---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|CONSOLIDATED FINANCIAL STATEMENTS                                            
|DECEMBER 31 , 2011                                                           
|(Amounts in
      thousands of United States dollars unless otherwise stated)

Table of contents

|Managements
      Responsibility for Financial Reporting                   | 1   
|--------------------------------------------------------------------------- | ----
|Independent
      Auditors Report                                          | 2   
|Consolidated
      statements of operations and comprehensive income (loss) | 3   
|Consolidated
      balance sheets                                           | 4   
|Consolidated
      statements of changes in shareholders equity            | 5   
|Consolidated
      statements of cash flows                                 | 6   
|Notes
      to the consolidated financial statements                        | 7-50

---

MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING

The consolidated financial statements of Primero Mining Corp.
(the Company) are the responsibility of the Companys management. The
consolidated financial statements are prepared in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board, and reflect managements best estimates and judgment based on
information currently available.

Management has developed and maintains a system of internal
controls to ensure that the Companys assets are safeguarded, transactions are
authorized and properly recorded, and financial information is reliable.

The Board of Directors is responsible for ensuring management
fulfills its responsibilities. The Audit Committee reviews the results of the
audit and the annual consolidated financial statements prior to their submission
to the Board of Directors for approval. The financial statements of the Company
were authorized for issue in accordance with a directors resolution on March
27, 2012.

The consolidated financial statements have been audited by
Deloitte & Touche LLP and their report outlines the scope of their
examination and gives their opinion on the financial statements.

|/s/ Joseph F. Conway                | /s/ David C. Blaiklock 
|----------------------------------- | -----------------------
|                                    |                        
|Joseph F. Conway                    | David C. Blaiklock     
|                                    |                        
|President & Chief Executive Officer | Chief Financial Officer
|                                    |                        
|March 27, 2012                      | March 27, 2012         

1

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Independent Auditors Report

To the Shareholders of Primero Mining Corp

We have audited the accompanying consolidated financial
statements of Primero Mining Corp., which comprise the consolidated balance
sheets as at December 31, 2011, December 31, 2010 and January 1, 2010, and the
consolidated statements of operations and comprehensive income (loss), changes
in shareholders equity, and cash flows for the years ended December 31, 2011
and December 31, 2010, and a summary of significant accounting policies and
other explanatory information.

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

Auditors ResponsibilityOur responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards 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 the auditors judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entitys
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
entitys internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the
consolidated financial statements.

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

OpinionIn our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of
Primero Mining Corp. as at December 31, 2011, December 31, 2010 and January 1,
2010 and its financial performance and its cash flows for the years ended
December 31, 2011 and December 31, 2010 in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board.

Emphasis of MatterAs discussed in note 11 to the
consolidated financial statements with respect to the mineral properties, should
any of the significant assumptions in the value in use model be changed, there
is a risk that the carrying value of the San Dimas mineral properties would be
impaired. Our opinion is not modified in respect of this matter.

(Signed) Deloitte & Touche LLP

Independent Registered Chartered Accountants March 27, 2012
Vancouver, Canada

2

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|PRIMEROMININGCORP.                                                             
|-------------------------------------------------------------------------------
|                                                                               
|CONSOLIDATEDSTATEMENTSOFOPERATIONSANDCOMPREHENSIVEINCOME(LOSS)                 
|                                                                               
|YEARSENDEDDECEMBER31,2011AND2010                                               
|(In thousands of United States dollars, except for share and per share amounts)

|                                                           |  | Notes        |  | 2011       |   |  | 2010       |  
|---------------------------------------------------------- |  | ------------ |  | ---------- | - |  | ---------- | -
|                                                           |  |              |  | **$**      |   |  | $          |  
|                                                           |  |              |  |            |   |  | (Note 20   | )
|                                                           |  |              |  |            |   |  |            |  
|Revenue                                                    |  | 5            |  | 156,542    |   |  | 60,278     |  
|                                                           |  |              |  |            |   |  |            |  
|Operating expenses                                         |  |              |  | (64,845    | ) |  | (36,270    | )
|Depreciation and depletion                                 |  | 11           |  | (26,607    | ) |  | (9,863     | )
|Total cost of sales                                        |  |              |  | (91,452    | ) |  | (46,133    | )
|                                                           |  |              |  |            |   |  |            |  
|Earnings from mine operations                              |  |              |  | 65,090     |   |  | 14,145     |  
|General and administrative expenses                        |  | 6            |  | (18,872    | ) |  | (10,981    | )
|                                                           |  |              |  |            |   |  |            |  
|Earnings from operations                                   |  |              |  | 46,218     |   |  | 3,164      |  
|Other income (expense)                                     |  | 7            |  | 17,407     |   |  | (22,530    | )
|Foreign exchange gain (loss)                               |  |              |  | 912        |   |  | (113       | )
|Finance income                                             |  |              |  | 2,795      |   |  | 120        |  
|Finance expense                                            |  | 12 (b)       |  | (7,810     | ) |  | (5,336     | )
|(Loss) gain on derivative contracts                        |  | 17 (i), (ii) |  | (1,284     | ) |  | 4,271      |  
|                                                           |  |              |  |            |   |  |            |  
|Earnings (loss) before income taxes                        |  |              |  | 58,238     |   |  | (20,424    | )
|                                                           |  |              |  |            |   |  |            |  
|Income taxes recovery (expense)                            |  | 8            |  | 9,591      |   |  | (11,034    | )
|                                                           |  |              |  |            |   |  |            |  
|Netincome(loss)fortheyear                                  |  |              |  | 67,829     |   |  | (31,458    | )
|                                                           |  |              |  |            |   |  |            |  
|Othercomprehensiveincome                                   |  |              |  |            |   |  |            |  
|Exchange differences on translation of                     |  |              |  |            |   |  |            |  
|foreign operations                                         |  |              |  | (1,588     | ) |  | -          |  
|Totalcomprehensiveincome(loss)forthe year                  |  |              |  | 66,241     |   |  | (31,458    | )
|                                                           |  |              |  |            |   |  |            |  
|Basic income (loss) per share                              |  | 9            |  | 0.77       |   |  | (0.85      | )
|Diluted income (loss) per share                            |  | 9            |  | 0.73       |   |  | (0.85      | )
|                                                           |  |              |  |            |   |  |            |  
|Weighted average number of common shares
      outstanding |  |              |  |            |   |  |            |  
|Basic                                                      |  |              |  | 88,049,171 |   |  | 37,030,615 |  
|Diluted                                                    |  |              |  | 96,562,288 |   |  | 37,030,615 |  



|See accompanying notes to the consolidated financial
      statements. | 3
|---------------------------------------------------------------------- | -

---

|PRIMEROMININGCORP.                     
|---------------------------------------
|                                       
|CONSOLIDATEDBALANCESHEETS              
|(In thousands of United States dollars)

|                                     |  |              |  | December31, |   |  | December 31, |   |  | January 1, |  
|------------------------------------ |  | ------------ |  | ----------- | - |  | ------------ | - |  | ---------- | -
|                                     |  | Notes        |  | 2011        |   |  | 2010         |   |  | 2010       |  
|                                     |  |              |  | **$**       |   |  | $            |   |  | $          |  
|                                     |  |              |  |             |   |  | (Note 20     | ) |  | (Note 20   | )
|Assets                               |  |              |  |             |   |  |              |   |  |            |  
|Current assets                       |  |              |  |             |   |  |              |   |  |            |  
|Cash                                 |  | 19 (a)       |  | 80,761      |   |  | 58,298       |   |  | 1,018      |  
|Trade and other receivables          |  |              |  | 5,526       |   |  | 11,738       |   |  | 128        |  
|Taxes receivable                     |  | 8            |  | 20,969      |   |  | 85,743       |   |  | 30         |  
|Prepaid expenses                     |  |              |  | 5,570       |   |  | 5,165        |   |  | 34         |  
|Inventories                          |  | 10           |  | 9,463       |   |  | 4,874        |   |  | -          |  
|Derivative asset                     |  | 17
      (i) |  | 203         |   |  | -            |   |  | -          |  
|Total current assets                 |  |              |  | 122,492     |   |  | 165,818      |   |  | 1,210      |  
|                                     |  |              |  |             |   |  |              |   |  |            |  
|Non-current assets                   |  |              |  |             |   |  |              |   |  |            |  
|Mining interests                     |  | 11           |  | 486,424     |   |  | 484,360      |   |  | 172        |  
|Deferred tax asset                   |  | 8            |  | 15,781      |   |  | 6,555        |   |  | -          |  
|Total assets                         |  |              |  | 624,697     |   |  | 656,733      |   |  | 1,382      |  
|                                     |  |              |  |             |   |  |              |   |  |            |  
|Liabilities                          |  |              |  |             |   |  |              |   |  |            |  
|Current liabilities                  |  |              |  |             |   |  |              |   |  |            |  
|Trade and other payables             |  |              |  | 24,907      |   |  | 26,691       |   |  | 169        |  
|Taxes payable                        |  |              |  | 4,213       |   |  | 10,667       |   |  | -          |  
|Current portion of long-term debt    |  | 12           |  | 40,000      |   |  | 75,000       |   |  | -          |  
|Total current liabilities            |  |              |  | 69,120      |   |  | 112,358      |   |  | 169        |  
|                                     |  |              |  |             |   |  |              |   |  |            |  
|Non-current liabilities              |  |              |  |             |   |  |              |   |  |            |  
|Decommissioning liability            |  | 13           |  | 9,373       |   |  | 9,775        |   |  | -          |  
|Long-term debt                       |  | 12           |  | 40,000      |   |  | 100,769      |   |  | -          |  
|Derivative liability                 |  | 17 (ii)      |  | -           |   |  | 2,630        |   |  | -          |  
|Other long-term liabilities          |  | 14 (f)       |  | 2,926       |   |  | 1,155        |   |  | -          |  
|Total liabilities                    |  |              |  | 121,419     |   |  | 226,687      |   |  | 169        |  
|                                     |  |              |  |             |   |  |              |   |  |            |  
|Equity                               |  |              |  |             |   |  |              |   |  |            |  
|Share capital                        |  | 14 ( c)      |  | 423,250     |   |  | 420,994      |   |  | 2,755      |  
|Warrant reserve                      |  | 14 ( e)      |  | 34,237      |   |  | 35,396       |   |  | 722        |  
|Share-based payment reserve          |  |              |  | 14,645      |   |  | 8,751        |   |  | 1,373      |  
|Foreign currency translation reserve |  |              |  | (1,450      | ) |  | 138          |   |  | 138        |  
|Retained earnings (Deficit)          |  |              |  | 32,596      |   |  | (35,233      | ) |  | (3,775     | )
|Total equity                         |  |              |  | 503,278     |   |  | 430,046      |   |  | 1,213      |  
|Total liabilities and equity         |  |              |  | 624,697     |   |  | 656,733      |   |  | 1,382      |  

Commitments and contingencies (Note 19)
  Subsequent events (Note 21)

ApprovedonbehalfoftheBoardofDirectors

|Director /s/ Joseph F. Conway, | Director /s/ Michael E. Riley
|------------------------------ | -----------------------------
|Date March 27, 2012            | Date March 27, 2012          

|See accompanying notes to the consolidated financial
      statements. | 4
|---------------------------------------------------------------------- | -

---

|PRIMEROMININGCORP.                                                         
|---------------------------------------------------------------------------
|                                                                           
|CONSOLIDATEDSTATEMENTSOFCHANGESINSHAREHOLDERS'EQUITY                       
|(In thousands of United States dollars, except for number of common shares)

|                                    |  |       |      |  |               |  |  |          |  |  |         |   |  |             |   |  | Foreign   |   |  |           |   |  |              |  
|----------------------------------- |  | ----- | ---- |  | ------------- |  |  | -------- |  |  | ------- | - |  | ----------- | - |  | --------- | - |  | --------- | - |  | ------------ | -
|                                    |  |       |      |  |               |  |  |          |  |  |         |   |  | Share-based |   |  | currency  |   |  | Retained  |   |  |              |  
|                                    |  |       |      |  | Share capital |  |  | Warrants |  |  | payment |   |  | translation |   |  | Earnings/ |   |  |           |  
|                                    |  | Notes |      |  | Shares        |  |  | Amount   |  |  | reserve |   |  | reserve     |   |  | reserve   |   |  | (Deficit) |   |  | Total Equity |  
|                                    |  |       |      |  |               |  |  | $        |  |  | $       |   |  | $           |   |  | $         |   |  | $         |   |  | $            |  
|                                    |  |       |      |  |               |  |  |          |  |  |         |   |  |             |   |  |           |   |  |           |   |  |              |  
|                                    |  |       |      |  |               |  |  |          |  |  |         |   |  |             |   |  |           |   |  |           |   |  |              |  
|Balance,January1,2010               |  |       |      |  | 2,942,414     |  |  | 2,755    |  |  | 722     |   |  | 1,373       |   |  | 138       |   |  | (3,775    | ) |  | 1,213        |  
|Shares issued for                   |  |       |      |  |               |  |  |          |  |  |         |   |  |             |   |  |           |   |  |           |   |  |              |  
|Public offering net of issue costs  |  | 14    | (c ) |  | 50,000,000    |  |  | 241,081  |  |  | 33,909  |   |  | -           |   |  | -         |   |  | -         |   |  | 274,990      |  
|Settlement of legal claim           |  | 14    | (c ) |  | 2,000,000     |  |  | 10,114   |  |  | 1,483   |   |  | -           |   |  | -         |   |  | -         |   |  | 11,597       |  
|Acquisition of San Dimas            |  | 14    | (c ) |  | 31,151,200    |  |  | 159,194  |  |  | -       |   |  | -           |   |  | -         |   |  | -         |   |  | 159,194      |  
|Exercise of warrants                |  | 14    | (e ) |  | 416,018       |  |  | 1,565    |  |  | (718    | ) |  | -           |   |  | -         |   |  | -         |   |  | 847          |  
|Exercise of stock options           |  | 14    | (d)  |  | 20,000        |  |  | 105      |  |  | -       |   |  | (37         | ) |  | -         |   |  | -         |   |  | 68           |  
|Shares issued for advisory services |  | 14    | (c ) |  | 1,209,373     |  |  | 6,180    |  |  | -       |   |  | -           |   |  | -         |   |  | -         |   |  | 6,180        |  
|Share-based payment                 |  | 14    | (d)  |  |               |  |  |          |  |  |         |   |  | 7,415       |   |  |           |   |  |           |   |  | 7,415        |  
|Net loss                            |  |       |      |  | -             |  |  | -        |  |  | -       |   |  | -           |   |  | -         |   |  | (31,458   | ) |  | (31,458      | )
|Balance, December 31, 2010          |  |       |      |  | 87,739,005    |  |  | 420,994  |  |  | 35,396  |   |  | 8,751       |   |  | 138       |   |  | (35,233   | ) |  | 430,046      |  
|Shares issued for                   |  |       |      |  |               |  |  |          |  |  |         |   |  |             |   |  |           |   |  |           |   |  |              |  
|Exercise of warrants                |  | 14    | (e ) |  | 492,076       |  |  | 2,127    |  |  | (1,159  | ) |  | -           |   |  | -         |   |  | -         |   |  | 968          |  
|Exercise of stock options           |  | 14    | (d ) |  | 28,750        |  |  | 129      |  |  | -       |   |  | (50         | ) |  | -         |   |  | -         |   |  | 79           |  
|Foreign currency translation        |  |       |      |  | -             |  |  | -        |  |  | -       |   |  | -           |   |  | (1,588    | ) |  | -         |   |  | (1,588       | )
|Share-based payment                 |  | 14    | (d)  |  | -             |  |  | -        |  |  | -       |   |  | 5,944       |   |  | -         |   |  | -         |   |  | 5,944        |  
|Net income                          |  |       |      |  | -             |  |  | -        |  |  | -       |   |  | -           |   |  | -         |   |  | 67,829    |   |  | 67,829       |  
|Balance,December31,2011             |  |       |      |  | 88,259,831    |  |  | 423,250  |  |  | 34,237  |   |  | 14,645      |   |  | (1,450    | ) |  | 32,596    |   |  | 503,278      |  

