---



ANNUAL INFORMATION FORM

FOR THE YEAR-ENDED DECEMBER 31, 2012



April 1, 2013

PRIMERO MINING CORP. Suite 1640, 505 Burrard Street
Vancouver, British Columbia, Canada, V7X 1M6

---

TABLE OF CONTENTS

|INTRODUCTORY NOTES                                                                     | 1                                                                                                                                              |    | RISK FACTORS                                                                               | 46
|-------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | -- | ------------------------------------------------------------------------------------------ | --
|CAUTIONARY NOTE
      REGARDING
      FORWARD
                LOOKING
      STATEMENTS | 1                                                                                                                                              |    | DIVIDENDS                                                                                  | 56
|                                                                                       | CAPITAL STRUCTURE                                                                                                                              | 56
|TECHNICAL INFORMATION                                                                  | 3                                                                                                                                              |    |                                                                                            |   
|CAUTIONARY NOTES TO
      UNITED
      STATES
              INVESTORS                  | 4                                                                                                                                              |    | COMMON SHARES                                                                              | 56
|                                                                                       | PREFERRED SHARES                                                                                                                               | 57
|CURRENCY                                                                               | 5                                                                                                                                              |    | OPTIONS AND WARRANTS                                                                       | 57
|GOLD AND SILVER PRICES                                                                 | 6                                                                                                                                              |    | DIRECTORS PHANTOM SHARE
      UNITS                                                        | 57
|CORPORATE STRUCTURE                                                                    | 7                                                                                                                                              |    | MARKET FOR SECURITIES                                                                      | 57
|GENERAL DEVELOPMENT OF THE
      BUSINESS                                              | 8                                                                                                                                              |    | COMMON SHARES                                                                              | 57
|                                                                                       | COMMON SHARE WARRANTS                                                                                                                          | 58
|                                                                                       |                                                                                                                                                |    | PRIOR SALES                                                                                | 59
|THREE YEAR HISTORY                                                                     | 8                                                                                                                                              |    |                                                                                            |   
|ACQUISITION OF CERRO DEL GALLO PROJECT                                                 | 10                                                                                                                                             |    |                                                                                            |   
|                                                                                       |                                                                                                                                                |   
|BUSINESS OF PRIMERO                                                                    | 11                                                                                                                                             |    | ESCROWED SECURITIES AND
      SECURITIES SUBJECT TO CONTRACTUALRESTRICTIONS ON TRANSFER    | 59
|OVERVIEW                                                                               | 11                                                                                                                                             |    | ESCROWED SECURITIES                                                                        | 59
|PRODUCT SUMMARY                                                                        | 11                                                                                                                                             |    | CONTRACTUAL RESTRICTIONS ON
      TRANSFER                                                 | 59
|SAN DIMAS MINE                                                                         | 11                                                                                                                                             |    |                                                                                            |   
|AMENDED AND
      RESTATED SILVER
      PURCHASE
                AGREEMENT             | 12                                                                                                                                             |    | DIRECTORS AND OFFICERS                                                                     | 59
|                                                                                       | PRINCIPAL OCCUPATIONS AND
      OTHER
                INFORMATION
      ABOUT
      PRIMEROS           DIRECTORS
      AND EXECUTIVE OFFICERS | 61
|VENTANAS EXPLORATION PROPERTY                                                          | 16                                                                                                                                             |   
|COMPETITIVE CONDITIONS                                                                 | 16                                                                                                                                             |   
|CHANGES TO CONTRACTS                                                                   | 16                                                                                                                                             |    | CEASE
      TRADE ORDERS,
      BANKRUPTCIES,
                PENALTIES
      OR SANCTIONS | 64
|ENVIRONMENTAL PROTECTION                                                               | 16                                                                                                                                             |   
|EMPLOYEES                                                                              | 17                                                                                                                                             |    | CONFLICTS OF INTEREST                                                                      | 65
|FOREIGN OPERATIONS                                                                     | 17                                                                                                                                             |    | LEGAL PROCEEDINGS AND
      REGULATORY ACTIONS                                             | 65
|ENVIRONMENTAL,
      SOCIAL AND
      GOVERNANCE
              POLICIES                | 17                                                                                                                                             |   
|                                                                                       | TRANSFER AGENT AND REGISTRAR                                                                                                                   | 66
|MINERAL PROPERTIES                                                                     | 18                                                                                                                                             |    | MATERIAL CONTRACTS                                                                         | 66
|SAN DIMAS MINE                                                                         | 18                                                                                                                                             |    | INTERESTS OF EXPERTS                                                                       | 67
|CERRO DEL GALLO PROJECT                                                                | 38                                                                                                                                             |    |                                                                                            |   
|                                                                                       |                                                                                                                                                |    | ADDITIONAL INFORMATION                                                                     | 67
|                                                                                       |                                                                                                                                                |    | ADDITIONAL INFORMATION                                                                     | 67
|                                                                                       |                                                                                                                                                |    | AUDIT COMMITTEE                                                                            | 68

---

INTRODUCTORY NOTES

Cautionary Note Regarding Forward Looking Statements

This annual information form for
the year ended December 31, 2012 and dated April 1,2013 (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 General Development of the Business  Three Year
History  Acquisition of San Dimas Mine); the ability of the Company to
successfully operate the San Dimas Mine; the ability of the Company to mine at
the San Dimas Mine by long-hole mining; 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 realized and the
recording of taxes on this basis; 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 Mineral 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; the timing and amount of 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; expectations regarding the Companys safety
processes; expectations regarding currency fluctuations; 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; the ability of the Company to complete the
acquisition of Cerro (as defined under General Development of the Business 
Acquisition of Cerro del Gallo Project) and, if completed, the impact of the
completion of this acquisition on the business and operations of the Company;
and the ability of the Company to maintain effective internal control over
financial reporting.

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 are correct; that Mexican tax laws
with respect to the advance pricing agreement ruling will not be changed and
there will be no change to the favourable advance ruling of Mexican tax
authorities supporting the Companys advance pricing agreement; 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 (as defined under General Development of the Business  Three
Year History  Acquisition of San Dimas Mine); that the Company can access
financing, appropriate equipment and sufficient labour; that the political
environment within Mexico will continue to support the development of
environmentally safe mining projects; that the Company will be able to complete
the acquisition of Cerro on the agreed terms; and that the changes to the
Companys internal control over financial reporting undertaken in 2012 will
enable the Company to continue to maintain effective internal control over
financial reporting. 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 Companys limited ability to incur additional
indebtedness; if changes to Mexican tax laws or a reversal by Mexican tax
authorities of their favourable ruling supporting the Companys advance pricing
agreement require the Company 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 Business of Primero  Amended and
Restated Silver Purchase Agreement), the Company will be required to pay higher
taxes associated with silver sales, which adverse tax consequences will increase
in severity with increased silver production and increased silver prices and
will adversely impact the Companys results of operations and cash flows from
operations; 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; risks associated with the Company having a significant shareholder; the
acquisition of Cerro may not be completed and, if completed, risks associated
with the business and properties of Cerro; and changes undertaken to the
Companys internal control over financial reporting in 2012 will not result in
our ability to maintain effective internal control over financial reporting.
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.

Technical Information

The estimated Mineral Reserves
and Mineral Resources for the Companys properties 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:

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.

3

---

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.

Cautionary Notes 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.

Cautionary Note to Investors Concerning Mineral Reserve
Estimates

This AIF contains Mineral Reserve
estimates which 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 and
Exchange Act of 1934, as amended (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
Measured Mineral Resources, Indicated Mineral Resources and Inferred Mineral
Resources

This AIF uses the terms Measured
Mineral Resources, 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 limited circumstances. Mineral
Resources that are not Mineral Reserves do not have demonstrated economic
viability. None of the following mineralization has been demonstrated to be ore
nor is considered to be a Mineral Reserve. Investors are cautioned not to
assume that all or any part of Measured Mineral Resources or Indicated Mineral
Resources will ever be converted into Mineral Reserves. 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.

4

---

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 AIF. 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.

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.

Currency

Unless otherwise stated,
references herein to $ are to the United States dollar. References to CDN$
are to the Canadian dollar and references to AUS$ are to the Australian
dollar. References to $[amount] pesos or to pesos are to Mexican pesos. 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 | 
|------------------------------------- | - | ---------------------- | 
|                                      |   | 2012                   | 
|Low for the period                    | $ | 0.9710                 | 
|High for the period                   |   | 1.0418                 | 
|Rate at the end of the period         |   | 0.9949                 | 
|Average noon spot rate for the period |   | 0.9996                 | 

On March 28, 2013, the Bank of
Canada noon spot rate of exchange was $1.00  CDN$1.02.

5

---

Gold and Silver Prices

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, 2012, as quoted by the
London Bullion Market Association, were as follows:

|                       |   | Year ended December 31 | 
|---------------------- | - | ---------------------- | 
|                       |   | 2012                   | 
|Low for the period     | $ | 1,540                  | 
|High for the period    |   | 1,791                  | 
|Average for the period |   | 1,668                  | 
|Closing for the period |   | 1,657                  | 

On March 28, 2013, the closing
afternoon fixing gold price in United States dollars per troy ounce, as quoted
by the London Bullion Market Association, was $1,602.50.

Silver Prices

The high, low, average and
closing afternoon fixing silver prices in United States dollars per troy ounce
for each of the three years in the period ended December 31, 2012, as quoted by
the London Bullion Market Association, were as follows:

|                       |   | Year ended December 31 | 
|---------------------- | - | ---------------------- | 
|                       |   |                        | 
|                       |   | 2012                   | 
|Low for the period     | $ | 26.67                  | 
|High for the period    |   | 37.23                  | 
|Average for the period |   | 31.15                  | 
|Closing for the period |   | 29.95                  | 

On March 28, 2013, the closing
afternoon fixing silver price in United States dollars per troy ounce, as quoted
by the London Bullion Market Association, was $28.64.

6

---

CORPORATE STRUCTURE

Primero Mining Corp. is
incorporated under the British Columbia Business Corporations Act(the
Act). On August 6, 2010, the Company acquired the San Dimas Mine, mill and
related assets (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 General
Development of the Business  Three Year History  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 principal,
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.



|______________________
|----------------------
|(1)                   
|(2)                   
|(3)                   
|(4)                   
|(5)                   
|(6)                   
|(7)                   

7

---

|(8) | Primero Auxiliares de Administración, S.A. de C.V. is a
      service company.
|--- | ------------------------------------------------------------------------------

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 2301, 20 Queen Street West, Toronto, Ontario,
Canada, M5H 3R3, 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

Three Year History

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, effective September 16, 2011, Primero was added to the
S&P/TSX SmallCap Index, and, effective December 24, 2012, Primero was added
to the S&P/TSX Global Gold Index.

Prior to August 6, 2010, Primero
(then Mala Noche Resources Corp.) only 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. However, exploration of the
Ventanas property is planned to recommence in 2013. See Business of Primero 
Ventanas Exploration Property.

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), pursuant to an asset purchase
agreement (Asset Purchase Agreement), and the shares of Silver Trading,
pursuant to a share purchase agreement, from wholly-owned subsidiaries of
Goldcorp for an aggregate purchase price of of $489 million (the Purchase
Price), and assumed all liabilities associated with the San Dimas Mine,
including environmental and labour liabilities and the Amended and Restated
Silver Purchase Agreement. See Business of Primero  Amended and Restated
Silver Purchase Agreement. 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. The
Purchase Price was paid as to (a) $220 million in cash, (b) the issuance and
delivery of 31,151,200 Common Shares with a value of $159 million, (c) the
issuance of the $50 million promissory note (the Promissory Note) and (d) the
issuance of the $60 million convertible promissory note (the Convertible
Promissory Note) (of which $30 million was repaid in cash on October 19, 2011
and the remaining $30 million was repaid on August 7, 2012 through a conversion
to shares).

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 CDN$6.00
per subscription receipt for gross proceeds of CDN$300 million. 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 CDN$8.00 per share
until July 20, 2015.

In connection with the
Acquisition, the Company and Goldcorps subsidiary DMSL entered into to an
agreement (the Participation Agreement) which grants certain pre-emptive share
purchase rights and the right to nominate directors of the Company. Provided
Goldcorp and its affiliates continue to beneficially own at least 10% of the
issued and outstanding Common Shares, Goldcorp will have the right to maintain
their aggregate percentage of issued Common Shares following completion of the
Acquisition, and designate a certain number of individuals (the Goldcorp
Director Nominees) to serve as directors of the Company.

