---

Exhibit 99.3

|                                                   
|---------------------------------------------------
|(formerly Gammon Gold Inc.)                        
|                                                   
|CONSOLIDATED FINANCIAL STATEMENTS                  
|December 31, 2011                                  
|(in United States Dollars, unless otherwise stated)

---

| |                           |                                  
| | ------------------------- | ---------------------------------
| | KPMG LLP                  |                                  
| | Chartered Accountants     | Telephone    (416)
      777-8500
| | Bay Adelaide Centre       | Fax    (416) 777-8818            
| | 333 Bay Street Suite 4600 | Internet    www.kpmg.ca          
| | Toronto ON M5H 2S5        |                                  
| | Canada                    |                                  

INDEPENDENT AUDITORS REPORT OF REGISTERED PUBLIC ACCOUNTING
FIRM

To the Shareholders of AuRico Gold Inc.

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

Managements Responsibility for the Consolidated Financial
Statements

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

Auditors Responsibility

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

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

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

Opinion

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

KPMG LLP is a Canadian limited liability partnership and a
member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative (KPMG International), a Swiss entity.KPMG Canada
provides services to KPMG LLP.

---

Other Matter

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), AuRico Gold Inc.s
internal control over financial reporting as of December 31, 2011, based on the
criteria established in Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated March 27, 2012 expressed an unqualified opinion on the
effectiveness of the Companys internal control over financial reporting.

|Chartered Accountants, Licensed Public Accountants
|--------------------------------------------------
|Toronto, Canada                                   
|March 27, 2012                                    

---

|                                             
|---------------------------------------------
|CONSOLIDATED BALANCE SHEETS                  
|(in thousands of
      United States Dollars)

|                                                                                |   | December 31 |   |   | December 31 |   |   | January 1 |  
|------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | --------- | -
|As at                                                                           |   | 2011        |   |   | 2010        |   |   | 2010      |  
|                                                                                |   |             |   |   |             |   |   |           |  
|                                                                                |   |             |   |   |             |   |   |           |  
|ASSETS                                                                          |   |             |   |   |             |   |   |           |  
|Current assets                                                                  |   |             |   |   |             |   |   |           |  
|Cash and cash equivalents (Note 8)                                              | $ | 179,444     |   | $ | 113,142     |   | $ | 128,977   |  
|Receivables (Note 9)                                                            |   | 65,453      |   |   | 17,925      |   |   | 12,572    |  
|Derivative assets                                                               |   | -           |   |   | 1,060       |   |   | -         |  
|Investments (Note 10)                                                           |   | 7,588       |   |   | -           |   |   | -         |  
|Inventories (Note 11)                                                           |   | 137,091     |   |   | 75,386      |   |   | 60,485    |  
|Prepaids and deposits                                                           |   | 6,204       |   |   | 2,511       |   |   | 2,680     |  
|Assets classified as held for sale
      (Note 7)                               |   | 154,756     |   |   | -           |   |   | -         |  
|                                                                                |   | 550,536     |   |   | 210,024     |   |   | 204,714   |  
|Non-current assets                                                              |   |             |   |   |             |   |   |           |  
|Long-term ore in process inventory
      (Note 11)                              |   | 51,238      |   |   | 13,205      |   |   | 11,197    |  
|Investments (Note 10)                                                           |   | 290         |   |   | 20,797      |   |   | -         |  
|Other long-term assets (Note 12)                                                |   | 61,015      |   |   | 535         |   |   | 8,708     |  
|Property, plant and equipment &
      mining interests (Note 13)                |   | 2,032,800   |   |   | 562,023     |   |   | 620,488   |  
|Intangible assets (Note 14)                                                     |   | 21,835      |   |   | 3,453       |   |   | -         |  
|Goodwill (Note 6 and Note 14)                                                   |   | 456,302     |   |   | -           |   |   | 106,799   |  
|                                                                                | $ | 3,174,016   |   | $ | 810,037     |   | $ | 951,906   |  
|                                                                                |   |             |   |   |             |   |   |           |  
|                                                                                |   |             |   |   |             |   |   |           |  
|LIABILITIES                                                                     |   |             |   |   |             |   |   |           |  
|Current liabilities                                                             |   |             |   |   |             |   |   |           |  
|Trade payables and accrued liabilities                                          | $ | 138,478     |   | $ | 38,001      |   | $ | 36,597    |  
|Current income tax liability (Note 20)                                          |   | 3,635       |   |   | -           |   |   | 422       |  
|Derivative liabilities (Note 16)                                                |   | 6,610       |   |   | -           |   |   | -         |  
|Current portion of long-term debt and finance lease
      obligations (Note 17) |   | 5,056       |   |   | 4,373       |   |   | 4,398     |  
|Current portion of other long-term
      liabilities (Note 18)                  |   | 800         |   |   | 800         |   |   | 763       |  
|Current portion of provisions (Note 19)                                         |   | 10,614      |   |   | 1,156       |   |   | -         |  
|Liabilities associated with assets classified as held for
      sale (Note 7)   |   | 59,267      |   |   | -           |   |   | -         |  
|                                                                                |   | 224,460     |   |   | 44,330      |   |   | 42,180    |  
|                                                                                |   |             |   |   |             |   |   |           |  
|Non-current liabilities                                                         |   |             |   |   |             |   |   |           |  
|Long-term debt and finance lease
      obligations (Note 17)                    |   | 217,251     |   |   | 27,171      |   |   | 32,431    |  
|Option component of convertible senior
      notes (Note 17)                    |   | 20,081      |   |   | -           |   |   | -         |  
|Other long-term liabilities (Note 18)                                           |   | 4,064       |   |   | 6,453       |   |   | 8,654     |  
|Provisions (Note 19)                                                            |   | 38,650      |   |   | 6,446       |   |   | 7,848     |  
|Derivative liabilities (Note 16)                                                |   | 3,910       |   |   | -           |   |   | -         |  
|Deferred income tax liability (Note 20)                                         |   | 424,462     |   |   | 81,977      |   |   | 107,039   |  
|                                                                                |   | 932,878     |   |   | 166,377     |   |   | 198,152   |  
|SHAREHOLDERS EQUITY                                                            |   |             |   |   |             |   |   |           |  
|Capital stock (Note 21)                                                         |   | 2,301,419   |   |   | 881,960     |   |   | 866,716   |  
|Contributed surplus                                                             |   | 45,232      |   |   | 23,080      |   |   | 23,345    |  
|Deficit                                                                         |   | (94,190     | ) |   | (271,042    | ) |   | (136,307  | )
|Accumulated other comprehensive (loss) / income (Note 22)                       |   | (11,323     | ) |   | 9,662       |   |   | -         |  
|                                                                                |   | 2,241,138   |   |   | 643,660     |   |   | 753,754   |  
|                                                                                | $ | 3,174,016   |   | $ | 810,037     |   | $ | 951,906   |  

Commitments and contingencies (Note 28) Events after the
reporting period (Note 32)

|Signed on behalf of the Board: | Signed              | Signed              
|------------------------------ | --------------------- | ----------------------
|                               | René Marion, Director | Ronald Smith, Director

|See accompanying notes to the consolidated financial
      statements. | 1
|---------------------------------------------------------------------- | -

---

|                                                                   
|-------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS                              
|(in thousands of
      United States Dollars except per share data)

|For the years ended December 31                                      |   | 2011        |   |   | 2010        |  
|-------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                     |   |             |   |   |             |  
|Revenue from mining operations                                       | $ | 401,901     |   | $ | 238,266     |  
|                                                                     |   |             |   |   |             |  
|Cost of sales (Note 24):                                             |   |             |   |   |             |  
|Production costs, excluding amortization &
      depletion           |   | 125,870     |   |   | 89,857      |  
|Refining costs                                                       |   | 2,063       |   |   | 1,873       |  
|Mine standby costs                                                   |   | 11,430      |   |   | 9,214       |  
|Amortization and depletion                                           |   | 53,300      |   |   | 44,677      |  
|Total cost of sales                                                  |   | 192,663     |   |   | 145,621     |  
|                                                                     |   |             |   |   |             |  
|General and administrative                                           |   | 38,014      |   |   | 28,752      |  
|Exploration and business development (Note 6 and Note 24)            |   | 20,940      |   |   | 1,934       |  
|Decommissioning and site rehabilitation (Note 24)                    |   | 2,103       |   |   | -           |  
|Impairment (reversals) / charges (Note 15 and Note 24)               |   | (49,520     | ) |   | 223,357     |  
|Earnings / (loss) from operations                                    |   | 197,701     |   |   | (161,398    | )
|                                                                     |   |             |   |   |             |  
|Finance costs                                                        |   | (3,282      | ) |   | (3,348      | )
|Foreign exchange gain / (loss)                                       |   | 20,686      |   |   | (3,507      | )
|Other income (Note 23)                                               |   | 41,719      |   |   | 1,418       |  
|Earnings / (loss) before income taxes                                |   | 256,824     |   |   | (166,835    | )
|                                                                     |   |             |   |   |             |  
|Deferred income tax expense / (recovery) (Note 20)                   |   | 64,613      |   |   | (30,651     | )
|Current income tax expense / (recovery) (Note 20)                    |   | 30,899      |   |   | (1,516      | )
|                                                                     |   | 95,512      |   |   | (32,167     | )
|                                                                     |   |             |   |   |             |  
|Net earnings / (loss) from continuing operations                     | $ | 161,312     |   | $ | (134,668    | )
|Net earnings from discontinued operations (Note 7)                   |   | 15,547      |   |   | -           |  
|                                                                     |   |             |   |   |             |  
|Net earnings / (loss)                                                | $ | 176,859     |   | $ | (134,668    | )
|                                                                     |   |             |   |   |             |  
|                                                                     |   |             |   |   |             |  
|Earnings / (loss) per share (Note 25)                                |   |             |   |   |             |  
|                                                                     |   |             |   |   |             |  
|Basic earnings / (loss) per share from continuing
      operations   | $ | 0.88        |   | $ | (0.97       | )
|Basic earnings per share from discontinued operations                |   | 0.08        |   |   | -           |  
|Basic earnings / (loss) per share                                    | $ | 0.96        |   | $ | (0.97       | )
|                                                                     |   |             |   |   |             |  
|Diluted earnings / (loss) per share from continuing
      operations | $ | 0.74        |   | $ | (0.97       | )
|Diluted earnings per share from discontinued
      operations        |   | 0.08        |   |   | -           |  
|Diluted earnings / (loss) per share                                  | $ | 0.82        |   | $ | (0.97       | )
|                                                                     |   |             |   |   |             |  
|Weighted average shares outstanding (Note 25)                        |   |             |   |   |             |  
|                                                                     |   |             |   |   |             |  
|Basic                                                                |   | 183,411,200 |   |   | 138,503,059 |  
|Diluted                                                              |   | 186,771,446 |   |   | 138,503,059 |  
|                                                                     |   |             |   |   |             |  

|See accompanying notes to the consolidated financial
      statements. | 2
|---------------------------------------------------------------------- | -

---

|                                                                   
|-------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)           
|(in thousands of
      United States Dollars except per share data)

|For the years ended December 31                                                        |   | 2011    |   |   | 2010     |  
|-------------------------------------------------------------------------------------- | - | ------- | - | - | -------- | -
|                                                                                       |   |         |   |   |          |  
|Net earnings / (loss)                                                                  | $ | 176,859 |   | $ | (134,668 | )
|                                                                                       |   |         |   |   |          |  
|Other comprehensive (loss) / income from continuing
      operations:                  |   |         |   |   |          |  
|Unrealized (loss) / gain on investments (Note 10)                                      |   | (1,260  | ) |   | 8,637    |  
|Reclassification of net realized gains on investments
      to earnings (Note 10)      |   | (7,448  | ) |   | -        |  
|Unrealized (loss) / gain on derivatives designated as
      cash flow hedges (Note 29) |   | (10,627 | ) |   | 1,402    |  
|Reclassification of realized gains on cash flow
      hedges to earnings (Note 29)     |   | (35     | ) |   | (377     | )
|Actuarial losses                                                                       |   | (7      | ) |   | (67      | )
|Foreign exchange on translation of discontinued
      operations (Note 7)              |   | (1,693  | ) |   | -        |  
|Tax effect                                                                             |   | 78      |   |   | -        |  
|Total other comprehensive (loss) / income (Note 22)                                    |   | (20,992 | ) |   | 9,595    |  
|                                                                                       |   |         |   |   |          |  
|Comprehensive income / (loss)                                                          | $ | 155,867 |   | $ | (125,073 | )
|                                                                                       |   |         |   |   |          |  

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

---

|                                             
|---------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS        
|(in thousands of
      United States Dollars)

|For the years ending December 31                                                            |   | 2011     |   |   | 2010     |  
|------------------------------------------------------------------------------------------- | - | -------- | - | - | -------- | -
|                                                                                            |   |          |   |   |          |  
|OPERATING ACTIVITIES                                                                        |   |          |   |   |          |  
|Net earnings / (loss) from continuing operations                                            | $ | 161,312  |   | $ | (134,668 | )
|Payment of other long-term liabilities                                                      |   | (800     | ) |   | (792     | )
|Payment of provisions                                                                       |   | (4,485   | ) |   | (101     | )
|Items not affecting cash (Note 26)                                                          |   | 26,127   |   |   | 248,042  |  
|Change in non-cash operating working capital (Note
      26)                                |   | (21,896  | ) |   | (14,898  | )
|Operating cash flows from continuing operations                                             |   | 160,258  |   |   | 97,583   |  
|                                                                                            |   |          |   |   |          |  
|INVESTING ACTIVITIES                                                                        |   |          |   |   |          |  
|Increase in deposits on property, plant and equipment                                       |   | -        |   |   | (423     | )
|Cash acquired on acquisition of Northgate (Note 6)                                          |   | 123,244  |   |   | -        |  
|Acquisition of Capital Gold, net of cash acquired
      (Note 6)                            |   | (54,105  | ) |   | -        |  
|Purchase of investments                                                                     |   | (51,437  | ) |   | (10,775  | )
|Sale of investments                                                                         |   | 69,520   |   |   | -        |  
|Expenditures on property, plant and equipment, mining
      interests and intangible assets |   | (230,024 | ) |   | (107,216 | )
|Investing cash flows from continuing operations                                             |   | (142,802 | ) |   | (118,414 | )
|                                                                                            |   |          |   |   |          |  
|FINANCING ACTIVITIES                                                                        |   |          |   |   |          |  
|Repayment of finance lease obligations                                                      |   | (4,890   | ) |   | (4,351   | )
|Proceeds from long-term debt                                                                |   | 35,000   |   |   | -        |  
|Repayments of long-term debt                                                                |   | (3,000   | ) |   | (57      | )
|Payment of financing fees on long-term debt                                                 |   | (914     | ) |   | (1,523   | )
|Proceeds from exercise of warrants issued                                                   |   | 15,379   |   |   | -        |  
|Proceeds from exercise of stock options                                                     |   | 5,854    |   |   | 8,393    |  
|Financing cash flows from continuing operations                                             |   | 47,429   |   |   | 2,462    |  
|                                                                                            |   |          |   |   |          |  
|Impact of foreign exchange on cash                                                          |   | (914     | ) |   | 2,534    |  
|                                                                                            |   |          |   |   |          |  
|Net increase / (decrease) in cash and cash equivalents from
      continuing operations     |   | 63,971   |   |   | (15,835  | )
|Net increase in cash and cash equivalents from discontinued
      operations (Note 7)       |   | 2,331    |   |   | -        |  
|                                                                                            |   |          |   |   |          |  
|Cash and cash equivalents, beginning of period                                              |   | 113,142  |   |   | 128,977  |  
|                                                                                            |   |          |   |   |          |  
|Cash and cash equivalents, end of period                                                    | $ | 179,444  |   | $ | 113,142  |  
|                                                                                            |   |          |   |   |          |  

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

---

|                                               
|-----------------------------------------------
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|(in thousands of
      United States Dollars)  

|For the years ended December 31                                      |   | 2011      |   |   | 2010     |  
|-------------------------------------------------------------------- | - | --------- | - | - | -------- | -
|                                                                     |   |           |   |   |          |  
|Capital stock                                                        |   |           |   |   |          |  
|Balance, beginning of period                                         | $ | 881,960   |   | $ | 866,716  |  
|Shares issued on acquisition of
      Northgate (Note 6)             |   | 1,030,046 |   |   | -        |  
|Shares issued on acquisition of Capital
      Gold (Note 6)          |   | 347,725   |   |   | -        |  
|Shares issued as payment for
      acquisition-related services      |   | 2,704     |   |   | -        |  
|Shares issued for cash through employee
      share purchase plan    |   | 726       |   |   | 540      |  
|Shares issued for cash pursuant to
      exercise of warrants issued |   | 15,379    |   |   | -        |  
|Fair value of warrants exercised                                     |   | 3,977     |   |   | -        |  
|Shares issued for cash pursuant to
      exercise of stock options   |   | 5,854     |   |   | 8,393    |  
|Fair value of share-based compensation                               |   | 5,833     |   |   | 6,311    |  
|Tax benefit on previously unrecognized
      share issuance costs    |   | 7,215     |   |   | -        |  
|Balance, end of period                                               | $ | 2,301,419 |   | $ | 881,960  |  
|                                                                     |   |           |   |   |          |  
|                                                                     |   |           |   |   |          |  
|Contributed surplus                                                  |   |           |   |   |          |  
|Balance, beginning of period                                         | $ | 23,080    |   | $ | 23,345   |  
|Options issued on acquisition of
      Northgate (Note 6)            |   | 16,555    |   |   | -        |  
|Options issued on acquisition of
      Capital Gold (Note 6)         |   | 5,206     |   |   | -        |  
|Fair value of share-based compensation                               |   | (5,833    | ) |   | (6,311   | )
|Share-based compensation                                             |   | 6,224     |   |   | 6,046    |  
|Balance, end of period                                               | $ | 45,232    |   | $ | 23,080   |  
|                                                                     |   |           |   |   |          |  
|                                                                     |   |           |   |   |          |  
|Deficit                                                              |   |           |   |   |          |  
|Balance, beginning of period                                         | $ | (271,042  | ) | $ | (136,307 | )
|Actuarial losses                                                     |   | (7        | ) |   | (67      | )
|Net earnings / (loss)                                                |   | 176,859   |   |   | (134,668 | )
|Balance, end of period                                               | $ | (94,190   | ) | $ | (271,042 | )
|                                                                     |   |           |   |   |          |  
|                                                                     |   |           |   |   |          |  
|Accumulated other comprehensive (loss) / income (Note 22)            |   |           |   |   |          |  
|Balance, beginning of period                                         | $ | 9,662     |   | $ | -        |  
|Other comprehensive (loss) / income                                  |   | (21,070   | ) |   | 9,595    |  
|Actuarial losses recognized in deficit                               |   | 7         |   |   | 67       |  
|Tax effect                                                           |   | 78        |   |   | -        |  
|Balance, end of period                                               |   | (11,323   | ) |   | 9,662    |  
|                                                                     |   |           |   |   |          |  
|                                                                     |   |           |   |   |          |  
|Total shareholders equity                                           | $ | 2,241,138 |   | $ | 643,660  |  
|                                                                     |   |           |   |   |          |  

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

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|1. | Corporate information
|-- | ---------------------

In 2011, Gammon Gold Inc. formally changed its corporate name
to AuRico Gold Inc. The change in corporate name was approved by the
shareholders at the Annual and Special Shareholders Meeting on June 9, 2011.
AuRico Gold Inc. and its subsidiaries (collectively, the Company or AuRico
Gold) are engaged in the mining, development, exploration, and acquisition of
resource properties. AuRico Gold Inc., the ultimate parent, is a publicly traded
company with common shares listed on the Toronto Stock Exchange (TSX: AUQ), the
New York Stock Exchange (NYSE: AUQ) and the Berlin Stock Exchange (BSX: GL7).
The Company is incorporated and domiciled in Canada and its head office and
registered office is located at 110 Yonge Street, Suite 1601, Toronto, Ontario,
M5C 1T4.

The consolidated financial statements of the Company and its
subsidiaries were authorized for issue in accordance with a resolution of the
Board of Directors dated March 27, 2012.

|   |                                                        
|-- | -------------------------------------------------------
|2. | Basis of presentation and statement of
      compliance

These consolidated financial statements are prepared in
accordance with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board (IASB), effective for the year
ended December 31, 2011.

The Companys consolidated financial statements were previously
prepared in accordance with Canadian generally accepted accounting principles
(Canadian GAAP) until December 31, 2010. These are the Companys first IFRS
consolidated annual financial statements and as a result, they have also been
prepared in accordance with IFRS 1, First-time Adoption of International
Financial Reporting Standards. Certain information that is considered
material to the understanding of the Companys amended consolidated financial
statements are provided in Note 5, along with reconciliations and descriptions
of the effect of the transition from Canadian GAAP to IFRS on shareholders
equity and total comprehensive income.

