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PRIMEROMININGCORP.DECEMBER31,2016

TABLE OF CONTENTS

|Managements
      Responsibility for Financial Reporting                                                        | 1            
|---------------------------------------------------------------------------------------------------------------- | -------------
|                                                                                                                 |              
|Independent
      Auditors Report of Registered Public Accounting Firm                                          | 2            
|                                                                                                                 |              
|Report
      of Independent Registered Public Accounting Firm on Internal Control Over
      Financial Reporting | 4            
|                                                                                                                 |              
|Consolidated
      statements of operations and comprehensive income (loss)                                      | 6            
|                                                                                                                 |              
|Consolidated
      statements of financial position                                                              | 7            
|                                                                                                                 |              
|Consolidated
      statements of changes in equity                                                               | 8            
|                                                                                                                 |              
|Consolidated
      statements of cash flows                                                                      | 9            
|                                                                                                                 |              
|Notes
      to the consolidated financial statements                                                             | 10
      - 55

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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) 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 audits 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.

Managements Report over Internal Controls over Financial
Reporting

Management has developed and maintains a system of internal
controls to obtain reasonable assurance regarding the reliability of financial
reporting and the preparation of the consolidated financial statements. All
internal control systems have inherent limitations, including the possibility of
circumvention and overriding of controls, and therefore, may not prevent or
detect misstatements. Management has assessed the effectiveness of the Companys
internal control over financial reporting based on the framework in Internal
Control  Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).

The effectiveness of the Companys internal control over
financial reporting as of December 31, 2016 has been audited by KPMG LLP, as
reflected in their report for 2016.

|"Joseph F. Conway"                    |  | "Kevin Jennings"       
|------------------------------------- |  | -----------------------
|Joseph F. Conway                      |  | Kevin
      Jennings   
|President and Chief Executive Officer |  | Chief Financial Officer
|March 14, 2017                        |  | March 14, 2017         

1

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INDEPENDENT AUDITORS REPORT OF REGISTERED PUBLIC ACCOUNTING
FIRM

To the Shareholders and Board of Directors of Primero Mining
Corp.

We have audited the accompanying consolidated financial
statements of Primero Mining Corp., which comprise the consolidated statements
of financial position as at December 31, 2016 and 2015, the consolidated
statement of operations and comprehensive income (loss), changes in equity and
cash flows for the years then ended, and notes, comprising a summary of
significant accounting policies and other explanatory information.

Managements Responsibility for the Consolidated Financial
Statements

Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or
error.

Auditors Responsibility

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

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, we
consider internal control relevant to the entitys preparation and fair
presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.

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

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position of Primero
Mining Corp. as at December 31, 2016 and 2015, and its consolidated financial
performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board.

2

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Emphasis of Matter

Without  modifying (qualifying) our opinion, we draw attention
to Note 2(b) in the consolidated financial statements which indicates that
Primero Mining Corp.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) in the consolidated financial statements, indicate the
existence of material uncertainties that cast substantial doubt about Primero Mining Corp.s
ability to continue as a going concern.

Other Matter

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Primero Mining
Corp.s internal control over financial reporting as of December 31, 2016, based
on the criteria established in Internal Control  Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated March 14, 2017 expressed an unqualified
(unmodified) opinion on the effectiveness of Primero Mining Corp.s internal
control over financial reporting.

"KPMG LLP"

Chartered Accountants, Licensed Public Accountants March
14, 2017

Toronto, Canada

3

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Shareholders and Board of Directors of Primero Mining
Corp.

We have audited Primero Mining Corp.s internal control over
financial reporting as of December 31, 2016, based on the criteria established
in Internal Control  Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Primero Mining
Corp.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 in the subsection titled Internal
Controls over Financial Reporting in Managements Discussion and Analysis for
the year ended December 31, 2016. Our responsibility is to express an opinion on
the Companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, 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.

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

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

In our opinion, Primero Mining Corp. maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2016, based on the criteria established in Internal Control 
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).

4

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We also have audited, in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), the consolidated statement of financial
position of Primero Mining Corp. as at December 31, 2016 and 2015, and the
related consolidated statements of operations and comprehensive income (loss),
changes in equity and cash flows for the years then ended, and our report dated
March 14, 2017 expressed an unmodified (unqualified) opinion on those
consolidated financial statements.

"KPMG LLP"

Chartered Professional Accountants, Licensed
  Public Accountants 
  March 14, 2017

Toronto, Canada

5

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|PRIMERO MINING CORP.                                                                 
|-------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
      INCOME(LOSS)           
|YEARS ENDED DECEMBER 31, 2016 AND 2015                                               
|(IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT FOR SHARE
      AND PER SHARE AMOUNTS)

|                                                                                                         |  | Notes       |  |   | 2016        |   |   | 2015        |  
|-------------------------------------------------------------------------------------------------------- |  | ----------- |  | - | ----------- | - | - | ----------- | -
|                                                                                                         |  |             |  |   |             |   |   |             |  
|Revenue                                                                                                  |  | 6           |  | $ | 219,176     |   | $ | 291,304     |  
|Operating expenses                                                                                       |  |             |  |   | (155,267    | ) |   | (163,593    | )
|Depreciation and depletion                                                                               |  |             |  |   | (63,329     | ) |   | (77,238     | )
|Total cost of sales                                                                                      |  |             |  |   | (218,596    | ) |   | (240,831    | )
|Earnings from mine operations                                                                            |  |             |  |   | 580         |   |   | 50,473      |  
|Mining interest impairment charge                                                                        |  | 5           |  |   | (228,000    | ) |   | (104,000    | )
|Exploration expenses                                                                                     |  |             |  |   | (3,414      | ) |   | (1,690      | )
|Share-based compensation                                                                                 |  |             |  |   | (7,049      | ) |   | (7,144      | )
|General and administrative
      expenses                                                                |  | 7           |  |   | (14,802     | ) |   | (20,044     | )
|Other charges                                                                                            |  | 8           |  |   | (4,725      | ) |   | (2,702      | )
|Loss from operations                                                                                     |  |             |  |   | (257,410    | ) |   | (85,107     | )
|Transaction costs                                                                                        |  | 9           |  |   | (1,214      | ) |   | (4,416      | )
|Interest and finance expenses                                                                            |  | 10          |  |   | (9,299      | ) |   | (11,514     | )
|Mark-to-market gain on debentures &
      warrants                                                       |  | 18(d),20(a) |  |   | 12,610      |   |   | 13,500      |  
|Other income (expenses)                                                                                  |  | 11          |  |   | (571        | ) |   | 1,024       |  
|Loss before income taxes                                                                                 |  |             |  |   | (255,884    | ) |   | (86,513     | )
|Income tax recovery (expense)                                                                            |  | 12(a)       |  |   | 21,464      |   |   | (20,397     | )
|Net loss for the period                                                                                  |  |             |  |   | ($234,420   | ) |   | ($106,910   | )
|Other comprehensive income
      (loss), net of tax                                                      |  |             |  |   |             |   |   |             |  
|Items that may be subsequently
      reclassified to profit or loss:                                     |  |             |  |   |             |   |   |             |  
|Exchange
      differences on translation of foreign operations, net of tax of $nil                      |  |             |  |   | (102        | ) |   | (5          | )
|Unrealized gain on investment in
      Fortune Bay, net of tax of $nil                                   |  | 22          |  |   | 1,058       |   |   | 60          |  
|Reclassification of unrealized loss on
      investment in Fortune Bay to impairment, net of tax of $nil |  |             |  |   | -           |   |   | 456         |  
|Total comprehensive loss for the period                                                                  |  |             |  |   | ($233,464   | ) |   | ($106,399   | )
|Basic loss per share                                                                                     |  | 13          |  |   | ($1.32      | ) |   | ($0.66      | )
|Diluted loss per share                                                                                   |  | 13          |  |   | ($1.32      | ) |   | ($0.66      | )
|Weighted average number of
      common shares outstanding                                               |  |             |  |   |             |   |   |             |  
|Basic                                                                                                    |  | 13          |  |   | 177,569,024 |   |   | 162,340,566 |  
|Diluted                                                                                                  |  | 13          |  |   | 177,569,024 |   |   | 162,340,566 |  

See accompanying notes to the consolidated financial statements.

6

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|PRIMERO MINING CORP.                         
|---------------------------------------------
|CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|(IN THOUSANDS OF UNITED STATES DOLLARS)      

|                                              |  |       |  |   | December 31 |   |   | December 31 |  
|--------------------------------------------- |  | ----- |  | - | ----------- | - | - | ----------- | -
|                                              |  | Notes |  |   | 2016        |   |   | 2015        |  
|                                              |  |       |  |   |             |   |   |             |  
|Assets                                        |  |       |  |   |             |   |   |             |  
|Current assets                                |  |       |  |   |             |   |   |             |  
|Cash and cash
      equivalents               |  | 15    |  | $ | 19,875      |   | $ | 45,601      |  
|Trade and other receivables                   |  |       |  |   | 1,962       |   |   | 1,793       |  
|Value added and
      income taxes receivable |  |       |  |   | 34,494      |   |   | 32,088      |  
|Prepaid expenses                              |  |       |  |   | 3,893       |   |   | 7,125       |  
|Inventories                                   |  | 16    |  |   | 22,829      |   |   | 31,964      |  
|Total current assets                          |  |       |  |   | 83,053      |   |   | 118,571     |  
|Non-current assets                            |  |       |  |   |             |   |   |             |  
|Restricted cash                               |  |       |  |   | 4,577       |   |   | 5,920       |  
|Mining interests                              |  | 17    |  |   | 577,920     |   |   | 790,118     |  
|Deferred tax asset                            |  | 12(b) |  |   | 3,763       |   |   | 3,781       |  
|Value added tax
      receivable              |  |       |  |   | 7,344       |   |   | -           |  
|Long-term stockpile                           |  | 16    |  |   | -           |   |   | 5,694       |  
|Other non-current assets                      |  |       |  |   | 1,160       |   |   | 884         |  
|Total assets                                  |  |       |  | $ | 677,817     |   | $ | 924,968     |  
|                                              |  |       |  |   |             |   |   |             |  
|Liabilities                                   |  |       |  |   |             |   |   |             |  
|Current liabilities                           |  |       |  |   |             |   |   |             |  
|Trade and other payables                      |  |       |  | $ | 31,781      |   | $ | 44,972      |  
|Income tax
      payable                      |  |       |  |   | 1,558       |   |   | 12,870      |  
|Other taxes payable                           |  |       |  |   | 2,035       |   |   | 3,406       |  
|Current portion of debt                       |  | 18    |  |   | 50,841      |   |   | 52,417      |  
|Total current liabilities                     |  |       |  |   | 86,215      |   |   | 113,665     |  
|Non-current liabilities                       |  |       |  |   |             |   |   |             |  
|Other taxes payable                           |  |       |  |   | 14,120      |   |   | 13,354      |  
|Deferred tax
      liability                  |  | 12(b) |  |   | 28,428      |   |   | 53,107      |  
|Decommissioning liability                     |  | 19    |  |   | 29,790      |   |   | 28,294      |  
|Long-term debt                                |  | 18    |  |   | 52,906      |   |   | 62,727      |  
|Warrant liability                             |  | 20(a) |  |   | 1,066       |   |   | -           |  
|Other long-term liabilities                   |  |       |  |   | 4,162       |   |   | 4,945       |  
|Total liabilities                             |  |       |  | $ | 216,687     |   | $ | 276,092     |  
|                                              |  |       |  |   |             |   |   |             |  
|Shareholders' equity                          |  |       |  |   |             |   |   |             |  
|Share capital                                 |  | 20(a) |  | $ | 908,923     |   | $ | 867,375     |  
|Shares reserved for future issuance           |  | 20(a) |  |   | 297         |   |   | -           |  
|Contributed surplus                           |  | 20(c) |  |   | 58,857      |   |   | 54,984      |  
|Accumulated other comprehensive loss          |  |       |  |   | (3,694      | ) |   | (4,650      | )
|Deficit                                       |  |       |  |   | (503,253    | ) |   | (268,833    | )
|Total shareholders' equity                    |  |       |  | $ | 461,130     |   | $ | 648,876     |  
|Total liabilities and shareholders' equity    |  |       |  | $ | 677,817     |   | $ | 924,968     |  