8

---

Currently, there are two Goldcorp
Director Nominees on the board of directors of the Company (the Board)  Mr.
Timo Jauristo and Mr. Rohan Hazelton, the Executive Vice President, Corporate
Development and Vice President, Strategy, 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.

Pursuant to the Participation
Agreement, Goldcorp may not, without the Companys prior written approval, sell
the 31,151,200 Common Shares issued in connection with the Acquisition until
after August, 6, 2013, except in certain limited circumstances such as
transactions that entail a change of control of the Company.

Proposed Business Combination with Northgate

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
CDN$25 million.

Mineral Reserve and Mineral Resource Estimation Methodology
Review

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.

Convertible Debt

The Company repaid the remaining
$30 million principal of the Convertible Note on August 7, 2012 by issuing
8,422,460 Common Shares to Goldcorp. Immediately following the issuance,
Goldcorp owned an aggregate of 39,573,660 Common Shares, representing
approximately 41% of the issued and outstanding Common Shares (increased from
approximately 35%). The 8,422,460 Common Shares were issued from treasury at a
deemed price of CDN$3.74 per share for an aggregate value of $30 million. See
General Development of the Business  Three Year History  Acquisition of San
Dimas Mine. On October 11, 2012, Goldcorp sold the 8,422,460 Common Shares
issued in satisfaction of the Convertible Note in a secondary offering at an
offering price of CDN$5.25 per share. After completing the offering, Goldcorp
owned an aggregate of 31,151,200 Common Shares, representing 32.2% of the then
outstanding Common Shares. Primero did not receive any proceeds from the
Goldcorp secondary offering.

Advance Pricing Agreement Ruling

On October 17, 2011, Primero
Empresa filed a formal application to the Mexican tax authorities for an advance
pricing agreement (APA) on the appropriate price for sales of silver under the
Amended and Restated Silver Purchase Agreement. In its 2010 and 2011 financial
statements and income tax returns, Primero Empresa had recorded revenue at the
fixed price realized from Silver Wheaton Caymans (SW Caymans) and computed
income taxes on the same basis. On October 4, 2012, the Company received a
ruling from the Mexican tax authorities that confirmed the silver pricing in
Primero Empresas 2010 and 2011 income tax returns. Under Mexican tax law, an
APA ruling is generally applicable for up to a five year period. For Primero
this applies to the fiscal years 2010 to 2014. Assuming Primero Empresa
continues to sell silver under the silver purchase agreement on the same terms
and there are no changes in the application of Mexican tax laws relative to the
APA ruling, Primero Empresa expects to record revenues and pay taxes on realized
prices for the life of the San Dimas Mine. See Risk Factors APA Ruling.

9

---

San Dimas Mine Expansion

In October 2012 the Company
initiated a mine and mill expansion of the San Dimas Mine. The Company has taken
a staged approach, initially optimizing existing operations before undertaking
expansion of the San Dimas Mine and mill to 912,500 tonnes per year (TPY) or
2,500 tonnes per day (TPD) with an approved expenditure of $16.5 million.
Construction of the mine and mill expansion is expected to be completed during
the first quarter of 2014. See Business of Primero  San Dimas Mine  Recent
Operating History for the San Dimas Mine.

Acquisition of Cerro del Gallo Project

On December 13, 2012, the Company
entered into a scheme implementation deed with Cerro Resources NL (Cerro)
whereby Primero agreed to acquire all of the issued and outstanding common
shares of Cerro by way of a scheme of arrangement (the Arrangement) under the
Australian Corporations Act 2001(the Australian Act). Cerro is an
exploration and development company whose principal asset is 69% of the
feasibility stage Cerro del Gallo project, a gold-silver deposit with over 0.9
million ounces of gold equivalent Proven Mineral Reserves and Probable Mineral
Reserves and over 2 million ounces of gold equivalent Measured Mineral Resources
and Indicated Mineral Resources (inclusive of Mineral Reserves), located in the
province of Guanajuato, Mexico. See Mineral Properties  Cerro del Gallo
Project.

Under the terms of the
Arrangement, each Cerro shareholder will receive 0.023 of a Primero Common Share
(the Exchange Ratio) for each Cerro common share held. Additionally Cerro
shareholders will receive 80.01% of the common shares of a newly incorporated
company (Spinco), which will assume Cerros interests in the Namiquipa,
Espiritu Santo, Mt Philp and Kalman projects and shares in Syndicated Metals
Limited (all Cerros assets other than the Cerro del Gallo project). Primero
will purchase a 19.99% interest in Spinco for a subscription price of $4.0
million, with anti-dilution rights for two years. Primero will also be entitled
to appoint a director to the Spinco board of directors. Cerros outstanding
options and its option plan will be substantially assumed by Primero, subject to
adjustment to reflect the Exchange Ratio and a corresponding upward adjustment
in the exercise price.

The transaction will be carried
out by way of a court-approved scheme of arrangement and will require approval
by at least 75% of the votes cast by at least 50% of the shareholders of Cerro
at a special meeting of Cerro shareholders. Approval of Cerros option holders
will also be required. The transaction is also subject to applicable regulatory
approvals and the satisfaction of certain other closing conditions customary in
transactions of this nature. It is anticipated that the Cerro shareholder
meeting will be held in April 2013. Primero does not require a shareholder vote
to complete the transaction.

The transaction is expected to
close in May 2013. Upon completion of the Arrangement, existing Primero
shareholders and Cerro shareholders will own approximately 85% and 15%,
respectively, of the issued Common Shares of the Company. The total transaction
value is approximately $125 million. Assuming the transaction closes in May 2013
as expected, Primero estimates 2013 capital expenditures of between $50 and $60
million on the Cerro del Gallo project.

The Arrangement includes
customary provisions, including no solicitation of alternative transactions by
Cerro, a right in favour of Primero to match any potential superior proposals
and a reimbursement fee payable to Primero by Cerro in certain events.

Both companies Boards of
Directors have determined that the proposed transaction is fair and reasonable
to their respective shareholders based on a number of factors. Each companys
Board of Directors approved the terms of the proposed Arrangement and Cerros
Board of Directors will recommend that their shareholders vote in favour of the
proposed transaction. TD Securities Inc. has provided an opinion to the Board of
Directors of Primero that, as of the date of such opinion and based upon and
subject to the scope of review, assumptions, limitations, qualifications and
other matters described in such opinion, the consideration to be paid by Primero
in connection with the proposed transaction is fair, from a financial point of
view, to Primero.

Each of the directors of Cerro
and its Chief Executive Officer and Chief Financial Officer has entered into a
support agreement to vote in favour of the transaction.

10

---

BUSINESS OF PRIMERO

Overview

Primero is a Canadian-based
precious metals producer with operations in Mexico. The Company is focused on
becoming an intermediate gold producer by building a portfolio of high quality,
low cost precious metals assets in the Americas. 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 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 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 120,000 and 130,000
gold equivalent ounces in 2013, based on higher throughput and slightly higher
grades than 2012. Underground development in 2013 will again be focused in the
main mining (Central Block and Sinaloa Graben) blocks. In 2013 the majority of
the ore is anticipated to come from the Central Block with approximately 30%
from the Sinaloa Graben block. See Business of Primero  San Dimas Mine.

Primeros proposed acquisition of
the Cerro del Gallo project, announced in December 2012, is expected to create a
diversified, high growth, competitive-cost precious metals producer in Mexico
with further consolidation opportunities. It will diversify Primero from a
single asset company to a multi-mine producer and delivers on the Companys
strategy of growth in low risk regions of the Americas. See General Development
of the Business Acquisition of Cerro del Gallo Project.

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:

|       |  | Financial year ended | 
|------ |  | -------------------- | 
|       |  | December 31          | 
|       |  | 2012                 | 
|       |  | $                    | 
|Gold   |  | 145,224,000          | 
|Silver |  | 37,715,000           | 
|Total  |  | 182,939,000          | 

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). 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 2,150 TPD and, in 2012, the mill averaged 1,976 TPD (based
on 365 days of production).

11

---

See Mineral Properties  San
Dimas Mine.

Recent Operating History for the San Dimas Mine

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 current mill capacity of
2,150 TPD by end of first quarter 2013, 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.

During the year ended December
31, 2012, San Dimas produced 111,132 gold equivalent ounces, within the
Companys increased guidance range of 110,000 to 120,000 gold equivalent ounces.
The Company produced 87,900 ounces of gold and 5.13 million ounces of silver,
10% and 12% higher, respectively, than 2011. Production at San Dimas in 2012 was
higher than 2011 primarily as a result of mining more ore at similar grades.
Throughput in 2012 increased by approximately 9% over 2011, averaging 1,976 TPD
(based on 365 day availability), partly as a result of the Companys mining
optimization program that was initiated in the third quarter. The optimization
program has been successful at reducing process variation, increasing throughput
and has also improved mining dilution rates observed. As part of the Companys
optimization program it began testing long-hole mining during the third quarter
of 2012. By the end of 2012 San Dimas was operating two long-hole drills to test
the mining method in several of the San Dimas veins with varying widths and dip.
The testing phase confirmed that long-hole mining can be used at San Dimas in a
portion of the deposit, generally where the veins are fairly continuous
horizontally and vertically. In 2013 San Dimas has formally included long-hole
mining in its mine plans, with the objective to mine about 30% of the deposit by
this method by the end of 2013.

The Company was also successful
at controlling costs, slightly lowering 2012 costs per tonne compared to 2011.
Total cash costs on a gold equivalent and by-product basis in 2012 were $636 and
$366 per ounce, respectively, compared with $640 and $384 per ounce,
respectively, in 2011. Operating costs were 8% higher in 2012 as compared to
2011, however, this was offset by a 9% increase in gold equivalent ounces
produced and an 11% increase in silver by-product credits. Increases in input
costs included higher reagent costs, particularly sodium cyanide, higher labour
costs, and higher power costs as a result of dry weather conditions leading to
low power production from the Companys hydro-electric facility that caused the
Company to consume more diesel fuel and purchase more electricity from the
grid.

The Company has reported its
year-end Mineral Reserves and Mineral Resources for its San Dimas mine. The
Company reported that Probable Gold Mineral Reserves increased 31% over year-end
2011, to 660,400 ounces, or 19% on a per share basis and that Indicated Gold
Resources increased 35% over year-end 2011 to 779,600 ounces (inclusive of
Mineral Reserves).

Amended and Restated Silver Purchase Agreement

As part of the Acquisition,
Primero assumed the 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 (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 is for the
  life of the San Dimas Mine, with an initial term expiring October 15, 2029 and
  automatic renewals for additional terms of ten years each, subject to SW
  Caymans right to terminate;
- Silver Trading sells annually (a Contract Year) to SW Caymans an amount
  of refined silver (Refined Silver) determined as follows:

12

---

- 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 is 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, 2012, the Company had delivered the Threshold Amount in April
  2012;

- the purchase price for the Refined Silver is equal to the lesser of (a) a
  fixed price of $4.04 plus an increase of one percent annually ($4.20
  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
- $0.50 per ounce;

provided that (a) a default in payment
of the Minimum Silver Payment will not constitute an Event of Default under
the Amended and Restated Silver Purchase Agreement, and (b) Goldcorp will
indemnify Silver Trading for, and accordingly will be ultimately responsible
for, any amount paid in respect of the Minimum Silver Payment under the
Indemnity Agreement (as defined in Business of Primero  Amended and Restated
Silver Purchase Agreement  Agreements in Support of the Silver Purchase
Agreement), except to the extent that the deficiency payment arises because
Silver Trading did not comply with its obligations to sell and deliver to SW
Caymans silver required to be sold and delivered under the Amended and Restated
Silver Purchase Agreement (other than with respect to the failure of Silver
Trading to sell and deliver the Minimum Silver Amount);

- 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 $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
  $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;

13

---

- 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 Amended and Restated Silver Purchase Agreement; and
- Silver Trading will pay to Primero Empresa a price for all Refined Silver
  equal to the lesser of approximately $4 per ounce (adjusted for inflation) and
the prevailing market price of Refined Silver at the time of sale.

See Risk Factors 
Indebtedness, Risk Factors  Risks Inherent in Acquisitions and Risk Factors
Conflicts of Interest.

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 includes 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 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 is 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

14

---

- 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 $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 is subject to substantially the same restrictions on
  indebtedness and other covenants 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).

Silver Call Options

The Company purchased two
tranches of silver call option contracts in 2011 and one in 2012. These call
options were designed to mitigate the adverse tax consequences of the silver
purchase agreement prior to receiving the APA ruling. See General Development
of the Business  Three Year History  Advance Pricing Agreement Ruling.

