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Exhibit 99.3



CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2012
(in United States Dollars, unless otherwise stated)





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KPMG LLPChartered Accountants
    Telephone (416) 777-8500Bay Adelaide Centre
    Fax (416) 777-8818333 Bay Street Suite 4600
    Internet www.kpmg.caToronto ON M5H 2S5Canada


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, 2012 and December 31, 2011, the consolidated statements of
operations, comprehensive income, cash flows and shareholders equity for the
years then ended, and notes, comprising a summary of significant accounting
policies and other explanatory information.

Managements Responsibility for the Consolidated Financial
Statements

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

Auditors Responsibility

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

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

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

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position of AuRico
Gold Inc. as at December 31, 2012 and December 31, 2011, and its consolidated
financial performance and its consolidated cash flows for the years then ended
in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board.

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


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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, 2012, 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 25, 2013 expressed an unqualified opinion on the
effectiveness of AuRico Gold Inc.s internal control over financial reporting.

Chartered Accountants, Licensed Public Accountants Toronto,
Canada March 25, 2013

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CONSOLIDATED BALANCE SHEETS(in thousands of United States
dollars)

|                                                                            |   | 2012      |   |   | 2011      |  
|--------------------------------------------------------------------------- | - | --------- | - | - | --------- | -
|As
      at December 31                                                     |   |           |   |   | (Note 5   | )
|                                                                            |   |           |   |   |           |  
|ASSETS                                                                      |   |           |   |   |           |  
|Current assets                                                              |   |           |   |   |           |  
|Cash and cash equivalents (Note
      7)                                    | $ | 603,401   |   | $ | 179,444   |  
|Restricted cash (Note 19(d))                                                |   | 2,362     |   |   | -         |  
|Receivables (Note 8)                                                        |   | 29,503    |   |   | 37,728    |  
|Current income tax receivable
      (Note 20)                               |   | 30,977    |   |   | 26,795    |  
|Investments (Note 9)                                                        |   | -         |   |   | 7,588     |  
|Inventories (Note 10)                                                       |   | 70,747    |   |   | 137,091   |  
|Prepaids and deposits                                                       |   | 3,334     |   |   | 6,204     |  
|Assets held for sale (Note 6(a))                                            |   | -         |   |   | 142,276   |  
|                                                                            |   | 740,324   |   |   | 537,126   |  
|                                                                            |   |           |   |   |           |  
|Non-current assets                                                          |   |           |   |   |           |  
|Investments (Note 9)                                                        |   | 111       |   |   | 290       |  
|Long-term inventories (Note 10)                                             |   | 82,703    |   |   | 51,238    |  
|Investment in jointly-controlled
      entity (Note 11)                     |   | 20,463    |   |   | -         |  
|Other long-term assets (Note 12)                                            |   | 83,289    |   |   | 60,576    |  
|Property, plant and equipment
      & mining interests (Note 13)            |   | 1,567,270 |   |   | 2,032,800 |  
|Intangible assets (Note 14)                                                 |   | 54,825    |   |   | 21,835    |  
|Goodwill (Note 14 and Note 15)                                              |   | 348,214   |   |   | 475,214   |  
|                                                                            | $ | 2,897,199 |   | $ | 3,179,079 |  
|                                                                            |   |           |   |   |           |  
|LIABILITIES                                                                 |   |           |   |   |           |  
|Current liabilities                                                         |   |           |   |   |           |  
|Trade payables and accrued
      liabilities                                | $ | 59,478    |   | $ | 138,478   |  
|Current income tax liability
      (Note 20)                                |   | 6,040     |   |   | 3,635     |  
|Derivative liabilities (Note 16)                                            |   | 2,749     |   |   | 6,610     |  
|Current portion of debt and
      equipment financing obligations (Note 17) |   | 5,038     |   |   | 5,056     |  
|Current portion of other
      liabilities (Note 18)                        |   | 2,750     |   |   | 800       |  
|Current portion of provisions
      (Note 19)                               |   | 19,326    |   |   | 10,614    |  
|Liabilities associated with
      assets held for sale (Note 6(a))          |   | -         |   |   | 59,267    |  
|                                                                            |   | 95,381    |   |   | 224,460   |  
|                                                                            |   |           |   |   |           |  
|Non-current liabilities                                                     |   |           |   |   |           |  
|Derivative liabilities (Note 16)                                            |   | -         |   |   | 3,910     |  
|Debt and equipment financing
      obligations (Note 17)                    |   | 167,497   |   |   | 217,251   |  
|Option component of convertible
      senior notes (Note 17 and Note 29)    |   | 16,035    |   |   | 20,081    |  
|Other liabilities (Note 18)                                                 |   | -         |   |   | 4,064     |  
|Provisions (Note 19)                                                        |   | 32,360    |   |   | 38,650    |  
|Deferred income tax liability
      (Note 20)                               |   | 288,131   |   |   | 429,525   |  
|                                                                            |   | 599,404   |   |   | 937,941   |  
|                                                                            |   |           |   |   |           |  
|SHAREHOLDERS' EQUITY                                                        |   |           |   |   |           |  
|Capital stock (Note 21)                                                     |   | 2,307,978 |   |   | 2,301,419 |  
|Contributed surplus                                                         |   | 50,881    |   |   | 45,232    |  
|Deficit                                                                     |   | (60,959   | ) |   | (94,190   | )
|Accumulated other comprehensive loss (Note
      22)                        |   | (105      | ) |   | (11,323   | )
|                                                                            |   | 2,297,795 |   |   | 2,241,138 |  
|                                                                            | $ | 2,897,199 |   | $ | 3,179,079 |  
|                                                                            |   |           |   |   |           |  

Commitments and contingencies (Note 13 and Note 28) Events
after the reporting period (Note 32)

|Signed on behalf of the Board: | Signed              |  | Signed               | 
|------------------------------ | --------------------- |  | ---------------------- | 
|                               | Scott Perry, Director |  | Ronald Smith, Director | 

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

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CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands of
United States dollars)

|                                                                     |   | 2012        |   |   | 2011         |  
|-------------------------------------------------------------------- | - | ----------- | - | - | ------------ | -
|For
      the years ended December 31                                |   |             |   |   | (Note 6 (d)) |  
|                                                                     |   |             |   |   |              |  
|Revenue from mining operations                                       | $ | 163,622     |   | $ | 83,932       |  
|                                                                     |   |             |   |   |              |  
|Cost of sales:                                                       |   |             |   |   |              |  
|Production costs, excluding
      amortization & depletion           |   | 59,641      |   |   | 32,912       |  
|Refining costs                                                       |   | 466         |   |   | 306          |  
|Amortization and depletion                                           |   | 18,723      |   |   | 6,982        |  
|Reclamation, care and
      maintenance costs                        |   | 14,066      |   |   | 2,103        |  
|Total cost of sales                                                  |   | 92,896      |   |   | 42,303       |  
|                                                                     |   |             |   |   |              |  
|General and administrative                                           |   | 35,730      |   |   | 25,347       |  
|Exploration and business development                                 |   | 1,385       |   |   | 20,940       |  
|Impairment charges (Note 15)                                         |   | 128,537     |   |   | 2,153        |  
|Loss from operations (Note 23)                                       |   | (94,926     | ) |   | (6,811       | )
|                                                                     |   |             |   |   |              |  
|Finance costs                                                        |   | (2,237      | ) |   | (2,078       | )
|Foreign exchange (loss) / gain                                       |   | (10,727     | ) |   | 9,566        |  
|Other income (Note 24)                                               |   | 8,762       |   |   | 38,650       |  
|Equity in earnings of jointly-controlled
      entity (Note 11)      |   | 83          |   |   | -            |  
|(Loss) / earnings before income taxes                                |   | (99,045     | ) |   | 39,327       |  
|                                                                     |   |             |   |   |              |  
|Deferred income tax recovery (Note 20)                               |   | (7,849      | ) |   | (351         | )
|Current income tax expense (Note 20)                                 |   | 6,625       |   |   | 10,383       |  
|                                                                     |   | (1,224      | ) |   | 10,032       |  
|                                                                     |   |             |   |   |              |  
|Net (loss) / earnings from continuing
      operations               | $ | (97,821     | ) | $ | 29,295       |  
|Net earnings from discontinued operations
      (Note 6(d))          |   | 131,052     |   |   | 147,564      |  
|Net earnings                                                         | $ | 33,231      |   | $ | 176,859      |  
|                                                                     |   |             |   |   |              |  
|                                                                     |   |             |   |   |              |  
|Earnings per share (Note 25)                                         |   |             |   |   |              |  
|Basic (loss) / earnings per
      share from continuing operations   | $ | (0.34       | ) | $ | 0.16         |  
|Basic earnings per share from
      discontinued operations          |   | 0.46        |   |   | 0.80         |  
|Basic earnings per share                                             | $ | 0.12        |   | $ | 0.96         |  
|                                                                     |   |             |   |   |              |  
|Diluted (loss) / earnings per
      share from continuing operations | $ | (0.34       | ) | $ | 0.03         |  
|Diluted earnings per share from
      discontinued operations        |   | 0.46        |   |   | 0.79         |  
|Diluted earnings per share                                           | $ | 0.12        |   | $ | 0.82         |  
|                                                                     |   |             |   |   |              |  
|Weighted average shares outstanding (Note 25)                        |   |             |   |   |              |  
|Basic                                                                |   | 282,194,197 |   |   | 183,411,200  |  
|Diluted                                                              |   | 282,194,197 |   |   | 186,771,446  |  
|                                                                     |   |             |   |   |              |  

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

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands of United States dollars)

|For
      the years ended December 31                                                  |   | 2012   |   |   | 2011    |  
|-------------------------------------------------------------------------------------- | - | ------ | - | - | ------- | -
|                                                                                       |   |        |   |   |         |  
|Net earnings                                                                           | $ | 33,231 |   | $ | 176,859 |  
|                                                                                       |   |        |   |   |         |  
|Other comprehensive loss from continuing
      operations:                             |   |        |   |   |         |  
|Unrealized loss on investments                                                         |   | (34    | ) |   | (1,260  | )
|Reclassification of realized
      gains on investments                                |   | -      |   |   | (7,448  | )
|Actuarial losses                                                                       |   | -      |   |   | (3      | )
|Tax effect                                                                             |   | (78    | ) |   | 78      |  
|Total other comprehensive loss
      from continuing operations                        |   | (112   | ) |   | (8,633  | )
|                                                                                       |   |        |   |   |         |  
|Other comprehensive income / (loss) from
      discontinued operations:                |   |        |   |   |         |  
|Unrealized gain / (loss) on
      derivatives designated as cash flow hedges           |   | 5,458  |   |   | (10,627 | )
|Reclassification of realized
      losses / (gains) on cash flow hedges to earnings    |   | 4,179  |   |   | (35     | )
|Foreign exchange loss on
      translation of discontinued operations                  |   | (538   | ) |   | (1,635  | )
|Unrealized loss on investments
      and reclassification of losses to earnings        |   | 58     |   |   | (58     | )
|Reclassification of foreign
      exchange loss on translation to earnings (Note 6(d)) |   | 2,173  |   |   | -       |  
|Actuarial losses                                                                       |   | -      |   |   | (4      | )
|Total other comprehensive income
      / (loss) from discontinued operations           |   | 11,330 |   |   | (12,359 | )
|Total other comprehensive income / (loss)                                              |   | 11,218 |   |   | (20,992 | )
|Comprehensive income                                                                   | $ | 44,449 |   | $ | 155,867 |  
|                                                                                       |   |        |   |   |         |  
|                                                                                       |   |        |   |   |         |  

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands of
United States dollars)

|                                                                                                       |   | 2012     |   |   | 2011         |  
|------------------------------------------------------------------------------------------------------ | - | -------- | - | - | ------------ | -
|For
      the years ended December 31                                                                  |   |          |   |   | (Note 6 (d)) |  
|                                                                                                       |   |          |   |   |              |  
|OPERATING ACTIVITIES                                                                                   |   |          |   |   |              |  
|Net (loss) / earnings from
      continuing operations                                                 | $ | (97,821  | ) | $ | 29,295       |  
|Payments of disposition-related
      costs                                                            |   | (8,504   | ) |   | -            |  
|Payments to settle derivative
      liabilities                                                        |   | (317     | ) |   | -            |  
|Payments to settle provisions                                                                          |   | (9,099   | ) |   | (4,462       | )
|Items not affecting cash (Note
      26)                                                               |   | 154,841  |   |   | (19,972      | )
|Change in non-cash operating
      working capital (Note 26)                                           |   | (37,767  | ) |   | (7,937       | )
|Operating cash flows from
      continuing operations                                                  |   | 1,333    |   |   | (3,076       | )
|                                                                                                       |   |          |   |   |              |  
|INVESTING ACTIVITIES                                                                                   |   |          |   |   |              |  
|Acquisition of Capital Gold, net
      of cash acquired (Note 5)                                       |   | -        |   |   | (54,105      | )
|Cash acquired on acquisition of
      Northgate (Note 5)                                               |   | -        |   |   | 123,244      |  
|Proceeds from disposition of
      Australian operations, net of cash sold (Note 6(a))                 |   | 44,755   |   |   | -            |  
|Proceeds from disposition of El
      Cubo and Guadalupe y Calvo, net of cash sold (Note 6(b))         |   | 99,157   |   |   | -            |  
|Proceeds from disposition of
      Ocampo, net of cash sold and taxes paid (Note 6(c) and Note 26)     |   | 641,419  |   |   | -            |  
|Proceeds from issuance of shares
      in a subsidiary (Note 11)                                       |   | 27,000   |   |   | -            |  
|Increase in restricted cash                                                                            |   | (4,774   | ) |   | -            |  
|Purchase of investments                                                                                |   | -        |   |   | (51,437      | )
|Sale of investments (Note 9)                                                                           |   | 108,230  |   |   | 69,520       |  
|Expenditures on property, plant
      and equipment, mining interests and intangible assets            |   | (370,064 | ) |   | (107,978     | )
|Investing cash flows from continuing
      operations                                                  |   | 545,723  |   |   | (20,756      | )
|                                                                                                       |   |          |   |   |              |  
|FINANCING ACTIVITIES                                                                                   |   |          |   |   |              |  
|Repayment of debt and equipment
      financing obligations                                            |   | (131,377 | ) |   | (3,414       | )
|Proceeds from debt and equipment
      financing obligations                                           |   | 78,851   |   |   | 35,000       |  
|Payment of financing fees on
      debt                                                                |   | (1,877   | ) |   | (914         | )
|Proceeds from exercise of stock
      options                                                          |   | 1,205    |   |   | 5,854        |  
|Proceeds from exercise of
      warrants                                                               |   | -        |   |   | 15,379       |  
|Financing cash flows from
      continuing operations                                                  |   | (53,198  | ) |   | 51,905       |  
|                                                                                                       |   |          |   |   |              |  
|Impact of foreign exchange on
      cash                                                               |   | (1,109   | ) |   | 62           |  
|                                                                                                       |   |          |   |   |              |  
|Net increase in cash and cash equivalents
      from continuing operations                             |   | 492,749  |   |   | 28,135       |  
|Net (decrease) / increase in cash and cash
      equivalents from discontinued operations (Note 6 (d)) |   | (68,792  | ) |   | 38,167       |  
|                                                                                                       |   |          |   |   |              |  
|Cash and cash equivalents, beginning of
      period                                                   |   | 179,444  |   |   | 113,142      |  
|Cash and cash equivalents, end of period                                                               | $ | 603,401  |   | $ | 179,444      |  
|                                                                                                       |   |          |   |   |              |  