Going concern (Note 2(b)) Commitments and contingencies
(Note 24) Subsequent events (Note 21)

See accompanying notes to the consolidated financial
statements.

|Approved on behalf of the Board of Directors |  |                                     
|-------------------------------------------- |  | ------------------------------------
|                                             |  |                                     
|"Joseph F. Conway"                           |  | "Michael
    E. Riley"              
|Joseph F. Conway,
      Director             |  | **Michael
      E. Riley, Director**

7

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|PRIMERO MINING CORP.                                                             
|---------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY                                     
|(IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT FOR NUMBER
      OF COMMON SHARES)

|                                                                       |  |       |  |  |               |  |   |            |  |   |                 |  |   |             |   |   |               |   |  | Accumulated |   |  |           |   |   |              |  
|---------------------------------------------------------------------- |  | ----- |  |  | ------------- |  | - | ---------- |  | - | --------------- |  | - | ----------- | - | - | ------------- | - |  | ----------- | - |  | --------- | - | - | ------------ | -
|                                                                       |  |       |  |  |               |  |   |            |  |   | Shares reserved |  |   |             |   |   |               |   |  | other       |   |  |           |   |   |              |  
|                                                                       |  |       |  |  | Share capital |  |   | for future |  |   | Warrants        |  |   | Contributed |   |   | comprehensive |   |  |             |   |  |           |  
|                                                                       |  | Notes |  |  | Shares        |  |   | Amount     |  |   | issuance        |  |   | reserve     |   |   | surplus       |   |  | loss        |   |  | Deficit   |   |   | Total equity |  
|Balance, January 1, 2015                                               |  |       |  |  | 161,555,875   |  | $ | 858,761    |  | $ | -               |  | $ | 34,782      |   | $ | 21,526        |   |  | ($5,161     | ) |  | ($161,923 | ) | $ | 747,985      |  
|Shares issued for                                                      |  |       |  |  |               |  |   |            |  |   |                 |  |   |             |   |   |               |   |  |             |   |  |           |   |   |              |  
|Exercise of
      stock options                                        |  |       |  |  | 300,000       |  |   | 1,120      |  |   | -               |  |   | -           |   |   | (294          | ) |  | -           |   |  | -         |   |   | 826          |  
|PSUs settled in shares                                                 |  |       |  |  | 963,164       |  |   | 4,364      |  |   | -               |  |   | -           |   |   | (4,404        | ) |  | -           |   |  | -         |   |   | (40          | )
|Flow-through
      agreement                                           |  |       |  |  | 1,366,768     |  |   | 3,130      |  |   | -               |  |   | -           |   |   | -             |   |  | -           |   |  | -         |   |   | 3,130        |  
|Expiry of warrants, net of tax                                         |  | 20(b) |  |  | -             |  |   | -          |  |   | -               |  |   | (34,782     | ) |   | 30,046        |   |  | -           |   |  | -         |   |   | (4,736       | )
|Reclassification of
      unrealized loss on investment in Fortune Bay |  |       |  |  | -             |  |   | -          |  |   | -               |  |   | -           |   |   | -             |   |  | 456         |   |  | -         |   |   | 456          |  
|Foreign currency translation                                           |  |       |  |  | -             |  |   | -          |  |   | -               |  |   | -           |   |   | -             |   |  | (5          | ) |  | -         |   |   | (5           | )
|Unrealized gain on investment
      in Fortune Bay                     |  |       |  |  | -             |  |   | -          |  |   | -               |  |   | -           |   |   | -             |   |  | 60          |   |  | -         |   |   | 60           |  
|Share-based compensation                                               |  |       |  |  | -             |  |   | -          |  |   | -               |  |   | -           |   |   | 8,110         |   |  | -           |   |  | -         |   |   | 8,110        |  
|Loss for the period                                                    |  |       |  |  | -             |  |   | -          |  |   | -               |  |   | -           |   |   | -             |   |  | -           |   |  | (106,910  | ) |   | (106,910     | )
|Balance, December 31, 2015                                             |  |       |  |  | 164,185,807   |  | $ | 867,375    |  | $ | -               |  | $ | -           |   | $ | 54,984        |   |  | ($4,650     | ) |  | ($268,833 | ) | $ | 648,876      |  
|Shares issued for                                                      |  |       |  |  |               |  |   |            |  |   |                 |  |   |             |   |   |               |   |  |             |   |  |           |   |   |              |  
|Public equity offering (net of
      transaction costs)                |  | 20(a) |  |  | 22,022,500    |  |   | 33,047     |  |   | -               |  |   | -           |   |   | -             |   |  | -           |   |  | -         |   |   | 33,047       |  
|Acquisition of
      mining concessions                                |  | 20(a) |  |  | 1,854,271     |  |   | 3,540      |  |   | -               |  |   | -           |   |   | -             |   |  | -           |   |  | -         |   |   | 3,540        |  
|PSUs settled in shares                                                 |  | 20(c) |  |  | 1,445,787     |  |   | 4,961      |  |   | -               |  |   | -           |   |   | (4,851        | ) |  | -           |   |  | -         |   |   | 110          |  
|Common shares reserved for
      future issuance                       |  | 20(a) |  |  | -             |  |   | -          |  |   | 297             |  |   | -           |   |   | -             |   |  | -           |   |  | -         |   |   | 297          |  
|Share-based compensation                                               |  | 20(c) |  |  | -             |  |   | -          |  |   | -               |  |   | -           |   |   | 8,724         |   |  | -           |   |  | -         |   |   | 8,724        |  
|Other comprehensive income,
      net of tax                           |  |       |  |  | -             |  |   | -          |  |   | -               |  |   | -           |   |   | -             |   |  | 956         |   |  | -         |   |   | 956          |  
|Loss
      for the period                                              |  |       |  |  | -             |  |   | -          |  |   | -               |  |   | -           |   |   | -             |   |  | -           |   |  | (234,420  | ) |   | (234,420     | )
|Balance, December 31, 2016                                             |  |       |  |  | 189,508,365   |  | $ | 908,923    |  | $ | 297             |  | $ | -           |   | $ | 58,857        |   |  | ($3,694     | ) |  | ($503,253 | ) | $ | 461,130      |  

Total comprehensive loss was $233.5 million for the year ended
December 31, 2016 (December 31, 2015  $106.4 million) .

See accompanying notes to the consolidated financial
statements.

8

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|PRIMERO MINING CORP.                   
|---------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS  
|YEARS ENDED DECEMBER 31, 2015 AND 2014 
|(IN THOUSANDS OF UNITED STATES DOLLARS)

|                                                            |  | Notes |  |   | 2016      |   |   | 2015     |  
|----------------------------------------------------------- |  | ----- |  | - | --------- | - | - | -------- | -
|                                                            |  |       |  |   |           |   |   |          |  
|Operating activities                                        |  |       |  |   |           |   |   |          |  
|Earnings (loss) before income taxes                         |  |       |  |   | ($255,884 | ) |   | ($86,513 | )
|Adjustments for:                                            |  |       |  |   |           |   |   |          |  
|Depreciation and
      depletion                            |  | 17    |  |   | 63,329    |   |   | 77,238   |  
|Mining interest impairment charge                           |  | 5     |  |   | 228,000   |   |   | 104,000  |  
|Share-based
      compensation expense                      |  | 20    |  |   | 8,586     |   |   | 8,938    |  
|Payments made under the Phantom Share Unit Plan             |  | 20    |  |   | (377      | ) |   | (4,245   | )
|Mark-to-market
      gain on convertible debentures         |  | 18(d) |  |   | (9,000    | ) |   | (13,500  | )
|Mark-to-market gain on warrant liability                    |  | 20    |  |   | (3,610    | ) |   | -        |  
|Write-down of
      inventory                               |  | 16    |  |   | 1,040     |   |   | 3,048    |  
|Unrealized foreign exchange loss (gain)                     |  |       |  |   | 2,390     |   |   | (4,743   | )
|Taxes paid with
      cash and value added tax offsets      |  |       |  |   | (29,625   | ) |   | (15,104  | )
|Other                                                       |  |       |  |   | 975       |   |   | (1,007   | )
|Other adjustments                                           |  |       |  |   |           |   |   |          |  
|Transaction costs (disclosed
      in financing activities) |  |       |  |   | 232       |   |   | 3,651    |  
|Finance income                                              |  |       |  |   | (88       | ) |   | (111     | )
|Interest and finance expenses                               |  | 10    |  |   | 9,299     |   |   | 11,514   |  
|Operating cash flow before working capital
      changes    |  |       |  |   | 15,267    |   |   | 83,166   |  
|Changes in non-cash working capital                         |  | 14    |  |   | (2,158    | ) |   | (1,537   | )
|Cash
      provided by operating activities                 |  |       |  | $ | 13,109    |   | $ | 81,629   |  
|Investing activities                                        |  |       |  |   |           |   |   |          |  
|Expenditures on mining interests                            |  | 17    |  |   | ($67,673  | ) |   | ($99,722 | )
|Cash used in investing activities                           |  |       |  |   | ($67,673  | ) |   | ($99,722 | )
|Financing activities                                        |  |       |  |   |           |   |   |          |  
|Proceeds from equity offering                               |  | 20(a) |  | $ | 39,958    |   | $ | -        |  
|Transaction costs on equity offering                        |  | 20(a) |  |   | (2,464    | ) |   | -        |  
|Draw down on revolving credit
      facility                |  | 18(b) |  |   | 50,000    |   |   | -        |  
|Repayment of convertible debenture                          |  | 18(a) |  |   | (48,116   | ) |   | -        |  
|Repayment of revolving credit
      facility                |  |       |  |   | -         |   |   | (40,000  | )
|Payments on capital leases                                  |  | 18(c) |  |   | (4,497    | ) |   | (5,715   | )
|Funds released from
      reclamation bond                  |  |       |  |   | 1,564     |   |   | 9,846    |  
|Interest paid                                               |  |       |  |   | (7,493    | ) |   | (6,267   | )
|Proceeds from exercise of
      options                     |  |       |  |   | -         |   |   | 828      |  
|Proceeds from issuance of flow-through shares               |  |       |  |   | -         |   |   | 4,340    |  
|Issuance of convertible debt                                |  | 18(d) |  |   | -         |   |   | 75,000   |  
|Transaction costs on issuance of convertible debt           |  |       |  |   | -         |   |   | (3,651   | )
|Cash provided by financing activites                        |  |       |  | $ | 28,952    |   | $ | 34,381   |  
|Effect of foreign exchange rate changes on cash             |  |       |  |   | ($114     | ) | $ | 1,924    |  
|Increase (decrease) in cash                                 |  |       |  |   | ($25,726  | ) | $ | 18,212   |  
|Cash, beginning of period                                   |  |       |  |   | 45,601    |   |   | 27,389   |  
|Cash, end of period                                         |  |       |  | $ | 19,875    |   | $ | 45,601   |  

See accompanying notes to the consolidated financial
statements.