Total comprehensive
   income was $66,241 for the year ended December
   31, 2011 (December
   31, 2010 - loss of $31,458) .



|See accompanying notes to the consolidated financial
      statements. | 5
|---------------------------------------------------------------------- | -

---

|PRIMEROMININGCORP.                     
|---------------------------------------
|CONSOLIDATEDSTATEMENTSOFCASHFLOWS      
|YEARSENDEDDECEMBER31,2011AND2010       
|(In thousands Of United States dollars)

|                                                                                             |  | Notes        |  | 2011        |       |  | 2010     |  
|-------------------------------------------------------------------------------------------- |  | ------------ |  | ----------- | ----- |  | -------- | -
|                                                                                             |  |              |  | **$**       |       |  | $        |  
|                                                                                             |  |              |  |             |       |  | (Note 20 | )
|Operatingactivities                                                                          |  |              |  |             |       |  |          |  
|Net income (loss) before tax                                                                 |  |              |  | 58,238      |       |  | (20,424  | )
|Adjustments for:                                                                             |  |              |  |             |       |  |          |  
|Depreciation and depletion                                                                   |  | 11           |  | 26,607      |       |  | 9,661    |  
|Changes to decomissioning liability                                                          |  |              |  | (851        | )     |  | (113     | )
|Share-based payments                                                                         |  | 14 (d)       |  | 8,073       |       |  | 8,570    |  
|Settlement of legal claim                                                                    |  | 4            |  | -           |       |  | 11,597   |  
|Non-cash transaction costs                                                                   |  |              |  | -           |       |  | 6,180    |  
|Cash paid for unrealized derivative contracts                                                |  |              |  | (3,359      | )     |  | -        |  
|Unrealized (gain) loss on derivative asset                                                   |  | 17 (i), (ii) |  | 525         |       |  | (4,271   | )
|Fair value adjustment to cost of goods sold                                                  |  |              |  | -           |       |  | 4,337    |  
|Assets written off                                                                           |  |              |  | 931         |       |  | -        |  
|Unrealized foreign exchange loss (gain)                                                      |  |              |  | (153        | )     |  | 113      |  
|Taxes paid                                                                                   |  |              |  | (17,435     | )     |  | (8,645   | )
|Otheradjustments                                                                             |  |              |  |             |       |  |          |  
|Finance income (disclosed in investing activities)                                           |  |              |  | (2,795      | )     |  | (120     | )
|Finance expense net of capitalized borrowing costs
      (disclosed in financing activities) |  |              |  | 10,405      |       |  | 5,336    |  
|                                                                                             |  |              |  | 80,186      |       |  | 12,221   |  
|                                                                                             |  |              |  |             |       |  |          |  
|Changes in non-cash working capital                                                          |  | 15           |  | 74,974      |       |  | (73,262  | )
|Cash provided by (used in) operating activities                                              |  |              |  | 155,160     |       |  | (61,041  | )
|                                                                                             |  |              |  |             |       |  |          |  
|Investingactivities                                                                          |  |              |  |             |       |  |          |  
|Acquisition of San Dimas                                                                     |  | 4            |  | (3,928      | )     |  | (216,000 | )
|Expenditures on exploration and evaluation assets                                            |  | 11           |  | (10,766     | )     |  | (2,375   | )
|Expenditures on mining interests                                                             |  | 11           |  | (18,994     | )     |  | (8,775   | )
|Interest received                                                                            |  |              |  | 2,795       |       |  | 120      |  
|Cash used in investing activities                                                            |  |              |  | (30,893     | )     |  | (227,030 | )
|                                                                                             |  |              |  |             |       |  |          |  
|Financingactivities                                                                          |  |              |  |             |       |  |          |  
|Proceeds (repayment) of VAT loan                                                             |  | 12 (iii)     |  | **(70,000** | **)** |  | 70,000   |  
|Repayment of debt                                                                            |  | 12 (i)       |  | (30,000     | )     |  | -        |  
|Proceeds of public offering                                                                  |  | 14 (c ) (i)  |  | -           |       |  | 292,070  |  
|Share issuance costs                                                                         |  | 14 (c ) (i)  |  | -           |       |  | (17,079  | )
|Proceeds on exercise of warrants and options                                                 |  | 14 (c ) (vi) |  | 1,047       |       |  | 915      |  
|Interest paid                                                                                |  |              |  | (2,154      | )     |  | (644     | )
|Cash (used in) provided by financing activites                                               |  |              |  | (101,107    | )     |  | 345,262  |  
|                                                                                             |  |              |  |             |       |  |          |  
|Effect of foreign exchange rate changes on cash                                              |  |              |  | (697        | )     |  | 89       |  
|                                                                                             |  |              |  |             |       |  |          |  
|Increase in cash                                                                             |  |              |  | 22,463      |       |  | 57,280   |  
|Cash, beginning of year                                                                      |  |              |  | 58,298      |       |  | 1,018    |  
|Cash,endofyear                                                                               |  |              |  | 80,761      |       |  | 58,298   |  

Supplemental cash flow information (Note 15)

|See accompanying notes to the consolidated financial
      statements. | 6
|---------------------------------------------------------------------- | -

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

|1. | Nature of operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Primero Mining Corp. (Primero or the Company) was
      incorporated in Canada on November 26, 2007 under the Business
      Corporations Act (British Columbia). The Companys registered office is
      Suite 1500, 1055 West Georgia Street, Vancouver, British Columbia B.C.
      Primero is a publicly traded company, listed on both the Toronto and New
      York Stock Exchanges; Primero has no parent company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Primero is a Canadian-based precious metals producer with
      mining operations in Mexico. The Company is focused on building a
      portfolio of high-quality, low-cost precious metals assets in the Americas
      through acquiring, exploring, developing and operating mineral resource
      properties. Primero currently has one reportable operating
  segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On August 6, 2010, the Company completed the acquisition
      of the San Dimas gold-silver mine, mill and related assets (the San Dimas
      Mine), located in Mexicos San Dimas district, on the border of Durango
      and Sinaloa states. In addition to the San Dimas Mine, the Company
      acquired all of the shares of Silver Trading (Barbados) Ltd., which is
      party to a silver purchase agreement with Silver Wheaton Corp. (Silver
      Wheaton) and Silver Wheaton Caymans, as well as all of the rights to the
      Ventanas exploration property, located in Durango state, Mexico (the
      Acquisition) (Note 4).                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|2. | Significant accounting policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | 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). For all periods up to and including the
      year ended December 31, 2010, the Company prepared its financial
      statements in accordance with Canadian generally accepted accounting
      principles (Previous GAAP). These financial statements for the year ended
      December 31, 2011 are the first annual financial statements which the
      Company has prepared in accordance with IFRS. These accounting policies
      have been retrospectively and consistently applied except where specific
      exemptions permitted an alternative treatment upon transition to IFRS in
      accordance with IFRS 1 as disclosed in Note 20. Note 20 discloses the
      reconciliations presenting the impact of the transition to IFRS as at
      January 1, 2010, and as at and for the year ended December 31,
  2010.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Basis of measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | These consolidated financial statements have been
      prepared on a historical cost basis other than the derivative assets and
      liabilities which are accounted for as fair value through profit or
      loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The preparation of these financial statements requires
      management to make 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 estimates and assumptions, which
      are based on managements best judgment at the date of the financial
      statements, deviate materially from actual circumstances, the original
      estimates and assumptions will be modified as appropriate in the period in
      which the circumstances change.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

7

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

In the opinion of management, all
adjustments necessary to present fairly the financial position of the Company as
at December 31, 2011 and the results of its operations and cash flows for the
year then ended have been made.

| | (a) | Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | These consolidated financial statements include the
      accounts of the Company and its wholly-owned subsidiaries from their
      respective dates of acquisition. All material intercompany transactions
      and balances, revenues and expenses have been eliminated. The Companys
      significant subsidiaries are: Primero Empresa Minera, S.A. de C.V., which
      owns the San Dimas Mine, Primero Compania Minera, S.A. de C.V., Primero
      Servicios Mineros, S.A. de C.V., Primero Auxiliares de Administracio, S.A.
      de C.V., Silver Trading (Barbados) Limited and Primero Mining Luxembourg
      S.a.r.l.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (b) | Change in Functional and presentation
    currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Effective August 6, 2010, upon the completion of the
      acquisition of the San Dimas Mine (Note 4), the functional currency of the
      Companys operations in Mexico were determined to be the U.S. dollar. The
      functional currency of the parent company, incorporated in Canada, is the
      Canadian dollar. During the year ended December 31, 2011, the functional
      currency of Primero Mining Luxembourg S.a.r.l. changed to the Mexican peso
      as a result of the change in the denomination of its significant assets
      and liabilities. This change has been accounted for
  prospectively.         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Monetary assets and liabilities denominated in currencies
      other than the entitys functional currency are translated into the
      functional currency at the exchange rates prevailing at the balance sheet
      date; non-monetary assets denominated in foreign currencies (and not
      measured at fair value) are translated using the rates of exchange at the
      transaction dates. Non- monetary assets denominated in foreign currencies
      that are measured at fair value are translated using the rates of exchange
      at the dates that those fair values are determined.                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Statement of operations items denominated in currencies
      other than the presentation currency are translated at the period average
      exchange rates. With the exception of foreign exchange differences on an
      intercompany loan between Primero Mining Luxembourg S.a.r.l. and Primero
      Empresa, S.A. de C.V., for which exchange differences are recorded in
      other comprehensive income (OCI), the resulting foreign exchange gains
      and losses are included in the determination of earnings.                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Concurrent with the acquisition of the San Dimas Mine,
      the Company adopted the U.S. dollar as its presentation currency. The
      comparative statements of operations and comprehensive income and cash
      flows for each period have been translated into the presentation currency
      using the average exchange rates prevailing during each period, and all
      comparative assets and liabilities have been translated using the exchange
      rates prevailing at the balance sheet date. Comparative shareholders
      equity transactions                                                                   

8

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |     | have been translated using the rates of exchange in
      effect as of the dates of the various transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The results of the Canadian parent company and 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 balance sheet 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
      period 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
      OCI.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (c) | Measurement uncertainties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Significant estimates used in the preparation of these
      financial statements include, but are not limited to:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | (v)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | (vi)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | (vii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | (viii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | (ix)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

9

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|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| | (x)  | the provision for income and mining taxes including
      expected recovery and periods of reversals of timing differences and
      composition of deferred income and mining tax assets and liabilities;
      and
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                     
| | (xi) | the fair values of assets and liabilities acquired in
      business combinations.                                                                                                                                  

Significant judgments used in the
preparation of these financial statements include, but are not limited to:

| | (i)   | accounting and presentation relating to the agreement
      acquired upon the Companys acquisition of the San Dimas Mine to sell
      silver to Silver Wheaton Caymans (Note 4);                                                                                                                                                                                           
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                              
| | (ii)  | the likelihood that tax positions taken will be sustained
      upon examination by applicable tax authorities. In particular, the benefit
      of a successful APA filing and resultant provision for income taxes based
      on realized silver prices, has been reflected in the Companys mine model
      used for assessing possible impairment (Notes 8, 11 and 19);
| |       |                                                                                                                                                                                                                                                                                                                                                                              
| | (iii) | the componentization of buildings, plant and equipment,
      and the useful lives and related depreciation of these assets;                                                                                                                                                                                                                                                 
| |       |                                                                                                                                                                                                                                                                                                                                                                              
| | (iv)  | the grouping of the San Dimas assets into a Cash
      Generating Unit (CGU) and the determination that the Company has just
      one CGU;                                                                                                                                                                                                                                
| |       |                                                                                                                                                                                                                                                                                                                                                                              
| | (v)   | the classification and fair value hierarchy of financial
      instruments (Note 17);                                                                                                                                                                                                                                                                                        
| |       |                                                                                                                                                                                                                                                                                                                                                                              
| | (vi)  | the expected conversion of the convertible debt;
    and                                                                                                                                                                                                                                                                                                                     
| |       |                                                                                                                                                                                                                                                                                                                                                                              
| | (vii) | the functional currency of the entities within the
      consolidated group.                                                                                                                                                                                                                                                                                                 

| | (d) | Business combinations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Business combinations are accounted for using the
      acquisition method. At the acquisition date, the Company recognizes at
      fair value: (i) all of the identifiable assets acquired, the liabilities
      assumed and any non-controlling interest in the acquiree; and (ii) the
      consideration transferred to the vendor. Those mineral reserves, resources
      and other assets that are able to be reliably valued are recognized in the
      assessment of fair values on acquisition. Other potential reserves,
      resources, mineral rights and other assets, which in managements opinion
      values cannot be reliably determined, are not recognized.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | When the fair value of the consideration transferred
      exceeds the net of the acquisition date amounts of the identifiable assets
      acquired and the liabilities assumed measured at fair value, the
      difference is treated as goodwill. This goodwill is not amortized, and
      is                                                                                                                                                                                                                                                                                                                                                                                    

