---

| | Exhibit 99.2
| | ------------



AMENDED MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE YEAR ENDED DECEMBER 31, 2009









1

---

2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


|                                                    
|----------------------------------------------------
|                                                    
|TABLE OFCONTENTS                                    
|                                                    
|AMENDMENT AND RESTATEMENT MADE MAY 13, 2010         
|                                                    
|OVERVIEW OF THE BUSINESS                            
|                                                    
|2009 HIGHLIGHTS                                     
|                                                    
|OUTLOOK AND STRATEGY                                
|                                                    
|SUMMARIZED ANNUAL FINANCIAL AND OPERATING RESULTS   
|                                                    
|REVIEW OF ANNUAL FINANCIAL RESULTS                  
|                                                    
|SUMMARY OF QUARTERLY FINANCIAL AND OPERATING RESULTS
|                                                    
|REVIEW OF FOURTH QUARTER FINANCIAL RESULTS          
|                                                    
|RESULTS OF OPERATIONS                               
|                                                    
|OPERATIONAL REVIEW  OCAMPO MINE                    
|                                                    
|OPERATIONAL REVIEW  EL CUBO MINE                   
|                                                    
|CONSOLIDATED EXPENSES                               
|                                                    
|CONSOLIDATED OTHER INCOME / (EXPENSE)               
|                                                    
|CONSOLIDATED INCOME TAX EXPENSE / (RECOVERY)        
|                                                    
|FINANCIAL CONDITION                                 
|                                                    
|KEY ECONOMIC TRENDS                                 
|                                                    
|LIQUIDITY AND CAPITAL RESOURCES                     
|                                                    
|CONTRACTUAL OBLIGATIONS                             
|                                                    
|OUTSTANDING SHARE DATA                              
|                                                    
|OFF-BALANCE SHEET ARRANGEMENTS                      
|                                                    
|FINANCIAL INSTRUMENTS AND HEDGING                   
|                                                    
|TRANSACTIONS WITH RELATED PARTIES                   
|                                                    
|NON-GAAP MEASURES                                   
|                                                    
|RISKS AND UNCERTAINTIES                             
|                                                    
|CHANGES IN ACCOUNTING POLICIES                      
|                                                    
|INTERNATIONAL FINANCIAL REPORTING STANDARDS         
|                                                    
|SUBSEQUENT EVENTS                                   
|                                                    
|CRITICAL ACCOUNTING POLICIES AND ESTIMATES          
|                                                    
|CONTROLS AND PROCEDURES                             
|                                                    
|CAUTIONARY NOTE TO U.S. INVESTORS                   
|                                                    
|CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS





| | 2
| | -

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


This amended and restated Management's Discussion and
  Analysis ("MD&A"), dated May 13, 2010, relates to the financial condition and
  results of operations of Gammon Gold Inc. ("the Company") together with its
  wholly owned subsidiaries, and should be read in conjunction with the
  Company's amended and restated consolidated financial statements for the year
  ended December 31, 2009, and notes thereto. Details of the restatement are
  provided in note 2 to the December 31, 2009 restated consolidated financial
  statements. The amended and restated consolidated financial statements have
  been prepared in accordance with Canadian generally accepted accounting
  principles ("GAAP"). All results are presented in United States dollars,
  unless otherwise stated. Statements are subject to the risks and uncertainties
  identified in the Forward-Looking Statements portion of this document. The
  first, second, third and fourth quarters of the Company's fiscal year are
  referred to as "Q1", "Q2", "Q3" and "Q4", respectively.
  AMENDMENT AND RESTATEMENT MADE MAY 13, 2010


During the preparation of the March 31, 2010 interim
consolidated financial statements, the Company identified an error relating to
its consolidated financial statements for the years ended December 31, 2008 and
2009 and the related interim periods. In those previously released financial
statements, the Company had not properly assessed the impact of changes in
foreign currency exchange rates affecting the future income tax liabilities
arising on the acquisition of Mexgold Resources Inc. on August 8, 2006. This
restatement gives effect to the adjustment of those future income tax
liabilities to properly reflect changes in currency exchange rates between the
US dollar and the Mexican peso, the currency of the country in which the future
tax liability arose. For the year ended December 31, 2009, the impact of this
adjustment was to decrease future income tax liabilities by $14.1 million, and
decrease foreign exchange losses by $6.5 million. Net earnings increased by $6.5
million, and basic and diluted net earnings per share increased from $0.01 to
$0.07 per share. For the year ended December 31, 2008, the impact of this
adjustment was to decrease future income tax liabilities by $7.6 million,
decrease opening deficit by $8.9 million, and decrease foreign exchange gains by
$1.3 million. Net earnings decreased by $1.3 million, and basic and diluted net
earnings per share decreased from $0.34 and $0.33 to $0.33 and $0.32 per share
respectively. There was no income tax effect as a result of this adjustment.