On March 18, 2011, the Company
purchased contracts for 1.2 million ounces of silver at a strike price of $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. On September 15, 2011, the Company entered
into a second series of monthly call option contracts to purchase 1.5 million
ounces of silver at a strike price of $49 per ounce for a total cost of $3.7
million. These contracts were designed to cover approximately 30% of the monthly
silver production sold to Silver Wheaton Caymans over the period September 27,
2011 to September 26, 2012. On August 30, 2012, the Company entered into a third
series of monthly call option contracts to purchase 548,000 ounces of silver at
$33 per ounce for a total cost of $0.5 million. These contracts were designed to
cover approximately 30% of the monthly silver production sold to Silver Wheaton
Caymans over the period August 30, 2012 to December 31, 2012.

In the year ended December 31,
2012 the Company reported a loss on derivative contracts of $0.2 million, mainly
comprised of realized losses on expired contracts purchased in September 2011.
The Company recorded a loss on derivative contracts of $1.3 million in the year
ended December 31, 2011, comprised of losses of $3.9 million on the sale or expiry of silver call option contracts
and an unrealized gain of $2.6 million from mark-to-market adjustments to the
fair value of an embedded derivative included in the convertible note. The
Company does not plan to purchase more silver call options in the future as a
result of receiving the favourable APA ruling.

15

---

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, which was previously
under option to Primero, 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 expects to initiate a district exploration program in 2013,
whereby three veins on the Ventanas property will be explored using diamond
drilling. This program includes approximately 6,200 metres of diamond
drilling.

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, for the period up
to the third anniversary of the Acquisition, 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, 2012, Primero
had 581 unionized employees at the San Dimas Mine who are members of three
sections of one union: Sindicato Nacional de Trabajadores Mineros and
Metalúrgicos, Siderúrgicos y Similares de la República Mexicana. The union
contracts are renegotiated every two years, except for the compensation aspects,
which are reviewed annually. In 2013, the full contracts are due to be
negotiated. Primero believes that its current relations with its employees and
the union are good and that the effect of the contract negotiations in 2013 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 and the Companys competitive position during the fiscal
year ended December 31, 2012 were not material. In 2013 and 2014 the Company
plans to spend a total of $13.5 million to construct a new 20-year life waste
pad.

In February 2013, for a
consecutive year, the Company was awarded the Socially Responsible Company
(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.

16

---

Employees

As at December 31, 2012, the Company had the following
employees and contractors:

|                                          |  | Full-Time |  |  | Hourly  |  |  |             |  |  |       | 
|----------------------------------------- |  | --------- |  |  | ------- |  |  | ----------- |  |  | ----- | 
|Location                                  |  | Salaried  |  |  | (Union) |  |  | Contractors |  |  | Total | 
|Mexico City Office                        |  | 10        |  |  | Nil     |  |  | Nil         |  |  | 10    | 
|San Dimas Mine (including Durango office) |  | 576       |  |  | 581     |  |  | 117         |  |  | 1,274 | 
|Vancouver Office                          |  | 3         |  |  | Nil     |  |  | 3           |  |  | 6     | 
|Toronto Office                            |  | 13        |  |  | Nil     |  |  | Nil         |  |  | 13    | 
|Total                                     |  | 602       |  |  | 581     |  |  | 120         |  |  | 1303  | 

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. 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. Any changes in regulations or shifts in political
attitudes in Mexico are beyond the control of the Company and may adversely
affect its business. The effect of these factors cannot be accurately predicted.
See Risk Factors  Use of Ejido-owned Land and Risk Factors  Foreign
Operation Risks  Mexico.

Environmental, Social and Governance Policies

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

Primeros operating practices are
governed by the principles set out in its Health and Safety Policy and Code of
Business Conduct and 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.

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, makes
recommendations and monitors compliance with its recommendations. In 2012
implementation of new safety initiatives continued with the creation of Dynamite
Improvement Circle, supervisor of the month program for safety compliance and
the safety audit program. Despite these initiatives, a tragic workplace accident
occurred in 2012 resulting in the death of an employee. As a result, the Company
has conducted a thorough assessment of its workplace safety program and plans to
reinforce and enhance its safety processes in 2013.

17

---

With respect to community
relations, in 2012, Primero continued to work closely with different communities
and increase awareness completing several workshops around energy savings at
home, recycling of solid waste, drug prevention, school for parents and the
creation of a mutual aid plan for Durango region. Primero supports community
education and provides a 75% tuition subsidy to all students who attend the
school in Tayoltita. In 2012, 225 students were enrolled at the school. The
distribution 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 continued in 2012.

Primero continued a number of
campaigns in 2012 to increase environmental awareness, including continuation of
collecting and disposing of outdated household appliances (two 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
and the Duranguito Creek (17 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. In 2012 Primero concentrated its environmental
efforts in recovering its Clean Industry certification. A total of 58 actions
were completed in order to improve management of environmental aspects related
to San Dimas operations, including disposal of over 300 tonnes of contaminated
soil.

The Company plans to continue to
promote and expand the CSR programs that it has already implemented in 2013. The
Company is committed to the safety, health and welfare of its employees,
contractors and visitors to the mine. The mine is the economic and social
driving force of the community and Primero will continue to strengthen its
involvement in the community.

MINERAL PROPERTIES

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.

The change in Mineral Reserve and
Mineral Resource estimates at San Dimas did 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. On March 26,
2013, Primero announced an updated Mineral Reserve and Mineral Resource estimate
as at December 31, 2012. See Mineral Properties  San Dimas Mine  Mineral
Resource and Mineral Reserve Estimates.

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), each a Qualified Person for the purposes of NI 43-101, and each
independent of the Company. 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 scientific and technical
information after April 16, 2012 under the heading Mineral Properties San
Dimas Mine  Mineral Resources and Mineral Reserve Estimates is based on
information prepared by or under the supervision of Mr. Shannon, Mr. Webster and
Mr. Smith.

18

---

The information under the heading
Mineral Properties  San Dimas Mine  Property Description and Location 
Environmental Matters, Mineral Properties  San Dimas Mine  Mining Operations
 Taxes and the information after April 16, 2012 under the headings Mineral
Properties  San Dimas Mine  Property Description and Location  Mining
Concessions, Royalties and Permits, Mineral Properties  San Dimas Mine 
History Historical Production, Mineral Properties  San Dimas Mine 
Exploration and Drilling, Mineral Properties San Dimas Mine  Sampling,
Assaying and Security and Mineral Properties  San Dimas Mine  Mining
Operations has been prepared by Primero and is not part of the Technical
Report. The scientific and technical information contained under such headings
after April 16, 2012 has been reviewed and approved by Mr. Gabriel Voicu, P.
Geo., Vice President, Geology and Exploration for Primero, who is a Qualified
Person for the purposes of NI 43-101.

Property Description and Location

The San Dimas Mine is located on
the borders of the Durango and Sinaloa states, approximately 125 km north-east
of 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.



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
currently no royalties payable to any entity, including any governmental entity,
however, it is widely anticipated that the Mexican government will introduce a
royalty in 2013.

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. The mine and mill expansion
of the San Dimas Mine is also covered by this permit. Other significant permits
are those related to water supply and water discharge rights. There is a waste
pad project planned to commence in 2013 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.

19

---

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, 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 in 2014.

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
incident. 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. 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 specified 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 design and building of a containment structure for
the tailings pipe, which will be fully operational by June 2013 once
installation of a second new tailing pump is complete. On April 20, 2012,
PROFEPA issued its preliminary report which specified that they would not fine
Primero for the incident but will monitor compliance with their recommendations.
All of PROFEPAs requests were implemented and, in July 2012, PROFEPA informed
the Company that it would not be subject to any fines from PROFEPA. On September
3, 2012, Primero received final resolution from CNA, specifying a fine of 93,500
pesos, which the Company paid on September 20, 2012.

On September 17, 2012, following
the final resolution from CNA, the Company was notified by PROFEPA that it was
fined $31,200 pesos. The resolution notification referred to
non-compliance to a hazardous waste regulation. Since tailings are not
considered hazardous waste, the Company filed a motion with the H. Tribunal De
Justicia Fiscal and Administrativa on November 23, 2012 to void the resolution
by PROFEPA.

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

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.

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.

20

---

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 power for operations at San Dimas is
mainly supplied by the FPCSS. Primero is considering increasing the power
generation of the Las Truchas facility from 50 GW to 90 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 (San Antonio Mine), Sinaloa Graben Block,
Central Block, and the Tayoltita and Arana Blocks (Santa Rita Mine). The San
Antonio mill and tailings facilities are currently under reclamation.

The Tayoltita mine is the closest
operation to the processing plant and town site of Tayoltita and is located 400
metres north east of the processing plant. The Santa Rita mine is located three
kilometres upstream from Tayoltita. The Central Block is currently the most
active mine and is located 2,000 metres downstream from the processing 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.

21

---

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



Physiography and Vegetation

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

History

Prior Ownership

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

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

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

22

---

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 from the
San Dimas district is estimated at 11 million ounces of gold and 582 million
ounces of silver, affirming it as a world class epithermal mining province.
Historical production for the San Dimas Mine from 2003 to 2012 is summarized in
the following table:

San Dimas Mine Production

|        |  |             |  |  | Grade    |  |  | Contained Ounces | 
|------- |  | ----------- |  |  | -------- |  |  | ---------------- | 
|        |  | Tonnes      |  |  | Au       |  |  | Ag               | 
|Year    |  | (M
      t) |  |  | (g/t)(1) |  |  | (g/t)            | 
|2003    |  | 0.424       |  |  | 5.3      |  |  | 428              | 
|2004    |  | 0.398       |  |  | 6.9      |  |  | 525              | 
|2005    |  | 0.508       |  |  | 7.4      |  |  | 497              | 
|2006    |  | 0.689       |  |  | 7.8      |  |  | 438              | 
|2007    |  | 0.685       |  |  | 6.3      |  |  | 341              | 
|2008    |  | 0.657       |  |  | 4.3      |  |  | 259              | 
|2009    |  | 0.673       |  |  | 5.4      |  |  | 247              | 
|2010(2) |  | 0.612       |  |  | 4.5      |  |  | 244              | 
|2011    |  | 0.663       |  |  | 3.9      |  |  | 226              | 
|2012    |  | 0.721       |  |  | 3.9      |  |  | 234              | 

|_____________________
|---------------------
|(1)                  
|(2)                  

23

---

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.

24

---



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.

25

---

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

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

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

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

Exploration and Drilling

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

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.

26

---

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 have QA/QC procedures applied and are 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 2012 is shown in the following
table.

|                   |  | Number of   |  |  |        |  |  | Number of |  |  | Significant | 
|------------------ |  | ----------- |  |  | ------ |  |  | --------- |  |  | ----------- | 
|Area               |  | Drill Holes |  |  | Metres |  |  | Targets   |  |  | Intercepts  | 
|Arana Hanging Wall |  | 7           |  |  | 4,378  |  |  | 2         |  |  | 2           | 
|Central Block      |  | 182         |  |  | 53,471 |  |  | 15        |  |  | 42          | 
|Sinaloa Graben     |  | 127         |  |  | 38,877 |  |  | 9         |  |  | 43          | 
|Total              |  | 316         |  |  | 96,726 |  |  | 26        |  |  | 87          | 

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.

Central Block

In the Central Block, 179 holes
were completed in 2012 for a total of 45,383 metres of drilling. Drilling was
focused on upgrading the Inferred Mineral Resources to Measured and Indicated
Mineral Resources categories and to help define better the boundaries of the
Roberta/Robertita systems at depth and to the east of the known faulted boundary
(Falla Huerta) which has uplifted the barren Piaxtla Intrusive. Drilling
indicated that the known mineralization in the Roberta/Robertita systems extends
to a depth of at least 60 metres below the deepest current exploitation level
and between 300m-500m east of the present development. Drillholes east of the
established economic zone have intercepted the Roberta vein, though the exact
location of the favourable horizon remains to be established. The extension of
the Roberta/Robertita systems east of the Falla Huerta will be tested during
2013.

Sinaloa Graben

In the Sinaloa Graben, 125 holes
were completed in 2012 for a total of 33,078 metres of drilling. Drilling was
focused on converting Mineral Resources from Inferred to Indicated, to add new
Inferred Resources in the Victoria and Alexa veins, and to assess whether the
economic zones (ore shoots) found in this block were a continuation of the ore
shoots of the Central Block. Drilling helped establishing that the high-grade
mineralization continues west of the Sinaloa Fault (i.e. Alexa) up to the San
Mateo Fault (an offshoot of the Sinaloa Fault) and continues at depth.