10

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|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |     | reviewed for impairment annually or when there is an
      indication of impairment. If the fair value attributable to the Companys
      share of the identifiable net assets exceeds the cost of acquisition, the
      difference is immediately recognized in the statement of
  operations.   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                     
| |     | Costs, such as advisory, legal, accounting, valuation and
      other professional or consulting fees related to a business combination
      are expensed as incurred. Costs associated with the issuance of equity and
      debt instruments are charged to the relevant account within
  equity.
| |     |                                                                                                                                                                                                                                                                                                     
| | (e) | 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:                                                                                                        

| | (i)   | the significant risks and rewards of ownership have been
      transferred to the buyer;                                                                          
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                   
| | (ii)  | neither continuing managerial involvement to the degree
      usually associated with ownership nor effective control over the goods
      sold has been retained;
| |       |                                                                                                                                                                   
| | (iii) | the amount of revenue can be measured reliably;                                                                                                                   
| |       |                                                                                                                                                                   
| | (iv)  | it is probable that the economic benefits associated with
      the transaction will flow to the Company and collectability is reasonably
      assured; and      
| |       |                                                                                                                                                                   
| | (v)   | the costs incurred or to be incurred in respect of the
      transaction can be measured reliably.                                                                

| |     | Revenue is recorded at the time of transfer of title.
      Sales prices are fixed based on the terms of the contract or at spot
      prices.                                                                                                                                                                                                             
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                            
| | (f) | 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. There were no cash equivalents at December 31, 2011
      (2010 - $nil).                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                            
| | (g) | Inventories                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                            
| |     | Finished goods (gold and silver in doré),
      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 the mine is stockpiled and
      subsequently processed into finished goods. Production costs are
      capitalized and included in the work-in-process
inventory                                                                                                                                                                       

11

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|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |     | based on the current mining cost incurred up to the
      refining process, including applicable overhead, depreciation and
      depletion relating to mining interest, and expensed at the average
      production cost per recoverable ounce of gold or silver. The average
      production cost of finished goods represents the average cost of work-in-
      process inventories incurred prior to the refining process, plus
      applicable refining cost. Supplies are valued at the lower of average cost
      or replacement cost.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (h) | Mining interests                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | Mining interests include mining and exploration
      properties and related plant and equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

12

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|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |       | Purchased exploration and evaluation assets are
      recognized as assets at their cost of acquisition or at fair value if
      purchased as part of a business combination.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       | The Company reviews and evaluates its exploration
      properties for impairment prior to reclassification, and when events and
      changes in circumstances indicate that the related carrying amounts may
      not be recoverable. The recoverable amount is the higher of value in use
      and fair value less costs to sell. In assessing value in use, the
      estimated future cash flows are discounted to their present value using a
      pre-tax discount rate that reflects current market assessments of the time
      value of money and the risks specific to the asset for which the estimates
      of future cash flows have not been adjusted.                                                                                                                                                                                                                                               
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       | If the recoverable amount of an asset or a 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. The Company considers the San Dimas Mine to be a
  CGU.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       | 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 years. A reversal of impairment is
      recognized immediately in the statement of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (iii) | Mining properties and mine development
  expenditure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       | The cost of acquiring mineral reserves and mineral
      resources is capitalized on the balance sheet as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       | Mine development costs incurred to maintain current
      production are included in earnings. These costs include the development
      and access costs (tunneling) of production drifts to develop the ore body
      in the current production cycle. The distinction between mining
      expenditures incurred to develop new ore bodies and to develop mine areas
      in advance of current production is mainly the production timeframe of the
      mining areas. For those areas being developed which will be mined in
      future periods, the costs incurred are capitalized and depleted when the
      related mining area is mined as compared to current production areas,
      where development costs are considered as costs of sales and included in
      operating expenses given that the short-term nature of these expenditures
      matches the economic benefit of the ore being mined.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       | The Company reviews and evaluates its mining properties
      for impairment when events and changes in circumstances indicate that the
      related carrying amounts may not be recoverable. The carrying amounts of
      the assets are compared to the recoverable amount of the assets whenever
      events or changes in                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

13

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |      | circumstances indicate that the net book value may not be
      recoverable. The recoverable amount is the higher of value in use and fair
      value less costs to sell. In assessing value in use, the estimated future
      cash flows are discounted to their present value using a pre-tax discount
      rate that reflects current market assessments of the time value of money
      and the risks specific to the asset for which the estimates of future cash
      flows have not been adjusted.                                                                                                                                                                                                                           
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | The Company bases its impairment calculation on detailed
      budgets and forecasts which are prepared separately for each of the
      Companys CGUs to which the individual assets are allocated (the Company
      currently has one CGU, the San Dimas Mine). These budgets and forecasts
      generally cover the life of the mine.                                                                                                                                                                                                                                                                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | 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 years. A reversal of impairment is
      recognized immediately in the statement of operations.                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (iv) | 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 in the period in which they are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (v)  | Major maintenance and repairs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | Expenditure on major maintenance or 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 where it is probable that future                                                                                                                                                                                                                  

14

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|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |      | economic benefits will be available and any remaining
      carrying amounts of the cost of previous overhauls are derecognized. All
      other costs are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (vi) | Depreciation and depletion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | Depreciation and depletion is provided so as to write off
      the cost less estimated residual values of mining properties, buildings,
      plant and equipment on the following bases:                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | Mining properties are depleted using a
      units-of-production basis over the mines estimated and economically
      proven and probable reserves and an estimate of the portion of
      mineralization expected to be classified as reserves. Construction in
      progress is not depreciated until construction is complete. Buildings,
      plant and equipment unrelated to production are depreciated using the
      straight-line method based on estimated useful lives.                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | Where significant parts of an asset have differing useful
      lives, depreciation is calculated on each separate component. The
      estimated useful life of each item or part has due regard to both its own
      physical life limitations and the present assessment of economically
      recoverable reserves of the mine property at which the item is located,
      and to possible future variations in those assessments. Estimates of
      remaining useful lives and residual values are reviewed annually. Changes
      in estimates which affect depreciation are accounted for
    prospectively.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | The expected useful lives are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | Mining properties and leases are based on estimated life
      of reserves and a portion of resources on a units-of-production
    basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Plant and buildings
    8 years to life of mineConstruction equipment and vehicles
    4 yearsComputer equipment
    3 years


| | (vii) | 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 profit or loss on disposal in the statement of
      operations.

| | (i) | Provisions                                                                                                                                                                                                                                                                                                                                                       
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                  
| |     | General                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                  
| |     | Provisions are recognised 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

15

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|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |     | some or all of a provision to be reimbursed, for example
      under an insurance contract, the reimbursement is recognised 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 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 recognised as finance expense in the statement of
    operations.                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | 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.
      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 on an annual basis 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 mine and development
      projects are recorded with a corresponding increase to the carrying
      amounts of related assets.       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (j) | 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 on the balance sheet 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
      balance sheet 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 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 on a straight-line basis over the lease
    term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

16

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|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| | (k) | Income taxes
| | --- | ------------
| |     |             

| |     | Income tax expense comprises current and deferred tax.
      Current tax and deferred tax are recognized in the statement of operations
      except to the extent they relate to items recognized directly in equity or
      in other comprehensive income (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 taxable income or loss for the year, which may differ
      from earnings reported in the statement of operations due to items of
      income or expenses that are not currently taxable or deductible for tax
      purposes, using tax rates substantively enacted at the reporting date, and
      any adjustment to tax payable 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 for unused tax losses,
      tax credits and deductible temporary differences, to the extent that it is
      probable that future taxable profits will be available against which they
      can be utilized. Deferred tax assets are reviewed at each reporting date
      and are reduced to the extent that it is no longer probable that the
      related tax benefit will be realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The Company recognizes uncertain tax positions in its
      financial statements when it is considered more likely than not that the
      tax position shall be sustained.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (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) | Sharebased payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

17

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|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |      | For equity-settled awards, the fair value of the award is
      charged to the statement of operations and credited to share-based payment
      reserve 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 balance sheet 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.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | 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.                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (ii) | Cash-settled awards (phantom share unit plan)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | For cash-settled awards, the fair value is re-calculated
      at each balance sheet date until the awards are settled, using the
      Black-Scholes option pricing model. During the vesting period, a liability
      is recognized representing the portion of the vesting period which has
      expired at the balance sheet date multiplied by the fair value of the
      awards at that date. After vesting, the full fair value of the unsettled
      awards at each balance sheet date is recognized as a liability. Movements
      in value are recognized in the statement of
operations.                                                                                      

| | (n) | 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 unrealized gains and
      losses recognized in the statement of operations. Available-for-sale
      financial assets are measured at fair value with unrealized gains and
      losses recognized in other comprehensive income. Financial assets
      classified as held-to-maturity, loans and receivables, and financial
      liabilities classified as other financial liabilities, are measured at
      amortized cost. Transaction costs in respect of financial assets and
      liabilities which are measured as FVTPL are recognized in the statement of
      operations immediately. Transaction costs in respect of other financial
      instruments are included in the initial fair value measurement of the
      financial instrument.

18

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

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 fair value through profit
or loss. These embedded derivatives are measured at fair value with changes in
fair value recognized in earnings in the statement of other comprehensive
income.

The Company has designated its
derivative instruments and other long-term liabilities as FVTPL, which are
measured at fair value. Trade and other receivables and cash are classified as
loans and receivables, which are measured at amortized cost. Trade and other
payables, the convertible note, and the promissory note are classified as other
financial liabilities, which are measured at amortized cost.

Derecognition

A financial asset (or, where
applicable, a part of a financial asset or part of a group of similar financial
assets) is derecognised when:

- The rights to receive cash flows from the asset
  have expired, or
- The Company has transferred its rights to receive
  cash flows from the asset or has assumed an obligation to pay the received
  cash flows in full without material delay to a third party under a
  pass-through arrangement; and either (a) the Company has transferred
  substantially all the risks and rewards of the asset, or (b) the Company has
  neither transferred nor retained substantially all the risks and rewards of
  the asset, but has transferred control of the asset.

When the Company has transferred its
rights to receive cash flows from an asset or has entered into a pass-through
arrangement, and has neither transferred nor retained substantially all of the
risks and rewards of the asset, nor transferred control of it, the asset is
recognised to the extent of the Companys continuing involvement in it. In that
case, the Company also recognises an associated liability. The transferred asset
and the associated liability are measured on a basis that reflects the rights
and obligations that the Company has retained.

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.

|3. | 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:

19

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

IFRS 13 Fair Value Measurement(IFRS 13) was issued by the IASB in May 2011, and is effective for annual
periods beginning on or after January 1, 2013. Early application is permitted.
IFRS 13 was issued to remedy the inconsistencies in the requirements for
measuring fair value and for disclosing information about fair value measurement
in various current IFRSs. IFRS 13 defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The Company is
currently assessing the impact IFRS 13 will have on its consolidated financial
statements.

In October 2011, the IASB issued IFRIC
20 - Stripping Costs in the Production Phase of a Mine

(IFRIC 20). IFRIC 20 clarifies the
requirements for accounting for the costs of stripping activity in the
production phase of an open-pit mine when two benefits accrue: (i) usable ore
that can be used to produce inventory and (ii) improved access to further
quantities of material that will be mined in future periods. IFRIC 20 is
effective for annual periods beginning on or after January 1, 2013 with earlier
application permitted and includes guidance on transition for pre-existing
stripping assets. The adoption of this standard will not have a material impact
on Primeros consolidated financial statements based on the Companys current
underground mining operations.

In June 2011, the IASB issued
amendments to IAS 1  Presentation of Financial Statements (IAS 1) that
require an entity to group items presented in the statement of other
comprehensive income on the basis of whether they may be reclassified to profit
or loss subsequent to initial recognition. For those items presented before tax,
the amendments to IAS 1 also require that the tax related to the two separate
groups be presented separately. The amendments to IAS 1 are effective for annual
periods beginning on or after July 1, 2012, with earlier application permitted.
The Company does not anticipate this amendment will have a significant impact on
its consolidated financial statements.

As of January 1, 2015, Primero will be
required to adopt IFRS 9, Financial Instruments, which is the result of
the first phase of the IASBs project to replace IAS 39, Financial
Instruments: Recognition and Measurement. The new standard replaces the
current multiple classification and measurement models for financial assets and
liabilities with a single model that has only two classification categories:
amortized cost and fair value. The Company is currently assessing the impact
IFRS 9 will have on its financial statements.

|4. | Acquisition of San Dimas
Mine
|-- | -----------------------------

On August 6, 2010, the Company obtained
control of the San Dimas Mine, located in Mexicos San Dimas district, on the
border of Durango and Sinaloa states. This was achieved by acquiring 100% of the
assets and liabilities of the operations from Desarrolos Mineros San Luis, S.A.
de C.V. (DMSL), a subsidiary of Goldcorp Inc. (Goldcorp). The purchase was
part of the Companys strategy of building a portfolio of high-quality, low-cost
precious metal assets.

In addition to the San Dimas Mine, the
Company acquired all of the shares of Silver Trading (Barbados) Limited.
(Silver Trading), which is party to a silver purchase agreement with Silver
Wheaton and Silver Wheaton Caymans (the silver purchase agreement), as well as
all of the rights to the Ventanas exploration property, located in Durango
State, Mexico.

20

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

In 2004, the owner of the San Dimas
Mine entered into an agreement (the Internal SPA) to sell all the silver
produced at the San Dimas Mine for a term of 25 years to Silver Trading at
market prices. Concurrently, in return for upfront payments of cash and shares
of Silver Wheaton Corp., Silver Trading entered into an agreement (the External
SPA) to sell all of the San Dimas Mines silver to Silver Wheaton Caymans at
the lesser of $3.90 per ounce (adjusted for annual inflation) or market prices.
The Company was required to assume these two agreements when it acquired the San
Dimas Mine. The Internal SPA and External SPA were amended when the Company
acquired the San Dimas Mine. Currently, for each of the first four years after
the acquisition date, the first 3.5 million ounces per annum of silver produced
by the San Dimas Mine, plus 50% of the excess silver above this amount, must be
sold to Silver Wheaton Caymans at the lesser of $4.04 per ounce (adjusted by 1%
per year) and market prices. After four years, for the life of the mine, the
first 6 million ounces per annum of silver produced by the San Dimas Mine, plus
50% of the excess silver above this amount, must be sold to Silver Wheaton
Caymans at the lesser of $4.20 per ounce (adjusted by 1% per year) and market
prices. All silver not sold to Silver Wheaton Caymans is available to be sold by
the Company at market prices.

