---





REVISED ANNUAL INFORMATION FORMFOR THE YEAR-ENDED
DECEMBER 31, 2011

****

****

ORIGINALLY DATED MARCH 30, 2012REVISED AS OF
MAY 15, 2012

****PRIMERO MINING CORP.Suite
1640, 505 Burrard StreetVancouver, British Columbia, Canada V7X
1M6

---

TABLE OF CONTENTS

|INTRODUCTORY
      NOTES                                                                                   | 1 
|---------------------------------------------------------------------------------------------------------- | --
|CAUTIONARY
      NOTE REGARDING FORWARD LOOKING STATEMENTS                                                 | 1 
|CURRENCY                                                                                                   | 3 
|GOLD
      PRICES                                                                                          | 3 
|TECHNICAL
      INFORMATION                                                                                | 3 
|CAUTIONARY
      NOTE TO UNITED STATES INVESTORS                                                           | 5 
|CORPORATE
      STRUCTURE                                                                                  | 7 
|GENERAL
      DEVELOPMENT OF THE BUSINESS                                                                  | 8 
|INITIAL
      ORGANIZATION AND OPERATIONS                                                                  | 8 
|CURRENT
      OPERATIONS                                                                                   | 8 
|ACQUISITION
      OF SAN DIMAS MINE                                                                        | 9 
|BUSINESS
      OF PRIMERO                                                                                  | 11
|OVERVIEW                                                                                                   | 11
|PRODUCT
      SUMMARY                                                                                      | 11
|SAN
      DIMAS MINE                                                                                       | 12
|AMENDED
      AND RESTATED SILVER PURCHASE AGREEMENT                                                       | 13
|VENTANAS
      EXPLORATION PROPERTY                                                                        | 17
|COMPETITIVE
      CONDITIONS                                                                               | 17
|CHANGES
      TO CONTRACTS                                                                                 | 17
|ENVIRONMENTAL
      PROTECTION                                                                             | 17
|EMPLOYEES                                                                                                  | 18
|FOREIGN
      OPERATIONS                                                                                   | 18
|ENVIRONMENTAL,
      SOCIAL AND GOVERNANCE POLICIES                                                        | 18
|SAN
      DIMAS MINE                                                                                       | 20
|PROPERTY
      DESCRIPTION AND LOCATION                                                                    | 20
|ACCESS,
      CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY                                    | 22
|HISTORY                                                                                                    | 23
|GEOLOGICAL
      SETTING                                                                                   | 25
|DEPOSITS
      AND MINERALIZATION                                                                          | 27
|EXPLORATION
      AND DRILLING                                                                             | 27
|SAMPLING,
      ASSAYING AND SECURITY                                                                      | 30
|MINERAL
      RESOURCE AND MINERAL RESERVE ESTIMATES                                                       | 33
|MINING
      OPERATIONS                                                                                    | 36
|RISK
      FACTORS                                                                                         | 39
|DIVIDENDS                                                                                                  | 50
|CAPITAL
      STRUCTURE                                                                                    | 50
|COMMON
      SHARES                                                                                        | 50
|PREFERRED
      SHARES                                                                                     | 50
|OPTIONS
      AND WARRANTS                                                                                 | 50
|PROMISSORY
      AND CONVERTIBLE PROMISSORY NOTES                                                          | 50
|MARKET
      FOR SECURITIES                                                                                | 52
|COMMON
      SHARES                                                                                        | 52
|COMMON
      SHARE WARRANTS                                                                                | 52
|PRIOR
      SALES                                                                                          | 53
|**ESCROWED
      SECURITIES AND SECURITIES** **SUBJECT TO CONTRACTUAL**
      **RESTRICTIONS ON TRANSFER** | 53
|ESCROWED
      SECURITIES                                                                                  | 53
|CONTRACTUAL
      RESTRICTIONS ON TRANSFER                                                                 | 54
|DIRECTORS
      AND OFFICERS                                                                               | 54
|PRINCIPAL
      OCCUPATIONS AND OTHER INFORMATION ABOUT PRIMEROS DIRECTORS AND EXECUTIVE
      OFFICERS   | 55
|CEASE
      TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS                                             | 59
|CONFLICTS
      OF INTEREST                                                                                | 60
|**LEGAL
      PROCEEDINGS AND REGULATORY** **ACTIONS**                                                     | 60
|TRANSFER
      AGENT AND REGISTRAR                                                                         | 60
|MATERIAL
      CONTRACTS                                                                                   | 60
|INTERESTS
      OF EXPERTS                                                                                 | 61
|ADDITIONAL
      INFORMATION                                                                               | 62
|ADDITIONAL
      INFORMATION                                                                               | 62
|AUDIT
      COMMITTEE                                                                                      | 62

---

INTRODUCTORY NOTES

Cautionary Note Regarding Forward Looking Statements

This annual information form for
the year ended December 31, 2011 originally dated March 30, 2012 and revised as
of May 15, 2012 (the Annual Information Form or AIF) contains
forward-looking information under the provisions of Canadian provincial
securities laws. When used in this AIF, words such as believe, intend,
may, will, should, plans, anticipates, believes, potential,
intends, expects, estimates, forecasts, likely, goal and similar
expressions are intended to identify such forward-looking statements.
Forward-looking statements reflect our current expectations and assumptions, and
are subject to a number of known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements to be
materially different from any anticipated future results, performance or
achievements expressed or implied by the forward-looking statements.

Forward-looking statements in
this Annual Information Form include those that relate to: the ability of the
Company (as defined under Corporate Structure) to expand production at the San
Dimas Mine (as defined under Acquisition of San Dimas Mine); the ability of
the Company to successfully operate the San Dimas Mine; the ability of the
Company to identify appropriate acquisition opportunities, or if an opportunity
is identified, to conclude a transaction on satisfactory terms; the expected
results of exploration activities; the recording of revenue under the Amended
and Restated Silver Purchase Agreement (as defined under Business of Primero 
Amended and Restated Silver Purchase Agreement) at the fixed price realization
and the recording of taxes on this basis; the identification of the potential
taxes as a contingent liability and retaining access to sufficient cash to
satisfy such contingent liability; increased delineation at the San Dimas Mine
that will lead to better grade control and the attainment of more consistent
production targets in the future; expected results of reclamation activities at
the San Dimas Mine; the timing and ability to upgrade the Tayoltita Mine
Laboratory; the estimation of Minerals Reserves (as defined under Introductory
Notes  Technical Information) and Mineral Resources (as defined under
Introductory Notes  Technical Information) and the realization of Mineral
Reserve estimates (including all assumptions); the ability to identify new
Mineral Resources and convert Mineral Resources into Mineral Reserves; the
impact of new estimation methodologies on mine and production planning; the
timing and success of exploration activities; the timing and the ability to
expand the mill; the timing and amount of estimated future production; the
ability to generate cash flows that exceed capital requirements; intentions to
becoming an intermediate gold producer; capital expenditures and costs,
including forecasted cash costs; the timing of the development of new mineral
deposits; the sufficiency of future cash flows; the Companys requirements for
additional capital and ability to complete future financings to raise additional
capital for exploration, development and operational activities and for
acquisitions; projected gold and silver production; expected ore grades,
recovery rates and through-put; the ability of the Company to comply with
environmental, safety and other regulatory requirements; expected or proposed
development or construction activities, including additional tunnels, plant
expansion, tailings improvements and hydro-electric improvements, and the
expected costs thereof; expected environmental capital expenditures; the amount
of any fines imposed by Mexican authorities with respect to the January 2012
tailings spill; expectations regarding currency fluctuations; the ability of the
Company to achieve a favourable advance ruling on its restructuring plan from
Mexican tax authorities; the timing and results of union contract negotiations;
the resolution of title disputes relating to the Companys properties; the
timing and possible outcome of pending litigation; future prices of precious and
base metals; the ability of the Company to obtain government approvals or
permits in connection with the continued operation and development of the San
Dimas Mines.

1

---

Such forward-looking information
is necessarily based upon a number of factors and assumptions that, while
considered reasonable by the Company as of the date of such statements, are
inherently subject to significant business, economic and competitive
uncertainties and contingencies. The assumptions made by the Company in
preparing the forward looking information contained in this AIF, which may prove
to be incorrect, include, but are not limited to: the specific assumptions set
forth in this AIF; the expectations and beliefs of management; assumptions
relating to the existence of companies that may wish to dispose of producing or
near-term producing precious metals assets; that there are no significant
disruptions affecting operations, whether due to labour disruptions, supply
disruptions, damage to or loss of equipment, whether as a result of natural
occurrences including flooding, political changes, title issues, intervention by
local landowners, loss of permits, or environmental concerns or otherwise; that
there are no disruptions in the supply of power from the Las Truchas power
generation facility, whether as a result of damage to the facility or unusually
limited amounts of precipitation; that development and expansion at the San Dimas Mine proceeds on a basis consistent
with current expectations and the Company does not change its development and
exploration plans; that the exchange rate between the Canadian dollar, Mexican
peso and the United States dollar remains consistent with current levels or as
set out in this AIF; that prices for gold and silver remains consistent with the
Companys expectations; that prices for key mining supplies, including labour
costs and consumables, remain consistent with the Companys current
expectations; that production meets expectations and is consistent with
estimates; that plant, equipment and processes will operate as anticipated; that
the Company identifies higher grade veins in sufficient quantities of minable
ore in the Central Block and Sinaloa Graben and is consistent with estimations;
that the Companys current estimates of Mineral Reserves, Mineral Resources,
mineral grades and mineral recovery are accurate; that the geology and vein
structures in the Sinaloa Graben are as expected; that the Company completes the
proposed tunnels and access routes; that the ratio of gold to silver price is
maintained in accordance with the Companys expectations; that there are no
material variations in the current tax and regulatory environment or the tax
positions taken by the Company; that the Company will maintain access to surface
rights; that the Company will be able to obtain and maintain government
approvals or permits in connection with the continued operation and development
of the San Dimas Mine; that the Company will be able to repay its indebtedness
under the Promissory Note and the Convertible Promissory Note (both as defined
below); that the Company can access financing, appropriate equipment and
sufficient labour; and that the political environment within Mexico will
continue to support the development of environmentally safe mining projects. No
assurance can be given that these assumptions will prove to be correct. These
assumptions should be considered carefully by readers. Readers are cautioned not
to place undue reliance on the forward-looking information and statements or the
assumptions on which the Companys forward-looking information and statements
are based.

Forward-looking information is
subject to a variety of risks and uncertainties which could cause actual events
or results to differ from those reflected in the forward-looking statements.
Such risks include, but are not limited to: the volatility of prices of gold,
silver and other metals; the ratio between the market prices of gold and silver;
uncertainty of Mineral Reserves, Mineral Resources, Inferred Mineral Resources
(as defined under Introductory Notes  Technical Information), exploration
potential, mineral grades and mineral recovery estimates; uncertainty of future
production, delays in completion of the mill expansion, exploration and
development plans; insufficient capital to complete mill expansion, development
and exploration plans; inability to maintain or acquire attractive mining
properties on terms it considers acceptable or at all; other risks inherent with
acquisitions; potentially unknown liabilities associated with the acquisition of
the San Dimas Assets (as defined under Corporate Structure) and the shares of
Silver Trading (as defined under Corporate Structure); delays in obtaining
governmental approvals, permits or financing or in the completion of development
or construction activities; the Companys ability to repay its indebtedness
under the Promissory Note and the Convertible Promissory Note and the Companys
limited ability to incur additional indebtedness; Mexican tax authorities may
not provide a favourable advance ruling supporting the Companys restructuring
plan; if the Company is required to revert to paying taxes based on the market
price of silver for all sales under the Amended and Restated Silver Purchase
Agreement to SW Caymans (as defined under Acquisition of San Dimas Mine), the
Company may be required to pay higher taxes with higher silver prices, and the
adverse tax consequences to the Company may, depending on the annual production
of silver, increase in severity and the Companys cash flow may not be
sufficient to fund its obligations, there may be an impairment loss and a write
down of the San Dimas Mine and the Company could be forced to discontinue
production and may lose its interest in, or may be forced to sell, some of its
properties; the ability of the Company to achieve projected gold and silver
production and, gold and silver grades; projected cash costs of production and
capital expenditures may be greater than anticipated; currency fluctuations;
limitations on insurance coverage; financing of additional capital requirements;
commercial viability of mineral deposits; cost of exploration and development
programs; inability to complete the proposed tunnels, access routes or other
development, for whatever reason; risks associated with having adequate
infrastructure, including unexpected interruptions in power supply from the
hydroelectric project; mining risks, including unexpected formations and
cave-ins, which delay operations or prevent extraction of material; risks
associated with competition in the mining industry; risks associated with the
ability to retain key executives and certain operating personnel; risks
associated with conflicting legal obligations of directors and officers of the
Company who are directors and/or officers of other companies; risks associated
with foreign operations; adverse changes to in labour relations legislation or
in the relationship between the Company with its employees and unions at the San
Dimas Mine; title disputes or claims; changes in governmental and environmental
regulation that result in increased costs; cost of environmental expenditures
and potential environmental liabilities; landowner dissatisfaction and disputes;
failure of plant, equipment or processes to operate as anticipated; accidents,
labour disputes and road blocks; and risks associated with the Company having a
significant shareholder. Should one or more of these risks and uncertainties
materialize, or should underlying assumptions prove incorrect, actual
results may vary materially from those described in forward-looking
statements.

2

---

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

Currency

Unless otherwise stated,
references herein to $ are to the Canadian dollar. References to US$ are to
the United States dollar. The following table reflects the low and high rates of
exchange for one United States dollar, expressed in Canadian dollars, during the
periods noted, the rates of exchange at the end of such periods and the average
rates of exchange during such periods, based on the Bank of Canada noon spot
rate of exchange.

|                                      |   | Year ended December 31 | 
|------------------------------------- | - | ---------------------- | 
|                                      |   | 2011                   | 
|Low for the period                    | $ | 0.9449                 | 
|High for the period                   |   | 1.0604                 | 
|Rate at the end of the period         |   | 1.0170                 | 
|Average noon spot rate for the period |   | 0.9891                 | 

On May 15, 2012, the Bank of Canada noon spot rate of exchange
was US$1.00  $1.0029.

Gold Prices

The high, low, average and
closing afternoon fixing gold prices in United States dollars per troy ounce for
each of the three years in the period ended December 31, 2011, as quoted by the
London Bullion Market Association, were as follows:

|                          |  | Year ended December 31 | 
|------------------------- |  | ---------------------- | 
|                          |  | 2011                   | 
|Low for the period        |  | US$1,319               | 
|High for the period       |  | 1,895                  | 
|Average for of the period |  | 1,571                  | 
|Closing for the period    |  | 1,531                  | 

|(1) | Primero (as defined under Corporate Structure) acquired
      the San Dimas Mine on August 6, 2010. Before that date, Primero had no
      mining operations.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

On May 15, 2012, the closing
afternoon fixing gold price in United States dollars per troy ounce, as quoted
by the London Bullion Market Association, was US$1,556.50.

Technical Information

The estimated Mineral Reserves
and Mineral Resources for the San Dimas Mine have been prepared in accordance
with the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) 
Definitions adopted by CIM Council on December 11, 2005 (the CIM Standards)
which were adopted by the Canadian Securities Administrators National Instrument 43-101 Standards of
Disclosure for Mineral Projects(NI 43-101). The following definitions are
reproduced from the CIM Standards:

3

---

The term Preliminary
Feasibility Study means a comprehensive study of the viability of a mineral
project that has advanced to a stage where the mining method, in the case of
underground mining, or the pit configuration, in the case of an open pit, has
been established and an effective method of mineral processing has been
determined, and includes a financial analysis based on reasonable assumptions of
technical, engineering, legal, operating, economic, social, and environmental
factors and the evaluation of other relevant factors which are sufficient for a
Qualified Person, acting reasonably, to determine if all or part of the Mineral
Resource may be classified as a Mineral Reserve.

The term Mineral
Resourcemeans a concentration or occurrence of diamonds, natural
solid inorganic material, or natural solid fossilized organic material including
base and precious metals, coal, and industrial minerals in or on the Earths
crust in such form and quantity and of such a grade or quality that it has
reasonable prospects for economic extraction. The location, quantity, grade,
geological characteristics and continuity of a Mineral Resource are known,
estimated or interpreted from specific geological evidence and knowledge.
Mineral Resources are subdivided, in order of increasing geological confidence,
into Inferred, Indicated and Measured categories.

The term Inferred Mineral
Resourcemeans that part of a Mineral Resource for which quantity
and grade or quality can be estimated on the basis of geological evidence and
limited sampling and reasonably assumed, but not verified, geological and grade
continuity. The estimate is based on limited information and sampling gathered
through appropriate techniques from locations such as outcrops, trenches, pits,
workings and drill holes.

The term Indicated Mineral
Resourcemeans that part of a Mineral Resource for which quantity,
grade or quality, densities, shape and physical characteristics, can be
estimated with a level of confidence sufficient to allow the appropriate
application of technical and economic parameters, to support mine planning and
evaluation of the economic viability of the deposit. The estimate is based on
detailed and reliable exploration and testing information gathered through
appropriate techniques from locations such as outcrops, trenches, pits, workings
and drill holes that are spaced closely enough for geological and grade
continuity to be reasonably assumed.

The term Measured
Mineral Resourcemeans that part of a Mineral Resource for which
quantity, grade or quality, densities, shape, physical characteristics are so
well established that they can be estimated with confidence sufficient to allow
the appropriate application of technical and economic parameters, to support
production planning and evaluation of the economic viability of the deposit. The
estimate is based on detailed and reliable exploration, sampling and testing
information gathered through appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill holes that are spaced closely
enough to confirm both geological and grade continuity.

The term Mineral
Reservemeans the economically mineable part of a Measured or
Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility
Study. This study must include adequate information on mining, processing,
metallurgical, economic and other relevant factors that demonstrate, at the time
of reporting, that economic extraction can be justified. A Mineral Reserve
includes diluting materials and allowances for losses that may occur when the
material is mined.

The term Probable
Mineral Reservemeans the economically mineable part of an Indicated
Mineral Resource and, in some circumstances, a Measured Mineral Resource
demonstrated by at least a Preliminary Feasibility Study. This study must
include adequate information on mining, processing, metallurgical, economic and
other relevant factors that demonstrate, at the time of reporting, that economic
extraction can be justified.

The term Proven
Mineral Reservemeans the economically mineable part of a Measured
Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This
study must include adequate information on mining, processing, metallurgical,
economic and other relevant factors that demonstrate, at the time of reporting,
that economic extraction is justified.

4

---

Cautionary Note to United States Investors

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

This Annual Information Form
includes estimates of Mineral Reserves that have been calculated in accordance
with NI 43-101, as required by Canadian securities regulatory authorities. For
United States reporting purposes, SEC Industry Guide 7 (under the United States
Securities Exchange Act of 1934, as amended), as interpreted by Staff of the
SEC, applies different standards in order to classify mineralization as a
reserve. As a result, the definitions of Proven and Probable Mineral Reserves
used in NI 43-101 differ from the definitions in the SEC Industry Guide 7. Under
SEC standards, mineralization may not be classified as a reserve unless the
determination has been made that the mineralization could be economically and
legally produced or extracted at the time the reserve determination is made.
Among other things, all necessary permits would be required to be in hand or
issued imminently in order to classify mineralized material as reserves under
the SEC standards. Accordingly, Mineral Reserve estimates contained in this
Annual Information Form may not qualify as reserves under SEC standards.

In addition, this Annual
Information Form uses the terms Indicated Mineral Resources and Inferred
Mineral Resources to comply with the reporting standards in Canada. We advise
United States investors that while those terms are recognized and required by
Canadian regulations, the SEC does not recognize them. United States investors
are cautioned not to assume that any part or all of the mineral deposits in
these categories will ever be converted into Mineral Reserves. Indicated Mineral
Resources and Inferred Mineral Resources have a great amount of uncertainty as
to their existence, and great uncertainty as to their economic and legal
feasibility.

Further, Inferred Mineral
Resources have a great amount of uncertainty as to their existence and as to
whether they can be mined legally or economically. Therefore, United States
investors are also cautioned not to assume that all or any part of the inferred
resources exist. In accordance with Canadian securities laws, estimates of
Inferred Mineral Resources cannot form the basis of feasibility or other
economic studies, other than in certain limited circumstances.

It cannot be assumed that all or
any part of Indicated Mineral Resources or Inferred Mineral Resources will
ever be upgraded to a higher category. Investors are cautioned not to assume
that any part of the reported Indicated Mineral Resources, or Inferred
Mineral Resources in this Annual Information Form is economically or legally
mineable.

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

In addition, disclosure of
resources using contained ounces is permitted under Canadian regulations;
however, the SEC only permits issuers to report mineralization that does not
qualify as a reserve as in place tonnage and grade without reference to unit
measures.

5

---

For the above reasons,
information contained in this Annual Information Form may not be comparable to
similar information made public by U.S. companies subject to the reporting and
disclosure requirements under the United States federal securities laws and the
rules and regulations thereunder.

6

---

CORPORATE STRUCTURE

Primero Mining Corp. is
incorporated under the British Columbia Business Corporations Act(the
Act). On August 6, 2010, Primero acquired the San Dimas Mine, mill and related
assets (the San Dimas Assets) from Desarrollos Mineros San Luis, S.A. de C.V.
(DMSL) and the shares of Silver Trading (Barbados) Ltd. (Silver Trading)
from Goldcorp Silver (Barbados) Ltd. (GSBL), each indirect, wholly-owned
subsidiaries of Goldcorp Inc. (Goldcorp). See Acquisition of San Dimas
Mine.

In this Annual Information Form,
the terms Company or Primero refer to Primero Mining Corp. and all its
subsidiaries together unless the context otherwise clearly requires. Certain
terms used herein are defined in the disclosure to which the term relates.

Primero has three active,
wholly-owned subsidiaries  Primero Empresa Minera, S.A. de C.V. (Primero
Empresa), which is incorporated under the laws of Mexico, Silver Trading, which
is incorporated under the laws of Barbados, and Primero Mining Luxembourg s.à
r.l., which is incorporated under the laws of Luxembourg. The following chart
shows the organization of Primero and the ownership of its principal properties.
Primero Empresa has two directly wholly-owned service companies  Primero
Compañía Minera, S.A. de C.V. and Primero Servicios Mineros, S.A. de C.V.  and
one indirectly wholly-owned service company: Primero Auxiliares de
Administración, S.A. de C.V.



|(1) | Eduardo Luna, a director of the Company and a Mexican
      resident, holds one share to meet Mexican corporate legal
    requirements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------
|(2) | Primero Mining Luxembourg s.à r.l. is a holding company
      used by the Company to finance its operations.                           
|(3) | Primero Empresa Minera, S.A. de C.V. is the operator of
      the San Dimas Mine.                                                      
|(4) | Silver Trading (Barbados) Ltd. is a trading and holding
      company.                                                                 
|(5) | Primero Compañía Minera, S.A. de C.V. is a service
      company.                                                                      
|(6) | Primero Servicios Mineros, S.A. de C.V. is a service
      company.                                                                    
|(7) | Primero Auxiliares de Administración, S.A. de C.V. is a
      service company.                                                         

7

---

The head office of Primero is
located at Suite 1640, 505 Burrard Street, Vancouver, British Columbia, Canada,
V7X 1M6, telephone (604) 669-0040, facsimile (604) 669-0014. Primero also has a
corporate office located at Suite 1202, 120 Adelaide Street West, Toronto,
Ontario, Canada, M5H 1T1, telephone (416) 814-3160, facsimile (416) 814-3170.
The Companys registered office is located at Suite 1500, 1055 West Georgia
Street, Vancouver, British Columbia, Canada, V6E 4N7, telephone (604) 689-9111,
facsimile (604) 685-7084. The Companys website address is
www.primeromining.com.

GENERAL DEVELOPMENT OF THE BUSINESS

Over the last three years,
Primero has transformed itself from a capital pool corporation listed on the TSX
Venture Exchange (the TSXV) to a gold and silver producer listed on the
Toronto Stock Exchange (the TSX) and, since August 15, 2011, the New York
Stock Exchange (NYSE). Effective June 24, 2011, Primero was added to the
Russell Global Index and effective September 16, 2011, Primero was added to the
S&P/TSX SmallCap Index.

Initial Organization and Operations

The Company was incorporated as
Apoka Capital Corporation in November, 2007. In July 2008, the Company was
listed on the TSXV as a Capital Pool Company under the symbol ACK.P.