27

---

The 2012 drilling program helped
categorize more than 110,000 ounces of gold Indicated Resource in Alexa and
Victoria.

During 2013 1) the Victoria &
Alexa veins will be delineated and expanded; 2) the extensions of the Elia and
Aranza veins will be advanced and delineated; and 3) other targets will be
tested (e.g. extension of Roberta/Robertita System) by a drilling and drifting
program of approximately 25,420 metres and 1,200 metres, respectively.

Arana Hanging Wall

Two targets were evaluated during
2012 in the Arana Hanging Wall area by seven deep drill holes (approximately
3,600 metres); the objective of the 2012 exploration program in the Arana
Hanging Wall area was to expand on earlier (2011) drill holes indicating
potential for new orebodies at depth in this historical area. Drilling results
were not as good as expected, though five of the seven drill holes intercepted
the target veins and textures and alteration minerals indicated proximity to the
favourable horizon. Approximately 7,400 metres of drilling are planned for this
area in 2013.

Contemplated Exploration and Development Activities

Contemplated Exploration Activities

The San Dimas $15.4 million 2013
exploration program includes approximately 73,100 metres of diamond drilling
employing 14 rigs, broken into 16,580 metres of underground exploration
drilling, 19,000 metres of surface exploration drilling and 37,520 metres of
delineation drilling, plus 3,900 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 main target of the 2013
underground mine exploration program is to replace the depleted Mineral
Resources plus 100% additional new Indicated Mineral Resources. In order to
achieve this goal, a drilling program of 54,100 metres is proposed, consisting
of 134 drillholes (37,520 metres) for delineation and 48 drillholes (16,580
metres) for exploration. The majority of the delineation drilling is planned for
the Roberta-Robertita and Marina1-Marina2 vein systems in the Central Block
(47%) and the Victoria-Alexa and Elia-Aranza vein systems in the Sinaloa Graben
(31%). The remainder of the delineation program is divided almost equally
between the Central Blocks San Fernando (7%), Santa Rita (6%) and Arana (9%)
areas. The objective is to delineate accurately already known historical Mineral
Resources in former producing veins. Exploration drilling will be focused on the
Sinaloa Graben (64%). The strategy is 1) to define the extensions of the
Victoria-Alexa and Elia-Aranza vein systems; 2) to explore north and south of
these veins systems; 3) to locate the Roberta and Robertita veins in the Sinaloa
Graben and 4) to evaluate the Rosario vein. The Central Block exploration (13%)
will aim for the extensions of Marina2 and Soledad-Jael veins. The remaining
exploration drilling (21%) will target the Central Blocks San Fernando zone
(the area north of Roberta up to the Noche Buena vein, including the Pozolera
and Frapopan veins). A total of 3,849 metres of exploration drifting is also
proposed for the Sinaloa Graben (2,063 metres), Tayoltita (1,065 metres) and
Central Block (721 metres) areas. The most favourable targets for exploration
drifting are: 1) the extension of the Central Blocks Roberta and Robertita
veins west of the Limoncito Fault and into the Sinaloa Graben; 2) the
continuation of the Victoria and Alexa veins on the western Sinaloa Graben; and
3) the west extension of the Elia and Aranza veins.

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 a few have been mined with the remainder
of the veins are unexplored. A north-south tunnel currently extending 4.6
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.

28

---

The following figure is a cross
section showing exploration targets:



Since acquiring the mine, Primero
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 improved in 2012 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.

Contemplated Development Activities

Primeros goal in 2013 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.

The east-west tunnel that joins
the north-south Sinaloa Graben tunnel, connecting the historical main mining
block, the Central Block, with the new mining area, the Sinaloa Graben, is
expected to be completed in 2013, significantly improving access routes at the
mine. The Company is also driving a second east-west haulage tunnel
approximately 250 metres below the first, that is expected to be completed
within 18 to 24 months and is designed to facilitate the increased haulage
associated with the mine expansion to 2,500 TPD.

The Company has designed the mill
expansion project such that a potential further expansion to 3,000 TPD can be
achieved with minimal capital and no down-time to operations. The Company will
continue detailed engineering in 2013 for a potential expansion to 3,000 TPD
and, based on exploration results, could announce a further expansion to 3,000
TPD before the end of the year.

29

---

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.

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, there were no certified standards used between 2009 and early 2012.
Until early 2012, 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.

30

---

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
by end of 2013. As follow-up to the TAY Lab and assay issues identified in 2012,
remedial actions have been taken, as follows:

- All sampled exploration core in 2012 was sent to the SGS Durango laboratory
  for assay;
- Approximately 20% of the chip samples taken in 2012 were assayed at the SGS
  Durango laboratory;
- QA/QC procedures are in place, although they have not been reviewed by AMC;
- The TAY Lab is implementing a compliance specification regarding Entidad
  Mexicana de Accreditation A.C. (EMA) certification.Primero has been
  working with an external consultant since February 2013 in implementing such
  compliance.
- Technical/handling changes at the TAY Lab level will commence in April
  2013; and
- In 2013, the TAY Lab will be expanded in size and some new equipment will
  be purchased (in order to meet EMA certification).

It is expected that the TAY Lab
will have the necessary technical skills and meet regulatory specifications by
December 2013.

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. The recommendation has been implemented.

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;

31

---

- Model Depletion The tonnes mined and the gold and silver produced
  from the Roberta vein were 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 since 2009 to the Roberta vein;
- 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 was
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. Most of the laboratory issues have been addressed or will be
addressed during 2013. 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.

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.

Prior to year-end 2011, Primero
and its predecessors had 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 and newly discovered veins (18 veins in total at
end-2012). These veins, located in the Central Block and Sinaloa Graben, were
removed from the resource database for block modeling, which at end-2012 results
in a total of 236 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 18 veins, was carried out using a 2D
accumulation method with ordinary kriging for interpolation, resulting in 18
separate vein models that had a parent block size of 10 metres by 10 metres by
vein thickness. The vein wireframes were modeled along the vein contacts, and
were defined by structural geology, quartz veining, mineral alteration and
channel and drillhole samples. Based on log probability plots of the composited
gold and silver for each of the veins, various levels of capping of gold and
silver grades were used on the data for the Resource estimation. AMC used a
constant bulk density of 2.7 t/m3for the estimation of the tonnes
for all veins.

32

---

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, and to include the areas of new
drilling spaced 20-30 metres apart, where the samples had been assayed at the
SGS laboratory. The Inferred Mineral Resource was located between the Indicated
Mineral Resource and approximately 30 metres from the levels containing channel
samples. The 236 entries that were left in the resource database after the
producing veins were removed, were classified as Inferred Mineral Resources.

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. San Dimas is introducing the use of longhole
mining method rather than cut and fill on an increasing scale. On a general
basis, vein widths up to 2.2 metres have been assumed to be mined by jackleg or
longhole and those over 2.2 metres by drill-jumbo. For jackleg, longhole 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 56%. For the Indicated
Mineral Resource material in the 18 veins upon which the year-end 2012 Mineral
Reserve estimate is based, the respective mined tonnes from jumbo and
combination of jackleg and longhole mining are estimated at 38% and 62%,
respectively. Other than for sill mining, average recovery throughout each
mining block for both jumbo and combination of jackleg and longhole mining has
been assumed to be 95%. For sill pillars, which in the modelling 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 2.40 g/t
gold equivalent (AuEq) was calculated based on total operating cost of
$104.73, silver recovery factor of 94%, gold recovery factory of 97%, silver
price of $25 per troy ounce, gold price of $1,400 per troy ounce and exchange
rate of 13 Pesos per $1.00. This cut-off grade requires that the material in
question carry all mine operating and selling costs.

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 31, 2012. As noted above, the
Inferred Mineral Resource is a mix of block modeled and polygonal estimates. The
relevant cut off and price data are shown in the footnotes.

|San Dimas Mine Mineral Resources and
      Mineral Reserves | 
|----------------------------------------------------------- | 
|(as of December 31,
      2012)                             | 
|                                                            | 
|                                                            | 
|                                                            | 
|Classification                                              | 
|Reserves                                                    | 
|Probable                                                    | 
|                                                            | 
|Resources                                                   | 
|Indicated                                                   | 
|                                                            | 
|Inferred                                                    | 
|                                                            | 
|                                                            | 

|__________________                  
|------------------------------------
|Notes to Mineral Reserves Statement:
|(1)                                 

33

---

|(2) | Processing recovery factors for gold and silver of 97%
      and 94% assumed.                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Exchange rate assumed is 13 pesos/$1.00.                                                                                                                              
|(4) | The Mineral Reserve estimates were prepared by Mr.
      Herbert A. Smith P.Eng. of AMC Mining Consultants (Canada) Ltd. and a QP
      for the purposes of NI 43-101.

Notes to Mineral Resources Statement:

|(1) | Mineral Resources are total and include those Mineral
      Resources converted to Mineral Reserves.                                                                                                                     
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | A 2.0g/t Au Eq cutoff grade is applied and the AuEq is
      calculated at a gold price of $1,625 per troy ounce and a silver price of
      $25 per troy ounce.                                                         
|(3) | A constant bulk density of 2.7 tonnes/m3has
      been used.                                                                                                                                                             
|(4) | The Mineral Resource estimates were prepared by Mr.
      Rodney Webster MAusIMM, MAIG and Mr. J. Morton Shannon P.Geo., both of AMC
      Mining Consultants (Canada) Ltd. and a QP for the purposes of NI
      43-101.

The average Mineral Reserve
grades of gold and silver are approximately 15% higher than reported mined
grades for 2012.

Reserve tonnes are 22% higher
than Resource tonnes, and Reserve grades of gold and silver are 31% lower than
Resource grades, largely due to mining dilution. Reserve ounces of gold and
silver are 15% to 16% less than 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 $1,600 per ounce for gold and $29 per ounce for silver were applied to
the final Mineral Reserve estimate, giving numbers of the order of 4.7 million
tonnes at 4.4g/t gold and 261g/t silver, representing approximately 664,000
ounces of gold and 39.7 million ounces of silver.

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. 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.

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 to date of the vein
systems has been 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
1.9 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 provided the
majority of mine production during 2012. The Company produced 87,900 ounces of
gold and 5.13 million ounces of silver, 10% and 12% higher, respectively, than
2011.

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.

34

---

The workforce at San Dimas is
made up of company personnel (staff and unionized) and contractor personnel.
There are approximately 175 contractors currently on site.

2013 Development Plans

The San Dimas underground
development plan for 2013 envisages a similar development rate and number of
metres of advance as was achieved in 2012, namely about a total of 22.3
kilometres of drifting.

In 2013, Primero expects to
produce between 120,000 and 130,000 gold equivalent ounces up to 17% higher than
2012, based on higher throughput at slightly higher grades. Production is
expected to ramp-up at the end of the first quarter when the current maximum
milling capacity of 2,150 TPD is achieved. Cash production costs are expected to
be in the range of $620 to $640 per gold equivalent ounce (or between $280 and
$300 per gold ounce on a by-product basis) in 2013, similar to actual costs in
2012 despite the increase in planned throughput.

Material assumptions used to
forecast total cash costs for 2013 include: an average gold price of $1,700 per
ounce; an average silver price of $8.52 per ounce (calculated using the silver
agreement contract price of $4.12 per ounce and assuming excess silver beyond
contract requirements is sold at an average silver price of $30 per ounce); and
foreign exchange rates of 1.00 Canadian dollars and 13 Mexican pesos to the U.S.
dollar.

Capital expenditures during 2013
are expected to increase to approximately $42 million excluding capitalized
exploration costs. Underground development capital and sustaining capital remain
at similar levels to 2012, with approximately 49% of 2013 capital expenditures
allocated to projects and 51% to operations. The 2013 project capital includes
the mill expansion to 2,500 TPD ($10.7 million) and the first phase of a
two-year waste rock pad project ($6.8 million) designed to support the long-term
waste disposal at San Dimas.

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 92 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 180 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 mid-2013. 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 have 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 2,150 TPD to replace the capacity required for shutdown of the San
Antonio mill. Currently, the Tayoltita mill is operating at nearly its capacity
of 2,150 TPD.

In October 2012 the Company
initiated a mine and mill expansion of the San Dimas Mine. The Company approved
the expenditure of a total $ 16.5 million to expand the San Dimas Mine and mill
to 912,500 TPY or 2,500 TPD. Construction of the mine and mill expansion is
expected to be completed during the first quarter of 2014. See Business of
Primero  San Dimas Mine  Recent Operating History for the San Dimas Mine.
Expansion of the mill consists mainly in addition of a third ball mill,
reconfiguration of current crushing plant, addition of two new leach tanks and
addition of one thickener.