The expected cash flows associated with
the sale of the silver to Silver Wheaton Caymans at a price lower than market
price have been reflected in the fair value of the mining interest recorded upon
acquisition of the San Dimas Mine. The Company has presented the value of any
expected future cash flows from the sale of any future silver production to
Silver Wheaton Caymans as part of the mining interest, as the Company did not
receive any of the original upfront payment which was made by Silver Wheaton to
acquire its interest in the silver production of the San Dimas Mine. Further,
the Company does not believe that the agreement to sell to Silver Wheaton
Caymans meets the definition of an onerous contract or other liability as the
obligation to sell silver to Silver Wheaton Caymans only arises upon production
of the silver (Note 2 (c)).

Until October, 2011, the Company
computed income taxes in Mexico based on selling all silver produced at the San
Dimas Mine at market prices. Until this time, Silver Trading incurred losses
since it purchased silver at market prices and sold silver to Silver Wheaton
Caymans at the lesser of approximately $4 per ounce and market prices, however,
there was no tax benefit to these losses since Barbados is a low tax
jurisdiction. From a consolidated perspective, therefore, the silver sales to
Silver Wheaton Caymans realize approximately $4 per ounce, however, the Company
recorded income taxes based on sales at market prices (Note 8).

The acquisition of the San Dimas Mine
has been accounted for as a business combination using the acquisition method,
with Primero as the acquirer.

The fair value of the consideration
transferred to acquire the San Dimas Mine was as follows:

21

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |                                                                                           |  | $       | 
| | ----------------------------------------------------------------------------------------- |  | ------- | 
| |                                                                                           |  |         | 
| | Cash                                                                                      |  | 219,928 | 
| | Common shares (31,151,200 shares at share price on date of
      acquisition of Cdn$5.25) |  | 159,194 | 
| | Convertible note (Note 12)                                                                |  | 60,000  | 
| | Promissory note
      (Note 12)                                                           |  | 50,000  | 
| |                                                                                           |  | 489,122 | 

The fair value assigned to the
identifiable assets and liabilities was as follows:

| |                                                |  | $       |  
| | ---------------------------------------------- |  | ------- | -
| |                                                |  |         |  
| | Trade and other receivables                    |  | 2,063   |  
| | Prepaid expenses                               |  | 1,223   |  
| | Inventories                                    |  | 14,861  |  
| | Plant, equipment, vehicles, land and buildings |  | 106,400 |  
| | Mineral properties and leases                  |  | 377,507 |  
| | Deferred income tax asset                      |  | 8,944   |  
| | Trade and other payables                       |  | (12,356 | )
| | Decommissioning
      liability                |  | (9,520  | )
| |                                                |  | 489,122 |  

The contractual amounts of accounts
receivable purchased was $2,063.

During the year ended December 31,
2011, the Company paid $3.9 million to DMSL, a related party, with respect to
the working capital adjustment associated with the acquisition of the San Dimas
Mine.

On June 18, 2010, a company with which
Primero had a director in common, Alamos Gold Inc. (Alamos), alleged that, in
respect of Primeros acquisition of the San Dimas Mine, the director in common
breached a fiduciary duty owed to Alamos and that Primero participated in and
facilitated that breach. While the Company denied liability for the claim, it
reached a settlement with Alamos under which, in full settlement of the alleged
claim and without admitting liability, the Company agreed to pay Cdn$13.0
million to Alamos, payable as to Cdn$1.0 million in cash and Cdn$12.0 million in
post-consolidation common shares and warrants issued at the same price as the
subscription receipts (Note 14 (c)). Payment of the settlement amount was
conditional upon closing of the acquisition of San Dimas. On August 11, 2010,
the Company paid the cash and issued 2,000,000 common shares and 800,000 common
share purchase warrants to Alamos to settle the claim.

22

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

|   |        
|-- | -------
|5. | Revenue

Revenue is comprised of the following
sales:

| |                 |  | 2011    |  |  | 2010   | 
| | --------------- |  | ------- |  |  | ------ | 
| |                 |  | **$**   |  |  | $      | 
| |                 |  |         |  |  |        | 
| | Gold            |  | 120,957 |  |  | 52,018 | 
| | Silver (Note 4) |  | 35,585  |  |  | 8,260  | 
| |                 |  | 156,542 |  |  | 60,278 | 

|6. | General and administrative
  expenses
|-- | -------------------------------------

General and administrative expenses are
comprised the following:

| |                                                            |  | 2011   |  |  | 2010   | 
| | ---------------------------------------------------------- |  | ------ |  |  | ------ | 
| |                                                            |  | **$**  |  |  | **$**  | 
| |                                                            |  |        |  |  |        | 
| | Share-based payment (i)                                    |  | 6,258  |  |  | 6,731  | 
| | Salaries and wages                                         |  | 5,364  |  |  | 2,221  | 
| | Rent and office costs                                      |  | 1,218  |  |  | 1,030  | 
| | Legal, accounting, consulting, and other professional fees |  | 3,031  |  |  | 544    | 
| | Other general and administrative expenses                  |  | 3,001  |  |  | 455    | 
| |                                                            |  | 18,872 |  |  | 10,981 | 

| | (i) | An additional $1,815 of share-based compensation is
      included in operating expenses for the year ended December 31, 2011 (2010
      - $1,839).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|7. | Other income (expense)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On July 13, 2011, the Company announced that it had
      entered into a definitive arrangement agreement (the Arrangement
      Agreement) to combine its business with Northgate Minerals Corporation
      (Northgate). On August 29, 2011, the Company announced that the
      Arrangement Agreement had been terminated as Northgate had received a
      Superior Proposal (as defined in the Arrangement Agreement) from another
      company. As provided for in the Arrangement Agreement, a termination fee
      of Cdn$25 million was paid by Northgate to Primero. Transaction costs of
      $7.0 million were incurred by the Company with respect to the Arrangement
      Agreement during 2011. The net amount $18.3 million has been included in
      other income (expense) in the year ended December 31, 2011.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Included within other expenses for the year ended
      December 31, 2010 is $10.3 million of transaction costs related to the
      acquisition of the San Dimas Mine (Note 4). Other expenses in 2010 also
      included a $12.5 million expense relating to the legal settlement with
      Alamos (Note 4) .                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

23

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

|8. | Income taxes
|-- | ------------
|   |             
|   | (a)         

| |                                                                                   |  | 2011    |   |  | 2010    |  
| | --------------------------------------------------------------------------------- |  | ------- | - |  | ------- | -
| |                                                                                   |  | **$**   |   |  | $       |  
| |                                                                                   |  |         |   |  |         |  
| | Earnings (loss) before income taxes                                               |  | 58,238  |   |  | (20,424 | )
| |                                                                                   |  |         |   |  |         |  
| | Canadian federal and provincial income tax rate                                   |  | 26.50%  |   |  | 28.50%  |  
| |                                                                                   |  |         |   |  |         |  
| | Expected income tax (expense) recovery                                            |  | (15,433 | ) |  | 5,821   |  
| | (Increase) decrease attributable to:                                              |  |         |   |  |         |  
| | Effect of different foreign
      statutory rates on earnings of subsidiaries     |  | (1,357  | ) |  | 1,297   |  
| | Share-based payments                                                              |  | (1,930  | ) |  | (2,462  | )
| | Non-deductible / non-taxable
      income (expenditures)                          |  | 7,299   |   |  | (5,060  | )
| | Impact of foreign exchange                                                        |  | 14,034  |   |  | 836     |  
| | Recovery of 2010 taxes based on silver
      revenue at realized prices (Note 19) |  | 11,040  |   |  | -       |  
| | Withholding taxes on intercompany interest                                        |  | (4,008  | ) |  | (1,300  | )
| | Benefit of tax losses (not recognized)                                            |  | (54     | ) |  | (10,166 | )
| | Income tax
      recovery (expense)                                               |  | 9,591   |   |  | (11,034 | )
| |                                                                                   |  |         |   |  |         |  
| | Income tax expense is represented by:                                             |  |         |   |  |         |  
| | Current income tax recovery (expense)                                             |  | 1,673   |   |  | (10,175 | )
| | Deferred income
      tax recovery                                                |  | 7,918   |   |  | (859    | )
| | Net income tax recovery (expense)                                                 |  | 9,591   |   |  | (11,034 | )

Effective January 1, 2011, the Canadian Federal Corporate tax
rate decreased from 18% to 16.5%, and the provincial tax rate decreased from
10.5% to 10%. The overall deduction in rates has resulted in a decrease in the
Companys statutory rate from 28.5% to 26.5% .

There is no taxation related to the other comprehensive income
balance recorded by the Company.

24

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| | (b) | The significant components of the Companys deferred tax
      assets are as follows:
| | --- | -------------------------------------------------------------------------------------

| |                                                                |  | December 31, |   |  | December 31, |  
| | -------------------------------------------------------------- |  | ------------ | - |  | ------------ | -
| |                                                                |  | 2011         |   |  | 2010         |  
| |                                                                |  | **$**        |   |  | $            |  
| |                                                                |  |              |   |  |              |  
| | Non-capital losses and other future
      deductions (Note 19) |  | 14,508       |   |  | -            |  
| | Mineral property, plant and equipment                          |  | 369          |   |  | 8,039        |  
| | Decommissioning liability                                      |  | (1,855       | ) |  | (2,920       | )
| | Other                                                          |  | 2,759        |   |  | 1,436        |  
| | Deferred income tax asset                                      |  | 15,781       |   |  | 6,555        |  

The Company believes that it is
probable that the results of future operations will generate sufficient taxable
income to realize the above noted deferred income tax assets. Of the Companys
total deferred tax asset balance of $15.8 million, $10.7 million is expected to
be recovered within twelve months of the balance sheet date and the remainder
after twelve months of the balance sheet date. The Company has unused tax losses
of $50.9 million that are available indefinitely to carry forward against future
taxable income of the subsidiaries in which the losses arose. However, $1.6
million of these losses (expiring in 2030) relate to subsidiaries that have a
history of losses, and may not be used to offset taxes in other subsidiaries.
The remainder of the losses expire in 2017.

Deductible temporary differences and
unused tax losses for which no deferred tax assets have been recognized are
attributable to the following:

| |                      |  | December 31, |  |  | December 31, | 
| | -------------------- |  | ------------ |  |  | ------------ | 
| |                      |  | 2011         |  |  | 2010         | 
| |                      |  | **$**        |  |  | $            | 
| |                      |  |              |  |  |              | 
| | Non-capital losses   |  | 2,264        |  |  | 50,818       | 
| | Capital losses       |  | 3,219        |  |  | -            | 
| | Share issuance costs |  | 9,642        |  |  | 14,166       | 
| |                      |  | 15,125       |  |  | 64,984       | 

In October, 2011 the Companys Mexican
subsidiary filed an APA that, if successful, would result in paying income taxes
in Mexico based on realized rather than spot revenue. As described in Note 4,
upon the acquisition of the San Dimas mine, the Company assumed the obligation
to sell silver at below market prices according to a silver purchase agreement.
Silver sales under the silver purchase agreement realize approximately $4 per
ounce; however, the Companys provision for income taxes until filing the APA
was based on sales at spot market prices.

For the duration of the APA process,
the taxpayer can record its revenues and intercompany pricing under the terms
that the taxpayer considers reasonable (given that they are compliant with
applicable transfer pricing requirements). As such, the Companys Mexican
subsidiary has recorded revenues from sales of silver under the silver purchase
agreement (and taxes thereon)

25

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

at the contracted price of
approximately $4 since the date of the filing of the APA and in addition to this
has claimed a refund for the overpayment of taxes between the date of purchase
of the San Dimas Mine (August 6, 2010) and the date of the filing. The recovery
of taxes from August 6, 2010 to the date of filing has been accounted for in
accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors, and as such has been accounted for prospectively. The Company
has therefore recorded this recovery of income taxes in the fourth quarter 2011.
The impact on the income tax expense of the Company in 2011 of recording this
recovery is a decrease in the current tax expense of $25.3 million and a
decrease in the deferred tax expense of $11.1 million; there is no impact on the
2010 reported income tax expense of the Company as a result of the APA
filing.

No tax penalties are applied in respect
of the time period during which the APA process is taking place should the
Mexican tax authorities disagree with the restructuring plan (Note 19).

|9. | Income (loss) per share
(EPS)
|-- | -----------------------------

Basic income (loss) per share amounts
are calculated by dividing the net income (loss) for the year by the weighted
average number of common shares outstanding during the year.

| |                                                              |  | 2011       |  |  | 2010       |  
| | ------------------------------------------------------------ |  | ---------- |  |  | ---------- | -
| |                                                              |  |            |  |  |            |  
| |                                                              |  |            |  |  |            |  
| | Net income (loss) attributable to
      shareholders (basic) |  | 67,289     |  |  | (31,458    | )
| | Net income (loss) attributable to shareholders (diluted)     |  | 70,553     |  |  | (31,358    | )
| | Weighted average num ber of shares (basic)                   |  | 88,049,171 |  |  | 37,030,615 |  
| | Weighted average
      num ber of shares (diluted)           |  | 96,562,288 |  |  | 37,030,615 |  
| | Basic income per share ($s)                                  |  | 0.77       |  |  | (0.85      | )
| | Diluted income per share ($s)                                |  | 0.73       |  |  | (0.85      | )

The following is a reconciliation of
the basic and diluted net income (loss) attributable to shareholders:

| |                                                                |  | 2011   |  |  | 2010    |  
| | -------------------------------------------------------------- |  | ------ |  |  | ------- | -
| |                                                                |  |        |  |  |         |  
| |                                                                |  |        |  |  |         |  
| | Net income (loss) attributable to
      shareholders- basic    |  | 67,829 |  |  | (31,458 | )
| | Accretion on convertible debt                                  |  | 2,116  |  |  | -       |  
| | Interest on convertible debt                                   |  | 608    |  |  | -       |  
| | Net income (loss)
      attributable to shareholders - diluted |  | 70,553 |  |  | (31,458 | )

26

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

The following is a reconciliation of
the basic and diluted weighted average number of common shares:

| |                                                            |  | 2011       |  |  | 2010       | 
| | ---------------------------------------------------------- |  | ---------- |  |  | ---------- | 
| |                                                            |  |            |  |  |            | 
| |                                                            |  |            |  |  |            | 
| | Weighted average number of ordinary shares
      - basic   |  | 88,049,171 |  |  | 37,030,615 | 
| | Potentially dilutive options                               |  | 90,657     |  |  | -          | 
| | Potentially dilutive convertible debt                      |  | 8,422,460  |  |  | -          | 
| | Weighted average
      number of ordinary shares - diluted |  | 96,562,288 |  |  | 37,030,615 | 

For the year ended December 31, 2010,
all outstanding stock options and warrants were anti-dilutive. For the year
ended December 31, 2011, certain of the outstanding stock options and warrants,
as well as the conversion feature attached to the convertible note did have a
dilutive effect, which had a minor impact on basic income (loss) per share.

