash flows at each operating
  mine. The depletable component is depleted over 100% of reserves and a portion
  of resources included in the Companys discounted cash flow analysis. The
  non-depletable component is not depleted but, in combination with the depletable
  component, is evaluated for impairment when events and changes in circumstances
  indicate that the carrying amount may not be recoverable. Reserves (including proven and probable) and resources
  (including measured, indicated and inferred) are based on the definitions in
  National Instrument 43-101  Standards of Disclosure for Mineral Projects (NI
  43-101). Exploration potential is the mineralization quantified by the
  Companys geologists with a sufficient degree of confidence to include in the
  Companys fair value determination, but without the necessary level of
  measurement precision to enable it to be classified as a resource as defined by
  NI 43-101. Each year, coincident with the updated reserve and resource
  estimates, the Company expects that a portion of resources will be transferred
  to reserves and a portion of exploration potential will be transferred to
  resources. As a result, the category of non-depletable mineralization is
  expected to reduce and, in the absence of further additions to exploration
  potential, eventually be fully classified within the depletable component over
  the life of mine. When considering the portion of resources to include in the
  depletion base of the depletable component, management considers the resources
  which are believed to have the probability of eventually being classified as
  proven and probable reserves, which includes: 
    resources that can be economically mined and are
      therefore commercially viable, considering managements assumptions on cut
      off grades, long-term gold and silver prices and exchange rates,
    historical experience and available geological and
      drilling information of the area under consideration. Development costs incurred during a period are added to the
  total mining property capitalized at the commencement of the period in
  calculating the depletion expense. Future development costs necessary to access
  resources, have been taken into account when determining the pattern of
  depletion for the Companys mining properties; such costs are included in the
  discounted cash flow analysis and are determined by the Companys geologists and
  engineers based on an in-depth knowledge of the mine and planned development
  work to access resources. 15    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) Exploration and evaluation expenditures Exploration and evaluation expenditures are charged to the
  statement of operations and comprehensive loss in the period incurred unless
  management determines that probable future economic benefits will be generated
  as a result of the expenditures. Once a project has been established as technically feasible and
  commercially viable, the capitalized expenditures are tested for impairment and
  transferred from exploration and evaluation costs to development costs within
  mining properties. If events take place subsequently and such project is no
  longer considered commercially viable it would be transferred back from
  development costs to exploration and evaluation expenditures. Major maintenance and repairs Expenditure on major maintenance and repairs includes the cost
  of replacement parts of assets and overhaul costs. Where an asset or part of an
  asset is replaced and it is probable that future economic benefits associated
  with the item will be available to the Company, that expenditure is capitalized
  and the carrying amount of the item replaced derecognized. Similarly, overhaul
  costs associated with major maintenance are capitalized when it is probable that
  future economic benefits will be available and any remaining carrying amounts of
  the cost of previous overhauls are derecognized. All other maintenance and
  repair costs are expensed as incurred. Borrowing costs Borrowing costs directly relating to the financing of
  qualifying assets are added to the capitalized cost of those projects until such
  time as the assets are substantially ready for their intended use or sale which,
  in the case of mining properties, is when they are capable of commercial
  production. Where funds have been borrowed specifically to finance a project,
  the amount capitalized represents the actual borrowing costs incurred. Where the
  funds used to finance a project form part of general borrowings, the amount
  capitalized is calculated using a weighted average of rates applicable to
  relevant general borrowings of the Company during the period. All other borrowing costs are recognized in the statement of
  operations and comprehensive loss in the year in which they are incurred.
  Borrowing costs are included as part of interest paid in the statement of cash
  flows. Leases The Company holds leases for office space and equipment. Leases
  are classified as either finance or operating leases. Assets held under finance leases, where substantially all of
  the risks and rewards of ownership have passed to the Company, are capitalized
  in the statement of financial position at the lower of the fair value of the
  leased property and the present value of the minimum lease payments during the
  lease term calculated using the interest rate implicit in the lease agreement.
  The corresponding liability to the lessor is included in the statement of
  financial position as a finance lease obligation. Capitalized amounts are
  determined at the inception of the lease and are depreciated over the shorter of
  their useful economic lives or the lease term. Lease payments are apportioned
  between finance charges and reduction of the lease obligation so as to achieve a
  constant rate of interest on the remaining balance of the liability. Finance
  charges are recognized in the statement of operations and comprehensive loss as
  finance expense unless they are directly attributable to qualifying assets, in which
  case they are capitalized in accordance with the Companys accounting policy on
  borrowing costs. 16    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) Leases where substantially all of the risks and rewards of
  ownership have not passed to the Company are classified as operating leases.
  Rentals payable under operating leases are charged to the statement of
  operations and comprehensive loss as operating expenses or general and
  administrative expenses on a straight-line basis over the lease term. Impairment of non-current assets The carrying amounts of assets included in mining interests are
  reviewed for impairment when events and changes in circumstances indicate that
  the related carrying amounts may not be recoverable. In addition, capitalized
  exploration and evaluation costs are assessed for impairment upon demonstrating
  commercial viability of a project. The carrying amounts of the assets are
  compared to the recoverable amount of the assets whenever events or changes in
  circumstances indicate that their carrying value may not be recoverable. The
  recoverable amount is the higher of value-in-use and fair value less cost of
  disposal (FVLCD). For mining assets, when a binding sale agreement and observable
  market prices are not readily available, FVLCD is estimated using a discounted
  cash flow approach for each of the Companys cash generating units (CGUs) to
  which the individual assets are allocated. The assumptions used in determining
  the FVLCD for the CGUs include long-term mining plans, long-term commodity
  prices, discount rates, foreign exchange rates and values of un-modeled
  mineralization. If the recoverable amount of an asset (or CGU) is estimated to
  be less than its carrying amount, the carrying amount is reduced to its
  recoverable amount. An impairment is recognized immediately as an expense. Where an impairment subsequently reverses, the carrying amount
  of the asset (or CGU) is increased to the revised estimate of its recoverable
  amount, subject to the amount not exceeding the carrying amount that would have
  been determined had no impairment been recognized for the asset (or CGU) in
  prior periods. A reversal of impairment is recognized during the period in the
  statement of operations and comprehensive loss. Disposal Upon disposition, an item within mining interests is
  derecognized, and the difference between its carrying value and net sales
  proceeds is disclosed as a gain or loss on disposal in the statement of
  operations and comprehensive loss. h) Income taxes Income tax expense (recovery) comprises current and deferred
  tax. Current tax and deferred tax are recognized in the statement of operations
  and comprehensive loss except to the extent they relate to items recognized
  directly in equity or in OCI, in which case the related taxes are recognized in
  equity or OCI. Current income tax is the expected cash tax payable or
  receivable on the local taxable income or loss for the year for each taxable
  entity using tax rates enacted or substantively enacted at the reporting date.
  This may differ from earnings reported in the statement of operations and comprehensive loss due to income or expense items that are not
  currently taxable or deductible for tax purposes, and any adjustment to income
  taxes in respect of previous years. 17    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) Deferred income tax is recognized in respect of unused tax
  losses, tax credits and temporary differences between the carrying amounts of
  assets and liabilities for financial reporting purposes and the amounts used for
  taxation purposes. Deferred tax is measured at the tax rates that are expected
  to be applied to temporary differences when they reverse, based on the tax rates
  that have been substantively enacted at the reporting date. Deferred tax assets
  and liabilities are offset if there is a legally enforceable right to offset
  current tax liabilities and assets, and they relate to income taxes levied by
  the same tax authority on the same taxable entity, or on different tax entities,
  but they intend to settle current tax liabilities and assets on a net basis or
  their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized to the extent that it is
  probable that future taxable profits will be available against which the asset
  can be utilized. Deferred tax assets are reviewed at each reporting date and are
  reduced to the extent that it is no longer probable that the related tax benefit
  will be realized. The Company records foreign exchange gains and losses
  representing the impacts of movements in foreign exchange rates on the tax bases
  of non-monetary assets and liabilities which are denominated in foreign
  currencies. Foreign exchange gains and losses relating to the translation of the
  deferred income tax balance from local statutory accounts to functional currency
  accounts are included in deferred income tax expense or recovery in the
  statements of operations and comprehensive loss. Uncertain income tax positions are recorded in the consolidated
  financial statements when probable and measured at the amount expected to be
  paid to (recovered from) the taxation authority using the Companys best
  estimate of the amount. i) Sharebased compensation Equity-settled awards to employees and others providing
  similar services For equity-settled awards, the fair value of the award is
  charged to the statement of operations and comprehensive loss and credited to
  share-based compensation reserve (within equity in the consolidated statement of
  financial position) ratably over the vesting period, after adjusting for the
  number of awards that are expected to vest. The fair value of the awards is
  determined at the date of grant using the Black-Scholes option pricing model. At
  each statement of financial position date prior to vesting, the cumulative
  expense representing the extent to which the vesting period has expired and
  managements best estimate of the awards that are ultimately expected to vest,
  is computed and charged to the statement of operations and comprehensive loss. Expenses recognized for forfeited awards are reversed. For
  awards that are cancelled, any expense not yet recognized is recognized
  immediately in the statement of operations and comprehensive loss. Where the terms of an equity-settled award are modified, as a
  minimum an expense is recognized as if the terms had not been modified over the
  original vesting period. In addition, an expense is recognized for any
  modification which increases the total fair value of the share-based payment arrangement as measured at the date of
  modification, over the remainder of the vesting period. 18    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) Cash-settled awards to employees and others providing
  similar services For cash-settled awards, the fair value is re-calculated at
  each statement of financial position date until the awards are settled, using
  the Companys share price (with any changes in fair value recognized in the
  statement of operations and comprehensive loss). During the vesting period, a
  liability is recognized representing the portion of the vesting period which has
  expired at the statement of financial position date multiplied by the fair value
  of the awards expected to vest at that date. After vesting, the full fair value
  of the unsettled awards at each statement of financial position date is
  recognized as a liability. Movements in value are recognized in the statement of
  operations and comprehensive loss. Equity or cash-settled awards to employees and others
  providing similar services The Company accounts for awards issued under the 2013 Phantom
  Share Unit Plan as equity-settled. For equity-settled awards, the fair value of
  the award is charged to the statement of operations and comprehensive loss and
  credited to share-based compensation reserve (within equity in the consolidated
  statement of financial position) ratably over the vesting period. The fair value
  of the awards is determined at the date of grant using the closing market price
  of the Companys shares. At each statement of financial position date prior to
  vesting, the cumulative expense representing the extent to which the vesting
  period has expired and managements best estimate of the awards that are
  ultimately expected to vest, is computed and charged to the statement of
  operations and comprehensive loss. No expense is recognized for awards that ultimately do not
  vest. For any awards that are cancelled, any expense not yet recognized is
  recognized immediately in the statement of operations and comprehensive
  loss. Where the terms of an equity-settled award are modified, as a
  minimum an expense is recognized as if the terms had not been modified over the
  original vesting period. In addition, an expense is recognized for any
  modification which increases the total fair value of the share-based
  compensation arrangement as measured at the date of modification, over the
  remainder of the vesting period. j) Provisions General Provisions are recognized when the Company has a present
  obligation (legal or constructive) as a result of a past event, it is probable
  that an outflow of resources embodying economic benefits will be required to
  settle the obligation and a reliable estimate can be made of the amount of the
  obligation. Where the Company expects some or all of a provision to be
  reimbursed, for example under an insurance contract, the reimbursement is
  recognized as a separate asset, but only when the reimbursement is virtually
  certain. The expense relating to any provision is presented in the statement of
  operations and comprehensive loss net of any reimbursement. If the effect of the
  time value of money is material, provisions are discounted using a current
  pre-tax rate that reflects where appropriate, the risks specific to the
  liability. Where discounting is used, the increase in the provision due to the
  passage of time is recognized as finance expense in the statement of operations
  and comprehensive loss. 19    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) Decommissioning liability The Company records a liability for the estimated reclamation
  and closure of a mine, including site rehabilitation and long-term treatment and
  monitoring costs, discounted to net present value; this liability is then
  accreted to full value over the life of the mine with the accretion charge being
  recorded as a finance expense. The net present value is determined using the
  liability-specific risk-free interest rate. The estimated net present value of
  reclamation and closure cost obligations is re-measured each reporting period or
  when changes in circumstances occur and/or new material information becomes
  available. Increases or decreases to the obligations arise due to changes in
  legal or regulatory requirements, the extent of environmental remediation
  required, cost estimates and the discount rate applied to the obligation. The
  net present value of the estimated cost of these changes is recorded in the
  period in which the change is identified and quantifiable. Reclamation and
  closure cost obligations relating to operating mines and development projects
  are recorded with a corresponding increase to the carrying amounts of related
  assets and the adjusted cost is depreciated on a prospective basis. k) Loss per share Basic loss per share is computed by dividing net loss by the
  weighted average number of common shares outstanding during the period. The
  computation of diluted loss per share assumes the conversion, exercise or
  contingent issuance of securities only when such conversion, exercise or
  issuance would have a dilutive effect on loss per share. For this purpose, the
  treasury stock method is used for the assumed proceeds upon the exercise of
  stock options and warrants that are used to purchase common shares at the
  average market price during the period. l) Segmented reporting The Company operated in one geographic area, Mexico, with
  corporate activities occurring in a second geographic area, Canada. Prior to the
  disposition of the Black Fox Complex, the Company operated in two geographic
  areas; Mexico and Canada. The Companys operating segments reflect the Companys
  different mining interests and are reported in a manner consistent with the
  internal reporting to the chief operating decision maker, used to assess each
  segments performance. Primero currently has one reportable segment, the San
  Dimas mine (which currently includes the Ventanas property and Coral Silver
  concessions). During 2017 and prior to the dispositions of the Black Fox Complex
  and the Cerro del Gallo project, Primero had three reportable segments: the San
  Dimas mine, the Black Fox Complex and the Cerro del Gallo project. m) Assets held for sale and discontinued operations Assets or disposal groups are classified as held for sale if
  their carrying amount will be recovered principally through a sale transaction
  rather than through continuing use and measured at the lower of carrying amount
  or FVLCD. The assets or disposal groups must be available for immediate sale and
  the sale must be highly probable within one year. Impairment losses on initial
  classification as held for sale and gains or losses on subsequent remeasurement
  are included in the statements of operations and comprehensive loss. No
  depreciation is charged on assets or disposals groups classified as held for
  sale. 20    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) A discontinued operation is a component of an entity that
  either has been disposed of, abandoned or that is classified as held for sale. Discontinued operations are presented on the statements of
  operations and comprehensive loss as a separate line. n) Recent pronouncements issued The Company has reviewed new and revised accounting
  pronouncements that have been issued but are not yet effective and determined
  the following will have potential future impact on the Company. In May 2014, the IASB issued IFRS 15, Revenue from Contracts
  with Customers which supersedes existing standards and interpretations
  including IAS 18, Revenue. IFRS 15 establishes a single five-step model
  framework for determining the nature, amount, timing and uncertainty of revenue
  and cash flows arising from a contract with a customer. The standard is
  currently effective for annual periods beginning on or after January 1, 2018,
  with early adoption permitted. The Company does not expect the impact of
  adopting this standard to be material to its consolidated financial statements. In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments (IFRS 9). This standard is effective for annual
  periods beginning on or after January 1, 2018, and permits early adoption. IFRS
  9 provides a revised model for recognition, measurement and impairment of
  financial instruments and includes a substantially reformed approach to hedge
  accounting. The Company does not expect the impact of adopting this standard to
  be material on its consolidated financial statements. In January 2016, the IASB issued IFRS 16, Leases (IFRS 16).
  IFRS 16 is effective for periods beginning on or after January 1, 2019, with
  early adoption permitted, provided IFRS 15 has been adopted. IFRS 16 eliminates
  the current dual model for lessees, which distinguishes between on-balance sheet
  finance leases and off-balance sheet operating leases. Instead, there is a
  single, on-balance sheet accounting model that is similar to current finance
  lease accounting for lessees. The Company is currently evaluating the impact the
  standard is expected to have on its consolidated financial statements. 3.
    Critical Accounting Estimates and
      Judgments The preparation of these financial statements requires
  management to make judgments, estimates and assumptions that affect the reported
  amounts of revenues, expenses, assets, and liabilities at the date of the
  financial statements. If in the future such judgements, estimates and
  assumptions, which are based on managements experience and knowledge of the
  relevant facts and circumstances at the date of the financial statements,
  deviate materially from actual circumstances, the original judgements, estimates
  and assumptions will be modified as appropriate in the period in which the
  circumstances change. a) Accounting estimates The significant assumptions about the future and other major
  sources of estimation uncertainty as at the end of the reporting period that
  have a significant risk of resulting in a material adjustment to the carrying
  amounts of the Companys assets and liabilities are as follows: 21    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) (i) Estimated recoverable reserves and resources The Company estimates its proven and probable mineral reserves
  and measured and indicated and inferred mineral resources based on information
  compiled by appropriately qualified persons. Estimated ounces from mineral
  reserves and resources as well as estimates for exploration potential are
  included in the Companys estimation of future cash flows. These cash flows are
  based on factors such as estimates of foreign exchange rates, commodity prices,
  future capital requirements and production costs along with geological
  assumptions and judgments made in estimating the size and grade of the ore body.
  Changes in estimated ounces may impact the carrying value of assets, reclamation
  and remediation obligations, recognition of deferred tax amounts, depreciation
  and depletion, and impairment charges. 22    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) (ii) Determination of useful lives of property, plant and
  equipment Property, plant and equipment are depreciated to their
  estimated residual value over the estimated useful life of the asset. Should the
  actual useful life of the property, plant or equipment vary, future depreciation
  charges may change. (iii) Impairment charges Non-current assets are tested for impairment if there is an
  indicator of impairment. The impairment analysis generally requires the use of
  estimates and assumptions, including amongst others, long-term commodity prices,
  discount rates, length of mine life, future production levels, future operating
  costs, future capital expenditures and tax estimates. The estimates and
  assumptions are subject to risk and uncertainty; hence, there is the possibility
  that changes in circumstances will alter these projections, which may impact the
  recoverable amount of the assets. In such circumstances the carrying value of
  the assets may be impaired or a prior periods impairment charge reversed with
  the impact recorded in the statements of operations and comprehensive loss. (iv) Decommissioning liability The Companys accounting policy for the recognition of accrued
  site closure costs requires significant estimates and assumptions such as the
  requirements of the relevant legal and regulatory framework, the magnitude of
  possible disturbance and the timing, extent and costs of required closure,
  rehabilitation activity and applicable discount rates. Changes to these
  estimates and assumptions may result in actual expenditures in the future
  differing from the amounts currently provided. The decommissioning liability is
  periodically reviewed and updated based on the available facts and
  circumstances. (v) Income taxes The Company is periodically required to estimate the tax basis
  of assets and liabilities. Where applicable tax laws and regulations are either
  unclear or subject to varying interpretations, it is possible that changes in
  these estimates could occur that materially affect the amounts of deferred
  income tax assets and liabilities recorded in the financial statements. Changes
  in deferred tax assets and liabilities generally have a direct impact on
  earnings in the period of change. Each period, the Company evaluates the
  likelihood of whether some portion or all of each deferred tax asset will not be
  realized. This evaluation is based on historic and future expected levels of
  taxable income, the pattern and timing of reversals of taxable temporary
  differences that give rise to deferred tax liabilities, and tax planning
  initiatives. Levels of future taxable income are affected by, among other
  things, the market price for gold and silver, production costs, quantities of
  proven and probable reserves, interest rates and foreign currency exchange
  rates. 23    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) (vi) Valuation of inventory All inventory, other than supplies, is valued at the lower of
  average cost or net realizable value. Management is required to make various
  estimates and assumptions to determine the value of stockpiled ore, in-circuit
  inventories and doré inventories. The estimates and assumptions include surveyed
  quantities of stockpiled ore, in-circuit process volumes, gold and silver
  contents of both, costs to recover saleable ounces, recoverable ounces once
  processed and the price per ounce of gold or silver when ounces of gold and
  silver are expected to be recovered and sold. 24    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) (vii) Share-based compensation The Company makes certain estimates and assumptions when
  calculating the fair values of share-based compensation granted. The significant
  estimations and assumptions include expected volatility, expected life, expected
  dividend rate and risk-free rate of return. b) Accounting judgments The critical judgments that the Companys management have made
  that have the most significant effect on the amounts recognized in the Companys
  consolidated financial statements are as follows: (i) Functional currency The determination of a subsidiarys functional currency often
  requires significant judgment where the primary economic environment in which an
  entity operates may not be clear. This can have a significant impact on the
  consolidated results of the Company. (ii) Tax ruling in Mexico On October 4, 2012, PEM received a ruling (the APA Ruling)
  from the Mexican tax authority, Servicio de Administración Tributaria (SAT),
  which confirmed the appropriate price for sales of silver under the Amended and
  Restated Silver Purchase Agreement (see note 15 c) for further information).
  Under Mexican tax law, an advance pricing agreement (APA) ruling is generally
  applicable for up to a five year period (which in the Companys case, covered
  the year in which the ruling application was filed, the immediately preceding
  year and the three subsequent years). The Companys APA Ruling covered the five
  years ended December 31, 2014. In February 2016, PEM received a legal claim from the Mexican
  tax authority seeking to nullify the APA. The legal claim initiated does not
  identify any different basis for paying taxes, nor have any tax reassessments
  been received from the SAT. The Company intends to vigorously defend the
  validity of its APA. The Company has filed procedural and substantive responses
  to the claim. The procedural response is a challenge against the admission of
  the SATs claim. The substantive response contains the Companys response to the
  SATs claim. If the SAT is successful in retroactively nullifying the APA, the
  SAT may seek to audit and reassess PEM in respect of its sales of silver in
  connection with the Silver Purchase Agreement for 2010 through 2014. If the SAT
  is successful in retroactively nullifying the APA and issuing reassessments, it
  would likely have a material adverse effect on the Companys results of
  operations, financial condition and cash flows. PEM would have rights of appeal
  in connection with any reassessments. In June 2017, as part of the ongoing annual audits of the PEM
  tax returns, the SAT issued an observations letter for the 2010 tax year. An
  observations letter is issued to a taxpayer in advance of a reassessment being
  issued, provides an outline of the SATs position on matters under audit, and
  affords the taxpayer an opportunity to respond to such position in advance of
  the reassessment being issued. In this observations letter issued to PEM, the
  SAT made explicit its view that PEM should pay taxes based on the market price
  of silver which, if successfully applied to its 2010 taxation year, would make
  PEM liable for an additional $8.5 million of taxes before penalties or interest.
  As the Company continues to defend the APA in the Mexican legal proceeding, the
  APA remains valid and the Company will vigorously dispute any reassessment that
  may be issued in the future on a basis that assesses taxes on its silver revenues that is inconsistent with the APA. The observations
  letter does not represent a tax reassessment and no liability has been
  recognized in the financial statements. 25    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) In October 2017, the SAT issued an observations letter for the
  2011 tax year, with the same explicit view that PEM should pay taxes on the
  market price of silver, which if successfully applied to its 2011 taxation year,
  would make PEM liable for an additional $23.4 million of taxes before penalties
  or interest. The Company has submitted its formal response to both the 2010 and
  the 2011 observations letters. While the Company continues to believe its tax filing position
  based upon the APA is correct, should the Company ultimately be required to pay
  tax on its silver revenues based on market prices without any mitigating
  adjustments, the incremental income tax for the years 2012-2017 would be in the
  range of $130 - $145 million, before interest or penalties. While the Company continues to vigorously defend the validity
  of the APA and its transfer pricing position, it is also engaging in dialogue
  with the SAT seeking to resolve matters and bring tax certainty through a
  negotiated solution. Primero has also had constructive dialogue with the SAT in
  relation to outstanding value-added tax (VAT) receivables and has received
  $15.2 million of VAT refunds since July 2017. Since January 1, 2015, the Company has continued to record its
  revenue from the sale of silver for purposes of Mexican tax accounting in a
  manner consistent with the APA, on the basis that the applicable facts and laws
  have not changed. The Companys legal and financial advisors continue to believe
  that the Company has filed its tax returns compliant with applicable Mexican
  law. To the extent the SAT determines that the appropriate price of silver sales
  under the Silver Purchase Agreement is significantly different from the realized
  price and while PEM would have rights of appeal in connection with any
  reassessments, it is likely to have a material adverse effect on the Companys
  business, financial condition and results of operations. 4.
    Impairment Charges  Year ended
      December 31(in thousands of U.S. dollars)
    