|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                                |   | 2012      |   |   | 2011      |  
|-------------------------------------------------------------------- | - | --------- | - | - | --------- | -
|                                                                     |   |           |   |   |           |  
|Capital stock                                                        |   |           |   |   |           |  
|Balance, beginning of period                                         | $ | 2,301,419 |   | $ | 881,960   |  
|Shares issued on acquisition of
      Northgate                      |   | -         |   |   | 1,030,046 |  
|Shares issued on acquisition of
      Capital Gold                   |   | -         |   |   | 347,725   |  
|Shares issued as payment for
      acquisition-related services      |   | -         |   |   | 2,704     |  
|Shares issued as payment for
      disposition-related services      |   | 1,736     |   |   | -         |  
|Shares issued through employee
      share purchase plan             |   | 1,892     |   |   | 726       |  
|Shares issued on redemption of
      deferred share units            |   | 314       |   |   | -         |  
|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   |   | 1,205     |   |   | 5,854     |  
|Fair value of share-based
      compensation                         |   | 1,412     |   |   | 5,833     |  
|Tax benefit on previously
      unrecognized share issuance costs    |   | -         |   |   | 7,215     |  
|Balance, end of period                                               | $ | 2,307,978 |   | $ | 2,301,419 |  
|                                                                     |   |           |   |   |           |  
|Contributed surplus                                                  |   |           |   |   |           |  
|Balance, beginning of period                                         | $ | 45,232    |   | $ | 23,080    |  
|Options issued on acquisition of
      Northgate                     |   | -         |   |   | 16,555    |  
|Options issued on acquisition of
      Capital Gold                  |   | -         |   |   | 5,206     |  
|Fair value of deferred share
      units redeemed                    |   | (314      | ) |   | -         |  
|Fair value of share-based
      compensation                         |   | (1,412    | ) |   | (5,833    | )
|Share-based compensation                                             |   | 7,375     |   |   | 6,224     |  
|Balance, end of period                                               | $ | 50,881    |   | $ | 45,232    |  
|                                                                     |   |           |   |   |           |  
|Deficit                                                              |   |           |   |   |           |  
|Balance, beginning of period                                         | $ | (94,190   | ) | $ | (271,042  | )
|Actuarial losses                                                     |   | -         |   |   | (7        | )
|Net earnings                                                         |   | 33,231    |   |   | 176,859   |  
|Balance, end of period                                               | $ | (60,959   | ) | $ | (94,190   | )
|                                                                     |   |           |   |   |           |  
|Accumulated other comprehensive loss                                 |   |           |   |   |           |  
|Balance, beginning of period                                         | $ | (11,323   | ) | $ | 9,662     |  
|Other comprehensive income /
      (loss)                            |   | 11,218    |   |   | (20,985   | )
|Balance, end of period                                               | $ | (105      | ) | $ | (11,323   | )
|                                                                     |   |           |   |   |           |  
|Total shareholders' equity                                           | $ | 2,297,795 |   | $ | 2,241,138 |  
|                                                                     |   |           |   |   |           |  
|                                                                     |   |           |   |   |           |  

|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

AuRico Gold Inc. and its subsidiaries (collectively, the
Company or AuRico Gold) are engaged in the mining, development and
exploration 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) and the New York Stock Exchange (NYSE: AUQ). 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 22, 2013.

|   |                                                       
|-- | ------------------------------------------------------
|2. | Basis of preparation 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, 2012.

These consolidated financial 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                   | 
|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 | 
|Leadville Mining & Milling Holding Corporation   |  |  | Holding company         |  |  | United States of America | 
|Minera Santa Rita, S. de R.L. de C.V.            |  |  | Gold and silver mining  |  |  | Mexico                   | 
|Nayarit Gold Inc.                                |  |  | Holding company         |  |  | Canada                   | 
|Oro de Altar, S.A. de C.V.                       |  |  | Holding company         |  |  | Mexico                   | 

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.

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) | Investments in joint
ventures
|--- | -----------------------------

The Company accounts for investments in joint ventures using
the equity method of accounting. The carrying value of the Companys investments
in joint ventures represents the cost of the investment, including the Companys
share of retained earnings and losses subsequent to formation. At the end of
each reporting period, the Company assesses its investments in joint ventures
for any indicators of impairment.

|(c) | 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.

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.

6

---

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


Exchange differences are recognized in net earnings in the
period in which they arise. 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.

|(d) | 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.

|(e) | 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.

|(f) | 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. The carrying value of 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.

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 and processing operations. Costs
are removed from ore on leach pads and in the mill as ounces are recovered,
based on the average cost per recoverable 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.

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.

|(g) | Long-lived assets
|--- | -----------------

Property, plant and equipment

Property, plant and equipment is recorded at cost less
accumulated amortization and accumulated impairment losses. 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, and for qualifying
assets, borrowing costs. 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.

7

---

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


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 
|Mobile equipment              |  | 2-10 years 
|Other equipment               |  | 2-20 years 
|Processing plant              |  | 2-20 years 
|Vehicles                      |  | 3-4 years  
|Buildings                     |  | 7-20 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 remaining 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

Expenditures incurred prior to the Company obtaining the right
to explore are expensed in the period in which they are incurred.

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 and/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 assets are not depleted. These
amounts are reclassified from exploration and evaluation assets to mining
interests once the work completed to date supports the future development of the
property and management intends to develop the property. Prior to being
reclassified to mining interests, exploration and evaluation assets are assessed
for impairment.

Mining interests

All expenditures to ready the property for production are
capitalized within mining interests, other than those costs related to the
construction of related property, plant and equipment, which are capitalized
within construction in progress. Expenditures capitalized to mining interests
include all costs directly related to development activity, a proportion of
overhead costs directly related to development activity, and the initial
estimate of the reclamation obligation. Any proceeds from the sale of metals
during the development and commissioning phase of a project are netted against
the expenditures being capitalized. The development and commissioning phase
ceases upon the commencement of commercial production.

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
Company. Otherwise, such expenditures are classified as a cost of production.

Upon commencement of commercial production, 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 from measured, indicated and inferred resources 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.

8

---

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


Commercial production

Commercial production is reached when an open pit or
underground 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 the 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.

Capitalized stripping costs

Pre-production stripping costs are capitalized as part of the
cost of constructing a 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 and resources 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.

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

Investment tax credits

Investment tax credits are earned as a result of incurring
eligible exploration and development expenses prior to commercial production.
Investment tax credits are accounted for as a reduction to property, plant and
equipment or mining interests. Investment tax credits also arise as a result of
incurring eligible research and development expenses and these credits are
recorded as a reduction to the related expenses.

Derecognition

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

|(h) | Intangible assets
|--- | -----------------

Amounts paid for the acquisition of identifiable intangible
assets are recorded at cost less accumulated amortization and accumulated
impairment losses or at fair value on the date of acquisition. 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. The retained interest
royalty is amortized using the unit-of-production method based on the ounces of
production that are expected to generate the cash flows that will be
attributable to the Company. Amortization expense resulting from intangible
assets is included in amortization and depletion expense on the Consolidated
Statements of Operations. The estimated useful lives of the Companys intangible
assets are as follows:

|Asset               |  | Useful life
|------------------- |  | -----------
|Transmission rights |  | 8-20 years 
|Software            |  | 1-3 years  

|    |                      
|--- | ---------------------
|(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 does not exceed one year from the date of acquisition.
During the measurement period, the Company retrospectively adjusts 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 also recognizes 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.

9

---

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


| | 
| | 

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

Goodwill represents the difference between the consideration
transferred and the fair value of the identifiable net assets acquired, and is
not amortized. Goodwill, upon acquisition, is allocated to the cash-generating
unit (CGU) or group of CGUs expected to benefit from the related business
combination for the purposes of impairment testing. A CGU is defined 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 CGU 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 CGU level.

The Company evaluates, on an annual basis or more frequently if
there is an indication that a CGU may be impaired, the carrying amount of CGUs
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 a CGU to its carrying amount.

If the carrying amount of a CGU 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 CGUs,
impairment losses are allocated first to reduce the carrying amount of any
goodwill allocated to the CGUs, and then to reduce the carrying amounts of the
other assets in the CGU 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 and capital
expenditures. For value-in-use calculations, production costs, capital
expenditures, 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 those 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 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. The discount rate does not reflect risks for
which the cash flows have been adjusted. 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 provision is
progressively increased over the life of the operation as the effect of
discounting unwinds, creating an expense included in finance costs on the
Consolidated Statements of Operations.

10

---

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


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 unamortized
capitalized cost of the related assets. In the latter case, the capitalized cost
is reduced to nil and the remaining adjustment is recognized in reclamation,
care and maintenance costs on the Consolidated Statements of Operations. If
reclamation and restoration costs are incurred as a consequence of the
production of inventory, the costs are recognized as a cost of that inventory.
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.

|(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
on the Consolidated Statements of Operations.

|(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 in 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 in 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 (OCI) in the year that
they occur.

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. 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 re-measured 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.

11

---

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


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 unless the fair value
of the goods or services cannot be reliably measured, in which case they are
measured at the fair value of the equity instruments issued.

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

Income tax expense is comprised of 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.

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 calculated using the liability method on temporary differences
between the tax basis 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 at 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, financial liabilities at fair value
through profit or loss, or other financial liabilities.

12

---

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


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             | 
|Contingent consideration                     |  | Fair value through profit or loss |  | Fair value             | 
|Investments                                  |  | Available-for-sale and            |  | Fair value             | 
|                                             |  | fair value through profit or loss |  |                        | 
|Restricted cash                              |  | Fair value through profit or loss |  | Fair value             | 
|Warrants issued                              |  | Fair value through profit or loss |  | Fair value             | 
|Payables, provisions and other liabilities   |  | Other financial liabilities       |  | Amortized cost         | 
|Debt and equipment financing 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.

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 the 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.

Warrants issued are classified as 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.

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 debt and
equipment financing 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(g).

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, cash flow models, and option pricing 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. If future modifications are made that are considered to be substantial,
the transaction costs related to the modification are expensed, along with any
remaining unamortized costs.

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 cash flow hedging relationship (note
3(t)), in which case changes in fair value are recorded in accumulated other
comprehensive income.

13

---

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


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
that 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.

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 forecasted 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 re-measured 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 re-measurement are recognized in net earnings
from discontinued 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 combined and presented as net earnings from discontinued operations
in the Consolidated Statements of Operations. Comparative periods are
re-presented to reflect discontinued operations presentation.

|(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.

14

---

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


| | 
| | 

|(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 for the Company until
subsequent to December 31, 2012. Standards and interpretations issued, but not
yet adopted include:

|                                                                           | Effective for the Company
|-------------------------------------------------------------------------- | -------------------------
|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, 2013          
|Amendments to IAS 1, Presentation of
      Financial Statements            | January 1, 2013          
|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          
|Amendments to IAS 32, Financial
      Instruments: Presentation            | January 1, 2014          
|Annual Improvements to IFRS, 2009-2011                                     | January 1, 2013          

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, including
elimination of the existing IAS 39 categories of held-to-maturity,
available-for-sale and loans and receivables, in exchange for the classification
of financial assets and liabilities into the categories of either financial
assets measured at amortized cost or financial assets measured at fair value.
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 outstanding at the time of adoption.

IFRS 10, Consolidated Financial Statements, replaces the
consolidated financial statements section of IAS 27, Consolidated and Separate Financial Statements and
SIC-12, Consolidation  Special Purposes Entities in its 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 application of this
standard will not have an impact on the Companys consolidated financial
statements as all entities consolidated are wholly-owned by the Company. In
addition, the Company consolidates one special purpose entity, and it this
entity will continue to be consolidated under the new standard.

IFRS 11, Joint Arrangements, replaces IAS 31,
Interests in Joint Ventures, and requires the Company to classify its
interest in a joint arrangement as either a joint operation or a joint venture.
For a joint venture, the Company will account for its interest in the net assets
of the joint venture using the equity method of accounting. The Company will no
longer have the option to proportionately consolidate its share of the net
assets, revenues and expenses of joint ventures. The application of this
standard will not have an impact on the Companys consolidated financial
statements as the Company currently uses the equity method of accounting for its
joint ventures.

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.
Additional disclosures in the Companys consolidated financial statements
surrounding the special purpose entity currently consolidated by the Company
will be required.

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 applies to fair value measurement in other IFRS, such as impairment and employee
future benefits. The application of this standard will not have a material
impact on the Companys consolidated financial statements.

15

---

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


IFRIC 20,Stripping Costs in the Production Phase of a
Surface Mine, provides guidance on the recognition and measurement of
stripping costs associated with surface mining operations. IFRIC 20
differentiates between two benefits that could accrue to an entity from
stripping activities: (1) usable ore that can be used to produce inventory, and
(2) improved access to further quantities of material that will be mined in
future periods. IFRIC 20 provides guidance on when and how to account separately
for these two benefits, as well as how to initially and subsequently measure
them. If the costs of the stripping activity asset versus inventory produced are
not separately identifiable, an entity is required to allocate production
stripping costs between the two based on a relevant production measure. This
guidance recommends a different method of allocating waste between capital and
expense than the method currently used by the Company. IFRIC 20 will be applied
prospectively to the Companys production stripping costs incurred on or after
January 1, 2012, with specific transitional provisions applied to the Companys
stripping assets that existed on transition. The adoption of this interpretation
will result in an increase of $1,848 in production costs for the year ended
December 31, 2012, and an increase of $6,207 in inventory and a decline of
$8,055 in property, plant and equipment & mining interests at December 31,
2012.

IFRS 7, Financial Instruments: Disclosures and IAS 32,
Financial Instruments: Presentation, were amended to address the issue of
offsetting financial assets and financial liabilities in the financial
statements. The amendments to IAS 32 clarify situations in which an entity has a
legally enforceable right to set-off a financial liability and financial asset.
The amendments to IAS 32 also clarify when a settlement mechanism provides for
net settlement or gross settlement that is equivalent to net settlement. The
amendments to IFRS 7 contain new disclosure requirements for financial assets
and liabilities that are offset in the balance sheet or that are subject to
master netting arrangements or similar arrangements. These amendments will not
have a material impact 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. This change will not have a significant impact on the presentation
of the Companys Consolidated Statements of Comprehensive Income.

Amendments to IFRS stemming from the 2009 to 2011 cycle of
improvements contains amendments to the following four standards (excluding IFRS
1), with consequential amendments to other standards and interpretations: IAS 1,
Presentation of Financial Statements, IAS 16, Property, Plant and
Equipment, IAS 32, Financial Instruments: Presentation, and IAS 34, Interim Financial Reporting. The amendments will not
have a material impact on the consolidated financial statements.

The amendments
to IAS 19, IAS 27 and IAS 28 referenced above will not have an impact on the
Companys consolidated financial statements.

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

Many of the amounts included in the Consolidated Balance Sheets
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 in the determination of ore in process inventory. The
  quantities of recoverable gold and silver placed on the leach pads are
  reconciled to the quantities of gold and silver 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 and silver 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.      
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 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 ore body. 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 CGU, and to forecast the life of the mine.

16

---

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


| | 
| | 

| | 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. These estimates, in addition to a net asset value multiple, are used
  to calculate the fair value of assets acquired in a business combination and
  the recoverable amount of a CGU for the purpose of impairment testing.                                                                                                                                                                                                                                                                                                                                                           
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The Company amortizes its property, plant and equipment, net of residual
  value, on a straight-line basis over the estimated useful life of each asset,
  not to exceed the life of the mine at which the asset is utilized. The
  physical life of these assets, and related components, may differ from the
  Companys estimate, which would result in an adjustment to amortization and
  depletion expense.                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 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.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The Company makes estimates of amounts receivable under contingent
  consideration arrangements. Future amounts receivable will be impacted by
  future gold prices, future production from the Fosterville and Stawell mines
  in Victoria, Australia, as well as related operating and capital expenditures
  required to sustain that production.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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. | Business combinations

During 2011, 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
|--- | ---------------------------

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 part of the acquisition, the Company acquired
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.

17

---

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


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.

The following sets forth the final allocation of the purchase
price to assets and liabilities acquired, based on final determinations of fair
value:

|                                                       |   | Final   |  
|------------------------------------------------------ | - | ------- | -
|Cash and cash equivalents                              | $ | 14,525  |  
|Receivables                                            |   | 2,543   |  
|Inventories                                            |   | 77,730  |  
|Property, plant and equipment & mining
      interests |   | 173,530 |  
|Intangible assets                                      |   | 585     |  
|Other                                                  |   | 661     |  
|Trade payables and accrued liabilities                 |   | (7,717  | )
|Provisions                                             |   | (12,015 | )
|Deferred income tax liability                          |   | (61,802 | )
|Goodwill                                               |   | 233,521 |  
|                                                       | $ | 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.