There have been no transactions
involving shares or potential shares between the reporting date and the date of
completion of these financial statements.

The Companys debt includes a
convertible note held by Goldcorp with a principal balance of $30 million. The
Note may be converted to shares of the Company in accordance with the terms
described in Note 12.

|10. | Inventories
|--- | -----------

| |                  |  | 2011  |  |  | 2010  |  |  | 2009 | 
| | ---------------- |  | ----- |  |  | ----- |  |  | ---- | 
| |                  |  | **$** |  |  | $     |  |  | $    | 
| |                  |  |       |  |  |       |  |  |      | 
| | Supplies         |  | 4,408 |  |  | 2,835 |  |  | -    | 
| | Finished goods   |  | 4,215 |  |  | 776   |  |  | -    | 
| | Work-in-progress |  | 840   |  |  | 1,263 |  |  | -    | 
| |                  |  | 9,463 |  |  | 4,874 |  |  | -    | 

The total amount of inventory expensed
during the year was $86.5 million (2010 - $35.7 million).

Included in operating expenses for the
year ended December 31, 2010 was an amount of $4,337 which represented the fair
value portion of inventory which was acquired from DMSL as part of the
acquisition of the San Dimas Mine (Note 4). This amount was the incremental
amount recorded upon acquisition above and beyond the Companys ongoing
accounting policy of recording inventory at the lower of cost and net realizable
value. All such inventory had been sold by December 31, 2010.

27

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

|11. | Mining interests
|--- | ----------------

Mining interests include mining and
exploration properties and related plant and equipment:

Mining
    
    
    Exploration and
    
    
    Plant,
    
    
    Construction
    
    
    Constructionproperties
    
    
    evaluation
    
    
    Land and
    
    
    equipment
    
    
    in
    
    
    Com puterand
      leases
    
    
    assets
    
    
    buildings
    
    
    and
      vehicles
    
    
    progress
    
    
    equipment
    
    
    Total$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $CostAt January 1, 2010
    
    -
    
    
    -
    
    
    -
    
    
    222
    
    
    -
    
    
    -
    
    
    222Acquired through business combinations
    
    377,507
    
    
    2,369
    
    
    46,599
    
    
    45,222
    
    
    11,790
    
    
    420
    
    
    483,907Additions
    
    3,329
    
    
    2,375
    
    
    -
    
    
    4,533
    
    
    171
    
    
    372
    
    
    10,780Reclassifications and Adjustments
    
    2,882
    
    
    -
    
    
    -
    
    
    
    
    
    (2,077
    )
    
    -
    
    
    805At December 31, 2010
    
    383,718
    
    
    4,744
    
    
    46,599
    
    
    49,977
    
    
    9,884
    
    
    792
    
    
    495,714Additions
    
    2,995
    
    
    10,766
    
    
    765
    
    
    4,517
    
    
    14,131
    
    
    291
    
    
    33,465Reclassifications andAdjustments
    
    31,470
    
    
    (15,510
    )
    
    3,198
    
    
    94
    
    
    (21,607
    )
    
    555
    
    
    (1,800
    )Assets written off
    
    (1,718
    )
    
    -
    
    
    -
    
    
    (1,172
    )
    
    -
    
    
    (1
    )
    
    (2,891
    )At December
      31,2011
    
    416,465
    
    
    -
    
    
    50,562
    
    
    53,416
    
    
    2,408
    
    
    1,637
    
    
    524,488Depreciation and depletionAt January 1, 2010
    
    -
    
    
    -
    
    
    -
    
    
    50
    
    
    -
    
    
    -
    
    
    50Depreciation and depletion charged for the period
    
    8,629
    
    
    -
    
    
    710
    
    
    1,897
    
    
    -
    
    
    68
    
    
    11,304At December 31, 2010
    
    8,629
    
    
    -
    
    
    710
    
    
    1,947
    
    
    -
    
    
    68
    
    
    11,354Depreciation and depletion charged for the
      period
    
    17,735
    
    
    -
    
    
    2,161
    
    
    6,656
    
    
    -
    
    
    354
    
    
    26,906Accumulated
      depreciation on assets written off
    
    -
    
    
    -
    
    
    -
    
    
    (195
    )
    
    -
    
    
    (1
    )
    
    (196
    )At
      December 31, 2011
    
    26,364
    
    
    -
    
    
    2,871
    
    
    8,408
    
    
    -
    
    
    421
    
    
    38,064Carrying amountAt
      January 1, 2010
    
    -
    
    
    -
    
    
    -
    
    
    172
    
    
    -
    
    
    -
    
    
    172At December 31,
      2010
    
    375,089
    
    
    4,744
    
    
    45,889
    
    
    48,030
    
    
    9,884
    
    
    724
    
    
    484,360At
      December 31, 2011
    
    390,101
    
    
    -
    
    
    47,691
    
    
    45,008
    
    
    2,408
    
    
    1,216
    
    
    486,424


For the duration of 2011, the Company
had a market capitalization which was less than the carrying value of the San
Dimas CGU. At December 31, 2011, the market capitalization of the Company was
$287 million and the net carrying value of the CGU was $396 million. Management
considers this an impairment indicator and as such, performed an impairment
analysis on the San Dimas CGU as at December 31, 2011. The impairment analysis
performed was a value in use model (a discounted cash flow analysis) using a
life of mine estimate of 24 years and a discount rate of 6.5% for reserves and
resources and 8.5% for exploration potential. Based on the inputs to the model,
there was no impairment to the San Dimas CGU at December 31, 2011. Management
believes that the net carrying value of the San Dimas CGU is supported

28

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

based on the estimates and judgements
included in the model (Note 2(c)). The most significant of the assumptions
incorporated into the model are i) the estimate of reserves, resources and
exploration potential, and ii) the inclusion of the benefit of a positive APA
ruling on the Companys tax position (Notes 2(c), 4, 8 and 19). Should any of
the assumptions in the value in use model be changed, there is a risk that the
San Dimas CGU would be impaired.

All property of the Company acquired as
part of the San Dimas Mine or since that point in time is pledged as security
for the Companys obligations under the silver purchase agreement, the
convertible note and promissory note entered into upon the acquisition of the
San Dimas Mine (Notes 4 and 12).

As at December 31, 2011, the Company
had entered into commitments to purchase plant and equipment totaling $0.7
million (2010 - $1.7 million).

Depreciation and depletion expense for
the year ended December 31, 2011 was $26.6 million (2010 - $9.9 million), of
which $0.3 million was included in the inventories balance at December 31, 2011
(2010 - $0.6 million). Borrowing costs of $2.6 million were capitalized during
2011 (2010 - $0.3 million) at a weighted average borrowing rate of 4.37% (2010 
4.37%) . Included within mining properties for the year ended December 31, 2011
are $1.7 million of additions to the decommissioning liability (2010 - $0.2
million).

|12. | Current and long-term debt
|--- | --------------------------

| | a)                           |  | December 31, |   |  | December 31, |   |  | December 31, | 
| | ---------------------------- |  | ------------ | - |  | ------------ | - |  | ------------ | 
| |                              |  | 2011         |   |  | 2010         |   |  | 2009         | 
| |                              |  | **$**        |   |  | $            |   |  | $            | 
| |                              |  |              |   |  |              |   |  |              | 
| | Convertible debt (i)         |  | 30,000       |   |  | 55,769       |   |  | -            | 
| | Promissory note (ii)         |  | 50,000       |   |  | 50,000       |   |  | -            | 
| | VAT loan (iii)               |  | -            |   |  | 70,000       |   |  | -            | 
| |                              |  | 80,000       |   |  | 175,769      |   |  | -            | 
| | Less:Current portion of debt |  | (40,000      | ) |  | (75,000      | ) |  | -            | 
| |                              |  | 40,000       |   |  | 100,769      |   |  | -            | 

On August 6, 2010, in connection with
the acquisition of the San Dimas Mine, the Company issued the following debt
instruments:

| | (i) | A convertible promissory note (the Note) in the
      principal amount of $60 million with an annual interest rate of 3%, to
      DMSL, which DMSL immediately assigned to Goldcorp. The Note may be repaid
      in cash by the Company at any time or converted, at any time up to the
      maturity date (being the Initial Maturity Date or the Second Maturity
      Date), by Goldcorp at a conversion price of Cdn$6.00 per share. In
      determining the number of common shares to be issued on conversion, per
      the Note, the principal amount to be translated will be converted into
      Canadian dollars by multiplying that amount by
1.05.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |       | On the first anniversary of the Note (Initial Maturity
      Date), the Note was repayable in cash or, at the option of Primero, in
      common shares at 90% of the volume weighted average trading price of the
      common shares for the five trading days ending immediately prior to the
      Initial Maturity Date (the Maturity Conversion Price). If on the Initial
      Maturity Date, Primero served notice to convert (Debtor Conversion
      Notice), Goldcorp had the right to extend the maturity Date until the
      second anniversary of the Note (the Second Maturity Date). On July 20,
      2011, Primero served notice to Goldcorp to convert the Note into common
      shares of the Company and on August 4, 2011, Goldcorp elected to extend
      the Maturity date of the Note until the Second Maturity Date, which gave
      the Company the right to (1) pay the principal amount in cash immediately
      or (2) convert the debt to shares on the Second Maturity Date at a price
      equal to the greater of a) the Maturity Conversion Price (which was
      Cdn$3.74) and b) 90% of the volume weighted average trading price of the
      common shares for the five trading days ending immediately prior to the
      Second Maturity Date.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       | On October 19, 2011, the Company used its cash resources
      to repay $30 million (or 50%) of the Note plus $1.1 million of accrued
      interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       | In accordance with IAS 39, Financial Instruments:
      Recognition and Measurement, the Note is considered to contain an
      embedded derivative relating to the conversion option which is set at a
      fixed exchange rate from US dollars to the Canadian-dollar denominated
      shares. The carrying amount of the debt, on initial recognition, was
      calculated as the difference between the proceeds of the convertible debt
      as a whole and the fair value of the embedded derivative. Subsequent to
      initial recognition, the derivative component was re- measured at fair
      value at each reporting date while the debt component was accreted to the
      face value of the Note using the effective interest rate through periodic
      charges to finance expense over the initial one-year term of the debt. As
      the initial one-year term was reached on August 6, 2011, the derivative
      component had $nil value at December 31, 2011 and will continue to have
      $nil value through to the final maturity date of the Note. Accretion
      relating to the Note for the year ended December 31, 2011 was $4.2 million
      (2010 - $2.7 million). At December 31, 2011, the Note was fully
      accreted.                              
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (ii)  | A promissory note in the principal amount of $50 million
      with an annual interest rate of 6% to DMSL, which DMSL subsequently
      assigned to a wholly-owned Luxembourg subsidiary of Goldcorp. The
      promissory note is repayable in four annual installments of $5 million,
      starting on December 31, 2011, with the balance of principal due on
      December 31, 2015. On January 3, 2012, the Company repaid the first $5
      million annual installment plus accrued interest of $4.4 million. In
      addition to the annual installments, the Company is required to pay 50% of
      annual excess free cash flow (as defined in the promissory note) against
      the principal balance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (iii) | A non-revolving term credit facility of $70 million from
      the Bank of Nova Scotia to partly pay $80.6 million of VAT due to the
      Mexican government on the acquisition of the San Dimas Mine. VAT is a
      refundable tax. The credit facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

30

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

bore interest at Canadas base rate
plus 0.75% or LIBOR plus 1.75%, depending upon the Companys choice of type of
loan availment. Goldcorp guaranteed repayment of the credit facility.

On July 4, 2011, the Company received
a refund of the $80.6 million of VAT. Interest on the refund and the
strengthening of the Mexican peso against the US dollar since the August 2010
acquisition date increased the refund to $87.2 million. Concurrently with the
receipt of the VAT from the Mexican government, the Company repaid all
outstanding principal and interest on the $70 million non-revolving term credit
facility with the Bank of Nova Scotia.

| | (b) | Finance expense
| | --- | ---------------

Finance expense was comprised of the
following:

| |                                            |  | 2011   |   |  | 2010  |  
| | ------------------------------------------ |  | ------ | - |  | ----- | -
| |                                            |  | **$**  |   |  | $     |  
| |                                            |  |        |   |  |       |  
| | Interest and accretion on convertible note |  | 5,887  |   |  | 3,398 |  
| | Interest on promissory note                |  | 3,159  |   |  | 1,208 |  
| | Interest and fees on VAT loan              |  | 876    |   |  | 803   |  
| | Capitalization of borrowing costs          |  | (2,595 | ) |  | (284  | )
| | Accretion on decommissioning liability     |  | 449    |   |  | 67    |  
| | Other                                      |  | 34     |   |  | 144   |  
| |                                            |  | 7,810  |   |  | 5,336 |  

|13. | Decommissioning liability                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The decommissioning liability consists of reclamation and
      closure costs for the San Dimas Mine. The undiscounted cash flow amount of
      the obligation was $19,362 at the reporting date (2010 - $17,064) and the
      present value of the obligation was estimated at $9,373 (2010 - $9,775),
      calculated using a discount rate of 7.75% and reflecting payments at the
      end of the mine life, which for the purpose of this calculation,
      management has assumed is in 17 years. The discount rate of 7.75% used by
      the Company in 2011 is higher than the discount rate used in 2010 of 5%
      (based on prevailing risk-free pre-tax rates in Mexico for periods of time
      which coincide with the period over which the decommissioning costs are
      discounted), which has resulted in a decrease in the decommissioning
      liability and associated asset in 2011 of $2,565.