    2017
    
    
    2016
    
    
    2015San Dimas
    $
    303,858
    
    $
    111,000
    
    $
    -Black Fox Complex
    
    44,963
    
    
    117,000
    
    
    82,000Cerro del Gallo
    
    50,000
    
    
    -
    
    
    22,000$
    398,821
    
    $
    228,000
    
    $
    104,000 In accordance with IFRS, non-current assets are tested for
  impairment when events or changes in circumstances suggest that their carrying
  amount may not be recoverable. When there is an indicator of impairment, the
  impacted CGU is tested for impairment. 2017 As part of the strategic review process discussed in note 1 the
  Company received several proposals during the second quarter of 2017 which
  provided evidence the carrying value of its CGUs exceeded their fair value.
  During the second quarter of 2017, the Company recorded an impairment of $285.0
  million, which comprised impairments of $195.0 million for the San Dimas mine,
  $40.0 million for the Black Fox Complex and $50.0 million for the Cerro del
  Gallo project (note 5). During the third quarter of 2017, an additional
  impairment of $5.0 million was recorded for the Black Fox Complex to align with
  the net proceeds received from the disposition during the fourth quarter of
  2018. During the fourth quarter, the Company recorded an additional impairment
  of $109 million relating to the San Dimas mine as the negotiation process that
  led to the Arrangement Agreement identified that the carrying value of the San
  Dimas mine exceeded the recoverable amount. The carrying value of the San Dimas
  CGU as at December 31, 2017 is now aligned to the approximate value implied in
  the Arrangement Agreement. 26    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) The difference between the final net proceeds from disposition
  and the carrying values of the CGUs immediately prior to the disposition have
  been recognized as a loss on disposition, for the CGUs disposed of during 2017. 2016 In 2016, the Companys share price declined such that the
  carrying value of its net assets exceeded its market capitalization. In
  addition, during the fourth quarter, the Company identified impairment
  indicators at the San Dimas mine and Black Fox Complex and as a result, recorded
  non-cash impairment charges of $111.0 million and $117.0 million, respectively
  based on their FVLCD, which exceeds the value in use for both CGUs. 2015 The Company identified impairment indicators at Black Fox
  Complex and Cerro del Gallo Project as at December 31, 2015, and as a result,
  recorded non-cash impairment charges aggregating $104.0 million comprised of
  $82.0 million relating to the Black Fox Complex CGU and $22.0 million relating
  to the Cerro del Gallo project CGU, based on their FVLCD, which have been
  determined to be greater than their value in use. The recoverable amount was determined as the FVLCD for each
  CGU. FVLCD was determined based on the net present value of the future estimated
  cash flows expected to be generated from the continued use of the CGUs, using
  assumptions derived from from observable market indicators and the current
  life-ofmines plans for each operation. The mine plans are typically developed
  annually and are based on managements current best estimates of optimized mine
  and processing plans, future operating costs and the assessment of capital
  expenditure at the mine site. The determination of the FVLCD used Level 3
  valuation techniques. Key assumptions used in the fair value models include: Assumptions
    
    2016
    
    
    2015Discount rate
    
    6.5%
      - 8.5%
    
    
    5% - 7%Gold priceShort term
    
    $1,250
    
    
    $1,100Long term
    
    $1,300
    
    
    $1,200Foreign exchangeMexican peso (MXN)Short term
    
    MXN 18
    
    
    n.a.Long term
    
    MXN 20
    
    
    n.a.Canadian Dollar
      (CAD)Short term/long
      term
    
    CAD 1.30
    
    
    CAD 1.40Market value per gold ounce
    
    n.a.
    