As a result, the Company incorrectly presented the
consolidated balance sheets, consolidated statements of operations and
comprehensive income / (loss), and shareholders' equity for the periods
discussed above, and is correcting such presentation in the amended and restated
2009 consolidated financial statements. Further information on these adjustments
and a reconciliation of amounts previously reported is contained in note 2 of
the Company's amended and restated consolidated financial statements for the
year ended December 31, 2009.

For the convenience of the reader, this 2009 MD&A sets forth
the amended MD&A in its entirety. The Company has not modified or updated the
disclosure presented in this MD&A, except as required to reflect the effects of
the restatement discussed above. Accordingly, this 2009 MD&A does not reflect
events occurring after the original filing, or modify or update those
disclosures affected by subsequent events. The Company has not yet amended and
does not intend to amend any of its previously filed Quarterly Reports for the
quarterly and annual periods ended March 31, 2008, June 30, 2008, September 30,
2008, March 31, 2009, June 30, 2009, and September 30, 2009. Accordingly, this
2009 MD&A should be read in conjunction with the Company's filings subsequent to
the original filing.

The Company's Chief Executive Officer and Chief Financial
Officer have reissued the certifications required by National Instrument 52-109
and Section 302 of the Sarbanes Oxley Act.

OVERVIEW OF THE BUSINESS


Gammon Gold Inc. is a publicly traded gold and silver producer engaged in the mining, development, exploration and acquisition of resource properties in North America. The Company owns and operates two producing mines in Mexico, the Ocampo mine in
Chihuahua State, and the El Cubo mine in Guanajuato State, and also owns the Guadalupe y Calvo advanced exploration property in Chihuahua State, Mexico. The Company's common shares are listed on the Toronto Stock Exchange (TSX: GAM), the New
York Stock Exchange (NYSE: GRS) and the Berlin Stock Exchange(BSX: GL7).  Further details on Gammon Gold Inc. can be found in the Company's associated documents, including its Annual Information Form, at  www.sedar.com or on the Company's website at  www.gammongold.com.

The profitability and operating cash flow performance of the Company are affected by numerous factors, including but not limited to, the prices of gold and silver, the amount of metal production, and the level of operating costs, capital
expenditures, and general and administrative costs.  The Company is also exposed to fluctuations in foreign currency exchange rates, political risks, and the level of taxation imposed by local and foreign jurisdictions. While the Company attempts to
manage these risks, many of the factors affecting these risks are beyond the Company's control. For additional information on the factors that affect the Company, see the discussion of Risks and Uncertainties on page 31.

The price of gold is the largest single factor impacting the profitability and operating cash flow of the Company. Commodity prices continued to experience volatility in 2009 as the global economy recovered from the difficulties experienced in the
latter half of 2008. The price of gold improved throughout 2009, with an average London PM Fix price of $972 per ounce, an 11% increase over the average price in 2008 of $872. Gold finished the year strong with an average closing price of
$1,134 per ounce in December and the price remaining above $1,000 per ounce for the entire fourth quarter. This improvement was primarily due to increased demand for gold as an investment as investors sought to diversify away from paper
currency.

| | 3
| | -

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


Silver also strengthened in 2009, ranging from a low of $10.51 per ounce in January to high of $19.18 per ounce in December. Despite the improvement in the silver price during the year, the average London PM Fix price in 2009 was consistent
with 2008 at $14.67 per ounce compared to $14.98 per ounce. Silver has benefitted from the rally experienced by industrial metals in anticipation of an economic recovery and has increased its market share in comparison to gold due to it
being a less expensive precious metal.