These statements have been prepared using the historical cost
convention, other than for certain financial instruments, which are measured in
accordance with the policy disclosed in Note 3(s).

|    |                                                 
|--- | ------------------------------------------------
|3.  | Summary of significant accounting
      policies
|    |                                                 
|(a) | Basis of consolidation                          

These consolidated financial statements include the accounts of
the Company and the following subsidiaries:

|Company                                                      |  | Principal activity                |  | Country of incorporation
|------------------------------------------------------------ |  | --------------------------------- |  | ------------------------
|AuRicoGold Chihuahua, S.A. de C.V., SOFOM
      E.N.R.       |  | Administrative services           |  | Mexico                  
|AuRicoGold de Mexico, S.A. de C.V.                           |  | Gold and silver mining            |  | Mexico                  
|AuRicoGold GYC, S.A. de C.V.                                 |  | Gold and silver
      exploration |  | Mexico                  
|AuRico Gold Holdings Inc.                                    |  | Holding company                   |  | Canada                  
|AuRico Gold Luxembourg S.à.r.l                               |  | Administrative services           |  | Luxembourg              
|AuRico Gold (USA), Inc.                                      |  | Administrative services           |  | United States of America
|Capital Gold Corporation                                     |  | Holding company                   |  | United States of America
|Compañia Minera del Cubo, S.A. de C.V.                       |  | Gold and silver mining            |  | Mexico                  
|Down Under Finance Corporation Pty Ltd.
      (1)            |  | Administrative services           |  | Australia               
|Fosterville Gold Mine Pty Ltd. (1)                           |  | Gold mining                       |  | Australia               
|Leadville Mining & Milling Holding
      Corporation         |  | Holding company                   |  | United States of America
|Leviathan Resources Pty Ltd. (1)                             |  | Holding company                   |  | Australia               
|Metales Interamericanos, S.A. de C.V.                        |  | Administrative services           |  | Mexico                  
|Mexgold Resources Inc.                                       |  | Holding company                   |  | Canada                  
|Minera Santa Rita, S. de R.L. de C.V.                        |  | Gold and silver mining            |  | Mexico                  
|Nayarit Gold de Mexico, S.A. de C.V.                         |  | Gold and silver
      exploration |  | Mexico                  
|Nayarit Gold Inc.                                            |  | Holding company                   |  | Canada                  
|Northgate Australian Ventures Corporation Pty
      Ltd. (1) |  | Administrative services           |  | Australia               
|Oro de Altar, S.A. de C.V.                                   |  | Administrative services           |  | Mexico                  
|Perseverance Mining Pty Ltd. (1)                             |  | Holding company                   |  | Australia               
|Stawell Gold Mines Pty Ltd. (1)                              |  | Gold mining                       |  | Australia               

|(1) | At December 31, 2011, the Companys Australian operations
      were classified as a disposal group held for sale and presented as
      discontinued operations, as discussed in Note 7.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These subsidiaries are controlled by the Company, and are
wholly-owned. Control exists when the Company has the power to govern the
financial and operating policies of an entity and normally consists of power
over more than half of the voting rights of the entity.

6

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

The Company also consolidates the accounts of Caborca
Industrial S.A. de C.V., a Mexican corporation wholly-owned by two senior
officers of the Company, which provides mining support services to the Companys
El Chanate mine. This entity is considered a special purpose entity (SPE) in
accordance with the guidance in SIC 12, Consolidation  Special Purpose
Entities.

All intra-group transactions, balances, income and expenses are
eliminated in full on consolidation.

|(b) | Foreign currency
|--- | ----------------

Functional and presentation currency

These consolidated financial statements are expressed in United
States dollars (US dollars), which is the functional currency of the Company
and the presentation currency of the consolidated financial statements. The
functional currency of all of the Companys subsidiaries is also the US dollar
except for the Companys Australian subsidiaries for which the functional
currency is the Australian dollar.

Translation of transactions and balances into the
functional currency

Transactions in currencies other than an entitys functional
currency (foreign currencies) are recognized at the rates of exchange
prevailing at the dates of the transactions. At the end of each reporting
period, monetary assets and liabilities denominated in foreign currencies are
translated at the rates prevailing at that date. Foreign currency non-monetary
items that are measured in terms of historical cost are not retranslated.

Exchange differences are recognized in net earnings in the
period in which they arise, except for foreign exchange gains and losses on the
translation of available-for-sale investments in equity securities or qualifying
cash flow hedges, which are recognized in other comprehensive income. Unrealized
gains and losses due to movements in exchange rates on cash and cash equivalents
held in foreign currencies are shown separately on the Consolidated Statements
of Cash Flows.

Translation to the presentation currency

At the end of each reporting period, the results and financial
position of subsidiaries whose functional currency differs from the presentation
currency of the consolidated financial statements are translated into US dollars
as follows:

| | Assets and liabilities are translated at the rates of exchange at the
  balance sheet date; and                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                
| | Revenues and expenses are translated at the average exchange rates for the
  period, or at rates that approximate actual exchange rates, with the exception
  of certain items, such as amortization and depletion, which are translated at
  the historical rate applied to the related asset.

Foreign exchange gains and losses resulting from translation
from the functional currency to the presentation currency are recognized in
other comprehensive income and are recognized in net earnings upon the
substantial disposition, liquidation or closure of the subsidiary that gave rise
to such amounts.

|(c) | Revenue recognition
|--- | -------------------

Revenue from the sale of gold, silver and doré bars is
recognized when persuasive evidence of a sale arrangement exists, the risks and
rewards of ownership pass to the purchaser, including title risk, the selling
price is measurable, and collectability is probable. The risks and rewards of
ownership are considered to have been transferred when title passes to the
customer. Revenue from the sale of gold and silver is measured at the fair value
of the consideration received or receivable. Revenue from the sale of doré bars
is recorded at estimated values, and is further adjusted based upon final
quality assessment and quotations.

|(d) | Cash and cash equivalents
|--- | -------------------------

The Company considers deposits in banks, certificates of
deposits, and short-term investments with original maturities of three months or
less from the acquisition date as cash and cash equivalents.

|(e) | Inventories
|--- | -----------

Supplies inventory

Supplies inventory consists of mining supplies and consumables
used in the operation of the mines, and is valued at the lower of average cost
and net realizable value.

Ore stockpiles inventory

Stockpiles represent ore that has been mined and is available
for further processing. Stockpiles are measured by estimating the number of
tonnes added and removed from the stockpile, the number of contained ounces
(based on assay data) and the estimated metallurgical recovery rates (based on
the expected processing method). Stockpile ore tonnages are verified by periodic
surveys. Costs are allocated to stockpiles based on the current mining cost per
tonne incurred up to the point of stockpiling the ore, including applicable
overhead, depletion and amortization relating to mining operations, and are
removed at the average cost per tonne. Ore stockpiles inventory is measured at
the lower of cost and net realizable value.

7

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

Ore in process inventory

The recovery of gold and silver is achieved through milling and
heap leaching processes. Costs are added to ore on leach pads and in the mill
based on current mining and processing costs, including applicable overhead,
depletion and amortization relating to mining operations. Costs are removed from
ore on leach pads and in the mill as ounces are recovered, based on the average
cost per ounce of gold and silver in ore in process inventory. Ore in process
inventory is measured at the lower of cost and net realizable value.

Finished goods inventory

Finished goods inventory consists of gold, silver and doré
bars, and is valued at the lower of cost and net realizable value. For all ore
inventories,net realizable value is calculated as the difference between
the estimated future metal revenue based on prevailing and / or long-term metal
prices as appropriate, and estimated costs to complete production into a
saleable form.

|(f) | Long-lived assets
|--- | -----------------

Property, plant and equipment

Property, plant and equipment, excluding land, are recorded at
cost less accumulated amortization and accumulated impairment losses. Land is
recorded at cost less accumulated impairment losses and is not depreciated. The
initial cost of an asset is comprised of its purchase price or construction
cost, any costs directly attributable to bringing the asset into operation, the
initial estimate of the reclamation obligation, and for qualifying assets,
borrowing costs. Any investment tax credits received or receivable are deducted
from the cost of the asset to which they relate. The purchase price or
construction cost is the aggregate amount paid and the fair value of any other
consideration given to acquire the asset. The capitalized value of a finance
lease is also included within property, plant and equipment, and is measured at
the lower of the present value of the minimum lease payments and the fair value
of the leased asset.

Subsequent costs are included in the assets carrying amount
when it is probable that future economic benefits associated with the asset will
flow to the Company, and the costs can be measured reliably. This would include
costs related to the refurbishment or replacement of major components of an
asset, when the refurbishment results in a significant extension in the physical
life of the component. All other repairs and maintenance costs are recognized in
earnings as incurred.

The cost of property, plant and equipment, less any applicable
residual value, is allocated over the estimated useful life of the asset on a
straight-line basis. Amortization commences on an asset when it has been fully
commissioned and is available for use. Amortization rates applicable to each
category of property, plant and equipment, with the exception of land, are as
follows:

|Asset                         |  | Useful life
|----------------------------- |  | -----------
|Leasehold improvements        |  | 3 years    
|Equipment under finance lease |  | 2-10 years 
|Heavy equipment               |  | 2-10 years 
|Other equipment               |  | 2-20 years 
|Processing plant              |  | 2-20 years 
|Vehicles                      |  | 2-4 years  
|Buildings                     |  | 2-20 years 
|Office equipment              |  | 2-9 years  

When components of an item of property, plant and equipment
have different useful lives than those noted above, they are accounted for as
separate items of property, plant and equipment. Each asset or components
estimated useful life is determined considering its physical life limitations,
however this physical life cannot exceed the life of the mine at which the asset
is utilized. Estimates of remaining useful lives and residual values are
reviewed annually. Any changes in estimates of useful lives are accounted for
prospectively from the date of the change.

Exploration and evaluation assets and mine development
expenditures

Exploration and evaluation expenditures include costs such as
exploratory drilling, sample testing, costs of pre-feasibility studies, and for
qualifying assets, borrowing costs. These costs are capitalized on a
project-by-project basis pending determination of the technical feasibility and
commercial viability of the project. All capitalized exploration and evaluation
expenditures are monitored for indications of impairment, to ensure that
exploration activities related to the property are continuing or planned for the
future. If an exploration property does not prove viable, all unrecoverable
costs associated with the project are written off.

Exploration and evaluation expenditures incurred prior to the
Company obtaining the right to explore are expensed in the period in which they
are incurred.

Exploration and evaluation assets are not depleted. These
amounts are reclassified from exploration and evaluation assets to mine
development once the work completed to date supports the future development of
the property and management intends to develop the property. All subsequent
expenditures to ready the property for production are capitalized within mine development, other than those costs
related to the construction of property, plant and equipment, which are
capitalized within construction in progress. Expenditures capitalized to mine
development include all costs directly related to the development activity and a
proportion of overhead costs directly related to the development activity. Any
proceeds from the sale of metals during the development and commissioning phase
of a project are netted against the expenditures being capitalized as mine
development. Upon commencement of commercial production, capitalized mine
development costs are reclassified to mining interests and depreciated in
accordance with the Companys policy for mining interests.

8

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

Commercial production

Commercial production is reached when a mine is in the
condition necessary for it to be capable of operating in the manner intended by
management. The Company considers a range of factors when determining whether
commercial production has been reached, which may include demonstration of
continuous production near the level required by the design capacity of the
processing facilities, demonstration of continuous throughput levels at or above
a target percentage of the design capacity, and demonstration of ability to
produce output at a net margin that is consistent with expectations. The Company
assesses a mines ability to sustain production and throughput over a period of
approximately one to three months, depending on the complexity of the operation,
prior to declaring that commercial production has been reached.

Mining interests

Subsequent to the commencement of commercial production,
further development expenditures incurred with respect to a mining interest are
capitalized as part of the mining interest, when it is probable that additional
future economic benefits associated with the expenditure will flow to the
entity. Otherwise, such expenditures are classified as a cost of production.

Production stage mining interests are depleted over the life of
the mine using the unit-of-production method based on estimated proven and
probable reserves of the mine and the portion of mineralization expected to be
classified as reserves. The Company determines the portion of mineralization
expected to be classified as reserves by considering the degree of confidence in
the economic extraction of the resource, which is affected by long-term metal
price assumptions, cut-off grade assumptions, and drilling results. These
assessments are made on a mine-by-mine basis.

The expected useful lives used in depletion calculations are
determined based on the facts and circumstances associated with the mining
interest. Any changes in estimates of useful lives are accounted for
prospectively from the date of the change.

Capitalized stripping costs

In open pit mining operations, it is necessary to remove
overburden and other waste in order to access the ore body. Only stripping
activities that result in access to the ore body are capitalized to the existing
mining interest.

Stripping costs incurred prior to commercial production are
capitalized as part of the cost of constructing the mine. Mining costs
associated with stripping activities during the production phase of a mine are
capitalized only if the Company can identify the component of the ore body for
which access is obtained, the costs associated with the stripping activities can
be measured reliably, and the activities represent a future benefit to the
mining interest, in that access is gained to sources of reserves that will be
produced in future periods that would otherwise not have been accessible. The
amount capitalized is calculated by multiplying the stripping tonnes mined
during the period by the current mining cost per tonne in the open pit.

Where a mine operates more than one open pit that are regarded
as separate operations for the purpose of mine planning, stripping costs are
accounted for separately by reference to the ore from each separate pit. If,
however, the pits are highly integrated for the purpose of mine planning, the
second and subsequent pits are regarded as extensions of the first pit in
accounting for stripping costs. In such cases, the initial stripping of the
second and subsequent pits is considered to be production phase stripping
related to the combined operation and is capitalized.

Capitalized stripping costs are depreciated over the expected
reserves benefiting from the stripping using the unit-of-production method based
on estimated proven and probable reserves, and the portion of mineralization
expected to be classified as reserves.

Derecognition

Upon disposal or abandonment of long-lived assets, the carrying
amounts are derecognized with any associated gains or losses recognized in net
earnings.

|(g) | Intangible assets
|--- | -----------------

Amounts paid for the acquisition of identifiable intangible
assets are recorded at cost less accumulated amortization and accumulated
impairment losses. Identifiable intangible assets with a finite useful life are
amortized on a straight-line basis over their expected useful life, unless
another method represents a more accurate allocation of the expense over their
useful life.

9

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

The estimated useful lives of the Companys intangible assets
are as follows:

|Asset               |  | Useful life
|------------------- |  | -----------
|Transmission rights |  | 9-20 years 
|Software            |  | 3 years    

The Company has no identifiable intangible assets for which the
expected useful life is indefinite.

|(h) | Leases
|--- | ------

The Company accounts for both financing and operating leases in
its financial statements. The Company classifies its leases as finance leases
whenever the terms of the lease transfer substantially all the risks and rewards
of ownership to the Company. All other leases are classified as operating
leases.

Assets held under finance leases are initially recognized in
property, plant and equipment at their fair value or, if lower, at the present
value of the minimum lease payments. The corresponding lease obligation is
included in the balance sheet as a finance lease obligation. Lease payments are
apportioned between finance expenses and a reduction of the lease obligation so
as to achieve a constant rate of interest on the remaining balance of the
liability. Finance expenses are recognized immediately in net earnings.

Operating lease payments are recognized as an expense on a
straight-line basis over the lease term, except where another systematic basis
is more representative of the time pattern in which economic benefits from the
leased asset are consumed.

For transactions involving the sale and subsequent lease back
of assets, the Company recognizes the sale and classifies the lease as either
operating or financing, in accordance with the policy for lease classification.
Any loss on sale is recognized immediately in net earnings and any gain on sale
is accounted for in accordance with the classification of the subsequent
lease.

|(i) | Business combinations
|--- | ---------------------

Acquisitions of businesses are accounted for using the
acquisition method whereby assets and liabilities acquired are recorded at their
fair values as of the date of acquisition and any excess of the purchase price
over such fair value is recorded as goodwill. The purchase price includes the
fair values of the assets transferred and the equity interests issued by the
Company, but does not include any acquisition-related costs, which are expensed
as incurred. The fair value of options issued as part of purchase consideration
is determined in accordance with Note 3(p).

The measurement period for finalizing the accounting for a
business combination will not exceed one year from the date of acquisition.
During the measurement period, the Company will retrospectively adjust the
preliminary amounts recognized at the acquisition date to reflect new
information obtained about facts and circumstances that existed as of the
acquisition date and, if known, would have affected the measurement of the
amounts as of that date. The Company will also recognize additional assets or
liabilities if new information is obtained about facts and circumstances that
existed as of the date of acquisition that, if known, would have resulted in the
recognition of those assets and liabilities.

|(j) | Goodwill
|--- | --------

Goodwill represents the difference between the sum of the cost
of acquisition and the fair value of the identifiable net assets acquired, and
is not amortized. Goodwill, upon acquisition, is allocated to the
cash-generating unit or group of cash-generating units expected to benefit from
the related business combination for the purposes of impairment testing. A
cash-generating unit is identified as the smallest identifiable group of assets
that generates cash inflows, which are largely independent of the cash inflows
from other assets. Each of the Companys operating and development stage mines
is typically a cash-generating unit for purposes of goodwill impairment testing.

|(k) | Impairment of non-financial assets and
    goodwill
|--- | ---------------------------------------------------

The carrying amounts of non-financial assets, excluding
inventories and deferred income tax assets, are reviewed for impairment at each
reporting date, or whenever events or changes in circumstances indicate the
carrying amounts may not be recoverable. If there are indicators of impairment,
a review is undertaken to determine whether the carrying amounts are in excess
of their recoverable amounts. Reviews are undertaken on an asset-by-asset basis,
except where the recoverable amount for an individual asset cannot be
determined, in which case the review is undertaken at the cash-generating unit
level.

The Company evaluates, on an annual basis or more frequently if
there is an indication that a cash-generating unit may be impaired, the carrying
amount of cash-generating units to which goodwill has been allocated, to
determine whether such carrying amount may be impaired. To accomplish this, the
Company compares the recoverable amount of its cash-generating units to their
carrying amounts.

10

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

If the carrying amount of a cash-generating unit or
non-financial asset exceeds the recoverable amount, being the higher of its fair
value less costs to sell and its value-in-use, an impairment loss is recognized
in net earnings as the excess of the carrying amount over the recoverable
amount. With respect to cash-generating units, impairment losses are allocated
first to reduce the carrying amount of any goodwill allocated to the units, and
then to reduce the carrying amounts of the other assets in the unit on a
pro-rata basis to their individual recoverable amount.

Where the recoverable amount is assessed using discounted cash
flow techniques, the resulting estimates are based on detailed mine or
production plans. The mine plan is the basis for forecasting production output
in each future year and for forecasting production costs. For value-in-use
calculations, production costs and output in the mine plan may be revised to
reflect the continued use of the asset in its present form.

Non-financial assets that have suffered an impairment are
tested for a possible reversal of the impairment whenever events or changes in
circumstances indicate that the impairment may have reversed. In these
instances, the impairment loss is reversed to the recoverable amount but not
beyond the carrying amount, net of amortization, that would have arisen if the
prior impairment loss had not been recognized. Goodwill impairments are not
reversed.

|(l) | Impairment of financial
assets
|--- | ------------------------------

At each reporting date, the Company assesses whether there is
any objective evidence that a financial asset or a group of financial assets,
other than financial assets classified as fair value through profit or loss, is
impaired. Financial assets include receivables and available-for-sale
investments. A financial asset or a group of financial assets is deemed to be
impaired if there is objective evidence of impairment as a result of one or more
events that have occurred after the initial recognition of the asset that
negatively impact the estimated future cash flows of the financial asset or the
group of financial assets.

|(m) | Reclamation provisions
|--- | ----------------------

The Companys mining and exploration activities are subject to
various governmental laws and regulations relating to the protection of the
environment. These environmental regulations are continually changing, and the
Company has made, and intends to make in the future, expenditures to comply with
such laws and regulations. The timing of these expenditures is dependent upon a
number of factors including the life of the mine, the operating licence
conditions, and the laws, regulations, and environment in which the mine
operates.

Reclamation provisions are recognized at the time an
environmental disturbance occurs and are measured at the Companys best estimate
of the expected value of future cash flows required to reclaim the disturbance
upon mine closure, which are discounted to their present value for each mine
operation. Expected future cash flows reflect the risks and probabilities that
alternative estimates of cash flows could be required to settle the obligation.
The discount rate used is a risk-free pre-tax rate that reflects current market
assessments of the time value of money specific to the currency in which the
cash flows are expected to be paid. Significant estimates are involved in
forming expectations of future activities and the amount and timing of the
associated cash flows. Those expectations are based on existing environmental
and regulatory requirements or, if more stringent, Company policies that give
rise to a constructive obligation.

Upon initial recognition of a reclamation provision, the
corresponding cost is capitalized as an asset, representing part of the cost of
acquiring the future economic benefits of the operation. The capitalized cost of
reclamation and rehabilitation activities is recognized in mining interests and
depreciated in accordance with the Company's policy for the related asset. The
value of the provision is progressively increased over the life of the operation
as the effect of discounting unwinds, creating an expense included in finance
costs.

Reclamation provisions are adjusted for changes in estimates.
Such adjustments, which are not the result of the current production of
inventory, are accounted for as a change in the corresponding capitalized cost,
except where a reduction in the provision is greater than the undepreciated
capitalized cost of the related assets. In the latter case, the capitalized cost
is reduced to nil and the remaining adjustment is recognized in the Consolidated
Statements of Operations. Factors influencing such changes in estimates include
revisions to estimated reserves, resources and lives of mines; developments in
technologies; regulatory requirements and environmental management strategies;
changes in estimated costs of anticipated activities, including the effects of
inflation and movements in foreign exchange rates; and movements in interest
rates affecting the discount rate applied. For mine sites in the closure phase,
changes to estimated site rehabilitation costs are recognized immediately in net
earnings.

|(n) | Other provisions
|--- | ----------------

Provisions are recognized when the Company has a present
obligation (legal or constructive), as a result of past events, and it is
probable that an outflow of resources that can be reliably estimated will be
required to settle the obligation. Provisions are measured at the present value
of the expenditures expected to be required to settle the obligation using a
pre-tax rate that reflects current market assessments of the time value of money
and the risks specific to the obligation. The increase in the provision due to
the passage of time is recognized as interest expense included in finance costs.

11

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|(o) | Employee benefits
|--- | -----------------

Short-term employee benefits

The Company accrues liabilities for short-term employee
benefits such as wages, salaries, bonuses, paid vacation, and other benefits
expected to be settled within 12 months from the end of the reporting period.
The liabilities for short-term benefits are measured on an undiscounted basis at
the amounts expected to be paid when the liabilities are settled. These amounts
are recognized within accounts payable, with offsetting charges to cost of sales
(production costs) or general and administrative expense.

Post-employment benefits

The Company has an obligation to provide post-employment
benefits to certain of its employees. The cost of the accrued benefit liability
for benefits earned by employees is determined on an annual basis using the
projected unit credit method, using independent qualified actuaries and
managements best estimate of salary escalation and retirement ages. The accrued
benefit liability for this plan is included with provisions on the Consolidated
Balance Sheets.

Actuarial gains and losses arise from changes in actuarial
assumptions used to determine the accrued benefit liability. These gains and
losses are recognized in other comprehensive income in the year that they occur.