9

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(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 both the Toronto and New York Stock Exchanges. 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 two producing properties, the San Dimas
gold-silver mine in the San Dimas district of Mexico and the Black Fox gold mine
and adjoining properties in Timmins, Ontario, Canada (the Black Fox Complex).
The Company also has two projects in the exploration stage, Cerro del Gallo and
Ventanas, both located in Mexico.

|2. | Basis of Preparation and Summary of Significant
      Accounting Policies
|-- | -------------------------------------------------------------------------

|a) | Statement of compliance
|-- | -----------------------

The consolidated financial statements of the Company have been
prepared in accordance and full compliance 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 March 14, 2017.

|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.

As at December 31, 2016, the Company had a working capital
deficiency of $3.2 million primarily due to the revolving credit facility
balance (Note 18) of $50.0 million due on May 23, 2017. The Companys revolving
credit facility contains several financial covenants, which, if not met could
result in an event of default. The Company closely monitors compliance with its
covenants, as any breach of covenant could result in an event of default under
the revolving credit facility agreement, which, if not addressed, would entitle
the lender to demand repayment. The revolving credit facility also contains
certain other covenants, including cross-default provisions with the Companys
5.75% convertible debentures. As at December 31, 2016, the Company was in
compliance with all its covenants under the revolving credit facility
agreement.

The Company has been impacted by disappointing operating results in
2016, and on February 15, 2017 the unionized employees at the San Dimas mine
initiated a strike action resulting in the complete stoppage of mining and
milling activities. It is currently uncertain when the Company will resolve the
work stoppage at San Dimas and as a result when it can achieve positive cash
flows and profitability from operations is uncertain.

The Company is undertaking a number of actions to reduce cash
outflows, and the Companys Board of Directors has commenced a strategic review
process to explore alternatives to improve shareholder value. The alternatives include such things
as securing additional financing, strategic investments, joint ventures and
asset sales.

10

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

There can be no assurance that the Company's efforts will be
successful in any of these initiatives.

On February 27, 2017, the Company entered into a term sheet
  with Sprott Resource Lending Partnership (Sprott), which provides for a $75
  million three year term loan facility to repay amounts due under the revolving
  credit facility and provide additional liquidity by way of an initial draw on
  closing of $60 million. Although the Company believes that definitive agreements
  with Sprott will be finalized, there can be no assurance that the Company's
  efforts to obtain financing from Sprott or others will be successful. The term
  sheet with Sprott includes certain covenants including minimum working capital
  requirements, limitations on additional borrowings, and cross-default provisions
  with the Companys 5.75% convertible debentures, which, if not met or otherwise
  addressed, would result in an event of default under the term loan and the
  Companys 5.75% convertible debentures entitling the lenders to demand repayment
  of all the amounts borrowed under the term loan and 5.75% convertible
  debentures. Due to the factors impacting the Companys operating results noted
  above, there exists uncertainty about the Companys ability to achieve certain
  financial covenants under both the existing revolving credit facility agreement
(see Note 21), and those under the Sprott term sheet in 2017.

The above noted factors represent material uncertainties that
cast 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   | Property                   
|------------------------------------------- | ---------- | ---------------------------
|Primero Empresa Minera, S.A. de C.V. (PEM ) | Mexico     | San Dimas Mine and Ventanas
|San Anton de las Minas, S.A. de C.V.        | Mexico     | Cerro del Gallo Project    
|Silver Trading (Barbados) Limited (STB)     | Barbados   | -                          
|Primero Mining Luxembourg S.a.r.l.          | Luxembourg | -                          

|c) | Functional and presentation
  currency
|-- | --------------------------------------

The functional and presentation currency of the Company is the
U.S. dollar. The functional currency of PEM, San Anton de las Minas S.A. de C.V.
and STB is the U.S. dollar. The functional currency of Primero Mining Luxembourg
S.a.r.l. is the Mexican peso.

On January 1, 2015, Primero Gold Canada Inc. (PGCI) and Primero
Mining Corp. (PMC) amalgamated as one company under the name Primero Mining
Corp. (amalgamated PMC). PGCI, which held the Black Fox Complex assets, used the
U.S. dollar as its functional currency, while the functional currency of PMC was the Canadian dollar.
As a result of the change in the underlying conditions relevant to amalgamated
PMC, effective March 31, 2015 the functional currency was changed from the
Canadian dollar to the U.S. dollar.

11

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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.

|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.

12

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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 income (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, the revolving line of
credit and the 6.5% convertible debentures are classified as other financial
liabilities, and are also measured at amortized cost.

Transaction costs in respect of financial assets and
liabilities which are measured at FVTPL are recognized in the statement of
operations and comprehensive income (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 assets) is
classified as available-for-sale and is measured at fair value with
mark-to-market gains and losses recognized in other comprenhensive 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:

13

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

| | 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.

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.

14

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

The expected useful lives are as follows:

|Plant and buildings    | 5 years to life of mine
|---------------------- | -----------------------
|Equipment and vehicles | 4 years to life of mine
|Computer 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.

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.

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.

15

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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.

Exploration and evaluation expenditures

Exploration and evaluation expenditures are charged to the
statement of operations and comprehensive income (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.

16

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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 income (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 income
(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.

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 income (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).

17

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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 (CGUs) 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 income (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 income (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 income (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 income (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.

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.

18

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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 income (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 income (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 income (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 income (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.

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 income (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 income (loss).

19

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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 income
(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 income (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 income
(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 income (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 income (loss).

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.

20

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|k) | Flow-through shares
|-- | -------------------

The Company may, from time to time, issue flow-through shares
(as defined in the Canadian Income Tax Act) to finance a portion of its Canadian
exploration program. Pursuant to the terms of the flow-through share agreements,
the Company agrees to incur qualifying expenditures and renounce the tax
deductions associated with these qualifying expenditures to the subscribers by
an agreed upon date. The excess of cash consideration received over the market
price of the Companys shares at the date of the announcement of the
flow-through share financing is recorded as a liability. This liability is
extinguished and recognized in the statement of operations and comprehensive
income (loss) when the renunciation of the tax benefit by the Company, is
recorded.

A deferred tax liability is recognized for the taxable
temporary difference that arises from the difference between the carrying amount
of eligible expenditures that are capitalized to exploration and evaluation
assets and their tax basis. If the Company has sufficient tax assets to offset
the deferred tax liability, the liability will be offset by use of the deferred
tax asset.

|l) | Income (loss) per share
|-- | -----------------------

Basic income (loss) per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding during
the period. The computation of diluted income (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 income (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.

|m) | Segmented reporting
|-- | -------------------

The Company operates 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 three reportable segments: the San Dimas mine (which
currently includes the Ventanas property and Coral Silver concessions), the
Black Fox Complex and the Cerro del Gallo project.

|n) | Recent pronouncements
issued
|-- | ----------------------------

The Company has reviewed new and revised accounting
pronouncements that have been issued but are not yet effective and determined
that the following may have an impact in the future on the Company. The Company is currently evaluating the
impact of adopting these standards on its consolidated financial statements.

21

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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.

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.

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.

|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 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:

22

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(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.

23

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(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 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 income (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 for. 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.

|(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

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(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 (APA Ruling) from the
Mexican tax authority (SAT) which confirmed the appropriate price for sales of
silver under the Amended and Restated Silver Purchase Agreement (see note 12 (c)
for further information). Under Mexican tax law, an 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 ending 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. If the SAT is successful in retroactively nullifying the
APA, the SAT may seek to reassess PEM in respect of its sales of silver in
connection with the Silver Purchase Agreement for 2010 through 2014. While PEM
would have rights of appeal in connection with any reassessments the amount of
additional taxes that the SAT could reassess PEM for the tax years 2010 through
2014 on the silver sold in connection with the Silver Purchase Agreement would
likely have a material adverse effect on the Companys results of operations,
financial condition and cash flows.

For the 2015 and 2016 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. 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.

25

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)



|   |                      
|-- | ---------------------
|4. | Segmented information

The Company operates in two geographic areas, Mexico (the San
Dimas mine and the Cerro del Gallo project) and Canada (the Black Fox Complex).
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:

26

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|                                           |   | San Dimas |   |   | Cerro del Gallo |   |   | Black Fox |   |   |           |   |   |           |  
|------------------------------------------ | - | --------- | - | - | --------------- | - | - | --------- | - | - | --------- | - | - | --------- | -
|                                           |   | Mine      |   |   | Project         |   |   | Complex   |   |   | Corporate |   |   | Total     |  
|As at December 31, 2016                    |   |           |   |   |                 |   |   |           |   |   |           |   |   |           |  
|Current assets                             | $ | 60,604    |   | $ | 1,479           |   | $ | 16,761    |   | $ | 4,209     |   | $ | 83,053    |  
|Mining interests                           |   | 428,251   |   |   | 63,659          |   |   | 85,680    |   |   | 330       |   |   | 577,920   |  
|Other non-current assets                   |   | 11,107    |   |   | -               |   |   | 4,577     |   |   | 1,160     |   |   | 16,844    |  
|Total assets                               | $ | 499,962   |   | $ | 65,138          |   | $ | 107,018   |   | $ | 5,699     |   | $ | 677,817   |  
|                                           |   |           |   |   |                 |   |   |           |   |   |           |   |   |           |  
|Current liabilities                        | $ | 20,373    |   | $ | 18              |   | $ | 10,988    |   | $ | 54,836    |   | $ | 86,215    |  
|Non-current liabilities                    |   | 50,585    |   |   | 5,711           |   |   | 20,315    |   |   | 53,861    |   |   | 130,472   |  
|Total liabilities                          | $ | 70,958    |   | $ | 5,729           |   | $ | 31,303    |   | $ | 108,697   |   | $ | 216,687   |  
|                                           |   |           |   |   |                 |   |   |           |   |   |           |   |   |           |  
|As at December 31, 2015                    |   |           |   |   |                 |   |   |           |   |   |           |   |   |           |  
|Current assets                             | $ | 80,048    |   | $ | 2,044           |   | $ | 28,425    |   | $ | 8,054     |   | $ | 118,571   |  
|Mining interests                           |   | 541,988   |   |   | 63,232          |   |   | 184,485   |   |   | 413       |   |   | 790,118   |  
|Other non-current assets                   |   | 3,781     |   |   | -               |   |   | 11,615    |   |   | 883       |   |   | 16,279    |  
|Total assets                               | $ | 625,817   |   | $ | 65,276          |   | $ | 224,525   |   | $ | 9,350     |   | $ | 924,968   |  
|                                           |   |           |   |   |                 |   |   |           |   |   |           |   |   |           |  
|Current liabilities                        | $ | 44,284    |   | $ | 91              |   | $ | 12,543    |   | $ | 56,747    |   | $ | 113,665   |  
|Non-current liabilities                    |   | 73,850    |   |   | 6,037           |   |   | 20,197    |   |   | 62,343    |   |   | 162,427   |  
|Total liabilities                          | $ | 118,134   |   | $ | 6,128           |   | $ | 32,740    |   | $ | 119,090   |   | $ | 276,092   |  
|                                           |   |           |   |   |                 |   |   |           |   |   |           |   |   |           |  
|Year Ended December 31, 2016               |   |           |   |   |                 |   |   |           |   |   |           |   |   |           |  
|Revenue                                    | $ | 147,581   |   | $ | -               |   | $ | 71,595    |   | $ | -         |   | $ | 219,176   |  
|Operating expenses                         |   | 100,452   |   |   | -               |   |   | 54,815    |   |   | -         |   |   | 155,267   |  
|Depreciation and depletion                 |   | 46,984    |   |   | 82              |   |   | 16,131    |   |   | 132       |   |   | 63,329    |  
|Total cost of sales                        |   | 147,436   |   |   | 82              |   |   | 70,946    |   |   | 132       |   |   | 218,596   |  
|Earnings (loss) from mine operations       |   | 145       |   |   | (82             | ) |   | 649       |   |   | (132      | ) |   | 580       |  
|Mining interest impairment charge          |   | (111,000  | ) |   | -               |   |   | (117,000  | ) |   | -         |   |   | (228,000  | )
|Exploration expenses                       |   | (1,885    | ) |   | (1,529          | ) |   | -         |   |   | -         |   |   | (3,414    | )
|Share-based compensation                   |   | -         |   |   | -               |   |   | -         |   |   | (7,049    | ) |   | (7,049    | )
|General and administrative expenses        |   | (5,419    | ) |   | (164            | ) |   | (1,109    | ) |   | (8,110    | ) |   | (14,802   | )
|Other charges                              |   | (2,327    | ) |   | -               |   |   | -         |   |   | (2,398    | ) |   | (4,725    | )
|Loss from operations                       |   | (120,486  | ) |   | (1,775          | ) |   | (117,460  | ) |   | (17,689   | ) |   | (257,410  | )
|Other income (expense) items               |   | (1,494    | ) |   | (315            | ) |   | (902      | ) |   | 4,237     |   |   | 1,526     |  
|Loss before income taxes                   |   | (121,980  | ) |   | (2,090          | ) |   | (118,362  | ) |   | (13,452   | ) |   | (255,884  | )
|Income tax recovery (expense)              |   | 19,938    |   |   | 326             |   |   | 1,200     |   |   | -         |   |   | 21,464    |  
|Net
      loss                             |   | ($102,042 | ) |   | ($1,764         | ) |   | ($117,162 | ) |   | ($13,452  | ) |   | ($234,420 | )
|                                           |   |           |   |   |                 |   |   |           |   |   |           |   |   |           |  
|Year Ended December 31, 2015               |   |           |   |   |                 |   |   |           |   |   |           |   |   |           |  
|Revenue                                    | $ | 213,192   |   | $ | -               |   | $ | 78,112    |   | $ | -         |   | $ | 291,304   |  
|Operating expenses                         |   | 103,782   |   |   | -               |   |   | 59,811    |   |   | -         |   |   | 163,593   |  
|Depreciation and depletion                 |   | 55,693    |   |   | 90              |   |   | 21,312    |   |   | 143       |   |   | 77,238    |  
|Total cost of sales                        |   | 159,475   |   |   | 90              |   |   | 81,123    |   |   | 143       |   |   | 240,831   |  
|Earnings (loss) from mine
      operations |   | 53,717    |   |   | (90             | ) |   | (3,011    | ) |   | (143      | ) |   | 50,473    |  
|Mining interest impairment charge          |   | -         |   |   | (22,000         | ) |   | (82,000   | ) |   | -         |   |   | (104,000  | )
|Exploration expenses                       |   | (1,690    | ) |   | -               |   |   | -         |   |   | -         |   |   | (1,690    | )
|Share-based compensation                   |   | -         |   |   | -               |   |   | -         |   |   | (7,144    | ) |   | (7,144    | )
|General and administrative
      expenses  |   | (2,546    | ) |   | (21             | ) |   | (1,002    | ) |   | (16,475   | ) |   | (20,044   | )
|Other charges                              |   | (694      | ) |   | -               |   |   | -         |   |   | (2,008    | ) |   | (2,702    | )
|Earnings (loss) from
      operations      |   | 48,787    |   |   | (22,111         | ) |   | (86,013   | ) |   | (25,770   | ) |   | (85,107   | )
|Other income (expense) items               |   | (4,225    | ) |   | 41              |   |   | 2,836     |   |   | (58       | ) |   | (1,406    | )
|Earnings (loss) before income
      taxes  |   | 44,562    |   |   | (22,070         | ) |   | (83,177   | ) |   | (25,828   | ) |   | (86,513   | )
|Income tax recovery (expense)              |   | (32,536   | ) |   | (323            | ) |   | 7,917     |   |   | 4,545     |   |   | (20,397   | )
|Net income (loss)                          | $ | 12,026    |   |   | ($22,393        | ) |   | ($75,260  | ) |   | ($21,283  | ) |   | ($106,910 | )

27

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|5. | Mining Interest Impairment
Charge
|-- | ---------------------------------

In accordance with our accounting policy, non-current assets
are tested for impairment when events or changes in circumstances suggest that
the carrying amount may not be recoverable. When there is an indicator of
impairment the impacted CGU is tested for impairment separately.

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 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. The
impairment has been recognized in the consolidated statement of operations and
comprehensive income (loss) within Mining interest impairment charge. The
Black Fox Complex comprises the Black Fox mine and adjacent properties, Grey Fox
and Pike River.

For the year ended December 31, 2015 the Company recorded
non-cash impairment charges of $104.0 million, comprised of $82.0 million
relating to the Black Fox Complex and $22.0 million relating to the Cerro del
Gallo project.

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              |  |   | 2015     | 
|--------------------------------- | - | ----------------- |  | - | -------- | 
|Discount rate                     |   | 6.5% -
      8.5% |  |   | 5% - 7%  | 
|Gold price                        |   |                   |  |   |          | 
|Short term                        | $ | 1,250             |  | $ | 1,100    | 
|Long term                         | $ | 1,300             |  | $ | 1,200    | 
|Foreign exchange                  |   |                   |  |   |          | 
|Mexican 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 1.40 | 
|Market value per gold ounce       |   | n.a.              |  | $ | 25       | 
|Life
      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.

28

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(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 non-cash impairment charge was related to declining metal
prices, the decision to temporarily defer Grey Fox development and changes in
the Black Fox mine plan to focus primarily on higher grade underground ore.

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
      Complex | 
|---------------- |  | ------ |  | - | -------------- |  | - | ----------------------- | 
|                 |  |        |  |   | 2016           |  |   | 2016                    | 
|Discount rate    |  | +/-1%  |  | $ | 29,000         |  | $ | 2,000                   | 
|Gold price       |  | +/-10% |  | $ | 88,000         |  | $ | 39,000                  | 
|Foreign exchange |  |        |  |   |                |  |   |                         | 
|MXN              |  | +/-10% |  | $ | 46,000         |  |   | n.a.                    | 
|CAD              |  | +/-10% |  |   | n.a.           |  | $ | 37,000                  | 

Cerro del Gallo Project

In 2015, the Company decided not to construct the project under
the current economic environment and as such 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 was as
a result of a lower market value per gold ounce and low cash flows projections.
The Company used a $25 market value per gold ounce determined based on market
comparable transactions.

As required under the relevant financial reporting framework,
as at December 31, 2016 management conducted an assessment to determine whether
any impairment indicators existed in relation to the Cerro del Gallo project.
No such indicators were identified.

29

---

|PRIMERO MINING CORP.                                           
|---------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                 
|DECEMBER 31, 2016                                              
|(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|6. | Revenue
|-- | -------

Revenue is comprised of the following sales:

|       |   | 2016    |  |   | 2015    | 
|------ | - | ------- |  | - | ------- | 
|       |   |         |  |   |         | 
|Gold   | $ | 193,077 |  | $ | 247,819 | 
|Silver |   | 26,099  |  |   | 43,485  | 
|       | $ | 219,176 |  | $ | 291,304 | 

|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
Silver Wheaton Caymans (SWC) at the lesser of $4.26 per ounce (adjusted by 1%
per year) and market prices. All silver not sold to SWC is available to be sold
by the Company at market prices.

The expected cash flows associated with the sale of the silver
to SWC at a price lower than market price were reflected in the fair value of
the mining interest recorded upon acquisition of the San Dimas mine. The Company
presented the value of any expected future cash flows from the sale of any
future silver production to SWC as part of the mining interest, as the Company
did not receive any of the upfront payment which was made by Silver Wheaton
Corp. to acquire its interest in the silver production of the San Dimas mine.

The contract year for purposes of the threshold runs from
August 6 of a year to August 5 of the following year. The 6.0 million ounces
production threshold for the year ended August 5, 2016 was met in July 2016 and
the production threshold for the year ended August 5, 2015 was met in July 2015.
During the year ended December 31, 2016, the Company sold 0.2 million ounces of
silver at market prices for revenue of $3.0 million (2015  0.8 million ounces
for $12.7 million in revenue).

|b) | Gold Purchase Agreement
|-- | -----------------------

As part of the acquisition of Brigus, the Company assumed a
gold purchase agreement related to the Black Fox Mine. Under the agreement, the
Company is obligated to sell 8% of the future gold production at the Black Fox
mine and 6.3% at the adjoining Pike River property (Black Fox Extension) to
Sandstorm.

The Company presented the value of any expected future cash
flows from the sale of any future gold production to Sandstorm as part of the
mining interest on acquisition, as the Company did not receive any of the
upfront payment which was made by Sandstorm to acquire its interest in the gold
production from Black Fox and Pike River.

During the year ended December 31, 2016, the Company recorded
revenue of $2.7 million (2015 - $3.0 million) under the contract terms.