31

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |                                                                                |  | $      |  
| | ------------------------------------------------------------------------------ |  | ------ | -
| |                                                                                |  |        |  
| | Decomissioning liability - January 1, 2010                                     |  | -      |  
| | Decomissioning liability acquired through business
      combinations (Note 4) |  | 9,520  |  
| | Additions to liability                                                         |  | 188    |  
| | Accretion expense
      net of reclamation expenditures                        |  | 67     |  
| | Decomissioning liability - December 31 ,2010                                   |  | 9,775  |  
| | Reduction in decomissioning liability due to discount rate
      change        |  | (2,565 | )
| | Accretion expense                                                              |  | 449    |  
| | Additions to
      decomissioning liability, net of reclamation expenditures   |  | 1,714  |  
| | Decomissioning liability - December 31, 2011                                   |  | 9,373  |  

|14. | Share capital
|--- | -------------
|    |              
|    | (a)          
|    |              
|    | (b)          

| |                                     |  | 2011       |  |  | 2010       | 
| | ----------------------------------- |  | ---------- |  |  | ---------- | 
| | Common shares issued and fully paid |  |            |  |  |            | 
| |                                     |  |            |  |  |            | 
| | At January 1                        |  | 87,739,005 |  |  | 2,942,414  | 
| | Issued during period (Note 14 (c))  |  | 520,826    |  |  | 84,796,591 | 
| | At December 31                      |  | 88,259,831 |  |  | 87,739,005 | 

| | (c) | Common shares issuance
| | --- | ----------------------
| |     |                       
| |     | (i)                   

32

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | of 441,767 Subscription Receipts. The Subscription
      Receipts were converted to post-consolidation shares and common share
      purchase warrants on August 6, 2010.                                                                                                                                                                                                                
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | The brokers received 489,210 broker warrants in
      connection with the offering. Each broker warrant is exercisable to
      purchase one common share at a price of Cdn$6.00 per share until February
      6, 2012 (Note 21). The fair value of the brokers warrants was allocated
      to share issue costs.                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                          
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | On August 6, 2010, the Company issued 31,151,200 common
      shares to DMSL as part of the consideration for the acquisition of the San
      Dimas Mine (Note 4). Subsequently, DMSL transferred all of these common
      shares to Goldcorp.                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                          
| |     | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | On August 11, 2010, the Company issued 2,000,000 common
      shares and 800,000 common share purchase warrants to Alamos Gold Inc.
      (Alamos) to settle a claim, which Alamos had filed against the Company
      (Note 4). Each whole common share purchase warrant is exercisable to
      purchase one common share at a price of Cdn$8.00 per share until July 20,
      2015.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                          
| |     | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | On August 26, 2010, the Company issued 1,209,373 common
      shares as consideration for advisory services relating to the acquisition
      of the San Dimas Mine (determined as the amount owing for advisory
      services divided by the share price prevailing on the date of the
      invoice).                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                          
| |     | (v)                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | During the year ended December 31, 2010, the Company
      issued 416,018 common shares upon the exercise of common share purchase
      warrants and 20,000 common shares upon the exercise of stock
    options.                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                          
| |     | (vi)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | During the year ended December 31 2011, the Company
      issued 492,076 common shares upon the exercise of common share purchase
      warrants and 28,750 common shares upon the exercise of stock
    options.                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                          
| | (d) | Stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                          
| |     | On May 29, 2010, the Board of Directors approved
      amendments to the stock option plan in order to make the plan consistent
      with the share incentive policies of the Toronto Stock Exchange (TSX).
      These amendments, which are reflected in an amended and restated option
      plan (the Rolling Plan), became effective on August 19, 2010, when the
      Companys common shares commenced to be listed on the TSX.                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Under the Rolling 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). The majority of options issued
      typically vest over two years; one third upon the date of grant, one
      third

33

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

a year from the grant date, and one
third two years from the grant date, however, this is at the discretion of the
Board of Directors upon grant. All options are equity-settled and have a maximum
term of between five and ten years when granted. Vested options granted under
the Rolling Plan will generally expire 90 days after the date that the optionee
ceases to be employed by, provide services to, or be a director or officer of,
the Company, and any unvested options will terminate immediately.

As at December 31, 2011, the following
stock options were outstanding and exercisable:

Outstanding
    
    
    ExercisableNumber
    
    
    
    
    
    Remaining
    
    
    Number
    
    
    
    
    
    Rem ainingof options
    
    
    Exercise
    
    
    contractual
    
    
    of options
    
    
    Exercise
    
    
    contractualExpiry date
    
    outstanding
    
    
    price
    
    
    life
      (years)
    
    
    exercisable
    
    
    price
    
    
    life
      (years)Cdn$
    
    
    
    
    
    
    
    
    Cdn$July 29, 2013
    
    160,000
    
    
    4.20
    
    
    1.6
    
    
    160,000
    
    
    4.20
    
    
    1.6July 9, 2014
    
    10,000
    
    
    2.70
    
    
    2.4
    
    
    10,000
    
    
    2.70
    
    
    2.4July 9, 2019
    
    275,000
    
    
    2.70
    
    
    7.4
    
    
    275,000
    
    
    2.70
    
    
    7.4August 6, 2015
    
    4,659,490
    
    
    6.00
    
    
    3.6
    
    
    3,453,998
    
    
    6.00
    
    
    3.6August 25, 2015
    
    2,455,000
    
    
    5.26
    
    
    3.7
    
    
    1,636,667
    
    
    5.26
    
    
    3.7Novem ber 12, 2015
    
    540,000
    
    
    6.43
    
    
    3.9
    
    
    360,000
    
    
    6.43
    
    
    3.9March 7, 2016
    
    175,000
    
    
    3.99
    
    
    4.2
    
    
    -
    
    
    -
    
    
    -November 8, 2016
    
    300,000
    
    
    3.47
    
    
    4.9
    
    
    -
    
    
    -
    
    
    -8,574,490
    
    
    5.54
    
    
    3.8
    
    
    5,895,665
    
    
    5.61
    
    
    3.8


The following is a continuity schedule
of the options outstanding for the period:

| |                                        |  |           |   |  | Weighted | 
| | -------------------------------------- |  | --------- | - |  | -------- | 
| |                                        |  |           |   |  | average  | 
| |                                        |  | Number of |   |  | exercise | 
| |                                        |  | options   |   |  | price    | 
| |                                        |  |           |   |  | Cdn$     | 
| |                                        |  |           |   |  |          | 
| | Outstanding at January 1, 2010         |  | 218,750   |   |  | 3.80     | 
| | Granted                                |  | 7,959,490 |   |  | 5.66     | 
| | Exercised                              |  | (20,000   | ) |  | 3.45     | 
| | Outstanding at December 31, 2010       |  | 8,158,240 |   |  | 5.64     | 
| | Exercised                              |  | (28,750   | ) |  | 2.74     | 
| | Granted                                |  | 475,000   |   |  | 3.66     | 
| | Cancelled                              |  | (30,000   | ) |  | 5.26     | 
| | Outstanding at
      December 31, 2011 |  | 8,574,490 |   |  | 5.54     | 

The weighted average share price on
the date of exercise of options exercised during the period was Cdn$3.23.

The fair value of the options granted
in 2011 and 2010 was calculated using the Black-Scholes option pricing model.
For all grants, the assumed dividend yield and forfeiture rate were nil and 5%
respectively. Other conditions and assumptions were as follows:

34

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |                   |  |           |  |  | Average         |  |  |          |  |  |               |  |  |            |  |  | W eighted            | 
| | ----------------- |  | --------- |  |  | --------------- |  |  | -------- |  |  | ------------- |  |  | ---------- |  |  | -------------------- | 
| |                   |  |           |  |  | expected        |  |  |          |  |  |               |  |  |            |  |  | average              | 
| |                   |  | Number of |  |  | life of options |  |  | Exercise |  |  | Risk free     |  |  | Volatility |  |  | Black-Scholes        | 
| | Issue date        |  | options   |  |  | (years)         |  |  | price    |  |  | interest rate |  |  | (i)        |  |  | value
      assigned | 
| |                   |  |           |  |  |                 |  |  | Cdn$     |  |  | %             |  |  | %          |  |  | Cdn$                 | 
| | November 8, 2011  |  | 300,000   |  |  | 3.5             |  |  | 3.47     |  |  | 1.19          |  |  | 47         |  |  | 1.22                 | 
| | March 7, 2011     |  | 175,000   |  |  | 3.5             |  |  | 3.99     |  |  | 2.34          |  |  | 48         |  |  | 1.39                 | 
| | November 12, 2010 |  | 540,000   |  |  | 3               |  |  | 6.43     |  |  | 1.75          |  |  | 49         |  |  | 1.91                 | 
| | August 25, 2010   |  | 2,485,000 |  |  | 3               |  |  | 5.26     |  |  | 1.53          |  |  | 56         |  |  | 2.03                 | 
| | August 6, 2010    |  | 4,659,490 |  |  | 3               |  |  | 6.00     |  |  | 1.65          |  |  | 57         |  |  | 1.80                 | 
| | June 28, 2010     |  | 275,000   |  |  | 6               |  |  | 2.70     |  |  | 2.55          |  |  | 75         |  |  | 5.78                 | 

| | (i) | Volatility was determined based upon the average historic
      volatility of a number of comparable companies, calculated over the same
      period as the expected life of the option.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Warrants                                                                              
| | --- | --------------------------------------------------------------------------------------
| |     |                                                                                       
| |     | As at December 31, 2011, the following share purchase
      warrants were outstanding:

ExerciseAmount Note
    
    price
    
    
    Expiry dateCdn$476,980 (i)
    
    6.00
    
    
    February 6, 201220,800,000
    
    8.00
    
    
    July
      20, 201521,276,980
    
    7.96


Note (i) Brokers warrants (Note
21).

The following is a continuity schedule
of the warrants outstanding for the period:

| |                                                     |  |            |   |  | W eighted | 
| | --------------------------------------------------- |  | ---------- | - |  | --------- | 
| |                                                     |  |            |   |  | average   | 
| |                                                     |  | Number of  |   |  | exercise  | 
| |                                                     |  | warrants   |   |  | price     | 
| |                                                     |  |            |   |  | Cdn$      | 
| |                                                     |  |            |   |  |           | 
| | Outstanding and exercisable at January
      1,2010 |  | 902,500    |   |  | 1.94      | 
| | Granted                                             |  | 21,289,210 |   |  | 7.95      | 
| | Exercised                                           |  | (416,018   | ) |  | 2.09      | 
| | Outstanding and exercisable at December 31, 2010    |  | 21,775,692 |   |  | 7.82      | 
| | Exercised                                           |  | (492,076   | ) |  | 1.92      | 
| | Expired                                             |  | (6,636     | ) |  | 2.00      | 
| | Outstanding and exercisable at December 31, 2011    |  | 21,276,980 |   |  | 7.96      | 

Where warrants were issued as part of
a unit or subscription receipt comprised of common shares and warrants, the
value assigned to the warrants was based on their

35

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

relative fair value (as compared to
the shares issued), determined using the Black-Scholes pricing model.

For the purpose of the Black-Scholes
option pricing model for the warrants issued in 2010, the assumed dividend yield
and forfeiture rate were nil and 0% respectively. Other conditions and
assumptions were as follows:

Num ber of
    
    
    
    
    
    Exercise
    
    
    Risk free
    
    
    Volatility
    
    
    Black-ScholesIssue date
    
    warrants
    
    
    Term
      (years)
    
    
    price
    
    
    interest rate
    
    
    (i)
    
    
    value
      assignedCdn$
    
    
    %
    
    
    %
    
    
    Cdn$August 11, 2010
    
    800,000
    
    
    5.0
    
    
    8.00
    
    
    2.0
    
    
    54
    
    
    1.93August 6, 2010 (ii)
    
    489,210
    
    
    1.5
    
    
    6.00
    
    
    1.4
    
    
    49
    
    
    1.02July 20, 2010
    
    20,000,000
    
    
    5.0
    
    
    8.00
    
    
    2.3
    
    
    54
    
    
    1.86


| | (i)  | Volatility was determined based upon the average historic
      volatility of a number of comparable companies, calculated over the same
      period as the expected life of the warrant.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                           
| | (ii) | Warrants issued to brokers in 2010 with fair value of
      $494.                                                                                                                         

| | (f) | Phantom share unit plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | On May 29, 2010, the Board of Directors approved the
      establishment of the Companys Phantom Share Unit Plan (PSUP); this is a
      cash-settled plan and the exercise price of all PSU units (units) is
      $nil. The amount to be paid out in respect of units which vest under the
      plan is 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. The following units were issued and outstanding as at
      December 31, 2011:

Num ber ofunitsDate of issue
    
    outstanding
    
    
    Vesting date
    
    
    Expiry dateAugust 6, 2010
    
    1,528,076
    
    
    August 6,2013
    
    
    Decem ber 31,2013February 27, 2011
    
    95,666
    
    
    February 27,2012
    
    
    Decem ber 31,2012February 27, 2011
    
    95,667
    
    
    February 27,2013
    
    
    Decem ber 31,2013February 27, 2011
    
    95,667
    
    
    February 27,2014
    
    
    Decem ber 31,2014May 19, 2011
    
    39,386
    
    
    M ay 19,2012
    
    
    Decem ber 31,2012May 19, 2011
    
    39,386
    
    
    M ay 19,2013
    
    
    Decem ber 31,2013May 19, 2011
    
    39,387
    
    
    M ay 19,2014
    
    
    Decem ber 31,2014November 8, 2011
    
    33,333
    
    
    Novem ber 8,2012
    
    
    Decem ber 31,2012November 8, 2011
    
    33,333
    
    
    Novem ber 8,2013
    
    
    Decem ber 31,2013November 8, 2011
    
    33,334
    
    
    Novem
      ber 8,2014
    
    
    Decem
      ber 31,2014Total
    
    2,033,235


All of these units have been measured
at the reporting date using their fair values. The total amount of expense
recognized in the statement of operations during 2011 in

36

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

relation to the PSUP was $1,848 ( 2010
- $1,155). None of these cash-settled units was vested at December 31, 2011, but
all remain outstanding.