Long-service leave

The Company has recognized a provision for benefits accruing to
certain of its employees in relation to long-service leave. Costs including
payroll tax, workers compensation premiums and superannuation are included in
the determination of the provision. The provision for the current portion of
long-service leave is measured at its nominal amount based on remuneration rates
that are expected to be paid when the liability is settled. The non-current
portion of the long-service leave provision is measured at the present value of
estimated future cash flows. The present value of future cash flows reflect
estimated increases in entitlement costs and discount rates based on the
risk-free rate for the jurisdiction to which the liability relates.

Termination benefits

The Company accrues liabilities for involuntary termination and
severance benefits when the termination has been communicated to the employee,
and the employee acknowledges receipt. The liabilities for termination benefits
are measured at their nominal amounts based on amounts expected to be paid when
the liabilities are settled.

|(p) | Share-based compensation
|--- | ------------------------

The Company measures all equity-settled share-based awards made
to employees and others providing similar services (collectively, employees)
based on the fair value of the options or units on the date of grant.

The grant date fair value of options is estimated using an
option pricing model and is recognized over the vesting period of the options as
compensation expense, with a corresponding increase to equity. The fair value of
the Companys deferred share units is determined based on the market value of
the Companys shares on the date of grant, and is expensed over the vesting
period. The amount of compensation expense charged to earnings is adjusted for
the estimated number of awards that are expected to vest.

The Company awards cash-settled share-based compensation to
certain employees in the form of restricted share units and phantom share units.
In accounting for these awards, the Company recognizes the fair value of the
amount payable to employees as compensation expense as they are earned, based on
the estimated number of units that are expected to vest. The corresponding
liability is remeasured at fair value on each reporting date and upon
settlement, with changes in fair value recognized in net earnings for the
period. The fair value of restricted share units is determined by reference to
the Companys share price when the units are earned or re-measured.

The Company also maintains an employee share purchase plan.
Under this plan, contributions by the Companys employees are matched to a
specific percentage by the Company and are recognized as an expense when the
Companys obligation to contribute arises.

Share-based arrangements in which the Company receives goods or
services as consideration for its own equity instruments are accounted for as
equity-settled share-based payment transactions regardless of how the equity
instruments are obtained by the Company. These share-based arrangements are
measured at the fair value of goods or services received.

|(q) | Income taxes
|--- | ------------

Income tax expense comprises current and deferred income tax.
Current and deferred income taxes are recognized in net earnings except to the
extent that they relate to a business combination, or to items recognized
directly in equity or other comprehensive income.

Current income taxes

Current income tax represents the income tax expected to be
payable on the Companys taxable earnings for the year using rates that are
enacted or substantively enacted at the balance sheet date. Taxable earnings
differ from accounting earnings reported in the Consolidated Statements of
Operations due to differences in timing of amounts deductible or taxable for tax purposes and due to exclusions of items that are not taxable or
deductible. Current income tax includes adjustments for tax expense expected to
be payable or recoverable in respect of previous periods.

12

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

Deferred income taxes

Deferred income tax assets and liabilities represent income
taxes expected to be payable or recoverable on differences between the carrying
amount of assets and liabilities in the Companys consolidated financial
statements and the corresponding tax basis used in the computation of taxable
earnings. Deferred income tax assets also represent income taxes expected to be
recoverable on unused tax losses and tax credits carried forward. Deferred
income tax is provided using the liability method on temporary differences
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes at the reporting date.

Deferred income taxes are measured using the enacted or
substantively enacted tax rates as of the balance sheet date that are expected
to be in effect when the differences reverse or when unclaimed losses are
utilized. Deferred income tax liabilities are generally recognized for all
taxable temporary differences, with some exceptions described below. Deferred
income tax assets are recognized to the extent that it is probable that taxable
earnings will be available against which deductible temporary differences,
unused tax losses and tax credits can be used. Neither deferred income tax
liabilities, nor deferred income tax assets, are recognized as a result of
temporary differences that arise from (a) the initial recognition of goodwill,
(b) a transaction, other than a business combination, that affects neither
accounting earnings nor taxable earnings, or (c) differences relating to
investments in subsidiaries to the extent that it is probable that they will not
reverse in the foreseeable future. Deferred income tax assets and liabilities
are offset to the extent there is a legally enforceable right to offset current
income tax liabilities and assets, and they relate to income taxes levied by the
same tax authority on the same taxable entity, or on different tax entities, but
the entity intends to settle current income tax liabilities and assets on a net
basis or their tax assets and liabilities will be realized simultaneously.

The carrying amount of deferred income tax assets is reviewed
at the end of each reporting period and adjusted to the extent that it is no
longer probable that sufficient taxable earnings will be available to allow the
benefit, or all or part of the asset, to be utilized. To the extent that an
asset not previously recognized fulfils the criteria for asset recognition, a
deferred income tax asset is recognized.

|(r) | Earnings per share
|--- | ------------------

Basic earnings per share is calculated based on the weighted
average number of common shares and common share equivalents outstanding for the
period. Diluted earnings per share is determined by adjusting the weighted
average number of common shares and common share equivalents outstanding and
earnings attributable to common shareholders of the Company for the dilutive
effects of the potential conversion of all outstanding convertible senior notes,
and the potential exercise of all outstanding options and warrants issued using
the treasury stock method. The treasury stock method assumes that proceeds
received from the exercise of the in-the-money stock options and warrants issued
are used to repurchase shares at the average market price for the period.

|(s) | Financial instruments
|--- | ---------------------

Financial instruments are measured at fair value on initial
recognition of the instrument. Measurement in subsequent periods depends on
whether the financial instrument has been classified as financial assets at
fair value through profit or loss, available-for-sale financial assets,
held-to-maturity investments, loans and receivables or other financial
liabilities.

The Companys financial instruments are classified and
subsequently measured as follows:

|Asset / Liability                                          |  | Classification                                                 |  | Subsequent Measurement
|---------------------------------------------------------- |  | -------------------------------------------------------------- |  | ----------------------
|Cash and cash equivalents                                  |  | Fair value through profit or loss                              |  | Fair value            
|Receivables                                                |  | Loans and receivables                                          |  | Amortized cost        
|Currency forwards                                          |  | Fair value through profit or loss                              |  | Fair value            
|Warrants held to purchase equity securities                |  | Fair value through profit or loss                              |  | Fair value            
|Investments                                                |  | Available-for-sale and fair value through
      profit or loss |  | Fair value            
|Restricted cash (closure bonds)                            |  | Fair value through profit or loss                              |  | Fair value            
|Warrants issued                                            |  | Fair value through profit or loss                              |  | Fair value            
|Payables, provisions and other long-term
      liabilities |  | Other financial liabilities                                    |  | Amortized cost        
|Long-term debt and finance lease obligations               |  | Other financial liabilities                                    |  | Amortized cost        
|Option component of convertible senior notes               |  | Fair value through profit or loss                              |  | Fair value            

Financial assets and financial liabilities classified as fair
value through profit or loss are measured at fair value with changes in those
fair values recognized in net earnings. Financial assets classified as
available-for-sale are measured at fair value, with changes in those fair values
recognized in other comprehensive income.

13

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

Warrants issued and warrants held to purchase equity securities
of other companies are classified as financial assets or financial liabilities
at fair value through profit or loss and measured at fair value using a pricing
model. Unrealized gains or losses related to changes in fair value are reported
in other income in the Consolidated Statements of Operations.

Investments in equity securities classified as either
available-for-sale financial assets or financial assets at fair value through
profit or loss are accounted for at their fair value, which is determined based
on the last quoted market price. Changes in market value of available-for-sale
equity securities as well as the related foreign exchange and tax impact, if
any, are accounted for in accumulated other comprehensive income until the
equity securities are sold or are determined to be other-than-temporarily
impaired. When available-for-sale equity securities are sold or are determined
to be other-than-temporarily impaired, the related accumulated change in
accumulated other comprehensive income is reversed and the actual gain or loss
on disposal, or the impairment charge, is recognized in net earnings. Changes in
market value of equity securities at fair value through profit or loss, as well
as the related foreign exchange and tax impact, if any, are recognized in net
earnings in the period in which they occur.

Convertible senior notes, under the terms of which the Company
has the right to settle all or part of the instrument in cash on the conversion
date, are classified as a financial liability with an embedded derivative. The
debt component of the convertible senior notes is presented within long-term
debt and finance lease obligations on the Consolidated Balance Sheets, and is
initially recognized as the difference between the fair value of the financial
instrument as a whole and the fair value of the embedded derivative. The debt
component is subsequently recognized at amortized cost using the effective
interest rate method. The embedded derivative represents the conversion feature
(option component, see Note 17) and is classified as a financial liability at
fair value through profit or loss and initially recognized at fair value. The
embedded derivative is subsequently recognized at fair value with changes in
fair value recognized in net earnings. Gains and losses related to the debt
component and the embedded derivative are recognized in net earnings. Interest
expense relating to the debt component is also recognized in net earnings, with
the exception of interest expense capitalized as borrowing costs in accordance
with Note 3(f).

Fair values are based on quoted market prices where available,
or where no active market exists, fair values are estimated using a variety of
valuation techniques and models. These valuation techniques and models include
recent arms length market transactions, reference to current market value of
another instrument which is substantially the same, and discounted cash flow
analysis and cash flow models.

Transaction costs, other than those related to financial
instruments classified as fair value through profit or loss, which are expensed
as incurred, are combined with the fair value of the financial asset or
financial liability on initial recognition and amortized using the effective
interest rate method. If future modifications are made to a financial asset or
liability that are not considered to be substantial, the transaction costs
related to this modification are combined with the carrying amount, and
amortized over the life of the instrument using the effective interest rate
method.

All derivative instruments, including embedded derivatives, are
recorded on the balance sheet at fair value unless exempted from derivative
treatment as an own-use instrument. All changes in fair value are recorded in
net earnings unless they are designated in a valid hedging relationship (Note
3(t)), in which case changes in fair value are recorded in accumulated other
comprehensive income.

Financial assets are derecognized when the rights to receive
cash flows from the asset have expired or have been transferred and the Company
has transferred substantially all of the risks and rewards of ownership.
Financial liabilities are derecognized when they have been settled by the
Company, or when an obligation expires. In instances where a financial liability
is replaced by another from the same lender on substantially different terms, or
the terms of the existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original liability and the
recognition of a new liability, with any difference recognized in the
Consolidated Statements of Operations.

Financial assets and financial liabilities are offset and the
net amount reported in the Consolidated Balance Sheets only if there is an
enforceable legal right to offset the recognized amounts and the intention is to
settle on a net basis, or to realize the assets and settle the liabilities
simultaneously.

|(t) | Hedges
|--- | ------

Hedging relationships that meet documentation requirements, and
can be proven to be effective both at the inception and over the term of the
relationship qualify for hedge accounting. At the inception of the transaction,
the Company documents the relationship between hedging instruments and hedged
items, the method for assessing effectiveness, as well as its risk management
objective and strategy for undertaking various hedge transactions. The Company
makes an assessment, both at the inception of the hedge and on an ongoing basis,
of whether the derivatives that are used in hedging transactions have been and
will continue to be highly effective in offsetting changes in fair values or
cash flows of hedged items.

The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow hedges are recognized
as other comprehensive income and are presented within equity as accumulated
other comprehensive income. The gain or loss relating to the ineffective portion
is recognized immediately in net earnings. Amounts accumulated in equity are
recycled to net earnings in the period in when the hedged item will affect net
earnings. However, when the forecasted transaction that is hedged results in the recognition of a
non-financial asset or liability, the gains and losses previously deferred in
equity are transferred from equity and included in the measurement of the
initial cost or carrying amount of the related asset or liability.

14

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

When a hedging instrument expires or is sold or terminated, or
when a hedge no longer meets the criteria for hedge accounting, any cumulative
gain or loss existing in equity at that time remains in equity and is recognized
when the forecast transaction is ultimately recognized in net earnings. When a
forecasted transaction is no longer expected to occur, the cumulative gain or
loss existing in accumulated other comprehensive income is immediately charged
to net earnings.

|(u) | Assets held for sale and discontinued
      operations
|--- | ------------------------------------------------------

Non-current assets, or disposal groups comprised of assets and
liabilities, that are expected to be recovered primarily through sale rather
than through continuing use, are classified as held for sale. Immediately before
classification as held for sale, the assets, or components of a disposal group,
are remeasured at the lower of their carrying amount and fair value less costs
to sell, with the exception of financial assets and deferred income tax assets,
which continue to be measured in accordance with the Companys accounting
policies. Impairment losses on initial classification as held for sale and
subsequent gains and losses on remeasurement are recognized in net earnings from
continuing operations. Subsequent gains are not recognized in excess of any
cumulative past impairment losses. The Company presents assets held for sale
separately from the Companys other assets and separately from liabilities
directly associated with the assets held for sale. Liabilities associated with
assets held for sale are presented separately from the Companys other
liabilities.

A discontinued operation is a component of the Company that has
either been disposed of or that is classified as held for sale. A component of
the Company is comprised of operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes, from the rest
of the Company. Net earnings of a discontinued operation and any gain or loss on
disposal are presented separately in the Consolidated Statements of
Operations.

|(v) | Segment reporting
|--- | -----------------

Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker. The chief
operating decision-maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the
Chief Executive Officer. The Companys operating segments, before aggregation,
have been identified as the Companys individual operating and development stage
mines. Aggregation of one or more operating segments into a single operating
segment is permitted if aggregation is consistent with the core principle of the
standard, the operating segments have similar economic characteristics, and the
operating segments have a number of other similarities, including similarities
in the nature of their products, production processes, and regulatory
environment. The Companys reportable segments are consistent with the
identified operating segments and consist of the geographical regions in which
the Company operates.

|(w) | Standards issued but not yet
  adopted
|--- | --------------------------------------

For the purposes of preparing and presenting the Companys
consolidated financial statements, the Company has adopted all standards and
interpretations issued other than those discussed in this note. These standards
have not been adopted because they are not effective until subsequent to
December 31, 2011. Standards and interpretations issued, but not yet adopted
include:

|                                                                           | Effective      
|-------------------------------------------------------------------------- | ---------------
|IFRS 9, Financial Instruments                                              | January 1, 2015
|IFRS 10, Consolidated Financial Statements                                 | January 1, 2013
|IFRS 11, Joint Arrangements                                                | January 1, 2013
|IFRS 12, Disclosure of Interests in Other Entities                         | January 1, 2013
|IFRS 13, Fair Value Measurement                                            | January 1, 2013
|IFRIC 20, Stripping Costs in the Production Phase of a
      Surface Mine  | January 1, 2013
|Amendments to IFRS 7, Financial Instruments:
      Disclosures             | January 1, 2012
|Amendments to IAS 1, Presentation of Financial
      Statements            | July 1, 2012   
|Amendments to IAS 12, Income Taxes                                         | January 1, 2012
|Amendments to IAS 19, Employee Benefits                                    | January 1, 2013
|Amendments to IAS 27, Consolidated and Separate
      Financial Statements | January 1, 2013
|Amendments to IAS 28, Investments in Associates                            | January 1, 2013

The Company believes that, with the exception of the standards
and amendments discussed below, the adoption of these standards will have no
material impact on the consolidated financial statements of the Company.

IFRS 9, Financial Instruments, proposes to replace IAS
39 Financial Instruments: Recognition and Measurement. The replacement
standard has three main phases, the first of which provides new guidance for the
classification and measurement of financial assets and liabilities. The second
part, which is currently an exposure draft, provides guidance for amortized cost
and impairment methodology for financial assets. The third part, which is also
currently an exposure draft, proposes a revised general hedge accounting model. The Company will evaluate the impact of the change to its consolidated
financial statements based on the characteristics of financial instruments
anticipated to be outstanding at the time of adoption.

15

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

IFRS 10, Consolidated Financial Statements, proposes to
replace the consolidated financial statements section of IAS 27, Consolidated
and Separate Financial Statements and SIC-12, Consolidation  Special
Purposes Entities in their entirety. IFRS 10 establishes the principles for
the presentation and preparation of consolidated financial statements when an
entity controls one or more other entities, regardless of the nature of
relationship. The new standard introduces a revised definition of control, and
provides additional guidance on how to apply the control principle in a number
of situations. The Company is currently evaluating the impact of this new
standard on the consolidated financial statements.

IFRS 12, Disclosure of Interests in Other Entities,
outlines the disclosures required surrounding an entitys interests in
subsidiaries, associates, joint arrangements and unconsolidated structured
entities, to enable users of financial statements to evaluate the nature of, and
risks associated with, its interests in other entities, and the effects of those
interests on its financial position, financial performance and cash flows. The
Company is currently evaluating the impact of this standard on the consolidated
financial statement note disclosures.

IFRS 13, Fair Value Measurement, is a single source of
fair value measurement guidance under IFRS. This new IFRS clarifies the
definition of fair value, provides a clear framework for measuring fair value,
and enhances the disclosures about fair value measurements. IFRS 13 is not only
limited to financial instruments, but also to fair value measurement in other
IFRS, such as impairment and employee future benefits. The Company is currently
evaluating the impact of this standard on the consolidated financial statements.

IAS 1, Presentation of Financial Statements, was amended
to revise the presentation of other comprehensive income, requiring entities to
group items presented in other comprehensive income based on whether they are
potentially reclassifiable to profit or loss subsequently, with subtotals for
each group. The Company is currently evaluating the impact of this amendment on
the presentation of other comprehensive income in the Consolidated Statements of
Operations.

IAS 19, Employee Benefits, was amended to reflect a
number of changes in the accounting for defined benefit plans and termination
benefits, including, among others, the removal of the corridor approach,
elimination of options for presenting gains and losses, enhancement of
disclosures, recognition of changes in plan amendments, settlements and
curtailments in earnings, and changes to the timing of recognition of
termination benefits. The Company is currently evaluating the impact of these
amendments on the consolidated financial statements.

IFRIC 20,Stripping Costs in the Production Phase of a
Surface Mine, was issued subsequent to the end of the reporting period, and
provides guidance on the recognition and measurement of stripping costs
associated with surface mining operations. The Company is currently evaluating
the impact of this interpretation on the consolidated financial statements.

|   |                                               
|-- | ----------------------------------------------
|4. | Critical accounting estimates and
  judgements

Many of the amounts included in the consolidated balance sheet
require management to make estimates and judgements. Accounting estimates and
assumptions are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be
reasonable under the circumstances. Revisions to accounting estimates are
recognized in the period in which the estimates are revised.

Critical accounting estimates

The following is a list of the accounting estimates that the
Company believes are critical, due to the degree of uncertainty regarding the
estimates or assumptions involved and the magnitude of the asset, liabilities,
revenue or expense being reported. Actual results may differ from these
estimates.

| | The Company makes estimates of gold and silver recoverable from ore
  stacked on leach pads. The quantities of recoverable gold placed on the leach
  pads are reconciled to the quantities of gold actually recovered
  (metallurgical balancing), by comparing the grades of ore placed on the leach
  pads to actual ounces recovered. The nature of the leaching process inherently
  limits the ability to precisely monitor inventory levels. As a result, the
  metallurgical balancing process is constantly monitored and the engineering
  estimates are refined based on actual results over time. The ultimate recovery
  of gold from a pad will not be known until the leaching process is completed.
  Leach pad recovery estimates are used in the determination of the Companys
  inventories, and in the determination of the fair values of inventories
  acquired in a business combination.        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Company makes estimates of the quantities of proven and probable
  reserves of the mine and the portion of mineralization expected to be
  classified as reserves. The estimation of quantities of reserves and resources
  is complex, requiring significant subjective assumptions that arise from the
  evaluation of geological, geophysical, engineering and economic data for a
  given orebody. This data could change over time as a result of numerous factors, including new information gained from
  development activities, evolving production history and a reassessment of the
  viability of production under different economic conditions. Reserve estimates
  are used in the calculation of depletion expense, to calculate the fair value
  of assets acquired in a business combination, to calculate the recoverable
  amount of a cash-generating unit and to forecast the life of the mine.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Company forecasts prices of commodities, exchange rates, production
  costs, discount rates, and recovery rates. These estimates may change the
  economic status of reserves and may result in reserves and resources being
  revised. In addition, these estimates are used to calculate the fair value of
  assets acquired in a business combination and the recoverable amount of a cash
  generating unit (CGU) for the purpose of impairment testing.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Company makes estimates of the likelihood of whether or not all or
  some portion of each deferred income tax asset will be realized, which is
  impacted by interpretation of tax laws and regulations, historic and future
  expected levels of taxable income, timing of reversals of taxable temporary
  timing differences, and tax planning initiatives. Levels of future taxable
  income are affected by, among other things, market gold prices, production
  costs, quantities of proven and probable gold reserves, interest rates and
  foreign currency exchange rates.                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Company makes estimates of the timing and amount of expenditures
  required to settle the Companys reclamation provisions. The principal factors
  that can cause expected future expenditures to change are: the construction of
  new processing facilities; changes in the quantities of material in reserves
  and a corresponding change in the life of mine plan; changing ore
  characteristics that ultimately impact the environment; changes in water
  quality that impact the extent of water treatment required; and changes in
  laws and regulations governing the protection of the environment. In general,
  as the end of the mine life nears, the reliability of expected cash flows
  increases, but earlier in the mine life, the estimation of a reclamation
  provision is inherently more subjective.                                                                                      

16

---

|                                                                   
|-------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                     
|(in thousands of
    United States dollars unless otherwise stated)

Critical accounting judgements

The following is a critical judgement that management has made
in the process of applying accounting policies that may have a significant
impact on the amounts recognized in the Consolidated Financial Statements.

| | The Company makes judgements about which indicators to consider when
  evaluating whether a mine has reached commercial production, which may impact
  the timing and amount of depreciation and depletion, the amount of revenue
  recognized in the Consolidated Statements of Operations, and the amount of
  costs capitalized to mine development during 2012.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|   |                   
|-- | ------------------
|5. | Transition to IFRS

These consolidated financial statements are the Companys first
set of annual financial statements that comply with IFRS, including the
application of IFRS 1, First Time Adoption of International Financial
Reporting Standards. IFRS 1 requires an entity to adopt IFRS in its first
annual financial statements prepared under IFRS by making an explicit and
unreserved statement in those financial statements of compliance with IFRS. The
Company has made this statement in Note 2 to these consolidated financial
statements.