30

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|7. | General and administrative
  expenses
|-- | -------------------------------------

General and administrative expenses comprise the following:

|                                                          |   | 2016   |  |   | 2015   | 
|--------------------------------------------------------- | - | ------ |  | - | ------ | 
|Salaries and wages                                        | $ | 6,673  |  | $ | 11,130 | 
|Rent and office costs                                     |   | 836    |  |   | 1,232  | 
|Legal, accounting, consulting
      and professional fees |   | 2,547  |  |   | 3,672  | 
|Directors fees and expenses                               |   | 1,238  |  |   | 922    | 
|Other general and administrative expenses                 |   | 3,508  |  |   | 3,088  | 
|                                                          | $ | 14,802 |  | $ | 20,044 | 

|8. | Other charges
|-- | -------------

Other charges comprise the following:

|                                                           |   | 2016  |  |   | 2015  | 
|---------------------------------------------------------- | - | ----- |  | - | ----- | 
|Legal expenses associated
      with proceedings in Mexico | $ | 3,254 |  | $ | 694   | 
|Office closure costs and severance payments                |   | 1,171 |  |   | 2,008 | 
|Government charges                                         |   | 300   |  |   | -     | 
|                                                           | $ | 4,725 |  | $ | 2,702 | 

|9. | Transaction costs
|-- | -----------------

Transaction costs comprise the following:

|                                                 |   | 2016  |  |   | 2015  | 
|------------------------------------------------ | - | ----- |  | - | ----- | 
|Transaction costs relating
      to:             |   |       |  |   |       | 
|Issuance of common share
      purchase warrants | $ | 232   |  | $ | -     | 
|5.75%
      convertible debenture offering       |   | -     |  |   | 3,651 | 
|Other expenses                                   |   | 982   |  |   | 765   | 
|                                                 | $ | 1,214 |  | $ | 4,416 | 

31

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|10. | Interest and finance
expenses
|--- | -----------------------------

Interest and finance expenses comprise the following:

|                                                                  |   | 2016  |  |   | 2015   | 
|----------------------------------------------------------------- | - | ----- |  | - | ------ | 
|                                                                  |   |       |  |   |        | 
|Interest expenses                                                 |   |       |  |   |        | 
|Interest on 5.75% convertible
      debentures                    | $ | 4,313 |  | $ | 3,381  | 
|Interest on 6.5%
      convertible debentures                     |   | 775   |  |   | 3,123  | 
|Interest on revolving credit facility                             |   | 1,577 |  |   | 925    | 
|                                                                  |   | 6,665 |  |   | 7,429  | 
|Finance expenses                                                  |   |       |  |   |        | 
|Accretion on
      6.5% convertible debentures                    | $ | 365   |  | $ | 1,436  | 
|Accretion on asset retirement
      obligation                    |   | 1,043 |  |   | 1,122  | 
|Amortization of
      revolving credit facility transaction costs |   | 870   |  |   | 877    | 
|Others                                                            |   | 356   |  |   | 650    | 
|                                                                  |   | 2,634 |  |   | 4,085  | 
|                                                                  | $ | 9,299 |  | $ | 11,514 | 

|11. | Other income (loss)
|--- | -------------------

|                             |  | 2016  |   |   | 2015  |  
|---------------------------- |  | ----- | - | - | ----- | -
|Foreign exchange gain (loss) |  | ($664 | ) | $ | 126   |  
|Gain on derivative liability |  | 5     |   |   | 1,478 |  
|Finance income               |  | 88    |   |   | 229   |  
|Other                        |  | -     |   |   | (809  | )
|                             |  | ($571 | ) | $ | 1,024 |  

|12. | **Income Taxes**          
|--- | --------------------------
|    |                           
|a)  | **Tax expense (recovery)**

|                                       |   | 2016     |   |   | 2015   |  
|-------------------------------------- | - | -------- | - | - | ------ | -
|Current income tax expense             | $ | 1,089    |   | $ | 23,365 |  
|Deferred income tax expense (recovery) |   | (22,553  | ) |   | (2,968 | )
|Income tax expense (recovery)          |   | ($21,464 | ) | $ | 20,397 |  

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:

32

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|                                                                              |  | 2016      |   |   | 2015     |  
|----------------------------------------------------------------------------- |  | --------- | - | - | -------- | -
|Loss before income taxes                                                      |  | ($255,884 | ) |   | ($86,513 | )
|Canadian federal and provincial income tax
      rate                         |  | 26.5%     |   |   | 26.5%    |  
|Expected income tax expense
      (recovery)                                  |  | (67,809   | ) |   | (22,926  | )
|(Increase) decrease attributable to:                                          |  |           |   |   |          |  
|Effect of
      different foreign statutory rates on earnings of subsidiaries |  | (2,930    | ) |   | 1,502    |  
|Share-based payments                                                          |  | 1,986     |   |   | 1,882    |  
|Amounts
      allowable for tax purposes                                      |  | (9,291    | ) |   | (9,704   | )
|Impact of foreign exchange and
      inflation                                |  | 27,180    |   |   | 24,595   |  
|With holding
      taxes on intercompany interest                             |  | 3,308     |   |   | 3,932    |  
|Royalty taxes in Mexico                                                       |  | 115       |   |   | 769      |  
|Flow through
      share renunciation                                         |  | 266       |   |   | 415      |  
|Impairment of mining interest                                                 |  | 23,422    |   |   | 20,439   |  
|Benefit of tax losses and temporary
      differences not recognized          |  | 2,289     |   |   | (507     | )
|Income tax expense (recovery)                                                 |  | ($21,464  | ) | $ | 20,397   |  

|b) | Deferred tax liabilities and
  assets
|-- | -------------------------------------

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

|                                                |   | 2016     |   |   | 2015     |  
|----------------------------------------------- | - | -------- | - | - | -------- | -
|Deferred tax assets                             |   |          |   |   |          |  
|Non-capital losses                              | $ | 8,183    |   | $ | 4,684    |  
|Decommissioning
      liability to be recovered |   | 1,315    |   |   | 1,931    |  
|Deduction for Mexican royalty
      taxes       |   | 9,565    |   |   | 12,280   |  
|Accruals and other                              |   | 2,338    |   |   | 5,149    |  
|                                                | $ | 21,401   |   | $ | 24,044   |  
|Deferred tax liability                          |   |          |   |   |          |  
|Mining interests                                |   | (46,066  | ) |   | ($73,370 | )
|Net deferred taxliability                       |   | ($24,665 | ) |   | ($49,326 | )

A reconciliation of net deferred tax liability to the amounts
presented in the consolidated statements of financial position follows:

|                          |   | 2016   |  |   | 2015   | 
|------------------------- | - | ------ |  | - | ------ | 
|Deferred tax asset        | $ | 3,763  |  | $ | 3,781  | 
|Deferred tax liability    |   | 28,428 |  |   | 53,107 | 
|Net deferred taxliability | $ | 24,665 |  | $ | 49,326 | 

33

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

The movement in deferred income tax balances is explained as
follows:

|                                                                        |  | 2016     |   |  | 2015     |  
|----------------------------------------------------------------------- |  | -------- | - |  | -------- | -
|As at January 1                                                         |  | ($49,326 | ) |  | ($49,763 | )
|Deferred tax (expense) / recovery                                       |  | 22,553   |   |  | 2,968    |  
|Flow through share premium
      credit charged to deferred tax expense |  | (1,200   | ) |  | (1,728   | )
|Withholding expense accrued as tax payable                              |  | 3,308    |   |  | 3,932    |  
|Warrant expiry                                                          |  | -        |   |  | (4,735   | )
|As
      at December 31                                                 |  | ($24,665 | ) |  | ($49,326 | )

Based on taxable income discounted cash flow models for each of
the Companys mines, the Company believes that it is probable that the results
of future operations will generate sufficient taxable income to realize the
above noted deferred tax assets. Of the Companys total deferred tax liability
of $28.4 million (2015 - $53.1 million), $5.2 million (2015 - $10.2 million) is
expected to reversed 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 $221.0 million
(2015 - $212.7 million) that are available to be applied against future taxable
income. These losses expire from 2025 to 2036. Of these losses, $132 million
(2015 - $128 million) are restricted to use only against income from the same or
similar business that created these losses. The Company also has losses of $22.5
million (2015 - $29.9 million), of which $4.7 million (2015 - $14.0 million)
expire in 2017 and 2018, and the rest in 2019 through 2026, relating to entities
that have a history of losses, and may not be used to offset taxes in other
entities.

The Company has $194.0 million (2015 - $172.0 million) in
Canadian resource tax pools which do not expire and can be utilized to shelter
future income earned from the Black Fox Complex.

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 effect | 
|-------------------------------------- | - | --------------------------- |  | - | ---------- | 
|                                       |   | 2016                        |  |   | 2015       | 
|Non-capital losses                     | $ | 203,529                     |  | $ | 213,586    | 
|Capital losses                         |   | 2,555                       |  |   | 3,149      | 
|Share issuance costs                   |   | 5,906                       |  |   | 6,137      | 
|Accrued liabilities and other          |   | 1,138                       |  |   | 3,708      | 
|Resource and equipment tax
      pools |   | 162,143                     |  |   | 37,164     | 
|Ontario mining tax                     |   | 122,796                     |  |   | 17,224     | 
|                                       | $ | 498,067                     |  | $ | 280,968    | 

The aggregate amount of taxable temporary differences
associated with investments in subsidiaries for which deferred taxes have not
been recognized, as at December 31, 2016 is $120.5 million.

34

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|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.

Background

In 2004, affiliates of Goldcorp Inc. (Goldcorp) entered into a
Silver Purchase Agreement with Silver Wheaton 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 Silver Wheatons 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 Silver
Wheaton 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). In
2016, the contract price was $4.28 (2015 - $4.24) . The price paid by Silver
Wheaton under the Silver Purchase Agreement represents the total value that the
Company and its affiliates receive for the sale of silver to Silver Wheaton. 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 Silver Wheatons subsidiary, SWC. 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 Silver Wheaton Caymans 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.

35

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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.

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. While 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 Silver Purchase Agreement
cannot be reasonably estimated at this time, 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.

The Company intends to vigorously defend 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.

Primero Mining Corp.s claim against the Mexican Government

On June 2, 2016, the Company notified the Government of Mexico
that the measures taken by 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 more than 90
days have now passed since the provision of this notice, the Company has the
option to commence international arbitration proceedings pursuant to Article
1119 of the NAFTA at a time of its choosing. During Q3 and Q4 2016, 2016 Primero
engaged in dialogue with the Mexican Government regarding the Mexican tax
authoritys legal claim against the APA. The Company thus temporarily suspended
its advancement of international arbitration against the Mexican Government in
order to continue this dialogue.