    
    $25Life
      of mine (in years)(1)
    
    5 & 17
    
    
    11 (1)For purposes of assessing asset impairment, the
  Company used an estimated life of mine of 5 years for Black Fox and 17 years for
  San Dimas as of December 31, 2016, and 11 years for Black Fox as of December 31,
  2015. 27    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) San Dimas Mine The impairment test for the San Dimas mine was based on the
  updated life-of-mine plan, which incorporated updated reserves and resources,
  discount rate factors to account for the underlying risks and managements view
  of the exploration potential of the mine site. The resulting non-cash impairment
  charge for the San Dimas mine was driven by decrease in reserves, revisions in
  the mining cut-off methodology and the application of higher discount rates in
  the net present value of future estimated cash flows. Black Fox Complex The impairment test for the Black Fox Complex was based on the
  the updated life-of-mine plan. In 2016, the resulting non-cash impairment charge
  for the Black Fox Complex derived from decreases in reserves and shortened mine
  life. In 2015, the charge was derived from the declining metal prices, the
  temporary decision to defer Grey Fox development and changes in the Black Fox
  mine plan. Cerro del Gallo Project In 2015, the Company decided not to construct the project under
  the economic environment and as such as at December 31, 2015 the CGU was
  reclassified as an exploration and evaluation asset. The commercial viability of
  this project will depend on market conditions. The impairment value of $22
  million in 2015 in relation to the Cerro del Gallo was as a result of a lower
  market value per gold ounce and low cash flows projections. Sensitivities The impairment charges are highly sensitive to discount rates,
  gold prices and foreign exchange rates used in the cash flow projection. The
  table below summarizes the impact on the recognized impairment charges with all
  the variables held constant except as follows: San Dimas Mine
    
    
    Black Fox Complex2016
    
    
    2016
    
    
    2015Discount rate
    
    +/-1%
    
    $
    29,000
    
    $
    2,000
    
    $
    12,000Gold price
    
    +/-10%
    
    $
    88,000
    
    $
    39,000
    
    $
    70,000Foreign exchangeMXN
    
    +/-10%
    
    $
    46,000
    
    
    n.a.
    
    
    n.a.CAD
    
    +/-10%
    
    
    n.a.
    
    $
    37,000
    
    $
    55,000  5.
    Discontinued operations On October 6, 2017, the Company sold the Black Fox Complex for
  total consideration of $32.3 million including cash proceeds of $27.5 million
  and the release of $4.8 million from restricted cash that was pledged towards
  environmental closure liabilities. The Black Fox Complex comprises the Black Fox
  mine and adjacent properties, Grey Fox and Pike River. On November 27, 2017, the Company sold the Cerro del Gallo
  project, via the sale of all of the issued and outstanding shares of San Anton
  Resource Corporation, the indirect owner of the Cerro del Gallo project to Argonaut Gold Inc for cash proceeds
  of $15 million resulting in a loss on disposition of $1,151. 28    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)  Cerro del
    
    
    Black Fox
    
    
    DiscontinuedGallo
    
    
    Complex
    
    
    operationsYear Ended December 31, 2017Revenue
    $
    -
    
    $
    65,828
    
    $
    65,828Operating expenses
    
    -
    
    
    39,982
    
    
    39,982Depreciation and depletion
    
    44
    
    
    7,269
    
    
    7,313Total cost of sales
    
    44
    
    
    47,251
    
    
    47,295(Loss) earnings from mine
      operations
    
    (44
    )
    
    18,577
    
    
    18,533Mining interest impairment charge
    
    (50,000
    )
    
    (44,963
    )
    
    (94,963
    )Exploration expenses
    
    (830
    )
    
    -
    
    
    (830
    )General and administrative expenses
    
    (3
    )
    
    (252
    )
    
    (255
    )Other charges
    
    -
    
    
    (51
    )
    
    (51
    )Loss from operations
    
    (50,877
    )
    
    (26,689
    )
    
    (77,566
    )Other expense items
    
    (3,069
    )
    
    (1,385
    )
    
    (4,454
    )Loss before income taxes
    
    (53,946
    )
    
    (28,074
    )
    
    (82,020
    )Income tax recovery
    
    5,711
    
    
    -
    
    
    5,711Net
      loss
    
    ($48,235
    )
    
    ($28,074
    )
    
    ($76,309
    )  Cerro del
    
    
    Black Fox
    
    
    DiscontinuedGallo
    
    
    Complex
    
    
    operationsYear Ended December 31, 2016Revenue
    $
    -
    
    $
    71,595
    
    $
    71,595Operating expenses
    
    -
    
    
    54,815
    
    
    54,815Depreciation and depletion
    
    82
    
    
    16,131
    
    
    16,213Total cost of sales
    
    82
    
    
    70,946
    
    
    71,028(Loss) earnings from mine
      operations
    
    (82
    )
    
    649
    
    
    567Mining interest impairment charge
    
    -
    
    
    (117,000
    )
    
    (117,000
    )Exploration expenses
    
    (1,529
    )
    
    -
    
    
    (1,529
    )General and administrative expenses
    
    (164
    )
    
    (1,109
    )
    
    (1,273
    )Loss from operations
    
    (1,775
    )
    
    (117,460
    )
    
    (119,235
    )Other expense items
    
    (315
    )
    
    (902
    )
    
    (1,217
    )Loss before income taxes
    
    (2,090
    )
    
    (118,362
    )
    
    (120,452
    )Income tax recovery
    
    326
    
    
    1,200
    
    
    1,526Net loss
    
    ($1,764
    )
    
    ($117,162
    )
    
    ($118,926
    ) 29    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)  Cerro del
    
    
    Black Fox
    
    
    DiscontinuedGallo
    
    
    Complex
    
    
    operationsYear Ended December 31, 2015Revenue
    $
    -
    
    $
    78,112
    
    $
    78,112Operating expenses
    
    -
    
    
    59,811
    
    
    59,811Depreciation and depletion
    
    90
    
    
    21,312
    
    
    21,402Total cost of sales
    
    90
    
    
    81,123
    
    
    81,213Earnings (loss) from mine
      operations
    
    (90
    )
    
    (3,011
    )
    
    (3,101
    )Mining interest impairment charge
    
    (22,000
    )
    
    (82,000
    )
    
    (104,000
    )Exploration expenses
    
    -
    
    
    -
    
    
    -Share-based compensation
    
    -
    
    
    -
    
    
    -General and administrative
      expenses
    
    (21
    )
    
    (1,002
    )
    
    (1,023
    )Other charges
    
    -
    
    
    -
    
    
    -Earnings (loss) from
      operations
    
    (22,111
    )
    
    (86,013
    )
    
    (108,124
    )Other income (expense) items
    
    41
    
    
    2,836
    
    
    2,877Earnings (loss) before income
      taxes
    
    (22,070
    )
    
    (83,177
    )
    
    (105,247
    )Income tax recovery (expense)
    
    (323
    )
    
    7,917
    
    
    7,594Net income (loss)
    
    ($22,393
    )
    
    ($75,260
    )
    
    ($97,653
    ) The results of discontinued operations included in the
  consolidated statement of cash flows, excluding the cash flows arising from the
  dispositions, for the years ended December 31, 2017, 2016 and 2015 are presented
  below; the comparative periods have been recast accordingly. Years ended
      December 31Cash flow from (used in):
    
    2017
    
    
    2016
    
    
    2015Operating activities before
      working capital changes
    $
    16,077
    
    $
    21,170
    
    $
    21,058Changes in non-cash working capital
    
    ($2,637
    )
    $
    7,704
    
    
    ($8,478
    )Operating activities
    $
    13,440
    
    $
    28,874
    
    $
    12,580Investing activities
    
    ($13,387
    )
    
    ($30,879
    )
    
    ($36,784
    )Financing activities and effect of foreign exchange rates
    
    ($1,033
    )
    
    ($4,582
    )
    
    ($5,715
    )Net
      cash flow from (used in) discontinued operations
    
    ($980
    )
    
    ($6,587
    )
    
    ($29,919
    )  6.
    Segmented information The Companys operating segments reflect its different mining
  interests and are reported in a manner consistent with the internal reporting
  used to assess each segments performance. Significant information relating to
  reportable operating segments is summarized below: 30    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)  San Dimas
    
    
    Corporate
    
    
    TotalAt December 31, 2017Current assets
    $
    72,026
    
    $
    7,280
    
    $
    79,306Mining interests
    
    124,835
    
    
    215
    
    
    125,050Other non-current assets
    
    -
    
    
    910
    
    
    910Total assets
    $
    196,861
    
    $
    8,405
    
    $
    205,266Current liabilities
    $
    19,242
    
    $
    35,159
    
    $
    54,401Non-current liabilities
    
    42,428
    
    
    48,706
    
    
    91,134Total liabilities
    $
    61,670
    
    $
    83,865
    
    $
    145,535  Black FoxAs at December 31, 2016
      
      San Dimas
      
      
      Corporate
      
      
      Complex
      
      
      Cerro del Gallo
      
      
      TotalCurrent assets
      $
      60,604
      
      $
      4,209
      
      $
      16,761
      
      $
      1,479
      
      $
      83,053Mining interests
      
      428,251
      
      
      330
      
      $
      85,680
      
      
      63,659
      
      
      577,920Other non-current assets
      
      11,107
      
      
      1,160
      
      $
      4,577
      
      
      -
      
      
      16,844Total assets
      $
      499,962
      
      $
      5,699
      
      $
      107,018
      
      $
      65,138
      
      $
      677,817Current liabilities
      $
      20,373
      
      $
      54,836
      
      $
      10,988
      
      $
      18
      
      $
      86,215Non-current liabilities
      
      50,585
      
      
      53,861
      
      $
      20,315
      
      
      5,711
      
      
      130,472Total liabilities
      $
      70,958
      
      $
      108,697
      
      $
      31,303
      
      $
      5,729
      
      $
      216,687
  Continuing
    
    
    Cerro del
    
    
    Black Fox
    
    
    **Discontinued**San Dimas
    
    
    Corporate
    
    
    **Operations**
    
    
    Gallo
    
    
    Complex
    
    
    **operations**
    
    
    TotalYear Ended December 31, 2017Revenue
    $
    91,769
    
    $
    -
    
    $
    91,769
    
    $
    -
    
    $
    65,828
    
    $
    65,828
    
    $
    157,597Operating expenses
    
    67,280
    
    
    -
    
    
    67,280
    
    
    -
    
    
    39,982
    
    
    39,982
    
    
    107,262Depreciation and depletion
    
    22,320
    
    
    113
    
    
    22,433
    
    
    44
    
    
    7,269
    
    
    7,313
    
    
    29,746Total cost of sales
    
    89,600
    
    
    113
    
    
    89,713
    
    
    44
    
    
    47,251
    
    
    47,295
    
    
    137,008Earnings (loss) from mine
      operations
    
    2,169
    
    
    (113
    )
    
    2,056
    
    
    (44
    )
    
    18,577
    
    
    18,533
    
    
    20,589Mining interest impairment charge
    
    (303,858
    )
    
    -
    
    
    (303,858
    )
    
    (50,000
    )
    
    (44,963
    )
    
    (94,963
    )
    
    (398,821
    )Exploration expenses
    
    (1,345
    )
    
    -
    
    
    (1,345
    )
    
    (830
    )
    
    -
    
    
    (830
    )
    
    (2,175
    )Share-based compensation
    
    -
    
    
    (4,149
    )
    
    (4,149
    )
    
    -
    
    
    -
    
    
    -
    
    
    (4,149
    )General and administrative
      expenses
    
    (2,242
    )
    
    (9,237
    )
    
    (11,479
    )
    
    (3
    )
    
    (252
    )
    
    (255
    )
    
    (11,734
    )Idle and restart costs incurred during strike
      at San Dimas
    
    (6,207
    )
    
    -
    
    
    (6,207
    )
    
    -
    
    
    -
    
    
    -
    
    
    (6,207
    )Other charges
    
    (1,356
    )
    
    (5,688
    )
    
    (7,044
    )
    
    -
    
    
    (51
    )
    
    (51
    )
    
    (7,095
    )Loss from operations
    
    (312,839
    )
    
    (19,187
    )
    
    (332,026
    )
    
    (50,877
    )
    
    (26,689
    )
    
    (77,566
    )
    
    (409,592
    )Other expense items
    
    (1,025
    )
    
    (4,718
    )
    
    (5,743
    )
    
    (3,069
    )
    
    (1,385
    )
    
    (4,454
    )
    
    (10,197
    )Loss before income taxes
    
    (313,864
    )
    
    (23,905
    )
    
    (337,769
    )
    
    (53,946
    )
    
    (28,074
    )
    
    (82,020
    )
    
    (419,789
    )Income tax recovery (expense)
    
    4,819
    
    
    (426
    )
    
    4,393
    
    
    5,711
    
    
    -
    
    
    5,711
    
    
    10,104Net
      loss
    
    ($309,045
    )
    
    ($24,331
    )
    
    ($333,376
    )
    
    ($48,235
    )
    
    ($28,074
    )
    
    ($76,309
    )
    
    ($409,685
    ) 31    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)  Continuing
    