IFRS 1 requires that comparative financial information be
presented, and as a result, the Company has applied IFRS as of January 1, 2010
(the transition date). IFRS requires first-time adopters to retrospectively
apply all effective standards as of the reporting date, but provides for certain
optional exemptions and mandatory exceptions for first-time adopters which are
outlined in the notes to the reconciliations below. The Company has applied
these exemptions to its opening balance sheet dated January 1, 2010.

17

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

Reconciliation of total comprehensive loss

The following is a reconciliation of the Companys total
comprehensive loss previously reported under Canadian GAAP to total
comprehensive loss under IFRS for the year ended December 31, 2010:

|For the year ended
      December 31          |  | Notes |  |  |  |  |   | 2010     |  
|--------------------------------------------- |  | ----- |  |  |  |  | - | -------- | -
|Total comprehensive loss  Canadian GAAP      |  |       |  |  |  |  | $ | (139,323 | )
|Deferred income tax                           |  | (a)   |  |  |  |  |   | 13,150   |  
|Amortization of property, plant and equipment |  | (b)   |  |  |  |  |   | 1,185    |  
|Amortization of deferred gain                 |  | (b)   |  |  |  |  |   | 1,636    |  
|Reclamation provisions                        |  | (c)   |  |  |  |  |   | 513      |  
|Share-based compensation                      |  | (d)   |  |  |  |  |   | (1,229   | )
|Post-employment benefits provision            |  | (e)   |  |  |  |  |   | 937      |  
|Borrowing costs                               |  | (f)   |  |  |  |  |   | 391      |  
|Impairment of non-financial assets            |  | (g)   |  |  |  |  |   | (1,747   | )
|Foreign exchange impact of above adjustments  |  |       |  |  |  |  |   | (834     | )
|Other                                         |  |       |  |  |  |  |   | 248      |  
|Total comprehensive loss  IFRS               |  |       |  |  |  |  | $ | (125,073 | )

Reconciliation of shareholders equity

The following is a reconciliation of the Companys total
shareholders equity previously reported under Canadian GAAP to total
shareholders equity under IFRS at January 1, 2010 and December 31, 2010:

|                                              |  |       |  |   | January 1 |   |   | December 31 |  
|--------------------------------------------- |  | ----- |  | - | --------- | - | - | ----------- | -
|As at                                         |  | Notes |  |   | 2010      |   |   | 2010        |  
|Shareholders equity  Canadian GAAP          |  |       |  | $ | 792,337   |   | $ | 666,763     |  
|Deferred income tax                           |  | (a)   |  |   | (26,474   | ) |   | (13,324     | )
|Amortization of property, plant and equipment |  | (b)   |  |   | (10,591   | ) |   | (9,406      | )
|Amortization of deferred gain                 |  | (b)   |  |   | -         |   |   | 1,636       |  
|Reclamation provisions                        |  | (c)   |  |   | (1,091    | ) |   | (578        | )
|Share-based compensation                      |  | (d)   |  |   | -         |   |   | -           |  
|Post-employment benefits provision            |  | (e)   |  |   | 495       |   |   | 1,432       |  
|                                              |  |       |  |   |           |   |   |             |  
|Borrowing costs                               |  | (f)   |  |   | (1,209    | ) |   | (818        | )
|Impairment of non-financial assets            |  | (g)   |  |   | -         |   |   | (1,747      | )
|Foreign exchange impact of above adjustments  |  |       |  |   | -         |   |   | (834        | )
|Other                                         |  |       |  |   | 287       |   |   | 536         |  
|Shareholders equity  IFRS                   |  |       |  | $ | 753,754   |   | $ | 643,660     |  

Reconciliation of consolidated statement of cash flows

The restatement from Canadian GAAP to IFRS did not have an
impact on the Companys consolidated statements of cash flows for the year ended
December 31, 2010. The differences in earnings, as previously mentioned, were
offset by changes in non-cash items, resulting in no impact to operating cash
flow. In addition, there was no net impact on the cash flows generated by the
Company. As a result, a quantitative reconciliation was not prepared.

---

All significant differences that resulted in an adjustment to
the Companys IFRS financial statements at January 1, 2010 and December 31,
2010, and for the year ended December 31, 2010, are as follows:

|(a) | Deferred income taxes
|--- | ---------------------

IFRS requires that where non-monetary assets and liabilities
are measured in the Companys functional currency, but where the Companys
taxable earnings is determined in a different currency, changes in the exchange
rate give rise to temporary differences that result in deferred income tax
assets or liabilities. Under Canadian GAAP, the recognition of deferred income
tax assets and deferred income tax liabilities due to exchange rate differences
on non-monetary assets were not accounted for. This difference, which was
partially offset by the tax effect of other IFRS transition adjustments, resulted in an increase in the deferred income tax liability at
January 1, 2010 and December 31, 2010, and an increase in the deferred income
tax recovery for the year ended December 31, 2010.

18

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|    |                                                  
|--- | -------------------------------------------------
|(b) | Amortization of property, plant and
    equipment

Under IFRS, the Company allocates costs incurred for plant and
equipment upon initial recognition to significant components, and amortizes
components separately over their estimated useful lives. Under Canadian GAAP,
the Company typically calculated amortization at the asset level. Furthermore,
under IFRS the Company deducts an assets residual value in calculating the
depreciable amount of each asset. These differences resulted in a decline in
property, plant and equipment at January 1, 2010 and December 31, 2010, as well
as a decrease in amortization and depletion expense for the year ended December
31, 2010.

During 2009, the Company entered into two sale-leaseback
transactions. In both cases, a deferred gain on leaseback was recognized and
recorded in other liabilities, since the consideration received in the leaseback
was greater than the carrying amount at the time of the transaction. As a result
of adjusting accumulated amortization at the date of the leaseback transaction
under IFRS as described above, the deferred gain recognized for these
transactions increased. This difference resulted in an increase in other
long-term liabilities at December 31, 2010, and an increase in other income for
the year ended December 31, 2010.

|(c) | Reclamation provisions
|--- | ----------------------

Under IFRS, reclamation provisions are measured at the expected
value of future cash flows required to settle the obligation, discounted to
their present value using a risk-free pre-tax rate. Expected future cash flows
reflect the risks and probabilities that alternative estimates of cash flows
could be required to settle the obligation. Under Canadian GAAP, the Company was
required to use a credit-adjusted discount rate when calculating the obligation.
This difference had an immaterial impact on the Companys long-term provisions
on transition to IFRS, and an immaterial impact on the Companys accretion
expense during 2010, but resulted in an increase in long-term provisions at
December 31, 2010.

IFRIC 1, Changes in Existing Decommissioning, Restoration
and Similar Liabilities, requires specified changes in reclamation
provisions to be added or deducted from the cost of the asset to which it
relates. The Company has elected to apply an IFRS 1 exemption with respect to
the recording of the reclamation asset on transition, which allows the Company
to restate this amount by discounting the reclamation provision to the date that
it first arose and then depreciate the resulting asset to January 1, 2010. The
application of the IFRS 1 exemption resulted in a decrease in mining interests
at January 1, 2010 and December 31, 2010, as well as a decrease in amortization
and depletion expense for the year ended December 31, 2010.

Under IFRS, foreign exchange gains and losses on reclamation
provisions are considered changes to estimated cash flows that are capitalized
to the reclamation asset, where they will be amortized over the life of the
mine. Foreign exchange gains and losses on the reclamation provision were
expensed in profit or loss under Canadian GAAP. The impact of this adjustment
was to increase mining interests at December 31, 2010, and decrease foreign
exchange loss and amortization and depletion expense for the year ended December
31, 2010.

|(d) | Share-based compensation
|--- | ------------------------

The Company grants options, in certain situations, to
contractors that provide services similar to employees. Under IFRS, the fair
value of these options must be determined at the date of grant, whereas under
Canadian GAAP the fair value was determined on the date the options were earned.
In addition, for all options, the Company must estimate the expected option
forfeiture rate at the date of grant, as opposed to accounting for them as they
occur. These differences resulted in an increase in general and administrative
expense for the year ended December 31, 2010, with no impact on total
shareholders equity.

The Company elected to apply the exemption provided under IFRS
1 which limits the application of these measurement changes to all share-based
compensation granted after November 7, 2002 that had not vested by the
transition date. The Company applied IFRS 2, Share-based Payments, for
all liabilities arising from share-based payment transactions that existed at
its transition date.

|(e) | Post-employment benefits
  provision
|--- | ------------------------------------

Under Mexican labour law, the Company is required to provide
statutorily mandated severance benefits to its employees terminated under
certain circumstances. These severance benefits accumulate over the employees
years of service, and under Canadian GAAP, were accounted for as defined benefit
plans. Under IFRS, these benefits are considered termination benefits and are
expensed as incurred. In addition, the Company has elected the IFRS 1 exemption
for employee benefits, which allows the Company to recognize all cumulative
actuarial gains and losses in deficit at the date of transition to IFRS. These
differences resulted in a decrease in the Companys post-employment benefits
provision and inventory at January 1, 2010 and December 31, 2010, and a decrease
in production costs for the year ended December 31, 2010.

19

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|(f) | Borrowing costs
|--- | ---------------

The Company has elected to apply the IFRS 1 exemption for
borrowing costs, which permits the Company to apply the requirements of IAS 23
prospectively from the transition date. As a result, an adjustment was made on
transition to derecognize all borrowing costs that had been previously
capitalized under Canadian GAAP. Application of the IFRS 1 exemption resulted in
a decrease in amortization and depletion expense for the year ended December 31,
2010. During 2010, the Company also identified qualifying assets under IFRS for
which interest was not capitalized under Canadian GAAP. This adjustment resulted
in an increase in property, plant and equipment and mining interests and a
decrease in finance costs at December 31, 2010.

|(g) | Impairment of non-financial
  assets
|--- | ------------------------------------

The Company performed a goodwill impairment test at the date of
transition and determined that there was no adjustment required upon transition
to IFRS on January 1, 2010. In the second quarter of 2010, the Company
recognized an impairment charge as a result of the suspension of operations at
the El Cubo mine. Under IFRS, the impairment charge was impacted by the
requirement to deduct the estimated costs to sell from the fair value
determination, as well as differences in the carrying amounts of the El Cubo
assets under IFRS. These differences resulted in a decrease in property, plant
and equipment and mining interests at December 31, 2010, and an increase in the
impairment charge for the year ended December 31, 2010.

|(h) | Foreign exchange
|--- | ----------------

The Company has cumulative translation adjustment balances
relating to its conversion from a Canadian dollar functional currency to a US
dollar functional currency in 2007. IFRS 1 permits cumulative translation gains
and losses to be reset to zero at the transition date. The Company made this
election, resulting in a decline of $6,434 in accumulated other comprehensive
income and a corresponding increase in the deficit at January 1, 2010.

|   |                      
|-- | ---------------------
|6. | Business combinations

During the year, the Company completed the acquisitions of
Capital Gold Corporation (Capital Gold) and Northgate Minerals Corporation
(Northgate). These acquisitions enhanced the Companys production profile and
resource base, and with the addition of Northgate, expanded the Companys
operations into Canada.

|(a) | Acquisition of Capital Gold
  Corporation
|--- | -----------------------------------------

On April 8, 2011, the Company completed the acquisition of
Capital Gold, whereby the Company acquired all of the issued and outstanding
common shares of Capital Gold. As a result of the acquisition, the Company now
owns the El Chanate gold mine located in Sonora, Mexico as well as the Orion
development project in Nayarit, Mexico. For each common share held, Capital Gold
shareholders received 0.5209 common shares of the Company and a cash payment of
$1.09. As a result of the transaction, the Company issued 32,796,771 common
shares and made a cash payment of $68,630 to Capital Gold shareholders. The
results of Capital Gold, which include its wholly-owned subsidiaries and Caborca
Industrial, S.A. de C.V., a special purpose entity, have been consolidated with
the results of the Company commencing on April 8, 2011.

Total consideration paid of $421,561, including 802,103
replacement options and 381,014 change of control shares, was calculated as
follows:

|Cash paid                       | $ | 68,630  | 
|------------------------------- | - | ------- | 
|Common shares issued            |   | 343,886 | 
|Change of control shares issued |   | 3,839   | 
|Fair value of options issued    |   | 5,206   | 
|                                | $ | 421,561 | 

In accordance with the acquisition method of accounting, the
purchase price was allocated to the underlying assets acquired and liabilities
assumed based upon their fair values at the date of acquisition. Fair values
were determined based on independent appraisals, discounted cash flows, and
quoted market prices.

In finalizing the purchase price allocation, the Company made
certain reclassifications within the preliminary allocation of the purchase
price that was first disclosed in the second quarter of 2011. These
reclassifications impacted receivables, trade payables and accrued liabilities,
the deferred income tax liability and goodwill. These adjustments did not have a
material impact on net earnings for the year ended December 31, 2011.

20

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

The following sets forth the final allocation of the purchase
price to assets and liabilities acquired, based on final estimates of fair
values.

|                                                   |   | Preliminary |   |   | Adjustments |   |   | Final   |  
|-------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ------- | -
|Cash and cash equivalents                          | $ | 14,525      |   | $ | -           |   | $ | 14,525  |  
|Receivables                                        |   | 2,956       |   |   | (413        | ) |   | 2,543   |  
|Inventories                                        |   | 77,730      |   |   | -           |   |   | 77,730  |  
|Property, plant and equipment and mining interests |   | 174,826     |   |   | (1,296      | ) |   | 173,530 |  
|Intangible assets                                  |   | -           |   |   | 585         |   |   | 585     |  
|Other                                              |   | 676         |   |   | (15         | ) |   | 661     |  
|Trade payables and accrued liabilities             |   | (11,126     | ) |   | 3,409       |   |   | (7,717  | )
|Provisions                                         |   | (12,015     | ) |   | -           |   |   | (12,015 | )
|Deferred income tax liability                      |   | (59,300     | ) |   | (2,502      | ) |   | (61,802 | )
|Goodwill                                           |   | 233,289     |   |   | 232         |   |   | 233,521 |  
|                                                   | $ | 421,561     |   | $ | -           |   | $ | 421,561 |  

Receivables acquired were primarily comprised of taxes
receivable from the Mexican government. There is a low risk that these amounts
will be uncollectable, and therefore no allowance was recorded against these
amounts.

Goodwill recorded on this transaction represents the value
anticipated to be created from the Companys ability to grow production,
reserves and resources at the acquired projects and the ability to capture
synergies between Capital Gold and the Companys existing operations in Mexico.
The goodwill is not deductible for income tax purposes.

As part of the acquisition, the Company assumed the remainder
of a royalty interests provision payable to Royal Gold Inc., which arose upon
Capital Golds purchase of the El Chanate property in 2001. Settlement of the
liability is based on a percentage of net smelter returns up to a maximum
amount, and has been recognized in provisions as part of the purchase price
allocation.

In order to complete this acquisition, the Company incurred
acquisition-related costs during the first nine months of the year in the form
of advisory, legal and professional fees. Acquisition-related costs totaled
$9,360 for the year ended December 31, 2011 and have been included in
exploration and business development expense in the Consolidated Statements of
Operations.

The Companys results include $83,826 in revenue and $25,765 in
net earnings from Capital Gold for the period from April 8, 2011 to December 31,
2011.

|(b) | Acquisition of Northgate Minerals
    Corporation
|--- | -------------------------------------------------

On October 26, 2011, the Company completed the acquisition of
Northgate, whereby the Company acquired all of the issued and outstanding common
shares of Northgate. Subsequent to the acquisition, Northgate amalgamated into
AuRico Gold Inc. For each common share, Northgate shareholders received 0.365
common shares of the Company, which resulted in the issuance of 106,729,666
common shares. The Company now owns the Young-Davidson advanced stage gold
mining development project in Northern Ontario, Canada, the Fosterville and
Stawell gold mines in Victoria, Australia, and the Kemess underground
development project in Northern British Columbia, Canada. The results of
Northgate, which include its wholly-owned subsidiaries, have been consolidated
with the results of the Company commencing on October 26, 2011.

Total consideration paid of $1,049,337, including 3,183,000
replacement options, was calculated as follows:

|Common shares issued                     | $ | 1,030,046 | 
|---------------------------------------- | - | --------- | 
|Fair value of options issued             |   | 16,555    | 
|Change of control payments               |   | 2,597     | 
|Fair value of phantom share units issued |   | 139       | 
|                                         | $ | 1,049,337 | 

In accordance with the acquisition method of accounting, the
purchase price was allocated to the underlying assets acquired and liabilities
assumed based upon their fair values at the date of acquisition. Fair values are
being determined based on independent appraisals, discounted cash flows, and
quoted market prices.

21

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

The following sets forth the preliminary allocation of the
purchase price to assets and liabilities acquired, based on preliminary
estimates of fair values. The final valuations of property, plant and equipment
and mining interests, which may impact the amount allocated to goodwill and the
deferred income tax liability, are not yet complete due to the timing of the
acquisition and the inherent complexity associated with the valuations. This is
a preliminary purchase price allocation and therefore subject to adjustment over
the period to completion of the valuation process and analysis of resulting tax
effects.

|Cash and cash equivalents                          | $ | 123,244   |  
|-------------------------------------------------- | - | --------- | -
|Receivables                                        |   | 30,414    |  
|Investments                                        |   | 802       |  
|Inventories                                        |   | 7,545     |  
|Prepaids and deposits                              |   | 2,765     |  
|Other long-term assets                             |   | 56,093    |  
|Property, plant and equipment and mining interests |   | 1,059,784 |  
|Intangible assets                                  |   | 17,958    |  
|Assets held for sale                               |   | 148,463   |  
|Trade payables and accrued liabilities             |   | (72,790   | )
|Long-term debt and finance lease obligations       |   | (162,991  | )
|Option component of convertible senior notes       |   | (43,459   | )
|Provisions                                         |   | (28,977   | )
|Deferred income tax liability                      |   | (247,811  | )
|Liabilities associated with assets held for sale   |   | (64,484   | )
|Goodwill                                           |   | 222,781   |  
|                                                   | $ | 1,049,337 |  

Receivables acquired were primarily comprised of taxes
receivable from the Canadian government. There is a low risk that these amounts
will be uncollectable, and therefore no allowance was recorded against these
amounts.

Goodwill recorded on this transaction represents the value
anticipated to be created from the Companys ability to grow production,
reserves and resources at the acquired projects. The goodwill will not be
deductible for income tax purposes.

In order to complete this acquisition, the Company incurred
acquisition-related costs during the year in the form of advisory, legal and
professional fees. Acquisition-related costs totaled $9,751 for the year ended
December 31, 2011 and have been included in exploration and business development
expense on the Consolidated Statements of Operations.

The Company agreed to pay severances related to the
restructuring of the combined organization and amounts related to the retention
of key employees. A total of $906 was recognized in general and administration
expense on the Consolidated Statements of Operations relating to these amounts.

The Companys results include $48,321 in revenue and $20,417 in
net earnings from Northgate for the period from October 26, 2011 to December 31,
2011, of which $48,214 of revenue are included in net earnings from discontinued
operations of $15,547.

|(c) | Pro forma information
|--- | ---------------------

The pro forma results of the combined Company include the
revenue and net earnings of the Company, combined with the revenue and net
earnings of Capital Gold and Northgate over the same periods, as if the
acquisition dates were January 1, 2011. Pro forma revenues and net earnings of
the combined Company for the year ended December 31, 2011 were as follows:

|                                      |   | Revenues |   |   | Net
      earnings |  
|------------------------------------- | - | -------- | - | - | ------------------ | -
|AuRico Gold  continuing operations   | $ | 401,901  |   | $ | 161,312            |  
|AuRico Gold  discontinued operations |   | 48,214   |   |   | 15,547             |  
|Capital Gold pro forma                |   | 24,426   |   |   | 5,459              |  
|Northgate pro forma                   |   | 297,757  |   |   | (23,016            | )
|                                      |   | 772,298  |   |   | 159,302            |  
|Less: Discontinued operations         |   | (270,678 | ) |   | (39,452            | )
|                                      | $ | 501,620  |   | $ | 119,850            |  
|                                      |   |          |   |   |                    |  

22

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|7. | Assets held for sale and discontinued
      operations
|-- | ------------------------------------------------------

As a result of the acquisition of Northgate, the Company owns
the Fosterville and Stawell mines located in the state of Victoria, Australia.
The Company is focused on operations in North America, and as result, management
intends to sell the Fosterville and Stawell mines and their related subsidiaries
(collectively, the Australian operations). As at the date of the acquisition
of Northgate, the Australian operations met the criteria to be classified as a
disposal group held for sale and therefore, the related assets and liabilities,
with the exception of cash, have been presented as held for sale in the
Consolidated Balance Sheets at December 31, 2011. In addition, the comprehensive
income and cash flows of the Australian operations from the date of acquisition
have been presented as net earnings from discontinued operations of $15,547 in
the Consolidated Statements of Operations, as a foreign exchange loss on
translation of discontinued operations of $1,693 in the Consolidated Statements
of Comprehensive Income / (Loss), and as a net increase in cash and cash
equivalents from discontinued operations of $2,331 in the Consolidated
Statements of Cash Flows, respectively.

|   |                          
|-- | -------------------------
|8. | Cash and cash equivalents

Cash and cash equivalents is comprised of the following:

|                 |   | December 31 |  |   | December 31 |  |   | January 1 | 
|---------------- | - | ----------- |  | - | ----------- |  | - | --------- | 
|                 |   | 2011        |  |   | 2010        |  |   | 2010      | 
|Cash             | $ | 168,391     |  | $ | 85,863      |  | $ | 93,249    | 
|Cash equivalents |   | 11,053      |  |   | 27,279      |  |   | 35,728    | 
|                 | $ | 179,444     |  | $ | 113,142     |  | $ | 128,977   | 

Cash equivalents are short-term investments that represent the
Companys investments in three-month Government of Mexico treasury bills and
other similar instruments.