36

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

Uncertain tax treatment for tax years following 2014

For the years ended December 31, 2016 and 2015, the Company
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. While the amount of additional
tax that SAT could charge PEM for years following 2014 cannot be reasonably
estimated at this time, 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.

|13. | 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.

|                                            |  | 2016        |   |  | 2015        |  
|------------------------------------------- |  | ----------- | - |  | ----------- | -
|Net loss attributable to
      shareholders |  |             |   |  |             |  
|Basic                                       |  | ($234,420   | ) |  | ($106,910   | )
|Diluted                                     |  | (234,420    | ) |  | (106,910    | )
|Weighted average number of shares           |  |             |   |  |             |  
|Basic                                       |  | 177,569,024 |   |  | 162,340,566 |  
|Diluted                                     |  | 177,569,024 |   |  | 162,340,566 |  
|Basic loss per share                        |  | ($1.32      | ) |  | ($0.66      | )
|Diluted loss per share                      |  | ($1.32      | ) |  | ($0.66      | )

For the year ended December 31, 2016, 26,928,026 common shares
which are issuable from outstanding stock options, 2013 PSUs, DSUs and from the
6.5% convertible debentures and 5.75% convertible debentures (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.

37

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|14. | Supplementary cash flow
  information
|--- | -------------------------------------

Changes in non-cash working capital comprise the following:

|                                        |  | 2016    |   |  | 2015    |  
|--------------------------------------- |  | ------- | - |  | ------- | -
|Trade and other receivables             |  | ($169   | ) |  | ($638   | )
|Value added and income taxes receivable |  | 1,980   |   |  | 243     |  
|Prepaid expenses                        |  | 3,232   |   |  | (850    | )
|Inventories                             |  | 6,382   |   |  | (4,318  | )
|Trade and other payables                |  | (12,652 | ) |  | 4,734   |  
|Other taxes payable                     |  | (931    | ) |  | (708    | )
|                                        |  | ($2,158 | ) |  | ($1,537 | )

|15. | 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
|-- | ---------------

At December 31, 2016, restricted cash of $4.6 million (C$6.2
million) (2015 - $5.9 million, equivalent to C$8.3 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 (OMND).

|16. | Inventories
|--- | -----------

|                             |   | 2016   |  |   | 2015   | 
|---------------------------- | - | ------ |  | - | ------ | 
|Current portion of inventory |   |        |  |   |        | 
|Gold and silver              | $ | 5,827  |  | $ | 10,279 | 
|Stockpiled ore               |   | 5,285  |  |   | 9,021  | 
|Work-in-progress             |   | 5,771  |  |   | 6,541  | 
|Supplies                     |   | 5,946  |  |   | 6,123  | 
|                             |   | 22,829 |  |   | 31,964 | 
|Long-term stockpile          |   | -      |  |   | 5,694  | 
|                             | $ | 22,829 |  | $ | 37,658 | 

For the year ended December 31, 2016, the Company recorded
inventory write downs of $1.0 million (2015 - $3.0 million) to reflect a net
realizable value based on a price of $1,159 (2015 - $1,050) per ounce of gold.

38

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|17. | Mining interests
|--- | ----------------

|                                             |   | Mining     |  |   |           |   |   | Plant,        |   |   |              |   |   |           |  
|-------------------------------------------- | - | ---------- |  | - | --------- | - | - | ------------- | - | - | ------------ | - | - | --------- | -
|                                             |   | properties |  |   | Land and  |   |   | equipment and |   |   | Construction |   |   |           |  
|                                             |   | and leases |  |   | buildings |   |   | vehicles      |   |   | in progress  |   |   | Total     |  
|Cost                                         |   |            |  |   |           |   |   |               |   |   |              |   |   |           |  
|At January 1, 2015                           | $ | 890,500    |  | $ | 68,755    |   | $ | 163,288       |   | $ | 39,703       |   | $ | 1,162,246 |  
|Additions                                    |   | 57,682     |  |   | 9,575     |   |   | 30,069        |   |   | (3,754       | ) |   | 93,572    |  
|Assets derecognized                          |   | -          |  |   | (132      | ) |   | (1,532        | ) |   | -            |   |   | (1,664    | )
|At December 31, 2015                         |   | 948,182    |  |   | 78,198    |   |   | 191,825       |   |   | 35,949       |   |   | 1,254,154 |  
|Additions                                    |   | 55,788     |  |   | 8,256     |   |   | 30,536        |   |   | (21,218      | ) |   | 73,362    |  
|Reclassifications                            |   | 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       |   | $ | 1,322,489 |  
|                                             |   |            |  |   |           |   |   |               |   |   |              |   |   |           |  
|Accumulated
      depreciation and depletion |   |            |  |   |           |   |   |               |   |   |              |   |   |           |  
|At January 1, 2015                           | $ | 223,695    |  | $ | 10,685    |   | $ | 46,386        |   | $ | -            |   | $ | 280,766   |  
|Depreciation and depletion                   |   | 53,121     |  |   | 2,507     |   |   | 24,730        |   |   | -            |   |   | 80,358    |  
|Impairment charge                            |   | 79,077     |  |   | 3,785     |   |   | 21,138        |   |   | -            |   |   | 104,000   |  
|Assets derecognized                          |   | -          |  |   | (32       | ) |   | (1,056        | ) |   | -            |   |   | (1,088    | )
|At December 31, 2015                         |   | 355,893    |  |   | 16,945    |   |   | 91,198        |   |   | -            |   |   | 464,036   |  
|Depreciation and depletion                   |   | 31,046     |  |   | 3,247     |   |   | 22,942        |   |   | -            |   |   | 57,235    |  
|Impairment charge                            |   | 228,000    |  |   | -         |   |   | -             |   |   | -            |   |   | 228,000   |  
|Reclassifications                            |   | 1,487      |  |   | 4,768     |   |   | (6,261        | ) |   | -            |   |   | (6        | )
|Assets derecognized                          |   | -          |  |   | -         |   |   | (4,696        | ) |   | -            |   |   | (4,696    | )
|At December 31, 2016                         | $ | 616,426    |  | $ | 24,960    |   | $ | 103,183       |   | $ | -            |   | $ | 744,569   |  
|                                             |   |            |  |   |           |   |   |               |   |   |              |   |   |           |  
|Carrying value                               |   |            |  |   |           |   |   |               |   |   |              |   |   |           |  
|At
      December 31, 2015                   | $ | 592,289    |  | $ | 61,253    |   | $ | 100,627       |   | $ | 35,949       |   | $ | 790,118   |  
|At December 31, 2016                         | $ | 388,630    |  | $ | 65,442    |   | $ | 108,878       |   | $ | 14,970       |   | $ | 577,920   |  

A summary of mining interest by property is as follows:

|                        |   | Mining     |  |   |           |  |   | Plant,       |  |   |              |  |   |             |  |   |             | 
|----------------------- | - | ---------- |  | - | --------- |  | - | ------------ |  | - | ------------ |  | - | ----------- |  | - | ----------- | 
|                        |   | properties |  |   | Land and  |  |   | equipment    |  |   | Construction |  |   | December 31 |  |   | December 31 | 
|                        |   | and leases |  |   | buildings |  |   | and vehicles |  |   | in progress  |  |   | 2016        |  |   | 2015        | 
|San Dimas Mine          | $ | 283,555    |  | $ | 56,799    |  | $ | 76,069       |  | $ | 11,828       |  | $ | 428,251     |  | $ | 541,988     | 
|Black Fox Complex       |   | 45,365     |  |   | 4,719     |  |   | 32,454       |  |   | 3,142        |  |   | 85,680      |  |   | 184,485     | 
|Cerro Del Gallo Project |   | 59,710     |  |   | 3,924     |  |   | 25           |  |   | -            |  |   | 63,659      |  |   | 63,232      | 
|Corporate               |   | -          |  |   | -         |  |   | 330          |  |   | -            |  |   | 330         |  |   | 413         | 
|Total                   | $ | 388,630    |  | $ | 65,442    |  | $ | 108,878      |  | $ | 14,970       |  | $ | 577,920     |  | $ | 790,118     | 

All property of the San Dimas mine is pledged as security for
the Companys obligations under the silver purchase agreement and certain assets
of the Black Fox Complex are pledged as security for the gold purchase agreement
(Note 7(b)). Substantially all of the Companys assets are pledged as security
under the revolving credit facility (Note 19(d)).

39

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

The carrying value of property, plant and equipment under
finance leases at December 31, 2016 was $8.0 million (December 31, 2015 - $10.1
million). The lessors hold first security rights over the leased assets which
include trucks, loaders, scoops, drills and other heavy equipment.

During the year ended December 31, 2016, PEM acquired
additional concessions adjacent to its San Dimas mine. See note 21(a) for
related discussion.

The basis for calculating the depletion expense is described in
Note 2, Basis of preparation and significant accounting policies.The following table gives further details of the depletion calculation:

|                           |   | San Dimas |  |  | Black Fox   | 
|-------------------------- | - | --------- |  |  | ----------- | 
|                           |   | 2016      |  |  | 2015        | 
|                           |   | **$**     |  |  | oz          | 
|Depletable pools           | $ | 314,600   |  |  | 1.4 million | 
|Non-depletable
      pools |   | 44,200    |  |  |             | 

Future development costs included in the depletion calculation
were $57.0 million (2015- $57.0 million) Depletion expense for the year ended
December 31, 2016 was $31.4 million (2015 - $52.1 million). Had the depletion
expense been calculated without inclusion of inferred resources and, where
applicable, related future development costs, the depletion expense would have
been $27.4 million (2015 - $46.0 million).

Depreciation and depletion expense for the year ended December
31, 2016 was $57.2 million (2015 - $80.4 million), of which $6.1 million
represents the non cash component in the inventories balance in the year ended
December 31, 2016 (2015  $3.2 million).

|18. | Debt
|--- | ----

|                                       |   | December 31 |  |   | December 31 | 
|-------------------------------------- | - | ----------- |  | - | ----------- | 
|                                       |   | 2016        |  |   | 2015        | 
|Current debt                           |   |             |  |   |             | 
|6.50% convertible
      debentures(a)  | $ | -           |  | $ | 47,751      | 
|Revolving credit
      facility(b)     |   | 49,639      |  |   | -           | 
|Finance lease liabilities(c)           |   | 1,202       |  |   | 4,666       | 
|                                       |   | 50,841      |  |   | 52,417      | 
|Long-term debt                         |   |             |  |   |             | 
|5.75%
      convertible debentures (d) | $ | 52,500      |  | $ | 61,500      | 
|Finance lease liabilities(c)           |   | 406         |  |   | 1,227       | 
|                                       |   | 52,906      |  |   | 62,727      | 
|                                       | $ | 103,747     |  | $ | 115,144     | 

40

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

(a) During 2014 as part of the acquisition of Brigus, the
Company assumed $50 million of senior unsecured debentures ($48.1 million after
investors holding $1.9 million of the debentures accepted the change of control
offer made by the Company). The debentures bore interest at 6.5% per annum
payable semi-annually in arrears on March 31 and September 30 of each year.
These debentures were repaid in cash upon maturity on March 31, 2016. Accretion
relating to the debentures for the the year ended December 31, 2016 was $0.4
million (2015 - $1.4 million).