    
    Cerro del
    
    
    Black Fox
    
    
    **Discontinued**San Dimas
    
    
    Corporate
    
    
    **Operations**
    
    
    Gallo
    
    
    Complex
    
    
    operations
    
    
    TotalYear Ended December 31, 2016Revenue
    $
    147,581
    
    $
    -
    
    $
    147,581
    
    $
    -
    
    $
    71,595
    
    $
    71,595
    
    $
    219,176Operating expenses
    
    100,452
    
    
    -
    
    
    100,452
    
    
    -
    
    
    54,815
    
    
    54,815
    
    
    155,267Depreciation and depletion
    
    46,984
    
    
    132
    
    
    47,116
    
    
    82
    
    
    16,131
    
    
    16,213
    
    
    63,329Total cost of sales
    
    147,436
    
    
    132
    
    
    147,568
    
    
    82
    
    
    70,946
    
    
    71,028
    
    
    218,596Earnings (loss) from mine
      operations
    
    145
    
    
    (132
    )
    
    13
    
    
    (82
    )
    
    649
    
    
    567
    
    
    580Mining interest impairment charge
    
    (111,000
    )
    
    -
    
    
    (111,000
    )
    
    -
    
    
    (117,000
    )
    
    (117,000
    )
    
    (228,000
    )Exploration expenses
    
    (1,885
    )
    
    -
    
    
    (1,885
    )
    
    (1,529
    )
    
    -
    
    
    (1,529
    )
    
    (3,414
    )Share-based compensation
    
    -
    
    
    (7,049
    )
    
    (7,049
    )
    
    -
    
    
    -
    
    
    -
    
    
    (7,049
    )General and administrative
      expenses
    
    (5,419
    )
    
    (8,110
    )
    
    (13,529
    )
    
    (164
    )
    
    (1,109
    )
    
    (1,273
    )
    
    (14,802
    )Other charges
    
    (2,327
    )
    
    (2,398
    )
    
    (4,725
    )
    
    -
    
    
    -
    
    
    -
    
    
    (4,725
    )Loss from operations
    
    (120,486
    )
    
    (17,689
    )
    
    (138,175
    )
    
    (1,775
    )
    
    (117,460
    )
    
    (119,235
    )
    
    (257,410
    )Other expense items
    
    (1,494
    )
    
    4,237
    
    
    2,743
    
    
    (315
    )
    
    (902
    )
    
    (1,217
    )
    
    1,526Loss before income taxes
    
    (121,980
    )
    
    (13,452
    )
    
    (135,432
    )
    
    (2,090
    )
    
    (118,362
    )
    
    (120,452
    )
    
    (255,884
    )Income tax recovery
    
    19,938
    
    
    -
    
    
    19,938
    
    
    326
    
    
    1,200
    
    
    1,526
    
    
    21,464Net loss
    
    ($102,042
    )
    
    ($13,452
    )
    
    ($115,494
    )
    
    ($1,764
    )
    
    ($117,162
    )
    
    ($118,926
    )
    
    ($234,420
    )  Continuing
    
    
    Cerro del
    
    
    **Black Fox**
    
    
    **Discontinued**San Dimas
    
    
    **Corporate**
    
    
    **Operations**
    
    
    Gallo
    
    
    Complex
    
    
    operations
    
    
    TotalYear Ended December 31, 2015Revenue
    $
    213,192
    
    $
    -
    
    $
    213,192
    
    $
    -
    
    $
    78,112
    
    $
    78,112
    
    $
    291,304Operating expenses
    
    103,782
    
    
    -
    
    
    103,782
    
    
    -
    
    
    59,811
    
    
    59,811
    
    
    163,593Depreciation and depletion
    
    55,693
    
    
    143
    
    
    55,836
    
    
    90
    
    
    21,312
    
    
    21,402
    
    
    77,238Total cost of sales
    
    159,475
    
    
    143
    
    
    159,618
    
    
    90
    
    
    81,123
    
    
    81,213
    
    
    240,831Earnings (loss) from mine
      operations
    
    53,717
    
    
    (143
    )
    
    53,574
    
    
    (90
    )
    
    (3,011
    )
    
    (3,101
    )
    
    50,473Mining interest impairment charge
    
    -
    
    
    -
    
    
    -
    
    
    (22,000
    )
    
    (82,000
    )
    
    (104,000
    )
    
    (104,000
    )Exploration expenses
    
    (1,690
    )
    
    -
    
    
    (1,690
    )
    
    -
    
    
    -
    
    
    -
    
    
    (1,690
    )Share-based compensation
    
    -
    
    
    (7,144
    )
    
    (7,144
    )
    
    -
    
    
    -
    
    
    -
    
    
    (7,144
    )General and administrative
      expenses
    
    (2,546
    )
    
    (16,475
    )
    
    (19,021
    )
    
    (21
    )
    
    (1,002
    )
    
    (1,023
    )
    
    (20,044
    )Other charges
    
    (694
    )
    
    (2,008
    )
    
    (2,702
    )
    
    -
    
    
    -
    
    
    -
    
    
    (2,702
    )Earnings (loss) from
      operations
    
    48,787
    
    
    (25,770
    )
    
    23,017
    
    
    (22,111
    )
    
    (86,013
    )
    
    (108,124
    )
    
    (85,107
    )Other income (expense) items
    
    (4,225
    )
    
    (58
    )
    
    (4,283
    )
    
    41
    
    
    2,836
    
    
    2,877
    
    
    (1,406
    )Earnings (loss) before income
      taxes
    
    44,562
    
    
    (25,828
    )
    
    18,734
    
    
    (22,070
    )
    
    (83,177
    )
    
    (105,247
    )
    
    (86,513
    )Income tax recovery (expense)
    
    (32,536
    )
    
    4,545
    
    
    (27,991
    )
    
    (323
    )
    
    7,917
    
    
    7,594
    
    
    (20,397
    )Net income (loss)
    $
    12,026
    
    
    ($21,283
    )
    
    ($9,257
    )
    
    ($22,393
    )
    
    ($75,260
    )
    
    ($97,653
    )
    
    ($106,910
    )  7.
    Revenue  Year ended
      December 312017
    
    
    2016
    
    
    2015Gold
    $
    74,979
    
    $
    121,553
    
    $
    169,790Silver
    
    16,790
    
    $
    26,028
    
    $
    43,402$
    91,769
    
    $
    147,581
    
    $
    213,192 32    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) a) Silver Purchase
  Agreement The Silver Purchase Agreement provides that for the life of the
  mine, the first 6.0 million ounces of silver produced per annum by the San Dimas
  mine, plus 50% of the excess silver produced above this amount, must be sold to
  Wheaton Precious Metals International Ltd. (WPMI), formerly Silver Wheaton
  Caymans (SWC), at the lesser of $4.32 per ounce (adjusted by 1% per year) and
  market prices. All silver not sold to WPMI is available to be sold by the
  Company at market prices. The contract year for purposes of the threshold runs from
  August 6 of a year to August 5 of the following year. The threshold for the year
  ended August 5, 2017 was not exceeded (4.3 million ounces were delivered under
  the contract), while the threshold for the year ended August 5, 2016 was
  exceeded in July 2016 and the threshold for August 5, 2015 was met in July 2015.
  During the year ended December 31, 2017 the Company did not sell any silver at
  market prices (year ended December 31, 2016 - 0.2 million ounces and year ended
  December 31, 2015  0.8 million ounces were sold at market prices). In connection with the Arrangement Agreement, First Majestic
  has entered into agreements with WPMI, whereby, following closing of the
  Arrangement, the Silver Purchase Agreement will be terminated and replaced with
  a new stream which will provide for a reduction in the amount of payable metal
  content. b) Gold Purchase
  Agreement The Company had a gold purchase agreement related to the Black
  Fox Mine, which was disposed of in October 2017. Under the agreement, the
  Company was obligated to sell 8% of the gold production at the Black Fox Mine
  and 6.3% at the adjoining Pike River property (Black Fox Extension). During the year ended December 31, 2017, the Company recorded
  revenue classified as discontinued operations of $2.5 million (2016 - $2.7
  million and 2015 - $3.0 million) under the contract terms. 8.
    Inventories  December 31
    
    
    December 312017
    
    
    2016Gold and silver
    $
    5,848
    
    $
    5,827Stock piled ore
    
    175
    
    
    5,285Work-in-progress
    
    2,444
    
    
    5,771Supplies
    
    5,201
    
    
    5,946$
    13,668
    
    $
    22,829 33    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)  9.
    Mining interests  Mining
    
    
    
    
    
    Plant,properties
    
    
    Land and
    
    
    equipment and
    
    
    Constructionand leases
    
    
    buildings
    
    
    vehicles
    
    
    in progress
    
    
    TotalAt January 1, 2016
    
    948,182
    
    
    78,198
    
    
    191,825
    
    
    35,949
    
    
    1,254,154Additions
    
    55,788
    
    
    8,256
    
    
    30,536
    
    
    (21,218
    )
    
    73,362Reclassifications
    
    1,086
    
    
    3,948
    
    
    (5,279
    )
    
    239
    
    
    (6
    )Assets derecognized
    
    -
    
    
    -
    
    
    (5,021
    )
    
    -
    
    
    (5,021
    )At December 31, 2016
    
    1,005,056
    
    
    90,402
    
    
    212,061
    
    
    14,970
    
    
    1,322,489Additions
    
    32,876
    
    
    4,409
    
    
    6,332
    
    
    (8,093
    )
    
    35,524Assets derecognized
    
    -
    
    
    -
    
    
    (8,180
    )
    
    -
    
    
    (8,180
    )Disposition of Black Fox Complex and Cerro del Gallo project
    
    (456,856
    )
    
    (18,579
    )
    
    (68,012
    )
    
    (926
    )
    
    (544,373
    )At December 31, 2017
    $
    581,076
    
    $
    76,232
    
    $
    142,201
    
    $
    5,951
    
    $
    805,460Accumulated
      depreciation and depletionAt January 1, 2016
    
    355,893
    
    
    16,945
    
    
    91,198
    
    
    -
    
    
    464,036Depreciation and depletion
    
    31,046
    
    
    3,247
    
    
    22,942
    
    
    -
    
    
    57,235Impairment charge
    
    228,000
    
    
    -
    
    
    -
    
    
    -
    
    
    228,000Reclassifications
    
    1,487
    
    
    4,768
    
    
    (6,261
    )
    
    -
    
    
    (6
    )Assets derecognized
    
    -
    
    
    -
    
    
    (4,696
    )
    
    -
    
    
    (4,696
    )At December 31, 2016
    
    616,426
    
    
    24,960
    
    
    103,183
    
    
    -
    
    
    744,569Depreciation and depletion
    
    7,162
    
    
    1,999
    
    
    19,257
    
    
    -
    
    
    28,418Impairment charge
    
    284,972
    
    
    48,311
    
    
    65,538
    
    
    -
    
    
    398,821Assets derecognized
    
    -
    
    
    -
    
    
    (7,233
    )
    
    -
    
    
    (7,233
    )Disposition of Black Fox Complex and Cerro del Gallo
      project
    
    (412,926
    )
    
    (15,504
    )
    
    (55,735
    )
    
    -
    
    
    (484,165
    )At December 31, 2017
    $
    495,634
    
    $
    59,766
    
    $
    125,010
    
    $
    -
    
    $
    680,410Carrying valueAt December 31, 2016
    $
    388,630
    
    $
    65,442
    
    $
    108,878
    
    $
    14,970
    
    $
    577,920At December 31, 2017
    $
    85,442
    
    $
    16,466
    
    $
    17,191
    
    $
    5,951
    
    $
    125,050 A summary of mining interest by property is as follows: Mining
    
    
    
    
    
    Plant,properties
    
    
    Land and
    
    
    equipment
    
    
    Construction
    
    
    December 31
    
    
    December 31and leases
    
    
    buildings
    
    
    and vehicles
    
    
    in progress
    
    
    2017
    
    
    2016San Dimas Mine
    $
    85,442
    
    $
    16,466
    
    $
    16,976
    
    $
    5,951
    
    $
    124,835
    
    $
    428,251Black Fox Complex
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    85,680Cerro Del Gallo Project
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    63,659Corporate
    
    -
    
    
    -
    
    
    215
    
    
    -
    
    
    215
    
    
    330Total
    $
    85,442
    
    $
    16,466
    
    $
    17,191
    
    $
    5,951
    
    $
    125,050
    
    $
    577,920 All property of the San Dimas mine is pledged as security for
  the Companys obligations under the Silver Purchase Agreement (Notes 7 a)).
  Substantially all of the Companys assets are pledged as security under the
  revolving credit facility (Note 10 a)). 34    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) The carrying value of property, plant and equipment under
  finance leases at December 31, 2017 was $0.4 million (December 31, 2016 - $8.0
  million). The lessors hold first security rights over the leased assets. Depreciation and depletion recognized for the year ended
  December 31, 2017 was $28.4 million (2016 - $57.2 million and 2015 - $80.4
  million). As at December 31, 2017, the non-cash component in the inventories
  balance was $1.4 million (2016  $5.8 million and 2015 - $12.5 million). 10.
    Debt  December 31
    
    
    December 312017
    
    
    2016Current debtRevolving credit facility (RCF) (a)
    $
    30,201
    
    $
    49,639Finance lease liabilities (b)
    
    109
    
    
    1,20230,310
    
    
    50,841Long-term debt5.75% convertible debentures (c)
    $
    47,625
    
    $
    52,500Finance lease liabilities (b)
    