At December 31, 2011, the Company had issued letters of credit
totalling $2,458 against one of the Companys bank accounts.

|   |            
|-- | -----------
|9. | Receivables

|                         |   | December 31 |  |   | December 31 |  |   | January 1 | 
|------------------------ | - | ----------- |  | - | ----------- |  | - | --------- | 
|                         |   | 2011        |  |   | 2010        |  |   | 2010      | 
|Trade receivables        | $ | 10,996      |  | $ | 724         |  | $ | 281       | 
|Commodity tax receivable |   | 24,681      |  |   | 14,152      |  |   | 10,598    | 
|Income tax receivable    |   | 27,725      |  |   | 1,628       |  |   |           | 
|Advances                 |   | -           |  |   | 1,029       |  |   | -         | 
|Other                    |   | 2,051       |  |   | 392         |  |   | 1,693     | 
|                         | $ | 65,453      |  | $ | 17,925      |  | $ | 12,572    | 

The Company has not recorded a provision for doubtful trade
receivables as there is no indication that the debtors will not meet their
payment obligations. The majority of receivables relate to commodity and income
taxes, which are due from the federal governments of the countries in which the
Company operates.

23

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|10. | Investments
|--- | -----------

|                                               |   |                   |  |   |             |  |   | Year ended        |  
|---------------------------------------------- | - | ----------------- |  | - | ----------- |  | - | ----------------- | -
|                                               |   |                   |  |   |             |  |   | December 31, 2011 |  
|                                               |   |                   |  |   |             |  |   |                   |  
|                                               |   |                   |  |   |             |  |   | Unrealized        |  
|                                               |   |                   |  |   |             |  |   | gains/(losses)    |  
|                                               |   | December 31, 2011 |  |   | included in |  |   | included in       |  
|                                               |   | Cost              |  |   | Fair value  |  |   | OCI               |  
|Securities  available-for-sale                | $ | 170               |  | $ | 98          |  | $ | (1,260            | )
|Securities  fair value through profit or loss |   | 7,049             |  |   | 7,767       |  |   | -                 |  
|Warrants  fair value through profit or loss   |   | 748               |  |   | 13          |  |   | -                 |  
|                                               | $ | 7,967             |  | $ | 7,878       |  | $ | (1,260            | )

|                                               |   |                   |  |   |             |  |   | Year ended        | 
|---------------------------------------------- | - | ----------------- |  | - | ----------- |  | - | ----------------- | 
|                                               |   |                   |  |   |             |  |   | December 31, 2010 | 
|                                               |   |                   |  |   |             |  |   |                   | 
|                                               |   |                   |  |   |             |  |   | Unrealized        | 
|                                               |   |                   |  |   |             |  |   | gains/(losses)    | 
|                                               |   | December 31, 2010 |  |   | included in |  |   | included in       | 
|                                               |   | Cost              |  |   | Fair value  |  |   | OCI               | 
|Securities  available-for-sale                | $ | 8,656             |  | $ | 17,293      |  | $ | 8,637             | 
|Securities  fair value through profit or loss |   | -                 |  |   | -           |  |   | -                 | 
|Warrants  fair value through profit or loss   |   | 2,119             |  |   | 3,504       |  |   | -                 | 
|                                               | $ | 10,775            |  | $ | 20,797      |  | $ | 8,637             | 

During the year ended December 31, 2011, the Company recognized
net realized gains of $16,289 on the sale of equity securities (2010  $nil).
Realized gains and losses on the sale of equity securities have been recognized
in other income on the Consolidated Statements of Operations.

During the year ended December 31, 2011, the Company exercised
all 2,500,000 of the warrants held in Golden Queen Mining Company Ltd. (Golden
Queen) for 2,500,000 shares in Golden Queen at a total cost of $4,562.

|    |            
|--- | -----------
|11. | Inventories

|                               |   | December 31 |   |   | December 31 |   |   | January 1 |  
|------------------------------ | - | ----------- | - | - | ----------- | - | - | --------- | -
|                               |   | 2011        |   |   | 2010        |   |   | 2010      |  
|Supplies                       | $ | 32,905      |   | $ | 21,563      |   | $ | 15,847    |  
|Ore stockpiles                 |   | 2,569       |   |   | 494         |   |   | 627       |  
|Ore in process                 |   | 149,817     |   |   | 65,305      |   |   | 53,199    |  
|Finished goods                 |   | 3,038       |   |   | 1,229       |   |   | 2,009     |  
|                               |   | 188,329     |   |   | 88,591      |   |   | 71,682    |  
|Less: Long-term ore in process |   | (51,238     | ) |   | (13,205     | ) |   | (11,197   | )
|                               | $ | 137,091     |   | $ | 75,386      |   | $ | 60,485    |  

Ore in process inventory at December 31, 2011 includes $25,540
related to the excess of the fair value of El Chanate inventory over its
carrying value at the acquisition date, which is being amortized into earnings
as the related inventory is sold.

---

24

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|12. | Other long-term assets
|--- | ----------------------

|                                          |   | December 31 |  |   | December 31 |  |   | January 1 | 
|----------------------------------------- | - | ----------- |  | - | ----------- |  | - | --------- | 
|                                          |   | 2011        |  |   | 2010        |  |   | 2010      | 
|Restricted cash (closure bonds)           | $ | 28,893      |  | $ | -           |  | $ | -         | 
|Investment tax credits recoverable        |   | 31,614      |  |   | -           |  |   | -         | 
|Deposits on property, plant and equipment |   | 508         |  |   | 535         |  |   | 4,861     | 
|Other                                     |   | -           |  |   | -           |  |   | 3,847     | 
|                                          | $ | 61,015      |  | $ | 535         |  | $ | 8,708     | 

Restricted cash consists of $28,893 of cash and short-term
deposits pledged by the Company relating to site closure and reclamation
obligations at Kemess South and Young-Davidson.

The Companys investment tax credits (ITC) recoverable relate
to ITCs earned on expenditures at Young-Davidson. These ITCs will be used to
reduce income taxes payable in the future and have been netted against the cost
of the related items of property, plant and equipment at Young-Davidson.

|    |                                                       
|--- | ------------------------------------------------------
|13. | Property, plant and equipment & mining
      interests

Mining interestsPlant and
    
    
    
    
    
    
    
    
    Exploration andequipment
    
    
    Depletable
    
    
    Non-depletable
    
    
    evaluation
    
    
    TotalCostAt January 1, 2010
    $
    277,856
    
    $
    384,486
    
    $
    37,794
    
    $
    90,083
    
    $
    790,219Additions
    
    35,411
    
    
    55,670
    
    
    17,067
    
    
    4,523
    
    
    112,671Disposals
    
    (15,932
    )
    
    -
    
    
    -
    
    
    -
    
    
    (15,932
    )Reclassifications
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -At December 31, 2010
    
    297,335
    
    
    440,156
    
    
    54,861
    
    
    94,606
    
    
    886,958Acquisitions through business combinations
    
    263,500
    
    
    93,520
    
    
    766,131
    
    
    110,163
    
    
    1,233,314Additions
    
    106,084
    
    
    95,484
    
    
    39,233
    
    
    6,482
    
    
    247,283Disposals
    
    (15,211
    )
    
    -
    
    
    -
    
    
    -
    
    
    (15,211
    )Reclassifications
    
    -
    
    
    9,440
    
    
    (9,440
    )
    
    -
    
    
    -At December 31, 2011
    $
    651,708
    
    $
    638,600
    
    $
    850,785
    
    $
    211,251
    
    $
    2,352,344Accumulated amortization, depletion and
      impairment chargesAt January 1, 2010
    $
    (90,738
    )
    $
    (78,993
    )
    $
    -
    
    $
    -
    
    $
    (169,731
    )Amortization
    
    (27,704
    )
    
    (21,565
    )
    
    -
    
    
    -
    
    
    (49,269
    )Disposals
    
    5,929
    
    
    -
    
    
    -
    
    
    -
    
    
    5,929Impairment charges
    
    (8,759
    )
    
    (83,077
    )
    
    (20,058
    )
    
    -
    
    
    (111,864
    )At December 31, 2010
    
    (121,272
    )
    
    (183,635
    )
    
    (20,028
    )
    
    -
    
    
    (324,935
    )Amortization
    
    (29,339
    )
    
    (24,860
    )
    
    -
    
    
    -
    
    
    (54,199
    )Disposals
    
    10,070
    
    
    -
    
    
    -
    
    
    -
    
    
    10,070Impairment reversals / (charges)
    
    7,881
    
    
    81,584
    
    
    20,028
    
    
    (59,973
    )
    
    49,520At December 31, 2011
    $
    (132,660
    )
    $
    (126,911
    )
    $
    -
    
    $
    (59,973
    )
    $
    (319,544
    )Carrying valueAt January 1, 2010
    $
    187,118
    
    $
    305,493
    
    $
    37,794
    
    $
    90,083
    
    $
    620,488At December 31, 2010
    $
    176,063
    
    $
    256,521
    
    $
    34,833
    
    $
    94,606
    
    $
    562,023At December 31, 2011
    $
    519,048
    
    $
    511,689
    
    $
    850,785
    
    $
    151,278
    
    $
    2,032,800


25

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

The carrying values by property are as follows:

Mining interestsPlant and
    
    
    
    
    
    
    
    
    Exploration andequipment
    
    
    Depletable
    
    
    Non-depletable
    
    
    evaluation
    
    
    TotalOcampo
    $
    155,906
    
    $
    287,996
    
    $
    28,273
    
    $
    -
    
    $
    472,175El Chanate
    
    34,680
    
    
    94,874
    
    
    3,901
    
    
    -
    
    
    133,455El Cubo
    
    19,970
    
    
    123,140
    
    
    31,882
    
    
    -
    
    
    174,992Young-Davidson
    
    289,408
    
    
    5,679
    
    
    786,729
    
    
    -
    
    
    1,081,816Corporate and other
    
    19,084
    
    
    -
    
    
    -
    
    
    151,278
    
    
    170,362At December 31, 2011
    $
    519,048
    
    $
    511,689
    
    $
    850,785
    
    $
    151,278
    
    $
    2,032,800Ocampo
    $
    165,865
    
    $
    218,813
    
    $
    24,995
    
    $
    -
    
    $
    409,673El Chanate
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -El Cubo
    
    9,706
    
    
    37,708
    
    
    9,838
    
    
    -
    
    
    57,252Young-Davidson
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Corporate and other
    
    492
    
    
    -
    
    
    -
    
    
    94,606
    
    
    95,098At December 31, 2010
    $
    176,063
    
    $
    256,521
    
    $
    34,833
    
    $
    94,606
    
    $
    562,023Ocampo
    $
    166,978
    
    $
    184,930
    
    $
    9,887
    
    $
    -
    
    $
    361,795El Chanate
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -El Cubo
    
    19,589
    
    
    120,563
    
    
    27,907
    
    
    -
    
    
    168,059Young-Davidson
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Corporate and other
    
    551
    
    
    -
    
    
    -
    
    
    90,083
    
    
    90,634At January 1, 2010
    $
    187,118
    
    $
    305,493
    
    $
    37,794
    
    $
    90,083
    
    $
    620,488


During the year, $2,690 (2010  $385) of borrowing costs
associated with capital projects were capitalized within property, plant and
equipment and mining interests. The applicable capitalization rate for general
borrowings for 2011 was 7.08% (2010  7.75%) . Included in borrowing costs
capitalized during the year were $1,080 of borrowing costs relating to the
convertible senior notes, which were capitalized to Young-Davidson mine
development.

The carrying value of equipment held under finance lease at
December 31, 2011 was $31,283 (December 31, 2010  $16,053 and January 1, 2010 -
$18,653), including $7,918 in assets held for sale. Assets under finance lease
are pledged as security for the related financing liabilities.

The carrying value of construction in progress at December 31,
2011 was $218,054 (December 31, 2010 - $3,786 and January 1, 2010 - $3,176),
including $213,196 relating to the construction of the Young-Davidson mine.

The Company has made commitments to acquire property, plant and
equipment totalling $76,931 at December 31, 2011 (December 31, 2010  $1,307),
including $72,615 relating to the Young-Davidson mine.

---

26

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|14. | Intangible assets and
goodwill
|--- | ------------------------------

Included in intangible assets are the rights to use the
capacity of power lines connecting the Ocampo, El Chanate and Young-Davidson
mines to national / provincial electricity grids (transmission rights). These
intangible assets are amortized on a straight-line basis over the related life
of the mine, and have remaining useful lives of between 9 and 20 years. Other
intangible assets are amortized on a straight-line basis over 3 years.
Amortization expense resulting from the amortization of intangible assets is
included in amortization and depletion expense on the Consolidated Statements of
Operations.

Intangible assetsTransmission
    
    
    
    
    
    Total intangibleGoodwill
    
    
    rights
    
    
    Other
    
    
    assets
    
    
    TotalCostAt January 1, 2010
    $
    106,799
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    106,799Additions
    
    -
    
    
    4,019
    
    
    -
    
    
    4,019
    
    
    4,019At December 31, 2010
    
    106,799
    
    
    4,019
    
    
    -
    
    
    4,019
    
    
    110,818Acquisitions through business combinations
    
    456,302
    
    
    18,068
    
    
    475
    
    
    18,543
    
    
    474,845Additions
    
    -
    
    
    -
    
    
    2,173
    
    
    2,173
    
    
    2,173At December 31, 2011
    $
    563,101
    
    $
    22,087
    
    $
    2,648
    
    $
    24,735
    
    $
    587,836Accumulated amortization, depletion and
      impairment chargesAt January 1, 2010
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -Amortization
    
    -
    
    
    (566
    )
    
    -
    
    
    (566
    )
    
    (566
    )Impairment charges
    
    (106,799
    )
    
    -
    
    
    -
    
    
    -
    
    
    (106,799
    )At December 31, 2010
    
    (106,799
    )
    
    (566
    )
    
    -
    
    
    (566
    )
    
    (107,365
    )Amortization
    
    -
    
    
    (479
    )
    
    (1,855
    )
    
    (2,334
    )
    
    (2,334
    )Impairment charges
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -At December 31, 2011
    $
    (106,799
    )
    $
    (1,045
    )
    $
    (1,855
    )
    $
    (2,900
    )
    $
    (109,699
    )Carrying valueAt January 1, 2010
    $
    106,799
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    106,799At December 31, 2010
    $
    -
    
    $
    3,453
    
    $
    -
    
    $
    3,453
    
    $
    3,453At December 31, 2011
    $
    456,302
    
    $
    21,042
    
    $
    793
    
    $
    21,835
    
    $
    478,137


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

Non-financial assets and CGUs are tested for impairment or a
reversal of impairment whenever there are indicators of impairment or indicators
that an impairment should be reversed, respectively. CGUs containing goodwill
are tested for impairment each year at December 31. For the purposes of testing
for impairment, or a reversal of impairment, the recoverable amounts for
non-financial assets and CGUs are based on fair value less costs to sell
(FVLCS) calculations. When observable market prices are not available for the
asset, FVLCS is calculated using a discounted cash flow methodology taking into
account the assumptions that would be made by market participants. Management
projects cash flows over the remaining life of each mine using forecasted
production and costs per the Companys life of mine plans and the long-term
forecasted price of gold and silver to project future revenues. The Company does
not use growth rates in determining cash flow projections.

The key assumptions used in determining FVLCS at December 31,
2011 were commodity prices, discount rates, operating costs, capital
expenditures, and foreign exchange rates. Of these assumptions, reasonably
possible changes in commodity prices, discount rates and operating costs could
have caused the carrying value of the Companys El Chanate CGU to exceed its
recoverable amount, as outlined below in (c).

The Company develops its long-term commodity price forecast by
reference to numerous external analyst forecasts. The long-term commodity
pricing used within the impairment test approximated the mean of all of these
forecasts, after adjusting for outliers. Ranges in commodity prices were $1,775
to $1,250 per ounce for gold and $38 to $23 per ounce for silver, including
long-term prices of $1,250 per ounce for gold and $23 per ounce for silver
($1,115 to $863 per ounce gold and $19 to $14 per ounce silver in 2010).

The Company forecasts operating costs and capital expenditures
based on expected life of mine plans developed from technical reports and
historical cost experience.

27

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

The discount rates used by the Company in calculating FVLCS
were based on the weighted average cost of capital applicable to each property.
The rates chosen reflect a market participants view of the risk inherent in the
cash flows associated with each property and alternate investment returns. The
discount rates used for each test are summarized below:

|                                       |  | December 31 |  |  | December 31 | 
|-------------------------------------- |  | ----------- |  |  | ----------- | 
|                                       |  | 2011        |  |  | 2010        | 
|El Cubo CGU                            |  | 7.75%       |  |  | 10.00%      | 
|Guadalupe y Calvo exploration property |  | 9.00%       |  |  | -           | 
|El Chanate CGU                         |  | 6.00%       |  |  | -           | 

The decline in the discount rate used in the calculation of the
El Cubo FVLCS was primarily due to a lower interest rate environment, and a
lower risk premium associated with the resolution of ongoing labour disputes.

The results of impairment evaluations conducted are summarized
below:

|(a) | El Cubo CGU
|--- | -----------

The El Cubo CGU is comprised of all assets and liabilities
related to the El Cubo mine. The Company recorded a $223,357 pre-tax impairment
charge on the El Cubo CGU upon the suspension of operations at the El Cubo mine
in June 2010, of which $106,799 related to goodwill. During the fourth quarter
of 2011, the Company determined that some of the factors that had led to the
June 2010 impairment of the CGU had been resolved, and therefore the Company
performed a test to determine if a reversal of the impairment charge had
occurred. An improved operational outlook, combined with higher gold and silver
prices and a lower discount rate, contributed to the recoverable amount
exceeding the carrying value of the CGU by $102,587. As a result, an impairment
reversal of $109,493, with an associated tax expense of $25,325, for a net
impairment reversal of $84,168, was recognized. Of the amount that was reversed,
$7,881 related to property, plant and equipment and $101,612 related to mining
interests. The carrying value of the El Cubo CGU at December 31, 2011 is
$146,051.

|(b) | Guadalupe y Calvo exploration
  property
|--- | ----------------------------------------

During the fourth quarter, the Company continued to advance its
preliminary economic assessment of the Guadalupe y Calvo exploration property.
The fair values determined in this preliminary economic assessment indicated
that the full carrying amount of the exploration property may not be
recoverable. The carrying value of the property at December 31, 2011 was
determined to exceed the recoverable amount of the property by $57,820 and,
therefore, a $41,340 impairment charge was recorded, net of tax recovery of
$16,480. The carrying value of the Guadalupe y Calvo exploration property at
December 31, 2011 is $37,240.

|(c) | El Chanate CGU
|--- | --------------

The carrying value of goodwill resulting from the acquisition
of Capital Gold has been allocated to the El Chanate CGU, which is comprised of
all assets and liabilities related to the El Chanate mine. At December 31, 2011,
the recoverable amount of the El Chanate CGU exceeded its carrying value by
$41,079.

It is estimated that the following reasonably possible changes
in key assumptions would cause the carrying value of the El Chanate CGU to
exceed its recoverable amount:

| |  | 1.86% increase in discount rate        
| | - | ---------------------------------------
| |  | 5.17% decline in gold price assumptions
| |  | 12.29% increase in operating costs     

|    |                                                           
|--- | ----------------------------------------------------------
|(d) | Goodwill resulting from the acquisition of
      Northgate

At December 31, 2011, the initial accounting for the Northgate
business combination was based on a preliminary allocation of the purchase
price. The Company will perform a goodwill impairment test on the carrying value
of goodwill resulting from the acquisition of Northgate during the fourth
quarter of 2012, once the allocation of the purchase price is complete and the
amount of goodwill resulting from the business combination is finalized. At
December 31, 2011, there were no indications that any of the assets acquired in
the Northgate business combination were impaired.

|(e) | Other
|--- | -----

During the fourth quarter, the Company decided to discontinue
its exploration program on the Mezquite exploration property, which is part of
the Corporate and other reportable segment. As a result, the Company recognized
an impairment charge of $2,153 and a tax recovery of $609, for a net impairment
charge of $1,544.

28

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|16. | Derivative liabilities
|--- | ----------------------

During the second quarter of 2011, the Company issued 2,250,000
warrants exercisable at CAD $10.13 for a period of 24 months, in exchange for
advisory services provided as part of the acquisition of Capital Gold. As the
warrants were issued in a foreign currency, they met the definition of a
derivative instrument and were classified as financial liabilities at fair value
through profit or loss. They were initially measured at the fair value of the
services provided and are remeasured at fair value at the end of each reporting
period, with gains and losses recognized in other income in the Consolidated
Statements of Operations until exercised. During the third quarter of 2011,
1,500,000 warrants were exercised. The exercise of the warrants resulted in a
realized gain of $385, which is included in other income in the Consolidated
Statements of Operations. At December 31, 2011, 750,000 warrants remained
outstanding, with a fair value of $883 (see Note 29).

During the year, the Company entered into forward contracts to
hedge against the risk of an increase in the value of the Mexican peso versus
the US dollar. These currency hedges have been accounted for as cash flow hedges
of specific, peso-denominated costs and are described in further detail in Note
29.

|    |                                               
|--- | ----------------------------------------------
|17. | Long-term debt and finance lease
  obligations

|                                                                            |   | December 31 |   |   | December 31 |   |   | January 1 |  
|--------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | --------- | -
|                                                                            |   | 2011        |   |   | 2010        |   |   | 2010      |  
|(a)      Revolving credit facility                                          | $ | 59,207      |   | $ | 24,356      |   | $ | 25,242    |  
|(b)      Convertible senior notes                                           |   | 150,838     |   |   | -           |   |   | -         |  
|(c)      Finance leases for
      equipment                                 |   | 12,262      |   |   | 7,188       |   |   | 11,539    |  
|(d)      Other long-term debt                                               |   | -           |   |   | -           |   |   | 48        |  
|                                                                            |   | 222,307     |   |   | 31,544      |   |   | 36,829    |  
|Less: Current portion of long-term debt and finance lease
      obligations |   | (5,056      | ) |   | (4,373      | ) |   | (4,398    | )
|                                                                            | $ | 217,251     |   | $ | 27,171      |   | $ | 32,431    |  

The estimated future minimum debt and lease payments under all
facilities are as follows:

|2012 | $ | 5,632   | 
|---- | - | ------- | 
|2013 | $ | 2,826   | 
|2014 | $ | 64,206  | 
|2015 | $ | 2,129   | 
|2016 | $ | 167,024 | 

|(a) | Revolving credit facility
|--- | -------------------------

The Company has access to a $100,000 credit facility, held
entirely with the Bank of Nova Scotia, which carries an interest rate of LIBOR
plus 3.00% to 3.50% . The facility matures on November 4, 2014 and may be
extended upon mutual agreement by all parties. No payments under the facility
are due until the maturity date. At December 31, 2011, the interest rate payable
on amounts outstanding under the credit facility was 4.25% .