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 was recognized in provisions as part of the purchase price
allocation.

Goodwill recorded on this transaction represented 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,
at the time of the transaction. Goodwill also resulted from the requirement to
recognize deferred tax assets and liabilities in connection with the temporary
differences between the fair values and the tax bases of assets acquired and
liabilities assumed. The goodwill is not deductible for income tax purposes.

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

On October 26, 2011 (the acquisition date), 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. As part of the
acquisition, the Company acquired the Young-Davidson mine 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 | 

18

---

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


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.

As a result of the acquisition of Northgate, the Company
acquired the Fosterville and Stawell mines located in the state of Victoria,
Australia. From the date of acquisition, the Fosterville and Stawell mines and
their related subsidiaries (collectively, the Australian operations) met the
criteria to be classified as assets held for sale. All assets of the Australian
operations have been combined and presented as assets held for sale and all
liabilities have been combined and presented as liabilities associated within
assets held for sale within the Northgate purchase price allocation.

During 2012, the Company made certain adjustments and
reclassifications to the preliminary allocation of the purchase price that was
first disclosed in the fourth quarter of 2011 based on facts and circumstances
that existed at the acquisition date. The fair value of the consideration
included in the definitive agreement between the Company and Crocodile Gold
Corporation (Crocodile Gold) for the sale of the Fosterville and Stawell mines
provided a more reliable basis to estimate the fair value of the net assets held
for sale at the acquisition date, resulting in an adjustment to assets held for
sale and goodwill within the allocation of the purchase price. In addition, the
finalization of Northgates final tax return resulted in revisions to previously
estimated amounts for current and deferred income taxes and long-term income
taxes recoverable that were included in the preliminary allocation of the
purchase price. These revisions resulted in an adjustment to receivables, other
long-term assets, the deferred tax liability and goodwill within the preliminary
allocation of the purchase price. The comparative December 31, 2011 balance
sheet was revised to reflect these adjustments and reclassifications. These
adjustments and reclassifications did not have an impact on net earnings for the
year ended December 31, 2012.

The following sets forth the final allocation of the purchase
price to assets and liabilities acquired, based on final determinations of fair
value:

|                                                       |   | Preliminary |   |   | Adjustments |   |   | Final     |  
|------------------------------------------------------ | - | ----------- | - | - | ----------- | - | - | --------- | -
|Cash and cash equivalents (1)                          | $ | 123,244     |   | $ | -           |   | $ | 123,244   |  
|Receivables                                            |   | 34,039      |   |   | (930        | ) |   | 33,109    |  
|Investments                                            |   | 802         |   |   | -           |   |   | 802       |  
|Inventories                                            |   | 7,545       |   |   | -           |   |   | 7,545     |  
|Prepaids and deposits                                  |   | 2,765       |   |   | -           |   |   | 2,765     |  
|Other long-term assets                                 |   | 56,093      |   |   | (439        | ) |   | 55,654    |  
|Property, plant and equipment & mining
      interests |   | 1,059,784   |   |   | -           |   |   | 1,059,784 |  
|Intangible assets                                      |   | 17,958      |   |   | -           |   |   | 17,958    |  
|Assets held for sale                                   |   | 148,463     |   |   | (12,480     | ) |   | 135,983   |  
|Trade payables and accrued liabilities                 |   | (72,790     | ) |   | -           |   |   | (72,790   | )
|Current income tax liability                           |   | (3,625      | ) |   | -           |   |   | (3,625    | )
|Debt and equipment financing obligations               |   | (162,991    | ) |   | -           |   |   | (162,991  | )
|Option component of convertible senior notes           |   | (43,459     | ) |   | -           |   |   | (43,459   | )
|Provisions                                             |   | (28,977     | ) |   | -           |   |   | (28,977   | )
|Deferred income tax liability                          |   | (247,811    | ) |   | (5,063      | ) |   | (252,874  | )
|Liabilities associated with assets held for
      sale |   | (64,484     | ) |   | -           |   |   | (64,484   | )
|Goodwill                                               |   | 222,781     |   |   | 18,912      |   |   | 241,693   |  
|                                                       | $ | 1,049,337   |   | $ | -           |   | $ | 1,049,337 |  

|(1) | At October 26, 2011, subsidiaries included in
      discontinued operations held cash of $22,996.
|--- | -------------------------------------------------------------------------------------------------

Receivables acquired were primarily comprised of taxes
receivable from the Canadian government. There is a low risk that these amounts
will be uncollectible, 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. Goodwill also resulted from the
requirement to recognize deferred tax assets and liabilities in connection with
the temporary differences between the fair values and the tax bases of assets
acquired and liabilities assumed. The goodwill is not deductible for income tax
purposes.


19

---

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


| | 
| | 

|6.  | Discontinued operations
|--- | -----------------------
|    |                        
|(a) | Australian operations  

On May 4, 2012, the Company completed the sale of the
Australian operations to Crocodile Gold. The consideration received was
comprised of CAD $55 million in cash, 20 million Crocodile Gold common shares,
and additional payments based on the future life-of-mine free cash flows, as
defined in the agreement, from the Fosterville and Stawell mines (the retained
interest royalty). Per the agreement, once the cumulative free cash flow
generated by the mines subsequent to closing has reached CAD $60 million, the
Company will receive 100% of the next CAD $30 million of cumulative free cash
flow in excess of CAD $60 million, and 50% of the next CAD $30 million of
cumulative free cash flow in excess of CAD $90 million. In addition, the Company
will receive 20% of any cumulative free cash flow in excess of CAD $120 million.
The results of the Australian operations up to the date of disposal have been
presented as discontinued operations within these consolidated financial
statements.

During the year ended December 31, 2012, the Company recognized
an impairment charge of $22,857 that resulted from the carrying value of the
Australian net assets exceeding the estimated fair value of the consideration
less costs to sell, measured at March 31, 2012.

The Company also recognized a loss on disposal of $1,736 that
resulted from the carrying value of the Australian net assets exceeding the
estimated fair value of consideration received in the transaction, measured at
May 4, 2012. The impairment charge and the loss on disposal have been included
in net earnings from discontinued operations in the Consolidated Statements of
Operations.

The carrying value of major classes of assets and liabilities
as well as the fair value of consideration as at the date of disposal were as
follows:

|Cash and cash equivalents                                         | $ | 10,487  |  
|----------------------------------------------------------------- | - | ------- | -
|Receivables                                                       |   | 2,174   |  
|Inventories                                                       |   | 20,645  |  
|Prepaids and deposits                                             |   | 1,092   |  
|Other long-term assets                                            |   | 11,845  |  
|Property, plant and equipment & mining
      interests            |   | 106,986 |  
|Trade payables and accrued liabilities                            |   | (18,449 | )
|Current portion of debt and equipment
      financing obligations |   | (5,608  | )
|Current portion of provisions                                     |   | (11,075 | )
|Debt and equipment financing obligations                          |   | (2,386  | )
|Provisions                                                        |   | (15,087 | )
|Net carrying value                                                | $ | 100,624 |  
|                                                                  |   |         |  
|Cash                                                              | $ | 55,242  |  
|Crocodile Gold shares                                             |   | 9,642   |  
|Retained interest royalty                                         |   | 34,004  |  
|Total fair value of consideration received                        | $ | 98,888  |  

The Company determined the fair value of the retained interest
royalty using a valuation model, which was based on the combined free cash flow
expected to be generated by the Fosterville and Stawell mines. This model uses a
derivative valuation approach that relies on the gold forward curve, the US
dollar to Australian dollar exchange rate forward curve, and the Canadian dollar
to Australian dollar exchange rate forward curve to estimate cash flows. The key
assumptions used in determining the fair value of these payments were future
production, gold prices, operating costs, capital expenditures and the discount
rate. The Company forecasted future production, operating costs and capital
expenditures based on the expected life-of-mine plans developed from technical
reports and historical cost experience. In determining the fair value of the
retained interest royalty, the Company assumed an initial spot gold price of
$1,642 per ounce, an average realized life of mine gold price of $1,679 per
ounce, and a credit-adjusted discount rate of 12.5% . The retained interest
royalty is included in intangible assets on the Consolidated Balance Sheets and
will be amortized into earnings as the Company becomes entitled to free cash
flows.

20

---

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


Changes in the assumptions used in determining the fair value
of the retained interest royalty at May 4, 2012 would have resulted in an
increase / (decrease) in net earnings from discontinued operations for the year
ended December 31, 2012:

|5% increase in gold prices     | $ | 5,911  |  
|------------------------------ | - | ------ | -
|5% decrease in gold prices     | $ | (5,761 | )
|1% increase in discount rate   | $ | (776   | )
|1% decrease in discount rate   | $ | 798    |  
|5% increase in operating costs | $ | (3,682 | )
|5% decrease in operating costs | $ | 3,879  |  

|(b) | El Cubo mine and Guadalupe y Calvo exploration
      property
|--- | -------------------------------------------------------------

On July 13, 2012, the Company completed the sale of the El Cubo
mine and Guadalupe y Calvo exploration property (El Cubo and Guadalupe y
Calvo) to Endeavour Silver Corp. (Endeavour), through the acquisition by
Endeavour of all of the shares of Mexgold Resources Inc., a wholly owned
subsidiary of the Company with ownership of these assets. The consideration was
comprised of $100 million in cash, 11,037,528 Endeavour common shares, $30
million in contingent payments to be paid upon the gold price exceeding
specified levels and $20 million in contingent payments to be paid upon the
occurrence of certain mine operating performance conditions during the three
years following the closing date of the transaction.

The results of El Cubo and Guadalupe y Calvo up to the date of
disposal have been presented as discontinued operations within these
consolidated financial statements. The El Cubo mine had previously been reported
in the Mexico reportable segment and the Guadalupe y Calvo exploration property
had previously been reported in Corporate and other.

During the year ended December 31, 2012, the Company recognized
a gain on disposal of $21,785 that resulted from the estimated fair value of the
consideration received in the transaction exceeding the carrying value of the El
Cubo and Guadalupe y Calvo net assets, measured at July 13, 2012. The gain on
disposal has been included in net earnings from discontinued operations in the
Consolidated Statements of Operations.

The carrying value of major classes of assets and liabilities
as well as the fair value of consideration as at the date of disposal were as
follows:

|Cash and cash equivalents                              | $ | 843     |  
|------------------------------------------------------ | - | ------- | -
|Receivables                                            |   | 8,133   |  
|Inventories                                            |   | 6,853   |  
|Property, plant and equipment & mining
      interests |   | 223,573 |  
|Other assets                                           |   | 230     |  
|Trade payables and accrued liabilities                 |   | (7,513  | )
|Provisions                                             |   | (2,239  | )
|Deferred income tax liability                          |   | (51,719 | )
|Net carrying value                                     | $ | 178,161 |  
|                                                       |   |         |  
|Cash                                                   | $ | 100,000 |  
|Endeavour shares                                       |   | 87,746  |  
|Purchase price adjustment receivable                   |   | 6,373   |  
|Contingent consideration                               |   | 5,827   |  
|Total fair value of consideration received             | $ | 199,946 |  

The definitive agreement for the El Cubo mine and Guadalupe y
Calvo exploration property contained a purchase price adjustment whereby the
purchase price is adjusted by closing working capital and certain other items.
The Company estimates the purchase price adjustment to be $6,373, receivable
upon final agreement with Endeavour.

The initial contingent consideration asset fair value of $5,827
relates to the $30 million in contingent payments to be paid upon the gold price
exceeding specified levels. This asset has been accounted for as a derivative,
and has been included in other long-term assets on the Consolidated Balance
Sheets. The fair value of the $20 million in contingent payments based on the
occurrence of certain mine operating performance conditions was determined to be
$nil at the disposition date as the Company determined that it was not likely
that these conditions would be met. Refer to note 29 for further information on
the key assumptions and valuation methodology used in determining the fair value
of the contingent consideration asset at December 31, 2012. The model used to
calculate the fair value of the contingent consideration asset at July 13, 2012
used an initial gold price of $1,588 per ounce.

21

---

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


Changes in the assumptions used in determining the fair value
of the contingent consideration at July 13, 2012 would have the resulted in an
increase / (decrease) in net earnings from discontinued operations for the year
ended December 31, 2012:

|5% increase in gold prices | $ | 2,129  |  
|-------------------------- | - | ------ | -
|5% decrease in gold prices | $ | (1,625 | )

|(c) | Ocampo mine
|--- | -----------

On December 14, 2012, the Company completed the sale of the
Ocampo mine and the Venus and Los Jarros exploration properties (collectively,
the Ocampo mine) to Minera Frisco S.A.B. de C.V. (Minera Frisco), through
the disposition of all of the shares of AuRicoGold de Mexico S.A. de C.V., a
wholly owned subsidiary of the Company with ownership of these assets. As part
of the transaction, Minera Frisco also acquired a 50% interest in the Orion
development project, located in Nayarit, Mexico (refer to note 11 for further
information). The consideration was comprised of $750 million in cash, including
$27 million for Minera Friscos 50% interest in the Orion development
project.

The results of the Ocampo mine up to the date of disposal have
been presented as discontinued operations within these consolidated financial
statements. The Ocampo mine had previously been reported in the Mexico
reportable segment.

During 2012, the Company recognized total net realizable value
adjustments of $16,070. These adjustments were required as the carrying value of
Ocampo ore in process heap leach inventory exceeded its net realizable
value.

During the year ended December 31, 2012, the Company recognized
a gain on disposal of $150,793 that resulted from the fair value of the
consideration received in the transaction exceeding the carrying value of the
net assets of the Ocampo mine, measured at December 14, 2012. The Company
recognized tax expense on disposal of $72,114. Of this amount, $39,168 was
recognized during the three months ended September 30, 2012 because, at that
time, it became probable that the temporary differences associated with the
Companys investment in the Ocampo mine would reverse in the foreseeable future.
The remaining income tax expense of $32,946 was recognized during the three
months ended December 31, 2012. The net gain on disposal has been included in
net earnings from discontinued operations in the Consolidated Statements of
Operations.