    -
    
    
    40647,625
    
    
    52,906$
    77,935
    
    $
    103,747 (a) The Company has a RCF, which bears interest at a floating
  interest rate equal to LIBOR or the prime rate of Canada or the bankers
  acceptance rate (depending on the choice of credit availment by the Company)
  plus an applicable margin. In March 2016, the Company drew down $50 million
  under the RCF to repay the 6.5% convertible debentures, assumed as part of the
  acquisition of Brigus Gold Corp. An additional $10 million was drawn down in
  March 2017, $5 million was drawn in May 2017 and $10 million was drawn in July
  2017, fully drawing the RCF and bringing the outstanding balance under the RCF
  to $75.0 million. On March 30, 2017, the Company amended the terms of the RCF to
  extend its maturity date from May 23, 2017 to November 23, 2017 and exclude all
  financial covenants until the extended maturity date. The RCF with its amended
  terms was guaranteed by WPM and a fee of $2.7 million was paid in 2017. This fee
  was accreted over the new term of the RCF as additional interest cost. The net
  proceeds from the sale of the Black Fox Complex and Cerro del Gallo were used to
  reduce the outstanding balance of the RCF. The RCF was subsequently extended
  multiple times from November 2017 to January 2018 in connection with the
  Companys strategic review process resulting in the current maturity date being
  the earlier of (i) April 30, 2018, (ii) the closing of the business combination
  with First Majestic, and (iii) the seventh business day following termination of
  the proposed business combination. WPM continues to provide a guarantee for the
  RCF. Total unamortized transaction costs of $0.1 million relating to
  the original term of the RCF have been expensed. The revolving credit facility
  is secured by substantially all of the Companys assets and contains customary
  covenants and default clauses typical for this type of facility. (b) The Company is obligated under various finance leases for
  equipment. All finance lease agreements provide that the Company can purchase
  the leased equipment at the end of the lease term for a nominal amount. There are no restrictions
  placed on the Company as a result of these leases, however, the lessors hold
  first security rights over the leased assets. 35    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) (c) On February 9, 2015, the Company issued $75 million of
  5.75% convertible unsecured subordinated debentures (the 5.75% convertible
  debentures) maturing on February 28, 2020. The 5.75% convertible debentures bear
  interest at a rate of 5.75% per annum, payable in U.S. dollars semi-annually on
  August 28 and February 28 each year, commencing on August 28, 2015. The 5.75%
  convertible debentures are convertible into the Companys common shares at a
  conversion price of approximately $6.55 per share, representing a conversion
  rate of 152.6718 common shares per $1,000 principal amount of the debentures.
  Upon conversion, holders will be entitled to receive accrued and unpaid interest
  up to, but excluding, the date of conversion. The 5.75% convertible debentures
  have a cross-default provision that would be triggered by any default on the
  RCF. The 5.75% convertible debentures are not redeemable prior to
  February 28, 2018. On and after February 28, 2018 and prior to February 28,
  2020, the 5.75% convertible debentures may be redeemed by the Company, in whole
  or in part from time to time, on not more than 60 days and not less than 30 days
  prior notice, at a redemption price equal to their principal amount plus accrued
  and unpaid interest, if any, up to but excluding the date set for redemption,
  provided the simple average of the daily volume-weighted average trading price
  of the common shares for the 20 consecutive trading days ending five trading
  days prior to the date on which notice of redemption is provided is at least
  125% of the conversion price. On March 13, 2018, holders of the 5.75% convertible debentures
  voted to amend the terms of the securities (refer to note 25). 11.
    General and administrative
      expenses  Year ended
      December 312017
    
    
    2016
    
    
    2015Salaries and wages
    $
    5,053
    
    $
    5,778
    
    $
    10,967Rent and office costs
    
    792
    
    
    828
    
    
    1,232Legal, accounting, consulting
      and professional fees
    
    2,369
    
    
    2,547
    
    
    2,830Directors fees and expenses
    
    1,357
    
    
    935
    
    
    922Other general and administrative expenses
    
    1,908
    
    
    3,441
    
    
    3,070$
    11,479
    
    $
    13,529
    
    $
    19,021  12.
    Other charges  Year ended
      December 312017
    
    
    2016
    
    
    2015Legal expenses associated
      with proceedings in Mexico
    $
    1,103
    
    $
    3,254
    
    $
    694Office closure costs and severance payments
    
    2,120
    
    
    1,171
    
    
    2,008Legal and advisory costs
      relating to financing initiatives
    
    647
    
    
    300
    
    
    -Advisory fees associated with strategic
      review process
    
    2,023
    
    
    -
    
    
    -Loss on disposition of Cerro del Gallo
    
    1,151
    
    
    -
    
    
    -$
    7,044
    
    $
    4,725
    
    $
    2,702 36    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)  13.
    Interest and finance
      expenses  Year ended
      December 31Notes
    
    
    2017
    
    
    2016
    
    
    2015Interest expensesInterest on 5.75% convertible
      debentures
    
    10
    
    $
    4,312
    
    $
    4,313
    
    $
    3,381Interest on 6.5%
      convertible debentures
    
    
    
    
    -
    
    
    775
    
    
    3,123Interest on revolving credit facility
    
    10
    
    
    2,792
    
    
    1,577
    
    
    9257,104
    
    
    6,665
    
    
    7,429Finance expensesAccretion on 6.5%
      convertible debentures
    
    
    
    $
    -
    
    $
    365
    
    $
    1,436Accretion on asset retirement
      obligation
    
    
    
    
    766
    
    
    723
    
    
    1,472Revolving credit
      facility guarantee fee
    
    10
    
    
    2,646
    
    
    -
    
    
    -Amortization of revolving credit
      facility transaction costs
    
    
    
    
    481
    
    
    870
    
    
    877Others
    
    
    
    
    288
    
    
    138
    
    
    2844,181
    
    
    2,096
    
    
    4,069$
    11,285
    
    $
    8,761
    
    $
    11,498  14.
    Other expenses  Year ended
      December 312017
    
    
    2016
    
    
    2015Foreign exchange gain
    $
    76
    
    $
    155
    
    
    ($2,772
    )Gain on derivative liability
    
    -
    
    
    5
    
    
    1,478Finance income
    
    41
    
    
    88
    
    
    229Royalty and other
    
    (472
    )
    
    (675
    )
    
    (804
    )($355
    )
    
    ($427
    )
    
    ($1,869
    )  15.
    Income taxes a) Tax expense Tax expense comprises the following: 2017
    
    
    2016
    
    
    2015Current income tax expense
    $
    3,298
    
    $
    1,089
    
    $
    23,365Deferred income tax recovery
    
    (7,691
    )
    
    (21,027
    )
    
    4,626Income tax (recovery)
    
    ($4,393
    )
    
    ($19,938
    )
    $
    27,991 Income tax expense differs from the amount that would result
  from applying the Canadian federal and provincial income tax rates to earnings
  from continuing operations before taxes. These differences result from the
  following items: 37    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)  2017
    
    
    2016
    
    
    2015Loss before income taxes
    
    ($337,769
    )
    
    ($135,432
    )
    $
    18,734Canadian federal and provincial income tax
      rate
    
    26.5%
    
    
    26.5%
    
    
    26.5%Expected income tax
      (recovery)
    
    (89,509
    )
    
    (35,889
    )
    
    4,965(Increase) decrease attributable to:Effect of different
      foreign statutory rates on earnings of subsidiaries
    
    (11,416
    )
    
    (2,930
    )
    
    998Share-based payments
    
    1,148
    
    
    1,986
    
    
    1,882Amounts allowable for
      tax purposes
    
    (6,290
    )
    
    (9,592
    )
    
    (10,357
    )Impact of foreign exchange and
      inflation
    
    (7,709
    )
    
    27,180
    
    
    24,595Withholding taxes on
      intercompany interest
    
    3,800
    
    
    3,308
    
    
    2,614Royalty taxes in Mexico
    
    (149
    )
    
    115
    
    
    769Impairment of mining
      interest
    
    79,069
    
    
    (5,827
    )
    
    -Benefit of tax losses and temporary differences not
      recognized
    
    26,663
    
    
    1,711
    
    
    2,525Income tax (recovery)
    
    ($4,393
    )
    
    ($19,938
    )
    $
    27,991 b) Deferred tax liabilities and assets The significant components of the Companys deferred tax
  liabilities and assets are as follows: 2017
    
    
    2016Deferred tax assetsNon-capital losses
    $
    -
    
    $
    8,183Decommissioning
      liability to be recovered
    
    472
    
    
    1,315Deduction for Mexican royalty
      taxes
    
    -
    
    
    9,565Accruals and other
    
    -
    
    
    2,338$
    472
    
    $
    21,401Deferred tax liabilityAccruals and other
    
    (26
    )
    
    -Mining interests
    
    (7,903
    )
    
    ($46,066
    )Net
      deferred tax liability
    
    ($7,457
    )
    
    ($24,665
    ) A reconciliation of net deferred tax liability to the amounts
  presented in the consolidated statements of financial position follows: 2017
    
    
    2016Deferred tax asset
    $
    -
    
    $
    3,763Deferred tax liability
    
    (7,457
    )
    
    (28,428
    )Net deferred tax liability
    
    ($7,457
    )
    
    ($24,665
    ) 38    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) The movement in deferred income tax balances is explained as
  follows: 2017
    
    
    2016As at January 1
    
    ($24,665
    )
    
    ($49,326
    )Deferred tax recovery
    
    13,408
    
    
    22,553Flow through share premium
      credit charged to deferred tax expense
    
    -
    
    
    (1,200
    )With holding expense accrued as tax payable
    
    3,800
    
    
    3,308Warrant expiry
    
    -
    
    
    -As
      at December 31
    
    ($7,457
    )
    
    ($24,665
    ) Given recent San Dimas performance, the Company deteremined
  that it could not deem future taxable income to be probable under current
  operating conditions. Therefore, no deferred tax assets have been recognized. Of
  the Companys total deferred tax liability of $7.5 million (2016 - $28.4
  million), $0.6 million (2016 - $5.2 million) is expected to reverse within
  twelve months of the statement of financial position date and the remainder
  after twelve months of the statement of financial position date. The Company has total unused Canadian losses of $235.4 million
  (2016 - $221.0 million) that are available to be applied against future taxable
  income. These losses expire from 2025 to 2037. Of these losses, $122 million
  (2016 - $132 million) are restricted to use only against income from the same or
  similar business that created these losses. Deductible temporary differences, unused tax losses and their
  tax effect for which no deferred tax assets have been recognized are
  attributable to the following: Temporary
      Differences
    