In October 2008, the Company
completed its qualifying transaction under the TSXVs Capital Pool Company
policy (the Qualifying Transaction) by acquiring privately-owned Mala Noche
Resources Corp. (Mala Noche). The Qualifying Transaction was a reverse
takeover under Canadian GAAP and the policies of the TSXV whereby the Company
acquired all of the outstanding securities of Mala Noche in exchange for common
shares of the Company (Common Shares) and options to purchase Common
Shares.

Concurrent with the completion of
the Qualifying Transaction, the Company, as the resulting issuer, changed its
name to Mala Noche Resources Corp. In October 2008, the Company commenced
trading on the TSXV as a Tier 2 Mining Issuer under the symbol MLA.

At the time of the Qualifying
Transaction, Mala Noche held an option to acquire the Ventanas property. The
Company last drilled on the Ventanas property in 2008 and since then the
property has been on care and maintenance. After placing the Ventanas property
into care and maintenance, the Company focused its efforts to pursue an
acquisition of a producing property. See Business of Primero  Ventanas
Exploration Property.

Current Operations

On August 6, 2010, the Company
completed the acquisition of the San Dimas Mine and related assets. See
Acquisition of San Dimas Mine, Business of Primero and San Dimas Mine.

On July 12, 2011, the Company
entered into a definitive arrangement agreement (the Arrangement Agreement) to
combine its business with Northgate Minerals Corporation (Northgate). On
August 29, 2011, the Arrangement Agreement was terminated as Northgate had
received a proposal from another company. As a result and as provided for in the
Arrangement Agreement, Northgate paid the Company a termination fee of $25
million.

The Company has implemented a
number of initiatives at San Dimas to increase production, reduce costs and
expand Mineral Reserves and Mineral Resources.

Initiatives designed to increase
production include ensuring that daily throughput is at capacity (currently
2,100 tonnes per day), improving productivity per man shift, controlling mining
dilution, accelerating mine development to increase the number of working faces,
completing strategic tunnel connections and enhancing mine planning. In 2012
Primero expects to produce between 100,000 and 110,000 gold equivalent ounces
in-line with 2011 production, based on higher throughput at lower grades.

8

---

Productivity improvements and
completing strategic tunnels will also help to reduce costs. Cash production
costs are expected to be $630 to $660 per gold equivalent ounce in 2012, similar
to actual costs in 2011 despite the increase in planned throughput.

In the first quarter of 2012, the
Company completed a review of the Mineral Reserve and Mineral Resource
estimation methodology used at San Dimas in order to assess whether the use of
other estimation methodologies might allow Primero to improve mine planning and
more accurately predict actual grade and, therefore, production. As a result of
this review, the Company changed its estimation methodology from a polygonal to
a block modeling approach for the main producing veins, resulting in a reduction
of the estimated Mineral Reserves and Mineral Resources and reclassifying a
substantial portion of Inferred Mineral Resources to exploration potential.

The Company has planned an
extensive exploration program in 2012 in order to add to the Mineral Reserves
and Mineral Resources at San Dimas, net of depletion, and to convert
mineralization from exploration potential to Inferred Mineral Resources through
new discoveries. The current main production area is located in a prolific
central corridor that runs south-west to north-east across the property. The San
Dimas 2012 exploration program is designed to aggressively drill the exploration
potential located in this prolific central corridor. Mineralization will be
systematically targeted in close proximity to existing infrastructure. A primary
objective of 2012 is to explore the south-west lateral extensions of the
currently producing Roberta and Robertita vein systems into the adjacent Sinaloa
Graben.

Capital expenditures in 2012 are
planned to remain steady with 2011, with underground development and exploration
drilling accounting for approximately 70% of the expected $30 million
expenditure. This includes 65,000 metres of diamond drilling, consisting of
35,000 metres of delineation drilling and 30,000 metres of exploration drilling,
plus 3,000 metres of exploration drifting.

ACQUISITION OF SAN DIMAS MINE

On August 6, 2010, Primero
completed the acquisition (the Acquisition) of the San Dimas gold-silver
mining operations (the San Dimas Mine) from DMSL and the shares of Silver
Trading from GSBL. Each of DMSL and GSBL is an indirect, wholly-owned subsidiary
of Goldcorp. The Acquisition was completed pursuant to the terms of an Asset
Purchase Agreement (the Asset Purchase Agreement) and a Share Purchase
Agreement (the Share Purchase Agreement), each dated July 29, 2010. As part of
the Acquisition, Primero also acquired the mill at San Dimas, all facilities and
equipment attached and related to the San Dimas Mine, a plane and helicopter
used to support the San Dimas operations, a hydroelectric generation project
that provides power to the San Dimas Mine and the Ventanas exploration
properties on which the Company held an option.

Primero purchased the San Dimas
Mine and related assets for an aggregate purchase price of US$489 million (the
Purchase Price) and assumed all liabilities associated with the San Dimas
Mine, including environmental and labour liabilities. The San Dimas Mine was
acquired on an as is, where is basis. The Purchase Price was paid as to (a)
US$220 million in cash, (b) the issuance and delivery of 31,151,200 Common
Shares with a value of US$159 million, (c) the issuance of the US$50 million
Promissory Note and (d) the issuance of the US$60 million Convertible Promissory
Note (of which US$30 million was repaid on October 19, 2011).

To fund the cash portion of the
purchase price for the Acquisition, on July 20, 2010 the Company completed an
offering of 50,000,000 subscription receipts at an offering price of $6.00 per
subscription receipt for gross proceeds of $300 million. Immediately before the
completion of the Acquisition, the Company consolidated its Common Shares on the
basis of one new Common Share for every 20 pre-consolidation Common Shares. On
the closing of the Acquisition, each subscription receipt was automatically
converted into one post-consolidation Common Share of the Company and 0.4 of one
common share purchase warrant. Each whole warrant entitles the holder to
purchase one additional post-consolidation common share at a price of $8.00 per
share until July 20, 2015.

Concurrent with the completion of
the Acquisition, DMSL entered into a transition services agreement dated August
6, 2010 with the Company and its subsidiary, Primero Empresa (the Transition
Services Agreement). As certain matters related to the sale of the San Dimas
Mine could not be completed by the closing time of the acquisition, the
Transition Services Agreement provided for the orderly transfer of the
operations of the San Dimas Mine to Primero Empresa. A majority of these
transition issues have now been resolved. The only significant outstanding
matter is obtaining a permit to operate aircraft used to supply the mine and the
registration of surface land rights. Primero is currently operating its aircraft
through a licensed carrier owned by DMSL.

9

---

Before the Acquisition, an amount
of refined silver equal to all silver produced from the San Dimas Mine was sold
to Silver Wheaton (Caymans) Ltd. (SW Caymans), a subsidiary of Silver Wheaton
Corp. (Silver Wheaton), under a restated silver purchase agreement dated March
30, 2006 entered into with Silver Trading (the Restated Silver Purchase
Agreement). SW Caymans made upfront payments comprised of cash and shares of
Silver Wheaton as consideration for its rights to purchase silver under this
agreement at fixed prices. Concurrent with the closing of the Acquisition,
Silver Trading was acquired by the Company and the Restated Silver Purchase
Agreement was amended and restated effective August 6, 2010 (the Amended and
Restated Silver Purchase Agreement). The August 6, 2010 amendments included the
introduction of an annual threshold for silver deliveries to SW Caymans. For the
first four years after the Acquisition, the first 3.5 million ounces of an
amount of refined silver equal to all silver produced at the San Dimas Mine plus
50% of the excess are required to be sold to SW Caymans. After the fourth year,
for the life of the mine, the first 6 million ounces of an amount of refined
silver equal to all silver produced at the San Dimas Mine plus 50% of the excess
are required to be sold to SW Caymans. Any silver not required to be sold to SW
Caymans is available to be sold by the Company at market prices. The Amended and
Restated Silver Purchase Agreement now governs all purchases of silver produced
from the San Dimas Mine by SW Caymans.

Under the Asset Purchase
Agreement, the Company has agreed that it will not, directly or indirectly,
acquire any interests or other rights to mineral properties, royalty interests,
surface rights or water rights within specified areas (the Goldcorp Area of
Interest) until after August 6, 2013. The Goldcorp Area of Interest will extend
20 kilometres from the external boundary of each mineral property in Mexico
owned by Goldcorp and its affiliates.

On the closing of the
Acquisition, the Company entered into an agreement with DMSL that grants to DMSL
certain pre-emptive share purchase rights and the right to nominate directors of
the Company (the Participation Agreement). Provided DMSL and its affiliates
(which include Goldcorp) continue to beneficially own at least 10% of the issued
and outstanding Common Shares, DMSL will have the right to

- maintain their aggregate percentage of issued Common Shares following
  completion of the Acquisition, and
- designate, after consultation with the Company, a number of individuals
  (the DMSL Director Nominees) to be initially appointed and to serve as
  directors of the Company and thereafter to be nominated at each meeting of
  shareholders at which directors are to be elected.

The number of DMSL Director
Nominees will be determined from time to time by multiplying (a) the percentage
of the issued and outstanding Common Shares held beneficially by DMSL and its
affiliates (excluding shares issuable on the exercise of any outstanding
warrants held by DMSL and its affiliates), by (b) the number of directors
constituting the board of directors of the Company (the Board) at such time,
with the product rounded down to the closest whole number of directors.
Currently, there are two DMSL Director Nominees on the Board Mr. Timo Jauristo
and Mr. Rohan Hazelton, the Executive Vice President, Corporate Development and
Vice President, Finance, respectively, of Goldcorp. This pre-emptive purchase
right will not, however, apply to Common Shares issued by the Company under any
of its share incentive plans. See Risk Factors  Significant Shareholder.

A Form 51-102F4 Business
Acquisition Report in respect of the Acquisition, and copies of the Asset
Purchase Agreement, Share Purchase Agreement and Amended and Restated Silver
Purchase Agreement have been filed on www.sedar.com.

10

---

BUSINESS OF PRIMERO

Overview

Primero is a Canadian-based
precious metals producer with 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 producing property, the San Dimas Mine,
located in Mexicos San Dimas district, on the border of Durango and Sinaloa
states, and one exploration property, Ventanas, located in Durango state,
Mexico.

The Company intends to transition
from being a single-asset gold producer to become an intermediate gold producer.
The San Dimas Mine is an established property with a long operating history and
a record of Mineral Reserve replacement, Mineral Resource conversion and
exploration success. The Company plans to achieve its goal of being an
intermediate gold producer, with a target of 375,000 ounces of annual gold
equivalent production, by increasing production at the San Dimas Mine and by
considering and, if appropriate, making further acquisitions of precious metal
properties in Latin America.

The Company believes that the San
Dimas Mine provides a solid production base with short-term opportunities to
optimize mine capacity, increase mill throughput and expand production. The
Company expects to produce between 100,000 and 110,000 ounces (gold equivalent)
in 2012, based on higher throughput at lower grades. Underground development in
2012 will be focused in the main mining (Central Block) and exploration (Sinaloa
Graben) blocks. In 2012 the majority of the ore is anticipated to come from the
Central Block with approximately 20% from the higher-grade Sinaloa Graben. The
Company expects to make a decision to expand the milling facility to either
2,500 tonnes per day or 3,000 tonnes per day in the third quarter of 2012.
Detailed engineering is underway to determine the optimal mill size given the
Mineral Reserve and Mineral Resource grade and the level of planned
development.

The Company believes that it can
continue to expand Mineral Reserves by focussing new drilling programs on areas
of good exploration potential  principally the prolific central corridor of the
district. This south-west to north-east trending corridor contains the Roberta
and Robertita veins, both systems being noted for their thickness, high-grade
and lateral extensions.

A primary objective of 2012 is to
explore the south-west lateral extensions of the currently producing Roberta and
Robertita vein systems into the adjacent Sinaloa Graben. See San Dimas Mine 
Exploration and Drilling  2011/2012 Exploration Drilling and San Dimas Mine 
Exploration and Drilling  Contemplated Exploration and Development Activities.
Cash flow from the San Dimas Mine is expected to provide the Company with an
internal source of capital to fund mine development and exploration projects.
The Company estimates that gold production at San Dimas can average 130,000
ounces (175,000 gold equivalent ounces) annually over the next five years.

Product Summary

The Companys principal products
are gold and silver. There are worldwide gold and silver markets into which the
Company can sell. The Company is not dependent on a particular purchaser with
regard to the sale of gold, but a significant portion of its silver is sold to
SW Caymans under the Amended and Restated Silver Purchase Agreement. See
Business of Primero  Amended and Restated Silver Purchase Agreement. The
following table sets out the Companys revenue by product for each of the last
two financial years (before August 6, 2010, the Company had no mining
operations):

11

---

|       |  | Financial year ended | 
|------ |  | -------------------- | 
|       |  | December 31          | 
|       |  | 2011                 | 
|       |  | US$                  | 
|Gold   |  | 120,957,000          | 
|Silver |  | 35,585,000           | 
|Total  |  | 156,542,000          | 

|(1) | Before August 6, 2010, the Company had no mining
      operations.                                                                                      
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Substantially all silver is sold at a below market, fixed
      price. See Business of Primero  Amended and Restated Silver Purchase
      Agreement.

San Dimas Mine

The San Dimas Mine operation
includes five underground gold and silver mining areas: the West Block (San
Antonio mine); the Sinaloa Graben Block; the Central Block, the Tayoltita mine
and the Arana Block (the Santa Rita mine). In 2011, the San Dimas Mine produced
79,564 ounces of gold and 4.6 million ounces of silver. The San Dimas Mine is
located approximately 125 kilometres northeast of Mazatlan, Sinaloa or
approximately 150 kilometres west of the city of Durango in the state of
Durango, Mexico. The Santa Rita mine is located approximately three kilometres
upstream from the Tayoltita mine while the San Antonio mine is seven kilometres
west of Tayoltita.

Typical mining of the vein
systems is by mechanized cut-and-fill, using drill jumbos or jacklegs and
load-haul-dump machines, with primary access provided by adits and internal
ramps from an extensive tunnel system through the steep, mountainous terrain.
There is one milling facility at Tayoltita to process the production from the
active mining areas in San Dimas. The Tayoltita mill has a conventional process
flowsheet that employs crushing and grinding followed by cyanidation and zinc
precipitation for recovery of gold and silver. The mill currently has an
installed capacity of 2,100 tonnes per day and, in 2011, the mill averaged 1,950
tonnes per day (based on 340 days of production).

Recent Operating History for the San Dimas Mine

During the year ended December
31, 2011, San Dimas produced 102,224 gold equivalent ounces, comprised of 79,564
ounces of gold and 4.6 million ounces of silver, 7% less and 2% more,
respectively, than 2010. The reduction in gold production was primarily due to a
14% decrease in grades in the main production stopes. The impact of the decline
in grade was partially offset by an 8% increase in throughput from an average of
1,800 tonnes per day in 2010 to 1,950 tonnes per day in 2011.

Total cash costs on a gold
equivalent basis in 2011 were $640 per ounce compared with $584 per ounce in
2010 as a 12% increase in cash operating costs was partly offset by a 2%
increase in gold equivalent ounces. The main cost increases were in personnel
due to new hires and higher wages and benefits, cyanide (because of a global
shortage) and power (due to the below average rainy season that reduced power
from the Companys hydro generating facility and required power to be purchased
off the grid). In addition, a higher proportion of exploration expenditures were
incurred in the main production areas of the mine rather than future production
areas, so relatively more exploration costs were expensed in 2011. Although gold
production in 2011 was 7% lower than 2010, the impact of selling a portion of
silver production at spot prices increased gold equivalent ounces of silver by
53% in 2011 as compared to 2010. On a by-product basis, the benefit of silver
spot sales reduced total cash costs to $384 per gold ounce in 2011 from $471 per
gold ounce in 2010.

Significant portions of the
remediation plan for up-grading the Tayoltita tailings dam to international
standards were completed in 2007 and work has continued on improving this dam,
with the most important work being the construction in 2009 of two basins in the
back of the dam and the completion in 2011 of a third tailings filter, which
significantly increases the efficiency of the tailings filtering process. See
San Dimas Mine  Mining Operations  Tailings Dams  Tayoltita Tailings.

12

---

Exploration and Development Plans for the San Dimas
Mine

In 2012, Primero expects to
produce between 100,000 and 110,000 ounces (gold equivalent), which is inline
with 2011 production, based on higher throughput at lower grades. Capital
expenditures in 2012 are planned to remain steady compared with 2011, with
underground development and exploration drilling accounting for approximately
70% of the expected US$30 million expenditure. This will include 65,000 metres
of diamond drilling, consisting of 35,000 metres of delineation drilling and
30,000 metres of exploration drilling, plus 3,000 metres of exploration
drifting. The remainder of the capital expenditures in 2012 will be sustaining
capital of US$5.8 million plus capital projects of US$4.1 million. As a result
of the Company undertaking a review of its Mineral Reserve and Mineral Resource
estimation methods, the decision to expand the milling facility to 2,500 or
3,000 tonnes per day is expected to be made in the third quarter of 2012. See
San Dimas Mine  Mineral Resource and Mineral Reserve Estimates.

The underground development in
2012 will be focused in the main mining (Central Block) and exploration (Sinaloa
Graben) blocks. In 2012, the majority of the ore is expected to come from the
Central Block, with approximately 20% from the higher-grade Sinaloa Graben
block. Exploration target selection and prioritization for 2012 focuses on the
mineralized veins that occur in the prolific central corridor of the district.
This south-west to north-east trending corridor contains the Roberta and
Robertita veins, both systems being noted for their thickness, high-grade and
lateral extensions. A primary objective of 2012 is to explore the south-west
lateral extensions of the currently producing Roberta and Robertita vein systems
into the adjacent Sinaloa Graben.

Environmental Matters for the San Dimas Mine

On January 3, 2012, tailings
containing 5 ppm cyanide were spilled into the Piaxtla River, impacting a total
area of 2.5 kilometres. The spillage was the result of a hole that developed in
a tailings pipe. The Company notified Mexican governmental authorities of the
accident. The Mexican federal attorney for environmental protection,
Procuraduría Federal de Protección al Ambiente (PROFEPA), and the Mexican
national water commission, Comisión National del Aqua (CNA), visited the site
in January 2012. The Company understands that both the PROFEPA and the CNA
considered the spillage to be localized. On January 5, 2012, the municipality of
San Dimas, Durango, Mexico confirmed in a letter to the Company that they
considered the incident as localized and under control. The letter specifies
that the efficiency of the emergency response limited the damages to death of
small concentrations of fish, without any impact on animals. Following the
spill, the Company took a number of corrective actions including building a
temporary containment structure for the tailings pipe. On April 20, 2012,
PROFEPA issued its final report which specified that they would not fine Primero
for the incident but will monitor compliance with their recommendations,
including sampling of the soil and water quality in the Piaxtla River,
completion of an aquatic life study and building a permanent containment
structure for the tailings pipe. All of PROFEPAs requests have been implemented
except for the permanent containment structure, which is expected to be
completed in the second quarter of 2012 by placing the tailings pipe within
another pipe. The CNA will remit the final report and impose fines, if any,
against the Company following their review of PROFEPAs final report and
recommendations. See Risk Factors  San Dimas Tailings Management Risks.

Amended and Restated Silver Purchase Agreement

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

- the term of the Amended and Restated Silver Purchase Agreement will be for
  the life of the San Dimas Mine, with an initial term expiring October 15, 2029
  (the Initial Term) with automatic renewals for additional terms of ten years
  each, subject to SW Caymans right to terminate;
- Silver Trading will sell annually (a Contract Year) to SW Caymans an
  amount of refined silver (Refined Silver) determined as follows:

13

---

- a number of ounces of Refined Silver equal to all silver in respect of
  which Primero Empresa or any of its affiliates receives payment from any
  offtaker in each Contract Year (the Payable Silver) until a threshold amount
  of ounces of Refined Silver for such Contract Year (the Threshold Amount)
  has been sold and delivered to SW Caymans for the Contract Year. The Threshold
  Amount will be 3.5 million ounces until the fourth anniversary of the
  completion of the Acquisition and 6.0 million ounces thereafter;
- after the Threshold Amount has been delivered for a Contract Year, an
  amount of Refined Silver equal to 50% of any additional ounces of Payable
  Silver over the Threshold Amount. For the Contract Year ended August 5, 2011,
  the Company had delivered the Threshold Amount by June 2011;

- the purchase price for the Refined Silver will be equal to the lesser of
  (a) a fixed price of US$4.04 plus an increase of one percent annually (US$4.20
  commencing in August 2014 plus an annual one percent increase) and (b) the
  market price of Refined Silver at the time of sale;
- if, by October 15, 2031, 215 million ounces of Refined Silver (the
  Minimum Silver Amount) have not been sold and delivered to SW Caymans by
  Silver Trading under the Amended and Restated Silver Purchase Agreement
  (including amounts produced under predecessor agreements equal to
  approximately 37.25 million ounces as at April 30, 2010), then Silver Trading
  will be obligated to pay to SW Caymans an amount (the Minimum Silver
  Payment) equal to:

- the Minimum Silver Amount, less the number of ounces of Refined Silver
  actually sold and delivered to SW Caymans by October 15, 2031;

multiplied by

- US$0.50 per ounce;

- until the third anniversary of the Acquisition and the satisfaction of
  certain financial covenants, the Company and its affiliates are prohibited
  from incurring financial indebtedness in excess of US$50 million, excluding
  the Promissory Note and the Convertible Promissory Note, issued to DMSL in
  partial payment of the Purchase Price, without the prior written consent of SW
  Caymans, such consent not to be unreasonably withheld, provided that such
  consent is not required after the third anniversary of the completion of the
  Acquisition for any additional proposed financial indebtedness in excess of
  US$50 million in the event that:

- the Promissory Note has been repaid in full, or provision for such payment
  has been made on terms satisfactory to SW Caymans; and
- the Company will be in compliance with certain financial ratios relating
  to consolidated indebtedness to total capitalization, debt service coverage,
  and leverage related to net indebtedness after incurring the proposed
  financial indebtedness;

- the Company and Silver Trading will cause all silver produced by Primero
  Empresa to be sold, on standard commercial terms, to a third party, or
  offtaker, that purchases or takes delivery of the silver for the purpose of smelting, refining or other beneficiation
  of the silver for the benefit of Primero Empresa and its affiliates;

14

---

- the Company and Silver Trading will cause Primero Empresa to operate the
  San Dimas Mine in a commercially prudent manner and in accordance with good
  mining, processing, engineering and environmental practices prevailing in the
  mining industry, and in particular all short and long term mine planning,
  processing decisions and production decisions must include silver prices
  typical of normal industry practice and be made on the basis that Primero
  Empresa is receiving all of the silver production;
- the Company and Silver Trading will cause Primero Empresa not to abandon
  any of the mineral properties that constitute the San Dimas Mine, allow or
  permit any of them to lapse or cease conducting mining operations or
  activities on them, unless reasonable evidence can be provided to SW Caymans
  showing that it is not economical to mine minerals from the mineral properties
  that Primero Empresa proposes to abandon or let lapse;
- the Company has granted a right of first refusal to SW Caymans to meet any
  offer of a third party to enter into an agreement similar (in structure or
  economic impact) to the Amended and Restated Silver Purchase Agreement with
  respect to any metal produced from any other mining properties or projects
  owned by the Company or any of its affiliates or in which any of them have a
  right, title or interest; and
- the mineral properties that form the San Dimas Mine may not be sold
  without the consent of SW Caymans, such consent not to be unreasonably
  withheld.

Silver Trading is currently
entitled to purchase from Primero Empresa silver produced from the San Dimas
Mine under a silver purchase agreement that provides that

- Primero Empresa will sell to Silver Trading an amount of Refined Silver
  equal to the amount of Refined Silver to be sold by Silver Trading to SW
  Caymans under the Silver Purchase Agreement; and
- Silver Trading will pay to Primero Empresa a price for all Refined Silver
  equal to the lesser of approximately US$4 per ounce (adjusted for inflation)
  and the prevailing market price of Refined Silver at the time of sale.

See Risk Factors  Silver
Contract and Taxes, Risk Factors  Indebtedness, Risk Factors Acquisition
Identification and Integration Risks, Risk Factors  Conflicts of Interest,
and Risk Factors Additional Debt.