As a result of the significant movements in the price of gold and silver during 2008 and 2009, the silver-to-gold ratio increased from 59:1 during 2008 to 66:1 in 2009, reducing the 2009 silver contribution to the Company's gold equivalent
ounces produced by approximately 10,000 ounces and increasing the Company's consolidated cash costs by approximately $20 per gold equivalent ounce. The silver-to-gold ratio was lower in 2008 due to stronger silver prices experienced in the
first 8 months of 2008.  As a result of the volatility in the gold equivalency ratio during 2008 and 2009, when making annual and quarterly comparisons, the reader should focus on actual gold and silver production and sales, or on the gold
equivalent production or sales calculated using the Company's long-term gold equivalency ratio of 55:1.

2009 HIGHLIGHTS


▬

Cash flow from operations during 2009 increased by $22.3 million, or 40%, to $78.2 million, compared to $55.9 million in 2008.

▬

The Company completed a public offering of 12,926,000 common shares at a price of $8.90 per common share on October 22, 2009. The net proceeds of approximately $108 million will be used to fund expanded exploration programs at the Ocampo and
El Cubo mine sites, the advancement of the Guadalupe y Calvo project, greenfield exploration, and general corporate purposes.

As a result of the improved operating cash flow performance and the proceeds from the equity offering, the Company ended the year with cash on hand of $129 million. This represents a $125.7 million increase in the Company's cash balance
year-over-year.

The Company's existing credit facility was restructured and replaced with a $50 million revolving line of credit with the Bank of Nova Scotia and Société Générale. The facility expires on November 5, 2011 and
requires no principal payments until maturity.

Earnings before other items were $27.4 million in 2009 versus earnings before other items of $12.9 in 2008, representing a $14.5 million or 112% increase year-over-year.

The Company produced 136,309 gold ounces and 5,165,514 silver ounces, or 214,072 gold equivalent ounces on a consolidated basis in 2009. Using the Company's long-term silver-to-gold equivalency ratio of 55:1, the Company produced 230,228 gold
equivalent ounces. This compares to 2008 production of 154,428 gold ounces, 5,778,874 silver ounces, or 259,498 gold equivalent ounces (using the long-term equivalency ratio of 55:1) and 2009 guidance of 185,000 gold ounces, 8,170,000 silver ounces,
or 290,000 gold equivalent ounces.

The Company achieved consolidated cash costs(1)of $462 per gold equivalent ounce in 2009, a 13% improvement over consolidated cash costs of $528 per gold equivalent ounce in 2008 and an increase of 4% over 2009 guidance of
$445 per gold equivalent ounce. Using the long-term equivalency ratio of 55:1, the Company achieved cash costs per gold equivalent ounce of $430, a 16% improvement over 2008's cash costs of $512 per gold equivalent ounce.

Revenue from mining operations decreased 3% to $206.8 million compared to $212.5 million in 2008, reflecting the decreased production year-over-year. This production decline was offset by improved average gold and silver selling prices of
$978 and $14.91 per ounce respectively, versus average selling prices of $864 and $14.66 per ounce of gold and silver respectively, in 2008.

Net free cash flow(2)of $1.4 million was an improvement year-over-year of $12.3 million, or 113%, compared to negative net free cash flow of $10.9 million in 2008. In the fourth quarter of 2009, the Company generated net free
cash flow of $9.0 million, representing the Company's best ever net free cash flow result.

On September 22, 2009, the Company announced the retirement of Mr. Fred George as President, Director and Chairman of the Board of Directors effective October 13, 2009. Mr. René Marion, the Company's Chief Executive Officer, was
subsequently appointed as President and Chief Executive Officer. Independent director Mr. Ron Smith has temporarily assumed the position of interim Chair of the Board of Directors. Also on September 22, 2009 the Company announced the resignation of
Mr. Canek Rangel as a member of the Board of Directors. The Nominating Committee of the Board of Directors is in process of identifying new independent members to strengthen the Board.

| | 4
| | -

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS




OPERATIONALHIGHLIGHTS

| | Over the past two years, the Company has been progressing through a capital expansion program at the Ocampo mine that will be substantially complete as of the end of the first quarter of 2010. The Company expects to begin fully
realizing the benefits of these expansion projects going forward.                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | In the second quarter, the Company successfully concluded the seven week union strike at the El Cubo mine and obtained a new seven-day continuous work schedule as part of the collective agreement. In October, the Company
established a new production
bonus incentive system to reward employees financially for exemplary performance and, during the fourth quarter, the mine achieved 1,830 TPD, representing a 12% increase over the Q1 2009 daily production rates.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | On September 4, 2009, the Company successfully renewed the Peñoles lease agreement for an additional three-year term. The agreement provides the Company with the mining rights and use of the Las Torres processing and administration facilities
located at the El Cubo mine.                                                                                                                                                                                             

|    |                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Company has included a non-GAAP performance measure, total cash cost per gold equivalent ounce, throughout this document. For further information, see the Non-GAAP Measures section on page 29.
|(2) | The Company has included a non-GAAP performance measure, net free cash flow, throughout this document. For further information, see the Non-GAAP Measures section on page 29.                       