The fair value of the units granted in
2011 and 2010 as at December 31, 2011 was calculated using the Black-Scholes
option pricing model with an assumed dividend yield and forfeiture rate of nil
and 0% respectively. Other conditions and assumptions were as follows:

Number of
    
    
    
    
    
    Exercise
    
    
    Risk free
    
    
    Volatility
    
    
    Black-ScholesIssue date
    
    units
    
    
    Term
      (years)
    
    
    price
    
    
    interest rate
    
    
    (i)
    
    
    value
      assignedCdn$
    
    
    %
    
    
    %
    
    
    Cdn$August 6, 2010
    
    1,528,076
    
    
    1.6
    
    
    0.00
    
    
    0.95
    
    
    47
    
    
    3.25February 27, 2011
    
    287,000
    
    
    1.2
    
    
    0.00
    
    
    0.95
    
    
    46
    
    
    3.25May 19, 2011
    
    118,159
    
    
    1.4
    
    
    0.00
    
    
    0.95
    
    
    48
    
    
    3.25November 8, 2011
    
    100,000
    
    
    1.9
    
    
    0.00
    
    
    0.95
    
    
    47
    
    
    3.25


| | (i) | Volatility was determined based upon the average historic
      volatility of a number of comparable companies, calculated over the same
      period as the expected life of the
unit.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|15. | Supplementary cash flow information                                  
|--- | ---------------------------------------------------------------------
|    |                                                                      
|    | Net changes in non-cash working capital comprise the
      following:

2011
    
    
    2010**$**
    
    
    $Trade and other receivables
    
    24,227
    
    
    (9,516
    )Taxes receivable
    
    64,774
    
    
    (85,743
    )Prepaid expenses
    
    (405
    )
    
    (3,908
    )Inventories
    
    (4,431
    )
    
    6,490Trade and other payables
    
    (1,390
    )
    
    8,748Taxes payable
    
    (7,801
    )
    
    10,66774,974
    
    
    (73,262
    )


37

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

|16. | Capital management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | There have been no significant changes in the Companys
      objectives, policies and processes for managing its capital, including
      items the Company regards as capital, during the year ended December 31,
      2011. The Company manages its common shares, stock options, warrants and
      debt as capital. The Companys objectives in managing capital are to
      safeguard its ability to continue as a going concern in order to provide
      returns for shareholders and benefits for other stakeholders. To meet this
      objective, the Company will ensure it has sufficient cash resources to
      pursue the exploration and development of its mining properties, to fund
      potential acquisitions and future production in the San Dimas mine, and to
      pay the contingent liability relating to the APA if unsuccessful (Note
      19).
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | To support these objectives the Company manages its
      capital structure and makes adjustments to it in light of changes in
      economic conditions and risk characteristics of its underlying assets. To
      maintain or adjust its capital structure, the Company may attempt to issue
      shares, issue debt, acquire or dispose of assets or adjust the amount of
      cash held. The Company does not currently pay out dividends.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Companys investment policy is to invest its cash in
      highly liquid short-term interest-bearing investments with maturities 90
      days or less from the original date of acquisition, selected with regards
      to the expected timing of expenditures from continuing operations. The
      Company is subject to a number of externally imposed capital requirements
      relating to its debt (Note 12).The requirements are both financial and
      operational in nature; the Company has complied with all such requirements
      during the period.                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Pursuant to the terms of the promissory note and the
      convertible debt (Note 4), the Company is required to maintain the
      following financial covenants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

- Tangible net worth as at the end of each fiscal
  quarter of at least $400 million, and
- Commencing on the quarter ended September 30,
  2011, free cash flow of at least $10 million, calculated on a rolling four
  fiscal quarter basis.

|    | Tangible net worth means equity less intangible assets.
      Free cash flow means cash flow from operating activities as reported in
      the consolidated statement of cash flows, less the aggregate of capital
      expenditures at the San Dimas Mine, principal and interest on the
      promissory note and convertible debt and up to $5 million per year on
      account of acquisition opportunities.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                    
|17. | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Companys financial instruments at December 31, 2011
      and 2010 consist of cash, trade and other receivables, the derivative
      asset, trade and other payables, the convertible note, the promissory
      note, other long-term liabilities, the VAT loan and derivative
      liability.                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | At December 31, 2011, the carrying amounts of cash, trade
      and other receivables, and trade and other payables are considered to be
      reasonable approximation of their fair values due to their short-term
      nature.                                                                                                                                                                                 

38

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

The fair value of the convertible note
liability was determined on the date of issue using a discounted future
cash-flow analysis. The fair value of the promissory note upon initial
recognition was considered to be its face value. The fair value of the phantom
share plan liability was measured at the reporting date using the Black Scholes
pricing model. The derivative asset is marked-to market each period.

Fair value measurements of financial
assets and liabilities recognized in the balance sheet

IFRS requires that financial
instruments are assigned to a fair value hierarchy that reflects the
significance of inputs used in making fair value measurements as follows:

- Level 1 - quoted (unadjusted) 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.

At December 31, 2011, there were no
financial assets or liabilities measured and recognized in the balance sheet at
fair value that would be categorized as Level 2 or 3 in the fair value hierarchy
above. There have been no transfers between fair value levels during the
reporting period.

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, 2011 or 2010, other than those discussed below.

| | (i) | Derivative contracts on silver                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | On March 18, 2011, the Company entered into a series of
      monthly call option contracts to purchase 1,204,000 ounces of silver at
      $39 per ounce for a total cost of $2.2 million. These contracts were
      designed to mitigate the adverse tax consequences of the silver purchase
      agreement while at the same time exposing the Company to gains from a
      potential rise in silver prices. The contracts covered approximately
      two-thirds of the monthly silver production sold to Silver Wheaton Caymans
      over the period April 1, 2011 to September 30, 2011. Since acquisition,
      contracts to purchase 774,000 ounces of silver were sold, resulting in a
      gain of $0.6 million for the year ended December 31, 2011, and contracts
      to purchase 430,000 ounces expired, resulting in a realized loss of $1.0
      million for the year ended December 31, 2011. All contracts under the
      March 18, 2011 purchase had expired by December 31,
2011.

39

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |      | On September 15, 2011, the Company entered into another
      series of monthly call option contracts to purchase 1,489,400 ounces of
      silver at $49 per ounce for a total cost of $3.7 million. These contracts
      were designed to cover approximately 30% of the monthly silver production
      sold to Silver Wheaton Caymans over the period September 27, 2011 to
      September 26, 2012. These options were intended to offset the incremental
      income tax that would be payable by the Company if spot prices exceed the
      strike price. The fair value of these contracts (which are accounted for
      as a derivative asset) was $0.2 million at December 31, 2011, based on
      current and available market information. A realized loss on expired
      contracts of $0.4 million has been recognized by the Company in the year
      ended December 31, 2011. An unrealized marked-to-market loss of $3.2
      million has been recognized on the remaining contracts for the year ended
      December 31, 2011.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (ii) | Convertible note and promissory note                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |      | At December 31, 2011, the fair value of the conversion
      feature of the convertible note was $nil. This resulted in an unrealized
      gain on this non-hedge derivative of $2.6 million during 2011 (2010 - $4.3
      million gain).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |      | The fair value of the convertible note liability was
      determined using a statistical model, which contained quoted prices and
      market-corroborated inputs. The fair value of the promissory note upon
      initial recognition was considered to be its face
value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Financial instrument risk
exposure

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. To
      mitigate exposure to credit risk on financial assets, the Company limits
      the concentration of credit risk, 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 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, 2011 is considered to be
  negligible.                                                                                                                    

40

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

The Companys maximum exposure to
credit risk at December 31, 2011 and 2010 is as follows:

| |                             |  | 2011   |  |  | 2010   | 
| | --------------------------- |  | ------ |  |  | ------ | 
| |                             |  | **$**  |  |  | $      | 
| |                             |  |        |  |  |        | 
| | Cash                        |  | 80,761 |  |  | 58,298 | 
| | Trade and other receivables |  | 5,526  |  |  | 11,738 | 
| | Taxes receivable            |  | 20,969 |  |  | 85,743 | 

| | (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 has developed a planning, budgeting and forecasting
      process to help determine the funds required to support its normal
      operating requirements on an ongoing basis and its expansionary
    plans.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | In the normal course of business, the Company enters into
      contracts and performs business activities that give rise to commitments
      for future minimum payments. The following table summarizes the
      contractual maturities of the Companys financial liabilities and
      operating and capital commitments at December 31,
2011:                                                                                              

December 31December 31, 2011
    
    
    2010Within
    
    
    
    
    
    Over1 year
    
    
    2-5
      years
    
    
    5
      years
    
    
    Total
    
    
    Total$
    
    
    $
    
    
    $
    
    
    **$**
    
    
    $Trade and other payables
    
    20,553
    
    
    -
    
    
    -
    
    
    20,553
    
    
    24,474Taxes payable
    
    4,213
    
    
    
    
    
    
    
    
    4,213
    
    
    10,667Convertible debt and interest
    
    31,846
    
    
    -
    
    
    -
    
    
    31,846
    
    
    63,600Promissory note and interest
    
    17,424
    
    
    46,476
    
    
    -
    
    
    63,900
    
    
    63,208VAT loan
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    71,540Minimum rental and operating lease payments
    
    512
    
    
    603
    
    
    -
    
    
    1,115
    
    
    2,661Reclamation and closure cost obligations
    
    -
    
    
    -
    
    
    19,362
    
    
    19,362
    
    
    17,064Commitment to
      purchase plant and equipment
    
    694
    
    
    -
    
    
    -
    
    
    - 694
    
    
    1,73375,242
    
    
    47,079
    
    
    19,362
    
    
    141,683
    
    
    254,947


The Company expects to discharge its
commitments as they come due from its existing cash balances, cash flow from
operations and collection of receivables.

The total operating lease expense
during the year ended December 31, 2011 was $1.5 million (2010 - $0.1
million).

41

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| | (c) | Market risk
| | --- | -----------
| |     |            
| |     | (i)        
| |     |            
| |     |            
| |     |            
| |     |            
| |     |            
| |     |            
| |     |            
| |     | (ii)       
| |     |            
| |     |            

42

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |  |       |           
| |  | ----- | ----------
| |  | (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 metal 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. This risk includes the fixed price
contracted sales of silver and associated taxation. As discussed in Note 17 (i),
during 2011, the Company entered into two sets of silver call options to
mitigate the adverse tax consequences of increases in the price of silver.

The table below summarizes the impact
on profit after 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.

| |               | Increase (decrease) in income
      after |  
| | ------------- | ----------------------------------------- | -
| |               | taxes for the year ended                  |  
| |               | December 31, 2011                         |  
| |               | $000s                                     |  
| | Gold prices   |                                           |  
| | 10% increase  | 8,467                                     |  
| | 10% decrease  | (8,467                                    | )
| |               |                                           |  
| | Silver prices |                                           |  
| | 10% increase  | 1,317                                     |  
| | 10% decrease  | (1,317                                    | )

|18. | Related party transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company has a convertible note and a promissory note
      outstanding to Goldcorp and a wholly-owned subsidiary of Goldcorp,
      respectively. Goldcorp owns approximately 36% of the Companys common
      shares. Interest accrues on the promissory and convertible notes and is
      recorded within trade and other payables; principal of $30 million and
      interest of $1.1 million were paid in relation to the convertible note
      during the year (Note 12 (a)(i)). A payment of $5 million plus accrued
      interest of $4.4 million was paid under the terms of the Promissory note
      on January 3, 2012 (Notes 12 (a)(ii) and 21).
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | As discussed in Note 4, during the year, an amount of
      $3.9 million was paid to DMSL with respect to the working capital
      adjustment associated with the acquisition of the San Dimas
Mine.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | During the year ended December 31, 2011, $3.8 million
      (2010 - $1.5 million) was paid to DMSL for the purchase of equipment,
      equipment leasing fees and services received under a transition services
      agreement between the Company and DMSL. These amounts are considered to be
      at                                                                                                                                                                                                                                                                                                                                                           

43

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

fair value. As at December 31, 2011,
the Company had an amount payable of $2.9 million outstanding to DMSL (2010 -
$3.9 million)

Compensation of key management
personnel of the Company

Aggregate compensation recognized in
respect of key management personnel of the Company including directors is as
follows:

| |                              |  | 2011  |  |  | 2010  | 
| | ---------------------------- |  | ----- |  |  | ----- | 
| |                              |  | **$** |  |  | $     | 
| |                              |  |       |  |  |       | 
| | Short-term employee benefits |  | 2,906 |  |  | 1,426 | 
| | Share-based
      payment    |  | 5,338 |  |  | 6,371 | 
| |                              |  | 8,244 |  |  | 7,797 | 

The Company does not offer any
post-employment benefits with respect to key management personnel.

|19. | Commitments and contingencies
|--- | -----------------------------
|    |                              
|    | (a)                          
|    |                              
|    |                              
|    |                              
|    |                              
|    |                              
|    |                              

44

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| |     | Should the Company be unsuccessful in its APA application
      , then it will need to pay to the Mexican government the amount of tax
      which the government deems to be owing in respect of taxation on silver
      sales under the silver purchase agreement. The Company considers this to
      be a contingent liability, the outcome of which will not be known until
      the tax authority issue its final opinion. The maximum contingent
      liability in respect of such an adverse ruling as at December 31, 2011 is
      $28.6 million; however at December 31, 2011, the Companys Mexican
      subsidiary had a taxes receivable balance of $19.6 million and as such the
      cash that would have to be paid to satisfy the contingent liability at
      December 31, 2011 is $9.0 million. Since the Company intends to continue
      to record taxes in Mexico based on realized prices, the contingent
      liability will grow during the APA process.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (b) | 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, an Ejido
      controls surface rights over communal property through a Board of
      Directors which is headed by a president. An Ejido may also allow
      individual members of the Ejido to obtain title to specific parcels of
      land and thus the right to rent or sell the land. Four of the properties
      included in the San Dimas mine are subject to legal proceedings commenced
      by local Ejidos. None of the proceedings name the Company as a defendant;
      in all cases, the defendants are previous owners of the properties, either
      deceased individuals who, according to certain public deeds, owned the
      properties more than 80 years ago or corporate entities that are no longer
      in existence. In addition, three proceedings name the Tayoltita Property
      Public Registry as co-defendant. In all four proceedings, the local Ejido
      is seeking title to the property. In one case, which was commenced before
      the Companys acquisition of the mine and was brought without the
      knowledge of DMSL, the court initially ruled in favour of the Ejido.
      Proceedings will be initiated in an attempt to annul this order on the
      basis that the initial proceeding was brought without the knowledge of
      DMSL and other legal arguments. With respect to the other properties,
      since Primero is not a party to the proceeding, the Company has been
      advised to allow the proceeding to conclude and, in the event that the
      decision is in favour of the Ejido, to seek an annulment on the basis that
      it is in possession of the property and is the legitimate owner. If these
      legal proceedings (or any subsequent challenges to them) are not decided
      in favour of the Company, then the San Dimas mine could face higher
      operating costs associated with agreed or mandated payments that would be
      payable to the local Ejidos in respect of use of the properties. No
      provision has been made in in the consolidated financial statements
      respect of these proceedings.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (c) | 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. In the opinion of
      management, any potential charges not yet accrued will not have a material
      effect on the consolidated financial statements of the
  Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|20. | Transition to IFRS                                                                                                                                                                                         
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                            
|    | For all periods up to and including the year ended 31
      December 2010, the Company prepared its financial statements in accordance
      with Previous GAAP. These financial statements, for the
  year

45

---

|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

ended December 31, 2011, are the first
annual financial statements the Company has prepared in accordance with
IFRS.