Agreements in Support of the Silver Purchase
Agreement

Silver Trading has granted to SW
Caymans first ranking security interests, subject only to certain permitted
encumbrances, in all of its present and after acquired personal property as
security for its obligations under the Amended and Restated Silver Purchase
Agreement. In addition, the Company and Primero Empresa have guaranteed the
obligations of Silver Trading under the Amended and Restated Silver Purchase
Agreement. In support of its guarantee, the Company has granted in favour of SW
Caymans a first ranking security interest, subject only to certain permitted
encumbrances, in all of its present and after acquired personal property, which
security will include stock pledges of the Companys interests in Silver Trading
and Primero Empresa. In support of its guarantee, Primero Empresa has granted in
favour of SW Caymans a first ranking security interest, subject only to certain
permitted encumbrances, in all of its present and after acquired personal
property and granted, on the completion of all property transfers to Primero
Empresa, a first ranking mortgage, subject only to certain permitted
encumbrances, against the mining concessions, real property and mineral
processing facility relating to the San Dimas Mine. The security granted or to
be granted will be subject to the following qualifications:

- the security will exclude mining properties and concessions, real
  property, contracts and tangible personal property not related to the San
  Dimas Mine, and any shares or other equity interest in a company that does not
  own any interest in Primero Empresa or the collateral granted by Primero
  Empresa; and

15

---

- the security granted may be subordinated, other than with respect to the
  first mortgage against the San Dimas mining concessions based on the value of
  the silver to be delivered to SW Caymans under the Amended and Restated Silver
  Purchase Agreement, with respect to financial indebtedness permitted under the
  Amended and Restated Silver Purchase Agreement, as described above, up to a
  limit of US$50 million and subject to the execution of an inter-creditor
  agreement between SW Caymans and the applicable lender.

Concurrent with the entering into
of the Amended and Restated Silver Purchase Agreement, Goldcorp delivered to SW
Caymans a guarantee (the Guarantee) and Primero and certain of its affiliates
entered into an indemnity agreement (the Indemnity Agreement) with Goldcorp
and an affiliate of Goldcorp. The Guarantee and the Indemnity Agreement provide
that:

- Goldcorp guarantees to SW Caymans the performance of the obligations of
  Silver Trading under the Amended and Restated Silver Purchase Agreement with
  respect to (a) delivery and sale of refined silver to SW Caymans and (b)
  payment of any deficiency payment resulting from failure of Silver Trading to
  deliver and sell the Minimum Silver Amount;
- the Company and its affiliates have agreed to indemnify Goldcorp for any
  payments that Goldcorp is required to make under the Guarantee, other than in
  respect of any deficiency payment resulting from the failure to deliver and
  sell the Minimum Silver Amount (except to the extent that a deficiency payment
  with respect to the Minimum Silver Amount arises as a result of Silver
  Tradings failure to sell and deliver produced silver to SW Caymans under the
  Amended and Restated Silver Purchase Agreement);
- Goldcorp has agreed to indemnify the Company and its affiliates for any
  deficiency payments payable by the Company or Silver Trading to SW Caymans
  under the Amended and Restated Silver Purchase Agreement if the Minimum Silver
  Amount is not sold and delivered to SW Caymans (except to the extent that a
  deficiency payment with respect to the Minimum Silver Amount arises as a
  result of Silver Tradings failure to sell and deliver produced silver to SW
  Caymans under the Amended and Restated Silver Purchase Agreement); and
- the Company and its affiliates have provided security to Goldcorp to
  support their indemnity, on substantially the same terms as, and ranking in
  priority immediately after, the security granted and to be granted to SW
  Caymans and such security will be subject to substantially the same
  restrictions on indebtedness and other covenants in favour of SW Caymans and
  the Company as are provided for in the Amended and Restated Silver Purchase
  Agreement (other than the right of first refusal and the incurring of
  additional indebtedness).

Advance Tax Ruling Application

During 2011, silver sales under
the Amended and Restated Silver Purchase Agreement realized approximately
US$4.00 per ounce; however, the Companys provision for income taxes before and
including the third quarter of 2011 was based on sales at market prices. On
October 17, 2011, the Company filed a formal application to the Mexican tax
authorities for an advance ruling on the Companys restructuring plan that, if
successful, would result in paying income taxes in Mexico based on revenue from
actual realized prices rather than spot prices for silver. The review of the
Companys application is likely to take 12 to 14 months, at the end of which the
tax authority will issue a tax resolution letter specifying the pricing method
that it considers appropriate for the Company to apply to intercompany sales
under the Amended and Restated Silver Purchase Agreement. During this
application process, the Company may record its revenues and intercompany
pricing under the terms that it considers reasonable. Commencing in the fourth
quarter of 2011, after completing a restructuring, the Company recorded revenue
under the Amended and Restated Silver Purchase Agreement at the fixed price
realized and recorded income taxes on the same basis. The Company intends to
continue to record revenue and taxes on this basis for the foreseeable future.
Throughout the application process, the Company intends to identify the
potential tax as a contingent liability and plans to retain access to sufficient
cash to satisfy that contingent liability in the event of an unfavourable
ruling. As at December 31, 2011, the amount of cash retained to satisfy this
contingent liability was US$9.8 million. See Risk Factors  Silver Contract and
Taxes.

16

---

Silver Call Options

As part of its ongoing tax
mitigation strategy, in September 2011, the Company purchased call options (the
Call Options) on 1,489,400 ounces of silver at a strike price of US$49.00 on
30% of silver production expected to be sold under the Amended and Restated
Silver Purchase Agreement over the period from October 1, 2011 to September 30,
2012. By covering 30% of expected sales under the Amended and Restated Silver
Purchase Agreement, the Call Options were designed to offset the incremental
income tax that would be payable by the Company if spot prices exceed the strike
price. As of December 31, 2011, contracts for 400,000 ounces of silver had
expired out of-the money (for a realized loss of US$367,460) and contracts for
1.1 million ounces of silver were marked-to-market (for an unrealized loss of
US$3.2 million).

This was the second tranche of
silver call options that the Company purchased in 2011. In March 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.
The contracts covered approximately two-thirds of the monthly silver production
sold to SW Caymans over the period April 1, 2011 to September 30, 2011 (to cover
the tax exposure and to potentially gain from a rise in the price of silver).
All contracts under the March 18, 2011 purchase had expired by December 31,
2011, realizing an aggregate loss of US$348,000.

Ventanas Exploration Property

As part of the Acquisition,
Primero acquired the Ventanas exploration property located in the Ventanas
mining district in Durango State, Mexico. This property was previously under
option to Primero. This exploration property is comprised of 28 near-contiguous
mining concessions covering approximately 3,470 hectares or 35 square
kilometres. The Company last drilled on the property in 2008 and since then the
property has been on care and maintenance. Primero is assessing its future plans
for the Ventanas property.

Competitive Conditions

The mining industry is
competitive in all of its phases. Primero faces strong competition from other
mining companies in connection with the acquisition of properties producing, or
capable of producing, precious and base metals. Many of these companies have
greater financial resources, operational experience and technical capabilities
than Primero. As a result of this competition, Primero may be unable to maintain
or acquire attractive mining properties on terms it considers acceptable or at
all. Consequently, Primeros revenues, operations and financial condition could
be materially adversely affected. Further, Primero has agreed not to acquire any
mineral interest in Mexico that is within 20 kilometres of any mineral property
in Mexico owned by Goldcorp and its affiliates. See Risk Factors 
Competition.

Changes to Contracts

As at December 31, 2011, Primero
had 567 unionized employees at the San Dimas Mine who are members of two unions:
Sindicato Nacional de Trabajadores Mineros and Metalúrgicos, Siderúrgicos y
Similares de la República Mexicana. The union contracts are renegotiated every
two years, except for the compensation aspects, which are reviewed annually. In
2012, only the compensation aspects of the union contracts are due to be
negotiated. Primero believes that its current relations with its employees and
the unions are good and that the effect of the contract negotiations in 2012
will be in line with its budgets. See Business of Primero  Employees and
Risk Factors  Labour and Employment Matters.

Environmental Protection

The Companys mining, exploration
and development activities are subject to various levels of Mexican federal and
state laws and regulations relating to the protection of the environment,
including requirements for closure and reclamation of mining properties, all of
which the Company is currently in material compliance. The financial and
operational effects of environmental protection requirements on capital
expenditures, earnings, expenditures and the Companys competitive position
during the fiscal year ended December 31, 2011 were not material, other than completion of the third tailings filter
for a cost of US$1.3 million in 2011. In 2012 the Company plans to purchase
additional pumps to transport tailings to the tailings facility at a cost of
US$1.4 million.

17

---

In March 2012, the Company was
awarded the ESR designation by CEMEFI, the Mexican Center for Philanthropy. The
ESR award is given to companies operating in Mexico that are committed to
sustainable economic, social and environmental operations in all areas of
corporate life, including business ethics, involvement with the community and
preservation of the environment. Only 572 companies in Mexico currently have the
ESR award.

The Company has accounted for its
asset retirement obligation, consisting of reclamation and closure costs for the
San Dimas Mine, in its financial statements. See San Dimas Mine  Property
Description and Location Environmental Matters, San Dimas Mine  Mining
Operations  Tailings Dams, and Risk Factors Environmental Risks and
Hazards.

Employees

As at December 31, 2011, the
Company had the following employees and contractors:

|                   |  | Full-Time |  |  | Hourly  |  |  |             |  |  |       | 
|------------------ |  | --------- |  |  | ------- |  |  | ----------- |  |  | ----- | 
|Location           |  | Salaried  |  |  | (Union) |  |  | Contractors |  |  | Total | 
|Mexico City Office |  | 13        |  |  | Nil     |  |  | Nil         |  |  | 13    | 
|San Dimas Mine     |  | 488       |  |  | 567     |  |  | 131         |  |  | 1,186 | 
|Vancouver Office   |  | 5         |  |  | Nil     |  |  | 1           |  |  | 6     | 
|Toronto Office     |  | 7         |  |  | Nil     |  |  | Nil         |  |  | 7     | 
|Total              |  | 513       |  |  | 567     |  |  | 132         |  |  | 1,212 | 

Foreign Operations

All of the Companys mining and
mineral exploration operations are currently conducted in Mexico, and as such
Primeros operations are exposed to various levels of political, economic and
other risks and uncertainties. These risks and uncertainties include, but are
not limited to, terrorism; organized crime; hostage taking; military repression;
theft; expropriation; extreme fluctuations in currency exchange rates; high
rates of inflation; labour unrest; the risks of war or civil unrest;
renegotiation or nullification of existing concessions, licenses, permits and
contracts; illegal mining; changes in taxation policies; restrictions on foreign
exchange and repatriation; and changing political conditions, currency controls
and governmental regulations that favour or require the awarding of contracts to
local contractors or require foreign contractors to employ citizens of, or
purchase supplies from, a particular jurisdiction. Any changes in regulations or
shifts in political attitudes in Mexico are beyond the control of the Company
and may adversely affect its business. Future development and operations may be
affected in varying degrees by such factors as government regulations (or
changes thereto) with respect to the restrictions on production, export
controls, income taxes, expropriation of property, repatriation of profits,
environmental legislation, land use, water use, land claims of local people and
mine safety. The effect of these factors cannot be accurately predicted. See
Risk Factors  Local Groups, Risk Factors  Foreign Operations Risks and
Risk Factors  Mining Operations in Mexico.

Environmental, Social and Governance Policies

Primeros operating practices are
governed by the principles set out in its Health and Safety Policy and Code of
Ethics. The Environmental, Health and Safety Committee of the Board, which was
appointed in December 2010 and reports to the Board, provides oversight in
occupational health and safety, community relations, and environmental
management. Internal weekly and quarterly reporting tracks performance
indicators including human resources, health and safety performance,
environmental monitoring, compliance with permits, materials inputs and outputs,
and community relations activities. Primeros Board and senior management team
have committed to the sustainability reporting process and report publicly on
performance through the Annual Report and website.

18

---

Primero has an active and
continuous corporate social responsibility (CSR) program focused on health and
safety, positive community relations and protection of the environment.

Health and safety at San Dimas is
administered by the Central Safety Committee, which is chaired by the general
manager of the mine and its members include all superintendents of operations
and services. The Central Safety Committee meets monthly to consider all aspects
of industrial safety. Employees are recognized for their safety awareness each
month as a way to encourage safe practices. The Central Safety Committee
oversees a number of subcommittees, including the Documentary System
Subcommittee, which defines (documents) standard work procedures for each job
function; the Preventative Observations Subcommittee, which encourages the
reporting of unsafe practices, so that they can be publicized and eliminated,
and conducts ad hoc safety reviews, and the Subcommittee on Accident and
Incident Investigation, which analyses each accident or incident (there were 13
in 2011), makes recommendations and monitors compliance with its
recommendations. In 2011, Primero participated in the Self-management Program
for Safety and Health at Work in conjunction with the Ministry of Labour and
determined that its compliance with health and safety regulations at work was
93%. The Company also has monthly campaigns focused on a particular health or
safety issue, for example defensive driving, safe handling of sodium cyanide and
security in high altitude work. Primeros rescue squad has a regular program of
training and emergency response exercises. In 2011, the mine rescue squad placed
first in a national competition of rescue squads organized by the Mining Chamber
of Mexico. These health and safety programs are yielding results as the total
accident frequency index declined in 2011 for the sixth consecutive year.

With respect to community
relations, in 2011, Primero carried out a study to determine the economic,
social and cultural development of the communities in which it operates, with
the aim to improve community development. Surveys were sent to 925 households
(representing 95% coverage) to gather information about housing, demographic
data, health data, family relationships and community involvement. Primero
supports community education and provides a 75% tuition subsidy to all students
who attend the school in Tayoltita. In 2011, 220 students were enrolled at the
school. Other community initiatives in 2011 included rehabilitation of
Tayoltitas child care facilities; the provision of workshops on the prevention
of addictions in community schools, and the creation of a bi-monthly magazine to
serve as a communication channel between workers and the community to promote
interest in the mining industry and stimulate sharing of ideas and experiences.
In March 2012, the Company was awarded the prestigious Socially Responsible
Company (ESR) designation by CEMEFI, the Mexican Center for Philanthropy, in
recognition of its commitment to sustainable economic, social and environmental
operations.

Primero introduced a number of
campaigns in 2011 to increase environmental awareness, including collecting and
disposing of outdated household appliances (three tons of appliances were
shipped to Durango for proper disposal); organizing schools, the municipality
and its workforce to clear up the debris along the Piaxtla River (16 tons of
garbage was removed), complemented by talks to encourage respect for the
environment, and, in collaboration with the Ministry of Education and the Youth
Integration Centre, holding talks on water care, energy and the environment. The
Company carried out various aquatic life studies in the Piaxtla River to
identify fish species and macro invertebrates and assess their habitats, and to
test water quality at four monitoring stations, both upstream and downstream
from the mine. Primero also carried out an atmospheric study in collaboration
with a third-party environmental consulting company. Results of the study
confirmed that particle emissions generated by various functions (for example,
the plant, the crushing facility and the smelting furnace) were all below
regulatory limits established by SEMARNAT (the Mexican environmental protection
agency) and that air quality at San Dimas was at acceptable levels.

In 2011, the Company completed
the installation of a third tailings filter (the project started construction in
2010). The third filter has a capacity of 353,160 tonnes per year, adding to the
combined capacity of the first two filters of 410,400 tonnes per year. With the
new filter, San Dimas achieved 85% efficiency in the tailings filtering process.
In the five months that the new filter was operating in 2011, the Company was
able to recover an average of 43,000 tonnes of solution each month to be
recycled into the leaching process. The third filter also provides redundancy in
the event that any one of the filters is not operating.

The Company plans to continue to
promote and expand the CSR programs that it has already implemented in 2012.
Building employee and community awareness of health and safety issues and
protection of the environment will remain a priority. The mine is the economic
and social driving force of the community and Primero will continue to
strengthen its involvement in the community.

19

---

SAN DIMAS MINE

On January 17, 2012, Primero
announced that it was undertaking a review of its Mineral Reserve and Mineral
Resource estimation methods in order to assess whether the use of other
estimation methodologies might allow Primero to improve mine planning and more
accurately predict actual grade and, therefore, production. On March 28, 2012
Primero announced the results of that review and new Mineral Resource and
Mineral Reserve estimates. See San Dimas Mine  Mineral Resource and Mineral
Reserve Estimates.

The change in Mineral Reserve and
Mineral Resource estimates at San Dimas does not impact Managements confidence
in the ultimate mineral potential of the mine. Primero believes that the new
estimation approach and further drilling and mine development will result in
more accurate mine planning, new mineral discoveries and a reasonable amount of
the exploration potential being converted into Mineral Resources. Over 300,000
ounces of gold in the current Inferred Mineral Resource are within current
infrastructure and constrained within the mineralization envelope of the known
veins, ready to be infill drilled with the aim of converting to Mineral
Reserves.

Except as indicated below, the
following description of the San Dimas Mine has been summarized from the
technical report entitled San Dimas Property, San Dimas District, Durango and
Sinaloa States, Mexico, Technical Report for Primero Mining Corp. dated April
16, 2012 (the Technical Report), prepared in accordance with NI 43-101 by Mr.
J. Morton Shannon, P. Geo., Mr. Rodney Webster, M.AIG, Mr. Herbert A. Smith,
P.Eng, and Mr. Alan Riles, M.AIG, all of AMC Mining Consultants (Canada) Ltd.
(AMC) and each a Qualified Person for the purposes of NI 43-101. Readers
should consult the Technical Report to obtain further particulars regarding the
San Dimas Mine. The Technical Report is available for review under the Companys
profile on the SEDAR website located at www.sedar.com. The information under the
heading San Dimas Mine  Mining Operations  Taxes has been prepared by
Primero and is not part of the Technical Report.

Property Description and Location

Primero is currently conducting
underground mining and/or exploration in five different areas of the property:
West Block; Sinaloa Graben Block; Central Block; Tayoltita mine and Santa Rita
mine.

The San Dimas Mine is located on
the borders of the Durango and Sinaloa states, approximately 125 km north-east
of Mazatlan, Sinaloa and 150 km west of the city of Durango, Durango, in Mexico.
The property is centered on latitude 24°06N and longitude 105°56W. The
following map shows the location of the San Dimas Mine, relative to the nearest
centres:

20

---



Mining Concessions, Royalties and Permits

The San Dimas property consists
of 66 contiguous concessions covering 24,966 hectares, having expiry dates
ranging from 2019 to 2060. As per Mexican requirements for grant of tenure, the
concessions comprising the San Dimas Mine have been surveyed on the ground by a
licensed surveyor. All appropriate payments have been made to the relevant
authorities and the licenses are in good standing. Primero has secured surface
rights by either acquisition of private and public land or by entering into
temporary occupation agreements with surrounding communities. There are no
royalties payable to any entity, including any governmental entity as current
Mexican legislation does not require government royalty payments.

Primero also holds the
appropriate permits under local, State and Federal laws to allow mining
operations. The main environmental permit is the Licencia Ambiental Unica under
which the mine operates its industrial facilities. Any expansion of the
processing plant will require an amendment to this licence. Other significant
permits are those related to water supply and water discharge rights. There is a
waste pad project ongoing for which both the environmental impact study and the
technical justification study have been presented to Secretaria de Medio
Ambiente y Recursos Naturales, the Mexican environmental protection agency. In
addition, permits have been requested from the Commission National de Agua
regarding the Piaxtla River diversion that is part of this waste pad
project.

Environmental Matters

The San Dimas property is subject
to a full closure plan and reclamation of the site upon cessation of operations,
which would involve all facilities currently being used (mill, hydro plant,
mines, surface infrastructure, power line, roads, current dry tailings). Primero
is currently dealing with two past environmental liabilities: reclamation of old
San Antonio milling facilities and closure/reclamation of old Contrestacas
tailings facilities. All work is expected to be completed by mid 2014.

There was a cyanide spill from a
tailings pipe at the Tayoltita tailings operation in January 2012. As a result
of this spill, Primero has taken a number of corrective actions including
building a temporary containment structure for the tailings pipe (design
specifications for a permanent solution are under consideration) and conducting
a preliminary assessment to confirm that there is no residual impact to Piaxtla
River aquatic life. An external expert will conduct a further assessment during the second quarter of
2012. See Business of Primero  San Dimas Mine Environmental Matters for the
San Dimas Mines and Risk Factors  San Dimas Tailings Management Risks.

21

---

Access, Climate, Local Resources, Infrastructure and
Physiography

Access

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

Originally, access to the San
Dimas district was from the town of San Ignacio, Sinaloa along a 55 kilometres
long narrow mule trail, carved in the steep valley wall above the high water
level of the Piaxtla River. A rough road, paralleling the mule trail, now
follows the river bed to San Ignacio but the road is only accessible for
approximately six months of the year during the spring dry season. San Ignacio
is connected to Mazatlan by approximately 70 kilometres of paved roads.

Climate

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

Local Resources and Infrastructure

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

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

Electrical power is provided by a
combination of Primeros own hydro generation system  Las Truchas and the
Federal Power Commission Supply System (the FPCSS). Primero operates
hydroelectric and back-up diesel generators, which are interconnected with the
FPCSS. Las Truchas provides about 75% of the total requirement of the San Dimas
Mine during nine months of the year. During the remaining three months of the
year, corresponding to the dry season, the operations of San Dimas are mainly
supplied by the FPCSS. Primero is considering increasing the power generation of
the Las Truchas facility from 50 GW to 150 GW.

The main infrastructure of the
San Dimas district consists of roads, a townsite, an airport, the crushing and
processing facilities of the Tayoltita mill, the old San Antonio mill, the
Tayoltita/Cupias and San Antonio tailings facilities, the Las Truchas hydro
generation facilities, a diesel power plant and the San Dimas Mine, which is
divided into five blocks: West Block; Sinaloa Graben Block; Central Block;
Tayoltita mine and Santa Rita mine. The San Antonio facility is currently under
reclamation.

The Tayoltita mine is the closest
operation to the process plant and town site of Tayoltita and is located 400
metres north east of the process plant. The Santa Rita mine is located three
kilometres upstream from Tayoltita. The ore from the Santa Rita mine is trucked
along a winding road that follows the Piaxtla River to the Tayoltita mill. The
Central Block is currently the most active mine and is located 2,000 metres
downstream from the process plant. The ore from this operation is hauled by a road parallel to the
Piaxtla River and sent directly into the mill. The Sinaloa Graben mine is the
most recent operation integrated to production, and is presently where the major
exploration and growth is expected; the Sinaloa Graben is located 1,000 metres
downstream from the Central Block mine. The West Block mine is located seven
kilometres west of the Tayoltita mine in the State of Sinaloa. The mine is
accessed from Tayoltita by a three kilometre road paralleling the Piaxtla River,
opposite the town of Tayoltita to the portal of the San Luis Tunnel, through the
tunnel and then by road, or along the San Vicente creek bed to the Contraestaca
village, for a total drive of approximately 45 minutes.

22

---

The following figure shows the
infrastructure of the San Dimas district:



For more information regarding
the tailings facilities, see San Dimas Mine  Mining Operations Tailings
Dams.

Physiography and Vegetation

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

History

Prior Ownership

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

23

---

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

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

Historical Exploration and Development Work

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

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

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

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

Historical Production

Historical production through to
the end of 2011 from the San Dimas Mine is estimated at 11 million ounces of
gold and 582 million ounces of silver, placing the district third in Mexico for
precious metal production after Pachuca and Guanajuato. Historical production
for the San Dimas Mine from 2003 to 2011 is summarized in the following
table:

San Dimas Mine Production

Grade
    
    
    Contained OuncesTonnes
    
    
    Au
    
    
    Ag
    
    
    Au
    
    
    Ag**Year**
    
    (M
      t)
    
    
    (g/t)
    
    
    (g/t)
    
    
    (K
      oz)
    
    
    (K
      oz)2003
    
    0.424
    
    
    5.3
    
    
    428
    
    
    71
    
    
    5,8252004
    
    0.398
    
    
    6.9
    
    
    525
    
    
    88
    
    
    6,7172005
    
    0.508
    
    
    7.4
    
    
    497
    
    
    121
    
    
    8,1152006
    
    0.689
    
    
    7.8
    
    
    438
    
    
    172
    
    
    9,7062007
    
    0.685
    
    
    6.3
    
    
    341
    
    
    138
    
    
    7,5012008
    
    0.657
    
    
    4.3
    
    
    259
    
    
    90
    
    
    5,479


24

---

Grade
    
    
    Contained OuncesTonnes
    
    
    Au
    
    
    Ag
    
    
    Au
    
    
    Ag**Year**
    
    (M
      t)
    
    
    (g/t)
    
    
    (g/t)
    
    
    (K
      oz)
    
    
    (K
      oz)2009
    
    0.673
    
    
    5.4
    
    
    247
    
    
    116
    
    
    5,3562010(1)
    
    0.612
    
    
    4.5
    
    
    244
    
    
    88
    
    
    4,8032011
    
    0.663
    
    
    3.9
    
    
    226
    
    
    82
    
    
    4,830


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

Geological Setting

Regional Geology

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

The LVG is of Eocene age
predominantly composed of andesites and rhyolitic flows and tuffs and has been
locally divided into six units. The LVG outcrops along the canyons formed by
major westward drainage systems and has been intruded by younger members of the
batholith complex of granitic to granodioritic composition. The Socavón rhyolite
is the oldest volcanic unit in the district, its lower contact destroyed by the
intrusion of the Piaxtla granite.