    
    Tax effect2017
    
    
    2016
    
    
    2017
    
    
    2016Non-capital losses
    $
    210,071
    
    $
    203,529
    
    $
    53,360
    
    $
    51,885Capital losses
    
    130,612
    
    
    2,555
    
    
    17,306
    
    
    339Share issuance costs
    
    3,878
    
    
    5,906
    
    
    1,028
    
    
    1,565Accrued liabilities and other
    
    1,669
    
    
    1,138
    
    
    442
    
    
    302Resource and equipment tax
      pools
    
    -
    
    
    162,143
    
    
    -
    
    
    44,442Ontario mining tax
    
    -
    
    
    122,796
    
    
    -
    
    
    10,438$
    346,230
    
    $
    498,067
    
    $
    72,136
    
    $
    108,971 Following the completion of the Arrangement, the capital losses
  are expected to expire, and there is uncertainty over whether the non-capital
  losses can be utilized after the completion of the Arrangement. c) Challenge to the 2012 APA Overview In February 2016 the Mexican tax authority, the SAT, initiated
  a proceeding seeking to nullify the APA which it issued to the Company in 2012.
  The APA confirmed the Companys basis for paying taxes on the price it realized
  for certain silver sales between 2010 to 2014. If the SATs challenge is
  successful it is likely to have a material adverse effect on the Companys
  business, financial condition and results of operations. 39    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) Background In 2004, affiliates of Goldcorp Inc. (Goldcorp) entered into
  a Silver Purchase Agreement with WPM in connection with the San Dimas mine and
  two other mines in Mexico. Under the Silver Purchase Agreement, Goldcorp
  received cash and securities in exchange for an obligation to sell the amount of
  silver extracted from the mines at a price set forth in the Silver Purchase
  Agreement. In order to satisfy its obligations under the Silver Purchase
  Agreement, sales were made by Goldcorp through a non-Mexican subsidiary to a WPM
  subsidiary in the Cayman Islands. Upon Primeros acquisition of the San Dimas
  Mine, the Silver Purchase Agreement was amended and restated and Primero assumed
  all of Goldcorps obligations with respect to the San Dimas concession under the
  Silver Purchase Agreement. Primero did not receive any of the initial
  consideration that was paid to Goldcorp under the Silver Purchase Agreement. As amended and restated, the provisions of the Silver Purchase
  Agreement require that, on a consolidated basis, the Company sell to WPM 100% of
  silver produced from the San Dimas concessions during a contract year (August
  6th to the following August 5th), up to 6 million ounces and 50% of silver
  produced thereafter, at the lower of (i) the current market price and (ii) $4.04
  per ounce plus an annual increase of 1% (the PEM Realized Price). From August 6,
  2016 to August 5, 2017, the contract price was $4.28 per ounce (August 6, 2015
  to August 5, 2016 - $4.24) . From August 6, 2017 the contract price is $4.32 per
  ounce. The price paid by WPM under the Silver Purchase Agreement represents the
  total value that the Company and its affiliates receive for the sale of silver
  to WPM. The Silver Purchase Agreement continues indefinitely in respect of any
  silver produced from the San Dimas concessions. The specific terms of the Silver Purchase Agreement require
  that the Company sell the silver through one of its non-Mexican subsidiaries,
  STB, to WPMs subsidiary, WPMI. As a result, the Companys Mexican subsidiary
  that holds the San Dimas concessions, PEM, sells the required amount of silver
  produced from the San Dimas concessions to STB to allow it to fulfill its
  obligations under the Silver Purchase Agreement. When the Company initially acquired the San Dimas mine, the
  sales from PEM to STB were made at the spot market price while the sales by STB
  to WPMI were at the contracted PEM Realized Price, which at that time was $4.04
  per ounce. In order to reflect commercial realities and the effects of the
  Silver Purchase Agreement on the Company on a consolidated basis, PEM amended
  the terms of sales of silver between itself and STB and commenced to sell the
  amount of silver due under the Silver Purchase Agreement to STB at the PEM
  Realized Price. For Mexican income tax purposes PEM then recognized the revenue
  on these silver sales on the basis of its actual realized revenue, which was the
  PEM Realized Price. APA In order to provide the Company with stability and assurances
  that the SAT would accept the PEM Realized Price as the proper price to use to
  calculate Mexican income taxes, the Company applied for and received the APA
  from the SAT. The APA confirmed the PEM Realized Price would be used as the
  Companys basis for calculating taxes owed by the Company on the silver sold
  under the Silver Purchase Agreement. The Company believed that the function of
  an APA was to provide tax certainty and as a result made significant investments
  in Mexico based on that certainty. Under Mexican law, an advanced pricing
  agreement is valid for five years and therefore the APA represented the SATs
  agreement to accept the PEM Realized Price as the basis for calculating taxes
  for the tax years 2010 through 2014. 40    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) Challenge to APA for 2010  2014 tax years In February 2016, the SAT initiated a legal proceeding seeking
  to nullify the APA, however, the SAT has not identified an alternative basis in
  the legal claim for calculating taxes on the silver sold by PEM for which it
  receives the PEM Realized Price. The Company is an interested party in this
  proceeding. If the SAT is successful in retroactively nullifying the APA, the
  SAT may seek to audit and reassess PEM in respect of its sales of silver in
  connection with the Silver Purchase Agreement for 2010 through 2014. In June 2017, as part of the ongoing annual audits of the PEM
  tax returns, the SAT issued an observations letter for the 2010 tax year. An
  observations letter is issued to a taxpayer in advance of a reassessment being
  issued, provides an outline of the SATs position on matters under audit, and
  affords the taxpayer an opportunity to respond to such position in advance of
  the reassessment being issued. In this observations letter issued to PEM, the
  SAT made explicit its view that PEM should pay taxes based on the market price
  of silver which, if successfully applied to its 2010 taxation year, would make
  PEM liable for an additional $8.5 million of taxes before penalties or interest.
  As the Company continues to defend the APA in the Mexican legal proceeding, the
  APA remains valid and the Company will vigorously dispute any reassessment that
  may be issued in the future on a basis that assesses taxes on its silver
  revenues that is inconsistent with the APA. The observations letter does not
  represent a tax reassessment and no liability has been recognized in the
  financial statements. In October 2017, the SAT issued an observations letter for the
  2011 tax year, with the same explicit view that PEM should pay taxes based on
  the market price of silver, which if successfully applied to its 2011 taxation
  year, would make PEM liable for an additional $23.4 million of taxes before
  penalties or interest. The Company has submitted formal responses to both the
  2010 and 2011 observation letters. While the Company continues to believe its tax filing position
  based upon the APA is correct, should the Company ultimately be required to pay
  tax on its silver revenues based on market prices without any mitigating
  adjustments, the incremental income tax for the years 2012-2017 would be in the
  range of $130 - $145 million, before interest or penalties. The Company vigorously defends the validity of the APA and has
  filed procedural and substantive responses to the claim. In addition, the
  Company intends to explore opportunities to minimize the potential impact on the
  Company in the event that the SAT is successful in its legal claim to nullify
  the APA, but there is no assurance that the Company will find or be able to
  implement a reasonable solution. While the Company continues to vigorously defend the validity
  of the APA and its transfer pricing position, it is also engaging in dialogue
  with the SAT seeking to resolve matters and bring tax certainty through a
  negotiated solution. Primero has also had constructive dialogue with the SAT in
  relation to outstanding VAT receivables and has received $15.2 million of VAT
  refunds since July 2017. Primero Mining Corp.s claim against the Mexican Government On June 2, 2016, the Company notified the Mexican Government
  that the measures taken by the SAT against PEM in connection with the judicial
  proceeding seeking to retroactively nullify the APA, breached several provisions
  of Chapter 11 of the North American Free Trade Agreement (NAFTA) because these
  measures are arbitrary, discriminatory, unfair and inequitable. As at December 31, 2017, the Company has the
  option to commence international arbitration proceedings pursuant to Article
  1119 of the NAFTA at a time of its choosing. As Primero is continuing its
  dialogue with the Mexican Government regarding the Mexican tax authoritys legal
  claim against the APA, it has temporarily suspended its advancement of
  international arbitration proceedings against the Mexican Government. 41    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) Tax treatment for tax years following 2014 Since January 1, 2015, the Company has continued to record its
  revenue from the sale of silver for purposes of Mexican tax accounting in a
  manner consistent with the APA on the basis that the applicable facts and laws
  have not changed. The Companys legal and financial advisors continue to believe
  that the Company has filed its tax returns compliant with applicable Mexican
  law. Given the legal challenge by the SAT against the APA for the 2010-2014 tax
  years, the Company currently believes it is unlikely the SAT will agree to an
  Advance Pricing Agreement for the 2015-2019 tax years on terms similar to the
  challenged APA. To the extent the SAT determines that the appropriate price of
  silver sales under the Silver Purchase Agreement, for tax purposes, is
  significantly different from the PEM Realized Price and, while PEM would have
  rights of appeal in connection with any reassessments, it is likely to have a
  material adverse effect on the Companys business, financial condition and
  results of operations. Other In the observations letters for both the 2010 and 2011 tax
  years the SAT raised some queries with respect to certain intercompany
  transactions, and the Company has provided the pertinent information. The
  observations letters do not represent a tax reassessment and no liability has
  been recognized in the financial statements related to these queries. 16.
    Supplementary cash flow
      information Changes in non-cash working capital comprise the following: Year ended
      December 312017
    
    
    2016
    
    
    2015Trade and other receivables
    $
    391
    
    
    ($169
    )
    
    ($638
    )Value added and income taxes receivable
    
    3,464
    
    
    1,980
    
    
    243Prepaid expenses
    
    866
    
    
    3,232
    
    
    (850
    )Inventories
    
    (1,800
    )
    
    6,382
    
    
    (4,318
    )Trade and other payables
    
    (4,637
    )
    
    (12,652
    )
    
    4,734Other taxes payable
    
    1,634
    
    
    (931
    )
    
    (708
    )($82
    )
    
    ($2,158
    )
    
    ($1,537
    )  17.
    Shareholders equity a) Share capital The authorized share capital consists of unlimited common
  shares without par value and unlimited preferred shares, issuable in series with
  special rights and restrictions attached. 42    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) On June 9, 2016, PEM completed an acquisition of certain
  concessions adjacent to its San Dimas mine. The initial consideration comprised
  a cash payment of $1.0 million and the issuance of 2,010,050 of Primeros common
  shares. As of December 31, 2017, 1,854,271 common shares were issued (2016 
  1,854,271 and 2015 - nil), 28,342 shares were replaced with cash consideration
  (2016  nil and 2015- nil), with the remaining 127,437 common shares expected to
  be issued. The price per common share was $1.91 based on the NYSE trading price
  at the closing date. The Company has recognized an equity reserve in
  shareholders equity for the unissued common shares for concessions that have
  not yet been transferred. During 2017, one concession was transferred, resulting
  in the release of $54 from the equity reserve. On June 24, 2016, the Company completed a public equity
  offering, raising gross proceeds of $40.0 million (C$51.8 million) through the
  issuance of 22,022,500 units (Unit) of the Company at a price of C$2.35 per Unit
  (the equity offering). Each Unit consists of one common share of Primero and
  one-half of one common share purchase warrant (each whole common share purchase
  warrant is a Warrant) of the Company. Each whole Warrant entitles the holder
  to acquire one common share of the Company at a price of C$3.35 per Common share
  until June 25, 2018. Out of the gross proceeds from the equity offering, $4.7
  million was allocated to the common share purchase warrants based on their fair
  value determined using the trading price at the date of closing of the
  transaction, and the remaining $35.3 million was allocated to the common shares
  and recorded as share capital. The common share purchase warrants are classified
  as a financial liability in the statement of financial position. Fair value
  changes of the common share purchase warrants are recognized in the statement of
  operations and comprehensive loss. During the year ended December 31, 2017 a
  mark to market gain of $0.2 million (2016  gain of $3.6 million and 2015 - nil)
  was recognized in relation to the common share purchase warrants. Transaction costs relating to the equity offering amounted to
  $2.5 million, of which $0.2 million was allocated to the common share purchase
  warrants and was recognized as an expense in the statement of operations and
  comprehensive loss for the year ended December 31, 2016. The balance of $2.3
  million was allocated to share capital. In December 2015, the Company received $4.3 million (net of
  transaction costs) from the issuance of 1,366,768 flow-through shares to be used
  to fund the exploration at the Froome Zone within the Black Fox Complex. The
  proceeds were fully spent during 2016. During the year ended December 31, 2017, the Company issued a
  total of 993,684 common shares, valued at $0.6 million, for severance and other
  payments to former employees. b) Warrants As at January 1, 2015, the Company had 20.8 million warrants
  outstanding which were exercisable to purchase 20.8 million common shares at a
  price of C$8.00 until July 20, 2015. On July 21, 2015, these warrants expired
  unexercised. Accordingly, the carrying value of $34.8 million was reclassified
  to contributed surplus net of income taxes on the expired warrants of $4.7
  million. 43    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) c) Share-based compensation The movement in contributed surplus and phantom share liability
  related to share-based compensation during the years ended December 31, 2017,
  2016 and 2015 are as follows: Contributed
      SurplusDeferred share
    
    
    
    
    
    
    
    
    Phantom share2013 Plan PSUs
    
    
    Stock options
    
    
    units
    
    
    Others
    
    
    Total
    
    
    liabilityAt January 1, 2015
    $
    3,020
    
    $
    18,539
    
    $
    -
    
    
    ($33
    )
    $
    21,526
    
    $
    4,037Expercise of stock options
    
    -
    
    
    (294
    )
    
    -
    
    
    -
    
    
    (294
    )
    
    -PSUs settled in shares
    
    (4,404
    )
    
    -
    
    
    -
    
    
    -
    
    
    (4,404
    )
    
    -PSUs settled in cash
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (4,205
    )Expiry of warrants
    
    -
    
    
    -
    
    
    -
    
    
    30,046
    
    
    30,046
    
    
    -Share-based compensation expense
    
    5,769
    
    
    1,964
    
    
    377
    
    
    -
    
    
    8,110
    
    
    829At December 31, 2015
    $
    4,385
    
    $
    20,209
    
    $
    377
    
    $
    30,013
    
    $
    54,984
    
    $
    661PSUs settled in shares
    
    (4,851
    )
    
    -
    
    
    -
    
    
    -
    
    
    (4,851
    )
    
    (110
    )PSUs settled in cash
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (377
    )Share-based compensation expense
    
    6,420
    
    
    1,897
    
    
    407
    
    
    -
    
    
    8,724
    
    
    (131
    )At December 31, 2016
    $
    5,954
    
    $
    22,106
    
    $
    784
    
    $
    30,013
    
    $
    58,857
    
    $
    43PSUs settled in shares
    
    (6,117
    )
    
    -
    
    
    -
    
    
    -
    
    
    (6,117
    )
    
    -Severance payments
    
    -
    
    
    -
    
    
    -
    
    
    (5
    )
    
    (5
    )
    
    -Share-based compensation expense
    
    3,657
    
    
    1,002
    
    
    236
    
    
    -
    
    
    4,895
    
    
    (18
    )At December 31, 2017
    $
    3,494
    
    $
    23,108
    
    $
    1,020
    
    $
    30,008
    
    $
    57,630
    
    $
    25 (i) Stock options Under the Companys stock option plan (the Plan), the number of
  common shares that may be issued on the exercise of options granted under the
  Plan is equal to 10% of the issued and outstanding shares of the Company at the
  time an option is granted (less any common shares reserved for issuance under
  other share-based compensation arrangements). A summary of the Companys stock option activities for the
  years ended December 31, 2017, 2016 and 2015 is presented below. Options
    
    
    Weighted averageoutstanding
    
    
    exercise priceOutstanding at January 1,
      2015
    
    9,254,224
    
    
    C$6.17Granted
    
    1,617,870
    
    
    4.23Exercised
    
    (300,000
    )
    
    3.47Cancelled/Forfeited
    
    (71,875
    )
    
    5.68Expired
    
    (6,254,021
    )
    
    6.17Outstanding at December 31, 2015
    
    4,246,198
    
    
    C$5.70Granted
    
    2,782,317
    
    
    2.68Cancelled/Forfeited
    
    (3,500
    )
    
    4.52Expired
    
    (499,771
    )
    
    8.78Outstanding at December 31, 2016
    
    6,525,244
    
    
    C$4.17Granted
    
    2,057,589
    
    
    0.75Cancelled/Forfeited
    
    (437,084
    )
    
    1.57Expired
    
    (1,334,433
    )
    
    5.54Outstanding at December 31, 2017
    
    6,811,316
    
    
    C$3.04 The following table summarizes the weighted average assumptions
  used in the Black-Scholes valuation model for the determination of the cost of
  stock options issued during the years ended December 31, 2017, 2016 and 2015. 44    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)  2017
    
    
    2016
    
    
    2015Risk free interest rate
    
    0.95%
    
    
    0.55%
    
    
    0.95%Expected life in years
    
    3.50
    
    
    3.50
    
    
    3.50Volatility
    
    72.90%
    
    
    63.92%
    
    
    59.27%Expected dividends
    
    0.00%
    
    
    0.00%
    
    
    0.00%Forfeiture rate
    
    5.00%
    
    
    5.00%
    
    
    5.00%Weighted average fair value of options issued
    
    C$0.39
    
    
    C$0.80
    
    
    C$1.73 As at December 31, 2017, the following stock options were
  outstanding and exercisable: Awards Outstanding
    
    
    Awards
      ExercisableRemaining
    
    
    Weighted
    
    
    
    
    
    Remaining
    
    
    Weightedcontractual
    
    
    average
    
    
    