The carrying value of major classes of assets and liabilities
as well as the fair value of consideration as at the date of disposal were as
follows:

|Cash and cash equivalents                                         | $ | 4,485   |  
|----------------------------------------------------------------- | - | ------- | -
|Receivables                                                       |   | 29,368  |  
|Inventories                                                       |   | 95,042  |  
|Prepaids and deposits                                             |   | 1,660   |  
|Long-term inventories                                             |   | 10,691  |  
|Other long-term assets                                            |   | 1,104   |  
|Property, plant and equipment & mining
      interests            |   | 540,008 |  
|Intangible assets                                                 |   | 2,718   |  
|Trade payables and accrued liabilities                            |   | (19,427 | )
|Current portion of debt and equipment
      financing obligations |   | (1,186  | )
|Provisions                                                        |   | (5,828  | )
|Deferred income tax liability                                     |   | (86,428 | )
|Net carrying value                                                | $ | 572,207 |  
|                                                                  |   |         |  
|                                                                  |   |         |  
|Total fair value of cash consideration
      received             | $ | 723,000 |  

22

---

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


|(d) | Results from discontinued
  operations
|--- | --------------------------------------

The results of these discontinued operations are presented as
net earnings from discontinued operations in the Consolidated Statements of
Operations and as a net (decrease) / increase in cash and cash equivalents from
discontinued operations in the Consolidated Statements of Cash Flows.
Comparative periods have been adjusted accordingly.

|                                                                                                           |   | December 31 |   |   | December 31 |  
|---------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                                                           |   | 2012        |   |   | 2011        |  
|Net earnings from discontinued
      operations:                                                           |   |             |   |   |             |  
|Australian operations                                                                                      |   |             |   |   |             |  
|Revenue from mining operations                                                                             | $ | 87,267      |   | $ | 48,214      |  
|Cost of goods sold                                                                                         |   | (57,288     | ) |   | (32,428     | )
|General and administrative                                                                                 |   | (495        | ) |   | (212        | )
|Exploration and business
      development                                                                 |   | (911        | ) |   | -           |  
|Impairment charge                                                                                          |   | (22,857     | ) |   | -           |  
|Earnings from operations                                                                                   |   | 5,716       |   |   | 15,574      |  
|Foreign exchange loss                                                                                      |   | (40         | ) |   | (82         | )
|Other income                                                                                               |   | 92          |   |   | 55          |  
|Earnings before income taxes
      prior to disposition                                                    |   | 5,768       |   |   | 15,547      |  
|Income tax expense                                                                                         |   | -           |   |   | -           |  
|Net earnings prior to
      disposition                                                                    |   | 5,768       |   |   | 15,547      |  
|Loss on disposal                                                                                           |   | (1,736      | ) |   | -           |  
|Disposition-related costs                                                                                  |   | (1,034      | ) |   | -           |  
|Income tax recovery on disposal                                                                            |   | 366         |   |   | -           |  
|Reclassification of foreign exchange
      loss on translation from other comprehensive income to earnings |   | (2,173      | ) |   | -           |  
|Net earnings                                                                                               | $ | 1,191       |   | $ | 15,547      |  
|                                                                                                           |   |             |   |   |             |  
|El Cubo and Guadalupe y Calvo                                                                              |   |             |   |   |             |  
|Revenue from mining operations                                                                             | $ | 29,613      |   | $ | 26,853      |  
|Cost of goods sold                                                                                         |   | (23,741     | ) |   | (30,620     | )
|General and administrative                                                                                 |   | (748        | ) |   | (1,861      | )
|Impairment reversal                                                                                        |   | -           |   |   | 51,673      |  
|Earnings from operations                                                                                   |   | 5,124       |   |   | 46,045      |  
|Foreign exchange (loss) / gain                                                                             |   | (3,403      | ) |   | 3,447       |  
|Other expense                                                                                              |   | (65         | ) |   | (293        | )
|Earnings before income taxes
      prior to disposition                                                    |   | 1,656       |   |   | 49,199      |  
|Income tax expense                                                                                         |   | (25         | ) |   | (26,713     | )
|Net earnings prior to
      disposition                                                                    |   | 1,631       |   |   | 22,486      |  
|Gain on disposal                                                                                           |   | 21,785      |   |   | -           |  
|Disposition-related costs                                                                                  |   | (1,928      | ) |   | -           |  
|Income tax expense on disposal                                                                             |   | (2,617      | ) |   | -           |  
|Net earnings                                                                                               | $ | 18,871      |   | $ | 22,486      |  

23

---

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


|                                                        |   | December 31 |   |   | December 31 |  
|------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                        |   | 2012        |   |   | 2011        |  
|Ocampo mine                                             |   |             |   |   |             |  
|Revenue from mining operations                          | $ | 176,865     |   | $ | 291,116     |  
|Cost of goods sold                                      |   | (120,033    | ) |   | (121,843    | )
|General and administrative                              |   | (11,352     | ) |   | (10,806     | )
|Earnings from operations                                |   | 45,480      |   |   | 158,467     |  
|Foreign exchange (loss) / gain                          |   | (5,535      | ) |   | 7,673       |  
|Other income                                            |   | 1,436       |   |   | 2,158       |  
|Earnings before income taxes
      prior to disposition |   | 41,381      |   |   | 168,298     |  
|Income tax expense                                      |   | 91          |   |   | (58,767     | )
|Net earnings prior to
      disposition                 |   | 41,472      |   |   | 109,531     |  
|Gain on disposal                                        |   | 150,793     |   |   | -           |  
|Disposition-related costs                               |   | (9,161      | ) |   | -           |  
|Income tax expense on disposal                          |   | (72,114     | ) |   | -           |  
|Net earnings                                            | $ | 110,990     |   | $ | 109,531     |  
|                                                        |   |             |   |   |             |  
|Net earnings from discontinued operations               | $ | 131,052     |   | $ | 147,564     |  

|                                                                                          |   |             |   |   |             |  
|----------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|Net (decrease) / increase in cash and cash equivalents from
discontinued operations:      |   |             |   |   |             |  
|                                                                                          |   | December 31 |   |   | December 31 |  
|                                                                                          |   | 2012        |   |   | 2011        |  
|Australian operations                                                                     |   |             |   |   |             |  
|Operating cash flows                                                                      | $ | 25,958      |   | $ | 21,566      |  
|Investing cash flows                                                                      |   | (25,744     | ) |   | (17,362     | )
|Financing cash flows                                                                      |   | (2,103      | ) |   | (1,509      | )
|Effect of foreign exchange on
      cash                                                  |   | 31          |   |   | (364        | )
|Net (decrease) / increase in
      cash and cash equivalents                              | $ | (1,858      | ) | $ | 2,331       |  
|                                                                                          |   |             |   |   |             |  
|El Cubo and Guadalupe y Calvo                                                             |   |             |   |   |             |  
|Operating cash flows                                                                      | $ | 4,008       |   | $ | (11,104     | )
|Investing cash flows                                                                      |   | (13,471     | ) |   | (12,841     | )
|Financing cash flows                                                                      |   | -           |   |   | -           |  
|Effect of foreign exchange on
      cash                                                  |   | (21         | ) |   | (4          | )
|Net decrease in cash and cash
      equivalents                                           | $ | (9,484      | ) | $ | (23,949     | )
|                                                                                          |   |             |   |   |             |  
|Ocampo mine                                                                               |   |             |   |   |             |  
|Operating cash flows                                                                      | $ | 49,105      |   | $ | 174,438     |  
|Investing cash flows                                                                      |   | (104,305    | ) |   | (109,205    | )
|Financing cash flows                                                                      |   | (3,056      | ) |   | (4,476      | )
|Effect of foreign exchange on
      cash                                                  |   | 806         |   |   | (972        | )
|Net (decrease) / increase in
      cash and cash equivalents                              | $ | (57,450     | ) | $ | 59,785      |  
|                                                                                          |   |             |   |   |             |  
|Net (decrease) / increase in cash and
      cash equivalents from discontinued operations | $ | (68,792     | ) | $ | 38,167      |  
|                                                                                          |   |             |   |   |             |  

24



---



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


|7. | Cash and cash equivalents
|-- | -------------------------

Cash and cash equivalents are comprised of the following:

|                 |   | December 31 |  |   | December 31 | 
|---------------- | - | ----------- |  | - | ----------- | 
|                 |   | 2012        |  |   | 2011        | 
|Cash             | $ | 603,401     |  | $ | 168,391     | 
|Cash equivalents |   | -           |  |   | 11,053      | 
|                 | $ | 603,401     |  | $ | 179,444     | 

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

|   |            
|-- | -----------
|8. | Receivables

|                         |   | December 31 |  |   | December 31 | 
|------------------------ | - | ----------- |  | - | ----------- | 
|                         |   | 2012        |  |   | 2011        | 
|Trade receivables        | $ | 1,639       |  | $ | 9,980       | 
|Commodity tax receivable |   | 9,651       |  |   | 24,681      | 
|Advances                 |   | 526         |  |   | 1,016       | 
|Other                    |   | 17,687      |  |   | 2,051       | 
|                         | $ | 29,503      |  | $ | 37,728      | 

Trade receivables at December 31, 2012 and 2011 primarily
included amounts due from gold and silver sales.

Included in other receivables at December 31, 2012 is the
purchase price adjustment receivable from Endeavour of $6,373 (see note 6(b)),
an insurance receivable of $10,956 relating to the settlement of a lawsuit (see
note 19(d)), and a receivable from the Companys jointly-controlled entity of
$358 (see note 11). Other receivables at December 31, 2011 included an amount
due from one of the Companys mining contractors, Sinergia Obras Civiles y
Mineras, S.A. de C.V., which resulted from the sale of equipment at El Chanate.

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.

|   |            
|-- | -----------
|9. | Investments

|                                                     |   |                   |  |   |             |  |   |                   |   |   | Year ended     |  
|---------------------------------------------------- | - | ----------------- |  | - | ----------- |  | - | ----------------- | - | - | -------------- | -
|                                                     |   |                   |  |   |             |  |   | December 31, 2012 |  
|                                                     |   |                   |  |   |             |  |   |                   |   |   | Realized &     |  
|                                                     |   |                   |  |   |             |  |   | Unrealized        |   |   | unrealized     |  
|                                                     |   |                   |  |   |             |  |   | gains/(losses)    |   |   | gains/(losses) |  
|                                                     |   | December 31, 2012 |  |   | included in |  |   | included in       |  
|                                                     |   | Cost              |  |   | Fair value  |  |   | OCI               |   |   | earnings       |  
|Securities  available-for-sale                      | $ | 170               |  | $ | 64          |  | $ | (34               | ) | $ | -              |  
|Securities  fair value through profit or
      loss |   | 235               |  |   | 47          |  |   | -                 |   |   | 1,367          |  
|Warrants  fair value through profit or loss         |   | 80                |  |   | -           |  |   | -                 |   |   | (13            | )
|                                                     | $ | 485               |  | $ | 111         |  | $ | (34               | ) | $ | 1,354          |  
|                                                     |   |                   |  |   |             |  |   |                   |   |   |                |  
|                                                     |   |                   |  |   |             |  |   |                   |   |   | Year ended     |  
|                                                     |   |                   |  |   |             |  |   | December 31, 2011 |  
|                                                     |   |                   |  |   |             |  |   |                   |   |   | Realized &     |  
|                                                     |   |                   |  |   |             |  |   | Unrealized        |   |   | unrealized     |  
|                                                     |   |                   |  |   |             |  |   | gains/(losses)    |   |   | gains/(losses) |  
|                                                     |   | December 31, 2011 |  |   | included in |  |   | included in       |  
|                                                     |   | Cost              |  |   | Fair value  |  |   | OCI               |   |   | earnings       |  
|Securities  available-for-sale                      | $ | 170               |  | $ | 98          |  | $ | (1,260            | ) | $ | 8,331          |  
|Securities  fair value through profit or
      loss |   | 7,049             |  |   | 7,767       |  |   | -                 |   |   | 7,316          |  
|Warrants  fair value through profit or loss         |   | 748               |  |   | 13          |  |   | -                 |   |   | (767           | )
|                                                     | $ | 7,967             |  | $ | 7,878       |  | $ | (1,260            | ) | $ | 14,880         |  

---

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


As part of the consideration received upon the disposition of
the Companys Australian operations on May 4, 2012, the Company received 20
million shares of Crocodile Gold. These shares were classified as financial
assets at fair value through profit or loss and initially recognized at a fair
value of $9,642. On October 23, 2012, these shares were sold for gross proceeds
of $7,449, less transaction costs of $201, resulting in net proceeds of $7,248.

As part of the consideration received upon the disposition of
the El Cubo mine and Guadalupe y Calvo exploration property on July 13, 2012,
the Company received 11,037,528 common shares of Endeavour. These shares were
classified as financial assets at fair value through profit or loss and
initially recognized at a fair value of $87,746. On October 22, 2012, these
shares were sold for gross proceeds of $95,511, less transaction costs of
$1,910, resulting in net proceeds of $93,601.

During 2011, the Company received 2,500,000 shares of Golden
Queen Mining Company Ltd. through the exercise of warrants. The shares received
were classified as financial assets at fair value through profit or loss and
initially recognized at a fair value of $4,562. During 2012, these shares were
sold for gross proceeds of $6,683, less transaction costs of $50, resulting in
net proceeds of $6,633. During 2012, the Company also sold other equity
securities for net proceeds of $748.

During 2011, the Company sold equity securities for total
proceeds of $69,788, net of transaction costs of $268, resulting in net proceeds
of $69,520.

Realized and unrealized gains on equity securities totalled
$1,367 in 2012 (2011 - $15,647). In addition to these gains, foreign exchange
gains were realized on the sale of equity securities. Foreign exchange gains and
losses on equity securities measured at fair value through profit or loss are
included in foreign exchange (loss) / gain in the Consolidated Statements of
Operations.

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

|                            |   | December 31 |   |   | December 31 |  
|--------------------------- | - | ----------- | - | - | ----------- | -
|                            |   | 2012        |   |   | 2011        |  
|Supplies                    | $ | 15,020      |   | $ | 32,905      |  
|Ore stockpiles              |   | 27,083      |   |   | 2,569       |  
|Ore in process              |   | 103,477     |   |   | 149,817     |  
|Finished goods              |   | 7,870       |   |   | 3,038       |  
|                            |   | 153,450     |   |   | 188,329     |  
|Less: Long-term inventories |   | (82,703     | ) |   | (51,238     | )
|                            | $ | 70,747      |   | $ | 137,091     |  

Ore in process inventory at December 31, 2012 included $16,697
(December 31, 2011 - $22,100) related to the excess of the fair value of El
Chanate inventory over its carrying value at the acquisition date, which is
being charged to earnings as the related inventory is sold.

|    |                                          
|--- | -----------------------------------------
|11. | Investment in jointly-controlled
  entity

On December 14, 2012, Minera Frisco acquired a 50% interest in
the Orion development project (Orion), located in Nayarit, Mexico (refer to
note 6 for further information). In accordance with the purchase and sale
agreement, the Company issued shares representing a 50% ownership interest of
Nayarit Gold de Mexico, S.A. de C.V., a subsidiary with ownership of this
project, to Minera Frisco in exchange for cash of $27 million. Both the Company
and Minera Frisco have 50% ownership in the entity and equal representation on
the Board of Directors of the joint venture company. As a result, it was
determined that the Company and Minera Frisco have joint control over the joint
venture company.

The carrying value of the major classes of assets and
liabilities of Orion on December 14, 2012 were as follows:

|                                                       |   | Book Value |  
|------------------------------------------------------ | - | ---------- | -
|Current assets                                         | $ | 244        |  
|Property, plant and equipment & mining
      interests |   | 53,800     |  
|Current liabilities                                    |   | (382       | )
|Deferred income tax liability                          |   | (12,902    | )
|Net assets                                             | $ | 40,760     |  

The Company has treated the sale of the 50% interest in Orion
to Minera Frisco as a contribution of assets to the joint venture. Upon the
recognition of $27,000 of cash consideration received and the derecognition of
50% of the Companys net interest in Orion, the Company recognized a gain of
$6,620. The gain is included in other income on the Consolidated Statements of
Operations (see note 24). The initial cost of the Companys investment in the
jointly-controlled entity was $20,380 at December 14, 2012.

26

---

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


The Consolidated Balance Sheets and related notes as at
December 31, 2011 reflect the consolidation of a 100% interest in Orion. The
following table contains selected financial information for the Companys share
of participation in the jointly-controlled entity for the period December 14,
2012 to December 31, 2012:

|                                                                     |   | December 31 | 
|-------------------------------------------------------------------- | - | ----------- | 
|                                                                     |   | 2012        | 
|Net investment in jointly-controlled entity,
      December 14, 2012 | $ | 20,380      | 
|Share of net earnings during the period                              |   | 83          | 
|Net investment in jointly-controlled entity,
      December 31, 2012 | $ | 20,463      | 
|                                                                     |   |             | 
|Current assets                                                       |   | 120         | 
|Property, plant and equipment & mining
      interests               |   | 26,900      | 
|Total assets                                                         | $ | 27,020      | 
|                                                                     |   |             | 
|Current liabilities                                                  |   | 188         | 
|Deferred income tax liability                                        |   | 6,369       | 
|Total liabilities                                                    | $ | 6,557       | 
|                                                                     |   |             | 
|Net investment in jointly-controlled entity                          | $ | 20,463      | 

Included in current liabilities of the jointly-controlled
entity at December 31, 2012 was a payable due to the Company of $358. The
Company has included a corresponding amount in receivables on the Consolidated
Balance Sheets at December 31, 2012.

At December 31, 2012, the Company did not have any significant
commitments or contingent liabilities related to this jointly-controlled entity.

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

|                                          |   | December 31 |  |   | December 31 | 
|----------------------------------------- | - | ----------- |  | - | ----------- | 
|                                          |   | 2012        |  |   | 2011        | 
|Restricted cash in closure bonds          | $ | 27,729      |  | $ | 27,160      | 
|Other restricted cash                     |   | 4,184       |  |   | 1,733       | 
|Investment tax credits recoverable        |   | 39,021      |  |   | 31,175      | 
|Contingent consideration (Note 6(b))      |   | 7,395       |  |   | -           | 
|Deposits on property, plant and equipment |   | 4,960       |  |   | 508         | 
|                                          | $ | 83,289      |  | $ | 60,576      | 

Restricted cash in closure bonds consists of cash and
short-term deposits pledged by the Company relating to site closure and
reclamation obligations at Kemess South, a mine in the decommissioning stage,
and Young-Davidson.