The Socavón rhyolite is more than
700 metres thick and is host for several productive veins in the district.
Overlying the Socavón rhyolite is the 20 to 75 metres thick, well-bedded Buelna
andesite that is remarkably persistent throughout the area. The Buelna andesite
is overlain by the Portal rhyolite, a grey, cream to purple coloured rock
containing potassic feldspar and quartz cementing small (5 to 10 millimetres)
volcanic rock fragments. It ranges in thickness from 50 to 250 metres and is
also prevalent throughout the district.

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

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

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

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

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

Local and Property Geology

In the San Dimas district, the
UVG is divided into a subordinate lower unit composed mainly of lavas of
intermediate composition called Guarisamey Andesite and an upper unit called the
Capping Rhyolite. The Capping Rhyolite is mainly composed of rhyolitic ash flows
and air-fall tuffs and is up to 1,500 metres thick in the eastern part of the district; however, within most of the district it
is about 1,000 metres thick. The San Dimas district lies within an area of
complex normal faulting along the western edge of the Sierra Madre Occidental.
Compressive forces first formed predominantly east-west and east-northeast
tension gashes that were later cut by transgressive north-northwest striking
slip faults. The strike-slip movements caused the development of secondary
north-northeast faults, with right lateral displacement. The following diagram
shows the structural blocks in the San Dimas district with the bounding faults
in blue. Five major north-northwest-trending normal faults, shown in blue,
divide the district into five tilted fault blocks generally dipping 35° to the
east.

25

---



26

---

Deposits and Mineralization

Deposits

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

As is common in epithermal
deposits, the hydrothermal activity that produces the epithermal vein
mineralization began a few million years after the intrusion of the closely
associated plutonic rocks and several million years after the end of the
volcanism that produced the rocks that host the hydrothermal systems. At San
Dimas, based on age determinations, the average period between the end of the
late stage of plutonism and the hydrothermal activity is 2.1 million years;
however, hydrothermal activity continued for at least another 5 million years.
Older veins appear more common in the eastern part of the district, whereas
younger veins are found in the western part.

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

This favourable, or productive,
zone at San Dimas Mine is some 300 metres to 600 metres in vertical extent and
can be correlated, based both on stratigraphic and geochronologic relationships,
from vein system to vein system and from fault block to fault block. Using this
concept of the dip of the unconformity at the base of the UVG, the various mine
owners, over the years, have been able to infer the dip of the Favourable Zone
and with considerable success explore and predict the Favourable Zone in
untested areas.

Mineralization

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

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

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

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

Exploration and Drilling

Historically, exploration of the
Favourable Zone at San Dimas Mine has been done both by diamond drilling and by
underground development work. Diamond drilling is predominantly done from
underground stations as both the rugged topography (i.e. access to surface drill
stations) and the great drilling distance from the surface locations to the target(s) makes surface drilling both
challenging and expensive. All exploration drilling and the exploration
underground development work are done both in-house and by use of contractors,
such contractors being Services Inter Lab of Mexico, S.A. de C.V. and Mr. Jose
Valente Nevarez Samaniego.

27

---

Channel Sampling

While drilling is now the current
method of exploration, underground channel sampling plays a large role in the
estimation of current Mineral Resources.

Channel samples are routinely
taken every three metres in all development in vein, and stoping is sampled
every two rounds (6 metres). Sample limits within the vein are based on texture
and mineralogy changes. No sample is more than 1.2 metres in length and the
minimum sample width is 0.2 metres. A second cut is taken across the vein as a
validation and the results averaged for grade control purposes. A tarpaulin is
laid down below the sample line. The samples are taken as a rough channel along
the marked line, ensuring that the unit is sampled in a representative fashion,
with large slabs being broken and sub-sampled. The total sample which has
collected on the tarpaulin is broken with a hammer, mixed and quartered such
that a 2 kilogram sample is bagged and labelled with sample number and location
details. Samples are dispatched to the Primero Tayoltita Mine Laboratory (the
TAY Lab) and samples received by 1:00 p.m. are reported that day. Sketches of
the face sampled are filed, showing samples physical locations from surveying
and the measured width of each sample. Since January 2012, 15% of all channel
samples have been sent to the independent SGS laboratory in Durango. These
samples will have QA/QC procedures applied and will be of a standard that can be
reliably used for estimation of Mineral Resources. The vein mapping and channel
sampling is continually plotted on plans and both used for grade control and for
Mineral Resource estimation.

Drilling

All drilling was previously
termed exploration drilling and collected data well away from the underground
development that was intensively tested by channel sampling. Commencing in 2011
drilling designed to convert Inferred Mineral Resources to Indicated Mineral
Resources was designated as delineation drilling and drilling designed to
explore the extension of known veins and test new targets was designated as
exploration drilling. The drilling conducted in 2011 is shown in the following
table.

|                   |  | Number of   |  |  |        |  |  | Number of |  |  | Significant | 
|------------------ |  | ----------- |  |  | ------ |  |  | --------- |  |  | ----------- | 
|Area               |  | Drill Holes |  |  | Metres |  |  | Targets   |  |  | Intercepts  | 
|Arana Hanging Wall |  | 21          |  |  | 12,238 |  |  | 6         |  |  | 1           | 
|Central Block      |  | 100         |  |  | 25,572 |  |  | 10        |  |  | 10          | 
|Sinaloa Graben     |  | 63          |  |  | 18,242 |  |  | 13        |  |  | 15          | 
|Total              |  | 184         |  |  | 56,052 |  |  | 29        |  |  | 26          | 

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

2011/2012 Exploration Drilling

Exploration drilling in 2011 and
early 2012 was concentrated on the Sinaloa Graben, located between the West
Block (San Antonio mine) and the Central Block, and between the Central Block
(Robertita) and the Arana Hanging Wall, located between the Tayoltita mine and
the Santa Rita mine. The Sinaloa Graben is a North-South trending block more
than 7 kilometres long by almost 2 kilometres wide, bounded by two regional
faults, Limoncito on the east and Sinaloa on the west, containing more than 20
veins of which only two, San Juan and San Vicente veins have been mined with the
remainder of the veins unexplored. Approximately US$10.8 million was spent
during 2011 on exploration with 56,000 metres of exploration drilling in 184
holes, and 2,019 metres of exploration drifting being completed. For 2012 the
exploration budget was increased to US$12 million.

28

---

Central Block

In the Central Block, 100 holes
were completed in 2011 for a total of 25,572 metres of drilling. Drilling was
focused on upgrading the Inferred Mineral Resources to Proven and Probable
Mineral Reserve categories and to expand the knowledge at depth of the
mineralized system. Drilling indicated that the known mineralization extends to
a depth of at least 150 metres below the deepest current exploitation level.

Sinaloa Graben

In the Sinaloa Graben, 63 holes
were completed for a total of 18,242 metres of drilling. Drilling was focused on
improving the certainty of the Inferred Mineral Resource and to confirm that the
mineralization (ore shoots) were a continuation of the ore shoots of the Central
Block. The exploration results at Sinaloa Graben continue to confirm higher
grade mineralization than existing Mineral Reserves and Mineral Resources. The
Aranza vein, discovered while drifting in Sinaloa Graben, yielded 5.2g/t of gold
and 543g/t of silver over 2.2 metres. The newly discovered Elia vein, along the
same drift, also showed high-grade, with 12.9g/t of gold and 1,125g/t of silver
over 3 metres.

Results have also proven
high-grade mineralization extends beyond the Sinaloa Graben to the west (West
Block) and at depth. The Victoria vein, 300 metres to the west of Sinaloa
Graben, showed 12.6g/t of gold and 685g/t of silver over 1.5 metres true width
and 10.5 g/t of gold and 498 g/t of silver over 3.68 metres true width, which is
a much higher grade and width than the current average. This area has never been
explored in detail and has now been included into the 2012 exploration plan.

Arana Hanging Wall

In the Arana Hanging Wall area,
21 holes were completed in 2011 for a total of 12,238 metres of drilling. The
objective of the 2011 exploration program in the Arana Hanging Wall area was to
confirm the presence of the large ore shoots suggested by previous results.

Drilling results successfully
confirmed the presence of mineralization at above average Mineral Reserve grade
but at narrow widths. Holes A-25-230 (2) and A-25-230 (3) returned 3.0g/t of
gold and 581g/t of silver in a width of 0.60 metres and 5.9g/t of gold and
234g/t of silver over 0.40 metres of true width.

Primero has prioritized other
exploration targets in the Central Block and particularly in the Sinaloa Graben
Block. No exploration drilling is planned in the Arana Hanging Wall in 2012.

Contemplated Exploration and Development Activities

The San Dimas US$12 million 2012
exploration program includes approximately 65,000 metres of diamond drilling
employing 14 rigs, broken into 30,000 metres of exploration drilling and 35,000
metres of delineation drilling, plus 3,000 metres of exploration drifting.

The current main production area
is located in a prolific central corridor that runs south-west to north-east
across the property. This central corridor historically contains vein systems
that are noted for their high-grade nature, above average thickness and
significant lateral extensions.

The San Dimas 2012 exploration
program is designed to aggressively drill the exploration potential located in
this prolific central corridor. Mineralization will be systematically targeted
in close proximity to existing infrastructure. A primary objective of 2012 is to
explore the south-west lateral extensions of the currently producing Roberta and
Robertita vein systems into the adjacent Sinaloa Graben.

The Sinaloa Graben is the next
high-grade mineralized zone at San Dimas, and represents a considerable portion
of the potential mid to long term production for the mine. This block contains
more than 20 known veins of which only two have been mined with the remainder of
the veins unexplored. A north-south tunnel currently extending 4.5 kilometres
(planned to extend to 8.0 kilometres) through the centre of the Sinaloa Graben
has been developed and provides direct underground access to the
east-west mineralization projected within the high grade central corridor. The
following figure is a cross section showing exploration targets:

29

---



Since acquiring the mine, Primero
has discovered the Elia and Aranza high-grade veins in the southern end of the
central corridor in the Sinaloa Graben. The Elia and Aranza veins are separated
by 250 metres and run almost parallel to the central corridor of mineralization.
Drifting results from Elia and Aranza continue to exceed expectations suggesting
that the Sinaloa Graben contains much higher than the average grade and width of
mineralization than Mineral Reserves and Mineral Resources in the Central
Block.

On March 28, 2012 Primero
announced the discovery of the Victoria vein, located in the Sinaloa Graben, 1.0
kilometre north of the Elia vein. Several high-grade intercepts of the Victoria
vein have been intersected, and these exhibit similar grades, widths and
mineralization as the Robertita vein system in the adjacent Central Block.

The discovery of the Victoria
vein is a promising result of Primeros 2012 objective to validate the existence
of the south-west lateral extensions of the Roberta and Robertita vein systems
into the Sinaloa Graben. San Dimas is currently drilling the Victoria vein from
former underground workings of the El Pilar vein with two rigs, and expects to
extend the known ore-shoot along strike and at depth. Access to the Victoria
vein area has improved recently as a result of underground development advancing
west from the Central Block and north via the Sinaloa Graben tunnel. San Dimas
is now able to drill the Victoria vein and the wider Sinaloa Graben from three
strategic underground locations.

Primeros goal in 2012 is to add
to the estimated Mineral Reserves and Mineral Resources, net of depletion, and
to convert mineralization from exploration potential to Inferred Mineral
Resources through new discoveries.

Sampling, Assaying and Security

The majority of the data utilized
in the Mineral Resource estimation has been generated in the TAY Lab, with some
samples having been assayed at the San Antonio laboratory, which was
decommissioned in 2004. Both laboratories have been owned and operated by the
mine, and have not been accredited at any time. The TAY Lab was audited in early
2012. The audit identified a number of deficiencies and, to the extent that
these applied at the time of the audit, some of these are discussed below.

As a result of the audit, Primero
has implemented revised quality control procedures and is working to upgrade or
replace equipment at the TAY Lab. Since October 2011, Primero has been utilizing
an external independent laboratory (SGS in Durango, an ISO 17025 certified
laboratory) for all drill samples. While channel samples continue to be
processed principally at the TAY Lab, approximately 10% of the samples are also
sent to SGS.

30

---

Sample Handling and Preparation

Samples are delivered to the TAY
Lab on an ongoing basis. The building is located in a fenced area and consists
of a central corridor with the various activities taking place in rooms off of
it. There are no formal sample transmission and reception procedures, and
checking of sample numbers is difficult and not assisted by the reuse of sample
numbers over time.

Samples are placed in bowls and
dried in a small drying oven, but drying facilities are limited. Crushing is
carried out in a Marcy jaw crusher and pulverizing is carried out in two disc
mills and one small ring and puck mill. Sample pulps are delivered to the
weighing room. The equipment being used is old and overused.

Sample Analysis

Gold values were determined by
Fire Assay using a 10g fire assay charge, finished by gravimetric means. The
small charge is governed by the size of the fusion crucibles which is dictated
by the size of the furnaces.

While some standards are used by
the TAY Lab, since 2009 these have not been certified standards. Until recently,
pulps were held for one month and then discarded, which did not give time to
review any QA/QC data and re-run batches.

Data Security

Data is entered into a daily
Excel spreadsheet, which is placed on the server such that Primero personnel can
access the data on a daily basis. The results for geology can only be accessed
by geology staff and the cells are protected with only the laboratory having the
ability to place data into the database. While some limits to access are in
place on the daily sheet, there is not a secure database within the laboratory.
In addition, manual transcriptions take place in the laboratory process.

Laboratory Audit

Primero had a third party audit
the TAY Lab in early 2012. The auditor noted poor quality of the data and, in a
meeting with Primero, noted concerns over poor sample preparation procedures,
flawed assaying, that no certified standards had been used since 2009, and the
likelihood for mixed up and duplicate sample numbers.

Due to the quality of the data
not being up to industry standards, a set of tasks was put in place in order to
support current and future Mineral Resource and Mineral Reserve estimates. The
most important activity involved a review of the reconciliation process and the
comparison based on the laboratory figures to the metal in doré. The fact that
San Dimas is an operating mine that has been successfully producing precious
metals for many decades means that reconciliation is an important indicator of
the reliability of Mineral Resource and Mineral Reserve estimates. This is
particularly the case when data underpinning those estimates is of questionable
reliability. See San Dimas Mine  Sampling, Assaying and Security  Data
Verification.

Assay QA/QC

As part of its review, AMC
investigated the historical QA/QC data supplied by Primero and replotted some of
the data provided. AMCs analysis reinforces the observations of the 2012 audit
and found a poor correlation between the SGS analysis of TAY Lab duplicates,
blanks well above background levels for gold and silver, and gold standards not
falling within acceptable limits.

AMC was of the opinion that there
was an issue with the underlying assay data and it was of poor quality, and
recommended that Primero continues utilizing an external laboratory for all
drill samples and a portion of the channel samples until equipment at the site
laboratory can be upgraded or replaced. Primero intends to upgrade the TAY Lab
as quickly as possible.

31

---

AMC also recommended that both
the TAY Lab and the Primero geology group adopt the use of certified standards
and standard control plots for ongoing tracking and for QA/QC reports that
should be produced monthly. Most importantly, AMC recommended that corrective
action be taken within a short time period when non-compliance to control limits
is identified.

Data Verification

On the basis of the data being of
relatively poor quality, AMC undertook a number of checks in order to ensure the
data was managed and utilized correctly. These checks included:

- Assay Integrity The daily laboratory results sheets of the TAY
  Lab, and the results database, were reviewed by AMC to see if results could be
  changed;
- Data Flow Five entries were randomly selected by AMC from the
  resource database underpinning the polygonal resource estimates, and the data
  supporting the estimates was reviewed;
- Mill Reconciliation AMC reviewed the results of a mill
  reconciliation exercise undertaken by Primero in December 2011. The
  reconciliation exercise had been carried out to ensure that mining decisions
  were based on sound grade figures and to identify if there was a correlation
  between the daily grades and the final month-end reported grades, which are
  prepared based on gold/silver poured during the month. For the entire month a
  daily sample of the ball mill feed was taken at the automatic sampler located
  at the end of the belt feeding the surge bin and prepared/split under
  supervision. One sample was sent to the TAY Lab while a duplicate sample was
  sent to the external SGS lab located in Durango. In addition the pulps
  generated at TAY Lab on a daily basis were sent to SGS lab to be assayed.
  Primero worked to ensure that the samples sent to the TAY Lab and SGS lab were
  representative of the daily mill feed and were duplicate samples;
- Model Depletion The tonnes mined and the gold and silver produced
  from the Roberta vein was reported from the block model prepared in 2012, and
  compared by AMC to production. The Roberta vein was chosen for this exercise
  as it could be reconciled based on the wireframes for mining carried out in a
  particular year. The model tonnes and grade were compared to the sum of the
  monthly reconciled production as prorated back to the Roberta vein for the
  whole of 2009;
- Production Comparison AMC reviewed the monthly production
  comparison conducted by Primero based on individual veins. The mine figure was
  reconciled to the mill figure (before certain small adjustments); and
- Exploration Data Pulps that had been sent to the SGS Durango
  laboratory were returned to the TAY Lab and assayed. AMC reviewed the assay
  data from SGS and the TAY Lab.

AMC has accepted that there has
been an issue with the TAY Lab. The sample data, however, has to be used in the
Mineral Resource and Mineral Reserves estimates in the absence of any other
available data at this time. While AMC considers the use of this data to be
reasonable, adjustments have been made to the classifications used. AMC
recommended that drilling be carried out to substantiate the data in the current
Mineral Reserves, and, most importantly, the laboratory issues need to be
addressed. There is no evidence to say that the quality of the sample data
affects the gold and silver ounces produced, though it does impinge on decision
making through the mining process.

Checks have shown that there is
not a gross overestimation of the grade that cannot be explained by dilution,
and reconciliation is generally good. AMC has recommended using the sample
database for the current Mineral Resource and Mineral Reserve estimates but, due
to uncertainty in the data quality, not classifying any of the Mineral Resources
as a Measured Mineral Resource.

32

---

Mineral Resource and Mineral Reserve Estimates

As part of the Mineral Resource
and Mineral Reserve estimation review, AMC assisted Primero in its review of the
most appropriate estimation method currently applicable at San Dimas and
completed an independent Mineral Resource estimate for the veins that make up
the current Mineral Resources and Mineral Reserves based on vein wireframes
built by Primero site geologists under AMCs initial guidance. In addition,
Primero provided an access database containing the sample data, and wireframe
outline of the mined areas and of the development. The vein wireframes were
modeled along the vein contacts, and were defined by structural geology, quartz
veining mineral alteration and channel and drillhole samples.

Historically, Primero and its
predecessors have estimated all Mineral Resources and Mineral Reserves by
polygonal methods, which were then listed into a resource database. Many of
these entries had not been critically reviewed for some time and were not easily
manipulated or tracked for mining purposes. To better assist mine planning,
Primero decided to change its principal estimation method to a block modeling
approach for the main producing veins. These 15 veins located in the Central
Block and Sinaloa Graben were removed from the resource database for block
modeling, which resulted in a total of 238 entries remaining in the database.
These remaining entries, comprised of polygonal estimates and broad
extrapolations, were initially reviewed by Primero and sorted by data support,
and then reviewed by AMC and Primero, jointly, and now make up a portion of the
Inferred Mineral Resources.

The block modeling approach,
which Primero and AMC selected for the 15 producing veins, was carried out using
a 2D accumulation method and a kriging interpolation method, resulted in 15
separate vein models that had a parent block size of 10 metres by 10 metres by
width of the vein in dimension. The vein wireframes were modeled along the vein
contacts, and were defined by structural geology, quartz veining, mineral
alteration and channel and drillhole samples. Grade capping was not considered
necessary based on the results of log probability plots of the accumulated gold
and silver grades. AMC used a constant bulk density of 2.7 t/m3for
the estimation of the tonnes for all veins.

Due to the poor QA/QC results,
AMC was unable to classify any of the Mineral Resources as a Measured Mineral
Resource. Mineral Resources were classified as either Indicated Mineral Resource
or Inferred Mineral Resource, based on the location of the channel samples, the
areas that were previously mined and the location of the drillholes. The
Indicated Mineral Resource was generally located within approximately 15 metres
from the levels containing channel samples. The Inferred Mineral Resource was
located between the Indicated Mineral Resource and approximately 30 metres from
the levels containing channel samples. The 238 entries that were left in the
resource database after the 15 producing veins were removed were classified as
Inferred Mineral Resources. These are blocks with poor support but represent
excellent exploration targets and blocks that were removed as being low grade,
with poor or no support and/or away from current activities.

To convert Mineral Resources to
Mineral Reserves, mining cut-off grades are employed, mining dilution has been
added and mining recovery factors applied on an individual vein basis. Only
Indicated Mineral Resources have been used for Mineral Reserves estimation. AMC
has assumed that the current drill-jumbo and jackleg cut and fill mining methods
would continue to be practised at San Dimas, with respective minimum mining
widths of 3 metres and 1 metre. On a general basis, vein widths up to 2.2 metres
have been assumed to be mined by jackleg and those over 2.2 metres by
drill-jumbo. For both jackleg and drill-jumbo mining, unplanned dilution of 0.2
metres on each side of the planned mining width and 0.2 metres of fill floor
dilution has been assumed. Overall average dilution, planned and unplanned, is
estimated at 58%. For the Indicated Mineral Resource material in the 15 veins
upon which the Mineral Reserve estimate is based, the respective mined tonnes
from drill-jumbo and jackleg mining are estimated at 45% and 55%, respectively.
Other than for sill mining, average recovery throughout each mining block for
both drill-jumbo and jackleg mining has been assumed to be 95%. For sill
pillars, which in the modeling process have been assumed to be the 4 metres
thickness at the top of the mining block and immediately below the sill drive, a
factor of 75% has been used.

A mine cut-off grade of 2.52 g/t
AuEq was calculated based on total operating cost of US$98.5, silver recovery
factor of 94%, gold recovery factory of 97%, silver price of US$20 per troy
ounce, gold price of US$1,250 per troy ounce, silver price realized of US$4.08
and exchange rate of 13 Pesos per US$1.00. This cut-off grade requires that the
material in question carry all mine operating and selling costs. Where all
development to a given mining area is in place, a Mining Block Cut-off Grade of 2.14
g/t AuEq has been used (Marginal 1-Type Ore). Where mining in a given vein is
underway and a choice is to be made on in-vein material being sent to the mill
as ore or categorized as waste, a third Cut-off Grade of 0.75 g/t AuEq has been
employed (Marginal 2-Type Ore). Percentages of Marginal 1- and Marginal 2-Type
Ores in the Reserves are 6% tonnes and 1% ounces, and 8% tonnes and 1% ounces,
respectively. The Indicated Mineral Resources from which the Mineral Reserves
are calculated are therefore seen to be relatively insensitive to cut-off
grade.

33

---

Cautionary Note to Investors Concerning Reserve
      Estimates
      The following Mineral Reserve estimates have been
      calculated in accordance with NI 43-101, as required by Canadian
      securities regulatory authorities. For United States reporting purposes,
      SEC Industry Guide 7 under the Exchange Act, as interpreted by Staff of
      the SEC, applies different standards in order to classify mineralization
      as a reserve. As a result, the definitions of Proven Mineral Reserves and
      Probable Mineral Reserves used in NI 43-101 differ from the definitions in
      the SEC Industry Guide 7. Under SEC standards, mineralization may not be
      classified as a reserve unless the determination has been made that the
      mineralization could be economically and legally produced or extracted at
      the time the reserve determination is made. Among other things, all
      necessary permits would be required to be in hand or issuance imminent in
      order to classify mineralized material as reserves under the SEC
      standards. Accordingly, Mineral Reserve estimates contained in this AIF
      may not qualify as reserves under SEC standards. In addition, disclosure
      of contained ounces is permitted disclosure under Canadian regulations;
      however, the SEC only permits issuers to report mineralization as in place
      tonnage and grade without reference to unit measures.