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 recycling 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.

35

---

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 were largely focussed on the tailings storage
facilities. They totalled approximately $15 million at Tayoltita/Cupias and $10
million at San Antonio. Capital expenditures on the San Antonio tailings were
$1.3 million in 2005, $2.2 million in 2006 and $1.6 million in 2007. Investment
in the Tayoltita tailings dam was $1.6 million in 2005, $0.6 million in 2006,
$3.2 million in 2007, $1.5 million in 2010 and $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 Primero initiated the installation of 3 new tailings pipes, which
are fully contained in a metal box. The new system will be fully operational by
mid-year 2013, once the installation of second new tailings pump will be
completed.

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.

In 2012 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 225 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 a back-up system to eliminate the use of the
Geho pumps by mid-2013. Eventually, and with the expansion of the mill to 2,500
TPD, a third pump will be installed as backup as two pumps will be required to
pump total tailings of 2,500 TPD. 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.

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. In 2011, the most
important work was 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 tonnes per hour (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 2012, Primero was able to recover an average of
50,000 tonnes of solution each month which were 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.

36

---

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
incident. PROFEPA and 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 specified 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 design and building of a containment structure for
the tailings pipe, which will be fully operational by June 2013 once
installation of the second new tailing pump is complete.

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 it
with mine waste rock. These measures would also decrease the erosion potential
of the tailings. Some of this work was initiated while options to close and
reclaim the tailings dam were studied. DMSL received approval to reclaim the San
Antonio dam by stabilizing the tailings in their current location after 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. Further work was done in 2008 and
subsequent years.

Full closure of the San Antonio
old tailings facilities, which consists of completing a downstream berm and
spillway, will be completed in 2014 as per Primero asset retirement
obligations.

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; 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 2013, and it is planned to be 29% during
2014 and 28% for 2015 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 appropriate price of silver sales under the silver purchase
agreement. On October 4, 2012, the Company received a ruling from the Mexican
tax authorities that the appropriate price was the approximate $4 per ounce
received from SW Caymans. This confirmed the silver pricing in Primero
Empresas 2010 and 2011 income tax returns See General Development of the
Business  Three Year History  Advance Pricing Agreement Ruling.

37

---

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. The base to which the FRBT is applied is
determined by deducting from gross revenue 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.

Cerro Del Gallo Project

Except as indicated below, the
following description of the Cerro del Gallo project is taken from the summary
contained in the technical report entitled Technical Report, First Stage Heap
Leach Feasibility Study, Cerro del Gallo Gold Silver Project, Guanajuato, Mexico
(the CDG Technical Report) with an effective date of May 11, 2012, which
summary has been updated and conformed to be consistent with other disclosure in
this AIF. The entire CDG Technical Report is incorporated by reference into this
AIF, except to the extent that its contents are modified, updated or superseded
by a statement contained in this AIF (which does not need to state that such
statement has modified, updated or superseded such contents). Reference should
be made to the full text of the CDG Technical Report, which is available for
review under the Companys profile on the SEDAR website located at
www.sedar.com.

The information under the heading
Mineral Properties  Cerro Del Gallo Project  2012 Exploration and Development
Activities has been prepared by Primero and is not part of the CDG Technical
Report. The scientific and technical information contained under such heading
has been reviewed and approved by Mr. Gabriel Voicu, P. Geo., Vice President,
Geology and Exploration for Primero, who is a Qualified Person for the
purposes of NI 43-101.

Summary

The CDG Technical Report concerns
the Cerro del Gallo first stage heap leach project located near Dolores Hidalgo
in the state of Guanajuato, Mexico. The data presented in the report are related
to the Cerro del Gallo gold-silver-copper deposit and their Mineral Resource and
Mineral Reserve estimate and feasibility study for the gold-silver-copper
production by heap leaching as the first stage development of the deposit. The
CDG Technical Report is an update of the previous Technical Report (dated May
26, 2011) to include copper in the Mineral Reserves and the recovery of copper
in the heap leach processing. Changes to the processing facility have also been
incorporated. The effective date for the information in this CDG Technical
Report is May 11, 2012, unless otherwise stated.

Property Description

The San Antón Property is located
in the state of Guanajuato in central Mexico, approximately 270 kilometres
northwest of Mexico City as shown in Figure 1-1. The San Antón Property fully
incorporates the San Antón de las Minas mining district, centred 23 kilometres
east northeast of Guanajuato city and the historic Guanajuato Mining District
where production from 1700 to 2004 is reported to be 1.14 billion ounces of
silver and 6.5 million ounces of gold. Although the Guanajuato Mining District
has a long history of silver and gold mining and production extending back to
1558, production records at San Antón only date back to the 1860s, however
mining is reported from Spanish colonial times. San Antón lies within the
central-southern segment of the world-class Mexican Gold-Silver Belt.

The San Antón Property covers an
area of 25,269 hectares (approximately 15 kilometres north-south by 16
kilometres east-west) and consists of a total of twelve granted, contiguous
mining concessions all owned by San Antón de las Minas S.A. de C.V. (SAM). The
concessions entirely cover the San Antón de las Minas mining district, including
the old mines formerly worked for high grade vein-hosted gold-silver
mineralization.

38

---

The San Antón Property is wholly
owned by SAM, a resident Mexican company owned 64.3% by Cerro and 35.7% by DMSL.
DMSLs ultimate holding company is Goldcorp a Canadian company.

In May 2011, the Technical Report
Feasibility Study and Preliminary Assessment, Cerro del Gallo Project,
Guanajuato, Mexico presented the development of the Cerro del Gallo deposit in
two stages. Stage 1 is the heap leach development and stage 2, the addition of a
CIL to process the fresh ore, not suitable for heap leaching. The Stage 1 heap
leach study was completed to feasibility study level and Stage 2 development was
completed to a Preliminary Assessment level. This CDG Technical Report focuses
on the feasibility study for the Stage 1 Heap Leach.



Figure 1-1 Cerro del Gallo Project Location Map

Exploration

The exploration activities at the
San Antón property have consisted of drilling (reverse circulation and diamond
core) and several sampling programs; including stream sediment, BLEG, Niton®
soil and conventional soil sampling. All these programs are described in
Technical Report on the Cerro del Gallo deposit within the San Antón Property,
Mexico, Cerro, July 31, 2008. The majority of the exploration work has focussed
on the Cerro del Gallo deposit. Drilling activity ceased on the property in 2008 and
additional core logging work was completed as part of the program of work to
develop the gold domain within the Cerro del Gallo deposit.

39

---

Development of Operations

The development plan for the
property consists of heap leaching of weathered and oxidised material from the
Cerro del Gallo deposit to produce gold, silver and copper. At a later stage, it
is proposed to process the fresh rock material for the recovery of gold and
silver. The feasibility study for the stage 1 heap leach (the subject of this
CDG Technical Report) has been completed.

Mineral Resource and Mineral Reserve Estimates

Tim Carew, P.Geo., of Reserva
International reviewed the block model and parameters utilized to calculate this
latest Mineral Resource estimate and found the methods and results conform to
the definitions as stated by NI 43-101 and defined by the CIM Standards on
Mineral Resources and Reserves Definitions and Guidelines adopted by the CIM
Council in 2010.

Measured Mineral Resources and
Indicated Mineral Resources, excluding Proven Mineral Reserves and Probable
Mineral Reserves, are shown below in Table 1-1.

Table 1-1 Cerro del Gallo Mineral Resources (Excluding
Proven Mineral Reserves and Probable Mineral Reserves)

|                                                                  |  | Total  | 
|----------------------------------------------------------------- |  | ------ | 
|                                                                  |  | K      | 
|Category                                                          |  | Tonnes | 
|Measured Mineral Resources                                        |  | 39,863 | 
|Indicated Mineral Resources                                       |  | 8,015  | 
|Measured Mineral Resources & Indicated
      Mineral Resources(1) |  | 47,878 | 

|________________________
|------------------------
|(1)                     

The Proven Mineral Reserve and
Probable Mineral Reserve estimates for Cerro del Gallo Stage 1 Heap Leach are
given below in Table 1-2.

Table 1-2 First Stage Heap Leach Proven Mineral Reserve and
Probable Mineral Reserve Estimate

|                                                           |  | Total  | 
|---------------------------------------------------------- |  | ------ | 
|                                                           |  | K      | 
|Category                                                   |  | Tonnes | 
|Proven Mineral Reserve                                     |  | 28,223 | 
|Provable Mineral Reserve                                   |  | 3,956  | 
|Proven Mineral Reserve & Probable
      Mineral Reserve(1) |  | 32,219 | 

|________________________
|------------------------
|(1)                     

40

---

Metallurgical Test Work

The test work that was evaluated
for the feasibility study, commenced in 2006 and was performed on drill core
samples and RC chip samples, by three Australian metallurgical laboratories.
Phase 1 was conducted by Independent Metallurgical Laboratories, Welshpool,
Western Australia, Phases 2, 3 and 5 were conducted by SGS Lakefield Oretest Pty
Ltd, Malaga, Western Australia and phase 4 was conducted by ALS AMMTEC,
Balcatta, Western Australia. JKTech of Brisbane Queensland was also used to
determine comminution characteristics. Polysius Australia Pty Ltd of Henderson,
Western Australia was used to evaluate the suitability of high pressure grinding
rolls (HPGR) for the crushing of the Cerro del Gallo ores.

The test work focused mainly on
the recovery of gold and silver from the weathered and partially oxidised ore
zones. To make best use of the local environment, topography and land heap
leaching will be the primary processing method for the first stage of the
project development. All recent test work has been aimed at heap leaching
optimisation and downstream recovery of the gold, silver and copper. Details of
the test work are covered in Section 13 of the CDG Technical Report.

Based on test work summary
outcomes the design criteria have been determined based on the following:

- The ore will be crushed to -8 mm using a combination of conventional
  primary (jaw) and secondary (cone) crushers followed by a HPGR as the final
  stage of crushing;
- The ore will be agglomerated, stacked and heap leached;
- Metal dissolutions for the weathered ore were 76.0% for gold, 48.0% for
  silver and 19.0% for copper;
- Metal dissolutions for the partially oxidized ore were 64.0% for gold,
  51.6% for silver and 41.2% for copper;
- Sulphidisation-Acidification-Recycling-Thickening process (SART) will be
  used to reduce the amount of copper and silver in the pregnant solution prior
  to carbon adsorption;
- The SART copper-silver precipitate will be filtered for further processing
  or sale;
- Gold will be recovered via a conventional carbon adsorption and elution
  processing route.

It is recommended that the
following additional test work should be conducted during the front end
engineering design phase to enable the completion of the detailed plant
design:

- Heap height determination and percolation tests at the optimum crush size
  and cement addition;
- Triple carbon contact tests on pre and post SART solutions;
- Flocculant screening and settling test work on SART slurry;
- Filtration test work of the SART precipitate.

Processing Facilities

The operation will process
4.5Mt/a cyanide heap leach of weathered and partially oxidized ore from the open
cut mine.

The processing facility design
for a 4.5 Mt/a will consist of the following:

- Primary jaw crusher coupled with a secondary crusher and screen in closed
  circuit, with a -32mm product being fed to the HPGR;

41

---

- HPGR crushing and screen in closed circuit, with - 8mm product being fed to
  an agglomeration drum and radial stacker for recovery by a front end
  loader/trucks for stacking and placement on a heap leach pad;
- Leaching of the stacked ore using a cyanide solution;
- Pregnant solution from leached ore percolating to a staggered pond system
  which will then be pumped to a wet plant consisting of SART for recovery of
  the copper and silver, followed by an adsorption circuit, using a traditional
  carbon contactor system for the recovery of gold from solution;
- Elution of the loaded carbon, with electrowinning and gold recovery in a
  gold room facility;
- Plate and frame filter and bagging system to recover the copper/silver
  concentrate for further processing or sale.

The crushing plant has been
located in close proximity to the open cut mining operations. The plant has been
developed based on three stage crushing starting from feed into ROM bin,
agglomeration for heap leach, SART, carbon in column adsorption, elution and
electrowinning, reagent mixing and distribution, raw water and power services.
Further details are located in Section 14 of the CDG Technical Report.

The processing plant and heap
leach facility (HLF) footprint has been constrained by the topography of the
site and surrounding freehold land. This has resulted in the mine services area
being located immediately adjacent to the pit and the crushing plant within 250
metres of the planned pit periphery.