OUTLOOK AND STRATEGY


Gammon Gold Inc. is committed to responsibly operating and growing to become the most profitable North American precious metal company, creating value for all of its stakeholders, including shareholders, employees, suppliers, lenders, government,
and the communities in which the Company operates. The Company's growth strategy is to increase its production profile, reduce cash costs and increase its reserve base through a number of initiatives as follows:

Realizing expansion opportunities at the Ocampo Open Pit mine, Ocampo Underground mine and El Cubo Underground mine;

Establishing Santa Eduviges as a second operating underground mine at Ocampo;

The continuation of the Company's exploration program which is designed to increase resources, convert resources to reserves and increase the production profile; and

Actively pursuing selective accretive acquisitions.



| | 5
| | -

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS




These growth initiatives are expected to be supported by the significant improvement in the Company's cash flow performance realized this year that, together with the Company's working capital position and strong cash balance, will be
sufficient to fund the Company's anticipated working capital requirements, the advancement of the Guadalupe y Calvo project, capital expenditures and growth plans.

The Company is providing the following guidance for fiscal 2010 (assuming a silver-to-gold ratio of 55:1):

Gold production of 150,000  180,000 ounces;

Silver production of 6,100,000  6,850,000 ounces;

Gold equivalent production of 260,000  305,000 ounces; and

Total cash costs per gold equivalent ounce of $440 - $475.

The Company used a Mexican peso to US dollar foreign exchange rate of 12.5:1 to forecast 2010 cash costs per gold equivalent ounce. A 10% weakening of the peso in comparison to the US dollar would result in a decrease in the Company's cash
costs of approximately $25 per gold equivalent ounce. In forecasting gold equivalent production and cash costs per gold equivalent ounce, the Company used a silver-to-gold ratio of 55:1. A 10% devaluation of the price of silver in comparison to
the price of gold would result in a decrease in gold equivalent production of approximately 10,000 ounces, and an increase in cash costs per gold equivalent ounce of approximately $15.

In response to the significant improvement in the market prices for precious metals during the latter half of 2009, the Company has increased its focus on reserve growth. As a result, the 2010 exploration budget for Ocampo, El Cubo and Guadalupe y
Calvo has been expanded to $26 to 28 million. The exploration program will be funded by the proceeds arising from the October 22, 2009 equity issuance and cash flow from operations.

In 2009 the Company experienced many interruptions in operations, including both scheduled and unforeseen interruptions related to the capital expansion program at Ocampo, the unscheduled maintenance issues at the Ocampo mill facility, the labour
disruption at the El Cubo mine, and the unseasonal and heavy rainfall at Ocampo. With these challenges successfully addressed, the Company remains focused on achieving a more consistent production profile in 2010 and in future years. In order to
support this more consistent production profile, the Company has launched various initiatives that support this objective.

▬

In order to minimize any operational downtime in future periods, the Company has launched a strategy to increase redundant capacity at the Ocampo mill facility. This is expected to allow the Company to experience periods of scheduled and unscheduled
downtime while continuing to maintain elevated production levels. This project would include the installation of a fourth filter press, a sixth leach tank and seventh thickener to the mill circuit. Additional automation will be introduced to further
optimize processing.

The Company has secured two Airtrack drills for the Ocampo open pits for in-pit reverse circulation drilling in order to facilitate improved short-term planning. In the fourth quarter, the Company began mining through voids at the Picacho open pit
that were the result of previous artisanal mining activities that extended down to the 1,840 metre level. Mining activities have reached the 1,840 metre level and therefore the Company does not anticipate encountering any further voids in the
Picacho open pit. The phase 2 pre-stripping program at Picacho will be completed in the second quarter of 2010. The Company is currently completing laybacks in the Plaza de Gallos and Refugio open pits where stripping activities are well advanced,
and anticipates completing the phase 1 and phase 2 pre- stripping programs by the end of the second quarter of 2010.