Other restricted cash consists of letters of credit issued
against certain of the Companys bank accounts relating to site infrastructure,
site closure, and other mine activities.

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.


27

---

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


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

Mining interestsPlant
    
    
    
    
    
    
    
    
    Explorationand
    
    
    
    
    
    Non-
    
    
    andequipment
    
    
    Depletable
    
    
    depletable
    
    
    evaluation
    
    
    TotalCostAt 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
    
    
    247,283Reclassifications
    
    -
    
    
    9,440
    
    
    (9,440
    )
    
    -
    
    
    -Disposals
    
    (15,211
    )
    
    -
    
    
    -
    
    
    -
    
    
    (15,211
    )At December 31, 2011
    
    651,708
    
    
    638,600
    
    
    850,785
    
    
    211,251
    
    
    2,352,344Additions
    
    226,648
    
    
    133,495
    
    
    69,921
    
    
    7,903
    
    
    437,967Reclassifications
    
    -
    
    
    54,071
    
    
    (54,071
    )
    
    -
    
    
    -Disposals
    
    (334,531
    )
    
    (620,434
    )
    
    (60,610
    )
    
    (152,744
    )
    
    (1,168,319
    )At December 31, 2012
    $
    543,825
    
    $
    205,732
    
    $
    806,025
    
    $
    66,410
    
    $
    1,621,992Accumulated amortization,
      depletion and impairment chargesAt December 31, 2010
    $
    (121,272
    )
    $
    (183,635
    )
    $
    (20,028
    )
    $
    -
    
    $
    (324,935
    )Amortization and depletion
    
    (29,339
    )
    
    (24,860
    )
    
    -
    
    
    -
    
    
    (54,199
    )Impairment reversals / (charges)
    
    7,881
    
    
    81,584
    
    
    20,028
    
    
    (59,973
    )
    
    49,520Disposals
    
    10,070
    
    
    -
    
    
    -
    
    
    -
    
    
    10,070At December 31, 2011
    
    (132,660
    )
    
    (126,911
    )
    
    -
    
    
    (59,973
    )
    
    (319,544
    )Amortization and depletion
    
    (35,271
    )
    
    (44,650
    )
    
    -
    
    
    -
    
    
    (79,921
    )Impairment charges
    
    -
    
    
    -
    
    
    -
    
    
    (1,537
    )
    
    (1,537
    )Disposals
    
    149,469
    
    
    135,301
    
    
    -
    
    
    61,510
    
    
    346,280At December 31, 2012
    $
    (18,462
    )
    $
    (36,260
    )
    $
    -
    
    $
    -
    
    $
    (54,722
    )Carrying valueAt December 31, 2011
    $
    519,048
    
    $
    511,689
    
    $
    850,785
    
    $
    151,278
    
    $
    2,032,800At December 31, 2012
    $
    525,363
    
    $
    169,472
    
    $
    806,025
    
    $
    66,410
    
    $
    1,567,270The carrying values by mine are as follows:Mining interestsPlant
    
    
    
    
    
    
    
    
    Explorationand
    
    
    
    
    
    Non-
    
    
    andequipment
    
    
    Depletable
    
    
    depletable
    
    
    evaluation
    
    
    TotalEl Chanate
    $
    44,793
    
    $
    117,516
    
    $
    7,544
    
    $
    -
    
    $
    169,853Young-Davidson
    
    450,753
    
    
    51,956
    
    
    798,481
    
    
    -
    
    
    1,301,190Corporate and other
    
    29,817
    
    
    -
    
    
    -
    
    
    66,410
    
    
    96,227At December 31, 2012
    $
    525,363
    
    $
    169,472
    
    $
    806,025
    
    $
    66,410
    
    $
    1,567,270Ocampo
    $
    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
    
    278,512
    
    
    5,679
    
    
    786,729
    
    
    -
    
    
    1,070,920Corporate and other
    
    29,980
    
    
    -
    
    
    -
    
    
    151,278
    
    
    181,258At December 31, 2011
    $
    519,048
    
    $
    511,689
    
    $
    850,785
    
    $
    151,278
    
    $
    2,032,800


28

---

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


During the year ended December 31, 2012, $12,166 (year ended
December 31, 2011 - $2,690) of borrowing costs associated with capital projects
were capitalized within property, plant and equipment & mining interests on
the Consolidated Balance Sheets. The applicable capitalization rate for general
borrowings was 5.08% (year ended December 31, 2011 - 7.08%) . Included in
borrowing costs capitalized during the year were $7,902 (year ended December 31,
2011 - $1,080) of borrowing costs related to the convertible senior notes, which
were capitalized to Young-Davidson mine development as specific borrowings until
the declaration of commercial production on September 1, 2012. Subsequent to the
declaration of commercial production, the borrowing costs related to the
convertible senior notes were included in general borrowings costs.

The carrying value of equipment pledged as security for related
equipment financing obligations at December 31, 2012 was $21,299 (December 31,
2011 - $31,283).

The carrying value of construction in progress at December 31,
2012 was $105,791 (December 31, 2011 - $218,054), including $99,165 (December
31, 2011 - $213,196) relating to projects at the Young-Davidson mine.

The Company has made commitments to acquire property, plant and
equipment totaling $9,580 at December 31, 2012 (December 31, 2011 - $76,931).

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

Included in intangible assets is the retained interest royalty
received as part of consideration from the disposition of the Australian
operations (see note 6(a)) and the rights to use the capacity of power lines
connecting the El Chanate and Young-Davidson mines to national / provincial
electricity grids (transmission rights).

Intangible AssetsRetained
    
    
    
    
    
    
    
    
    Totalinterest
    
    
    Transmission
    
    
    
    
    
    intangibleGoodwill
    
    
    royalty
    
    
    rights
    
    
    Other
    
    
    assets
    
    
    TotalCostAt December 31, 2010
    $
    106,799
    
    $
    -
    
    $
    4,019
    
    $
    -
    
    $
    4,019
    
    $
    110,818Acquisitions throughbusiness combinations
    
    475,214
    
    
    -
    
    
    18,068
    
    
    475
    
    
    18,543
    
    
    493,757Additions
    
    -
    
    
    -
    
    
    -
    
    
    2,173
    
    
    2,173
    
    
    2,173At December 31, 2011
    
    582,013
    
    
    -
    
    
    22,087
    
    
    2,648
    
    
    24,735
    
    
    606,748Additions
    
    -
    
    
    34,004
    
    
    2,950
    
    
    784
    
    
    37,738
    
    
    37,738Disposals
    
    (106,799
    )
    
    -
    
    
    (4,019
    )
    
    (1,193
    )
    
    (5,212
    )
    
    (112,011
    )At December 31, 2012
    $
    475,214
    
    $
    34,004
    
    $
    21,018
    
    $
    2,239
    
    $
    57,261
    
    $
    532,475Accumulated amortization and
      impairment chargesAt December 31, 2010
    $
    (106,799
    )
    $
    -
    
    $
    (566
    )
    $
    -
    
    $
    (566
    )
    $
    (107,365
    )Amortization
    
    -
    
    
    -
    
    
    (479
    )
    
    (1,855
    )
    
    (2,334
    )
    
    (2,334
    )At December 31, 2011
    
    (106,799
    )
    
    -
    
    
    (1,045
    )
    
    (1,855
    )
    
    (2,900
    )
    
    (109,699
    )Amortization
    
    -
    
    
    -
    
    
    (1,401
    )
    
    (620
    )
    
    (2,021
    )
    
    (2,021
    )Impairment charges
    
    (127,000
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (127,000
    )Disposals
    
    106,799
    
    
    -
    
    
    1,336
    
    
    1,149
    
    
    2,485
    
    
    109,284At December 31, 2012
    $
    (127,000
    )
    $
    -
    
    $
    (1,110
    )
    $
    (1,326
    )
    $
    (2,436
    )
    $
    (129,436
    )Carrying valueAt December 31, 2011
    $
    475,214
    
    $
    -
    
    $
    21,042
    
    $
    793
    
    $
    21,835
    
    $
    497,049At December 31, 2012
    $
    348,214
    
    $
    34,004
    
    $
    19,908
    
    $
    913
    
    $
    54,825
    
    $
    403,039.


29

---

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


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

Non-financial assets and CGUs are tested for impairment or a
reversal of impairment whenever there are indicators that an impairment has
occurred or should be reversed. CGUs containing goodwill are tested for
impairment each year at December 31. For the purpose 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,
2012 were commodity prices, discount rates, operating costs, capital
expenditures, foreign exchange rates and net asset value multiples. Of these
assumptions, reasonably possible changes in commodity prices, discount rates and
operating costs could have caused the carrying value of the Young-Davidson CGU
to exceed its recoverable amount, as outlined below in (b).

The Company develops long-term commodity price forecasts by
reference to numerous external analyst forecasts. The long-term commodity
pricing used in the impairment tests approximated the mean of all of these
forecasts, after adjusting for outliers. Ranges in commodity prices were $1,825
to $1,425 per ounce for gold and $35 to $25 per ounce for silver, including
long-term prices of $1,425 per ounce for gold and $25 per ounce for silver
(December 31, 2011 - $1,775 to $1,250 per ounce for gold and $38 to $23 per
ounce for silver).

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

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 as
follows:

|                   |  | December 31 |  |  | December 31 | 
|------------------ |  | ----------- |  |  | ----------- | 
|                   |  | 2012        |  |  | 2011        | 
|El Chanate CGU     |  | 6.00%       |  |  | 6.00%       | 
|Young-Davidson CGU |  | 5.00%       |  |  | -           | 

The results of impairment evaluations conducted are summarized
as follows:

|(a) | 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 and is included in the
Mexico reportable segment. At December 31, 2012, the carrying value of the El
Chanate CGU exceeded its recoverable amount by $127,000, which resulted in an
impairment charge being recorded in the Consolidated Statements of Operations.
The impairment charge related entirely to goodwill.

The Company prepared an updated life-of-mine plan that
incorporated the results of the 2012 drilling and exploration program, whereby
the Company did not replace 2012 depletion. In addition, the revised
life-of-mine plan reflected revised operating and economic parameters. These
were the two primary contributors to the impairment charge.

|(b) | Young-Davidson CGU
|--- | ------------------

The carrying value of goodwill resulting from the acquisition
of Northgate has been allocated to the Young-Davidson CGU, which is comprised of
all assets and liabilities related to the Young-Davidson mine. At December 31,
2012, the recoverable amount of the Young-Davidson CGU exceeded its carrying
value by $343,979. The increase in the recoverable amount since the date of
acquisition is primarily due to increased reserves, a decrease in the discount
rate and an increase in the net asset value multiple applied.

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

| | 2.59% increase in discount rate (to 7.59%)
|- | ------------------------------------------
|  |                                           
| | 9.76% decline in gold price assumptions   
|  |                                           
| | 24.50% increase in operating costs        

30

---

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


|(c) | Other
|--- | -----

During the year ended December 31, 2012, the Company
discontinued its exploration program on the La Bandera exploration property,
which was reported in Corporate and other. As a result, the Company recognized
an impairment charge of $1,537 and a tax recovery of $400, for a net impairment
charge of $1,137 in the Consolidated Statements of Operations.

During the year ended December 31, 2011, the Company
discontinued its exploration program on the Mezquite exploration property, which
was reported in Corporate and other. 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 in the Consolidated Statements of Operations.

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

At December 31, 2012, the Company had 1,585,000 warrants
outstanding, including 750,000 warrants with an exercise price of CAD $10.13
that expire on April 8, 2013 and 835,000 warrants with an exercise price of CAD
$9.52 that expire on October 26, 2013. 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
re-measured 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 or expired. At December 31, 2012, these warrants had a fair
value of $1,401 (December 31, 2011 - $883) (see note 29).

During 2011, 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 were accounted for as cash flow hedges of
specified, peso-denominated costs at the Ocampo mine until hedge accounting was
discontinued at September 30, 2012 as a result of the proposed sale of the mine.
Subsequent to September 30, 2012, changes in the fair value of these forward
contracts, along with any realized gains or losses on settlement, have been
recognized in net earnings on the Consolidated Statements of Operations. These
forward contracts are described in further detail in note 29.

|    |                                           
|--- | ------------------------------------------
|17. | Debt and equipment financing
  obligations

|                                                                        |   | December 31 |   |   | December 31 |  
|----------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                        |   | 2012        |   |   | 2011        |  
|(a)     Revolving credit facility                                       | $ | -           |   | $ | 59,207      |  
|(b)     Convertible senior notes                                        |   | 153,910     |   |   | 150,838     |  
|(c)     Equipment financing
      obligations                           |   | 18,625      |   |   | 12,262      |  
|                                                                        |   | 172,535     |   |   | 222,307     |  
|Less: Current portion of debt
      and equipment financing obligations |   | (5,038      | ) |   | (5,056      | )
|                                                                        | $ | 167,497     |   | $ | 217,251     |  

The estimated future minimum payments under debt and equipment
financing obligations are as follows:

|2013 | $ | 11,648  | 
|---- | - | ------- | 
|2014 | $ | 11,648  | 
|2015 | $ | 10,866  | 
|2016 | $ | 175,161 | 
|2017 | $ | 1,338   | 

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

On April 25, 2012, the Companys revolving credit facility was
expanded to $250,000. The expanded credit facility carries an interest rate of
LIBOR plus 2.25% to 3.50%, depending on the leverage ratio of the Company. The
facility matures on April 25, 2016 and may be extended upon mutual agreement by
all parties. No payments under the facility are due until the maturity date.

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, 2012.

During the year ended December 31, 2012, the Company received
proceeds of $66,410 from the revolving credit facility (year ended December 31,
2011 - $35,000). On December 14, 2012, the Company repaid the full amount drawn
on the revolving credit facility of $127,790. At December 31, 2012, no amounts
were drawn under this revolving facility.

31

---

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


Subsequent to December 31, 2012, the Company completed a
further amendment to the revolving credit facility, which reduced the amount
available from $250,000 to $150,000 (see note 32). The amended credit facility
carries the same interest rate and terms as the previous facility, as described
above.

As a result of the amendments made to the revolving credit
facility, the Company recognized a loss on extinguishment of debt of $3,945
during the year ended December 31, 2012 (see note 24).

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

The Company has $167,000 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 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 89.41697 common shares per $1,000 principal amount of notes,
which represents a 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.

Subsequent to December 31, 2012, the Company repurchased and
cancelled 36,144,578 common shares under the Companys modified Dutch auction
substantial issuer bid (see note 32). As a result, the conversion rate following
the completion of the substantial issuer bid has increased to 91.31649 common
shares per $1,000 principal amount of notes, which represents a conversion price
of approximately $10.95 per common share of the Company.

For the year ended December 31, 2012, the Company recorded
interest expense, including the amortization of the discount, of $8,917 (year
ended December 31, 2011 - $1,626) in relation to the debt component of the
notes, at an effective interest rate of 5.89% (year ended December 31, 2011 -
5.89%) . Of this amount, $7,902 (year ended December 31, 2011 - $1,626) was
capitalized to mine development and $1,015 (year ended December 31, 2011 - $nil)
was recognized as a finance cost in the Consolidated Statements of Operations.
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 $16,035 at December 31, 2012
(December 31, 2011 - $20,081), resulting in a unrealized gain of $4,046 (year
ended December 31, 2011 - $22,982) that was recognized in other income on the
Consolidated Statements of Operations for the year ended December 31, 2012 (see
note 24). At December 31, 2012, $167,000 (December 31, 2011 - $167,000)
convertible senior notes remained outstanding at a carrying value of $153,910
(December 31, 2011 - $150,838) for the debt component and $16,035 (December 31,
2011 - $20,081) for the option component.

|(c) | Equipment financing
obligations
|--- | -------------------------------

The Company has entered into financing obligations for
equipment, which expire at various dates between 2015 and 2017 and that are
secured by the financed assets. Interest payable on the various obligations
ranges from a fixed rate of 3.98% to 5.77% . During the year ended December 31,
2012, the Company received proceeds of $12,441 (year ended December 31, 2011 -
$nil) from equipment financing arrangements.

|    |                  
|--- | -----------------
|18. | Other liabilities

The current portion of other liabilities includes the liability
associated with a consultancy agreement. As of December 31, 2012, the total
balance outstanding was $2,750 (December 31, 2011 - $3,492). In January 2013,
the Company made a onetime payment of $2,750 to settle this liability.