(b) The Company has a $75 million revolving credit facility
available until May 23, 2017, 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. The Company drew down $50 million under the revolving credit facility to
repay the 6.5% convertible debentures (note 19(a)). Unamortized transaction
costs of $0.4 million have been netted against the drawn amount resulting in a
carrying value of $49.6 million at December 31, 2016. The revolving credit
facility is secured by substantially all of the Companys assets and contains
customary covenants and default clauses typical to this type of facility. As at
December 31, 2016 the Company was in compliance with all debt covenants (see
further discussion in note 21).

(c) The Company is obligated under various finance leases for
equipment as well as a milling facility at the Black Fox Complex. All finance
lease agreements provide that the Company can purchase the leased equipment at
the end of the lease term for a nominal amount. Interest payable on the various
leases range from a fixed rate of 4.75% to 6.60% . The are no restrictions
placed on the Company as a result of these leases, however, the lessors hold
first security rights over the leased assets.

(d) 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% 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 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 on the New York Stock Exchange 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.

In accordance with IAS 39, Financial Instruments:
Recognition and Measurement, the 5.75% convertible debentures are considered
to contain embedded derivatives relating to the conversion and redemption
options. The Company has elected to classify the convertible debenture as a financial instrument measured at fair value for
reporting purposes given that the debentures contain multiple embedded
derivatives. Fair value changes are recorded through the statement of operations
and comprehensive income (loss). Transaction costs associated with the
debentures of $3.7 million were expensed during the year ended December 31,
2015.

41

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|19. | Decommissioning liability
|--- | -------------------------

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 $59.6 million at December 31, 2016
(2015 - $52.1 million) and the present value of the obligation was estimated at
$29.8 million (2015- $28.3 million).

|                                                 |   | San Dimas |   |   | Black Fox |   |   | Total  |  
|------------------------------------------------ | - | --------- | - | - | --------- | - | - | ------ | -
|Decommissioning liability,
      January 1, 2015 | $ | 9,390     |   | $ | 23,176    |   | $ | 32,566 |  
|Accretion expense                                |   | 1,471     |   |   | (349      | ) |   | 1,122  |  
|Foreign exchange and other adjustments           |   | (1,537    | ) |   | (3,857    | ) |   | (5,394 | )
|At December 31, 2015                             |   | 9,324     |   |   | 18,970    |   |   | 28,294 |  
|Accretion expense                                |   | 723       |   |   | 320       |   |   | 1,043  |  
|Change in estimated timing of cash flows         |   | 1,295     |   |   | 69        |   |   | 1,364  |  
|Foreign exchange and other adjustments           |   | (1,462    | ) |   | 551       |   |   | (911   | )
|At
      December 31, 2016                       | $ | 9,880     |   | $ | 19,910    |   | $ | 29,790 |  

The discount rates used by the Company in 2016 and 2015 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, 2016 and 2015:

|                  |  | Expected years |  |  | Discount rate |  |  | Inflation rate | 
|----------------- |  | -------------- |  |  | ------------- |  |  | -------------- | 
|2016              |  |                |  |  |               |  |  |                | 
|San Dimas         |  | 17 yrs         |  |  | 7.75%         |  |  | 3.40%          | 
|Black Fox Complex |  | 5 yrs          |  |  | 2.34%         |  |  | 2.00%          | 
|2015              |  |                |  |  |               |  |  |                | 
|San Dimas         |  | 22 yrs         |  |  | 7.50%         |  |  | 3.00%          | 
|Black Fox Complex |  | 11yrs          |  |  | 2.00%         |  |  | 2.00%          | 

|20. | **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                       
|DECEMBER 31, 2016                                                    
|(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 consideration comprised a cash
payment of $1.0 million (of which $0.92 million has been paid as of December 31,
2016) and the issuance of 2,010,050 of Primeros common shares. 1,854,271 common
shares were issued as of December 31, 2016, with the remaining 155,779 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.

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 income (loss).

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 income (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.

|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.

|c) | Share-based compensation
|-- | ------------------------

The movement in contributed surplus and phantom share liability
related to share-based compensation during the years ended December 31, 2016 and
2015 are as follows:

43

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|                                 |   | Contributed
      Surplus |   |   |               |  
|-------------------------------- | - | ------------------------- | - | - | ------------- | -
|                                 |   |                           |   |   |               |  
|                                 |   | 2013 Plan PSUs            |   |   | Stock options |  
|                                 |   |                           |   |   |               |  
|At January 1, 2015               | $ | 3,020                     |   | $ | 18,539        |  
|Exercise of stock options        |   | -                         |   |   | (294          | )
|PSUs settled in shares           |   | (4,404                    | ) |   | -             |  
|PSUs settled in cash             |   | -                         |   |   | -             |  
|Expiry of warrants               |   | -                         |   |   | -             |  
|Share-based compensation expense |   | 5,769                     |   |   | 1,964         |  
|At December 31, 2015             | $ | 4,385                     |   | $ | 20,209        |  
|PSUs settled in shares           |   | (4,851                    | ) |   | -             |  
|PSUs settled in cash             |   | -                         |   |   | -             |  
|Share-based compensation expense |   | 6,420                     |   |   | 1,897         |  
|At December 31, 2016             | $ | 5,954                     |   | $ | 22,106        |  

Share-based compensation of $1.5 million is included in
operating expenses for the year ended December 31, 2016 (2015 - $1.8 million).

|(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 compensation arrangements).

A summary of the Companys stock option activities for the year
ended December 31, 2016 and the year ended December 31, 2015 is presented below.

|                                     |  |             |   |  | Weighted       | 
|------------------------------------ |  | ----------- | - |  | -------------- | 
|                                     |  | Options     |   |  | average        | 
|                                     |  | outstanding |   |  | exercise price | 
|Outstanding at January 1,
      2015 |  | 9,254,224   |   |  | C$6.17         | 
|Granted                              |  | 1,617,870   |   |  | 4.23           | 
|Exercised                            |  | (300,000    | ) |  | 3.47           | 
|Cancelled                            |  | (71,875     | ) |  | 5.68           | 
|Expired                              |  | (6,254,021  | ) |  | 6.17           | 
|Outstanding at December 31, 2015     |  | 4,246,198   |   |  | C$5.70         | 
|Granted                              |  | 2,782,317   |   |  | 2.68           | 
|Cancelled/Forfeited                  |  | (3,500      | ) |  | 4.52           | 
|Expired                              |  | (499,771    | ) |  | 8.78           | 
|Outstanding at December 31, 2016     |  | 6,525,244   |   |  | C$4.17         | 

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 year ended December 31, 2016 and 2015.

44

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|                                              |  | 2016   |  |  | 2015   | 
|--------------------------------------------- |  | ------ |  |  | ------ | 
|Risk free interest rate                       |  | 0.55%  |  |  | 0.95%  | 
|Expected life in years                        |  | 3.50   |  |  | 3.50   | 
|Volatility                                    |  | 63.92% |  |  | 59.27% | 
|Expected dividends                            |  | 0.00%  |  |  | 0.00%  | 
|Forfeiture rate                               |  | 5.00%  |  |  | 5.00%  | 
|Weighted average fair value of options issued |  | C$0.80 |  |  | C$1.73 | 

As at December 31, 2016, the following stock options were
outstanding and exercisable:

|Awards Outstanding |  |           | Awards
      Exercisable | 
|------------------ |  | --------- | ------------------------ | 
|                   |  |           |                          | 
|                   |  |           |                          | 
|Range of exercise  |  |           |                          | 
|price per share    |  | Quantity  |                          | 
|C$1.36-C$3.00      |  | 3,017,317 |                          | 
|C$3.01-C$6.00      |  | 2,294,666 |                          | 
|C$6.01-C$10.00     |  | 1,197,833 |                          | 
|C$10.01-C$15.00    |  | 6,242     |                          | 
|C$15.01-C$20.29    |  | 9,186     |                          | 
|                   |  | 6,525,244 |                          | 

|(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 year ended December 31,
2016 and 2015 under the PSUP and the Directors PSUP is presented below.

|                |  | Directors PSUP |   |  | PSUP        |  
|--------------- |  | -------------- | - |  | ----------- | -
|                |  | December 31    |   |  | December 31 |  
|                |  | 2016           |   |  | 2015        |  
|Opening balance |  | 211,371        |   |  | 186,063     |  
|Redeemed        |  | (136,744       | ) |  | (198,575    | )
|Granted         |  | -              |   |  | 223,883     |  
|Cancelled       |  | -              |   |  | -           |  
|                |  | 74,627         |   |  | 211,371     |  

45

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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 income (loss)
during the the year ended December 31, 2016 in relation to the PSUP and
Directors PSUP was a recovery of $0.1 million (2015  $0.8 million expense)
recognized under general and administrative expenses. The total liability
recognized at December 31, 2016 in respect of the PSUP and Directors PSUP was
less than $0.1 million (December 31, 2015 - $0.7 million) which is classified as
a current liability, reported within trade and other payables. None of these
cash-settled units were vested at December 31, 2016, but all remain outstanding.

|(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 year ended December 31,
2016 and 2015 under the 2013 PSUP is presented below.

|                |  | December 31 |   |  | December 31 |  
|--------------- |  | ----------- | - |  | ----------- | -
|                |  | 2016        |   |  | 2015        |  
|Opening balance |  | 2,088,902   |   |  | 1,152,464   |  
|Redeemed        |  | (1,324,092  | ) |  | (958,515    | )
|Granted         |  | 4,046,139   |   |  | 1,960,463   |  
|Cancelled       |  | (140,845    | ) |  | (65,510     | )
|                |  | 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 as the grant date closing price of Primero
shares on the TSX. The total amount of expense recognized in the statement of
operations and comprehensive income (loss) for the year ended December 31, 2016
in relation to the 2013 PSUP was $4.9 million (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.

46

---

|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

As at December 31, 2016, 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 income (loss) for the year ended December 31, 2016
was $0.4 million (2015 - $0.4 million).

|21. | Capital management
|--- | ------------------

The Companys objectives in managing capital are to:

| | ensure the Company has the financial capacity to support
      its operations in a low gold price environment;
|- | --------------------------------------------------------------------------------------------------------------
| | ensure the Company has the capital and capacity
      to support its long-term growth strategy;               
| | ensure the Company complies with its debt
      covenants; and                                                
| | provide returns for shareholders and benefits
      for other stakeholders.                                   

The Companys capital items are the following:

|                                            |   | December 31 |  |   | December 31 | 
|------------------------------------------- | - | ----------- |  | - | ----------- | 
|                                            |   | 2016        |  |   | 2015        | 
|Cash and cash equivalents                   | $ | 19,875      |  | $ | 45,601      | 
|Undrawn revolving credit facility (Note 18) |   | 25,000      |  |   | 75,000      | 
|Current debt                                |   | 50,841      |  |   | 52,417      | 
|Long-term debt                              |   | 52,906      |  |   | 62,727      | 
|Shareholders' equity                        |   | 461,130     |  |   | 648,876     | 

The Company has $25.0 million remaining undrawn balance in its
revolving credit facility. Further drawdowns from the facility are subject to
the lenders approval. The Company is not anticipating drawing down the
remaining balance since it has entered into a term sheet with Sprott with the
intention to refinance such facility.