The design philosophy for the
plant is to minimise footprints due to the steep topography of the site. The
layout of the crushing circuit has been compressed and located closer to the pit
than usual due to the restricted area of suitable construction land. The HLF has
similarly been designed as a valley fill, in the valley immediately adjacent and
down gradient from the processing plant, due to the absence of suitable
land.

Agglomerated ore for heap
leaching will be stacked from the bottom of the valley east of the open pit
working up to the top of the valley. Solution collection ponds will be located
at the foot of the valley on the eastern side of the plant where solution will
gravitate into the ponds following the natural gradation of the site.

The process design throughput is
based on projected mine schedules supplied by Cerro from Mine Development
Associates (MDA) (see Table 16-1 in the CDG Technical Report) in May 2011.
Further details can be found in Section 14 of the CDG Technical Report. The
processing facility design is based on the supply and installation of new
processing equipment in the following unit operations:

- Ore crushing and agglomeration;
- Cyanide leaching;
- Leached solution recovery;
- SART processing with filtration and cyanide gas scrubbing system;
- Single train carbon in column adsorption;
- Carbon elution, electrowinning and carbon regeneration;
- Gold room refining;
- Reagent storage and distribution;
- Water supply and distribution services;

42

---

- Air supply and distribution services.

Criteria for design of the wet
plant (SART and Adsorption) are as follows:

- Maximum flow rate of 293 m3/h flow during storm event;
- Sulphuric acid stoichiometric design at 115%;
- Sodium hydrosulphide stoichiometric design at 100%;
- Hydrated lime stoichiometric design at 115%;
- SART circuit cyanide recovery design at 75%;
- Washing of gypsum precipitates to remove entrained gold.

Capital Cost Estimate

Capital costs for the First Stage
Heap Leach have been classified as Pre-production Capital Costs, which includes
Plant and Infrastructure Costs, Owners Costs and Mining Fleet, (total $154.9
million) and Sustaining Capital ($28.9 million) as outlined in the following
three tables  Table 1-3 to Table 1-5.

Table 1-3 First Stage Heap Leach  Pre-production Processing
Facility and Site Capital Costs

|                                                  |  | Cost    | 
|------------------------------------------------- |  | ------- | 
|                                                  |  | ($,000) | 
|Plant and Infrastructure Costs                    |  |         | 
|Crushing                                          |  | 25,609  | 
|Agglomeration                                     |  | 4,970   | 
|Heap Leach Pad & Ponds                            |  | 21,413  | 
|SART Circuit                                      |  | 12,524  | 
|Adsorption                                        |  | 2,620   | 
|Elution & Gold Room                               |  | 2,275   | 
|Reagents                                          |  | 3,991   | 
|Services & Infrastructure                         |  | 27,035  | 
|Subtotal                                          |  | 100,437 | 
|Contingency                                       |  | 9,242   | 
|Total Plant Costs (Inclusive of EPCM)             |  | 109,679 | 
|                                                  |  |         | 
|Owners Costs                                      |  |         | 
|High Voltage Power Supply                         |  | 4,725   | 
|Mobile Equipment                                  |  | 962     | 
|Pre-Production Labour                             |  | 2,187   | 
|Regulatory, Land, Insurance etc                   |  | 4,013   | 
|Insurance & Operating Spares                      |  | 1,742   | 
|Working Capital (3 months)                        |  | 11,447  | 
|Subtotal                                          |  | 25,076  | 
|Contingency                                       |  | 1,254   | 
|Total Owners Costs                                |  | 26,330  | 
|                                                  |  |         | 
|Project Cost First Stage 4.5Mtpa Heap
      Leach |  | 136,009 | 

43

---

No final decision has been taken
as to whether to mine by an owner operated fleet or to contract mine. The
capital requirements of providing a fleet will reduce and operating expenses are
likely to increase if contract mining is adopted. Tender documents to invite
mining contractors working in Mexico to bid on mining at Cerro del Gallo have
been drafted and will be issued in the coming months. An estimate of the
additional capital costs for the required mining equipment to commence mining
for the First Stage Heap Leach component has been completed by MDA.

Table 1-4 First Stage Heap Leach  Pre-production Mining
Fleet Costs

|                            |  | Cost        | 
|--------------------------- |  | ----------- | 
|                            |  | **($,000)** | 
|Primary Mining Equipment    |  | 9,898       | 
|Support Equipment           |  | 4,729       | 
|Blasting                    |  | 236         | 
|Mine Maintenance            |  | 542         | 
|Other Mine Capital          |  | 3,385       | 
|Total Year 1 Mining Capital |  | 18,790      | 

Table 1-5 First Stage Heap Leach  Sustaining Capital

|                    |  | Cost        | 
|------------------- |  | ----------- | 
|                    |  | **($,000)** | 
|Mining Capital      |  | 12,533      | 
|Leach Pad Expansion |  | 10,000      | 
|Stacking Equipment  |  | 4,900       | 
|Other               |  | 1,500       | 
|Total               |  | 28,933      | 

Sustaining capital is reflective
of amounts in addition to the pre-production capital and mining fleet costs,
which are incurred over the life of mine and have been allowed for in economic
modelling.

Operating Cost Estimate

The cash operating costs include
all costs associated with the production of gold, silver and copper for the heap
leach operations. The cash costs include smelting and refining costs but do not
include the 4% net smelter return (NSR) royalty. The NSR is included in the
financial modelling.

Table 1-6 First Stage Heap Leach Cash Operating Costs

|                           |  | $/t Average |  |  | $/oz Au Eq | 
|-------------------------- |  | ----------- |  |  | ---------- | 
|Cash Operating
      Cost  |  | (ore tonne) |  |  | Average    | 
|Mining                     |  | 3.2         |  |  | 152        | 
|Processing                 |  | 6.63        |  |  | 314        | 
|Metal Transport & Refining |  | 0.30        |  |  | 14         | 
|G & A                      |  | 0.76        |  |  | 36         | 
|TOTAL                      |  | 10.89       |  |  | 516        | 

44

---

Economic Analysis

The following tables set out
aggregated summaries of key feasibility study data  presented on an average
life-of-mine or total life-of-mine basis for the First Stage Heap Leach.

Table 1-7 First Stage Heap Leach Mining Summary

|Mining       |  |          | 
|------------ |  | -------- | 
|Ore Mined    |  | 32.2Mt   | 
|Waste Mined  |  | 29.4Mt   | 
|Gold Grade   |  | 0.69 g/t | 
|Silver Grade |  | 14.8 g/t | 
|Copper Grade |  | 0.08%    | 
|Strip Ratio  |  | 0.917    | 

The waste mined includes 9Mt of
mineralized fresh rock material, which is potential feed for the Second Stage
CIL/Heap Leach development. This may have an economic benefit for the Second
Stage CIL/Heap Leach and will be evaluated in the second stage FS.

Table 1-8 First Stage Heap Leach Operational Summary

|Production                                                  |  |            | 
|----------------------------------------------------------- |  | ---------- | 
|Annual Throughput                                           |  | 4.5Mt      | 
|Overall Gold Recovery                                       |  | 68.5%      | 
|Overall Silver Recovery                                     |  | 50.1%      | 
|Overall Copper Recovery                                     |  | 31.8%      | 
|Maximum gold equivalent production, k oz
      per annum(1) |  | 99.1(Yr 3) | 
|Average gold equivalent production, k oz per
      annum(1) |  | 94.6       | 
|Average gold production, k oz per annum                     |  | 67.9       | 
|Average silver production, k oz per annum                   |  | 1,072      | 
|Average copper production, t per annum                      |  | 1,113      | 
|Base Life of Mine Stage(1)                                  |  | 7.2 years  | 

|____________________
|--------------------
|(1)                 

Table 1-9 First Stage Heap Leach Economic Summary

|Financial                                                              |  |         | 
|---------------------------------------------------------------------- |  | ------- | 
|Net Smelter Return Royalty                                             |  | 4%      | 
|Undiscounted Net Cash Flow ($ M)(1)                                    |  | 280     | 
|Net Present Value @ 6% ($ M)(1)                                        |  | 181     | 
|Pre-production Capital Payback Period (includes mining
      fleet)(1) |  | 2.7 Yrs | 
|Pre-tax IRR(1)                                                         |  | 30.5%   | 

|__________________
|------------------
|(1)               

Conclusions

The development of the Cerro del
Gallo deposit for gold, silver and copper production by heap leaching as
demonstrated by the feasibility study, produces a positive cash flow with sound
economic potential. The financial analysis based on the financial, operating, production and
Mineral Reserve estimates, concludes a financially and technically viable
project.

45

---

2012 Exploration and Development Activities

Following the completion of the
Arrangement, Primero plans to continue the exploration of the various
mineralized zones located on the Cerro del Gallo Project.

The 2013 program will include
approximately 5,000 metres of condemnation drilling. This drilling program will
concentrate on sterilizing the areas of future infrastructure, including the
waste dumps and the heap leach pads. Most of the drilling will be east of the
actual gold pit design since that area was previously included in the larger
copper pit design. Therefore, the condemnation drilling program can be also
partially considered as exploration.

In addition, approximately 5,000
metres will be drilled in the central part of the deposit, mainly in the Cerro
del Gallo intrusive, where the amount of information is limited. The delineation
drilling program will provide a better understanding of the distribution of the
mineralized zones inside the intrusive and to better define the lithological and
structural controls of the mineralized veins and stockworks.

In the near term, the exploration
programs main objective is to validate and verify previous exploration work
surrounding the Cerro del Gallo deposit. The program will drill-test coincident
multi-element geochemical and geophysical anomalies extending beyond the
boundaries of the mineral resource estimate. Approximately 3,000 metres will be
drilled. In addition, a surface exploration program including mapping and BLEG
stream sediment surveys will commence by mid-2013. The goal of this regional
exploration program is to identify new drill targets on the Cerro property.

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 current 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 Mineral Properties  San
Dimas Mine  Property Description and Location  Environmental Matters.

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.

46

---

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, fluctuations in the value of the
United States dollar and foreign currencies, global and regional supply and
demand, and the political and economic conditions of major metals-producing
countries throughout the world. The price of gold and silver has fluctuated
widely in recent years, and future 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 Primeros properties 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.

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 and as presented for the Cerro del Gallo project 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 can 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 period. In addition, there can be no assurance that gold or
silver recoveries in small scale laboratory tests will be duplicated in larger
scale tests under on-site conditions or during production. Fluctuation in gold
and, to a lesser extent, silver prices, results of drilling, metallurgical
testing and production and the evaluation of mine plans subsequent to the date
of any estimate may require revision of such estimate. The volume and grade of
Mineral Reserves mined and processed and recovery rates may not be the same as
currently anticipated. Any material reductions in estimates of Mineral Reserves
and Mineral Resources, or of Primeros ability to extract these Mineral
Reserves, could have a material adverse effect on Primeros results of
operations and financial condition including, without limitation, an impairment
loss and a write down of Primeros mining properties, discontinuance of
production, and loss of interest in, or sale of, some of Primeros properties.
In addition to other adverse consequences, recording an impairment loss and a
write-down may result in Primero breaching certain tangible net worth financial
covenants under the Promissory Note held by Goldcorps Luxembourg subsidiary
that could constitute an event of default. See Introductory Notes  Cautionary
Notes to United States Investors.

47

---

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. 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

Since all 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.

APA Ruling

Under Mexican tax law, an APA
ruling is generally applicable for up to a five year period. For Primero this
applies to the fiscal years 2010 to 2014. Assuming Primero continues to sell
silver under the Amended and Restated Silver Purchase Agreement on the same
terms and there are no changes in the application of Mexican tax laws relative
to the APA ruling, the Company expects to record revenues and pay taxes based on
realized prices for the life of the San Dimas mine. There can be no assurance
that Mexican tax laws applicable to the APA ruling will not change. If the
Mexican tax authorities determine that the appropriate price of silver sales
under the silver purchase agreement is different than the realized price,
Primeros cash flows and earnings could be significantly adversely impacted.

Additional Capital

The mining, processing,
development and exploration of Primeros properties, including the Cerro del
Gallo project, if acquired, may require substantial additional financing.
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 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 Primeros properties will
not be challenged or impugned. Mineral property interests may be subject to
prior unrecorded agreements or transfers or the claims of local people and title
may be affected by undetected defects. There may be valid challenges to the
title of these properties which, if successful, could require the Company to
modify its operations or plans for development.