At December 31, 2011, other liabilities also included the
unamortized amount of a deferred gain on sale-leaseback, totalling $1,372. The
equipment sold and leased back was located at the Ocampo mine, which was
disposed of during 2012.


32

---

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


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

|                                                 |   | December 31 |   |   | December 31 |  
|------------------------------------------------ | - | ----------- | - | - | ----------- | -
|                                                 |   | 2012        |   |   | 2011        |  
|(a)     Reclamation provisions                   | $ | 32,943      |   | $ | 38,184      |  
|(b)     Royalty interests provision              |   | 2,086       |   |   | 7,652       |  
|(c)     Provision for restricted share unit plan |   | 1,895       |   |   | 438         |  
|(d)     Provision for lawsuit                    |   | 13,318      |   |   | 1,435       |  
|Other                                            |   | 1,444       |   |   | 1,555       |  
|                                                 |   | 51,686      |   |   | 49,264      |  
|Less: Current portion of
      provisions        |   | (19,326     | ) |   | (10,614     | )
|                                                 | $ | 32,360      |   | $ | 38,650      |  

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

The Companys reclamation provisions consist of reclamation and
rehabilitation costs for each of the Companys operating mines and Kemess South.
The present value of the combined provision is currently estimated at $32,943
(December 31, 2011 - $38,184), reflecting ongoing payments relating to Kemess
South, and future payments that will commence in 9 - 17 years for the Companys
operating 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, 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
$42,128 (December 31, 2011 - $44,909). The discount rates used in estimating the
obligation 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
determined based on external forecasts for inflation in the country in which the
related mine operates.

The discount and inflation rates used are summarized as
follows:

|                |  | December 31 |  |  | December 31 | 
|--------------- |  | ----------- |  |  | ----------- | 
|                |  | 2012        |  |  | 2011        | 
|Discount rates  |  |             |  |  |             | 
|El Chanate      |  | 5.52%       |  |  | 6.46%       | 
|Young-Davidson  |  | 2.36%       |  |  | 2.50%       | 
|Kemess South    |  | 1.38%       |  |  | 1.28%       | 
|                |  |             |  |  |             | 
|Inflation rates |  |             |  |  |             | 
|El Chanate      |  | 3.30%       |  |  | 3.40%       | 
|Young-Davidson  |  | 2.00%       |  |  | 2.00%       | 
|Kemess South    |  | 2.00%       |  |  | 2.00%       | 

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

|                                                                        |   | December 31 |  
|----------------------------------------------------------------------- | - | ----------- | -
|                                                                        |   | 2012        |  
|Reclamation provisions, beginning of period                             | $ | 38,184      |  
|Obligations incurred and revisions to
      estimates                   |   | 10,654      |  
|Accretion expense                                                       |   | 1,009       |  
|Reclamation expenditures                                                |   | (9,312      | )
|Obligations transferred on dispositions (Note
      6(b) and Note 6(c)) |   | (7,592      | )
|Reclamation provisions, end of period                                   |   | 32,943      |  
|Less: Current portion                                                   |   | (1,276      | )
|                                                                        | $ | 31,667      |  

Of the $10,654 of obligations incurred and revisions to
estimates during the year, $4,699 was capitalized and included in property,
plant and equipment & mining interests on the Consolidated Balance Sheets
and $5,955 was recognized as expense in reclamation, care and maintenance costs
on the Consolidated Statements of Operations.

33

---

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


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

The Company has a royalty 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. Changes to the royalty interests provision balance during
the year were as follows:

|                                                       |   | December 31 |  
|------------------------------------------------------ | - | ----------- | -
|                                                       |   | 2012        |  
|Royalty interests provision, beginning of
      period | $ | 7,652       |  
|Accretion expense                                      |   | 297         |  
|Revisions to estimate                                  |   | (942        | )
|Payments of royalties                                  |   | (4,921      | )
|Royalty interests provision, end of period             |   | 2,086       |  
|Less: Current portion                                  |   | (2,086      | )
|                                                       | $ | -           |  

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

The Company provides a Restricted Share Unit (RSU) plan 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 161,700 RSUs, with a
grant date fair value of $1,481, were granted during the year ended December 31,
2012 (year ended December 31, 2011 - 185,728 RSUs with a grant date fair value
of $1,476). 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. At December 31, 2012,
347,428 RSUs were outstanding, including 103,563 vested units (December 31, 2011
- 185,728 RSUs unvested and outstanding).

|(d) | Provision for lawsuit
|--- | ---------------------

The Company was named as a defendant in a claim originally
filed by Ed J. McKenna, which was certified as a class action lawsuit with
damages sought from $80 million to $160 million. On October 5, 2012, the Company
reached an agreement to settle this class action lawsuit, subject to approval of
the court and the right of the Company to terminate the agreement under certain
circumstances. At December 31, 2012, the Company recognized a provision of
$13,318 relating to this lawsuit, which was partially offset by a corresponding
insurance receivable of $10,956, for a net settlement amount of $2,362. At
December 31, 2012, the net settlement amount was held in escrow pending
settlement of the lawsuit, and was included in restricted cash on the
Consolidated Balance Sheets. The provision will be settled during 2013 and
therefore, has been included in the current portion of provisions on the
Consolidated Balance Sheets.

At December 31, 2011, the Company had recognized a provision of
$1,435 for the settlement of the Capital Gold class action lawsuit. This
provision was partially offset by a corresponding insurance receivable of
$1,178, resulting in a net settlement amount of $257 that was recognized in
exploration and business development on the Consolidated Statements of
Operations. The provision was settled in January 2012.


34

---

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 (recovery) / expense recognized in the Consolidated Statements of Operations
for the year ended December 31, 2012:

|                             |   | December 31 |   |   | December 31 |  
|---------------------------- | - | ----------- | - | - | ----------- | -
|                             |   | 2012        |   |   | 2011        |  
|Deferred income tax recovery | $ | (7,849      | ) | $ | (351        | )
|Current income tax expense   |   | 6,625       |   |   | 10,383      |  
|Provision for income taxes   | $ | (1,224      | ) | $ | 10,032      |  

The following table reconciles the expected income tax
(recoverable) / payable at the statutory income tax rate to the amounts
recognized in the Consolidated Statements of Operations for the year ended
December 31, 2012:

|                                                                    |   | December 31 |   |   | December 31 |  
|------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                    |   | 2012        |   |   | 2011        |  
|(Loss) / earnings before income taxes                               | $ | (99,045     | ) | $ | 39,327      |  
|Income tax rate                                                     |   | 25.30%      |   |   | 30.50%      |  
|Expected income tax expense based on above
      rates              |   | (25,058     | ) |   | 11,995      |  
|Effect of (higher) / lower tax rates in
      foreign jurisdictions |   | (297        | ) |   | 60          |  
|Non-deductible stock option expense                                 |   | 2,085       |   |   | 2,059       |  
|Non-taxable gain on change to joint venture
      accounting        |   | (1,633      | ) |   | -           |  
|Effect of non-deductible goodwill impairment                        |   | 35,941      |   |   | -           |  
|Permanent differences                                               |   | (1,153      | ) |   | (731        | )
|Change in unrecognized temporary differences                        |   | 689         |   |   | (15,538     | )
|Impact of foreign exchange                                          |   | (11,798     | ) |   | 12,187      |  
|Provision for income taxes                                          | $ | (1,224      | ) | $ | 10,032      |  

The statutory tax rate for 2012 was 25.30% (2011 - 30.50%) .
This represents a decrease of 5.20%, primarily attributable to a decline in
Canadian statutory tax rates for the year 2012 and a change in provincial
allocation.

The following reflects the deferred income tax liability at
December 31, 2012:

|                                                                    |   | December 31 |   |   | December 31 |  
|------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                    |   | 2012        |   |   | 2011        |  
|Accounting value of mineral properties in
      excess of tax value | $ | 289,142     |   | $ | 428,522     |  
|Accounting value of inventories in excess of
      tax value        |   | 30,203      |   |   | 32,402      |  
|Unrealized foreign exchange gain                                    |   | 1,514       |   |   | -           |  
|Other (deductible) / taxable temporary
      differences            |   | (6,548      | ) |   | 389         |  
|Non-capital losses carried forward                                  |   | (26,180     | ) |   | (31,788     | )
|Deferred income tax liability                                       | $ | 288,131     |   | $ | 429,525     |  

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

|                                                                                                       |   | December 31 |   |   | December 31 |  
|------------------------------------------------------------------------------------------------------ | - | ----------- | - | - | ----------- | -
|                                                                                                       |   | 2012        |   |   | 2011        |  
|Deferred income tax liability, beginning of
      period                                               | $ | 429,525     |   | $ | 81,977      |  
|Deferred income tax recovery recognized in
      net (loss) / earnings from continuing operations      |   | (7,849      | ) |   | (351        | )
|Deferred income tax (recovery) / expense
      recognized in net earnings from discontinued operations |   | (1,932      | ) |   | 64,964      |  
|Impact of foreign exchange                                                                             |   | 19,358      |   |   | (24,448     | )
|Deferred income tax recovery recognized in
      other comprehensive income / (loss)                   |   | 78          |   |   | (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                             |   | -           |   |   | 252,874     |  
|Deferred income tax liability derecognized on
      disposition of El Cubo and Guadalupe y Calvo       |   | (51,719     | ) |   | -           |  
|Deferred income tax liability derecognized on
      disposition of Ocampo                              |   | (86,428     | ) |   | -           |  
|Deferred income tax liability derecognized on
      disposition of 50% interest in Orion               |   | (12,902     | ) |   | -           |  
|Deferred income tax liability, end of period                                                           | $ | 288,131     |   | $ | 429,525     |  

35

---

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 |  |   | United States |  |   | Total   | 
|-------------------- | - | ------- |  | - | ------ |  | - | ------------- |  | - | ------- | 
|2013                 | $ | 5,025   |  | $ | -      |  | $ | -             |  | $ | 5,025   | 
|2014                 |   | 4,110   |  |   | -      |  |   | -             |  |   | 4,110   | 
|2018                 |   | -       |  |   | 423    |  |   | -             |  |   | 423     | 
|2019                 |   | -       |  |   | 30     |  |   | -             |  |   | 30      | 
|2021                 |   | -       |  |   | 51     |  |   | -             |  |   | 51      | 
|2024                 |   | 7,757   |  |   | -      |  |   | -             |  |   | 7,757   | 
|2025                 |   | 18,801  |  |   | -      |  |   | -             |  |   | 18,801  | 
|2026                 |   | 5,597   |  |   | -      |  |   | -             |  |   | 5,597   | 
|2027                 |   | 31,964  |  |   | -      |  |   | -             |  |   | 31,964  | 
|2028                 |   | 13,153  |  |   | -      |  |   | 967           |  |   | 14,120  | 
|2029                 |   | 723     |  |   | -      |  |   | 5,730         |  |   | 6,453   | 
|2030                 |   | 6,284   |  |   | -      |  |   | 7,864         |  |   | 14,148  | 
|2031                 |   | 10,512  |  |   | -      |  |   | 5,249         |  |   | 15,761  | 
|2032                 |   | 6,853   |  |   | -      |  |   | -             |  |   | 6,853   | 
|At December 31, 2012 | $ | 110,779 |  | $ | 504    |  | $ | 19,810        |  | $ | 131,093 | 

The Company has unrecognized deferred income tax assets in
respect of aggregate loss carryforwards, deductible temporary differences and
unused tax credits of $27,965 (December 31, 2011 - $517,120).

At December 31, 2012, the Company has unrecognized deferred
income tax liabilities on taxable temporary differences of $163,961 (December
31, 2011 - $267,586) 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.

36

---

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


Issued and outstanding:

|                                                                     |  | December 31, 2012 |  |   | December 31, 2011 | 
|-------------------------------------------------------------------- |  | ----------------- |  | - | ----------------- | 
|                                                                     |  | Number of         |  |   |                   | 
|                                                                     |  | common            |  |   | Ascribed          | 
|                                                                     |  | shares            |  |   | value             | 
|Balance, beginning of period                                         |  | 281,605,752       |  | $ | 2,301,419         | 
|Shares issued on acquisition of Northgate                            |  | -                 |  |   | -                 | 
|Shares issued on acquisition of Capital Gold                         |  | -                 |  |   | -                 | 
|Change of control shares issued on
      acquisition of Capital Gold |  | -                 |  |   | -                 | 
|Shares issued as payment for
      acquisition-related services      |  | -                 |  |   | -                 | 
|Shares issued as payment for
      disposition-related services      |  | 211,991           |  |   | 1,736             | 
|Shares issued through employee share purchase
      plan             |  | 240,103           |  |   | 1,892             | 
|Shares issued on redemption of deferred share
      units            |  | 34,419            |  |   | 314               | 
|For cash pursuant to exercise of stock
      options                 |  | 234,282           |  |   | 1,205             | 
|For cash pursuant to exercise of warrants
      issued               |  | -                 |  |   | -                 | 
|Fair value of warrants exercised                                     |  | -                 |  |   | -                 | 
|Fair value of share-based compensation                               |  | -                 |  |   | 1,412             | 
|Tax benefit on previously unrecognized share
      issuance costs    |  | -                 |  |   | -                 | 
|Balance, end of period                                               |  | 282,326,547       |  | $ | 2,307,978         | 

|(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 three to four
years or as determined by the Companys Board of Directors.

Stock option disclosures are in Canadian dollars as the
Canadian dollar is the source currency of the Companys stock option grants.

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 | 
|----------------------- | - | ----------- |  | - | ----------- | 
|                        |   | 2012        |  |   | 2011        | 
|Dividend yield          |   | 0%          |  |   | 0%          | 
|Expected volatility     |   | 56.11%      |  |   | 60.43%      | 
|Risk free interest rate |   | 1.25%       |  |   | 1.42%       | 
|Expected life           |   | 3.39 years  |  |   | 3.85 years  | 
|Exercise price          | $ | 7.94        |  | $ | 9.70        | 
|Share price             | $ | 7.85        |  | $ | 9.70        | 
|Grant date fair value   | $ | 3.12        |  | $ | 4.43        | 

Expected volatility was determined based on historical share
price volatility.

37

---

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


| | 
| | 

December 31, 2012
    
    
    December 31, 2011Weighted
    
    
    
    
    
    WeightedOptions
    
    
    average price
    
    
    Options
    
    
    average priceOutstanding, beginning of period
    
    9,088,553
    
    $
    8.93
    
    
    4,425,360
    
    $
    9.40Options issued on acquisition of Northgate
    
    -
    
    $
    -
    
    
    3,183,000
    
    $
    7.78Options issued on acquisition of Capital Gold
    
    -
    
    $
    -
    
    
    802,103
    
    $
    5.65Granted
    
    3,056,268
    
    $
    7.93
    
    
    2,334,500
    
    $
    9.70Forfeited
    
    (255,000
    )
    $
    9.66
    
    
    (161,250
    )
    $
    9.65Expired
    
    (1,415,975
    )
    $
    12.28
    
    
    (519,072
    )
    $
    10.48Exercised
    
    (234,282
    )
    $
    5.14
    
    
    (976,088
    )
    $
    6.10Outstanding, end of period
    
    10,239,564
    
    $
    8.24
    
    
    9,088,553
    
    $
    8.93Options exercisable, end of period
    
    5,614,646
    
    $
    8.08
    
    
    5,460,553
    
    $
    8.80


During the year ended December 31, 2012, employees,
consultants, officers and directors of the Company exercised 234,282 options
(year ended December 31, 2011 - 976,088) for total proceeds of $1,198 (year
ended December 31, 2011 - $5,666). The weighted average share price at the date
of exercise for stock options exercised during the year ended December 31, 2012
was $8.47 (year ended December 31, 2011 - $10.73) .