During the fourth quarter of 2009 and into 2010, the underground mine at Ocampo began to ramp-up to near targeted levels of 1,500 tonnes per day. In order to ensure that average daily tonnages can be sustained at these optimal levels, the Company
will put two additional longhole drill rigs into service, as well as three longhole drills that will allow the Company to properly plan and sequence the underground mine.

The exploration program at the Company's Guadalupe y Calvo property is currently being evaluated in order to more effectively allocate resources after a period of inactivity. However, while the Company completes this evaluation, work has
continued on a Scoping Study that is expected to be complete in Q3 2010. The Company also expects to complete an infill drilling program on potential underground targets. Additionally, in 2010, as part of an aggressive project generation program,
the Company will complete regional reconnaissance to identify potential targets for a follow-up drilling program.



| | 6
| | -

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


|                                                                                                           |   |                   |  |   |                   |   |  
|---------------------------------------------------------------------------------------------------------- | - | ----------------- |  | - | ----------------- | - | -
|                                                                                                           |   |                   |  |   |                   |   |  
|SUMMARIZED ANNUAL FINANCIAL AND OPERATING RESULTS                                                          |   |                   |  |   |                   |   |  
|                                                                                                           |   |                   |  |   |                   |   |  
|(in
      thousands, except ounces, per share amounts, average realized prices and
      total cash costs) |   |                   |  |   |                   |   |  
|                                                                                                           |   | YEAR ENDED        |  |   | YEAR ENDED        |   |  
|                                                                                                           |   | DECEMBER 31, 2009 |  |   | DECEMBER 31, 2008 |   |  
|                                                                                                           |   | (AS RESTATED(6))  |  |   | (AS RESTATED(6))  |   |  
|                                                                                                           |   |                   |  |   |                   |   |  
|Gold ounces sold                                                                                           |   | 133,003           |  |   | 150,646           |   |  
|Silver ounces sold                                                                                         |   | 5,146,584         |  |   | 5,606,539         |   |  
|Gold equivalent ounces sold(1)                                                                             |   | 210,853           |  |   | 245,028           |   |  
|Gold equivalency ratio(5)                                                                                  |   | 66                |  |   | 59                |   |  
|Gold ounces produced                                                                                       |   | 136,309           |  |   | 154,428           |   |  
|Silver ounces produced                                                                                     |   | 5,165,514         |  |   | 5,778,874         |   |  
|Gold
      equivalent ounces produced(1)                                                                   |   | 214,072           |  |   | 251,510           |   |  
|Revenue from mining operations                                                                             | $ | 206,801           |  | $ | 212,522           |   | $
|Production costs, excluding amortization and depletion                                                     | $ | 96,504            |  | $ | 127,651           |   | $
|Earnings / (loss) before other items                                                                       | $ | 27,434            |  | $ | 12,884            |   | $
|Net earnings / (loss)                                                                                      | $ | 8,205             |  | $ | 38,652            |   | $
|Net earnings / (loss) per share                                                                            | $ | 0.07              |  | $ | 0.33              |   | $
|Net earnings / (loss) per share,
      diluted(2)                                                          | $ | 0.07              |  | $ | 0.32              |   | $
|Cash flows from / (used in) operations                                                                     | $ | 78,218            |  | $ | 55,933            |   | $
|Net free cash flow(3)                                                                                      | $ | 1,357             |  | $ | (10,908           | ) | $
|Total cash                                                                                                 | $ | 128,977           |  | $ | 3,258             |   | $
|Total assets                                                                                               | $ | 964,368           |  | $ | 795,563           |   | $
|Total long-term financial liabilities                                                                      | $ | 37,482            |  | $ | 12,668            |   | $
|Cash
      dividends declared                                                                              | $ | Nil               |  | $ | Nil               |   | $
|Total cash costs per gold equivalent ounce(3)                                                              | $ | 462               |  | $ | 528               |   | $
|Total cash
      costs per gold ounce(3)                                                                   | $ | 156               |  | $ | 313               |   | $
|Average realized gold price per ounce                                                                      | $ | 978               |  | $ | 864               |   | $
|Average
      realized silver price per ounce                                                              | $ | 14.91             |  | $ | 14.66             |   | $
|Gold equivalent ounces sold (55:1)(4)                                                                      |   | 226,577           |  |   | 252,583           |   |  
|Gold equivalent ounces produced (55:1)(4)                                                                  |   | 230,228           |  |   | 259,498           |   |  
|Total cash costs per gold equivalent ounce
      (55:1)(3)(4)                                              | $ | 430               |  | $ | 512               |   | $