48

---

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

Use of Ejido-owned Land

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

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

Four of the properties included
in the San Dimas Mine and for which Primero holds legal title are subject to
legal proceedings commenced by Ejidos seeking title to the property. None of the
proceedings name Primero as a party and Primero therefore has no standing to
participate in them. In all cases, the defendants are previous owners of the
properties, either deceased individuals who, according to certain public deeds,
owned the properties more than 80 years ago, corporate entities that are no
longer in existence, or Goldcorp companies. Three of the proceedings also name
the Tayoltita Property Public Registry as co-defendant.

While Primero cannot intervene in
these proceedings, in the event that a final decision is rendered in favour of
the Ejido, Primero may seek to annul the decision or commence an action as an
affected third party on the basis that it is the legitimate owner and is in
possession of the property. If Primero is not successful in its challenge, the
San Dimas Mine could face higher costs associated with agreed or mandated
payments that would be payable to the Ejidos for use of the properties.

Government Regulations, Consents and Approvals

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

49

---

Environmental Risks and Hazards

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

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

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

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

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

The Company is presently involved
in an environmental certification process at the San Dimas Mine and at Cerro del
Gallo. 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

On January 3, 2012, tailings
containing 5 ppm cyanide were spilled into the Piaxtla River, impacting a total
area of 2.5 kilometres. See Mineral Properties  San Dimas Mine  Property
Description and Location Environmental Matters.

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
carried out to upgrade the containment structures and tailings operations and,
to remediate the Tayoltita tailings dam.

50

---

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 does
not provide for any indemnities from DMSL against any potential environmental
liabilities, including, but not limited to, those that may arise from possible
failure of the San Antonio tailings dam. Primero has indemnified DMSL for any
future environmental claims or liabilities.

Labour and Employment Matters

The Company believes that its
current relations with employees and the unions are good. However, the union
contracts are renegotiated every two years, except for the compensation aspects,
which are reviewed annually. In 2013, the full contracts are due to be
negotiated. Production at the Companys properties will continue to be dependent
upon the ability of Primero to continue to maintain good relations with its
employees and the 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 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. Any interruption in power supply from the hydroelectric project or
any interruption in water supply due to, inter alia, periods of drought
or low rainfall could adversely impact operations at the San Dimas Mine.

Insurance and Uninsured Risks

Mining operations 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 for which it may not be able
or, due to the high cost of premiums, desirable to buy insurance. Losses from
these events may cause Primero to incur significant costs that could have a
material adverse effect upon its financial performance and results of
operations.

51

---

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, for a three year
period after the Acquisition, 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.

Cerro Acquisition

On December 13, 2012, Primero
announced that it has entered into a definitive agreement with Cerro whereby
Primero will acquire all of the issued and outstanding common shares of Cerro by
way of a scheme of arrangement under the Australian Act. The transaction will be
carried out by way of a court-approved scheme of arrangement and will require
approval by at least 75% of the votes cast by at least 50% of the shareholders
of Cerro at a special meeting of Cerro shareholders. Approval of Cerro's option
holders will also be required. The transaction is also subject to applicable
regulatory approvals and the satisfaction of certain other closing conditions
customary in transactions of this nature. There can be no assurance Cerro
shareholders will approve the transaction or that the applicable regulatory
approvals will be attained or that the necessary closing conditions will be
satisfied.

Assuming the Cerro acquisition is
completed as planned, there can be no assurance that the assumptions underlying
the acquisition will prove to be correct and will not be impacted by
unanticipated changes in the business, industry or general economic conditions.
In particular, there is no assurance that the financial and production
projections included in the feasibility study for the Cerro del Gallo project
included in the CDG Technical Report will be realized. Factors that could cause
these results to be different from projections include increases in capital
costs and operating costs and decreases in realized production rates and
recoveries. Furthermore, permitting for and construction of the Cerro del Gallo
mine might be delayed, which could reduce or delay cash flows from the project.
Additional risks will include the risks identified in this Risk Factors section.
These risk factors could increase the time and anticipated costs for Primero to
complete construction of the Cerro del Gallo mine and achieve production and its
overall profitability upon completion. In addition, Goldcorp, which owns a 31%
interest in the Cerro del Gallo project, might not convert its interest into a
10% net profit interest, which could affect Primeros future returns from the
project.

Risks Inherent in Acquisitions

The Company is actively pursuing
the acquisition of exploration, development and production assets consistent
with its acquisition and growth strategy. There is no assurance, however, 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. Acquisition transactions and the operation of acquired
properties, 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.

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.

52

---

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.

The San Dimas Assets and the
shares of Silver Trading acquired on August 6, 2010, were acquired on an as is,
where is basis and the representations and warranties and indemnities provided
by DMSL and GSBL (together 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.

Foreign Operations Risks  Mexico

All of the Companys mining and
mineral exploration operations are currently conducted in Mexico, and as such
Primeros operations are exposed to various levels of political, economic and
other risks and uncertainties. These risks and uncertainties include, but are
not limited to, terrorism; organized crime; 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.

While the Company takes measures
to protect against security risks such as crime, theft, vandalism and trespass,
there can be no assurance that such measures will be effective or that incidents
of criminal activity, theft, vandalism or trespass will not have an adverse
impact on the Companys operations, property or facilities.

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.

As 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.

53

---

Permitting

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

Capital Cost and Operational Cost Estimates

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

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

Key Personnel

The Companys ability to
successfully operate its mining properties and execute on its business strategy
depends on its key executives and on certain operating personnel in Canada and
Mexico. The Companys ability to manage administration, production, exploration
and development activities and 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.

54

---

Indebtedness

Primero has indebtedness of
approximately $32 million to a wholly-owned Luxembourg subsidiary of Goldcorp
under the 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
limit its ability to borrow additional amounts for working capital, capital
expenditures, debt service requirements, execution of Primeros growth strategy
or other purposes or to capitalize on business opportunities and to react to
competitive pressures and adverse changes in government regulation. The
Companys ability to incur additional indebtedness 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 $50 million,
subject to increase after the third anniversary of the Acquisition provided the
Promissory Note has been repaid and certain financial covenants are satisfied.
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 32%
of the issued and outstanding Common Shares. Goldcorp is entitled to maintain
this proportionate ownership interest and is entitled to proportionate Board
representation. The current Goldcorp 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.

Current Global Financial Condition

Market events and conditions,
including the disruptions in the international credit markets and other
financial systems, the deterioration of global economic conditions in 2008 and
2009 and, more recently, in Europe, along with political instability in the
Middle East and political inertia in the United States, have caused significant
volatility to commodity prices. These conditions have also caused a loss of
confidence in the broader United States, European and global credit and
financial markets and resulting in the collapse, of, and government intervention
in, major banks, financial institutions and insurers and creating a climate of
greater volatility, less liquidity, widening credit spreads, less price
transparency, increased credit losses and tighter credit conditions.
Notwithstanding various actions by governments, concerns about the general
condition of the capital markets, financial instruments, banks, investment
banks, insurers and other financial institutions caused the broader credit
markets to further deteriorate and stock markets to decline substantially. These
events are illustrative of the effect that events beyond the Companys control
may have on commodity prices, demand for metals, including gold, silver, copper,
lead and zinc, availability of credit, investor confidence, and general
financial market liquidity, all of which may affect the Companys business.

The Company is also exposed to
liquidity and various counterparty risks including, but not limited to: (i)
financial institutions that hold the Companys cash; (ii) the Companys
insurance providers; (iii) the Companys lenders; and (iv) the Companys other
banking counterparties. The Company is also exposed to liquidity risks in
meeting its capital expenditure requirements in instances where cash positions
are unable to be maintained or appropriate financing is unavailable. These
factors may impact the ability of the Company to obtain loans and other credit
facilities in the future and, if obtained, on terms favourable to the Company.
Furthermore, repercussions from the 2008-2009 economic crisis continue to be
felt, as reflected in increased levels of volatility and market turmoil. As a
result of this uncertainty, the Companys planned growth could either be
adversely or positively impacted and the trading price of the Companys
securities could either be adversely or positively affected.

Effectiveness of Internal Control Over Financial
Reporting

The Company is required to
maintain and evaluate the effectiveness of its internal control over financial
reporting under National Instrument 52-109 in Canada and under the Exchange Act
in the United States. There is no assurance that the Company will be able to
achieve and maintain the adequacy of its internal control over financial reporting as such standards are modified, supplemented, or
amended from time to time, and the Company may not be able to ensure that it can
conclude on an ongoing basis that its internal control over financial reporting
is effective. The Companys failure to establish and maintain effective internal
control over financial reporting could result in the loss of investor confidence
in the reliability of its financial statements. In addition, any failure to
implement required new or improved controls, or difficulties encountered in
their implementation, could result in the Companys inability to meet its
reporting obligations. There can be no assurance that the Company will be able
to remediate material weaknesses, if any, identified in future periods, or
maintain all of the controls necessary for continued compliance, and there can
be no assurance that the Company will be able to retain sufficient skilled
finance and accounting personnel. No evaluation can provide complete assurance
that the Companys internal control over financial reporting will detect or
uncover all failures of persons within the Company to disclose material
information otherwise required to be reported. In reliance on an exemption for
emerging growth companies under the United States Jumpstart Our Business
Startups Act, Primeros auditor has not delivered an attestation report on
managements assessment of the effectiveness of Primeros internal control over
financial reporting as at December 31, 2012.

55

---

Restatement of Consolidated Financial Statements

Primero restated its consolidated
financial statements and other financial information for the years ended
December 31, 2011 and 2010 with respect to accounting for deferred income taxes
in accordance with IFRS. The restatement of prior financial statements may
expose Primero to risks associated with litigation, regulatory proceedings and
government enforcement actions, including the risk that securities regulators
may disagree with the manner in which Primero has accounted for and reported the
financial impact.

Subsidiaries

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

Litigation

The Company may be, from time to
time, involved in various claims, legal proceedings and complaints arising in
the ordinary course of business. The Company cannot reasonably predict the
likelihood or outcome of these actions. If the Company is unable to resolve
these disputes favourably, it may have a material adverse impact on the
Companys financial performance, cash flow and results of operations.

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,
2012, there were 97,305,622Common Shares issued and outstanding as fully paid
and non-assessable and no preferred shares issued and outstanding. As of the
date of the AIF, 97,435,622 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.

56

---

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 28,604,490 Common
Shares, as follows:

- stock options to purchase an aggregate of 7,804,490 Common Shares at a
  price ranging from $2.60 to $6.74, 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; and
- warrants to purchase an aggregate of 20,800,000 Common Shares at a price of
  $8.00, expiring on July 20, 2015.

Directors Phantom Share Units

On March 27, 2012, the Board approved the adoption of a director’s phantom share unit plan (the “Directors’ PSU Plan”), which subsequently received shareholder approval on May 28, 2012. Members of the Board, other than a member who is an officer or employee of Primero or Primero’s subsidiaries, are eligible to participate in the Directors’ PSU Plan. A person holding a phantom share unit (a “Director PSU”) under the Directors’ PSU Plan is entitled to elect to receive, at vesting (subject to blackout periods), either (a) an amount equal to the volume weighted average trading price per Common Share over the five preceding trading days, or (b) the number of Common Shares equal to the number of Directors’ PSUs. If no election is made, the Company will pay out such Directors’ PSUs in cash. As of the date of this AIF, the Company had outstanding 245,591 Director PSUs, vesting between December 1, 2013 and December 1, 2015 and expiring between December 31, 2013 and December 31, 2015.