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.

Several key policy guidelines are used to manage the Companys
capital structure:

| | ensure that there is sufficient cash to meet
      its liabilities when they are due;                                                                                
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | evaluate its financial resources to fund current and
      long-term obligations and to meet its capital commitments in a
      cost-effective manner;               
| | maintain a liquidity cushion to address operational
      and/or industry disruptions or downturns; and                                                              
| | maintain a conservative level of debt relative to total
      capital and earnings within the context of financial forecasts for
      pricing, costs and production.

47

---

|PRIMERO MINING CORP.                                           
|---------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                 
|DECEMBER 31, 2016                                              
|(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

In February 2017 the Company entered into a term sheet with Sprott for a  $75 million three year term loan to replace its existing revolving credit  facility, due to mature on May 23, 2017. The term sheet is subject to execution  of definitive transaction documents, all regulatory and other third party  approvals and satisfaction of other customary conditions precedent. Although  the Company believes that definitive agreements with Sprott will be finalized,  there can be no assurance that the Company's efforts to obtain financing from  Sprott or others will be successful. (see note 2(b)).

Pursuant to the terms of the revolving credit facility, the
Company is required to maintain the following financial covenants:

|                                       |  |             |  |   | As at            | 
|-------------------------------------- |  | ----------- |  | - | ---------------- | 
|Covenant                               |  | Requirement |  |   | December 31,2016 | 
|Tangible net worth (in $ millions)1    |  | =/> $340    |  | $ | 461              | 
|Net debt leverage ratio 2              |  | =/< 4.25:1  |  |   | 3.1:1            | 
|Senior net debt leverage ratio
      3 |  | =/< 2.5:1   |  |   | 1.9:1            | 
|Interest coverage ratio 4              |  | =/> 4.5:1   |  |   | 6.8:1            | 

|1 | Tangible net worth represents equity less goodwill and
      other intangible assets. The amended credit agreement requires the Company
      to maintain an amount greater than or equal to the greater of $586
      million, less an amount equal to 115% of the impairment charge in respect
      of its fixed assets for the year ended December 31, 2016; and $340 million
      plus (in either case) 50% of the aggregate positive Net Income from
      January 1, 2017.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2 | Net debt leverage ratio represents total liabilities,
      less trade payables incurred in the ordinary course of business less
      unrestricted cash divided by rolling 4 quarter EBITDA, as defined in the
      credit agreement. The required ratio of 4.25 to 1 applies to the quarter
      ended December 31, 2016. Effective January 1, 2017, the required quarterly
      ratio is 3.50 to 1.                                                                         
|3 | Senior net debt leverage ratio represents that portion of
      net debt that ranks pari passu with or in priority to the revolving credit
      facility divided by rolling 4 quarter EBITDA, as defined in the credit
      agreement. The required ratio of 2.50 to 1 applies to the quarter ended
      December 31, 2016. Effective January 1, 2017, the required quarterly ratio
      is 2.0 to 1.                                                                         
|4 | Interest coverage ratio represents earnings before
      interest, depreciation and amortization, as defined in the credit
      agreement divided by interest expense.                                                                                                                                                                                                                                                                                                           

As at December 31, 2016, the Company was compliant with these
covenants. The Company closely monitors compliance to these covenants, as a
breach of a covenant would be considered an event of default under the revolving
credit agreement which, if not addressed, would entitle the lenders to make the
borrowings under the revolving credit facility immediately due and payable and
also causing borrowings under the 5.75% convertible debentures to become
immediately due and payable. Being able to remain in compliance with the
covenants is dependent upon many factors including, but not limited to,
commodity prices, exchange rates, and levels of gold production. Adverse changes
in one or more of these factors could negatively impact the Companys ability to
remain in compliance.

48

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|22. | Financial instruments
|--- | ---------------------

The Companys financial instruments at December 31, 2016
consist of cash, restricted cash, trade and other receivables, an equity
investment in Fortune Bay, trade and other payables, and debt.

At December 31, 2016, the carrying amounts of cash and cash
equivalents, restricted cash and cash equivalents, trade and other receivables,
and trade and other payables are considered to be a reasonable approximation of
their fair values due to their short-term nature.

The Companys equity investment in Fortune Bay is designated as
available for sale and is carried at fair value. Any unrealized gains on
available for sale assets are recognized in OCI. Cumulative losses recorded
under Accumulated Other Comprehensive Loss are reclassified from equity to the
statement of operations and comprehensive income (loss) when there is objective
evidence that the asset is impaired. Once an impairment is recognized, all
subsequent losses are recognized in the statement of operations until the asset
is derecognized. During the year ended December 31, 2016, the Company recorded
an impairment loss of $nil (2015  impairment of $0.6 million) in the statement
of operations and comprehensive income (loss) and an unrealized gain of $1.1
million in Accumulated Other Comprehensive Loss relating to its investment in
Fortune Bay. 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.

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, 2016
or December 31, 2015, other than those discussed below.

The convertible debentures assumed with the acquisition of
Brigus (Note 18 (a)) 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. During the year ended December 31, 2016, an unrealized derivative
gain of $nil (2015 $1.5 million) was recognized in relation to this derivative
liability.

The 5.75% convertible debentures issued by the Company on
February 9, 2015 (Note 18 (d)) 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, 2016, a mark to market gain of
$9.0 million (2015 - $13.5 million) was recognized in relation to the
debentures.

The common share purchase warrants issued by the Company on
June 24, 2016 (Note 20 (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, 2016, a mark-to-market gain of $3.6
million (2015 - $nil) was recognized in relation to the common share purchase
warrants.

49

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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 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 31 | 
|----------------------------------- | - | ----------- |  | - | ----------- | 
|Level 1                             |   | 2016        |  |   | 2015        | 
|Investment in Fortune Bay
      (1) | $ | 1,160       |  | $ | 525         | 
|5.75% convertible debentures (2)    |   | 52,500      |  |   | 61,500      | 
|Warrant liability (2)               |   | 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.

At December 31, 2016, 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, 2015  $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, 2016 is considered to be negligible. There are 14
months of value added tax outstanding from the Mexican tax authorities (included
in current and non-current taxes receivable below), which the Company expects to
be refunded or be offset against future income tax payments.

50

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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

|                                         |   | 2016   |  |   | 2015   | 
|---------------------------------------- | - | ------ |  | - | ------ | 
|Cash and restricted cash                 | $ | 24,452 |  | $ | 51,521 | 
|Trade and other receivables              |   | 1,962  |  |   | 1,793  | 
|Current and non-current taxes receivable |   | 41,838 |  |   | 30,689 | 
|                                         | $ | 68,252 |  | $ | 84,003 | 

|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 12(c).

The Company expects to discharge its commitments as they come
due from its existing cash balances, cash flow from operations, collection of
receivables, draw down of its revolving credit facility and new borrowings.

The table below shows the Companys liquidity risk profile at
December 31, 2016:

|(in thousands of U.S. dollars)                       |   | Within 1 
    year |   |   | 2-5 
    years |   |   | Total     |  
|---------------------------------------------------- | - | ------------------ | - | - | -------------- | - | - | --------- | -
|                                                     |   |                    |   |   |                |   |   |           |  
|Cash and cash equivalents                            | $ | 19,875             |   | $ | -              |   | $ | 19,875    |  
|Trade and other payables                             |   | (31,781            | ) |   | -              |   |   | (31,781   | )
|Revolving credit facility
      balance and interest |   | (50,811            | ) |   | -              |   |   | (50,811   | )
|Finance lease liabilities                            |   | (1,202             | ) |   | (406           | ) |   | (1,608    | )
|5.75% Convertible debentures and interest            |   | (4,313             | ) |   | (84,322        | ) |   | (88,635   | )
|Total                                                |   | ($68,232           | ) |   | ($84,728       | ) |   | ($152,960 | )

Refer to note 1(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
during the year ended December 31, 2016 was $0.8 million (2015 - $1.2
million).

51

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

|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, 2016, the Company recognized
a loss of $1.0 million on foreign exchange (2015  gain of $0.1 million). Based
on the above net exposures at December 31, 2016, a 10% depreciation or
appreciation of the Mexican peso against the U.S. dollar would result in a $1.4
million increase or decrease in the Companys before-tax net earnings (loss)
(2015 - $0.03 million); and a 10% depreciation or appreciation of the Canadian
dollar against the U.S. dollar would result in a $2.7 million increase or
decrease in the Companys before-tax net earnings (loss) (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 $0.02 million (assuming $50 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.

52

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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.

|                   |   | 2016    |   |   | 2015    |  
|------------------ | - | ------- | - | - | ------- | -
|Gold price         |   |         |   |   |         |  
|10% increase       | $ | 14,084  |   | $ | 18,091  |  
|10%
      decrease |   | (14,084 | ) |   | (18,091 | )
|Silver price       |   |         |   |   |         |  
|10%
      increase | $ | 222     |   | $ | 938     |  
|10% 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:

|                             |   | 2016  |  |   | 2015  | 
|---------------------------- | - | ----- |  | - | ----- | 
|Short-term employee benefits | $ | 3,122 |  | $ | 5,198 | 
|Share-based compensation     |   | 3,879 |  |   | 2,494 | 
|Termination benefits         |   | 1,172 |  |   | -     | 
|                             | $ | 8,173 |  | $ | 7,692 | 

As at December 31, 2016 $0.6 million (2015 - $1.5 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.

53

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

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.

Three of the properties included in the San Dimas mine and for
which Primero holds legal title are subject to legal proceedings commenced by
Ejidos seeking title to the property. These proceedings were initiated by Ejidos
against defendants who were 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. Some of the proceedings also name the Tayoltita Property
Public Registry as co-defendant. None of the initial proceedings named Primero
as a party and Primero therefore had no standing to participate in them.

In 2015, two of these proceedings were decided in favor of the
Ejidos. Upon becoming aware of the decisions Primero obtained injunctions to
suspend any legal effect of the decisions while the Company proceeds with a
legal process to nullify the Ejidos claim by submitting evidence of Primeros
legal title. In February 2017, one of the two legal processes to nullify the
Ejidos claim was decided in favour of Primero and the decision is subject to
appeal by the Ejido. The second proceeding is ongoing.

The third legal proceeding commenced by the Ejidos has not been
decided and Primero remains without standing to participate therein because it
was not named as a party. In the event a final decision is rendered in favour of
the Ejido in that proceeding, Primero will seek to annul such decision by
defending its position as the legitimate owner.

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.

(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.

In July 2016, the Company and certain officers were served with
a class action lawsuit that was filed earlier in the year 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. The Company intends to vigorously defend this
class action lawsuit.

(c) As at December 31, 2016, the Company had entered into
commitments to purchase plant and equipment totaling $0.5 million (December 31,
2015 - $5.7 million).

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|PRIMERO MINING CORP.                                                 
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|DECEMBER 31, 2016                                                    
|(IN THOUSANDS OF
      UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

(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.

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