    
    
    contractual
    
    
    averageRange of exercise
    
    
    
    
    life
    
    
    exercise
    
    
    
    
    
    life
    
    
    exerciseprice per share
    
    Quantity
    
    
    (in years)
    
    
    price
    
    
    Quantity
    
    
    (in years)
    
    
    priceC$0.75 -C$2.00
    
    2,165,143
    
    
    4.17
    
    
    C$0.84
    
    
    115,980
    
    
    3.89
    
    
    C$1.36C$2.01-C$5.00
    
    3,918,004
    
    
    2.64
    
    
    3.46
    
    
    3,204,048
    
    
    2.57
    
    
    3.52C$5.01-C$8.00
    
    728,169
    
    
    1.23
    
    
    7.28
    
    
    728,169
    
    
    1.23
    
    
    7.286,811,316
    
    
    2.98
    
    
    C$3.04
    
    
    4,048,197
    
    
    2.37
    
    
    C$4.13 (ii) Phantom Share Unit Plan (PSUP) and Directors PSU Plan
  (Directors PSUP) PSUP is a cash-settled plan. The amount to be paid for vested
  units is based on the volume weighted average price per share of the Company
  traded on the Toronto Stock Exchange over the last twenty trading days preceding
  the vesting date. A person holding Director PSUs is entitled to elect to receive
  at vesting, either a cash amount equal to the number of Directors PSUs that
  vest multiplied by the volume weighted average trading price per common share
  over the five preceding trading days, or the number of common shares equal to
  the number of Directors PSUs. If no election is made, the Company will pay out
  such Directors PSUs in cash. A summary of the unit activity for the years ended December 31,
  2017, 2016 and 2015 under the PSUP and the Directors PSUP is presented below. PSUP
    
    
    Directors PSUPOutstanding at January 1,
      2015
    
    1,329,080
    
    
    186,063Redeemed
    
    (1,088,066
    )
    
    (198,575
    )Granted
    
    -
    
    
    223,883Cancelled
    
    (7,437
    )
    
    -Outstanding at December 31,
      2015
    
    233,577
    
    
    211,371Redeemed
    
    (189,961
    )
    
    (136,744
    )Cancelled
    
    (3,896
    )
    
    -Outstanding at December 31, 2016
    
    39,720
    
    
    74,627Redeemed
    
    (36,887
    )
    
    -Cancelled
    
    (2,833
    )
    
    -Outstanding at December 31, 2017
    
    -
    
    
    74,627 Units issued under the PSUP and Directors PSUP are accounted
  for as cash-settled awards. All of the units issued under the PSUP and Directors
  PSUP have been measured at the reporting date using their fair values. The total
  amount recognized in the statement of operations and comprehensive loss during
  the year ended December 31, 2017 in relation to the PSUP and Directors PSUP was
  an expense of $0.02 million (2016  recovery of $0.1 million and 2015 - $0.8 million expense) recognized under general and
  administrative expenses. The total liability recognized at December 31, 2017 in
  respect of the PSUP and Directors PSUP was less than $0.1 million (December 31,
  2016  less than $0.1 million and December 31, 2015 - $0.7 million) which is
  classified as a current liability, reported within trade and other payables. 45    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) (iii) 2013 PSU Plan (2013 PSUP) A person holding PSUs issued under this plan is entitled to
  receive at vesting either a cash amount equal to the number of 2013 PSUs that
  vest multiplied by the volume weighted average trading price per common share
  over the five preceding trading days, or the number of common shares equal to
  the number of PSUs, or a combination of cash and equity. The choice of
  settlement is solely at the Companys discretion. A summary of the unit activity for the years ended December 31,
  2017, 2016 and 2015 under the 2013 PSUP is presented below. December 31
    
    
    December 31
    
    
    December 312017
    
    
    2016
    
    
    2015Opening balance
    
    4,670,104
    
    
    2,088,902
    
    
    1,152,464Redeemed
    
    (2,946,800
    )
    
    (1,324,092
    )
    
    (958,515
    )Granted
    
    4,410,812
    
    
    4,046,139
    
    
    1,960,463Cancelled
    
    (951,495
    )
    
    (140,845
    )
    
    (65,510
    )5,182,621
    
    
    4,670,104
    
    
    2,088,902 The 2013 PSUP is accounted for as an equity-settled plan. All
  of the outstanding units have been measured at the reporting date using their
  grant date fair value, calculated based on the grant date closing price of
  Primero shares on the TSX. The total amount of expense recognized in the
  statement of operations and comprehensive loss for the year ended December 31,
  2017 in relation to the 2013 PSUP was $2.9 million (2016 - $4.9 million and 2015
  - $6.8 million). (iv) Deferred share units A person holding deferred share units (DSUs) under this plan is
  entitled to receive at vesting, either a cash payment equal to the redemption
  value of the DSUs, shares issued from treasury equal to the number of DSUs,
  shares purchased on the stock exchange, or any combination of these, such that
  the cash payment plus number of shares delivered have a value equal to the
  redemption value of the DSUs. The choice of settlement is solely at the
  Companys discretion. The redemption value is calculated by the number of DSUs
  redeemed multiplied by the weighted average price per share traded on the TSX
  over the last five trading days preceding the redemption date. As at December 31, 2017, a total of 315,790 DSUs were issued
  and outstanding. The DSUP is accounted for as an equity-settled plan. All of the
  outstanding units have been measured at the reporting date using their grant
  date fair value, calculated based on the grant date closing price of Primero
  shares on the TSX. The total amount of expense recognized in the statements of
  operations and comprehensive loss for the year ended December 31, 2017 was $0.2
  million (2016 - $0.4 million and 2015 - $0.4 million). 46    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)  18.
    Loss per share Basic loss per share amounts are calculated by dividing the net
  loss for the year by the weighted average number of common shares outstanding
  during the year. 2017
    
    
    2016
    
    
    2015Net loss attributable to
      shareholdersBasic
    
    ($409,685
    )
    
    ($234,420
    )
    
    ($106,910
    )Diluted
    
    (409,685
    )
    
    (234,420
    )
    
    (106,910
    )Weighted average number of sharesBasic
    
    191,738,274
    
    
    177,569,024
    
    
    162,340,566Diluted
    
    191,738,274
    
    
    177,569,024
    
    
    162,340,566Basic loss per share
    
    ($2.14
    )
    
    ($1.32
    )
    
    ($0.66
    )Diluted loss per share
    
    ($2.14
    )
    
    ($1.32
    )
    
    ($0.66
    ) For the year ended December 31, 2017, 28,411,463 common shares
  which are issuable from outstanding stock options, 2013 PSUs, DSUs and from the
  5.75% convertible debentures (2016  26,928,026 common shares and 2015 
  32,143,546 common shares ) were excluded from the calculation of diluted loss
  per share as they would be considered to be anti-dilutive. 19.
    Cash a) Cash and cash equivalents Cash and cash equivalents consist of cash on hand, deposits in
  banks and highly liquid investments with an original maturity of 90 days or
  less. b) Restricted cash The Company does not have any restricted cash at December 31,
  2017. At December 31, 2016, restricted cash of $4.6 million (C$6.2 million)
  represented collateralized cash held for a letter of credit securing C$20.5
  million of closure bonds held with the Ontario Ministry of Northern Development
  and Mines (MNDM). This was released in 2017, following the sale of the Black
  Fox Complex. 20.
    Decommissioning liability As at December 31, 2017, the decommissioning liability consists
  of reclamation and closure costs for the San Dimas mine. As at December 31,
  2016, the decommissioning liability consists of reclamation and closure costs
  for the San Dimas mine and the Black Fox Complex. The undiscounted cash flow
  amount of the total obligation was $30.7 million at December 31, 2017 (2016 -
  $59.6 million) and the present value of the obligation was estimated at $11.6
  million (2016- $29.8 million). 47    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)  San Dimas
    
    
    Black Fox
    
    
    TotalDecommissioning liability,
      January 1, 2016
    
    9,324
    
    
    18,970
    
    
    28,294Accretion expense
    
    723
    
    
    320
    
    
    1,043Change in estimated timing of cash flows
    
    (167
    )
    
    620
    
    
    453At December 31, 2016
    
    9,880
    
    
    19,910
    
    
    29,790Accretion expense
    
    766
    
    
    208
    
    
    974Foreign exchange, estimated timing and other
      adjustments
    
    1,000
    
    
    -
    
    
    1,000Disposition
    
    -
    
    
    (20,118
    )
    
    (20,118
    )At
      December 31, 2017
    $
    11,646
    
    $
    -
    
    $
    11,646 The discount rates used by the Company in 2017, and 2016 are
  based on prevailing risk-free pre-tax rates in Mexico and Canada, respectively,
  for periods of time which coincide with the period over which the
  decommissioning costs are discounted. The following table summarizes the
  assumptions used in provision for the years ended December 31, 2017 and 2016: Expected years
    
    
    Discount rate
    
    
    Inflation rate2017San
      Dimas
    
    16 yrs
    
    
    7.39%
    
    
    3.50%2016San Dimas
    
    17 yrs
    
    
    7.75%
    
    
    3.40%Black Fox Complex
    
    5 yrs
    
    
    2.34%
    
    
    2.00%  21.
    Capital management The Companys primary objective in managing capital is to
  ensure sufficient liquidity through the conclusion of the Arrangement Agreement
  with First Majestic. The Companys capital items are the following: December 31
    
    
    December 312017
    
    
    2016Cash and cash equivalents
    $
    20,966
    
    $
    19,875Undrawn revolving credit facility
    
    4,799
    
    
    25,000Current debt
    
    30,310
    
    
    50,841Long-term debt
    
    47,625
    
    
    52,906Shareholders' equity
    
    59,731
    
    
    461,130 To support the Companys capital management objectives, the
  Company manages its capital structure and makes adjustments to it within the
  context of the Companys strategy, economic conditions and risk characteristics
  of its underlying assets. To maintain or adjust its capital structure, the
  Company may attempt to issue shares, adjust the amount of debt or enter into new
  debt. The Company does not currently pay out dividends. Utilization of the
  undrawn RCF requires consent from WPM. As at December 31, 2017, the Company was not subject to any
  financial covenants and was in compliance with all non-financial covenants. 48    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)  22.
    Financial instruments The Companys financial instruments at December 31, 2017
  consist of cash and cash equivalents, trade and other receivables, an equity
  investment in Fortune Bay, trade and other payables, and debt. At December 31, 2017, the carrying amounts of cash and cash
  equivalents, trade and other receivables, trade and other payables, and the RCF
  are considered to be a reasonable approximation of their fair values due to
  their short-term nature. The fair value of the finance lease liabilities
  approximate their carrying value as the interest rate implicit in the leases
  approximate current market rates. Derivative instruments - Embedded derivatives Financial instruments and non-financial contracts may contain
  embedded derivatives, which are required to be accounted for separately at fair
  value as derivatives when the risks and characteristics of the embedded
  derivatives are not closely related to those of their host contract and the host
  contract is not carried at fair value. The Company regularly assesses its
  financial instruments and non-financial contracts to ensure that any embedded
  derivatives are accounted for in accordance with its policy. There were no
  material embedded derivatives requiring separate accounting at December 31, 2017
  or December 31, 2016 other than those discussed below. The 5.75% convertible debentures issued by the Company on
  February 9, 2015 (Note 10 (c)) are considered to contain multiple embedded
  derivatives. These debentures and all related derivatives were accounted for as
  one instrument which was initially recognized at fair value and will
  subsequently be measured at fair value for each period during the term of the
  debentures. During the year ended December 31, 2017 a mark to market gain of
  $4.9 million (2016  $9.0 million) was recognized in relation to the debentures. The common share purchase warrants issued by the Company on
  June 24, 2016 (Note 17 a)) are considered derivative liabilities and were
  initially recognized at fair value and are subsequently measured at fair value
  during the term of the warrants. During the year ended December 31, 2017, a
  mark-to-market gain of $1.0 million (2016 - $3.6 million) was recognized in
  relation to the common share purchase warrants. Fair value measurements of financial assets and liabilities
  recognized on the Consolidated Statements of Financial Position The categories of the fair value hierarchy that reflect the
  significance of inputs used in making fair value measurements are as follows: Level 1  quoted prices in active markets for identical assets
  or liabilities; 
  Level 2  inputs other than quoted prices included in Level
  1 that are observable for the asset or liability, either directly (i.e., as
  prices) or indirectly (i.e., derived from prices); and 
  Level 3  inputs for
  the asset or liability that are not based on observable market data. 49    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) The levels in the fair value hierarchy that the Companys
  financial assets and liabilities that are measured and recognized at fair value
  on a recurring basis are as follows: December 31
    
    
    December 31Level 1
    
    2017
    
    
    2016Investment in Fortune Bay (1)
    $
    910
    
    $
    1,1605.75% convertible debentures (2,3)
    
    47,625
    
    
    52,500Warrant liability (2)
    
    44
    
    
    1,066  1.
    Fortune Bay is a publicly-listed company and the fair
      value is based on the trading price of its shares as at the date of the
      statement of financial position.2.
    The fair value of the 5.75% convertible debentures and
      the warrant liability are calculated using the respective market prices on
      the TSX Exchange as at the date of the statement of financial
      position.3.
    On March 13, 2018, the holders of the 5.75% convertible
      debentures voted to approve an amendment to the maturity date of the
      debentures to the day following the closing date of the Arrangement with
      full principal of $75 million paid on this date. At December 31, 2017, there were no financial assets or
  liabilities measured and recognized on the consolidated statements of financial
  position at fair value that would be categorized as Level 3 in the fair value
  hierarchy (December 31, 2016  $nil). The following describes the types of financial instrument risks
  to which the Company is exposed and its objectives and policies for managing
  those risk exposures: a) Credit risk Credit risk is the risk that the counterparty to a financial
  instrument will cause a financial loss for the Company by failing to discharge
  its obligations. Credit risk is primarily associated with trade and other
  receivables; however, it also arises on cash and cash equivalents and restricted
  cash. To mitigate exposure to credit risk on financial assets, the Company
  ensures non-related counterparties demonstrate minimum acceptable credit
  worthiness and ensures liquidity of available funds. The Company closely monitors its financial assets and does not
  have any significant concentration of credit risk with non-related parties. The
  Company invests its cash and cash equivalents in highly rated financial
  institutions and sells its products exclusively to organizations with strong
  credit ratings. The credit risk associated with trade receivables at December
  31, 2017 is considered to be negligible. The Company expects the outstanding VAT
  receivable from the Mexican tax authorities to be refunded or be offset against
  future tax payments. Approximately $15.2 million was refunded since July 2017. The Companys maximum exposure to credit risk at December 31,
  2017, and 2016 is as follows: 2017
    