Set forth below is a summary of the outstanding options to
purchase common shares as at December 31, 2012:

Options outstanding
    
    
    
    
    
    Options exercisableNumber
    
    
    Weighted average
    
    
    Average life
    
    
    Number
    
    
    Weighted averageOption Price
    
    outstanding
    
    
    exercise price
    
    
    (yrs)
    
    
    exercisable
    
    
    exercise price$ 2.01 - 4.50
    
    407,084
    
    $
    2.85
    
    
    3.03
    
    
    407,084
    
    $
    2.85$ 4.51 - 5.50
    
    18,250
    
    $
    5.29
    
    
    3.35
    
    
    18,250
    
    $
    5.29$ 5.51 - 6.00
    
    77,968
    
    $
    5.85
    
    
    2.44
    
    
    77,968
    
    $
    5.85$ 6.01 - 6.50
    
    310,000
    
    $
    6.32
    
    
    1.94
    
    
    280,000
    
    $
    6.33$ 6.51 - 7.00
    
    1,536,000
    
    $
    6.77
    
    
    4.81
    
    
    732,500
    
    $
    6.85$ 7.01 - 7.50
    
    563,975
    
    $
    7.24
    
    
    2.25
    
    
    438,975
    
    $
    7.23$ 7.51 - 9.00
    
    3,908,549
    
    $
    8.11
    
    
    4.52
    
    
    1,640,174
    
    $
    8.03$ 9.01 - 9.50
    
    1,025,000
    
    $
    9.29
    
    
    5.01
    
    
    381,875
    
    $
    9.29$ 9.51 - 10.00
    
    1,138,168
    
    $
    9.73
    
    
    4.17
    
    
    917,500
    
    $
    9.75$ 10.01 - 10.50
    
    200,000
    
    $
    10.09
    
    
    5.30
    
    
    50,000
    
    $
    10.09$ 10.51 - 11.00
    
    317,375
    
    $
    10.89
    
    
    4.85
    
    
    129,875
    
    $
    10.81$ 11.01 - 16.00
    
    737,195
    
    $
    11.43
    
    
    2.60
    
    
    540,445
    
    $
    11.29Total
    
    10,239,564
    
    
    
    
    
    
    
    
    5,614,646


|(c) | 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, 2012, the Company recognized
$699 as expense (year ended December 31, 2011 - $389) related to this plan. At
December 31, 2012, $182 of the expense was payable by the Company (December 31,
2011 - $179).

|(d) | 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 38,310 DSUs
(year ended December 31, 2011 - 50,891) with a grant date fair value of $331
(year ended December 31, 2011 - $486) were granted and vested during the year
ended December 31, 2012. In addition, a total of 34,419 DSUs were redeemed
during the year ended December 31, 2012 (year ended December 31, 2011 - nil). At
December 31, 2012, 252,646 DSUs were vested and outstanding (December 31, 2011 -
248,755).


38

---

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


|22. | Accumulated other comprehensive
  loss
|--- | --------------------------------------

Accumulated other comprehensive loss was impacted by other
comprehensive loss of continuing operations and other comprehensive income of
discontinued operations during the year ended December 31, 2012:

|                                                           |   |           |   |   |             |   |   | Cumulative  |   |   |         |  
|---------------------------------------------------------- | - | --------- | - | - | ----------- | - | - | ----------- | - | - | ------- | -
|                                                           |   | Cash flow |   |   |             |   |   | translation |   |   |         |  
|                                                           |   | hedges    |   |   | Investments |   |   | account     |   |   | Total   |  
|Balance, beginning of period                               | $ | (9,637    | ) | $ | (51         | ) | $ | (1,635      | ) | $ | (11,323 | )
|Other comprehensive loss -
      continuing operations     |   | -         |   |   | (34         | ) |   | -           |   |   | (34     | )
|Other comprehensive income -
      discontinued operations |   | 9,637     |   |   | 58          |   |   | 1,635       |   |   | 11,330  |  
|Tax effect                                                 |   | -         |   |   | (78         | ) |   | -           |   |   | (78     | )
|Balance, end of period                                     | $ | -         |   | $ | (105        | ) | $ | -           |   | $ | (105    | )
|                                                           |   |           |   |   |             |   |   |             |   |   |         |  

|23. | Loss from operations
|--- | --------------------

Loss from operations includes the following expenses presented
by function:

|                                     |   | Year ended  | 
|------------------------------------ | - | ----------- | 
|                                     |   | December 31 | 
|                                     |   | 2012        | 
|Cost of sales                        | $ | 219,896     | 
|General and administrative           |   | 35,730      | 
|Exploration and business development |   | 2,922       | 
|                                     | $ | 258,548     | 

Cost of sales for the year ended December 31, 2012 includes an
impairment charge of $127,000 (year ended December 31, 2011 - $nil) related to
the El Chanate mine. Exploration and business development for the year ended
December 31, 2012 includes an impairment charge of $1,537 (year ended December
31, 2011 - $2,153) related to the La Bandera property in 2012 and the Mezquite
exploration property in 2011. These impairment charges are discussed further in
note 15.

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

|                         |   | Year ended  | 
|------------------------ | - | ----------- | 
|                         |   | December 31 | 
|                         |   | 2012        | 
|Salaries and benefits    | $ | 28,184      | 
|Share-based compensation |   | 9,530       | 
|Other                    |   | 211         | 
|                         | $ | 37,925      | 
|                         |   |             | 

39



---



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


|24. | Other income
|--- | ------------

|                                                                            |   |             |   |   | Year ended  |  
|--------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                            |   | December 31 |   |   | December 31 |  
|                                                                            |   | 2012        |   |   | 2011        |  
|Unrealized loss on investments                                              | $ | (146        | ) | $ | (1,453      | )
|Realized gain on investments                                                |   | 1,500       |   |   | 16,289      |  
|Unrealized gain / (loss) on derivative
      liabilities                    |   | 1,713       |   |   | (790        | )
|Realized gain on derivative liabilities                                     |   | -           |   |   | 385         |  
|Fair value adjustment on option component of
      convertible senior notes |   | 4,046       |   |   | 22,982      |  
|Realized gain on purchase of convertible
      notes                        |   | -           |   |   | 105         |  
|Unrealized gain on contingent consideration                                 |   | 1,568       |   |   | -           |  
|Loss on extinguishment of debt (Note 17(a))                                 |   | (3,945      | ) |   | -           |  
|Loss on discontinuance of hedge accounting                                  |   | (1,882      | ) |   | -           |  
|Net provision for lawsuit (Note 19(d))                                      |   | (2,362      | ) |   | -           |  
|Gain on sale of 50% interest in Orion (Note
      11)                       |   | 6,620       |   |   | -           |  
|Interest income                                                             |   | 1,626       |   |   | 392         |  
|Gain on sale of property, plant and equipment                               |   | -           |   |   | 719         |  
|Other                                                                       |   | 24          |   |   | 21          |  
|                                                                            | $ | 8,762       |   | $ | 38,650      |  
|.                                                                           |   |             |   |   |             |  

|25. | Earnings 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, 2012. 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:

|                                                               |   |             |   |   | Year ended  |  
|-------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                               |   | December 31 |   |   | December 31 |  
|                                                               |   | 2012        |   |   | 2011        |  
|Net (loss) / earnings from continuing
      operations         | $ | (97,821     | ) | $ | 29,295      |  
|Dilution adjustments:                                          |   |             |   |   |             |  
|Convertible senior notes                                       |   | -           |   |   | (22,982     | )
|Diluted net (loss) / earnings from continuing
      operations |   | (97,821     | ) |   | 6,313       |  
|Net earnings from discontinued operations                      |   | 131,052     |   |   | 147,564     |  
|Diluted net earnings                                           | $ | 33,231      |   | $ | 153,877     |  
|                                                               |   |             |   |   |             |  
|Basic weighted average shares outstanding                      |   | 282,194,197 |   |   | 183,411,200 |  
|Dilution adjustments:                                          |   |             |   |   |             |  
|Stock options                                                  |   | -           |   |   | 618,942     |  
|Convertible senior notes                                       |   | -           |   |   | 2,741,304   |  
|Diluted weighted average shares outstanding                    |   | 282,194,197 |   |   | 186,771,446 |  

The following items were excluded from the computation of
diluted weighted average shares outstanding for the year ended December 31, 2012
because their effect would have been anti-dilutive:

|                |  |             |  |  | Year ended  | 
|--------------- |  | ----------- |  |  | ----------- | 
|                |  | December 31 |  |  | December 31 | 
|                |  | 2012        |  |  | 2011        | 
|Stock options   |  | 10,239,564  |  |  | 3,867,753   | 
|Warrants issued |  | 1,585,000   |  |  | 750,000     | 

Subsequent to the end of the reporting period, the Company
repurchased and cancelled 36,144,578 common shares under a substantial issuer
bid (see note 32). This transaction will impact the Companys weighted average
shares outstanding beginning in the first quarter of 2013. The effect of this
transaction will be to reduce basic weighted average shares outstanding by the number of shares repurchased and cancelled,
pro-rated for the number of days those shares were not outstanding during the
period, and may increase diluted weighted average shares outstanding as the
conversion rate associated with the Companys convertible senior notes
(potential ordinary shares) has increased following the completion of the
substantial issuer bid (see note 17(b)).


40

---

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


| | 
| | 

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

|                                                                                                                                                                                                                  |   |             |   |   | Year ended  |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                                                                                                                                                                  |   | December 31 |   |   | December 31 |  
|Items not affecting cash:                                                                                                                                                                                         |   | 2012        |   |   | 2011        |  
|Amortization and depletion                                                                                                                                                                                        | $ | 18,723      |   | $ | 6,982       |  
|Unrealized foreign exchange loss
      / (gain)                                                                                                                                                                   |   | 10,663      |   |   | (9,988      | )
|Share-based compensation, net of
      forfeitures                                                                                                                                                                |   | 7,375       |   |   | 6,224       |  
|Deferred income tax (recovery) /
      expense                                                                                                                                                                    |   | (7,849      | ) |   | (351        | )
|Impairment charges                                                                                                                                                                                                |   | 128,537     |   |   | 2,153       |  
|Unrealized loss on investments                                                                                                                                                                                    |   | 146         |   |   | 1,453       |  
|Realized gain on sale of
      investments                                                                                                                                                                        |   | (1,500      | ) |   | (16,289     | )
|Acquisition-related costs paid
      by issuance of warrants and shares                                                                                                                                           |   | -           |   |   | 7,316       |  
|Unrealized (gain) / loss on
      derivative liabilities                                                                                                                                                          |   | (1,713      | ) |   | 790         |  
|Realized gain on derivative
      liabilities                                                                                                                                                                     |   | -           |   |   | (385        | )
|Fair value adjustment on option
      component of convertible senior notes                                                                                                                                       |   | (4,046      | ) |   | (22,982     | )
|Unrealized gain on contingent
      consideration                                                                                                                                                                 |   | (1,568      | ) |   | -           |  
|Loss on extinguishment of debt                                                                                                                                                                                    |   | 3,436       |   |   | -           |  
|Loss on discontinuance of hedge
      accounting                                                                                                                                                                  |   | 1,882       |   |   | -           |  
|Net provision for lawsuit                                                                                                                                                                                         |   | 2,362       |   |   | 257         |  
|Other non-cash items                                                                                                                                                                                              |   | (1,607      | ) |   | 4,848       |  
|                                                                                                                                                                                                                  | $ | 154,841     |   | $ | (19,972     | )
|                                                                                                                                                                                                                  |   |             |   |   |             |  
|                                                                                                                                                                                                                  |   |             |   |   |             |  
|Change in non-cash operating working capital:                                                                                                                                                                     |   |             |   |   |             |  
|Receivables                                                                                                                                                                                                       | $ | 5,495       |   | $ | (7,023      | )
|Current income tax receivable                                                                                                                                                                                     |   | (6,993      | ) |   | 2,430       |  
|Prepaids and deposits                                                                                                                                                                                             |   | (69         | ) |   | (217        | )
|Inventories                                                                                                                                                                                                       |   | (51,451     | ) |   | 4,183       |  
|Trade payables and accrued
      liabilities                                                                                                                                                                      |   | 15,370      |   |   | (2,619      | )
|Current income tax liability                                                                                                                                                                                      |   | (119        | ) |   | (4,691      | )
|                                                                                                                                                                                                                  | $ | (37,767     | ) | $ | (7,937      | )
|                                                                                                                                                                                                                  |   |             |   |   |             |  
|Supplemental information:                                                                                                                                                                                         |   |             |   |   |             |  
|Interest paid                                                                                                                                                                                                     | $ | 10,961      |   | $ | 2,346       |  
|Interest received                                                                                                                                                                                                 | $ | 1,424       |   | $ | 392         |  
|Income taxes paid(1)                                                                                                                                                                                              | $ | 103,608     |   | $ | 36,708      |  
|                                                                                                                                                                                                                  |   |             |   |   |             |  
|(1)Included
      in income taxes paid for the year ended December 31, 2012 is $77,096 in
      taxes paid on the sale of the Ocampo mine on December 14, 2012. Refer to
      note 6(c) for further information.
|                                                                                                                                                                                                                  |   |             |   |   |             |  
|Non-cash transactions:                                                                                                                                                                                            |   |             |   |   |             |  
|Acquisition of Northgate through
      issuance of shares and options                                                                                                                                             | $ | -           |   | $ | 1,046,740   |  
|Acquisition of Capital Gold
      through issuance of shares and options                                                                                                                                          | $ | -           |   | $ | 352,931     |  
|Receipt of Endeavour shares upon
      disposition of El Cubo and Guadalupe y Calvo                                                                                                                               | $ | 87,746      |   | $ | -           |  
|Receipt of Crocodile Gold shares
      upon disposition of Australian operations                                                                                                                                  | $ | 9,642       |   | $ | -           |  
|Unwinding of discount on
      convertible notes capitalized to mining interests                                                                                                                                  | $ | 2,654       |   | $ | 547         |  
|Interest payable capitalized to
      mining interests                                                                                                                                                            | $ | 1,160       |   | $ | 1,548       |  
|Mine construction financed
      through non-cash operating working capital                                                                                                                                       | $ | -           |   | $ | 20,939      |  
|Disposition-related costs paid
      by issuance of shares                                                                                                                                                        | $ | 1,736       |   | $ | -           |  
|                                                                                                                                                                                                                  |   |             |   |   |             |  

41

---

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


| | 
| | 

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

Related party transactions in 2012 included the compensation of
the Companys key management personnel and a receivable from the
jointly-controlled entity that holds the Orion development project, disclosed in
note 11. 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:

|                             |   |             |  |   | Year ended  | 
|---------------------------- | - | ----------- |  | - | ----------- | 
|                             |   | December 31 |  |   | December 31 | 
|                             |   | 2012        |  |   | 2011        | 
|Short-term employee benefits | $ | 10,164      |  | $ | 6,954       | 
|Long-term benefits           |   | 63          |  |   | 64          | 
|Termination benefits         |   | 1,737       |  |   | 378         | 
|Share-based compensation     |   | 5,281       |  |   | 4,547       | 
|                             | $ | 17,245      |  | $ | 11,943      | 
|.                            |   |             |  |   |             | 

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

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.