Cautionary Note to Investors Concerning Estimates of
      Indicated and Inferred Resources
      This section uses the terms Indicated Mineral Resources
      and Inferred Mineral Resources. We advise investors that while such
      terms are recognized and required by Canadian regulations, the SEC does
      not recognize them. Inferred Mineral Resources have a great amount of
      uncertainty as to their existence, and great uncertainty as to their
      economic and legal feasibility. It cannot be assumed that all or any part
      of an Inferred Mineral Resource will ever be upgraded to a higher
      category. Under Canadian rules, estimates of Inferred Mineral Resources
      may not form the basis of feasibility or other economic studies, except in
      rare cases. Mineral Resources that are not Mineral Reserves do not have
      demonstrated economic viability. None of the following mineralization has
      been demonstrated to be ore nor is considered to be a Mineral Reserve.
      Investors are cautioned not to assume that all or any part of
      Indicated Mineral Resources will ever be converted into Mineral
      Reserves. Investors are also cautioned not to assume that any part
      or all of an Inferred Mineral Resource exists, or is economically or
      legally mineable. See Risk Factors.


The results of the estimation
work are shown in the table below, which shows a summary of the Mineral
Resources and Mineral Reserves at December 2011. As noted above, the Inferred
Mineral Resource is a mix of block modeled and polygonal estimates. The relevant
cut off and price data is shown in the footnotes

San Dimas Mine Mineral Resources and Mineral Reserves(as
of December 2011)

|               |  |         |  |  | Tonnage   |  |  | Gold  |  |  | Silver |  |  | Contained |  |  | Contained  | 
|-------------- |  | ------- |  |  | --------- |  |  | ----- |  |  | ------ |  |  | --------- |  |  | ---------- | 
|               |  |         |  |  | (metric   |  |  | Grade |  |  | Grade  |  |  | Gold      |  |  | Silver     | 
|Classification |  | Comment |  |  | Tonnes)   |  |  | (g/t) |  |  | (g/t)  |  |  | (ounces)  |  |  | (ounces)   | 
|Reserves       |  |         |  |  |           |  |  |       |  |  |        |  |  |           |  |  |            | 
|Probable       |  |         |  |  | 3,514,000 |  |  | 4.5   |  |  | 280    |  |  | 505,000   |  |  | 31,800,000 | 

34

---

|               |  |                |  |  | Tonnage   |  |  | Gold  |  |  | Silver |  |  | Contained |  |  | Contained  | 
|-------------- |  | -------------- |  |  | --------- |  |  | ----- |  |  | ------ |  |  | --------- |  |  | ---------- | 
|               |  |                |  |  | (metric   |  |  | Grade |  |  | Grade  |  |  | Gold      |  |  | Silver     | 
|Classification |  | Comment        |  |  | Tonnes)   |  |  | (g/t) |  |  | (g/t)  |  |  | (ounces)  |  |  | (ounces)   | 
|Resources      |  |                |  |  |           |  |  |       |  |  |        |  |  |           |  |  |            | 
|Indicated      |  | Block Modeled  |  |  | 2,877,000 |  |  | 6.2   |  |  | 390    |  |  | 577,000   |  |  | 36,470,000 | 
|               |  |                |  |  |           |  |  |       |  |  |        |  |  |           |  |  |            | 
|Inferred       |  | Block Modeled  |  |  | 2,017,000 |  |  | 4.9   |  |  | 330    |  |  | 315,000   |  |  | 21,170,000 | 
|               |  | Polygonal      |  |  | 3,816,000 |  |  | 3.2   |  |  | 320    |  |  | 388,000   |  |  | 39,600,000 | 
|               |  | Total Inferred |  |  | 5,833,000 |  |  | 3.8   |  |  | 320    |  |  | 704,000   |  |  | 60,770,000 | 

____________________

|Notes to Mineral Reserves
    Statement
|---------------------------------------
|(1)                                    
|(2)                                    
|(3)                                    

|Notes to Mineral Resources Statement:
|-------------------------------------
|(1)                                  
|(2)                                  
|(3)                                  

The average Mineral Reserve
grades of gold and silver are approximately 17% and 22%, respectively, higher
than reported mined grades for 2011. AMC believes that the difference can be
explained by a combination of factors, including the fact that lower grade ore
is currently economic due to prevailing high metal prices, and site dilution
control practices.

Reserve tonnes are 22% higher
than Resource tonnes, and Reserve grades of Au and Ag are 28% to 29% lower than
Resource grades, largely due to mining dilution. Reserve ounces of Au and Ag are
at 87% to 88% of Resource ounces; this is mainly a reflection of stope design
and areas that are not economically viable under the Reserve cost and price
parameters because of grade and/or location.

As a simple sensitivity exercise,
prices of US$1,700/oz for Au and US$30/oz for Ag were applied to the final
Mineral Reserve estimate, giving a total of 3.8 million tonnes at 4.2 g/t Au and
270 g/t Ag for 514,000 oz Au and 32 million oz Ag. AMC believes that a more
detailed assessment at these metal prices would result in a further incremental
increase in tonnes and Au ounces with an incremental decrease in grade.

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


There is significant exploration
potential at San Dimas in addition to the stated Mineral Resources and Mineral
Reserves. The scale of the identified targets is in the order of 6 to 10 million
tonnes at grade ranges of 3 to 5 grams per tonne of gold and 200 to 400 grams
per tonne of silver. This potential mineralization has been estimated from
geological and grade modeling, and includes portions of the previously reported
(2010) Mineral Resources that have been excluded from the 2011 Mineral Resource
base. These targets are conceptual in nature. There has been insufficient exploration to define an associated Mineral
Resource and it is uncertain if further exploration will result in the targets
being delineated as a Mineral Resource.

35

---

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

Mining Operations

The San Dimas Mine operation
includes five underground gold and silver mining areas: the West Block (San
Antonio mine); the Sinaloa Graben Block; the Central Block, the Tayoltita mine
and the Arana Block (the Santa Rita mine). Typical mining of the vein systems is
by mechanized cut-and-fill, using drill jumbos or jacklegs and load-haul-dump
machines, with primary access provided by adits and internal ramps from an
extensive tunnel system through the steep, mountainous terrain. Vein thickness
varies from 0.1 metres to 8 metres with the average approximately 1.5 metres.
Some veins have a strike length of more than 1,500 metres. Vein dips vary from
about 35oto sub-vertical, the latter being decidedly more prevalent.
The general mining recovery factor is about 95%, while that for sill mining is
about 75%.

The Central Block, inclusive of
the West Block, is scheduled to provide the majority of mine production during
2012. Production in 2011 was 79,564 ounces of gold and 4.6 million ounces of
silver, while that for 2010 was 85,429 ounces of gold and 4.5 million ounces of
silver.

Ground conditions throughout most
of the San Dimas operations are good. The need for installation of ground
support is assessed on an on-going basis as development and stoping progresses.
In flatter-dip vein areas where the stopes tend to be wider, rock bolts and
screen may be installed and low-grade pillars left for support.

The basis for ore haulage at San
Dimas is LHD equipment feeding either truck or rail haulage to the mill at
Tayoltita. Development waste is generally moved to stopes as fill.

The workforce at San Dimas is
made up of company personnel (staff and unionized) and contractor personnel.
There are approximately 75 contract miners currently on site.

The San Dimas underground
development plan for 2012 envisages a similar development rate and number of
metres of advance as achieved in 2011, namely about 79 m/day. The mine
production plan for 2012 has a target of 714,000 tonnes at a grade of 3.74 g/t
Au and 225 g/t Ag.

Tayoltita Mill

The Tayoltita mill presently
employs two-stage crushing and two ball mills (12 x 14) that can operate
simultaneously or separately to achieve 70% to 75% passing 200 mesh. Leaching is
completed in a series of tanks providing 72 hours of leach residence time. The
pregnant solution is recovered in a counter current decant (CCD) circuit with
the gold and silver recovered from solution in a zinc precipitation circuit.
Pumping systems have been installed to transport the high density tailings (53%
solids) slurry to a box canyon nearly 2 kilometres distant and with 125 metres
elevation gain, relying on a Putzmeister piston pump with three Geho piston
diaphragm pumps as back-up. A second Putzmeister piston pump is being added as a
back-up system to eliminate the use of the Geho pumps by the end of 2012.
Refining uses an induction furnace to produce 1,000 oz gold and silver doré bars
(average 98% pure).

The Tayoltita mill has undergone
a series of plant expansions over its operating life which has resulted in two
small ball mills in parallel as well as a series of small tanks in the leaching
and CCD circuit. An expansion at Tayoltita in 2003 increased the nominal
capacity to 2,350 tpd to replace the capacity required for shutdown of the San
Antonio mill. Currently, the Tayoltita mill is operating at an average of
approximately 2,100 tpd, based on 340 operating days per year.

A further expansion is being
contemplated to either 2,500 tpd or 3,000 tpd and preliminary engineering has
been completed. The expansion will likely consist of recommissioning the
tertiary crusher, installing a third ball mill and de-bottlenecking the CCD circuit with thickener
reconfiguration and a new tailings thickener. In the 3,000 tpd case, additional
leaching capacity is also planned. Engineering and costing are continuing and a
decision to expand, and to which of the two tonnage options, will be made in the
third quarter of 2012.

36

---

Tailings Dams

The very rugged mountainous
terrain and steep walled canyons in the San Dimas district have presented
formidable challenges to tailings management as the scale of operations grew and
storage areas were depleted.

At the time of Wheaton Rivers
acquisition in 2002, Luismins practice had been to discharge tailings from the
cyanidation mills to multiple unlined structures designed to settle the solids
and collect solutions for recycle to the milling operations. The containment
dams were typically constructed with cyclone underflow, and the overflow drains
to decant structures in the central portion of the dam. Although the design and
operating practices complied with Mexican requirements and the relevant permits,
the tailings containment sites did not meet international standards. They had
not been subjected to comprehensive geotechnical investigations before
construction, normal safety factors in dam design had not applied, and accepted
seepage monitoring and control measures had not been implemented.

In anticipation of environmental
requirements in Mexico becoming more aligned with world standards, a series of
improvements were identified as necessary to reduce risk, as well as the
potential environmental impact. Since 2002, a number of improvements have been
made relating to the stability of the dams and to the management of the
tailings. Since 2011, the tailings containment sites are 100% operational and
now comply with the international regulations.

Capital expenditures for
environmental purposes since 2004 have been largely focussed on the tailings
storage facilities. They have totalled approximately US$13.90 million at
Tayoltita/Cupias and US$9.8 million at San Antonio. Capital expenditures on the
San Antonio tailings were US$1.3 million in 2005, US$2.2 million in 2006 and
US$1.6 million in 2007. Investment in the Tayoltita tailings dam was US$1.6
million in 2005, US$0.6 million in 2006, US$3.2 million in 2007, US$1.5 million
in 2010 and US$3.2 million in 2011.

Tayoltita Tailings

The Tayoltita operation had
developed numerous tailings disposal sites in the valley near the mill and in
more recent years, the tailings dam was moved up the valley to the east of the
mill. The operation relied on 10 pumping stations to elevate the thickened
tailings to the containment site, and the tailings line and solution return line
on cable supports to cross the river valley were previously without any
provisions for spill containment in the event of a line failure. The suspended
section of the tailings line crossing the river is now contained within a second
pipe. In 2012 a complete containment of the tailings line will be
implemented

On abandonment of the sites as
they filled, the dried tailings were left to dehydrate and efforts to establish
a natural vegetation cover were undertaken. The abandoned dams in the area are
subject to erosion and instability until remediation measures are taken. On
three of the older tailings dams near the Tayoltita mill, the land has been
reclaimed for use as a soccer field, a softball field, and a garden nursery,
respectively.

Monitoring of the Piaxtla River
downstream of the Tayoltita tailings deposits has not shown any environmental
impact on the water quality, but it may be impacted with higher suspended solids
in periods of heavy rainfall. Over the past few years significant capital
improvements have been made at the Tayoltita tailings operation and further
improvements to the dam and operating practices are planned.

During 2007, stages II and III of
the AMEC (a geotechnical consulting company, based in Vancouver) remediation of
the Tayoltita tailings dam were completed with the reinforcement of the dam bank
with the compaction of 621,800 cubic metres of borrowed material. The 10 relay
tailings pumping stations were replaced with three positive displacement pumps
(Geho diaphragm pumps) operating in parallel. Lately a new tailings pumping
system was installed. The new single Putzmeister piston pump has the capacity to
pump high density tailings (53% solids) over a distance of 1,847 metres and
total elevation of 125 metres above the mill level. The Geho pumps are now used only as a back-up system to the new
system. San Dimas is now in the process of adding a second Putzmeister pump as
back-up system to eliminate the use of the Geho pumps by year-end. High capacity
thickeners have been added to the mill to increase the tailings density and
reduce the solution containment, hydrostatic heads, and return capacity required
at the tailings dam. At the river crossing, the tailings lines are suspended in
a spill recovery trough with provision to divert any spills into a containment
area.

37

---

Construction of the initial phase
of an earthen berm against the downstream side of the dam was completed to
increase the safety factor of the containment structure. During the past year,
the most important works were the construction of the third belt filter,
comprising excavating the foundation, constructing the building, filter and
auxiliary equipment installation and filter instrumentation. This filter has a
capacity of 68 tph, adding to the combined capacity of the first two filters of
80 tph. With the new filter, San Dimas achieved 85% efficiency in the tailings
filtering process. In the five months that the new filter was operating in 2011,
Primero was able to recover an average of 43,000 tonnes of solution each month
to be recycled into the leaching process. The third filter also provides
redundancy in the event that any one of the filters is not operating. Under the
current San Dimas plan, the Tayoltita mill operation and future expansion will
process all ore mined in the district with all tailings deposited in the
currently active Cupias tailings disposal dam.

On January 3, 2012, tailings
containing 5 ppm cyanide were spilled into the Piaxtla River, impacting a total
area of 2.5 kilometres. The spillage was the result of a hole that developed in
a tailings pipe. Primero notified Mexican governmental authorities of the
accident. As a result of this spill, Primero has taken a number of corrective
actions including building a temporary containment structure for the tailings
pipe (design specifications for a permanent solution are under consideration)
and conducting a preliminary assessment to confirm that there is no residual
impact to Piaxtla River aquatic life. An external expert will conduct a further
assessment during the second quarter of 2012.

See Risk Factors  San Dimas
Tailings Management Risks.

San Antonio Tailings

Due primarily to the exhausted
capacity of the tailings dam, the San Antonio mill was shutdown in 2003. The
tailings dam site is located in a turn in a steep walled river canyon downstream
of the mill operation. The river has been diverted through two tunnels which
have been excavated in the canyon wall on the inside of the river bend. A third
tunnel for road access has been excavated and also serves as an additional
channel for the river in high flow periods. In the 2002 due diligence by Wheaton
River, the San Antonio tailings dam was identified as a risk to failure due to a
low safety factor in the dam, risk associated with an unknown hydrostatic head
in the active tailings deposition area, and possible erosion due to a flood
event in the adjacent river.

Since the shutdown of the mill
operations, some of the risk has been removed by elimination of the hydrostatic
head in the dam and diversion of a local drainage channel. It has been proposed
that the dam safety factor be increased by extending the concrete wall on the
upstream side of the dam and protection of the downstream side by covering with
mine waste rock. These measures would also decrease the erosion potential of the
tailings. Some of this work has been initiated while options to close and
reclaim the tailings dam were studied. DMSL received approval to reclaim the San
Antonio dam by stabilizing the tailings in their current location after an
environmental assessment, which demonstrated the validity of the plan, was
submitted. A scale model was developed that through a series of tests determined
the best design from the hydraulic aspect and to determine if some of the design
features needed to be augmented. During 2007, in agreement with the design by
Knight Piesold (Canadian geotechnical consultant), the emplacement of rock
filled berm began with about 60% completed, however, the rains and lack of an
access road significantly affected progress.

During 2008, the works were
completed with a cover of compacted concrete on the dam face that will form a
three step waterfall in the case of a maximum flow of water (rainfall). The
present hydraulic dam design was confirmed during 2008 through a series of
tests.

In the last three years, a
monitoring phase on the downstream slope was carried out in order to determine
the extent of settlement caused by the construction of the rock-fill for
stability of the slope. The key question was whether it would be possible to
place a concrete cover on top of it. The study was completed and the settlement
in the last year found to be minimal, leading Primero to conclude
that the concrete can be placed without being affected by these settlements.

38

---

See Risk Factors  San Dimas
Tailings Management Risks.

Taxes

Corporate profits in Mexico are
taxed only by the Federal Government. Through 2008, there were two federal taxes
in Mexico that applied to mining company operations in Mexico; a Flat Rate
Business Tax (FRBT) and a corporate income tax. Mexican corporate income tax
is calculated based on gross revenue less deductions for all refining and
smelting charges, direct operating costs, all head office general and
administrative costs, and depreciation deductions. During 2008 and 2009, the
corporate income tax rate in Mexico was 28%, it is 30% from 2010 to 2012, and it
will be 29% during 2013 and 28% for 2014 and subsequent taxation years. On
October 17, 2011, the Company filed a formal application to the Mexican tax
authorities for an advance ruling on the Companys restructuring plan that, if
successful, would result in paying income taxes in Mexico based on revenue from
actual realized prices rather than spot prices for silver. See Business of
Primero  Amended and Restated Silver Purchase Agreement  Advance Tax Ruling
Application.

The FRBT is a minimum tax that
applies in addition to the corporate income tax. The tax is applicable to the
taxpayers net income from the (i) sale of goods; (ii) performance of
independent services; and (iii) lease of goods at the rate of 16.5% during 2008,
17% during 2009 and 17.5% from 2010 to 2012. The base to which the FRBT is
applied is determined by deducting from gross income certain items, such as
expenses associated with purchasing goods, rendering independent services, and
leasing goods, or expenses incurred in connection with the administration of
such activities. Some expenses that are deductible in determining taxable income
for income tax purposes, such as salaries, interest in some cases and royalties
with foreign related parties are not deductible in determining the FRBT.
However, certain tax credits are available to offset the FRBT, including income
tax paid during the same fiscal year; a credit on certain salary-related
expenses and social security contributions paid by an employer; a credit on
losses, a credit on fixed assets; and monthly FRBT payments. The FRBT follows a
cash flow system, which could distort the crediting of income tax against the
FRBT. Finally, special rules apply to certain taxpayers, such as corporate
groups that file consolidated tax returns.

RISK FACTORS

The operations of the Company are
speculative due to the high-risk nature of its business which is the
acquisition, financing, exploration, development and operation of precious
metals properties. These risk factors could materially affect the Companys
future operating results and could cause actual events to differ materially from
those described in forward-looking statements relating to the Company.

Exploration, Development and Operating Risk

Primeros activities are
primarily directed towards mining operations at the San Dimas Mine. Primeros
activities also include the exploration for and development of mineral
deposits.

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

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

39

---

The exact effect of these factors
cannot be accurately predicted, but the combination of any of these factors may
result in Primero not receiving an adequate return on invested capital.

There is no certainty that the
expenditures made by Primero towards the search and evaluation of mineral
deposits will result in discoveries of commercial quantities of ore.

Commodity Prices

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

Also, Mineral Reserve
calculations and life-of-mine plans using significantly lower gold and silver
prices could result in material write-downs of Primeros investment in its
mining properties and increased amortization, reclamation and closure charges.
See Risk Factors  Silver Contract and Taxes for a discussion of risks
associated with a material write-down of Primeros investment in its mining
properties.

Further, see Risk Factors 
Silver Contract and Taxes for a discussion of risks associated with taxes and
the Amended and Restated Silver Purchase Agreement relating to an increase in
silver prices.

Silver Contract and Taxes

As part of the acquisition of the
San Dimas Mine, Primero assumed obligations under two silver purchase
agreements. Primeros Mexican subsidiary, Primero Empresa, is obligated to sell
all the silver produced at the San Dimas Mine, to certain annual thresholds, to
Primeros Barbadian subsidiary, Silver Trading, at, prior to October 11, 2011,
when the silver purchase agreement was modified, the prevailing market price
and, after October 11, 2011, at the lesser of approximately US$4 per ounce
(adjusted for inflation) and the prevailing market price. Silver Trading is
obligated to sell all of the silver purchased to SW Caymans at the lesser of
approximately US$4 per ounce (adjusted for inflation) and market prices.

Prior to the Company filing its
formal application to the Mexican tax authorities for an advance ruling on the
Companys restructuring plan, Primero Empresa recorded income taxes based on
selling all silver produced at the San Dimas Mine at market prices. The losses
incurred by Silver Trading from purchasing silver at market prices and selling
silver at the lesser of approximately US$4 per ounce and market prices had no
tax benefit since Barbados is a low tax jurisdiction. Therefore, from a
consolidated perspective, the silver sales to SW Caymans realized approximately
US$4 per ounce; however, the Company recorded income taxes based on sales at
market prices.

40

---

Having filed the formal
application to the Mexican tax authorities for an advance ruling on the
Companys restructuring plan, the Company now records revenues on silver sales
to SW Caymans at realized prices and remits income tax to the Mexican tax
authorities on the same basis. Should the Company fail in its application and
have to revert to paying taxes on sales to SW Caymans based on the market price
of silver, the Company will immediately have to pay all taxes due but will incur
no penalty for taxes not paid for the duration of the application process.
Throughout the application process, the Company intends to identify the
potential tax as a contingent liability.

In the event that the Company has
to revert to paying taxes based on the market price of silver for all sales to
SW Caymans, the higher the market price of silver, the greater amount of taxes
Primero Empresa will record and have to pay. Until recently, the market price of
gold has moved in the same direction as changes in the market price of silver.
If the ratio between the market prices of gold and silver changes further in
favour of silver, the Company will be adversely affected. If the ratio moves
significantly outside historical rates, the Companys cash flow may not be
sufficient to fund its obligations and Primero could be forced to discontinue
production and may lose its interest in, or may be forced to sell, some of its
properties. The contingent liability in respect of such an adverse ruling as at
December 31, 2011 is $28.6 million, of which $18.8 million has already been paid
by the Company in cash prior to the filing of the formal application in respect
of 2010 and 2011 silver sales; as such, the cash that would have to be paid to
satisfy the contingent liability at December 31, 2011 is $9.8 million. Since the
Company intends to continue to record taxes in Mexico based on realized prices,
the contingent liability will grow during the formal application process. At
December 31, 2011, the Company reviewed its mining properties for impairment and
concluded, based on its discounted cash flow models, and assuming a favourable
ruling from the Mexican tax authorities, that there was no impairment.

In addition, as the annual
threshold amounts of silver to be sold to SW Caymans will increase over time
under the Amended and Restated Silver Purchase Agreement (see Business of
Primero  Amended and Restated Silver Purchase Agreement), the adverse tax
consequences to the Company may, depending on the annual production of silver,
increase in severity and the Companys cash flow may not be sufficient to fund
its obligations, there may be an impairment loss and a write down of the San
Dimas Mine and Primero could be forced to discontinue production and may lose
its interest in, or may be forced to sell, some of its properties. In the event
of an impairment loss and a write-down of the San Dimas Mine, the Company may
not be able to meet certain tangible net worth financial covenants under the
Convertible Promissory Note held by Goldcorp and under the Promissory Note held
by Goldcorps Luxembourg subsidiary which could result in an event of default,
in which case the holders of such notes, at their option, may respectively
declare all or part of the obligations under the Convertible Promissory Note and
under the Promissory Note to be due and payable either on demand or immediately
without demand and such holders may, in their discretion, exercise any right or
recourse and proceed by any action, suit, remedy or proceeding against the
Company for the recovery of the obligations under the Convertible Promissory
Note and under the Promissory Note. In the event that such holders declare
obligations under the Convertible Promissory Note and/or obligations under the
Promissory Note in excess of $5 million to be due and payable or any enforcement
steps are taken by such holders following an event of default under the
Convertible Promissory Note or the Promissory Note, an event of default will
occur under the Amended and Restated Silver Purchase Agreement. Upon the
occurrence of an event of default under the Amended and Restated Silver Purchase
Agreement, SW Caymans, at its option, may take any or all of the following
actions (i) declare all amounts thereunder due and payable, (ii) terminate the
Amended and Restated Silver Purchase Agreement, or (iii) enforce its security
under the Amended and Restated Silver Purchase Agreement.

Also, in the event that the
Company has to revert to paying taxes based on the market price of silver for
all sales to SW Caymans, the Companys cash flow may not be sufficient to meet
certain financial covenants under the Convertible Promissory Note held by
Goldcorp and under the Promissory Note held by Goldcorps Luxembourg subsidiary
and could also result in an event of default, with the same potential
consequences as set out above for certain tangible net worth financial covenants
under the Convertible Promissory Note and the Promissory Note are not met.

See Risk Factors  Commodity
Prices for a discussion of risks associated with decline in silver prices.