The credit facility contains various covenants that include an
interest coverage ratio of at least 3:1, a leverage ratio of no more than 3:1, a
tangible net worth of at least $483,072 plus 50% of the net proceeds of all
equity issued by the Company and 50% of positive net earnings for each fiscal
quarter subsequent to September 30, 2010, and proven and probable reserves of at
least 2,000,000 ounces. The facility is secured by a first-ranking lien on all
present and future assets, property and undertaking of the Company. The Company
is in compliance with all covenants at December 31, 2011.

At December 31, 2011, the Company had drawn $61,380 under this
revolving facility, and had issued a $1,000 letter of credit against the
facility, resulting in a total of $37,620 being available for future funding.
The Company has included financing fees of $2,173 and $2,024 in the carrying
amount of the credit facility at December 31, 2011 and 2010, respectively. These
amounts are amortized into net earnings using the effective interest rate
method.

|(b) | Convertible senior notes
|--- | ------------------------

As a result of the acquisition of Northgate on October 26, 2011
and the subsequent amalgamation of Northgate and the Company, the Company
assumed and became the issuer of $170,000 of convertible senior notes (the
notes) that were originally issued by Northgate in October 2010. The notes pay
interest semi-annually at a rate of 3.50% per annum, and mature on October 1,
2016. The fair values of the debt and option components were determined to be
$152,999 and $43,459, respectively, as of the acquisition date (see Note 6).

The holders of the notes may, within specified time periods,
convert their notes prior to July 1, 2016 under the following circumstances: (1)
the closing sale price of the Companys shares exceeds 130% of the conversion
price for at least 20 trading days in the 30 consecutive trading days ending on
the last trading day of the immediately preceding quarter; (2) the trading price
per $1,000 principal amount of the convertible note is equal to or less than 97%
of the product of the closing sale price of the Companys common shares and the
applicable conversion rate; (3) the convertible notes are called for redemption by the Company; (4) upon the occurrence
of specified corporate transactions; and (5) a delisted event occurs and is
continuing. In addition, the notes will be unconditionally convertible at the
option of the holder from July 1, 2016 to the business day immediately preceding
the maturity date of the notes. The conversion rate following the acquisition of
Northgate and the subsequent amalgamation is initially 89.41697 common shares
per $1,000 principal amount of notes, which represents an initial conversion
price of approximately $11.18 per common share of the Company. Upon conversion,
the Company may settle the obligation either in common shares, or in cash at an
equivalent value.

29

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

As a result of the acquisition of Northgate by the Company, a
Fundamental Change occurred whereby the Company offered to purchase the notes
from each holder at a price of $1,000.00 in cash per $1,000.00 principal amount
of the notes. This offer resulted in the purchase of $3,000 of the notes
outstanding on December 21, 2011 and the recognition of a realized gain of $105
in other income on the Consolidated Statements of Operations.

For the year ended December 31, 2011, interest expense,
including the amortization of the discount, of $1,626 in relation to the debt
component of the notes had been recorded at the effective interest rate of 5.89%
and capitalized to mine development. The option component of the notes, which is
accounted for as an embedded derivative, is re-measured at fair value at each
reporting date. The fair value of the option component was determined to be
$20,081 at December 31, 2011, resulting in a unrealized gain of $22,982 that was
recognized in other income on the Consolidated Statements of Operations. At
December 31, 2011, $167,000 convertible senior notes remained outstanding at a
carrying value of $150,838 for the debt component and $20,081 for the option
component.

|(c) | Finance leases for
equipment
|--- | ----------------------------

The Company is obligated under various finance leases for
equipment, which expire at various dates between 2012 and 2016. All finance
lease agreements provide either an option for the Company to purchase the leased
equipment at the end of the lease term for a nominal amount or automatically
transfer ownership of the leased equipment to the Company at the end of the
lease term. Interest payable on the various leases range from a fixed rate of
5.50% to 11.05% .

The following table reconciles the Companys future minimum
lease payments at December 31, 2011 and 2010 to their present value.

|                                        |   |                        |   |   |                        |   |   | Present value of | 
|--------------------------------------- | - | ---------------------- | - | - | ---------------------- | - | - | ---------------- | 
|                                        |   | Minimum lease payments |   |   | minimum lease payments |  
|                                        |   | December 31            |   |   | December 31            |   |   | December 31      | 
|                                        |   | 2011                   |   |   | 2010                   |   |   | 2011             | 
|Less than 1 year                        | $ | 5,632                  |   | $ | 4,851                  |   | $ | 5,056            | 
|1  3 years                             |   | 7,780                  |   |   | 2,914                  |   |   | 7,182            | 
|Greater than 3 years                    |   | 24                     |   |   | -                      |   |   | 24               | 
|                                        |   | 13,436                 |   |   | 7,765                  |   |   | 12,262           | 
|Less: Future finance charge             |   | (1,174                 | ) |   | (577                   | ) |   | -                | 
|Present value of minimum lease payments | $ | 12,262                 |   | $ | 7,188                  |   | $ | 12,262           | 

|(d) | Other long-term debt
|--- | --------------------

The Company was obligated under certain other agreements, which
matured in 2010.

|    |                            
|--- | ---------------------------
|18. | Other long-term
liabilities

Other long-term liabilities include deferred gains from
sale-leaseback transactions and the liability associated with an eight-year
consultancy agreement. The consultancy agreement obligation is non-interest
bearing, and has been recorded at fair value using a discount rate of 7%, with
five remaining annual payments of $800 in January of each subsequent year. As of
December 31, 2011, the total balance outstanding on the consultancy agreement
was $3,492 (current portion  $800) (December 31, 2010  $4,056, and January 1,
2010 - $4,546). At December 31, 2011, the unamortized amount of the deferred
gain on sale-leaseback was $1,316 (December 31, 2010  $3,143, and January 1,
2010 - $4,992).

---

30

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|19. | Provisions
|--- | ----------

|                                                                    |   | December 31 |   |   | December 31 |   |   | January 1 | 
|------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | --------- | 
|                                                                    |   | 2011        |   |   | 2010        |   |   | 2010      | 
|(a) Reclamation provisions                                          | $ | 38,184      |   | $ | 6,183       |   | $ | 5,958     | 
|(b) Royalty interests
      provision                               |   | 7,652       |   |   | -           |   |   | -         | 
|(c) Provision for restricted
      share unit plan                  |   | 438         |   |   | -           |   |   | -         | 
|(d) Provision for employee
      long-term incentive retention plan |   | 502         |   |   | 1,183       |   |   | 750       | 
|(e) Provision for
      post-employment benefits                    |   | 1,053       |   |   | 236         |   |   | 1,140     | 
|(f)  Provision for litigation
      settlement                      |   | 1,435       |   |   | -           |   |   | -         | 
|                                                                    |   | 49,264      |   |   | 7,602       |   |   | 7,848     | 
|Less: Current portion of provisions                                 |   | (10,614     | ) |   | (1,156      | ) |   | -         | 
|                                                                    | $ | 38,650      |   | $ | 6,446       |   | $ | 7,848     | 

|(a) | Reclamation provisions
|--- | ----------------------

The Companys reclamation provisions consist of reclamation and
rehabilitation costs for each of the Companys operating and development stage
mines and Kemess South, a mine in the decommissioning stage that was acquired
through the Northgate business combination. The present value of the combined
provision is currently estimated at $38,184 (December 31, 2010  $6,183 and
January 1, 2010  $5,958), reflecting ongoing payments relating to Kemess South,
and future payments that will commence in 8  15 years for the Companys
operating and development stage mines. Significant reclamation activities
include land rehabilitation, demolition and decontamination of mine facilities,
monitoring, and other costs.

The Company estimates the costs to conduct significant
reclamation activities based on the most recent experience and cost data
available for the applicable mine. These expected expenditures are then
risk-adjusted by considering the time remaining until mine closure, recent
industry experience in the region, the quality of the cost data, and other
relevant factors. This current cost estimate is then inflated to the estimated
date of settlement using the rate disclosed below.

The undiscounted value of the reclamation costs liability is
$44,909 (December 31, 2010 - $11,520). The discount rates used in estimating the
obligation were 6.46%, 2.50% and 1.28% for the Companys Mexican operations,
Young-Davidson development-stage mine in Northern Ontario, and the Kemess South
decommissioning-stage mine in British Columbia, respectively (December 31, 2010
 7.16% for the Companys Mexican operations), and were determined based on the
yields from government bonds from the country in which the related mine
operates, with a term to maturity similar to the estimated timing of future
payments. The inflation rates used were 3.40% and 2.00% for the Companys
Mexican and Canadian operations, respectively (December 31, 2010  3.50% for the
Companys Mexican operations), and was determined based on external forecasts
for inflation in the country in which the related mine operates.

Changes to the reclamation and closure cost obligation balance
during the year were as follows:

|                                                   |   | December 31 |  
|-------------------------------------------------- | - | ----------- | -
|                                                   |   | 2011        |  
|Reclamation provisions, beginning of period        | $ | 6,183       |  
|Obligations assumed on acquisition of Capital Gold |   | 2,919       |  
|Obligations assumed on acquisition of Northgate    |   | 28,253      |  
|Obligations incurred and revisions to estimates    |   | 975         |  
|Accretion expense                                  |   | 777         |  
|Reclamation expenditures                           |   | (923        | )
|Reclamation provisions, end of period              | $ | 38,184      |  

Included in the ending reclamation provision at December 31,
2011 is $21,545 related to ongoing decommissioning efforts at Kemess South. Of
this amount, $3,000 has been classified as current portion of provisions on the
Consolidated Balance Sheets.

31

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|(b) | Royalty interests
provision
|--- | ---------------------------

As part of the acquisition of Capital Gold, the Company assumed
the remainder of a royalty interests provision payable to Royal Gold Inc., which
arose upon Capital Golds purchase of the El Chanate property in 2001.
Settlement of the liability occurs through the payment of net smelter returns up
to a maximum amount, and has been recognized in provisions as part of the
Capital Gold purchase price allocation in Note 6. Changes to the royalty
interests provision balance during the year were as follows:

|                                                   |   | December 31 |  
|-------------------------------------------------- | - | ----------- | -
|                                                   |   | 2011        |  
|Royalty interests provision, beginning of period   | $ | -           |  
|Obligations assumed on acquisition of Capital Gold |   | 9,112       |  
|Accretion of liability                             |   | 720         |  
|Payments of royalties                              |   | (2,180      | )
|Royalty interests provision, end of period         | $ | 7,652       |  

|(c) | Provision for restricted share unit
  plan
|--- | ------------------------------------------

In December 2010, the Company established a Restricted Share
Unit (RSU) plan, which provides an alternate form of compensation for Senior
Officers of the Company. RSUs vest equally over a period of not more than three
years, and at the end of a vesting period, they may be redeemed for cash based
on the Companys volume-weighted average closing share price for the five days
immediately preceding the redemption date. A total of 185,728 RSUs, with a grant
date fair value of $1,476, were granted during the year ended December 31, 2011.
In accounting for these awards, the Company recognizes the fair value of the
units as compensation expense as they are earned, based on the estimated number
of units that are expected to vest. All units granted remained unvested and
outstanding at December 31, 2011.

|(d) | Provision for long-term incentive retention
      plan
|--- | ------------------------------------------------------

The Company provides long-term incentive retention awards to
certain employees. Under the plan, employees can earn an increasing percentage
of their salary over a three-year period. At the end of the third year, the
employee can request that the amount earned be paid out in cash. Alternatively,
the employee may choose to remain in the plan for an additional four year period
and earn an award at the year three percentage.

|(e) | Provision for post-employment
  benefits
|--- | ----------------------------------------

The Company accrues for certain statutorily mandated
post-employment benefits under Mexican Labour Law, which are paid through an
employment services company or by the Companys subsidiaries. An actuarial
valuation was performed for these defined benefit plans as at December 31, 2011.
Significant assumptions used in determining the provision for these plans at
December 31, 2011 include a discount rate of 8.00% (December 31, 2010  8.25%)
and a rate of compensation increase of 5.25% (December 31, 2010  5.56%) . At
December 31, 2011, the Company had recorded $345 as a provision related to
Mexican post-employment benefits (December 31, 2010 - $236 and January 1, 2010 -
$1,140).

As a result of the acquisition of Northgate, the Company
assumed post-employment benefit plans for certain former employees. At December
31, 2011, the Company had recorded a provision of $708 related to these
post-employment benefits.

|(f) | Provision for litigation
  settlement
|--- | -------------------------------------

At December 31, 2011, the Company had recognized a provision of
$1,435 for the settlement of the Capital Gold class action lawsuits. This
provision was partially offset by a corresponding insurance receivable of
$1,178, resulting in a net settlement amount of $257. Refer to Note 28 for
further details.

---

32

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|20. | Income taxes
|--- | ------------

The following table represents the major components of income
tax expense / (recovery) recognized in the Consolidated Statements of Operations
for the year ended December 31, 2011:

|                                         |   | December 31 |  |   | December 31 |  
|---------------------------------------- | - | ----------- |  | - | ----------- | -
|                                         |   | 2011        |  |   | 2010        |  
|Current income tax expense / (recovery)  | $ | 30,899      |  | $ | (1,516      | )
|Deferred income tax expense / (recovery) |   | 64,613      |  |   | (30,651     | )
|Provision for income taxes               | $ | 95,512      |  | $ | (32,167     | )

The following table reconciles the expected income tax payable
/ (recoverable) at the statutory income tax rate to the amounts recognized in
the Consolidated Statements of Operations for the year ended December 31, 2011:

|                                                   |   | December 31 |   |   | December 31 |  
|-------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                   |   | 2011        |   |   | 2010        |  
|Net earnings / (loss) before income taxes          | $ | 256,824     |   | $ | (166,835    | )
|Income tax rate                                    |   | 30.50%      |   |   | 34.00%      |  
|                                                   |   |             |   |   |             |  
|Expected income tax expense based on above rates   |   | 78,331      |   |   | (56,724     | )
|Effect of lower tax rates in foreign jurisdictions |   | (1,910      | ) |   | 9,757       |  
|Non-deductible stock option expense                |   | 2,059       |   |   | 2,239       |  
|Effect of non-deductible goodwill impairment       |   | -           |   |   | 30,891      |  
|Permanent differences                              |   | (367        | ) |   | (6,667      | )
|Change in unrecognized temporary differences       |   | (4,582      | ) |   | (6,445      | )
|Impact of foreign exchange                         |   | 21,981      |   |   | (5,218      | )
|Provision for income taxes                         | $ | 95,512      |   | $ | (32,167     | )

The statutory tax rate for 2011 was 30.50% (2010  34.00%) .
This represents a decrease of 3.50%, primarily attributable to a decline in
Canadian statutory tax rates for the year 2011.

The following reflects the deferred income tax liability at
December 31, 2011:

|                                                                    |   | December 31 |   |   | December 31 |   |   | January 1 |  
|------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | --------- | -
|                                                                    |   | 2011        |   |   | 2010        |   |   | 2010      |  
|Accounting value of mineral properties in excess of tax
      value | $ | 423,459     |   | $ | 78,503      |   | $ | 111,242   |  
|Accounting value of inventories in excess of tax value              |   | 32,402      |   |   | 19,533      |   |   | 16,689    |  
|Other taxable / (deductible) temporary differences                  |   | 389         |   |   | (6,126      | ) |   | (3,129    | )
|Non-capital losses carried forward                                  |   | (31,788     | ) |   | (9,933      | ) |   | (17,763   | )
|Deferred income tax liability                                       | $ | 424,462     |   | $ | 81,977      |   | $ | 107,039   |  

The change in deferred income tax liability is explained as
follows:

|                                                                                     |   | December 31 |   |   | December |  
|------------------------------------------------------------------------------------ | - | ----------- | - | - | -------- | -
|                                                                                     |   | 2011        |   |   | 2010     |  
|Balance, beginning of year                                                           | $ | 81,977      |   | $ | 107,039  |  
|Deferred income tax expense / (recovery) recognized in
      earnings                |   | 64,613      |   |   | (30,651  | )
|Impact of foreign exchange                                                           |   | (24,448     | ) |   | 5,589    |  
|Deferred income tax recovery recognized in other
      comprehensive (loss) / income |   | (78         | ) |   | -        |  
|Deferred income tax recovery recognized in capital stock                             |   | (7,215      | ) |   | -        |  
|Deferred income tax liability recognized on acquisition of
      Capital Gold        |   | 61,802      |   |   | -        |  
|Deferred income tax liability recognized on acquisition of
      Northgate           |   | 247,811     |   |   | -        |  
|Deferred income tax liability                                                        | $ | 424,462     |   | $ | 81,977   |  

33

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

The Company has tax loss carryforwards expiring in the
following years:

Canada
    
    
    Mexico
    
    
    Australia
    
    
    United States
    
    
    Total2012
    
    3,318
    
    
    2,491
    
    
    -
    
    
    -
    
    
    5,8092013
    
    6,734
    
    
    1,848
    
    
    -
    
    
    -
    
    
    8,5822014
    
    5,990
    
    
    1,769
    
    
    -
    
    
    -
    
    
    7,7592015
    
    -
    
    
    483
    
    
    -
    
    
    420
    
    
    9032016
    
    -
    
    
    1,338
    
    
    -
    
    
    529
    
    
    1,8672017
    
    -
    
    
    8,581
    
    
    -
    
    
    600
    
    
    9,1812018
    
    -
    
    
    11,110
    
    
    -
    
    
    705
    
    
    11,8152019
    
    -
    
    
    4,083
    
    
    -
    
    
    908
    
    
    4,9912020
    
    -
    
    
    9,133
    
    
    -
    
    
    1,134
    
    
    10,2672021
    
    -
    
    
    26,364
    
    
    -
    
    
    1,590
    
    
    27,9542024
    
    -
    
    
    -
    
    
    -
    
    
    802
    
    
    8022025
    
    8,165
    
    
    -
    
    
    -
    
    
    34
    
    
    8,1992026
    
    18,363
    
    
    -
    
    
    -
    
    
    1,513
    
    
    19,8762027
    
    5,594
    
    
    -
    
    
    -
    
    
    3,038
    
    
    8,6322028
    
    30,707
    
    
    -
    
    
    -
    
    
    3,879
    
    
    34,5862029
    
    15,357
    
    
    -
    
    
    -
    
    
    5,564
    
    
    20,9212030
    
    12,495
    
    
    -
    
    
    -
    
    
    7,831
    
    
    20,3262031
    
    8,355
    
    
    -
    
    
    -
    
    
    -
    
    
    8,355Indefinite
    
    -
    
    
    -
    
    
    152,365
    
    
    -
    
    
    152,365$
    115,078
    
    $
    67,200
    
    $
    152,365
    
    $
    28,547
    
    $
    363,190


The Company has unrecognized deferred income tax assets in
respect of aggregate loss carryforwards, deductible temporary differences and
unused tax credits of $517,120 (December 31, 2010 - $105,174, January 1, 2010 -
$141,433).

At December 31, 2011, the Company has unrecognized deferred
income tax liabilities on taxable temporary differences of $267,586 (December
31, 2010 - $38,498, January 1, 2010 - $221,675) for taxes that would be payable
on the unremitted earnings of certain subsidiaries of the Company.

|    |                     
|--- | --------------------
|21. | Shareholders equity
|    |                     
|(a) | Capital stock       

Authorized:

Unlimited number of common shares.

Unlimited number of non-cumulative, dividends to be determined
by the Board of Directors not to exceed 12%, non-participating, non-voting,
Class A preferred shares, redeemable at their paid-in value.

Unlimited number of non-cumulative, dividends to be determined
by the Board of Directors not to exceed 13%, non-participating, non-voting,
Class B preferred shares, redeemable at their paid-in value.

The Companys shares have no par value.

34

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

Issued and outstanding:

|                                                                     |  | December 31, 2011 |  |   | December 31, 2010 | 
|-------------------------------------------------------------------- |  | ----------------- |  | - | ----------------- | 
|                                                                     |  | Number of         |  |   | Ascribed          | 
|                                                                     |  | common shares     |  |   | value             | 
|Balance, beginning of period                                         |  | 138,864,315       |  | $ | 881,960           | 
|Shares issued on acquisition of Northgate                            |  | 106,729,666       |  |   | 1,030,046         | 
|Shares issued on acquisition of Capital Gold                         |  | 32,796,771        |  |   | 343,886           | 
|Change of control shares issued on acquisition of Capital
      Gold |  | 381,014           |  |   | 3,839             | 
|Shares issued as payment for acquisition-related services            |  | 260,000           |  |   | 2,704             | 
|Shares issued through employee share purchase plan                   |  | 76,539            |  |   | 726               | 
|For cash pursuant to exercise of stock options                       |  | 976,088           |  |   | 5,854             | 
|For cash pursuant to exercise of warrants issued                     |  | 1,500,000         |  |   | 15,379            | 
|Fair value of warrants exercised                                     |  | -                 |  |   | 3,977             | 
|Fair value of share-based compensation                               |  | 21,359            |  |   | 5,833             | 
|Tax benefit on previously unrecognized share issuance costs          |  | -                 |  |   | 7,215             | 
|Balance, end of period                                               |  | 281,605,752       |  | $ | 2,301,419         | 

|(b) | Stock options (in Canadian
  dollars)
|--- | -------------------------------------

The Company has a stock option plan under which options to
purchase common shares of the Company may be granted to directors, senior
officers, employees and service providers of the Company. The maximum number of
common shares that may be reserved for issuance under the plan is 6% of the
common shares outstanding (on a non-diluted basis). The maximum number of common
shares that may be reserved for issuance to any one person on the exercise of
options granted under the plan is 5% of the common shares outstanding on the
most recent grant date (on a non-diluted basis), less the aggregate number of
common shares reserved for issuance to such person under any other option to
purchase common shares from treasury granted as a compensation or incentive
mechanism. Stock options are generally exercisable for a maximum period of five
to seven years from the grant date, and have vesting periods of four years or as
determined by the Companys Board of Directors.