|(1) | Gold equivalent ounces include silver ounces produced
      and sold converted to a gold equivalent based on the ratio of the actual
      realized sales prices of the commodities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Net loss per share on a diluted basis is the same as
      net loss per share on an undiluted basis in 2007 as all factors were
      anti-dilutive.                                
|(3) | See the Non-GAAP Measures section on page
    29.                                                                                                                                   
|(4) | Gold equivalent ounces include silver ounces produced
      and sold converted to a gold equivalent, based on the Company's long-term
      gold equivalency ratio of 55:1.         
|(5) | Silver ounce equal to one gold
  ounce.                                                                                                                                             
|(6) | See Amendment and Restatement on May 13, 2010 section on
      page 3 for further discussion of the restatement.                                                                    
|    |                                                                                                                                                                                     



| | 7
| | -

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


REVIEW OF ANNUAL FINANCIAL RESULTS


During 2009, the Company sold 133,003 gold ounces and 5,146,584 silver ounces, or 210,853 gold equivalent ounces, the latter representing a 14% decrease over sales of 245,028 gold equivalent ounces in 2008. Using the Company's long-term gold
equivalency ratio of 55:1, gold equivalent ounces sold were 226,577, a 10% decline over sales of 252,583 gold equivalent ounces sold in 2008.  Total revenues during the year were $206.8 million, representing a decrease of $5.7 million over
revenues of $212.5 million in the prior year. This decrease in revenue resulted from the 12% lower sales of gold ounces and 8% lower sales of silver ounces during the year, partially offset by the 13% stronger gold prices realized in 2009.

Earnings before other items in 2009 were $27.4 million, a $14.5 million or 112% improvement over earnings before other items of $12.9 million in 2008. This increase in earnings before other items was due to a $31.1 million reduction
in production costs that resulted from cost reductions at the Ocampo mine and the favourable impact of the weakening of the Mexican peso that occurred late in 2008 and persisted in 2009. The more favourable peso to US dollar exchange rate has
resulted in reduced costs as the Company's peso-denominated costs are translated into fewer US dollars. This reduction in production costs was offset by lower revenues and a $7.1 million increase in general and administration expense which
was primarily due to $8.4 million in severance costs and stock-based compensation costs associated with the retirement of the Company's President and Chairman, offset by reductions in other administrative costs.

Consolidated net earnings of $8.2 million in 2009 represented
a $30.5 million or 79% decline over the consolidated net earnings of $38.7
million in 2008. This decline in overall net earnings occurred despite the
improvement in earnings before other items mentioned previously, primarily as a
result of the $22.5 million change in unrealized foreign exchange gains and
losses year-over-year that result from the Company's exposure to monetary
liabilities denominated in Mexican pesos. The weakened Mexican peso in the
fourth quarter of 2008 resulted in large foreign exchange gains, primarily as a
result of the Company's future income tax liabilities which are denominated in
this currency and then translated into US dollars at each balance sheet date. In
addition, 2008 earnings included a tax recovery of $9.7 million whereas 2009
earnings included a tax expense of $11.7 million, representing a $21.4 million
decline in earnings.

Using the Company's long-term gold equivalency ratio of 55:1, cash costs per gold equivalent ounce were $430 in 2009, versus $512 in 2008, a 16% improvement year-over-year.  Cash costs declined in 2009 as a result of cost reductions at
the Ocampo mine and the favourable impact of the weakened Mexican peso mentioned previously.