41

---

Uncertainty in the Estimation of Reserves and Mineral
Resources

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

Uncertainty Relating to Inferred Mineral Resources and
Exploration Potential

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

Need for Additional Mineral Reserves

Because the San Dimas Mines have
limited lives based on Probable Mineral Reserves, Primero will be required to
continually replace and expand its Mineral Reserves as its mines produce gold
and silver. Primeros ability to maintain or increase its annual production of
gold and silver will be dependent in significant part on its ability to expand
Mineral Reserves at existing mines, to bring new mines into production and to
complete acquisitions.

Indebtedness

As a result of completion of the
Acquisition, Primero has significant consolidated indebtedness, which includes
the indebtedness to a wholly-owned Luxembourg subsidiary of Goldcorp under the
Promissory Note and the indebtedness to Goldcorp under the Convertible
Promissory Note. As a result of this indebtedness, Primero is required to use a
portion of its cash flow to service principal and interest on its debt, which
limits the cash flow available for other business opportunities.

Primeros indebtedness could have
important consequences to Primero and the value of the Common Shares,
including:

42

---

- limiting Primeros ability to borrow additional amounts for working
  capital, capital expenditures, debt service requirements, execution of
  Primeros growth strategy or other purposes;
- limiting Primeros ability to use operating cash flow in other areas of
  the business because a portion of these funds must be indicated to service the
  debt;
- increasing Primeros vulnerability to general adverse economic and
  industry conditions;
- limiting Primeros ability to capitalize on business opportunities and to
  react to competitive pressures and adverse changes in government regulation;
  and
- limiting Primeros ability or increasing the costs to refinance
  indebtedness.

Given the covenants imposed under
the indebtedness and the restrictions on incurring additional debt under the
Amended and Restated Silver Purchase Agreement, Primero may be significantly
limited in its operating and financial flexibility, limited in its ability to
respond to changes in its business or competitive activities and may be
restricted in its ability to engage in mergers, acquisitions or dispositions of
assets. A failure to comply with covenants under these debt agreements or any
other additional debt agreements entered into by Primero, including a failure to
meet applicable financial tests or ratios, would likely result in an event of
default under the debt agreements and would allow the lenders to accelerate the
debt under these agreements. If the debt is accelerated, Primeros assets may
not be sufficient to repay such debt in full.

Additional Capital

The mining, processing,
development and exploration of Primeros properties, may require substantial
additional financing, including capital for expansion of mining operations at
the San Dimas Mine in accordance with Primeros business plans. Failure to
obtain sufficient financing may result in delaying or indefinite postponement of
exploration, development or production on any or all of Primeros properties or
even a loss of property interest. There can be no assurance that additional
capital or other types of financing will be available if needed or that, if
available, the terms of such financing will be favourable to Primero. Declines
in gold and silver prices could have the result of making additional capital
unavailable to Primero.

Exchange Rate Fluctuations

Exchange rate fluctuations may
affect the costs that Primero incurs in its operations. Revenues from sales of
gold and silver from the San Dimas Mine are in United States dollars, whereas
the Companys expenses associated with gold and silver production are incurred
principally in United States dollars, Canadian dollars and Mexican pesos. In the
recent past, the Mexican peso has experienced high volatility which has affected
the results of operations of the San Dimas operations. The appreciation of
non-United States dollar currencies against the United States dollar can
increase the cost of gold and silver production and capital expenditures in
United States dollar terms, with the result that the Companys profitability
would decrease.

Title to Property

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

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

43

---

Local Groups

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 sell or lease
lands directly to a private entity, it also may allow individual members of the
Ejido to obtain title to specific parcels of land and thus the right to rent or
sell the land. While the Company has agreements with the Ejidos that impact the
San Dimas Mine, some of these agreements may be subject to renegotiation.
Changes to the existing agreements may have a significant impact on operations
at San Dimas Mine. In the event that the Company conducts activities in areas
where no agreements exist with owners which are Ejidos, the Company may face
some form of protest, road blocks, or other forms of public expressions against
the Companys activities. If the Company is not able to reach an agreement for
the use of the lands with the Ejido, the Company may be required to modify its
operations or plans for the development of the San Dimas Mine.

Four of the properties included
in the properties that comprise the San Dimas Mine are subject to four separate
legal proceedings commenced by local Ejidos where the local Ejido is seeking
title to the property.

The first proceeding was brought
without the knowledge of DMSL and resulted in an initial order 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. In
the event that annulment proceedings are not successful, then the Company plans
to pursue negotiation of a temporary occupancy agreement with the Ejido. If the
Ejido refuses to negotiate a temporary occupancy permit, then the Company plans
to initiate proceedings under Mexican law which provide for priority rights for
mining activities.

The remaining proceedings were
brought by the local Ejido claiming ownership of the properties on the principal
of adverse possession or acquisition by prescription, which are methods of
acquiring ownership rights to property, against the owner and other third
parties, through possession of the property for an uninterrupted period of time.
The Company is not a party to any of these proceedings. In the event that the
Ejido is successful in its proceedings, the Company will take steps to annul the
verdict or commence an action as an affected third party. 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.

Government Regulations, Consents and Approvals

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

44

---

Environmental Risks and Hazards

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

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

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

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

Operations at the San Dimas Mine
may cause damage to the environment, which could lead to government
environmental authorities imposing fines, total or partial closures,
compensatory measures or mandated investment in infrastructure. Examples of
environmental damage that could result from operations include, but are not
limited to, industrial fires, forest fires, oil spills, tailings dam spills,
unforeseen emissions to the atmosphere and hazardous material soil filtrations.
See Risk Factors  San Dimas Tailings Management Risks.

The San Dimas Mine is presently
involved in an environmental certification process. As part of this process, the
Company may be required to invest in new facilities, systems, infrastructure or
buildings or undertake compensatory measures such as reforestation, dam
dredging, soil cleansing, and flora and wildlife preservation measures.

San Dimas Tailings Management Risks

As a result of a hole that
developed in a tailings pipe on January 3, 2012, tailings from the San Dimas
Mine spilled into the Piaxtla River. The Company has since taken a number of
corrective actions including building a temporary containment structure for the
tailings pipe while a permanent solution is currently being designed. The
Mexican governmental authorities consider the spillage localized and under
control. Following the spill, the Company took a number of corrective actions
including building a temporary containment structure for the tailings pipe. On
April 20, 2012, PROFEPA issued its final report which specified that they would
not fine Primero for the incident but will monitor compliance with their
recommendations, including sampling of the soil and water quality in the Piaxtla River, completion of an aquatic life study and
building a permanent containment structure for the tailings pipe. All of
PROFEPAs requests have been implemented except for the permanent containment
structure, which is expected to be completed in the second quarter of 2012 by
placing the tailings pipe within another pipe. The CNA will remit the final
report and impose fines, if any, against the Company following their review of
PROFEPAs final report and recommendations. Any fines imposed by the Mexican
authorities are not expected to be significant. See Business of Primero  San
Dimas Mine  Environmental Matters for the San Dimas Mine.

45

---

Although Primero believes the
design and operation of tailings containment sites in the San Dimas district
comply with existing permits and legal requirements in Mexico, existing tailings
containment sites do not comply with international guidelines. Tailings
containment sites which existed at the time of DMSLs acquisition of the San
Dimas Mine were not subjected to comprehensive geotechnical investigation before
construction, normal safety factors in dam design, seepage monitoring or
control, or controls on public or wildlife access to cyanide solution ponds or
pumping installations. Work was undertaken to address the deficiencies with the
tailings management aspect of the operations and capital investments were
initiated in 2005 to upgrade the containment structures and tailings operations.
Further amounts were spent in 2006 and 2007 to remediate the Tayoltita tailings
dam, including completing the reinforcement of the dam bank with the compaction
of 621,800 cubic metres of borrowed material and replacing the 10 relay tailings
pumping stations with three positive displacement pumps operating in parallel
with the capacity to pump high density tailings (53% solids) a distance of 1,847
metres and up a 125 metres difference in elevation to the dam. In addition, high
capacity thickeners were added to the mill to increase the tailings density and
reduce the solution containment and the tailings lines above the river were
suspended in a spill recovery trough with provision to divert any spills into a
containment area. In 2009, two basins were constructed in the back of the dam to
collect and neutralize the contact water (the water that falls on the dam)
that could contaminate the dry tailings deposited and a second basin (in series
with the previous basin) in case the first basins capacity is exceeded. A
perimeter wire fence was also constructed around the tailings dam area to
neutralize the contact water dam area to limit the access by persons and
animals. The project included the construction of a seepage drainage and
collection channel below the dam.

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

The Asset Purchase Agreement and
the Share Purchase Agreement do not provide for any indemnities from DMSL and
GSBL (together the San Dimas Vendors) against any potential environmental
liabilities, including, but not limited to, those that may arise from possible
failure of the San Antonio tailings dam. Primero has indemnified DMSL for any
future environmental claims or liabilities.

Labour and Employment Matters

In March 2011, a strike by the
union of millworkers stopped production for a month. The Company believes that
its current relations with employees and the unions are good. Production at the
San Dimas Mine will continue to be dependent upon the ability of Primero to
continue to maintain good relations with its employees and the unions. In
addition, relations between Primero and its employees may be impacted by changes
in the scheme of labour relations which may be introduced by the relevant
governmental authorities in Mexico. Adverse changes in such legislation or in
the relationship between Primero with its employees and unions at the San Dimas
Mine may have a material adverse effect on Primeros business, results of
operations and financial condition.

Infrastructure

Mining, processing, development
and exploration activities depend, to one degree or another, on adequate
infrastructure. Reliable roads, bridges, power sources and water supply are
important determinants which affect capital and operating costs. Unusual or infrequent weather
phenomena, terrorism, sabotage, government or other interference in the
maintenance or provision of such infrastructure could adversely affect the
Companys operations, financial condition and results of operations. With
respect to the San Dimas Mine, any interruption in power supply from the
hydroelectric project could adversely impact operations at the San Dimas
Mine.

46

---

Insurance and Uninsured Risks

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

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

Competition

The mining industry is
competitive in all of its phases. Primero faces strong competition from other
mining companies in connection with the acquisition of properties producing, or
capable of producing, precious and base metals. Many of these companies have
greater financial resources, operational experience and technical capabilities
than Primero. As a result of this competition, Primero may be unable to maintain
or acquire attractive mining properties on terms it considers acceptable or at
all. Consequently, Primeros revenues, operations and financial condition could
be materially adversely affected. Further, Primero has agreed not to acquire any
mineral interest in Mexico that is within 20 kilometres of any mineral property
in Mexico owned by Goldcorp and its affiliates.

Risks Inherent in Acquisitions

The Company is actively pursuing
the acquisition of exploration, development and production assets consistent
with its acquisition and growth strategy. From time to time, the Company may
also acquire securities of or other interests in companies with respect to which
it may enter into acquisitions or other transactions. Acquisition transactions
involve inherent risks, including but not limited to: accurately assessing the
value, strengths, weaknesses, contingent and other liabilities and potential
profitability of acquisition candidates; ability to achieve identified and
anticipated operating and financial synergies; unanticipated costs; diversion of
management attention from existing business; potential loss of the Companys key
employees or key employees of any business acquired; unanticipated changes in
business, industry or general economic conditions that affect the assumptions
underlying the acquisition; and decline in the value of acquired properties,
companies or securities.

Any one or more of these factors
or other risks could cause the Company not to realize the anticipated benefits
of an acquisition of properties or companies, and could have a material adverse
effect on the Companys financial condition.

Acquisition Identification and Integration Risks

While the Company may seek
acquisition opportunities consistent with its growth strategy, there is no
assurance that the Company will be able to identify projects or companies that
are suitable or that are available for sale at reasonable prices or that it will be able to consummate
any acquisition, or integrate any acquired business into its operations
successfully. Acquisitions may involve a number of special risks, circumstances
or legal liabilities. These and other risks related to acquiring and operating
acquired properties and companies could have a material adverse effect on the
Companys results of operations and financial condition.

47

---

To acquire properties and
companies, the Company may be required to use available cash, incur debt, issue
additional Common Shares of the Company or other securities, or a combination of
any one or more of these. This could affect the Companys future flexibility and
ability to raise capital, to operate, explore and develop its properties and
could dilute existing shareholders and decrease the trading price of the Common
Shares of the Company. There is no assurance that when evaluating a possible
acquisition, the Company will correctly identify and manage the risks and costs
inherent in the business to be acquired. Restrictions on incurring additional
indebtedness in the Amended and Restated Silver Purchase Agreement may limit the
ability of the Company to borrow to finance acquisitions.

There may be no right for the
Company shareholders to evaluate the merits or risks of any future acquisition
undertaken by the Company, except as required by applicable laws and
regulations.

Foreign Operations Risks

All of the Companys mining and
mineral exploration operations are currently conducted in Mexico, and as such
Primeros operations are exposed to various levels of political, economic and
other risks and uncertainties. These risks and uncertainties include, but are
not limited to, terrorism; organized crime; hostage taking; military repression;
theft; expropriation; extreme fluctuations in currency exchange rates; high
rates of inflation; labour unrest; the risks of war or civil unrest;
renegotiation or nullification of existing concessions, licenses, permits and
contracts; illegal mining; changes in taxation policies; restrictions on foreign
exchange and repatriation; and changing political conditions, currency controls
and governmental regulations that favour or require the awarding of contracts to
local contractors or require foreign contractors to employ citizens of, or
purchase supplies from, a particular jurisdiction.

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

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

Mining Operations in Mexico

The San Dimas Mine is located,
and the Companys mineral exploration activities are conducted, in the States of
Durango and Sinaloa, Mexico. Mexico is a developing country and obtaining
financing or finding or hiring qualified people or obtaining all necessary
services for the Companys operations in Mexico may be difficult. Mexicos
status as a developing country may make it more difficult for the Company to
attract investors or obtain any required financing for its mining projects. The
Company also hires some of its employees or consultants in Mexico to assist it
in conducting its operations in accordance with Mexican laws and purchases
certain supplies and retains the services of various companies in Mexico to meet
its business plans. It may be difficult to find or hire qualified people in the
mining industry who are situated in Mexico or to obtain all the necessary
services or expertise in Mexico or to conduct operations on its projects at
reasonable rates. If qualified people and services or expertise cannot be
obtained in Mexico, the Company may need to seek and obtain those services from
people located outside Mexico, which will require work permits and compliance
with applicable laws and could result in delays and higher costs to the Company
to conduct its operations in Mexico.

48

---

Key Personnel

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

Conflicts of Interest

The directors and officers of the
Company are directors and officers of other companies, some of which are in the
same business as the Company. In particular, Mr. Wade Nesmith and Mr. Eduardo
Luna are each directors of Silver Wheaton, with which the Company has entered
into the Amended and Restated Silver Purchase Agreement, and Mr. Timo Jauristo
and Mr. Rohan Hazelton are each officers of Goldcorp, from which the Company
acquired the San Dimas Mine. The directors and officers of the Company are
required by law to act in the best interests of the Company. They have the same
obligations to the other companies in respect of which they act as directors and
officers. Discharge by the directors and officers of their obligations to the
Company may result in a breach of their obligations to the other companies and,
in certain circumstances, this could expose the Company to liability to those
companies. Similarly, discharge by the directors and officers of their
obligations to the other companies could result in a breach of their obligation
to act in the best interests of the Company. Such conflicting legal obligations
may expose the Company to liability to others and impair its ability to achieve
its business objectives.

Potential Unknown Liabilities Associated with the
Acquisition

The San Dimas Assets and the
shares of Silver Trading were acquired on an as is, where is basis and the
representations and warranties and indemnities provided by the San Dimas Vendors
in respect of the San Dimas Assets are limited. Consequently, the recourse the
Company may have against the San Dimas Vendors is limited. Further, there may be
liabilities that the Company failed to discover or was unable to quantify in its
due diligence. The Company may not be indemnified for some or all of these
liabilities.

Additional Debt

The Companys ability to incur
additional indebtedness and to secure additional indebtedness is limited under
the Amended and Restated Silver Purchase Agreement. The Amended and Restated
Silver Purchase Agreement permits the Company to incur additional financial
indebtedness up to US$50 million, subject to increase after three years after
payout of the Promissory Note and subject to satisfaction of certain financial
covenants. These limitations restrict the additional indebtedness that the
Company may incur, with the result that the Company may not be able to pursue
capital expansions, additional exploration programs, acquisitions, or other
components of its future business plans.

Significant Shareholder

Goldcorp owns approximately 35.3%
of the issued and outstanding Common Shares, other than Common Shares issuable
upon the conversion of the Convertible Promissory Note. Goldcorp is entitled to
maintain this proportionate ownership interest and is entitled to proportionate
Board representation. The current DMSL Director Nominees on the Board are Mr.
Jauristo and Mr. Hazelton. Subject to applicable law, Goldcorp may be able to
effectively cause or prevent a change in control of the Company.

49

---

DIVIDENDS

The Company has paid no dividends
since its incorporation and currently has no plans to do so in the foreseeable
future.

CAPITAL STRUCTURE

Primeros authorized share
capital consists of an unlimited number of Common Shares without par value and
an unlimited number of preferred shares without par value. As of December 31,
2011, there were 88,259,831 Common Shares issued and outstanding as fully paid
and non-assessable and no preferred shares issued and outstanding. As of the
date of the AIF, 88,259,831 Common Shares of the Company are issued and
outstanding and no preferred shares are issued and outstanding.

Common Shares

Subject to the rights of the
holders of the preferred shares of the Company, holders of Common Shares of the
Company are entitled to dividends if, as and when declared by the directors.
Holders of Common Shares of the Company are entitled to one vote per Common
Share at meetings of shareholders except at meetings at which only holders of a
specified class of shares are entitled to vote. Upon liquidation, dissolution or
winding-up of the Company, subject to the rights of holders of preferred shares,
holders of Common Shares of the Company are to share ratably in the remaining
assets of the Company as are distributable to holders of Common Shares. The
Common Shares are not subject to call or assessment rights, redemption rights,
rights regarding purchase for cancellation or surrender, or any pre-emptive or
conversion rights.

Preferred Shares

Preferred shares may be issued
from time to time in one or more series, ranking equally on winding-up, to
repayment of the amount paid up on such shares, and to carry and be subject to,
as a class, the following special rights and restrictions pertaining to (but not
limited to) dividends, redemption or purchase rights, rights of retraction,
rights of conversion, terms and conditions of any share purchase plan or sinking
fund, rights upon dissolution of the Company, and voting, as the directors of
the Company may, from time to time, determine by resolution. Currently the
preferred shares rank in priority over Common Shares as to dividends and return
of paid up capital upon dissolution or winding up of the Company. Holders of
preferred shares are not entitled to notice or to vote at meetings of
shareholders (except where holders of a specified class or series are entitled
to a separate vote in accordance with the Act). The Company may at any time
purchase for cancellation or redeem the preferred shares that may be issued and
holders of preferred shares may require the Company to retract such shares in
accordance with the terms upon which such have been issued.

Options and Warrants

As of the date of this AIF, the
Company also had outstanding obligations to issue up to 29,449,490 Common
Shares, as follows:

- warrants to purchase an aggregate of 20,800,000 Common Shares at a price
  of $8.00, expiring on July 20, 2015; and
- stock options to purchase an aggregate of 8,649,490 Common Shares at a
  price ranging from $2.60 to $6.00, expiring between July 29, 2013 and July 9,
  2019, all of which are governed by the Companys amended and restated 10%
  rolling stock option plan, which was approved by shareholders on June 28, 2010
  and became effective on August 19, 2010.

Promissory and Convertible Promissory Notes

As part of the purchase price for
the San Dimas Mine, the Company issued to DMSL:

50

---

- a subordinate secured promissory note in the principal amount of US$50
  million (the Promissory Note), which DMSL subsequently assigned to a
  wholly-owned Luxembourg subsidiary of Goldcorp and of which US$5 million plus
  interest was repaid on December 31, 2011; and
- a US$60 million principal amount subordinate secured convertible
  promissory note with a term of one year, subject to a one year extension (the
  Convertible Promissory Note), which DMSL subsequently assigned to Goldcorp
  and of which US$30 million was repaid on October 19, 2011.

The Promissory Note and the
Convertible Promissory Note are secured by the San Dimas Mine and by a guarantee
of the Company.

Promissory Note

The principal amount of the
Promissory Note bears interest at a rate of 6% per annum until fully repaid,
which interest will be payable annually on December 31 of each year. The
principal will be repaid in equal annual instalments of $5 million during each
of the four years beginning on December 31, 2011, with the balance of the unpaid
principal being repaid on December 31, 2015, provided that if the free cash
flow from the San Dimas Mine exceeds $40 million in any year, then 50% of such
excess will be used to repay the Promissory Note. On July 12, 2011, the
Promissory Note was amended whereby the definition of Tangible Net Worth was
modified to include the total of equity plus the total dollar amount recorded
as the value of share purchase warrants of Primero less intangibles as
characterized under IFRS. On December 31, 2011, the Company made a payment of
US$5 million plus interest with respect to the Promissory Note.

Convertible Promissory Note

The Convertible Promissory Note
carries an annual interest rate of 3%, is convertible by Goldcorp into Common
Shares at $6.00 per share (with the principal amount owing converted into
Canadian dollars by multiplying such amount by 1.05, which was the approximate
exchange rate at the time of the Acquisition), and is repayable at maturity by
the Company in cash or Common Shares.

Goldcorp had the option to extend
the term of the note by one year if the Company exercised its option to convert
at the maturity date. On July 20, 2011, the Company served notice to Goldcorp to
convert the Convertible Promissory Note into Common Shares and, on August 4,
2011, Goldcorp elected to extend the term of the Convertible Promissory Note by
one year. On October 19, 2011, the Company paid US$30 million of the Convertible
Promissory Note.

As Goldcorp elected to extend the
term of the Convertible Promissory Note by one year, and the Company did not pay
the principal amount in cash immediately, the Company now has the option to
convert the Convertible Promissory Note to shares on the second maturity date at
a price equal to the greater of (a) the 90% of the volume weighted average
trading price of the Common Shares for the five trading days ending immediately
prior to the first maturity date, which was $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. Therefore, if the Company
makes such an election to convert on the second maturity date, the lowest price
at which the debt would be converted is $3.74 per Common Share and the Company
would issue 8,422,460 Common Shares to Goldcorp.

Under the terms of the
Convertible Promissory Note, while the Convertible Promissory Note is
outstanding, the Company is required to apply the proceeds from any exercise of
the warrants, and any further public or private equity offering of securities of
the Company, to the repayment of the Convertible Promissory Note.

On July 12, 2011, the Convertible
Promissory Note was amended whereby the definition of Tangible Net Worth was
modified to include the total of equity plus the total dollar amount recorded
as the value of share purchase warrants of Primero less intangibles as
characterized under IFRS.