The fair value of the options granted during the year was
calculated using the Black-Scholes option-pricing model with the following
weighted average assumptions:

|                        |   | December 31 |  |   | December 31 | 
|----------------------- | - | ----------- |  | - | ----------- | 
|                        |   | 2011        |  |   | 2010        | 
|Dividend yield          |   | 0%          |  |   | 0%          | 
|Expected volatility     |   | 60.43%      |  |   | 63.05%      | 
|Risk free interest rate |   | 1.42%       |  |   | 2.97%       | 
|Expected life           |   | 3.85 years  |  |   | 7.00 years  | 
|Exercise price          | $ | 9.70        |  | $ | 8.94        | 
|Share price             | $ | 9.70        |  | $ | 8.69        | 
|Grant date fair value   | $ | 4.43        |  | $ | 5.50        | 

Expected volatility was determined based on historical share
price volatility.

|                                              |  | December 31, 2011 |   |   | December 31, 2010 | 
|--------------------------------------------- |  | ----------------- | - | - | ----------------- | 
|                                              |  |                   |   |   | Weighted          | 
|                                              |  | Options           |   |   | average price     | 
|Outstanding, beginning of period              |  | 4,425,360         |   | $ | 9.40              | 
|Options issued on acquisition of Northgate    |  | 3,183,000         |   | $ | 7.78              | 
|Options issued on acquisition of Capital Gold |  | 802,103           |   | $ | 5.65              | 
|Granted                                       |  | 2,334,500         |   | $ | 9.70              | 
|Forfeited                                     |  | (161,250          | ) | $ | 9.65              | 
|Expired                                       |  | (519,072          | ) | $ | 10.48             | 
|Exercised                                     |  | (976,088          | ) | $ | 6.10              | 
|Outstanding, end of period                    |  | 9,088,553         |   | $ | 8.93              | 
|Options exercisable, end of period            |  | 5,460,553         |   | $ | 8.80              | 

35

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

During the year ended December 31, 2011, employees,
consultants, officers and directors of the Company exercised 976,088 options
(2010  1,432,940) for total proceeds of $5,666 (2010 - $8,864). The weighted
average share price at the date of exercise for stock options exercised during
the year ended December 31, 2011 was $10.73 (2010 - $9.21) . Set forth below is
a summary of the outstanding options to purchase common shares as at December
31, 2011:

Options outstanding
    
    
    Options exercisableNumber
    
    
    Weighted average
    
    
    Average life
    
    
    Number
    
    
    Weighted averageOption Price
    
    outstanding
    
    
    exercise price
    
    
    (yrs)
    
    
    exercisable
    
    
    exercise price$ 2.01  4.50
    
    474,281
    
    $
    2.83
    
    
    4.03
    
    
    474,281
    
    $
    2.83$ 4.51  5.50
    
    63,510
    
    $
    5.04
    
    
    1.34
    
    
    63,510
    
    $
    5.04$ 5.51  6.00
    
    137,968
    
    $
    5.81
    
    
    3.53
    
    
    137,968
    
    $
    5.81$ 6.01  6.50
    
    315,000
    
    $
    6.32
    
    
    3.10
    
    
    120,000
    
    $
    6.29$ 6.51  7.00
    
    824,500
    
    $
    6.86
    
    
    4.21
    
    
    569,750
    
    $
    6.86$ 7.01  7.50
    
    598,542
    
    $
    7.26
    
    
    3.27
    
    
    411,042
    
    $
    7.19$ 7.51  9.00
    
    2,005,649
    
    $
    8.03
    
    
    4.95
    
    
    1,346,649
    
    $
    8.04$ 9.01  9.50
    
    1,689,500
    
    $
    9.32
    
    
    5.30
    
    
    451,500
    
    $
    9.42$ 9.51  10.00
    
    1,066,900
    
    $
    9.78
    
    
    4.57
    
    
    935,150
    
    $
    9.78$ 10.01  10.50
    
    210,000
    
    $
    10.10
    
    
    6.33
    
    
    -
    
    $
    -$ 10.51  11.00
    
    442,375
    
    $
    10.86
    
    
    6.35
    
    
    92,375
    
    $
    10.54$ 11.01  16.00
    
    926,995
    
    $
    11.53
    
    
    3.87
    
    
    524,995
    
    $
    11.42$ 16.01  21.00
    
    333,333
    
    $
    20.35
    
    
    0.25
    
    
    333,333
    
    $
    20.35Total
    
    9,088,553
    
    
    
    
    
    
    
    
    5,460,553


|(b) | Employee share purchase
plan
|--- | ----------------------------

The Company has an Employee Share Purchase Plan which enables
employees to purchase Company shares through payroll deduction. Employees can
contribute up to 10% of their annual base salary, and the Company will match 75%
of the employees contributions. The common shares are purchased based on the
volume weighted average closing price of the last five days prior to the end of
the quarter. During the year ended December 31, 2011, the Company recognized
$389 as expense (2010 - $257). At December 31 2011, $179 of the expense was
payable by the Company (December 31, 2010 - $70 and January 1, 2010 - $38).

|(c) | Deferred share unit plan
|--- | ------------------------

The Company has a Deferred Share Unit (DSU) plan which
provides an alternative form of compensation for Senior Officers and members of
the Companys Board of Directors. Each unit entitles the participant to receive
one common share of the Company from treasury upon redemption. DSUs are measured
on the grant date using the Companys volume-weighted average closing price of
the last five days immediately preceding the grant date. A total of 50,891 DSUs
(2010  197,864) with a grant date fair value of $486 (2010  $1,391) were
granted and vested during the year ended December 31, 2011. There were 248,755
DSUs outstanding at December 31, 2011 (December 31, 2010  197,864).

---

36

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|22. | Accumulated other comprehensive (loss) /
    income
|--- | ---------------------------------------------------

Accumulated other comprehensive (loss) / income was impacted by
other comprehensive income / (loss) (OCI) during the years ended December 31,
2011 and 2010 as follows:

Gains / (losses)
    
    
    
    
    
    Cumulativeon cash flow
    
    
    Gains / (losses)
    
    
    translation
    
    
    Actuarialhedges
    
    
    on investments
    
    
    account
    
    
    gains / (losses)
    
    
    TotalBalance, January 1, 2010
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -OCI
    
    1,025
    
    
    8,637
    
    
    -
    
    
    (67
    )
    
    9,595Recognized in deficit
    
    -
    
    
    -
    
    
    -
    
    
    67
    
    
    67Tax effect
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Balance, December 31, 2010
    
    1,025
    
    
    8,637
    
    
    -
    
    
    -
    
    
    9,662OCI
    
    (10,662
    )
    
    (8,708
    )
    
    (1,693
    )
    
    (7
    )
    
    (21,070
    )Recognized in deficit
    
    -
    
    
    -
    
    
    -
    
    
    7
    
    
    7Tax effect
    
    -
    
    
    78
    
    
    -
    
    
    -
    
    
    78Balance, December 31, 2011
    $
    (9,637
    )
    $
    7
    
    $
    (1,693
    )
    $
    -
    
    $
    (11,323
    )




| | 
| | 

|23. | Other income
|--- | ------------

|                                                                                         |   | December 31 |   |   | December 31 |  
|---------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                                         |   | 2011        |   |   | 2010        |  
|Unrealized (loss) / gain on investments                                                  | $ | (1,453      | ) | $ | 1,260       |  
|Realized gain on investments                                                             |   | 16,289      |   |   | -           |  
|Unrealized loss on derivative liabilities                                                |   | (790        | ) |   | -           |  
|Realized gain on derivative liabilities                                                  |   | 385         |   |   | -           |  
|Unrealized gain on fair value adjustment for option
      component of convertible notes |   | 22,982      |   |   | -           |  
|Realized gain on purchase of convertible notes                                           |   | 105         |   |   | -           |  
|Interest income                                                                          |   | 1,718       |   |   | 1,491       |  
|Amortization of deferred gain                                                            |   | 1,828       |   |   | 1,832       |  
|Gain on sale of property, plant and equipment                                            |   | 719         |   |   | -           |  
|Loss on derecognition of property, plant and equipment and
      mining interests        |   | (153        | ) |   | (2,284      | )
|Other                                                                                    |   | 89          |   |   | (881        | )
|                                                                                         | $ | 41,719      |   | $ | 1,418       |  

|    |                                  
|--- | ---------------------------------
|24. | Earnings / (loss) from
operations

Earnings / (loss) from operations includes the following
expenses presented by function:

|                                     |   | December 31 |  |   | December 31 | 
|------------------------------------ | - | ----------- |  | - | ----------- | 
|                                     |   | 2011        |  |   | 2010        | 
|Cost of sales                        | $ | 85,273      |  | $ | 368,978     | 
|General and administrative           |   | 38,014      |  |   | 28,752      | 
|Exploration and business development |   | 80,913      |  |   | 1,934       | 
|                                     | $ | 204,200     |  | $ | 399,664     | 

Cost of sales includes an impairment reversal of $109,493 (2010
 impairment charge of $223,357) and decommissioning and site rehabilitation
costs of $2,103 (2010 - $nil). Exploration and business development includes
impairment charges of $59,973 (2010 - $nil).

The following employee benefits expenses are included in cost
of sales, general and administrative, and exploration and business development
expenses:

|                         |   | December 31 |  |   | December 31 | 
|------------------------ | - | ----------- |  | - | ----------- | 
|                         |   | 2011        |  |   | 2010        | 
|Salaries and benefits    | $ | 56,031      |  | $ | 44,188      | 
|Share-based compensation |   | 6,952       |  |   | 6,252       | 
|Other                    |   | 209         |  |   | 142         | 
|                         | $ | 63,192      |  | $ | 50,582      | 
|                         |   |             |  |   |             | 

37

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|25. | Earnings / (loss) per
share
|--- | ---------------------------

Basic earnings per share is calculated based on the weighted
average number of common shares and common share equivalents outstanding during
the year ended December 31, 2011. Diluted earnings per share is based on the
assumption that stock options and warrants issued that have an exercise price
less than the average market price of the Companys common shares during the
period have been exercised on the later of the beginning of the year and the
date granted. Net earnings and basic weighted average shares outstanding are
reconciled to diluted net earnings and diluted weighted average shares
outstanding, respectively, as follows:

|                                                         |   | December 31 |   |   | December 31 |  
|-------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                         |   | 2011        |   |   | 2010        |  
|Net earnings / (loss) from continuing operations         | $ | 161,312     |   | $ | (134,668    | )
|Dilution adjustments:                                    |   |             |   |   |             |  
|Convertible senior notes                                 |   | (22,982     | ) |   | -           |  
|Warrants issued                                          |   | -           |   |   | -           |  
|Diluted net earnings / (loss) from continuing operations |   | 138,330     |   |   | (134,668    | )
|                                                         |   |             |   |   |             |  
|Net earnings from discontinued operations                |   | 15,547      |   |   | -           |  
|Diluted net earnings / (loss)                            | $ | 153,877     |   | $ | (134,668    | )
|                                                         |   |             |   |   |             |  
|Basic weighted average shares outstanding                |   | 183,411,200 |   |   | 138,503,059 |  
|Dilution adjustments:                                    |   |             |   |   |             |  
|Stock options                                            |   | 618,942     |   |   | -           |  
|Convertible senior notes                                 |   | 2,741,304   |   |   | -           |  
|Warrants issued                                          |   | -           |   |   | -           |  
|Diluted weighted average shares outstanding              |   | 186,771,446 |   |   | 138,503,059 |  

The following items were excluded from the computation of
diluted weighted average shares outstanding for the year ended December 31, 2011
because their effect would have been anti-dilutive:

|              |  | December 31 |  |  | December 31 | 
|------------- |  | ----------- |  |  | ----------- | 
|              |  | 2011        |  |  | 2010        | 
|Stock options |  | 3,867,753   |  |  | 4,425,360   | 
|Warrants      |  | 750,000     |  |  | -           | 

|    |                                     
|--- | ------------------------------------
|26. | Supplemental cash flow
  information

|                                                                                        |   | December 31 |   |   | December 31 |  
|--------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|Items not affecting cash:                                                               |   | 2011        |   |   | 2010        |  
|Amortization and depletion                                                              | $ | 53,300      |   | $ | 44,677      |  
|Unrealized foreign exchange (gain) / loss                                               |   | (21,151     | ) |   | 3,055       |  
|Share-based compensation, net of forfeitures                                            |   | 6,224       |   |   | 6,046       |  
|Deferred income tax expense / (recovery)                                                |   | 64,613      |   |   | (30,651     | )
|Impairment (reversal) / charge                                                          |   | (49,520     | ) |   | 223,357     |  
|Realized gain on investments                                                            |   | (16,289     | ) |   | -           |  
|Acquisition-related costs paid by issuance of
      warrants and shares                 |   | 7,316       |   |   | -           |  
|Unrealized loss on derivative liabilities                                               |   | 790         |   |   | -           |  
|Realized gain on derivative liabilities                                                 |   | (385        | ) |   | -           |  
|Unrealized gain on fair value adjustment of
      option component of convertible notes |   | (22,982     | ) |   | -           |  
|Other non-cash items                                                                    |   | 4,211       |   |   | 1,558       |  
|                                                                                        | $ | 26,127      |   | $ | 248,042     |  
|                                                                                        |   |             |   |   |             |  
|Change in non-cash operating working capital:                                           |   |             |   |   |             |  
|Receivables                                                                             | $ | (8,459      | ) | $ | (4,406      | )
|Prepaids and deposits                                                                   |   | 9,285       |   |   | (529        | )
|Inventories                                                                             |   | (17,911     | ) |   | (8,572      | )
|Payables and accrued liabilities                                                        |   | (2,948      | ) |   | (950        | )
|Current income tax liability                                                            |   | (1,863      | ) |   | (441        | )
|                                                                                        | $ | (21,896     | ) | $ | (14,898     | )

38

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|                                                                                 |   | December 31 |  |   | December 31 | 
|-------------------------------------------------------------------------------- | - | ----------- |  | - | ----------- | 
|Supplemental information:                                                        |   | 2011        |  |   | 2010        | 
|Interest paid                                                                    | $ | 2,346       |  | $ | 2,695       | 
|Income taxes paid                                                                | $ | 36,708      |  | $ | 2,022       | 
|                                                                                 |   |             |  |   |             | 
|Non-cash transactions:                                                           |   |             |  |   |             | 
|Acquisition of Capital Gold through issuance
      of shares and options         | $ | 352,931     |  | $ | -           | 
|Acquisition of Northgate through issuance of
      shares and options            | $ | 1,046,740   |  | $ | -           | 
|Unwinding of discount on convertible notes
      capitalized to mining interests | $ | 547         |  | $ | -           | 
|Interest payable capitalized to mining
      interests                           | $ | 1,548       |  | $ | -           | 
|Mine construction financed through non-cash
      working capital                | $ | 20,939      |  | $ | -           | 

|27. | Related party disclosures
|--- | -------------------------

There were no material related party transactions in 2011 and
2010 other than the compensation of the Companys key management personnel. The
Companys key management personnel include the Companys executives and members
of the Board of Directors. The compensation of key management personnel was as
follows:

|                             |   | December 31 |  |   | December 31 | 
|---------------------------- | - | ----------- |  | - | ----------- | 
|                             |   | 2011        |  |   | 2010        | 
|Short-term employee benefits | $ | 6,954       |  | $ | 3,958       | 
|Long-term benefits           |   | 64          |  |   | 54          | 
|Termination benefits         |   | 378         |  |   | -           | 
|Share-based compensation     |   | 4,547       |  |   | 3,567       | 
|                             | $ | 11,943      |  | $ | 7,579       | 

|    |                              
|--- | -----------------------------
|28. | Commitments and
contingencies

Option, lease and joint venture agreements

|(a) | Compañía Minera Global, S.A. de C.V.
    (Global)
|--- | ---------------------------------------------------

On July 17, 2000, the Company entered into an agreement with
Global for consulting services to assist in the negotiations of an agreement
with Minerales de Soyopa, S.A. de C.V. (Soyopa) to secure the right to acquire
the then remaining fifty-one percent (51%) interest in the Ocampo property. As
part of the consideration for the successful negotiation and execution of the
agreement between the Company and Soyopa, the Company agreed that if it should
subsequently sell the lands, claims and concessions described in the agreements,
the Company shall be required to pay Global $1,000. The lands, claims and
concessions have not been sold.

|(b) | Compañía Minera Las Torres, S.A. de C.V. (Las
      Torres)
|--- | -------------------------------------------------------------

On September 7, 2004, a subsidiary of the Company entered into
a mining lease agreement with Las Torres to acquire the right to explore,
develop and mine the Las Torres Gold-Silver property located in Guanajuato
State, Mexico for a five year period. On September 4, 2009, the Company
negotiated an extension of this agreement for an additional three year period.
Under the terms of the agreement, the annual rent payments total $720 per year.
In addition, the Company is required to pay a 3.50% net smelter return on all
gold and silver sales equal to or above $350.00 per gold ounce and $5.50 per
silver ounce, with a minimum annual royalty of $240. The royalty decreases to a
3.00% net smelter return for sales of gold and silver at or below $300.00 per
gold ounce and $5.00 per silver ounce.

The Company is also required to pay $20.00 per gold equivalent
ounce for each ounce processed at the Las Torres mill from existing El Cubo
claims. This payment, combined with the annual rent and minimum royalty payment
discussed above must total a minimum of $2,000 per year. In connection with the
agreement, the Company has issued a letter of credit in the amount of $1,000 to
Las Torres.

During 2010, this lease agreement was suspended in accordance
with the force majeure clause that was triggered by the labour disruption and
subsequent suspension of operations at the El Cubo mine in June 2010, and
remained suspended until the re-opening of the El Cubo mine in February 2011.
During the year, the Company recognized an expense of $1,934 (2010  $886)
relating to the Las Torres lease.

39

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

The minimum annual rent, processing and royalty payment
commitments for successive years are estimated to be:

|     |   | Total    | 
|---- | - | -------- | 
|     |   | Payments | 
|2012 | $ | 2,006    | 
|2013 |   | 833      | 
|     | $ | 2,839    | 

|(c) | Aurion Resources Ltd.
(Aurion)
|--- | --------------------------------

On February 23, 2011, the Company executed a definitive
agreement with Aurion that provides the Company with an option to earn up to a
51% joint venture interest in the La Bandera Project (the Project) located in
Durango, Mexico, with a second option to earn up to a 70% interest in the
Project. Under the agreement, the Company is obligated to spend a minimum of
$1,000 on the Project within the first 12 months of the agreement. As of
December 31, 2011, the Company had spent $618 on the Project. The Company is not
obligated to incur any additional expenditures under the agreement. However, to
earn the 51% joint venture interest in the Project, the Company must incur
minimum expenditures of $4,000 before February 23, 2014. To earn a 70% joint
venture interest in the Project, the Company must fund 100% of the cost to
complete a feasibility study, or incur an additional $7,000 in expenditures,
whichever is less, within five years of the exercise of the option to earn the
51% joint venture interest, or within seven years should the price of gold
decline below $1,000.00 per ounce for two or more calendar years within the
second option period.

|(d) | Saric mining concessions
|--- | ------------------------

On acquisition of Capital Gold, the Company assumed a lease of
12 mining concessions totaling 1,790 hectares located northwest of Saric,
Sonora, Mexico. The lease agreement, which allows the Company to explore the
property, requires the Company to make payments of $25 every four months to the
end of the lease term. The original lease term expired on December 5, 2011 and
was extended for an additional three years. The agreement contains an option for
the Company to acquire the mining concession for a cash payment of $1,700 on
December 5, 2014, the end of the lease term. If the Company elects not to
exercise this option, the concessions can be mined but a 1.00% net smelter
return must be paid, up to a maximum of $3,200. Prior payments made under this
lease agreement would be deductible from the $3,200 maximum. For the year ended
December 31, 2011, the Company recognized $57 as expense relating to the lease
of the Saric mining concessions (2010 - $nil). Approximate future minimum
payments under these leased concessions are as follows:

|     |   | Total    | 
|---- | - | -------- | 
|     |   | Payments | 
|2012 | $ | 75       | 
|2013 |   | 75       | 
|2014 |   | 75       | 
|     | $ | 225      | 

Other commitments

Young-Davidson royalty agreements

The Company is subject to two surface royalty agreements on the
Young-Davidson property. The first royalty agreement requires the Company to pay
a minimum of $1.50 per tonne of ore mined and processed from the Young-Davidson
open pit. The second royalty agreement requires the Company to pay $1.00 per
tonne of ore mined and processed from the open pit, as well as an additional
royalty of 5% of the increase in gold price per ounce recovered above the base
price of gold of $270.00 per ounce for each ounce recovered.

Other contingencies

In March 2008, the Company was named as a defendant in a claim
filed by Ed J. McKenna. The plaintiff was seeking, among other things, an order
certifying the action as a class proceeding and $75 million in special and
general damages and $5 million in punitive damages on behalf of the class. In
July 2008, the claim was amended to, among other things, assert new claims and
increase the damages sought from $80 million to $160 million. In November 2011,
the court certified the action as a class proceeding. Management continues to be
of the opinion that the claim is without merit, and that a strong defence exists
against the claim. No assurance can be given with respect to the outcome of
these proceedings. Therefore, the likelihood, timing and amount of any potential
payment is not determinable and no provision for loss has been reflected in
these consolidated financial statements.

During 2010, the Company was named as a defendant in two class
action suits, claiming that the directors of Capital Gold breached their
fiduciary duties by failing to maximize shareholder value and failing to conduct
an appropriate sale process with the Company. The plaintiffs also alleged that
Capital Gold and the Company aided and abetted these alleged breaches of
fiduciary duties. In July 2011, the Company reached an agreement to settle these
class action suits. The net impact of this settlement was $257.