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:

57

---

|Period    |  | High (CDN$) |  |  | Low (CDN$) |  |  | Volume     | 
|--------- |  | ----------- |  |  | ---------- |  |  | ---------- | 
|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       |  | 3.10        |  |  | 2.44       |  |  | 2,519,88 5 | 
|June      |  | 3.05        |  |  | 2.43       |  |  | 4,952,905  | 
|July      |  | 3.52        |  |  | 2.54       |  |  | 2,754,316  | 
|August    |  | 4.69        |  |  | 3.37       |  |  | 6,496,794  | 
|September |  | 5.59        |  |  | 4.45       |  |  | 10,765,277 | 
|October   |  | 7.89        |  |  | 5.11       |  |  | 17,931,299 | 
|November  |  | 7.73        |  |  | 6.00       |  |  | 9,062,933  | 
|December  |  | 6.68        |  |  | 5.94       |  |  | 6,847,665  | 
|2013      |  |             |  |  |            |  |  |            | 
|January   |  | 6.80        |  |  | 6.04       |  |  | 6,067,640  | 
|February  |  | 6.56        |  |  | 5.50       |  |  | 4,986,399  | 
|March     |  | 6.89        |  |  | 5.30       |  |  | 5,892,037  | 

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    | 
|--------- |  | ----------- |  |  | ---------- |  |  | --------- | 
|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       |  | 0.405       |  |  | 0.260      |  |  | 567,680   | 
|June      |  | 0.43        |  |  | 0.295      |  |  | 320,619   | 
|July      |  | 0.57        |  |  | 0.39       |  |  | 521,600   | 
|August    |  | 0.65        |  |  | 0.495      |  |  | 948,248   | 
|September |  | 0.77        |  |  | 0.61       |  |  | 908,253   | 
|October   |  | 1.94        |  |  | 0.80       |  |  | 3,712,786 | 
|November  |  | 1.85        |  |  | 1.80       |  |  | 1,036,439 | 
|December  |  | 1.42        |  |  | 1.05       |  |  | 411,288   | 
|2013      |  |             |  |  |            |  |  |           | 
|January   |  | 1.49        |  |  | 1.18       |  |  | 1,345,201 | 
|February  |  | 1.48        |  |  | 0.98       |  |  | 645,563   | 
|March     |  | 1.35        |  |  | 0.91       |  |  | 881,845   | 

58

---

Prior Sales

During the financial year ended
December 31, 2012, Primero issued or granted the following Common Shares or
securities convertible into Common Shares:

|                       | Number and Type                  | Issue or Exercise 
|---------------------- | -------------------------------- | ------------------
|Date of
      Issuance | of Securities Issued             | Price Per Security
|                       |                                  | CDN$              
|March 31, 2012         | 75,000 stock options             | 2.60(1)           
|March 31, 2012         | 115,384 Directors PSUs          | 2.60(4)           
|August 7, 2012         | 8,422,460 Common
      Shares(2) | 3.74              
|November 6, 2012       | 58,331 Common Shares(3)          | 3.99              
|November 7, 2012       | 60,000 stock options             | 6.74(1)           
|November 15, 2012      | 175,000 Common Shares(3)         | 5.26              
|December 4, 2012       | 40,000 Common
      Shares(3)    | 5.26              
|December 5, 2012       | 100,000 Common Shares(3)         | 5.26              
|December 6, 2012       | 150,000 Common
      Shares(3)   | 5.26              

|___________________
|-------------------
|(1)                
|(2)                
|(3)                
|(4)                

ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL
RESTRICTIONS ON TRANSFER

Escrowed Securities

As of December 31, 2012, no
securities of the Company were held in escrow.

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 between SW Caymans and Mr. Nesmith (the Support
Agreement), Mr. Nesmith agreed that until August 6, 2013 he will not sell any
Common Shares that result in him owning less than 157,176 (less than
approximately 0.1% of the issued and outstanding Common Shares). 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, Strategy, respectively, of Goldcorp were
nominated as directors by Goldcorp, pursuant to DMSLs rights under the
Participation Agreement.

59

---

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)Ontario,
      Canada           | President and Chief Executive
      Officer and Director      | President and Chief Executive
      Officer of the Company                   | June 28, 2010   
|                                                   |                                                               |                                                                              |                 
|RENAUD ADAMS Ontario, Canada                       | Chief Operating Officer                                       | Chief Operating Officer of the
      Company                                 | N/A             
|                                                   |                                                               |                                                                              |                 
|DAVID BLAIKLOCK(1)British
      Columbia, Canada   | Chief Financial Officer                                       | Chief Financial Officer of the
      Company                                 | N/A             
|                                                   |                                                               |                                                                              |                 
|GABRIEL VOICU Ontario, Canada                      | Vice-President, Geology and
      Exploration                 | Vice President, Geology and
      Exploration of the Company                 | N/A             
|                                                   |                                                               |                                                                              |                 
|DAVID SANDISON Ontario, Canada                     | Vice-President, Corporate
      Development                   | Vice-President, Corporate
      Development of the Company                   | N/A             
|                                                   |                                                               |                                                                              |                 
|TAMARA BROWN(1)Ontario,
      Canada               | Vice-President, Investor
      Relations                      | Vice-President, Investor
      Relations of the Company                      | N/A             
|                                                   |                                                               |                                                                              |                 
|H. MAURA LENDON(1)Ontario,
      Canada            | Vice-President, General
      Counsel and Corporate Secretary | Vice-President, General
      Counsel and Corporate Secretary of the Company | N/A             
|                                                   |                                                               |                                                                              |                 
|WADE NESMITH British Columbia, Canada              | Chairman and Director                                         | Chairman of the Company                                                      | October 29, 2008
|                                                   |                                                               |                                                                              |                 
|EDUARDO LUNA(2)Mexico
      State, Mexico          | Director                                                      | Director of the Company                                                      | October 29, 2008
|                                                   |                                                               |                                                                              |                 
|DAVID DEMERS(3)(4)(5)British Columbia, Canada      | Director                                                      | Chief Executive Officer of
      Westport Innovations Inc.                   | October 29, 2008
|                                                   |                                                               |                                                                              |                 
|GRANT EDEY(4)(5)Ontario,
      Canada              | Director                                                      | President and Chief Executive
      Officer of Khan Resources Inc.           | June 28, 2010   
|                                                   |                                                               |                                                                              |                 
|ROHAN HAZELTON(2)(5)British
      Columbia, Canada | Director                                                      | Vice President, Strategy of
      Goldcorp                                   | August 25, 2010 
|                                                   |                                                               |                                                                              |                 
|TIMO JAURISTO(3)British
      Columbia, Canada     | Director                                                      | Executive Vice President,
      Corporate Development of Goldcorp            | August 25, 2010 
|                                                   |                                                               |                                                                              |                 
|ROBERT QUARTERMAIN(3)(4)British Columbia, Canada   | Director                                                      | President and Chief Executive
      Officer of Pretium Resources Inc.        | June 28, 2010   
|                                                   |                                                               |                                                                              |                 
|MICHAEL RILEY(5)British
      Columbia, Canada     | Director                                                      | Director of the Company                                                      | April 22, 2010  

|_____________________
|---------------------
|(1)                  
|(2)                  
|(3)                  
|(4)                  
|(5)                  

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 1,256,433 Common
Shares, being 1.3% 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.

60

---

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.

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.

Gabriel Voicu  Vice President, Geology and
Exploration

Mr. Voicu was appointed Vice
President, Geology and Exploration in November 2012. Mr. Voicu brings 25 years
of mineral deposit exploration and mining experience including holding senior
technical and exploration positions with a number of intermediate gold
producers. Much of his experience was gained in the Americas in such countries
as Suriname, Guyana and Canada and he also worked for 9 years in Romania.
Between 2009 and 2012, he was the Technical Services Manager at the IAMGOLDs
Rosebel Gold Mine in Suriname. Previously, he worked as a Scientific Researcher
with CONSOREM, a Quebec-based research group in mineral exploration, and at
Cambior Inc.s Omai Gold Mine in Guyana. He was also consultant for several
junior exploration companies. Mr. Voicu holds a PhD in Mineral Resources from
the Université du Québec à Montréal, and a BSc (Geological Engineering) from the University of Bucharest, Romania. Mr. Voicu is also an
Adjunct Professor of Economic Geology with the Université du Québec à Montréal.

61

---

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.

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

Ms. Lendon has been Vice
President, Chief 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).

62

---

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 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 it 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 Juniper Engines Inc., a
private company in which Westport Innovations has a 49% investment.

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, Strategy
at Goldcorp since July 2012. From March 2006 to July 2012, he was the Vice
President, Finance at Goldcorp, 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.

63

---

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. 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 professionels 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.

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.

64

---

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:

| | (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

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

65

---

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

Four of the properties included
in the San Dimas Mine and for which Primero holds legal title are subject to
legal proceedings commenced by Ejidos seeking title to the property. None of the
proceedings name Primero as a party and Primero therefore has no standing to
participate in them. In all cases, the defendants are previous owners of the
properties, either deceased individuals who, according to certain public deeds,
owned the properties more than 80 years ago, corporate entities that are no
longer in existence, or Goldcorp companies. Three of the proceedings also name
the Tayoltita Property Public Registry as co-defendant.

While Primero cannot intervene in
these proceedings, in the event that a final decision is rendered in favour of
the Ejido, Primero may seek to annul the decision or commence an action as an
affected third party on the basis that it is the legitimate owner and is in
possession of the property. If Primero is not successful in its challenge, the
San Dimas Mine could face higher costs associated with agreed or mandated
payments that would be payable to the Ejidos for use of the properties.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar
for the Common Shares in Canada is Computershare Investor Services Inc. at its
principal office in Toronto, Ontario. The 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, 2012 or before
such time that is still in effect, other than in the ordinary course of
business, are the following:

| | (a) | Scheme implementation deed between the Company and Cerro
      December 13, 2012. See General Development of the Business  Acquisition
      of Cerro del Gallo Project;                                                                                                                                                                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (b) | 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 General Development of the
      Business  Three Year History  Acquisition of San Dimas Mine and
      Business of Primero  Amended and Restated Silver Purchase
    Agreement;
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (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 General
      Development of the Business  Three Year History  Acquisition of San
      Dimas Mine;                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (d) | Participation agreement between DMSL and the Company,
      made as of August 6, 2010. See General Development of the Business 
      Three Year History  Acquisition of San Dimas Mine, Escrowed Securities
      and Securities Subject to Contractual Restrictions on Transfer 
      Contractual Restrictions on Transfer and Directors and
  Officers;                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (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 General
      Development of the Business  Three Year History  Acquisition of San
      Dimas Mine;                                                                                                                                          

66

---

| | (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
      General Development of the Business  Three Year History  Acquisition of
      San Dimas Mine; and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                         
| | (h) | Share purchase agreement between GSBL and the Company,
      dated July 29, 2010. See General Development of the Business  Three Year
      History  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, Herbert A. Smith, P.Eng
  and Alan Riles, M.AIG, all of AMC Mining Consultants (Canada) Ltd. who
  authored the Technical Report.
- Mr. Timothy Carew, P. Geo of Reserva International LLC, Mr. Thomas Dyer,
  P.E. of Mine Development Associates, Mr. Peter Hayward, F.AusIMM of Sedgman
  Ltd., and Mr. John Skeet, F.AudIMM, Chief Operating Officer of Cerro, who
  authored the CDG Technical Report.
- Mr. Gabriel Voicu, P.Geo, Vice President, Geology and Exploration of
  Primero, reviewed the CDG Technical Report on behalf of Primero.

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, is 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, except for Mr. Voicu who is the
Vice President, Geology and Exploration of the Company.

The Companys auditors, Deloitte
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
8, 2013, 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, 2012, which
may be found on SEDAR at www.sedar.com.

67

---

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, David Demers and Rohan Hazelton are the members of Primeros Audit
Committee. Each of Messrs. Riley, Edey, Demers 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.

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, 2012 and 2011, the Company paid the external auditor, Deloitte LLP,
CDN$416,914 and CDN$572,290, respectively, as detailed below:

|                         |   | Year Ended December 31 |    
|------------------------ | - | ---------------------- | ---
|Nature of
      Services |   | **2012(1)**            |    
|Audit Fees(2)            |   | 375,500                | (5)
|Audit-Related Fees(3)    |   | 6,800                  |    
|Tax Fees(4)              |   | 11,900                 |    
|All Other Fees(5)        |   | 0                      |    
|Total                    | $ | 394,200                |    

68

---

|________________
|----------------
|(1)             
|(2)             
|(3)             
|(4)             
|(5)             

69

---

SCHEDULE A AUDIT COMMITTEE CHARTER

|I. | PURPOSE AND PRIMARY
  RESPONSIBILITY
|-- | ------------------------------------

| | A. | Purpose
| | -- | -------

The 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;

70

---

B. communicate directly with management
and any internal auditor, and with the external auditor without management
involvement; and

C. 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;

71

---

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

L. 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;

M. 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;

N. 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;

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

P. 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;

Q. 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.;

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

S. 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.

T. 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;

U. 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);

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

72

---

W. establishing procedures for:

i. reviewing the expenses of the Chair
of the Board, and the Chief Executive Officer (the CEO)

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.   

X. 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.

Y. 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. The quorum for a meeting of the
Audit Committee is a majority of the members of the Audit Committee.

B. The Board of Directors will appoint
the Chair of the Audit Committee. The Chair of the Audit Committee shall be
responsible for leadership of the Audit Committee, including scheduling and
presiding over meetings, preparing agendas, overseeing the preparation of
briefing documents to circulate during the meetings as well as pre-meeting
materials, and making regular reports to the Board. The Chair of the Audit
Committee will also maintain regular liaison with the CEO, CFO, and the lead
engagement partner of the external auditor.

73

---

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.

74

---