    
    2016Cash and restricted cash
    $
    20,966
    
    $
    24,452Trade and other receivables
    
    1,241
    
    
    1,962Current and non-current taxes receivable
    
    40,789
    
    
    41,838$
    62,996
    
    $
    68,252 b) Liquidity risk Liquidity risk is the risk that the Company will encounter
  difficulty in meeting obligations associated with its financial liabilities that
  are settled by delivering cash or another financial asset. The Companys objectives and key guidelines for capital
  management, including management of long-term debt, are described in note 21.
  Further considerations in our liquidity risk are described in note 15 (c). 50    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) If the Arrangement Agreement to sell the Company to First
  Majestic is terminated for any reason, there would be significant uncertainy as
  to whether the Company could discharge its commitments as they come due from
  cash from operations and collection of receivables without an extension of the
  RCF maturity date or other form of re-financing. The table below shows the Companys liquidity risk profile at
  December 31, 2017: Within 1
    
    
    2-5
    
    
    Total(in thousands of U.S. dollars)
    
    year
    
    
    yearsCash and cash equivalents
    $
    20,966
    
    $
    -
    
    $
    20,966Trade and other payables
    
    (19,593
    )
    
    -
    
    
    (19,593
    )Revolving credit facility
      balance and interest
    
    (30,657
    )
    
    -
    
    
    (30,657
    )Finance lease liabilities
    
    (109
    )
    
    -
    
    
    (109
    )5.75% Convertible debentures and interest
    
    (4,313
    )
    
    (80,010
    )
    
    (84,323
    )Total
    
    ($33,706
    )
    
    ($80,010
    )
    
    ($113,716
    ) Refer to note 2 b) for the Companys plans to address liquidity
  risk associated with the current working capital deficiency. The Company has
  entered into commercial leases on certain types of equipment and office space
  which have been classified as operating leases. These leases have terms of
  between 1 and 6 years. There are no restrictions placed on the Company as a
  result of entering into these leases. Some of the leases contain renewal or
  purchase options at the end of the lease. The total operating lease expense from
  continuing operations during the year ended December 31, 2017 was $0.9 million
  (2016 - $0.8 million and 2015 - $1.2 million). c) Market risk (i) Currency risk Currency risk is the risk that the fair values or future cash
  flows of the Companys financial instruments will fluctuate because of changes
  in foreign currency exchange rates. Exchange rate fluctuations may affect the
  costs incurred in the Companys operations. Gold is sold in US dollars and costs
  are incurred principally in US dollars, Canadian dollars and Mexican pesos. The
  appreciation of the Mexican peso or the Canadian dollar against the U.S. dollar
  can increase the costs of gold production and capital expenditures in US dollar
  terms. The Company also holds cash that is denominated in Canadian dollars and
  Mexican pesos which are subject to currency risk. The Companys head office
  general and administrative expenses are mainly denominated in Canadian dollars
  and are translated to US dollars at the average rate during the period, and as
  such if the US dollar appreciates as compared to the Canadian dollar, the costs
  of the Company would decrease in US dollar terms. The Company is further exposed
  to currency risk through non-monetary assets and liabilities of its Mexican
  entities whose taxable profit or loss is denominated in a non-US dollar
  currency. Changes in exchange rates give rise to temporary differences resulting
  in a deferred tax liability or asset with the resulting deferred tax charged or
  credited to income tax expense. During the year ended December 31, 2017, the Company recognized
  a loss of $4.5 million on foreign exchange (2016  loss of $1.0 million and 2015
   gain of $0.1 million). Based on the above net exposures at December 31, 2017, a 10% depreciation or
  appreciation of the Mexican peso against the U.S. dollar would result in a $1.6
  million increase or decrease in the Companys before-tax net loss from
  continuing operations (2016 - $1.4 million and 2015 - $0.03 million); and a 10%
  depreciation or appreciation of the Canadian dollar against the U.S. dollar
  would result in a $0.2 million increase or decrease in the Companys before-tax
  net loss from continuing operations (2016 - $2.7 million and 2015 - $1.6
  million). 51    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) The Company does not currently use derivative instruments to
  reduce its exposure to currency risk, however, management monitors its differing
  currency needs and tries to reduce its exposure to currency risks through
  exchanging currencies at what are considered to be optimal times. (ii) Interest rate risk Interest rate risk is the risk that the fair values and future
  cash flows of the financial instruments will fluctuate because of changes in
  market interest rates. The exposure to interest rates is monitored. The
  Companys exposure to interest rate risk is limited to the revolving credit
  facility which is subject to a floating interest rate. An increase or decrease
  of 100 basis points in the interest rate would result in a decrease or increase
  in profit before tax of $0.3 million (assuming $30.2 million drawn on the line
  of credit). (iii) Price risk Price risk is the risk that the fair value or future cash flows
  of the Companys financial instruments will fluctuate because of changes in
  commodity prices. Profitability depends on sales prices for gold and silver.
  Metal prices are affected by numerous factors such as the sale or purchase of
  gold and silver by various central banks and financial institutions, interest
  rates, exchange rates, inflation or deflation, fluctuations in the value of the
  U.S. dollar and foreign currencies, global and regional supply and demand, and
  the political and economic conditions of major producing countries throughout
  the world. The table below summarizes the impact on profit before tax for
  a 10% change in the average commodity price achieved by the Company during the
  year. The analysis is based on the assumption that the gold and silver prices
  move 10% with all other variables held constant. 2017
    
    
    2016
    
    
    2015Gold price10% increase
    $
    14,081
    
    $
    14,084
    
    $
    18,09110% decrease
    
    (14,081
    )
    
    (14,084
    )
    
    (18,091
    )Silver price10% increase
    $
    -
    
    $
    222
    
    $
    93810%
      decrease
    
    -
    
    
    (222
    )
    
    (938
    )  23.
    Related party transactions Compensation of key management personnel of the Company The key management personnel of the Company are considered to
  be all directors, the Chief Executive Officer, the Chief Financial Officer and
  the Chief Operating Officer. Aggregate compensation recognized in respect of key management personnel
  of the Company including directors is as follows: 52    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)  2017
    
    
    2016
    
    
    2015Short-term employee benefits
    $
    2,418
    
    $
    3,122
    
    $
    5,198Share-based compensation
    
    2,409
    
    
    3,879
    
    
    2,494Termination benefits
    
    1,395
    
    
    1,172
    
    
    -$
    6,222
    
    $
    8,173
    
    $
    7,692 As at December 31, 2017 $0.9 million (2016 - $0.6 million) of
  the short-term employee benefits were outstanding. All of the compensation of
  key management personnel was equivalent to that which would be incurred in an
  arms length transaction. 24.
    Commitments and
      contingencies (a) An Ejido is a communal ownership of land recognized by the
  federal laws in Mexico. While mineral rights are administered by the federal
  government through federally issued mining concessions, access to surface rights
  is also required for mining operations. An Ejido controls surface rights over
  its communal property through an assembly where each of the Ejido members has a
  voting right. An Ejido may sell or lease lands directly to a private entity and
  it may also allow individual members of the Ejido to obtain title to specific
  parcels of land and thus the right to sell or lease the land. The San Dimas mine uses Ejidos lands pursuant to written
  agreements with Ejidos. Some of these agreements may be subject to renegotiation
  and changes to the existing agreements may increase operating costs or have an
  impact on operations. In cases where access to land is required for operations
  and an agreement cannot be reached with the land owner, Primero may seek access
  under Mexican law which provides for priority rights for mining activities. Certain of the properties included in the San Dimas mine and
  for which Primero holds legal title have been subject to legal proceedings
  commenced by Ejidos seeking title to the property. These proceedings were
  initiated against previous owners of the properties, either deceased individuals
  who, according to certain public deeds, owned the properties more than 80 years
  ago, corporate entities that are no longer in existence, or Goldcorp companies.
  As such, Primero initially has no standing to participate in them and may not
  receive timely notice of such actions brought or decisions rendered. Since acquiring the San Dimas mine, Primero has been aware of
  four such Ejidos actions, three of which have been finally resolved in favour of
  Primeros interests. Primero continues to challenge the fourth outstanding
  Ejidos legal claim to defend its position as the legitimate owner of the
  subject property. If Primero is not successful in its challenge, the San Dimas
  mine could face higher costs associated with agreed or mandated payments that
  would be payable to the Ejidos for use of the properties. Further, there can be
  no assurance that Ejidos will not engage in legal proceedings to claim interests
  in properties owned by Primero in future. (b) The Company has agreed to indemnify its directors and
  officers, and the directors and officers of its subsidiaries, to the extent
  permitted under corporate law, against costs and damages incurred as a result of
  lawsuits or any other judicial, administrative or investigative proceeding in
  which said directors or officers are sued as a result of their services. The
  directors and officers are covered by directors and officers liability
  insurance. 53    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) In July 2016, the Company and certain officers were served with
  a class action lawsuit that was filed earlier in the year in federal court in
  the State of California seeking to recover damages for investors in the
  Companys common shares under the U.S. federal securities laws. The Company
  filed a motion to dismiss this action which was granted on January 30, 2017. The
  plaintiffs claims were dismissed without prejudice and the plaintiffs filed an
  amended complaint on February 27, 2017. On July 14, 2017 the Companys motion to
  dismiss the amended complaint was granted and the plaintiffs claims were
  dismissed without prejudice. Rather than amend the complaint again, the
  plaintiffs asked the federal court to enter final judgment and initiated an
  appeal of the dismissal to the Ninth Circuit Court of Appeals on September 8,
  2017. The parties have filed their briefs in this appeal and a ruling on the
  appeal is expected sometime in 2018. The Company intends to vigorously defend
  this class action lawsuit. (c) As at December 31, 2017, the Company had entered into
  commitments to purchase plant and equipment totaling $0.1 million (December 31,
  2016 - $0.5 million). (d) Due to the size, complexity and nature of the Companys
  operations, various legal and tax matters arise in the ordinary course of
  business. The Company accrues for such items when a liability is both probable
  and the amount can be reasonably estimated. (e) Under the Silver Purchase Agreement, a subsidiary of
  Primero has a commitment to deliver 215 million ounces of silver to WPMI by
  October 15, 2031 (the Minimum Silver Amount). In the event the Minimum Silver
  Amount is not reached, a payment of $0.50 per ounce for the shortfall ounces is
  required (the Minimum Silver Payment). Goldcorp has indemnified Primero, and
  will ultimately be responsible for, any amount paid in respect of the Minimum
  Silver Payment. 25.
    Subsequent events On January 12, 2018, the Company announced that it entered into
  the Arrangement Agreement whereby First Majestic will acquire all of the issued
  and outstanding common shares of Primero (the "Arrangement"). Under the terms of
  the Arrangement Agreement, all of Primeros issued and outstanding common shares
  will be exchanged for First Majestic common shares on the basis of 0.03325 of a
  First Majestic common share for each Primero common share (the "Exchange
  Ratio"). Concurrent with execution of the Arrangement Agreement, First
  Majestic has entered into agreements with WPMI, a wholly-owned subsidiary of WPM
  whereby, following closing of the Arrangement, the current silver streaming
  interest at San Dimas held by WPM will be terminated and First Majestic and WPM
  will enter into a new stream arrangement based on 25% of the gold equivalent
  production at San Dimas (the "New Stream") with ongoing payments of $600 per
  gold equivalent ounce delivered under the agreement. As part of the transaction,
  WPM will receive 20,914,590 common shares of First Majestic having an aggregate
  value of $151 million. The Arrangement will also provide for the issuance by First
  Majestic of an aggregate of approximately 226,476 replacement stock options
  (assuming no exercise of existing Primero options) to Primero optionholders who
  do not exercise their Primero options prior to the effective time of the
  Arrangement, at exercise prices adjusted by the Exchange Ratio. Under the
  Arrangement all existing warrants of Primero will become exercisable to acquire
  First Majestic common shares at exercise prices adjusted by the Exchange Ratio.
  The Arrangement will also provide that upon the Arrangement becoming effective
  all existing deferred share units and phantom share units of Primero will be paid out in cash in an
  amount equal to C$0.30 per deferred share unit or phantom share unit. 54    PRIMERO MINING CORP.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED) Certain additional amounts payable in connection with the
  Arrangement, include repayment of all amounts owing under Primero's existing RCF
  and the expected repayment of Primero's $75 million of outstanding convertible
  debentures. On March 13, 2018, the Arrangement was approved by Primero
  shareholders. The Company is awaiting anti-trust clearance in Mexico. The
  Arrangement is expected to close in late April or early May 2018, subject to
  applicable regulatory approvals and the satisfaction of other customary
  conditions. In the event that the Arrangement does not close by April 30, 2018, the Company will seek an extension of the RCF. On March 13, 2018, the debentureholders voted to approve an
  amendment to the maturity date of the debentures. Upon the closing of the
  Arrangement, the amendment of the trust indenture will accelerate the maturity
  date of the Primero Debentures to the next Business Day (as defined in the trust
  indenture) following the effective date of the Arrangement. 55