Accordingly, the Company has prepared
financial statements which comply with IFRS applicable for the year ended
December 31, 2011, as described in the accounting policies listed in Note 2. In
preparing these financial statements, the Companys opening Balance Sheet was
prepared as at January 1, 2010, the Companys date of transition to IFRS. This
note explains the principal adjustments made by the Company in restating its
Previous GAAP Balance Sheet as at January 1, 2010 and December 31, 2010, and its
previously published Previous GAAP Statement of operations and comprehensive
loss and Statement of cash flows for the year ended December 31, 2010.

Exemptions applied

IFRS 1 First-Time Adoption of
International Financial Reporting Standardsallows first time adopters
certain exemptions from the retrospective application of IFRSs.

The Company has applied the following
exemptions:

- IFRS 2 Share-based paymentto stock options
  of the Company granted after November 7, 2002, which had vested prior to the
  date of transition date to IFRS (January 1, 2010).
- The Company has elected not to apply IFRS 3
  (revised) Business Combinationsto all past business combinations that
  occurred before January 1, 2010, the Companys date of transition to IFRS.

Required reconciliations between
Previous GAAP and IFRS

| | (a) | Reconciliation of consolidated Balance sheet between
      Previous GAAP and IFRS as at January 1, 2010.
| | --- | --------------------------------------------------------------------------------------------------------

46

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|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| | Consolidated Balance Sheet           |  |               |   |  |          |  |             |   |  |        |  
| | ------------------------------------ |  | ------------- | - |  | -------- |  | ----------- | - |  | ------ | -
| |                                      |  | Previous GAAP |   |  | Note     |  | Adjustments |   |  | IFRS   |  
| |                                      |  | $             |   |  |          |  | $           |   |  | $      |  
| | Assets                               |  |               |   |  |          |  |             |   |  |        |  
| | Current assets                       |  |               |   |  |          |  |             |   |  |        |  
| | Cash                                 |  | 1,018         |   |  |          |  | -           |   |  | 1,018  |  
| | Trade and other receivables          |  | 128           |   |  |          |  | -           |   |  | 128    |  
| | Taxes receivable                     |  | 30            |   |  |          |  | -           |   |  | 30     |  
| | Prepaid expenses                     |  | 34            |   |  |          |  | -           |   |  | 34     |  
| | Total current assets                 |  | 1,210         |   |  |          |  | -           |   |  | 1,210  |  
| |                                      |  |               |   |  |          |  |             |   |  |        |  
| | Mining interests                     |  | 1,589         |   |  | (2 )     |  | (1,417      | ) |  | 172    |  
| | Total assets                         |  | 2,799         |   |  |          |  | (1,417      | ) |  | 1,382  |  
| |                                      |  |               |   |  |          |  |             |   |  |        |  
| | Liabilities                          |  |               |   |  |          |  |             |   |  |        |  
| | Trade and other payables             |  | 169           |   |  |          |  | -           |   |  | 169    |  
| | Total liabilities                    |  | 169           |   |  |          |  | -           |   |  | 169    |  
| |                                      |  |               |   |  |          |  |             |   |  |        |  
| | Equity                               |  |               |   |  |          |  |             |   |  |        |  
| | Share capital                        |  | 2,755         |   |  |          |  | -           |   |  | 2,755  |  
| | Warrants reserve                     |  | 722           |   |  |          |  | -           |   |  | 722    |  
| | Share-based payment reserve          |  | 521           |   |  | (1 )     |  | 852         |   |  | 1,373  |  
| | Foreign currency translation reserve |  | 138           |   |  |          |  | -           |   |  | 138    |  
| | Deficit                              |  | (1,506        | ) |  | (1 ) (2) |  | (2,269      | ) |  | (3,775 | )
| | Total equity                         |  | 2,630         |   |  |          |  | (1,417      | ) |  | 1,213  |  
| | Total liabilities and equity         |  | 2,799         |   |  |          |  | (1,417      | ) |  | 1,382  |  

| | (b) | Reconciliation of consolidated Balance sheet between
      Previous GAAP and IFRS as at December 31, 2010.
| | --- | ----------------------------------------------------------------------------------------------------------

47

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|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| | Consolidated Balance Sheet              |  |               |   |  |              |  |             |   |  |         |  
| | --------------------------------------- |  | ------------- | - |  | ------------ |  | ----------- | - |  | ------- | -
| |                                         |  | Previous GAAP |   |  | Note         |  | Adjustments |   |  | IFRS    |  
| |                                         |  | $             |   |  |              |  | $           |   |  | $       |  
| | Assets                                  |  |               |   |  |              |  |             |   |  |         |  
| | Current assets                          |  |               |   |  |              |  |             |   |  |         |  
| | Cash                                    |  | 58,298        |   |  |              |  | -           |   |  | 58,298  |  
| | Trade and other receivables             |  | 11,738        |   |  |              |  | -           |   |  | 11,738  |  
| | Taxes receivable                        |  | 85,743        |   |  |              |  | -           |   |  | 85,743  |  
| | Prepaid expenses                        |  | 5,165         |   |  |              |  | -           |   |  | 5,165   |  
| | Inventories                             |  | 4,874         |   |  |              |  | -           |   |  | 4,874   |  
| | Total current assets                    |  | 165,818       |   |  |              |  | -           |   |  | 165,818 |  
| |                                         |  |               |   |  |              |  |             |   |  |         |  
| | Mining interests                        |  | 485,777       |   |  | (2 )         |  | (1,417      | ) |  | 484,360 |  
| | Deferred tax asset and profit sharing   |  | 6,555         |   |  |              |  | -           |   |  | 6,555   |  
| | Total assets                            |  | 658,150       |   |  |              |  | (1,417      | ) |  | 656,733 |  
| |                                         |  |               |   |  |              |  |             |   |  |         |  
| | Liabilities                             |  |               |   |  |              |  |             |   |  |         |  
| | Current liabilities                     |  |               |   |  |              |  |             |   |  |         |  
| | Trade and other payables                |  | 26,691        |   |  |              |  | -           |   |  | 26,691  |  
| | Taxes payable                           |  | 10,667        |   |  |              |  |             |   |  | 10,667  |  
| | Current
      portion of long-term debt |  | 75,000        |   |  |              |  | -           |   |  | 75,000  |  
| | Total current liabilities               |  | 112,358       |   |  |              |  | -           |   |  | 112,358 |  
| |                                         |  |               |   |  |              |  |             |   |  |         |  
| | Decommissioning liabilities             |  | 9,775         |   |  |              |  | -           |   |  | 9,775   |  
| | Long-term debt                          |  | 103,998       |   |  | (3 )         |  | (3,229      | ) |  | 100,769 |  
| | Derivative liability                    |  | -             |   |  | (3 )         |  | 2,630       |   |  | 2,630   |  
| | Other long-term
      liabilities       |  | 1,155         |   |  |              |  | -           |   |  | 1,155   |  
| | Total liabilities                       |  | 227,286       |   |  |              |  | (599        | ) |  | 226,687 |  
| |                                         |  |               |   |  |              |  |             |   |  |         |  
| | Equity                                  |  |               |   |  |              |  |             |   |  |         |  
| | Share capital                           |  | 420,994       |   |  |              |  | -           |   |  | 420,994 |  
| | Warrants reserve                        |  | 35,396        |   |  |              |  | -           |   |  | 35,396  |  
| | Equity portion of convertible debt      |  | 1,675         |   |  | (3 )         |  | (1,675      | ) |  | -       |  
| | Share-based payment reserve             |  | 8,654         |   |  | (1 )         |  | 97          |   |  | 8,751   |  
| | Foreign currency translation reserve    |  | 138           |   |  |              |  | -           |   |  | 138     |  
| | Deficit                                 |  | (35,993       | ) |  | (1 ) (2) (3) |  | 760         |   |  | (35,233 | )
| | Total equity                            |  | 430,864       |   |  |              |  | (818        | ) |  | 430,046 |  
| | Total liabilities and equity            |  | 658,150       |   |  |              |  | (1,417      | ) |  | 656,733 |  

48

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|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

| | (c) | Reconciliation of total comprehensive income
  (loss)
| | --- | -----------------------------------------------------

| |                                                    |  |      |   |  | Year ended   |  
| | -------------------------------------------------- |  | ---- | - |  | ------------ | -
| |                                                    |  |      |   |  | December 31, |  
| |                                                    |  | Note |   |  | 2010         |  
| |                                                    |  |      |   |  | $            |  
| |                                                    |  |      |   |  |              |  
| | Total comprehensive loss under Previous
      GAAP |  |      |   |  | (34,487      | )
| | Share-based payment                                |  | (1   | ) |  | 755          |  
| | Convertible note                                   |  | (3   | ) |  | 2,274        |  
| | Total
      comprehensive loss under IFRS          |  |      |   |  | (31,458      | )

Explanation of movements in the
statement of cash flows from Previous GAAP to IFRS for the year ended December
31, 2010:

- As a result of a smaller share-based payment charge
  by $0.8 million under IFRS as compared to Previous GAAP (see Note 1below) in the year ended December 31, 2010, the net comprehensive loss
  decreased by $0.8 million (and adjustments to the net income before tax in the
  statement of cash flows changed by the same amount resulting in no change to
  cash used in operating activities). There was no impact to the cash flows from
  financing and investing activities as a result of this change.
- As a result of recording an embedded derivative
  liability under IFRS in relation to the convertible note (Note 17) (see
  Note 3below), additional accretion expense of $2.0 million was
  recognized in the year ended December 31, 2010 as compared to Previous GAAP.
  Additionally, a marked-to-market gain of $4.3 million was recognized in the
  same time period under IFRS, which was not recognized under Previous GAAP. The
  combined effect of the adjustments was a net gain of $2.3 million in the
  statement of operations and comprehensive loss under IFRS (and adjustments to
  the net loss before tax in the statement of cash flows changed by the same
  amount resulting in no change to cash used in operating activities). There was
  no impact to the cash flows from financing and investing activities as a
  result of this change.

Explanation of the adjustments
described above:

- Note 1 - 275,000 post-consolidation options were
  awarded in July 2009 which, under both Previous GAAP and IFRS are considered
  to have a grant date of June 28, 2010 (when amendments to the stock option
  plan, which were required before the options could be exercised, were approved
  by the Companys shareholders). Previous GAAP requires the expense relating to
  these options to be charged to the statement of operations from the grant
  date. However, IFRS requires compensation expense to be charged to the
  statement of operations with respect to stock-based compensation prior to the
  grant date if services are already being received with respect to the award.
  As such, under IFRS a compensation expense should have been recorded with
  respect to these options starting from July 9, 2009. The impact of this
  difference is an increase to opening deficit and share-based payment reserve
  of approximately $0.9 million and $0.1 million at January 1, 2010 and December
  31, 2010, respectively.

49

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|PRIMERO MINING CORP.                                                         
|-----------------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                               
|DECEMBER 31, 2011                                                            
|(Amounts in
      thousands of United States dollars unless otherwise stated)

- Note 2 - Upon the transition to IFRS, the Company
  changed its accounting policy relating to exploration and evaluation
  expenditures. Under Previous GAAP the Company deferred all expenditures
  related to its mineral properties until such time as the properties were put
  into commercial production, sold or abandoned. The policy of the Company under
  IFRS is to defer only those costs which are expected to be recouped by future
  exploitation or sale or, where the costs have been incurred at sites where
  substantial exploration and evaluation activities have identified a mineral
  resource with sufficient certainty that permit a reasonable assessment of the
  existence of commercially recoverable reserves.This change resulted in
  $1.4 million of costs previously deferred in relation to the Companys
  Ventanas property being expensed; this is an adjustment to opening deficit in
  the January 1, 2010 balance sheet of the Company.
- Note 3 - Under IFRS, the convertible debt issued to
  DMSL is considered to include an embedded derivative. The derivative is the
  conversion option which is set at a fixed exchange rate from US dollars to the
  Canadian-dollar denominated shares. The carrying amount of the debt, on
  initial recognition, is calculated as the difference between the proceeds of
  the convertible debt as a whole and the fair value of the embedded derivative.
  Subsequent to initial recognition, the derivative component is re-measured at
  fair value at each balance sheet date while the debt component is accreted to
  the face value of the debt using the effective interest rate. Under Previous
  GAAP, no embedded derivative was recognized; instead the debt was split
  between its debt and equity portions.The adjustment booked upon transition
  to IFRS eliminated the equity portion of $1.7 million and recognized a
  derivative liability. In addition, the derivative liability was
  marked-to-market at each reporting period with the associated movements in the
  fair value of the liability recorded in the statement of operations and
  comprehensive loss. The liability originally recognized under IFRS (net of the
  embedded derivative) was less than the amount originally recognized under
  Previous GAAP by $5.2 million, resulting in a larger accretion expense under
  IFRS. Additional accretion of $2.0 million was recorded under IFRS in the year
  ended December 31, 2010 and a mark-to-market gain of $4.3 million was
  recognized in the same period resulting in a net impact of an increase in
  income of $2.3 million.

|21. | Subsequent events
|--- | -----------------
|    |                  
|    | (a)              
|    |                  
|    | (b)              

50

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