Contingencies

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

Fair values of financial instruments

The following table sets forth the Companys financial assets
and liabilities that are measured at fair value on a recurring basis by level
within the fair value hierarchy. Levels 1 to 3 are defined based on the degree
to which fair value inputs are observable or unobservable, as follows:

| | Level 1 inputs are quoted prices (unadjusted) in active markets for
  identical assets or liabilities;                                                     
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                            
| | Level 2 inputs are based on inputs which have a significant effect on fair
  value that are observable, either directly or indirectly from market data; and
|  |                                                                                                                                                            
| | Level 3 inputs are unobservable (supported by little or no market
  activity).                                                                             

|                                                                 |   | December 31, 2012 |  |   | December 31, 2011 |  
|---------------------------------------------------------------- | - | ----------------- |  | - | ----------------- | -
|                                                                 |   | Level 1           |  |   | Level 2           |  
|Cash and cash equivalents (a)                                    | $ | 603,401           |  | $ | -                 |  
|Financial assets at fair value through profit
      or loss      |   |                   |  |   |                   |  
|Equity investments (b)                                           |   | 47                |  |   | -                 |  
|Warrants held (c)                                                |   | -                 |  |   | -                 |  
|Contingent consideration (d)                                     |   | -                 |  |   | 7,395             |  
|Available-for-sale financial assets                              |   |                   |  |   |                   |  
|Equity investments (b)                                           |   | 64                |  |   | -                 |  
|Financial liabilities at fair value through
      profit or loss |   |                   |  |   |                   |  
|Option component of convertible
      senior notes (e)           |   | -                 |  |   | (16,035           | )
|Currency forwards (f)                                            |   | -                 |  |   | (1,348            | )
|Warrants issued (c)                                              |   | -                 |  |   | (1,401            | )
|                                                                 | $ | 603,512           |  | $ | (11,389           | )

42

---

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


The Company does not have any financial assets or liabilities
measured at fair value based on unobservable inputs (Level 3).

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

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

|(b) | Equity investments
|--- | ------------------

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.

|(c) | Warrants held and issued
|--- | ------------------------

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, 2012 |  |  | December 31, 2011 | 
|----------------------- |  | ----------------- |  |  | ----------------- | 
|                        |  | Warrants held     |  |  | Warrants issued   | 
|Expected volatility     |  | -                 |  |  | 59%               | 
|Risk-free interest rate |  | -                 |  |  | 1.14%             | 
|Expected life           |  | -                 |  |  | 0.56 years        | 

|(d) | Contingent consideration
|--- | ------------------------

The Company calculates the fair value of the contingent
consideration using a valuation model, which is based on the gold price
exceeding specified levels during the three years following the closing date of
the transaction. This model uses a valuation approach that relies on simulated
weekly gold prices over the remaining term, which ends on July 13, 2015, using a
gold price of $1,674 per ounce as the initial spot price within the simulation
model at December 31, 2012. As the valuation of the contingent consideration is
dependent on inputs derived from observable data, it is classified within Level
2 of the fair value hierarchy.

Changes in gold price assumptions would have the following
impact on net earnings for the year ended December 31, 2012:

|5% increase in gold prices | $ | 2,601  |  
|-------------------------- | - | ------ | -
|5% decrease in gold prices | $ | (2,215 | )

|(e) | Option component of convertible senior
  notes
|--- | ----------------------------------------------

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

|               |  | December 31 |  |  | December 31 | 
|-------------- |  | ----------- |  |  | ----------- | 
|               |  | 2012        |  |  | 2011        | 
|Volatility     |  | 25%         |  |  | 22%         | 
|Credit spreads |  | 3.50%       |  |  | 4.50%       | 

Changes in these assumptions would have the following impact on
net earnings for the years ended December 31, 2012 and 2011:

|                                      |   | December 31 |   |   | December 31 |  
|------------------------------------- | - | ----------- | - | - | ----------- | -
|                                      |   | 2012        |   |   | 2011        |  
|5% increase in volatility             | $ | (4,714      | ) | $ | (5,149      | )
|5% decrease in volatility             | $ | 4,666       |   | $ | 5,185       |  
|0.5% increase in credit
      spreads | $ | (779        | ) | $ | (1,256      | )
|0.5% decrease in credit
      spreads | $ | 758         |   | $ | 893         |  

43

---

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


|    |                  
|--- | -----------------
|(f) | Currency forwards

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.

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, 2012 and 2011, 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% increase or reduction
in each companys share price at December 31, 2012 would have increased or
reduced other comprehensive income by $6 and net earnings by $5 (December 31,
2011 - $35 and $779).

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,
2012 would have increased net earnings by $470 (December 31, 2011 - $302). A 10%
increase in the Companys share price would have decreased net earnings by $590
(December 31, 2011 - $259).

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.

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, 2012, net earnings would have decreased by
$684, mainly as a result of higher interest rates on variable borrowings
(December 31, 2011 - $173). This analysis assumes that other variables remain
constant (a 50 basis points decrease in interest rates would have had the equal
but opposite effect) and that none of the additional interest is capitalized to
capital projects. At December 31, 2012, the Company had no variable rate debt
outstanding.

Interest payable on the Companys convertible senior notes is
fixed at a rate of 3.50% and interest payable on the Companys equipment
financing arrangements is fixed at rates between 3.98% and 5.77% .

Foreign currency exchange rate risk

Metal sales revenues for the Company are denominated in US
dollars. During 2012, the Company received sales proceeds in Australian dollars
for the Companys Australian operations, prior to their disposition. The Company
is primarily exposed to currency fluctuations relative to the US dollar on
expenditures that are denominated in Canadian dollars and Mexican pesos, but was
also exposed to currency fluctuations on expenditures denominated in Australian
dollars for the periods prior to the disposition of the Australian operations.
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.

44

---

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


At December 31, 2012, the Companys balance sheet exposure to
foreign currency exchange rate risk in Canadian dollars (CAD) and Mexican
pesos (MXN) was as follows:

|                                         |   | CAD      |   |   | MXN      |  
|---------------------------------------- | - | -------- | - | - | -------- | -
|Cash and cash equivalents                | $ | 25,198   |   | $ | 18,387   |  
|Restricted cash                          |   | 2,345    |   |   | -        |  
|Receivables                              |   | 15,218   |   |   | 52,231   |  
|Current income tax receivable            |   | 23,863   |   |   | 90,671   |  
|Investments                              |   | 98       |   |   | -        |  
|Other long-term assets                   |   | 70,418   |   |   | -        |  
|Payables and accrued liabilities         |   | (49,134  | ) |   | (38,205  | )
|Current income tax liability             |   | (3,861   | ) |   | (22,925  | )
|Debt and equipment financing obligations |   | (18,531  | ) |   | -        |  
|Other liabilities                        |   | -        |   |   | (35,653  | )
|Provisions                               |   | (15,884  | ) |   | -        |  
|Deferred income tax liability            |   | (221,224 | ) |   | (852,311 | )
|Net balance sheet exposure               | $ | (171,494 | ) | $ | (787,805 | )

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                              |   | 18,018   |   |   | 155,874    |   |   | 2,093   |  
|Current income tax receivable            |   | 23,054   |   |   | 57,619     |   |   | -       |  
|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   | ) |   | -          |   |   | -       |  
|Debt and equipment financing obligations |   | (9,622   | ) |   | (30        | ) |   | (9,203  | )
|Other 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  | )

A 10% strengthening of these currencies against the US dollar
at each balance sheet date would have 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 |  
|------------------------------- | - | ----------- | - | - | ----------- | -
|                                |   | 2012        |   |   | 2011        |  
|Translation of net CAD exposure | $ | (15,670     | ) | $ | (15,655     | )
|Translation of net MXN exposure |   | (5,524      | ) |   | (16,520     | )
|Translation of net AUD exposure |   | -           |   |   | (145        | )

As at December 31, 2012, 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 $28,669 at exchange rates ranging from 12.44 pesos per US dollar to
12.68 pesos per US dollar. These currency hedges had been previously accounted
for as cash flow hedges of specified, peso-denominated costs at the Ocampo mine
but hedge accounting was discontinued at September 30, 2012 due to the
forecasted transactions no longer being highly probable as a result of the
potential disposition of the mine. The remaining forward contracts continue to
have economic purpose, as hedges against the risk of an increase in the rise of
the Mexican peso versus the US dollar at the Companys El Chanate mine, however,
will not be designated as hedging relationships going forward.

The outstanding contracts settle at various dates between March
22, 2013 and September 20, 2013 and had a negative fair value of $1,348 at
December 31, 2012 (December 31, 2011 - negative fair value of $9,637), which has
been included in the current portion of derivative liabilities on the
Consolidated Balance Sheets. All changes in the fair value of these contracts,
along with any realized gains or losses on settlement, are recognized in net
earnings. Prior to September 30, 2012, these amounts had all been recognized in
other comprehensive income. Upon the discontinuation of hedge accounting, these
amounts were reclassified from other comprehensive income to net earnings,
resulting in the recognition of a loss on discontinuance of hedge accounting of
$1,882 included in other income on the Consolidated Statements of
Operations.

45

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


During the three months ended December 31, 2012, a gain of $218
was recognized in net earnings relating to these forward contracts.

Three forward contracts settled during the nine months ended
September 30, 2012, prior to the discontinuation of hedge accounting, resulting
in a net loss of $2,297. The recognition of this hedging loss resulted in a $747
increase in production costs, a $529 increase in inventory, a $149 increase in
general and administrative costs, and a $872 increase in mining interests.

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 mining interests.

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, restricted cash, 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. 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 debt and equipment financing 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, 2012, the
ratio of gross debt to total equity was 7.51% (December 31, 2011 - 9.92%),
calculated as follows:

|                                                            |   | December 31 |  |   | December 31 | 
|----------------------------------------------------------- | - | ----------- |  | - | ----------- | 
|                                                            |   | 2012        |  |   | 2011        | 
|Current portion of debt and equipment financing obligations | $ | 5,038       |  | $ | 5,056       | 
|Debt and equipment financing obligations                    |   | 167,497     |  |   | 217,251     | 
|Gross debt                                                  |   | 172,535     |  |   | 222,307     | 
|Shareholders' equity                                        | $ | 2,297,795   |  | $ | 2,241,138   | 
|Gross debt / Shareholders' equity                           |   | 7.51%       |  |   | 9.92%       | 
|                                                            |   |             |  |   |             | 

46

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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 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 two
reportable segments, as follows:

| | Mexico: El Chanate mine    
|- | ---------------------------
|  |                            
| | Canada: Young-Davidson mine

Corporate and other consists of the Companys corporate offices
and exploration properties. Discontinued operations consist of the Fosterville
mine and Stawell mine in Australia, as well as the Ocampo mine, the El Cubo mine
and Guadalupe y Calvo exploration property in Mexico. Refer to note 6 for
further information on the Companys discontinued operations.

The following are the operating results by reportable segment:

Year ended December 31, 2012Corporate
    
    
    
    
    
    DiscontinuedMexico
    
    
    Canada
    
    
    and other
    
    
    Total
    
    
    operationsRevenue from mining operations
    $
    118,130
    
    $
    45,492
    
    $
    -
    
    $
    163,622
    
    $
    293,745Production costs, excluding amortization
      & depletion
    
    38,340
    
    
    21,301
    
    
    -
    
    
    59,641
    
    
    155,920Refining costs
    
    417
    
    
    49
    
    
    -
    
    
    466
    
    
    1,517Amortization and depletion
    
    10,431
    
    
    7,805
    
    
    487
    
    
    18,723
    
    
    43,625Reclamation, care and maintenance costs
    
    -
    
    
    -
    
    
    14,066
    
    
    14,066
    
    
    -General and administrative
    
    680
    
    
    228
    
    
    34,822
    
    
    35,730
    
    
    12,595Exploration and business development
    
    -
    
    
    -
    
    
    1,385
    
    
    1,385
    
    
    911Impairment charges
    
    127,000
    
    
    -
    
    
    1,537
    
    
    128,537
    
    
    22,857176,868
    
    
    29,383
    
    
    52,297
    
    
    258,548
    
    
    237,425(Loss) / earnings from operations
    $
    (58,738
    )
    $
    16,109
    
    $
    (52,297
    )
    $
    (94,926
    )
    $
    56,320Expenditures on property, plant and
      equipment, mining interests & intangible assets
    $
    53,245
    
    $
    309,232
    
    $
    7,587
    
    $
    370,064
    
    $
    143,520Year ended December 31, 2011Corporate
    
    
    
    
    
    DiscontinuedMexico
    
    
    Canada
    
    
    and other
    
    
    Total
    
    
    operationsRevenue from mining operations
    $
    83,825
    
    $
    -
    
    $
    107
    
    $
    83,932
    
    $
    366,183Production costs, excluding amortization
      & depletion
    
    32,912
    
    
    -
    
    
    -
    
    
    32,912
    
    
    122,417Refining costs
    
    306
    
    
    -
    
    
    -
    
    
    306
    
    
    1,878Mine standby costs
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    11,430Amortization and depletion
    
    6,538
    
    
    -
    
    
    444
    
    
    6,982
    
    
    49,166Reclamation, care and maintenance costs
    
    -
    
    
    -
    
    
    2,103
    
    
    2,103
    
    
    -General and administrative
    
    861
    
    
    -
    
    
    24,486
    
    
    25,347
    
    
    12,879Exploration and business development
    
    -
    
    
    -
    
    
    20,940
    
    
    20,940
    
    
    -Impairment charge / (reversal)
    
    -
    
    
    -
    
    
    2,153
    
    
    2,153
    
    
    (51,673
    )40,617
    
    
    -
    
    
    50,126
    
    
    90,743
    
    
    146,097Earnings / (loss) from operations
    $
    43,208
    
    $
    -
    
    $
    (50,019
    )
    $
    (6,811
    )
    $
    220,086Expenditures on property, plant and
      equipment, mining interests & intangible assets
    $
    22,757
    
    $
    82,821
    
    $
    2,400
    
    $
    107,978
    
    $
    139,408


47

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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:

Discontinued
    
    
    CorporateMexico(1
    )
    
    Canada
    
    
    operations
    
    
    and other(1
    )
    
    TotalTotal assets at December 31, 2012
    $
    398,691
    
    $
    1,669,632
    
    $
    -
    
    $
    828,876
    
    $
    2,897,199Total assets at December 31, 2011
    $
    1,304,087
    
    $
    1,386,217
    
    $
    167,623
    
    $
    321,152
    
    $
    3,179,079


|(1) | At December 31, 2011, the Mexico reportable segment
      includes the assets of the Ocampo mine and the El Cubo mine, and Corporate
      and other includes the Guadalupe y Calvo exploration property. These
      assets were classified as held for sale and disposed of in
  2012.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                              |   | December 31 |  |   | December 31 | 
|--------------------------------------------- | - | ----------- |  | - | ----------- | 
|                                              |   | 2012        |  |   | 2011        | 
|Mexico                                        | $ | 354,491     |  | $ | 1,160,740   | 
|Canada                                        |   | 1,718,985   |  |   | 1,420,416   | 
|                                              | $ | 2,073,476   |  | $ | 2,581,156   | 
|Goodwill by reportable segment is as follows: |   |             |  |   |             | 
|                                              |   |             |  |   |             | 
|                                              |   | December 31 |  |   | December 31 | 
|                                              |   | 2012        |  |   | 2011        | 
|Mexico                                        | $ | 106,521     |  | $ | 233,521     | 
|Canada                                        |   | 241,693     |  |   | 241,693     | 
|                                              | $ | 348,214     |  | $ | 475,214     | 

Goodwill recognized in the Mexico reportable segment relates to
the El Chanate CGU. Goodwill recognized in the Canada reportable segment relates
to the Young-Davidson CGU.

The Companys revenue is derived from the sale of gold and
silver in Mexico and Canada, as disclosed in the tables above. Prior to the
disposition of the Australian operations, the Ocampo mine, and the El Cubo mine,
the Company sold all gold and silver produced to four customers. The Company now
sells all gold and silver produced to two 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
|    |                                  
|(a) | Substantial issuer bid           

On January 29, 2013, the Company announced the successful
repurchase and cancellation of 36,144,578 common shares at a price of $8.30 per
share under the Companys modified Dutch auction substantial issuer bid, for a
total purchase price of $300,000. As a result, the Companys cash and cash
equivalents balance has declined by $300,000, with a corresponding decline in
shareholders equity.

|(b) | Amendment to credit
facility
|--- | ----------------------------

On January 31, 2013, the Company amended the revolving credit
facility, which reduced the amount available from $250,000 to $150,000. The
amended credit facility carries the same interest rate and terms as the previous
facility, as described in note 17.

|(c) | Dividend policy
|--- | ---------------

On February 21, 2013, the Company announced an inaugural
dividend policy, whereby the Company will pay a dividend of $0.16 per share in
2013 (payable quarterly). Subsequent to 2013, the dividend will be linked to
operating cash flow, whereby the Company intends to pay out 20% of the operating
cash flow generated in the preceding quarter.


48

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