51

---

MARKET FOR SECURITIES

Common Shares

The Companys Common Shares are
traded on the TSX under the symbol P. Commencing on August 15, 2011, the
Companys Common Shares began trading on the NYSE under the symbol PPP. The
following table shows the high and low trading prices and monthly trading volume
of the Common Shares of Primero on the TSX for the periods listed:

|Period      |  | High (CDN$) |  |  | Low (CDN$) |  |  | Volume     | 
|----------- |  | ----------- |  |  | ---------- |  |  | ---------- | 
|2011        |  |             |  |  |            |  |  |            | 
|January     |  | 4.70        |  |  | 3.85       |  |  | 8,057,125  | 
|February    |  | 4.48        |  |  | 3.95       |  |  | 3,075,666  | 
|March       |  | 4.14        |  |  | 3.38       |  |  | 7,517,330  | 
|April       |  | 5.09        |  |  | 3.64       |  |  | 7,244,945  | 
|May         |  | 4.95        |  |  | 4.32       |  |  | 3,934,388  | 
|June        |  | 4.37        |  |  | 3.03       |  |  | 7,834,543  | 
|July        |  | 4.60        |  |  | 3.17       |  |  | 14,034,202 | 
|August      |  | 4.59        |  |  | 3.38       |  |  | 9,985,165  | 
|September   |  | 3.70        |  |  | 2.31       |  |  | 11,686,409 | 
|October     |  | 3.13        |  |  | 2.51       |  |  | 2,800,524  | 
|November    |  | 3.62        |  |  | 2.71       |  |  | 5,234,061  | 
|December    |  | 3.70        |  |  | 3.07       |  |  | 3,162,148  | 
|2012        |  |             |  |  |            |  |  |            | 
|January     |  | 3.78        |  |  | 3.08       |  |  | 4,301,453  | 
|February    |  | 3.23        |  |  | 2.75       |  |  | 5,057,603  | 
|March       |  | 2.91        |  |  | 2.28       |  |  | 3,967,466  | 
|April       |  | 2.82        |  |  | 2.45       |  |  | 1,446,407  | 
|May 1 to 15 |  | 3.10        |  |  | 2.49       |  |  | 1,541,557  | 

Common Share Warrants

The Companys common share
warrants are traded on the TSX under the symbol P.WT. The following table
shows the high and low trading prices and monthly trading volume of the common
share warrants of Primero on the TSX for the periods listed:

|Period    |  | High (CDN$) |  |  | Low (CDN$) |  |  | Volume    | 
|--------- |  | ----------- |  |  | ---------- |  |  | --------- | 
|2011      |  |             |  |  |            |  |  |           | 
|January   |  | 1.52        |  |  | 1.06       |  |  | 76,258    | 
|February  |  | 1.33        |  |  | 1.20       |  |  | 114,520   | 
|March     |  | 1.25        |  |  | 1.00       |  |  | 102,201   | 
|April     |  | 1.30        |  |  | 0.88       |  |  | 1,419,374 | 
|May       |  | 1.24        |  |  | 0.98       |  |  | 314,170   | 
|June      |  | 0.96        |  |  | 0.49       |  |  | 429,430   | 
|July      |  | 0.90        |  |  | 0.61       |  |  | 2,147,466 | 
|August    |  | 0.90        |  |  | 0.45       |  |  | 1,840,185 | 
|September |  | 0.65        |  |  | 0.40       |  |  | 970,501   | 
|October   |  | 0.52        |  |  | 0.355      |  |  | 199,700   | 
|November  |  | 0.53        |  |  | 0.36       |  |  | 1,002,152 | 
|December  |  | 0.49        |  |  | 0.275      |  |  | 504,250   | 

52

---

|Period      |  | High (CDN$) |  |  | Low (CDN$) |  |  | Volume    | 
|----------- |  | ----------- |  |  | ---------- |  |  | --------- | 
|2012        |  |             |  |  |            |  |  |           | 
|January     |  | 0.44        |  |  | 0.27       |  |  | 1,114,535 | 
|February    |  | 0.40        |  |  | 0.27       |  |  | 280,490   | 
|March       |  | 0.34        |  |  | 0.20       |  |  | 266,437   | 
|April       |  | 0.275       |  |  | 0.205      |  |  | 87,018    | 
|May 1 to 15 |  | 0.35        |  |  | 0.26       |  |  | 243,780   | 

Prior Sales

During the financial year ended
December 31, 2011, Primero issued or granted the following Common Shares or
securities convertible into Common Shares:

|                       |  | Number and Type of            |  | Issue or Exercise 
|---------------------- |  | ----------------------------- |  | ------------------
|Date of
      Issuance |  | Securities Issued             |  | Price Per Security
|January 17, 2011       |  | 41,666 Common
      Shares(1) |  | $2.00             
|March 7, 2011          |  | 175,000 stock options         |  | $3.99(3)          
|April 4, 2011          |  | 81,738 Common
      Shares(1) |  | $1.60             
|April 19, 2011         |  | 7,500 Common Shares(1)        |  | $2.00             
|April 25, 2011         |  | 10,000 Common
      Shares(1) |  | $1.60             
|April 26, 2011         |  | 4,583 Common Shares(1)        |  | $1.60             
|June 6, 2011           |  | 39,166 Common
      Shares(1) |  | $2.00             
|June 12, 2011          |  | 6,416 Common Shares(1)        |  | $2.00             
|June 13, 2011          |  | 4,512 Common
      Shares(1)  |  | $1.60             
|June 13, 2011          |  | 71,082 Common Shares(1)       |  | $2.00             
|June 16, 2011          |  | 13,750 Common
      Shares(1) |  | $2.00             
|June 21, 2011          |  | 33,000 Common Shares(1)       |  | $2.00             
|June 22, 2011          |  | 41,666 Common
      Shares(1) |  | $2.00             
|June 23, 2011          |  | 20,832 Common Shares(1)       |  | $2.00             
|June 27, 2011          |  | 333 Common
      Shares(1)    |  | $2.00             
|June 28, 2011          |  | 82,499 Common Shares(1)       |  | $2.00             
|June 28, 2011          |  | 3,750 Common
      Shares(2)  |  | $3.00             
|June 28, 2011          |  | 15,000 Common Shares(2)       |  | $2.70             
|June 30, 2011          |  | 33,333 Common
      Shares(1) |  | $2.00             
|November 8, 2011       |  | 300,000 stock options         |  | $3.47(3)          
|November 29, 2011      |  | 10,000 Common
      Shares(2) |  | $2.70             

|(1) | Common Shares issued on the exercise of common share
      purchase warrants.                        
|--- | -----------------------------------------------------------------------------------------------------
|(2) | Common Shares issued on the exercise of stock
    options.                                           
|(3) | Reflects the exercise price of stock options and common
      share purchase warrants, as applicable.

ESCROWED SECURITIES AND SECURITIES SUBJECTTO CONTRACTUAL
RESTRICTIONS ON TRANSFER

Escrowed Securities

As of December 31, 2011, no
securities of the Company were held in escrow.

53

---

Contractual Restrictions on Transfer

Pursuant to the terms of the
Participation Agreement, DMSL has agreed that, up to August 6, 2013, neither
DMSL nor its affiliates, which include Goldcorp, will sell any Common Shares
that result in DMSL and its affiliates, collectively, owning less than
31,151,200 Common Shares.

Pursuant to a support agreement
dated as of August 6, 2010 among SW Caymans, Mr. Luna and Mr. Nesmith (the
Support Agreement), until August 6, 2013, Mr. Luna and Mr. Nesmith each agreed
that he will not sell any Common Shares that result in him owning less than
101,840 Common Shares (less than approximately 0.1% of the issued and
outstanding Common Shares) and 157,176 (less than approximately 0.1% of the
issued and outstanding Common Shares), respectively. Before Mr. Lunas
resignation as Executive Vice President and President (Mexico) of the Company on
November 30, 2011, Mr. Luna was released from his Common Share ownership
obligations under the Support Agreement. Effective March 15, 2012, upon Mr.
Nesmiths resignation as Executive Chairman and appointment as Chairman of the
Company, the Support Agreement was terminated.

DIRECTORS AND OFFICERS

The following table is as at the
date of the AIF and sets out the name, province/state of residence, positions
and/or offices held with the Company, and principal occupations of each person
who is a director and/or an executive officer of the Company, as well as the
period during which each person, if applicable, has been a director of the
Company. Mr. Timo Jauristo and Mr. Rohan Hazelton, the Executive Vice President,
Corporate Development and Vice President, Finance, respectively, of Goldcorp
were nominated as directors by Goldcorp, pursuant to DMSLs rights under the
Participation Agreement.

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

|Name and
      Residence |  | Position(s) with the Company  |  | Principal Occupation           |  | Director Since  
|------------------------ |  | ----------------------------- |  | ------------------------------ |  | ----------------
|                         |  |                               |  |                                |  |                 
|JOSEPH CONWAY(1)(2)      |  | President and Chief Executive |  | President and Chief Executive  |  | June 28, 2010   
|Ontario, Canada          |  | Officer and Director          |  | Officer of the Company         |  |                 
|                         |  |                               |  |                                |  |                 
|RENAUD ADAMS             |  | Chief Operating Officer       |  | Chief Operating Officer of the |  | N/A             
|Ontario, Canada          |  |                               |  | Company                        |  |                 
|                         |  |                               |  |                                |  |                 
|DAVID BLAIKLOCK(1)       |  | Chief Financial Officer       |  | Chief Financial Officer of the |  | N/A             
|British Columbia, Canada |  |                               |  | Company                        |  |                 
|                         |  |                               |  |                                |  |                 
|JOAQUIN MERINO-MARQUEZ   |  | Vice-President, Exploration   |  | Vice President, Exploration of |  | N/A             
|Ontario, Canada          |  |                               |  | the Company                    |  |                 
|                         |  |                               |  |                                |  |                 
|DAVID SANDISON           |  | Vice-President, Corporate     |  | Vice-President, Corporate      |  | N/A             
|Ontario, Canada          |  | Development                   |  | Development of the Company     |  |                 
|                         |  |                               |  |                                |  |                 
|TAMARA BROWN(1)          |  | Vice-President, Investor      |  | Vice-President, Investor       |  | N/A             
|Ontario, Canada          |  | Relations                     |  | Relations of the Company       |  |                 
|                         |  |                               |  |                                |  |                 
|H. MAURA LENDON          |  | Vice-President, General       |  | Vice-President, General        |  | N/A             
|Ontario, Canada          |  | Counsel and Corporate         |  | Counsel and Corporate          |  |                 
|                         |  | Secretary                     |  | Secretary                      |  |                 
|                         |  |                               |  |                                |  |                 
|WADE NESMITH             |  | Chairman and Director         |  | Chairman of the Company        |  | October 29, 2008
|British Columbia, Canada |  |                               |  |                                |  |                 
|                         |  |                               |  |                                |  |                 
|EDUARDO LUNA(2)          |  | Director                      |  | Director of the Company        |  | October 29, 2008
|Mexico State, Mexico     |  |                               |  |                                |  |                 
|                         |  |                               |  |                                |  |                 
|DAVID DEMERS(3)(4)(5)    |  | Director                      |  | Chief Executive Officer of     |  | October 29, 2008
|British Columbia, Canada |  |                               |  | Westport Innovations Inc.      |  |                 
|                         |  |                               |  |                                |  |                 
|GRANT EDEY(4)(5)(6)      |  | Director                      |  | President and Chief Executive  |  | June 28, 2010   
|Ontario, Canada          |  |                               |  | Officer of Khan Resources Inc. |  |                 

54

---

|Name and
      Residence |  | Position(s) with the Company |  | Principal Occupation          |  | Director Since 
|------------------------ |  | ---------------------------- |  | ----------------------------- |  | ---------------
|                         |  |                              |  |                               |  |                
|ROHAN HAZELTON(2)(5)(6)  |  | Director                     |  | Vice President, Finance of    |  | August 25, 2010
|British Columbia, Canada |  |                              |  | Goldcorp                      |  |                
|                         |  |                              |  |                               |  |                
|TIMO JAURISTO(3)         |  | Director                     |  | Executive Vice President,     |  | August 25, 2010
|British Columbia, Canada |  |                              |  | Corporate Development of      |  |                
|                         |  |                              |  | Goldcorp                      |  |                
|                         |  |                              |  |                               |  |                
|ROBERT QUARTERMAIN(3)(4) |  | Director                     |  | President and Chief Executive |  | June 28, 2010  
|British Columbia, Canada |  |                              |  | Officer of Pretium Resources  |  |                
|                         |  |                              |  | Inc.                          |  |                
|                         |  |                              |  |                               |  |                
|MICHAEL RILEY(5)(6)      |  | Director                     |  | Director of the Company       |  | April 22, 2010 
|British Columbia, Canada |  |                              |  |                               |  |                

|(1) | Member of the Disclosure Committee. Mr. Blaiklock is the
      Chair of the Disclosure Committee.                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Member of the Health, Safety and Environmental Committee.
      Mr. Luna is the Chair of the Health, Safety and Environmental
      Committee.                                                                                                                                                          
|(3) | Member of the Human Resources Committee. Mr. Demers is
      the Chair of the Human Resources Committee.                                                                                                                                                                                                
|(4) | Member of the Governance and Nominating Committee. Mr.
      Edey is the Chair of the Governance and Nominating Committee.                                                                                                                                                                              
|(5) | Member of the Special Committee established on May 17,
      2011 for the proposed business combination with Northgate, which was
      terminated on August 29, 2011. Mr. Hazelton resigned from the Special
      Committee on June 28, 2011. Mr. Demers was the Chair of the Special
      Committee.
|(6) | Member of the Audit Committee. Mr. Riley is the Chair of
      the Audit Committee.                                                                                                                                                                                                                     

As of the date of this AIF, the
directors and executive officers of the Company, as a group, beneficially own,
directly or indirectly, or exercise control or direction over 1,442,048 Common
Shares, being 1.6% of the issued Common Shares on a non-diluted basis. The
statement as to the number of Common Shares beneficially owned, directly or
indirectly, or over which control or direction is exercised by the directors and
executive officers of the Company, as a group, is based upon information
furnished by the directors and executive officers.

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

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

Joseph Conway  President, Chief Executive Officer and
Director

Mr. Conway was appointed
President and Chief Executive Officer of the Company on June 1, 2010 and has
been a director of the Company since June 28, 2010. Mr. Conway has been a
director of Dalradian Resources Inc. since June 2010. He served as President and
Chief Executive Officer of IAMGOLD Corporation (IAMGOLD) from January 2003
until January 2010, and was a director of IAMGOLD from January 2004 until
December 2009. Mr. Conway was President, Chief Executive Officer and a director
of Repadre Capital Corporation from September 1995 until January 2003. From 1989
until 1995, he was Vice President and a director of Nesbitt Burns, a Canadian
investment dealer. He was a stock analyst with Walwyn Stodgell Cochran and
Murray from 1987 to 1989, and a mine and exploration geologist from 1981 to
1985. Mr. Conway has a Bachelor of Science degree from Memorial University and a
Master of Business Administration degree from Dalhousie University.

Renaud Adams  Chief Operating Officer

Mr. Adams has been Chief
Operating Officer of the Company since November 1, 2011. From February 2010 to
October 2011, Mr. Adams was Senior Vice-President, Operations Americas of
IAMGOLD, during which time he was responsible for the operations and organic
growth of IAMGOLD within the Americas. From May 2007 to February 2010, he was
Vice President and General Manager of the Rosebel Gold Mine in Suriname for
IAMGOLD, which saw him responsible for administration, operations and near-mine
exploration, as well as social and legal aspects of the mines business. Previously, from
January 2005 to May 2007, he was Vice President and General Manager of the El
Mochito Mine in Honduras for Breakwater Resources Ltd. and, from August 2000 to
December 2004, he was Mine Manager and Mill Superintendent of El Toqui Mine in
Southern Chile. Mr. Adams holds actuarial and engineering degrees from Laval
University.

55

---

David Blaiklock  Chief Financial Officer

Mr. Blaiklock has been Chief
Financial Officer of the Company since July 6, 2009. Mr. Blaiklock is a
Chartered Accountant with 20 years public company experience in a senior
financial role. From March 1997 to December 2008 he was Vice President and
Corporate Controller of Intrawest Corporation, a large multinational owner,
developer and operator of mountain destination resorts. During his years with
Intrawest, Mr. Blaiklock was involved with all aspects of running the financial
operations of a growth-oriented and acquisition-focused public company.
Previously, he was Corporate Controller of a number of public and private
companies, primarily involved in real estate development. He graduated with a
B.A. (Honours) degree from the University of Sheffield and received his
designation as a Chartered Accountant (England & Wales) in 1979 and British
Columbia in 1981 while with the international accounting firm of Deloitte &
Touche.

Joaquin Merino-Marquez  Vice President, Exploration

Mr. Merino-Marquez joined the
Company on February 23, 2011, as Vice President, Exploration. Between 2006 and
2011, Mr. Merino-Marquez was Vice President, Exploration for Apogee Minerals
Ltd., a Toronto-based Company with interest in polymetallic deposits in Bolivia.
From 2003 to 2006, Mr. Merino-Marquez was the exploration manager at Porgera
Mine, in Papua New Guinea, for Placer Dome Inc. Before that Mr. Merino-Marquez
was a mine geologist at La Camorra mine in Venezuela, a high grade gold deposit
in the Greenstone Belt. Mr. Merino-Marquez worked as an exploration and mine
geologist for the Chilean government and for junior companies in a number of
South American countries. During these years he has been involved in the
negotiation and acquisition of various exploration projects in Chile, Ecuador,
Argentina and Peru. He has also carried out numerous economic evaluations on
precious and base metal projects all over South America. He holds a Masters
degree in Sciences from Queens University (Ontario), and a Bachelor degree in
Geology from University of Seville (Spain). Mr. Merino-Marquez is a member of
the Association of Professional Geoscientists of Ontario.

David Sandison  Vice President, Corporate
Development

Mr. Sandison has been
Vice-President, Corporate Development of the Company since October 18, 2010.
From January 2010 to September 2010, he was Vice-President, Corporate
Development of Clarity Minerals, a private company with investments in Canadian
and African gold mining and exploration. From February 2009 to December 2009, he
was a mining consultant. From June 1984 to January 2009, he worked in senior
management capacities with the Noranda Group of Companies (subsequently
Falconbridge and Xstrata plc). From September 2006 to January 2009, he was
Director Corporate Development of Xstrata Zinc Canada. From February 2005
through September 2006, he was Vice-President of Novicourt Inc., a public
Noranda subsidiary. From July 2001 through August 2006, he was Director
Corporate Development for Noranda Inc. Before this he held senior management
positions with Noranda subsidiaries in Chile and the United States. Mr. Sandison
has a Bachelor of Applied Science (Geological Engineering  1982) degree from
The University of Toronto and a Master of Business Administration (1984) degree
from Queens University.

Tamara Brown  Vice President, Investor Relations

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

56

---

H. Maura Lendon  Vice President, General Counsel and
Corporate Secretary

Ms. Lendon has been Vice
President, General Counsel and Corporate Secretary of the Company since March
29, 2012. From May 2011 until March 2012, Ms. Lendon was President of Aurah
Advisory Services Inc., during which time she provided strategic and governance
advisory services to diverse businesses. From April 2008 to May 2011 she was
Senior Vice President, Corporate Services, Chief Legal Officer and Corporate
Secretary of HudBay Minerals Inc. From 2004 to April 2008, she was Chief
Counsel, Canada and Chief Privacy Officer (Canada) of AT&T. Ms. Lendon holds
a Master of Laws from Osgoode Hall Law School, a Master of Business
Administration from the Richard Ivey School of Business and a Bachelor of Laws
from University of Western Ontario. She has been a member of the Ontario Bar
since 1990.

Wade Nesmith  Director and Chairman of the Board

Mr. Nesmith is the Chairman of
the Board and a director of Primero. He has served in the capacity of director
of the Company since October 29, 2008. He acted as President from October 29,
2008 to September 28, 2009, and Chief Executive Officer from October 29, 2008 to
June 1, 2010, at which time he was appointed Executive Chairman of the Board. On
March 15, 2012, Mr. Nesmith resigned as Executive Chairman of the Board and was
appointed Chairman of the Board. He also served as Co-Chair of the Company from
November 2008 until June 1, 2010. He was the President, Chief Executive Officer,
Chief Financial Officer and a director of 0777551 B.C. Ltd., a private company
that was a predecessor to the Company, from December 2006 to December 2009. Mr.
Nesmith obtained his Bachelor of Law degree from York University  Osgoode Hall,
Ontario in 1977. He is the former Superintendent of Brokers for the Province of
British Columbia from 1989 until 1992. He was a senior partner, specializing in
securities law, with Lang Michener LLP (now McMillan LLP) from 1993 until 1998,
and an Associate Counsel at Lang Michener LLP (now McMillan LLP) from January
2004 to December 2007. He was an executive with Westport Innovations Inc.
(Westport Innovations) from 1998 until 2003, helping to lead their public
markets activities and retiring as President, Westport Europe. He is a founding
director and remains a director of Silver Wheaton Corp. (TSX, NYSE), and is
Chairman of Selwyn Resources Ltd. (TSX-V).

Eduardo Luna  Director

Mr. Luna has been a director of
the Company since October 29, 2008 and was Executive Vice President and
President (Mexico) of the Company from June 1, 2010 to November 30, 2011. He was
Co-Chair of the Company from November 2008 until June 1, 2010, and President and
Chief Operating Officer of the Company from September 28, 2009 until June 1,
2010. From July 2008 until December 2009, he was a director of 0777551 B.C.
Ltd., a private company that was a predecessor to the Company. Mr. Luna was
Chairman of Silver Wheaton Corp. from October 2004 to April 2009 and its Chief
Executive Officer from October 2004 to April 2006; Executive Vice President of
Wheaton River from June 2002 to April 2005, Executive Vice President of Goldcorp
from March 2005 to September 2007, and President of Luismin, S.A. de C.V. from
1991 until 2007. He is a director of Rochester Resources Ltd. He holds a degree
in Advanced Management from Harvard University, a Master of Business
Administration degree from Instituto Tecnólogico de Estudios Superiores de
Monterrey and a Bachelor of Science degree in Mining Engineering from
Universidad de Guanajuato. He held various executive positions with Minera
Autlan for seven years and with Industrias Penoles for five years. He was on two
occasions President of the Mexican Mining Chamber and he was also a former
President of the Silver Institute. He serves as Chairman of the Advisory Board
of the Faculty of Mines at the University of Guanajuato and of the Mineral
Resources Council in Mexico.

David Demers  Director

Mr. Demers has been a director of
the Company since October 28, 2008. He is a founder of Westport Innovations, a
provider of proprietary technology that allows engines to operate on
clean-burning gaseous fuels, and has been Chief Executive Officer and a director
of Westport Innovations since the company was formed in March 1995. Before
founding Westport Innovations, Mr. Demers worked for IBM Canada Ltd. and then
founded and served as president of a closely-held consulting company
specializing in software marketing, finance and business transformation for
early stage technology companies. Mr. Demers obtained a Bachelor of Physics
degree in 1976 and a Bachelor of Law degree in 1978, both from the University of
Saskatchewan. Mr. Demers is also a member of the board of directors of Cummins
Westport Inc., a private company in which Westport Innovations has a 50%
investment, and Juniper Engines Inc., a private company in which Westport
Innovations has a 49% investment.

57

---

Grant Edey  Director

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

Rohan Hazelton  Director

Mr. Hazelton has been a director
of the Company since August 25, 2010. Mr. Hazelton is a Chartered Accountant
with over 15 years of finance experience, ten of those years at senior positions
within the mining industry. Mr. Hazelton has been the Vice President, Finance at
Goldcorp since March 2006, where he is responsible for, amongst other duties,
Goldcorps sales programs. He was formerly Corporate Controller for Goldcorp
and, before Goldcorps merger with Wheaton River, he was a key member of
Wheatons management team. Mr. Hazelton was a director of Gryphon Gold Corp.
from July 2005 to December 2008, and he was the director of Terrane Metals
Corporation from August 2008 to October 2010. Mr. Hazelton worked for Deloitte
& Touche LLP and Arthur Andersen LLP from September 1999 to November 2002 as
a senior auditor. From October 1996 to January 1998, he was a commercial loans
officer for Dialog Bank in Moscow, Russia. Mr. Hazelton has a B.A. in Math and
Economics from Harvard University.

Timo Jauristo  Director

Mr. Jauristo has been a director
of the Company since August 25, 2010. Mr. Jauristo is a geologist with over 30
years of international experience in the mining industry in gold, base metals
and uranium. Mr. Jauristo has been the Vice President of Corporate Development
for Goldcorp since June 2009. From January 1990 to June 2005, Mr. Jauristo was
the General Manager of Corporate Development for Placer Dome Inc. Mr. Jauristo
was the Chief Executive Officer of Zincore Metals Inc. (Zincore) from October
2006 to May 2009. He was the interim Chief Executive Officer of Southwestern
Resources Inc. (Southwestern Resources) from June 2005 to May 2009. Both
Zincore and Southwestern Resources are junior mining companies with exploration
and development assets mostly in Peru. He was involved in numerous merger and
acquisition transactions in many of the major gold producing regions of the
world. Mr. Jauristo was also part of the team that discovered the Osborne
copper-gold deposit in Queensland.

Robert Quartermain  Director

Dr. Quartermain, D.Sc., has been
a director of the Company since June 28, 2010. He has been the President and
Chief Executive Officer and a director of Pretium Resources Inc. since October
2010. He served as President of Silver Standard Resources Inc. from January 1985
until January 2010, and as Chief Executive Officer from January 2004 until
January 2010. Dr. Quartermain worked for the Geological Survey of Canada and in
private industry on mapping and exploration programs from 1976 until 1982. He
also worked for Teck Corp. before becoming President of Silver Standard
Resources Inc. in 1985. Dr. Quartermain has a Bachelor of Science degree in
geology from the University of New Brunswick, and a Master of Science degree in
mineral exploration from Queens University. He was awarded an honorary Doctor
of Science degree from the University of New Brunswick in May 2009.