40

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

The Company is also involved in legal proceedings arising in
the ordinary course of its business. In the opinion of management, the ultimate
liability with respect to these actions will not materially affect the Companys
financial position, results of operations or cash flows.

|    |                                            
|--- | -------------------------------------------
|29. | Financial instruments and risk
  management

The Companys financial instruments consist of cash and cash
equivalents, receivables, investments in equity securities and warrants,
payables and accruals, warrants issued, long-term debt, convertible senior
notes, obligations under finance leases, and assets and liabilities arising from
the use of derivative financial instruments. Unless otherwise noted, it is
managements opinion that the Company is not exposed to significant interest or
credit risks arising from these financial instruments. Some of the Companys
receivables and payables are denominated in foreign currencies, including
Mexican pesos, Canadian dollars, and Australian dollars. Balances are translated
at the period end rate in accordance with the Companys accounting policy as set
out in Note 3(b) to these annual consolidated financial statements.

Fair values of financial instruments

The Company estimates that the fair value of its cash and cash
equivalents, receivables, payables and accruals approximate the carrying value
of the assets and liabilities due to the relatively short-term nature of these
instruments. Long-term debt and finance lease obligations are measured at
amortized cost using the effective interest method and there were no material
differences between this amount and fair value at December 31, 2011.

IFRS 7, Financial Instruments: Disclosures, establishes
a valuation hierarchy based on whether the inputs to valuation techniques are
observable or unobservable. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the Companys own
assumptions. The two types of inputs have created the following fair value
hierarchy:

| | Level 1 inputs are quoted prices (unadjusted) in active markets for
  identical assets or liabilities.                                                                                                                                                                                                                           
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                  
| | Level 2 inputs are quoted prices in markets that are not active, quoted
  prices for similar assets or liabilities in active markets, inputs other than
  quoted prices that are observable for the asset or liability, or inputs that
  are derived principally from or corroborated by observable market data or
  other means.
|  |                                                                                                                                                                                                                                                                                                                                  
| | Level 3 inputs are unobservable (supported by little or no market
  activity).                                                                                                                                                                                                                                                   

The fair value hierarchy gives the highest priority to Level 1
inputs and the lowest priority to Level 3 inputs.

The fair values of equity securities owned by the Company are
based on quoted market prices for the identical security (Level 1). The
Companys fair value estimates for derivative contracts are based on quoted
market prices for comparable contracts (Level 2). These estimates represent the
amount that the Company would have received from (or paid to) a counterparty to
settle the contract at the balance sheet date. The Company does not have any
financial assets or liabilities measured at fair value based on unobservable
inputs (Level 3).

The following table outlines the Companys financial assets and
liabilities measured at fair value within the fair value hierarchy:

|                                                           |   | December 31, 2011 |  |   | December 31, 2010 |  
|---------------------------------------------------------- | - | ----------------- |  | - | ----------------- | -
|                                                           |   | Level 1           |  |   | Level 2           |  
|                                                           |   |                   |  |   |                   |  
|Cash and cash equivalents                                  | $ | 179,444           |  | $ | -                 |  
|Financial assets at fair value through profit or loss      |   |                   |  |   |                   |  
|Equity investments                                         |   | 7,767             |  |   | -                 |  
|Warrants held                                              |   | -                 |  |   | 13                |  
|Currency forwards                                          |   | -                 |  |   | -                 |  
|Available-for-sale financial assets                        |   |                   |  |   |                   |  
|Equity investments                                         |   | 98                |  |   | -                 |  
|Financial liabilities at fair value through profit or loss |   |                   |  |   |                   |  
|Option component of convertible senior
      notes         |   | -                 |  |   | (20,081           | )
|Currency forwards                                          |   | -                 |  |   | (9,637            | )
|Warrants issued                                            |   | -                 |  |   | (883              | )
|                                                           | $ | 187,309           |  | $ | (30,588           | )

Due to their short-term maturities, the fair value of
short-term investments within cash and cash equivalents approximates their
carrying amount.

The fair value of forward contracts is determined using forward
pricing spreads in effect at the balance sheet date. These spreads are supported
by observable market conditions and are classified within Level 2 of the fair
value hierarchy. The use of reasonably possible alternative assumptions would
not significantly affect the Companys results.

41

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

The fair value of warrants, both held and issued, that are not
traded on an active market is determined using a pricing model based on
assumptions that are supported by observable current market conditions and as
such are classified within Level 2 of the fair value hierarchy. The fair value
was calculated using the following weighted average assumptions:

|                        |  | December 31, 2011 |  |  | December 31, 2010 | 
|----------------------- |  | ----------------- |  |  | ----------------- | 
|                        |  | Warrants held     |  |  | Warrants issued   | 
|Expected volatility     |  | 124%              |  |  | 49%               | 
|Risk-free interest rate |  | 0.95%             |  |  | 0.95%             | 
|Expected life           |  | 1.21 years        |  |  | 1.27 years        | 

The Companys equity investments, both available-for-sale and
at fair value through profit or loss, are valued using quoted market prices in
active markets and as such are classified within Level 1 of the fair value
hierarchy. The fair value of investment securities is calculated as the quoted
market price of the investment equity security multiplied by the quantity of
shares held by the Company.

The Company calculates the fair value of the option component
of convertible senior notes using a valuation model, which uses inputs,
including the Companys share price, share price volatility, and credit spreads.
Because the valuation is dependent on inputs derived from observable market
data, the option component of the convertible senior notes are classified within
Level 2 of the fair value hierarchy. The fair value was calculated using the
following assumptions as of December 31, 2011:

|Volatility     |  | 22%  | 
|-------------- |  | ---- | 
|Credit spreads |  | 4.5% | 

Changes in these assumptions would have the following impact on
net earnings for the year ended December 31, 2011:

|5% increase in volatility       | $ | (5,149 | )
|------------------------------- | - | ------ | -
|5% decrease in volatility       | $ | 5,185  |  
|0.5% increase in credit spreads | $ | (1,256 | )
|0.5% decrease in credit spreads | $ | 893    |  

Risks

In the normal course of operations, the Company is exposed to
credit risk, liquidity risk and the following market risks: commodity price,
market price, interest rate and foreign currency exchange rate. The Company has
developed a risk management process to identify, analyze and assess these and
other risks, and has formed a Risk Committee to monitor all significant risks to
the Company. The Board of Directors has overall responsibility for the oversight
of the Companys risk management framework, and receives regular reports from
the Risk Committee.

Commodity price risk

The profitability of the Companys mining operations will be
significantly affected by changes in the market prices for gold and silver. Gold
and silver prices fluctuate on a daily basis and are affected by numerous
factors beyond the Companys control. The supply and demand for gold and silver,
the level of interest rates, the rate of inflation, investment decisions by
large holders of gold and silver, including governmental reserves, and the
stability of exchange rates can all cause significant fluctuations in gold and
silver prices. Such external economic factors are in turn influenced by changes
in international investment patterns and monetary systems, and political
developments. From time to time, the Company will enter into zero cost collars
or other financial instruments to manage short term commodity price
fluctuations. At December 31, 2011 and 2010, the Company did not have any
commodity-related financial instruments outstanding.

Market price risk

The Company is exposed to fluctuations in the fair value of
investments made in equity securities and warrants. A 10% reduction in each
companys share price at December 31, 2011 would have reduced other
comprehensive income by $35 and net earnings by $779 (December 31, 2010 - $1,729
and $659). A 10% increase in the share price of each company would have
increased other comprehensive income and net earnings by $35 and $779,
respectively (December 31, 2010 - $1,729 and $692).

The Company is also exposed to fluctuations in the fair value
of warrants issued. A 10% reduction in the Companys share price at December 31,
2011 would have increased net earnings by $302 (December 31, 2010 - $nil). A 10%
increase in the Companys share price would have decreased net earnings by $259
(December 31, 2010 - $nil).

As discussed above, the fair value of the option component of
the convertible senior notes is also affected by fluctuations in the Companys
share price.

42

---

|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

Interest rate risk

The Company is exposed to interest rate risk on its variable
rate debt. The Company has not entered into any agreements to hedge against
unfavourable changes in interest rates. If interest rates had been 0.5% higher
during the year ended December 31, 2011, net earnings would have decreased by
$173, mainly as a result of higher interest rates on variable borrowings
(December 31, 2010 - $132). This analysis assumes that other variables remain
constant (a 50 basis points decrease in interest rates would have had the equal
but opposite effect).

Interest payable on the Companys convertible senior notes is
fixed at a rate of 3.50% .

Foreign currency exchange rate risk

Metal sales revenues for the Company are denominated in US
dollars. Proceeds from metal sales are received in US dollars for the Companys
North American operations and are received in Australian dollars for the
Companys Australian operations. The Company is primarily exposed to currency
fluctuations relative to the US dollar on expenditures that are denominated in
Canadian dollars, Mexican pesos, and Australian dollars. These potential
currency fluctuations could have a significant impact on production costs and
thereby, the profitability of the Company. The Company is also exposed to the
impact of currency fluctuations on its monetary assets and liabilities.

At December 31, 2011, the Companys balance sheet exposure to
foreign currency exchange rate risk in Canadian dollars (CAD), Mexican pesos
(MXN) and Australian dollars (AUD) was as follows:

|                                             |   | CAD      |   |   | MXN        |   |   | AUD     |  
|-------------------------------------------- | - | -------- | - | - | ---------- | - | - | ------- | -
|Cash and cash equivalents                    | $ | 66,826   |   | $ | 192,889    |   | $ | 24,729  |  
|Receivables                                  |   | 41,072   |   |   | 213,493    |   |   | 2,093   |  
|Investments                                  |   | 7,514    |   |   | -          |   |   | 1,087   |  
|Other long-term assets                       |   | 61,427   |   |   | -          |   |   | 15,839  |  
|Payables and accrued liabilities             |   | (103,304 | ) |   | (218,880   | ) |   | (22,637 | )
|Current income tax liability                 |   | (3,709   | ) |   | -          |   |   | -       |  
|Long-term debt and finance lease obligations |   | (9,622   | ) |   | (30        | ) |   | (9,203  | )
|Other long-term liabilities                  |   | (54      | ) |   | (15,314    | ) |   | -       |  
|Provisions                                   |   | (864     | ) |   | (1,307     | ) |   | (13,469 | )
|Deferred income tax liability                |   | (234,411 | ) |   | (2,706,750 | ) |   | -       |  
|Net balance sheet exposure                   | $ | (175,125 | ) | $ | (2,535,899 | ) | $ | (1,561  | )

At December 31, 2010, the Companys balance sheet exposure to
foreign currency exchange rate risk in Canadian dollars (CAD), Mexican pesos
(MXN) and Australian dollars (AUD) was as follows:

|                                 |   | CAD    |   |   | MXN      |   |   | AUD | 
|-------------------------------- | - | ------ | - | - | -------- | - | - | --- | 
|Cash and cash equivalents        | $ | 2,059  |   | $ | 335,652  |   | $ | -   | 
|Receivables                      |   | 331    |   |   | 192,615  |   |   | -   | 
|Investments                      |   | 20,685 |   |   | -        |   |   | -   | 
|Payables and accrued liabilities |   | (4,402 | ) |   | (200,860 | ) |   | -   | 
|Other long-term liabilities      |   | (360   | ) |   | (13,435  | ) |   | -   | 
|Deferred income tax liability    |   | -      |   |   | (831,487 | ) |   | -   | 
|Net balance sheet exposure       | $ | 18,313 |   | $ | (517,515 | ) | $ | -   | 

A 10% weakening / (strengthening) of these currencies against
the US dollar at each balance sheet date would have increased / (decreased)
equity and / or net earnings by the amounts shown below. This analysis assumes
that other variables, in particular interest rates, remain constant.

|                                |   | December 31 |   |   | December 31 |  
|------------------------------- | - | ----------- | - | - | ----------- | -
|                                |   | 2011        |   |   | 2010        |  
|Translation of net CAD exposure | $ | (15,655     | ) | $ | (1,674      | )
|Translation of net MXN exposure |   | (16,520     | ) |   | 3,812       |  
|Translation of net AUD exposure |   | (145        | ) |   | -           |  

As at December 31, 2011, the Company held forward contracts to
hedge against the risk of an increase in the value of the Mexican peso versus
the US dollar. The Company has entered into agreements to purchase Mexican pesos
amounting to $68,272 at exchange rates ranging from 11.94 pesos per US dollar to
12.68 pesos per US dollar. These currency hedges have been accounted for as cash
flow hedges of specified, peso-denominated costs at the Ocampo mine and settle
at various dates between January 1, 2012 and September 30, 2013. These contracts
had a negative fair value of $9,637 at December 31, 2011 (December 31, 2010
$1,060), all of which has been recognized in other comprehensive income, with no associated tax impact (December 31, 2010 - $nil). Upon
settlement of a forward contract, the cumulative gain or loss within accumulated
other comprehensive income is reclassified to inventory and mineral properties
to be recognized in income at the same time as the related cost.

43

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

Five forward contracts settled during the year ended December
31, 2011, resulting in a net gain of $69. The recognition of this net hedging
gain resulted in a $193 decrease in production costs, a $128 increase in
inventory, a $12 increase in general and administrative costs, and a $16
decrease in mineral properties.

During the year ended December 31, 2010, two forward contracts
were settled resulting in a total gain of $377. The recognition of this hedging
gain resulted in a $175 decrease in production costs, a $60 decrease in
inventory, a $17 decrease in general and administrative costs, and a $125
decrease in mineral properties.

Credit risk

Credit risk relates to receivables and other contracts, and
arises from the possibility that any counterparty to an instrument fails to
perform. For cash and cash equivalents and receivables, the Companys credit
risk is limited to the carrying amount on the balance sheet. The Company manages
credit risk by transacting with highly-rated counterparties and establishing a
limit on contingent exposure for each counterparty based on the counterpartys
credit rating. Exposure on receivables is limited as the Company sells its
products to a small number of organizations, on which the historical level of
defaults is minimal.

Liquidity risk

Liquidity risk is the risk that the Company will encounter
difficulty in meeting obligations associated with financial liabilities that are
settled by delivering cash or another financial asset. The Company manages this
risk through regular monitoring of its cash flow requirements to support ongoing
operations and expansionary plans. The Company ensures that there are sufficient
committed loan facilities to meet its business requirements, taking into account
anticipated cash flows from operations and holdings of cash and cash
equivalents.

The contractual maturities of financial liabilities are
outlined in Note 17 and Note 18. The Company has also entered into forward
contracts to purchase Mexican pesos, which have been designated as hedging
instruments. Future cash flows associated with the settlement of these contracts
are not known until the contracts are settled.

|    |                   
|--- | ------------------
|30. | Capital management

The primary objective of managing the Companys capital is to
ensure that there is sufficient available capital to support the long-term
growth strategy of the Company in a way that optimizes the cost of capital and
shareholder returns, and ensures that the Company remains in a sound financial
position. There were no changes to the Companys overall capital management
approach during the current year.

The capital of the Company consists of items included in
shareholders equity and long-term debt and finance lease obligations. The
Company manages and makes adjustments to the capital structure as opportunities
arise in the market place, as and when borrowings mature, or when funding is
required. This may take the form of raising equity or debt.

The Company monitors capital through the gross debt to total
equity ratio, and targets a ratio of less than 25%. As at December 31, 2011, the
ratio of gross debt to total equity was 9.92% (December 31, 2010  4.90% and
January 1, 2010  4.89%), calculated as follows:

|                                                                      |   | December 31 |  |   | December 31 |  |   | January 1 | 
|--------------------------------------------------------------------- | - | ----------- |  | - | ----------- |  | - | --------- | 
|                                                                      |   | 2011        |  |   | 2010        |  |   | 2010      | 
|Current portion of long-term debt and finance lease
      obligations | $ | 5,056       |  | $ | 4,373       |  | $ | 4,398     | 
|Long-term debt and finance lease obligations                          |   | 217,251     |  |   | 27,171      |  |   | 32,431    | 
|Gross debt                                                            |   | 222,307     |  |   | 31,544      |  |   | 36,829    | 
|Shareholders equity                                                  | $ | 2,241,138   |  | $ | 643,660     |  | $ | 753,754   | 
|Gross debt / Shareholders equity                                     |   | 9.92%       |  |   | 4.90%       |  |   | 4.89%     | 

44

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

|31. | Segmented information
|--- | ---------------------

The Companys reportable segments are consistent with the
Companys operating segments after aggregation and consist of the geographical
regions in which the Company operates. In determining the Companys segment
structure, the Company considered the basis on which management, including the
chief operating decision maker, reviews the financial and operational
performance of the Company, and whether any of the Companys mining operations
share similar economic, operational and regulatory characteristics. The Company
has three reportable segments, as follows:

| | Mexico: Ocampo mine, El Chanate mine, and El Cubo mine
|- | ------------------------------------------------------
| | Canada: Young-Davidson development stage project      
| | Australia: Fosterville mine and Stawell mine          

Corporate and other consists of the Companys corporate offices
and exploration properties.

The following are the operating results by reportable segment:

|                                                                                       |   | Year ended December 31, 2011 |  
|-------------------------------------------------------------------------------------- | - | ---------------------------- | -
|                                                                                       |   |                              |  
|                                                                                       |   | Mexico                       |  
|                                                                                       |   |                              |  
|Revenue from mining operations                                                         | $ | 401,794                      |  
|                                                                                       |   |                              |  
|Production costs, excluding amortization & depletion                                   |   | 125,870                      |  
|Refining costs                                                                         |   | 2,063                        |  
|Mine standby costs                                                                     |   | 11,430                       |  
|Amortization and depletion                                                             |   | 52,856                       |  
|General and administrative                                                             |   | 13,524                       |  
|Exploration and business development                                                   |   | -                            |  
|Decommissioning and site rehabilitation                                                |   | -                            |  
|Impairment (reversals) / charges                                                       |   | (109,493                     | )
|                                                                                       |   | 96,250                       |  
|Earnings / (loss) from operations                                                      | $ | 305,544                      |  
|Expenditures property, plant and equipment, mining
      interests & intangible assets | $ | 143,295                      |  

|(1) | At December 31, 2011, the Companys Australian operations
      were presented as discontinued operations. See Note 7 for further
      information.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                       |   | Year ended December 31, 2010 |  
|-------------------------------------------------------------------------------------- | - | ---------------------------- | -
|                                                                                       |   |                              |  
|                                                                                       |   | Mexico                       |  
|                                                                                       |   |                              |  
|Revenue from mining operations                                                         | $ | 238,266                      |  
|                                                                                       |   |                              |  
|Production costs, excluding amortization & depletion                                   |   | 89,857                       |  
|Refining costs                                                                         |   | 1,873                        |  
|Mine standby costs                                                                     |   | 9,214                        |  
|Amortization and depletion                                                             |   | 44,353                       |  
|General and administrative                                                             |   | 9,823                        |  
|Exploration and business development                                                   |   | -                            |  
|Decommissioning and site rehabilitation                                                |   | -                            |  
|Impairment (reversals) / charges                                                       |   | 223,357                      |  
|                                                                                       |   | 378,477                      |  
|Earnings / (loss) from operations                                                      | $ | (140,211                     | )
|Expenditures property, plant and equipment, mining
      interests & intangible assets | $ | 104,450                      |  

45

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|                                                                     
|---------------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|(in thousands of
      United States dollars unless otherwise stated)

The following are total assets by reportable segment:

CorporateMexico
    
    
    Canada
    
    
    Australia
    
    
    and other
    
    
    TotalTotal assets at December 31, 2011
    $
    1,304,087
    
    $
    1,367,305
    
    $
    207,931
    
    $
    294,693
    
    $
    3,174,016Total assets at December 31, 2010
    $
    592,654
    
    $
    -
    
    $
    -
    
    $
    217,383
    
    $
    810,037Total assets at January 1, 2010
    $
    758,800
    
    $
    -
    
    $
    -
    
    $
    193,106
    
    $
    951,906


Total non-current assets, excluding long-term financial assets,
by geographical region, are as follows:

|          |   | December 31 |  |   | December 31 |  |   | January 1 | 
|--------- | - | ----------- |  | - | ----------- |  | - | --------- | 
|          |   | 2011        |  |   | 2010        |  |   | 2010      | 
|Mexico    | $ | 1,160,740   |  | $ | 578,723     |  | $ | 746,644   | 
|Canada    |   | 1,401,943   |  |   | 493         |  |   | 548       | 
|Australia |   | -           |  |   | -           |  |   | -         | 
|          | $ | 2,562,683   |  | $ | 579,216     |  | $ | 747,192   | 

Goodwill by reportable segment is as follows:

|          |   | December 31 |  |   | December 31 |  |   | January 1 | 
|--------- | - | ----------- |  | - | ----------- |  | - | --------- | 
|          |   | 2011        |  |   | 2010        |  |   | 2010      | 
|Mexico    | $ | 233,521     |  | $ | -           |  | $ | 106,799   | 
|Canada    |   | 222,781     |  |   | -           |  |   | -         | 
|Australia |   | -           |  |   | -           |  |   | -         | 
|          | $ | 456,302     |  | $ | -           |  | $ | 106,799   | 

At December 31, 2011, the Company had accumulated impairment
charges of $106,799 relating to goodwill, which resulted from an impairment
charge recognized during 2010 on the El Cubo cash-generating unit. Goodwill
recognized in 2011 on the acquisition of Northgate and Capital Gold relates to
the Young-Davidson and El Chanate CGUs, respectively.

The Companys revenue is derived from the sale of gold and
silver in Mexico and Australia, as disclosed in the tables above. The Company
sells all gold and silver produced to three customers. The Company is not
economically dependent on these customers for the sale of its product because
gold and silver can be sold through numerous commodity market traders worldwide.

|    |                                  
|--- | ---------------------------------
|32. | Events after the reporting
period

On March 27, 2012, the Company entered into a definitive
agreement with Crocodile Gold Corp. (Crocodile Gold) pursuant to which
Crocodile Gold will acquire the Companys Stawell and Fosterville mines located
in Australia through the acquisition of all of the shares of Northgate
Australian Ventures Corporation Pty Ltd, for total consideration of up to CAD
$105,000. Consideration will be comprised of CAD $70,000 in cash, CAD $10,000 in
Crocodile Gold shares, and CAD $25,000 in contingent payments to be paid in
three installments on each of the first three anniversaries of the closing date.
The contingent payments are conditional upon the simple average gold price
exceeding AUD$1,500.00 per ounce in the preceding twelve month period.

46

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