Michael Riley  Director

Mr. Riley has been a director of
the Company since April 22, 2010. He retired as a senior audit partner from
Ernst & Young LLP in September 2006, after more than 25 years with the firm.
He became a partner in the firms Montreal office in 1985, where he worked with
clients in the retail, pharmaceutical, manufacturing and resource industries. He
relocated to the firms Vancouver office in 1995, where his responsibilities
included serving as the lead audit engagement partner for the offices largest
Canadian and U.S.-listed public company clients in mining, transportation, and banking. He also spent two years
leading its Vancouver offices mergers & acquisitions due diligence
practice. Mr. Riley is a director, the Chair of the Governance Committee and a
member of the Audit Committee of Canalaska Uranium Ltd. (TSX). Mr. Riley is also
a director and Chairman of the Audit Committee of British Columbia Lottery
Corporation, and a director of the Vancouver Symphony Society and the BCAA Road
Safety Foundation. Mr. Riley has been a Chartered Accountant since 1978 and is a
member of both the Institute of Chartered Accountants of B.C. and the Ordre des
comptables agréés du Quebec. He graduated with a Bachelor of Commerce degree
from Concordia University in 1975 majoring in operations research and
quantitative methods. He also earned a graduate degree in public accounting from
McGill University in 1977.

58

---

Cease Trade Orders, Bankruptcies, Penalties or
Sanctions

Cease Trade Order

No director or executive officer
of Primero is, as at the date of this AIF, or has been, within the last ten
years before the date of this AIF, a director, chief executive officer, or chief
financial officer of any company (including Primero) that was:

| | (a) | subject to an order that was issued while the director or
      executive officer was acting in the capacity as director, chief executive
      officer or chief financial officer; or                                                                                                                                                      
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                             
| | (b) | subject to an order that was issued after the director or
      executive officer ceased to be a director, chief executive officer or
      chief financial officer and which resulted from an event that occurred
      while that person was acting in the capacity as director, chief executive
      officer or chief financial officer.

For the purpose of the above
paragraph, order means (a) a cease trade order, (b) an order similar to a
cease trade order, or (c) an order that denied the relevant company access to
any exemption under securities legislation, that was in effect for a period of
more than 30 days.

Bankruptcy

Except as set out below, no
director or executive officer of Primero, or a shareholder holding a sufficient
number of securities of Primero to affect materially the control of Primero is,
as at the date of this AIF, or has been, within ten years before the date of
this AIF, a director or executive officer of any company (including Primero)
that:

| | (a) | while that person was acting in that capacity, or within
      a year of ceasing to act in that capacity, became bankrupt, made a
      proposal under any legislation relating to bankruptcy or insolvency, or
      was subject to or instituted any proceedings, arrangement or compromise
      with creditors, or had a receiver, receiver manager or trustee appointed
      to hold its assets; or
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                          
| | (b) | became bankrupt, made a proposal under any legislation
      relating to bankruptcy or insolvency, or become subject to or instituted
      any proceedings, arrangement or compromise with creditors, or had a
      receiver, receiver manager, or trustee appointed to hold the assets of the
      director, executive officer or shareholder.                                                       

In December 2003, Wade Nesmith
was appointed to the board of Oxford Automotive Inc. (Oxford), a private
company based in Michigan. In December 2004, with the support of its secured
creditors, Oxford filed a plan of bankruptcy for certain of its North American
subsidiaries under U.S. Chapter 11 bankruptcy legislation. It emerged from
bankruptcy protection in March, 2005. Mr. Nesmith is the Chairman and a director
of Primero.

Sanctions

No director or executive officer
of Primero, or a shareholder holding a sufficient number of securities of
Primero to affect materially the control of Primero has been subject to:

59

---

| | (a) | any penalties or sanctions imposed by a court relating to
      securities legislation or by a securities regulatory authority or has
      entered into a settlement agreement with a securities regulatory
      authority; or
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                 
| | (b) | any other penalties or sanctions imposed by a court or
      regulatory body that would likely be considered important to a reasonable
      investor in making an investment decision.                                         

Conflicts of Interest

Several directors of Primero also
serve as directors of one or more other resource companies involved in mineral
exploration and/or development. It may occur from time to time that as a
consequence of his activity in the mineral industry and serving on such other
boards that a director may become aware of potential resource property
opportunities which are of interest to more than one of the companies on whose
boards that person serves. Accordingly, situations may arise in the ordinary
course that involve a director in an actual or potential conflict of interest as
well as issues in connection with the general obligation of a director to make
corporate opportunities available to the company on which the director serves.
In all such events, any director who might have a disclosable financial interest
in a contract or transaction by virtue of office, employment or security
holdings or other such interest in another company or in a property interest
under consideration by the Primero Board, would be obliged to abstain from
voting as a Primero director in respect of any transaction involving that other
company(s) or in respect of any property in which an interest is held by him.
The directors will use their best business judgment to help avoid situations
where conflicts or corporate opportunity issues might arise and they must at all
times fulfill their duties to act honestly and in the best interests of Primero.
See Risk Factors  Conflicts of Interest.

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

Four of the properties included
in the properties that comprise the San Dimas Mine are subject to four separate
legal proceedings commenced by local Ejidos where the local Ejido is seeking
title to the property.

The first proceeding was brought
without the knowledge of DMSL and resulted in an initial order 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. In
the event that annulment proceedings are not successful, then the Company plans
to pursue negotiation of a temporary occupancy agreement with the Ejido. If the
Ejido refuses to negotiate a temporary occupancy permit, then the Company plans
to initiate proceedings under Mexican law which provide for priority rights for
mining activities.

The remaining proceedings were
brought by the local Ejido claiming ownership of the properties on the principal
of adverse possession or acquisition by prescription, which are methods of
acquiring ownership rights to property, against the owner and other third
parties, through possession of the property for an uninterrupted period of time.
The Company is not a party to any of these proceedings. In the event that the
Ejido is successful in its proceedings, the Company will take steps to annul the
verdict or commence an action as an affected third party. 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.

TRANSFER AGENT AND REGISTRAR

The co-transfer agent and
registrar for the Common Shares in Canada is Computershare Investor Services
Inc. at its principal office in Toronto, Ontario. The co-transfer agent and
registrar for the Common Shares in the United States is Computershare Trust
Company, Inc. at its principal office in Golden, Colorado.

MATERIAL CONTRACTS

The material contracts entered
into by the Company within the financial year ended December 31, 2011 or before
such time that is still in effect, other than in the ordinary course of
business, are the following:

60

---

| | (a) | Second amended and restated silver purchase agreement
      among Silver Trading, SW Caymans, the Company and Silver Wheaton,
      originally dated as of October 15, 2004, restated as of March 30, 2006,
      amended and restated as of August 6, 2010. See Acquisition of San Dimas
      Mine and Business of Primero  Amended and Restated Silver Purchase
      Agreement;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                         
| | (b) | Convertible promissory note issued by the Company to DMSL
      on August 6, 2010, as assigned to Goldcorp on August 6, 2010, amended on
      July 12, 2011. See Acquisition of San Dimas Mine and Capital Structure
       Promissory and Convertible Promissory Notes;                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                         
| | (c) | Promissory note issued by Primero Mexico to DMSL on
      August 6, 2010, as assigned to a wholly- owned Luxembourg subsidiary of
      Goldcorp on August 6, 2010, and amended on July 12, 2011. See Acquisition
      of San Dimas Mine and Capital Structure  Promissory and Convertible
      Promissory Notes;                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                         
| | (d) | Participation agreement between DMSL and the Company,
      made as of August 6, 2010. See Acquisition of San Dimas Mine and
      Escrowed Securities and Securities Subject to Contractual Restrictions on
      Transfer;                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                         
| | (e) | Deed of indemnity among Silver Trading, the Company and
      Goldcorp, made as of August 6, 2010. See Business of Primero  Amended
      and Restated Silver Purchase Agreement  Agreements in Support of the
      Silver Purchase Agreement;                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                         
| | (f) | Common share purchase warrant indenture, dated July 20,
      2010, and supplemental warrant indenture, dated July 28, 2010, between the
      Company and Computershare Trust Company of Canada. See Acquisition of San
      Dimas Mine;                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                         
| | (g) | Asset purchase agreement among DMSL, Primero Empresa and
      the Company, together with vendor disclosure letter from DMSL to Primero
      Empresa and the Company, and purchaser disclosure letter from Primero
      Empresa and the Company to DMSL, all made as of July 29, 2010. See
      Acquisition of San Dimas Mine; and                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                         
| | (h) | Share purchase agreement between GSBL and the Company,
      dated July 29, 2010. See Acquisition of San Dimas
Mine.                                                                                                                                                                                                                                                                  

INTERESTS OF EXPERTS

The following is a list of the
persons or companies named as having prepared or certified a report, valuation,
statement or opinion described or included in a filing, or referred to in a
filing, made under National Instrument 51-102 Continuous Disclosure
Obligationsby Primero during, or relating to, Primeros most recently
completed financial year, and whose profession or business gives authority to
the report, valuation, statement or opinion made by the person or company:

- J. Morton Shannon, P. Geo., Rodney Webster, M.AIG, Mr. Herbert A. Smith,
  P.Eng and Alan Riles, M.AIG, all of AMC Mining Consultants (Canada) Ltd. who
  authored the Technical Report.

To the Companys knowledge, each
of the aforementioned firms or persons held less than 1% of the outstanding
securities of the Company or of any associate or affiliate of the Company when
they prepared the reports referred to above or following the preparation of such
reports. None of the aforementioned firms or persons received any direct or
indirect interest in any securities of the Company or of any associate or
affiliate of the Company in connection with the preparation of such reports.

Based on information provided by
the relevant persons, none of the aforementioned firms or persons, nor any
directors, officers or employees of such firms, are currently expected to be
elected, appointed or employed as a director, officer or employee of the Company
or of any associate or affiliate of the Company.

61

---

The Companys auditors, Deloitte
& Touche LLP, are independent within the meaning of the Rules of
Professional Conduct of the Institute of Chartered Accountants of British
Columbia.

ADDITIONAL INFORMATION

Additional Information

Additional information relating
to the Company may be found on SEDAR at www.sedar.com.

Additional information, including
directors and officers remuneration and indebtedness, principal holders of the
Companys securities, and securities authorized for issuance under equity
compensation plans is contained in the management information circular for
Primeros annual general and special meeting of shareholders to be held on May
28, 2012, which is available on SEDAR at www.sedar.com.

Additional financial information
is also provided in Primeros audited consolidated financial statements and
Managements Discussion and Analysis for the year ended December 31, 2011, which
may be found on SEDAR at www.sedar.com.

Audit Committee

Audit Committee Charter

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

The Audit Committees charter
sets out its mandate and responsibilities, and is attached to this AIF as
Schedule A.

Composition of Audit Committee

Michael Riley (Chair), Grant Edey
and Rohan Hazelton are the members of Primeros Audit Committee. Each of Messrs.
Riley, Edey and Hazelton are independent and financially literate within the
meaning of National Instrument 52-110 Audit Committees.

Relevant Education and Experience

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

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

62

---

Pre-Approval Policies and Procedures

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

External Auditor Service Fees

For the financial years ended
December 31, 2011 and 2010, the Company paid the external auditor, Deloitte
& Touche LLP, $572,290 and $348,480, respectively, as detailed below:

|                         |  |   | Fees Incurred to  |     |   | Fees Incurred to  |    
|------------------------ |  | - | ----------------- | --- | - | ----------------- | ---
|                         |  |   | Auditor in Year   |     |   | Auditor in Year   |    
|                         |  |   | Ended             |     |   | Ended             |    
|Nature of
      Services |  |   | December 31, 2011 |     |   | December 31, 2010 |    
|Audit Fees(1)            |  | $ | 357,250           | (5) | $ | 331,440           | (6)
|Audit-Related Fees(2)    |  | $ | 0                 |     | $ | 0                 |    
|Tax Fees(3)              |  | $ | 215,040           |     | $ | 17,040            |    
|All Other Fees(4)        |  | $ | 0                 |     | $ | 0                 |    
|Total                    |  | $ | 572,290           |     | $ | 348,480           |    

|(1) | Audit Fees include fees necessary to perform the annual
      audit and quarterly reviews of the Companys consolidated financial
      statements and include fees for review of tax provisions and for
      accounting consultations on matters reflected in the financial statements.
      Audit Fees also include audit or other attest services required by
      legislation or regulation, such as comfort letters, consents, reviews of
      securities filings and statutory audits.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Audit-Related Fees include services that are
      traditionally performed by the auditor. These audit-related services
      include employee benefit audits, due diligence assistance, accounting
      consultations on proposed transactions, internal control reviews and audit
      or attest services not required by legislation or regulation.                                                                                                                                        
|(3) | Tax Fees include fees for all tax services other than
      those included in Audit Fees and Audit-Related Fees. This category
      includes fees for tax compliance, tax planning and tax advice. Tax
      planning and tax advice includes assistance with tax audits and appeals,
      tax advice related to mergers and acquisitions, and requests for rulings
      or technical advice from tax authorities.                                                                       
|(4) | All Other Fees include all other non-audit
    services.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(5) | $52,500 of these fees are with respect to the United
      States Securities and Exchange Commission Form 40-F in connection with the
      NYSE listing application.                                                                                                                                                                                                                                                                                                                             
|(6) | $63,600 of these fees are with respect to the Short Form
      Prospectus filed in connection with the Companys offering of subscription
      receipts in July 2010.                                                                                                                                                                                                                                                                                                                            

63

---

SCHEDULE AAUDIT COMMITTEE CHARTER

|I.   | PURPOSE AND PRIMARY
  RESPONSIBILITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | A.            PurposeThe
      purpose of this Audit Committee charter is to clearly set out the Audit
      Committees purpose, composition, member qualification, member appointment
      and removal, responsibilities, operations, manner of reporting to the
      Board of Directors (the Board), annual evaluation and compliance with
      this
      charter.**B.**            **Primary
      responsibility**The primary responsibility of the Audit Committee is that
      of oversight of the financial reporting process on behalf of the Board.
      This includes oversight responsibility for financial reporting and
      continuous disclosure, oversight of external audit activities, oversight
      of financial risk and financial management control, and oversight
      responsibility for compliance with tax and securities laws and regulations
      as well as whistle blowing procedures. The Audit Committee is also
      responsible for other matters as set out in this charter and/or as may be
      directed by the Board from time to time. The Audit Committee should
      exercise continuous oversight of developments in these
    areas.                                                                                                                                                                                                                                                                                                                                                                                                
|II.  | MEMBERSHIP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     | A.            Each
      member of the Audit Committee must be an independent director of the
      Company in accordance with the Companys Board Manual.
      B.            The
      Audit Committee will consist of at least three members, all of whom shall
      be financially literate. An Audit Committee member who is not financially
      literate may be appointed to the Audit Committee provided that the member
      becomes financially literate within a reasonable period of time following
      his or her appointment.
      C.            The
      members of the Audit Committee will be appointed annually (and from time
      to time thereafter to fill vacancies on the Audit Committee) by the Board.
      An Audit Committee member may be removed or replaced at any time at the
      discretion of the Board and will cease to be a member of the Audit
      Committee on ceasing to be an independent director.
      D.            For
      so long as the common shares of the Company are registered under Section
      12(b) of the United States Securities and Exchange Act of 1934, as amended
      (the Exchange Act), at least one member of the Audit Committee
      must meet and satisfy the qualifications, as determined by the board of
      directors of the Company, of an audit committee financial expert, as
      such term is defined in Item 407 of Regulation S-K under the Exchange Act,
      or in any rule adopted by the United States Securities and Exchange
      Commission that supercedes such definition.
|III. | AUTHORITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     | In addition to all authority required to carry out the
      duties and responsibilities included in this charter, the Audit Committee
      has specific authority to:A.            engage,
      and set and pay the compensation for, independent counsel and other
      advisors as it determines necessary to carry out its duties and
      responsibilities and any such consultants or professional advisors
      retained by the Audit Committee will report directly to the Audit
      Committee;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

64

---

|    | B.            communicate
      directly with management and any internal auditor, and with the external
      auditor without management involvement;
      andC.            to
      incur ordinary administrative expenses that are necessary or appropriate
      in carrying out its duties, such expenses to be paid for by the
      Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|IV. | DUTIES AND RESPONSIBILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The duties and responsibilities of the Audit Committee
      include:A.            recommending
      to the Board the external auditor to be nominated by the
      Board;B.            recommending
      to the Board the compensation of the external auditor, to be paid by the
      Company, in connection with (i) preparing and issuing the audit report on
      the Companys financial statements, and (ii) performing other audit,
      review or attestation
      services;C.            reviewing
      the external auditors annual audit plan, fee schedule and any related
      services proposals (including meeting with the external auditor to discuss
      any deviations from or changes to the original audit plan, as well as to
      ensure that no management restrictions have been placed on the scope and
      extent of the audit examinations by the external auditor or the reporting
      of their findings to the Audit
      Committee);D.            overseeing
      the work of the external
      auditor;E.            ensuring
      that the external auditor is independent by receiving a report annually
      from the external auditors with respect to their independence, such report
      to include a disclosure of all engagements (and fees related thereto) for
      non-audit services provided to
      Company;F.            ensuring
      that the external auditor is in good standing with the Canadian Public
      Accountability Board by receiving, at least annually, a report by the
      external auditor on the audit firms internal quality control processes
      and procedures, such report to include any material issues raised by the
      most recent internal quality control review, or peer review, of the firm,
      or any governmental or professional authorities of the firm within the
      preceding five years, and any steps taken to deal with such
      issues;G.            ensuring
      that the external auditor meets the rotation requirements for partners and
      staff assigned to the Companys annual audit by receiving a report
      annually from the external auditors setting out the status of each
      professional with respect to the appropriate regulatory rotation
      requirements and plans to transition new partners and staff onto the audit
      engagement as various audit team members rotation periods
      expire;H.            reviewing
      and discussing with management and the external auditor the annual audited
      and quarterly unaudited financial statements and related Management
      Discussion and Analysis (MD&A), including the appropriateness of the
      Companys accounting policies, disclosures (including material
      transactions with related parties), reserves, key estimates and judgements
      (including changes or variations thereto) and obtaining reasonable
      assurance that the financial statements are presented fairly in accordance
      with GAAP and the MD&A is in compliance with appropriate regulatory
      requirements;I.            reviewing
      and discussing with management and the external auditor major issues
      regarding accounting principles and financial statement presentation
      including any significant changes in the selection or application of
      accounting principles to be observed in the preparation of the financial
      statements of the Company and its
      subsidiaries;J.            reviewing
      and discussing with management and the external auditor the external
      auditors written communications to the Audit Committee in accordance with
      generally accepted auditing standards and other applicable regulatory
      requirements arising from the annual audit and quarterly review
      engagements;

65

---

K.            reviewing
and discussing with management and the external auditor all earnings press
releases, as well as financial information and earnings guidance provided to
analysts and rating agencies before such information being disclosed;

L.            reviewing
the external auditors report to the shareholders on the Companys annual
financial statements;

M.            reporting
on and recommending to the Board the approval of the annual financial statements
and the external auditors report on those financial statements, the quarterly
unaudited financial statements, and the related MD&A and press releases for
such financial statements, before the dissemination of these documents to
shareholders, regulators, analysts and the public;

N.            satisfying
itself on a regular basis through reports from management and related reports,
if any, from the external auditors, that adequate procedures are in place for
the review of the Companys disclosure of financial information extracted or
derived from the Companys financial statements that such information is fairly
presented;

O.            overseeing
the adequacy of the Companys system of internal accounting controls and
obtaining from management and the external auditor summaries and recommendations
for improvement of such internal controls and processes, together with reviewing
managements remediation of identified weaknesses;

P.            reviewing
with management and the external auditors the integrity of disclosure controls
and internal controls over financial reporting;

Q.            reviewing,
monitoring, discussing and assessing the processes in place to identify and
manage the principal risks that could impact the financial reporting of the
Company and discussing policies with respect to risk assessment and risk
management, which discussions will include (i) the Companys major financial
risk exposures and the steps management has taken to monitor and control such
exposures, and (ii) guidelines and policies to govern the process by which risk
assessment and management is undertaken;

R.            satisfying
itself that management has developed and implemented a system to ensure that the
Company meets its continuous disclosure obligations through the receipt of
regular reports from management and the Companys legal advisors on the
functioning of the disclosure compliance system, (including any significant
instances of non-compliance with such system) in order to satisfy itself that
such system may be reasonably relied upon.;

S.            resolving
disputes between management and the external auditor regarding financial
reporting;

T.            establishing
procedures for:

i.            the
receipt, retention and treatment of complaints received by the Company from
employees and others regarding accounting, internal accounting controls or
auditing matters and questionable practises relating thereto; and

ii            
the confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.

U.            reviewing
and approving the Companys hiring policies with respect to partners or
employees (or former partners or employees) of either a former or the present
external auditor;

V.            pre-approving
all non-audit services to be provided to the Company or any subsidiaries by the
Companys external auditor (The Chair of the Audit Committee has the authority
to pre-approve in between regularly scheduled Audit Committee meetings any
non-audit service of less than $25,000, however such approval will be presented
to the Audit Committee at the next scheduled meeting for formal approval);

66

---

W.            overseeing
compliance with regulatory authority requirements for disclosure of external
auditor services and Audit Committee activities; and

X.            establishing
procedures for:

i.            reviewing
the expenses of the Chair of the Board, and the Chief Executive Officer (the
CEO) on a semi-annual basis

ii.            reviewing
the adequacy of the Companys insurance coverage (excluding Directors and
Officers insurance coverage, which is reviewed by Governance and Nominating
Committee)

iii.            reviewing
activities, organizational structure, and qualifications of the Chief Financial
Officer (CFO) and the staff in the financial reporting area and ensuring that
matters related to succession planning within the Company are raised for
consideration at the Board

iv.            obtaining
reasonable assurance as to the integrity of the CEO and other senior management
and that the CEO and other senior management strive to create a culture of
integrity throughout the Company

v.            reviewing
fraud prevention policies and programs, and monitoring their implementation

vi.            reviewing
regular reports from management and others (e.g., external auditors, legal
counsel) with respect to the Companys compliance with laws and regulations
having a material impact on the financial statements including:

a)            tax
and financial reporting laws and regulations;

b)            legal
withholding requirements;

c)            environmental
protection laws and regulations.

Y.            A
regular part of Audit Committee meetings involves the appropriate orientation of
new members as well as the continuous education of all members. Items to be
discussed include specific business issues as well as new accounting and
securities legislation that may impact the organization. The Chair of the Audit
Committee will regularly canvass the Audit Committee members for continuous
education needs and in conjunction with the Board education program, arrange for
such education to be provided to the Audit Committee on a timely basis.

Z.            On
an annual basis the Audit Committee shall review and assess the adequacy of this
charter taking into account all applicable legislative and regulatory
requirements as well as any best practice guidelines recommended by regulators
or stock exchanges with whom the Company has a reporting relationship and, if
appropriate, recommend changes to the Audit Committee charter to the Board for
its approval.

|V. | MEETINGS
|-- | --------
|   |         
|   | A.      
|   |         
|   | B.      

67

---

|      | C.            The
      Audit Committees schedule of meetings and agendas will be set annually by
      the Audit Committee. Dates and locations will be provided to the Board,
      the Audit Committee members, the external auditors and management in
      advance.D.            The
      Audit Committee will meet in camera separately with the CEO and separately
      with the CFO of the Company at least annually to review the financial
      affairs of the
      Company.E.            The
      Audit Committee will meet with the external auditor of the Company in
      camera at least once each year, at such time(s) as it deems appropriate,
      to review the external auditors examination and
      report.F.            The
      external auditor must be given reasonable notice of, and has the right to
      appear before and to be heard at, each meeting of the Audit
      Committee.G.            Each
      of the chair of the Audit Committee, members of the Audit Committee, Chair
      of the Board, external auditor, CEO, CFO or secretary shall be entitled to
      request that the Chair of the Audit Committee call a meeting which shall
      be held within 48 hours of receipt of such request to consider any matter
      that such individual believes should be brought to the attention of the
      Board or the shareholders.
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|VI.   | REPORTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      | A.            The
      Audit Committee will report, at least quarterly, to the Board regarding
      the Audit Committees examinations and recommendations, and annually to
      the Board regarding the Audit Committees compliance with this
      Charter.B.            The
      Audit Committee will report its activities to the Board to be incorporated
      as a part of the minutes of the Board meeting at which those activities
      are reported.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|VII.  | MINUTES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      | A.            The
      Audit Committee will maintain written minutes of its meetings, which
      minutes will be filed with the minutes of the meetings of the
      Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|VIII. | ANNUAL PERFORMANCE EVALUATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      | A.            The
      Board will conduct an annual performance evaluation of the Audit
      Committee, taking into account the Charter, to determine the effectiveness
      of the Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

68

---