The Company reported cash flow from operations of $78.2 million, an increase of $22.3 million or 40%, over the prior year. This significant increase in cash flow resulted from improved metal prices and decreased production costs.



| | 8
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


|                                                                                                     |   |                  |  |   |                  |   |   |                  |   |   |                  |   |   |                  |   |  
|---------------------------------------------------------------------------------------------------- | - | ---------------- |  | - | ---------------- | - | - | ---------------- | - | - | ---------------- | - | - | ---------------- | - | -
|                                                                                                     |   |                  |  |   |                  |   |   |                  |   |   |                  |   |   |                  |   |  
|SUMMARY OF QUARTERLY FINANCIAL AND OPERATING RESULTS                                                
|                                                                                                     |   |                  |  |   |                  |   |   |                  |   |   |                  |   |   |                  |   |  
|(in thousands, except ounces, per share
      amounts, average realized prices and total cash costs) |  
|                                                                                                     |   | Q4 2009          |  |   | Q3 2009          |   |   | Q2 2009          |   |   | Q1 2009          |   |   | Q4 2008          |   |  
|                                                                                                     |   | (AS RESTATED(7)) |  |   | (AS RESTATED(7)) |   |   | (AS RESTATED(7)) |   |   | (AS RESTATED(7)) |   |   | (AS RESTATED(7)) |   |  
|Gold ounces
    sold                                                                                 |   | 38,249           |  |   | 29,858           |   |   | 30,461           |   |   | 34,435           |   |   | 41,004           |   |  
|Silver ounces
    sold                                                                               |   | 1,509,511        |  |   | 1,249,252        |   |   | 1,116,067        |   |   | 1,271,754        |   |   | 1,534,318        |   |  
|Gold equivalent ounces
      sold(1)                                                                 |   | 62,462           |  |   | 49,305           |   |   | 47,081           |   |   | 52,005           |   |   | 60,662           |   |  
|Gold equivalency
      ratio(2)                                                                      |   | 62               |  |   | 64               |   |   | 67               |   |   | 72               |   |   | 79               |   |  
|Gold ounces
    produced                                                                             |   | 36,829           |  |   | 31,536           |   |   | 31,115           |   |   | 36,829           |   |   | 43,768           |   |  
|Silver ounces
    produced                                                                           |   | 1,465,098        |  |   | 1,265,645        |   |   | 1,083,471        |   |   | 1,351,300        |   |   | 1,649,893        |   |  
|Gold equivalent ounces
      produced(1)                                                             |   | 60,407           |  |   | 51,062           |   |   | 47,123           |   |   | 55,480           |   |   | 64,889           |   |  
|Revenue from mining operations                                                                       | $ | 68,220           |  | $ | 47,906           |   | $ | 43,326           |   | $ | 47,349           |   | $ | 48,262           |   | $
|Production costs, excluding
      amortization and depletion                                         | $ | 27,113           |  | $ | 23,845           |   | $ | 22,451           |   | $ | 23,095           |   | $ | 24,521           |   | $
|Earnings / (loss) before other
      items                                                           | $ | 21,543           |  | $ | (2,117           | ) | $ | 3,422            |   | $ | 4,586            |   | $ | 5,055            |   | $
|Net earnings /
    (loss)                                                                            | $ | 13,452           |  | $ | (7,020           | ) | $ | (7,573           | ) | $ | 2,873            |   | $ | 31,555           |   | $
|Restatement adjustments                                                                              | $ | 201              |  | $ | 5,807            |   | $ | 809              |   | $ | (344             | ) | $ | 3,397            |   | $
|As restated                                                                                          | $ | 13,653           |  | $ | (1,213           | ) | $ | (6,764           | ) | $ | 2,529            |   | $ | 34,952           |   | $
|Net earnings / (loss) per share,
      basic                                                         | $ | 0.10             |  | $ | (0.06            | ) | $ | (0.06            | ) | $ | 0.02             |   | $ | 0.26             |   | $
|Restatement adjustments                                                                              | $ | 0.00             |  | $ | 0.05             |   | $ | 0.01             |   | $ | 0.00             |   | $ | 0.03             |   | $
|As restated                                                                                          | $ | 0.10             |  | $ | (0.01            | ) | $ | (0.05            | ) | $ | 0.02             |   | $ | 0.29             |   | $
|Net earnings / (loss) per share,
      diluted(3)                                                    | $ | 0.10             |  | $ | (0.06            | ) | $ | (0.06            | ) | $ | 0.02             |   | $ | 0.26             |   | $
|Restatement adjustments                                                                              | $ | 0.00             |  | $ | 0.05             |   | $ | 0.01             |   | $ | 0.00             |   | $ | 0.03             |   | $
|As restated                                                                                          | $ | 0.10             |  | $ | (0.01            | ) | $ | (0.05            | ) | $ | 0.02             |   | $ | 0.29             |   | $
|Cash from / (used in) operations                                                                     | $ | 31,597           |  | $ | 13,875           |   | $ | 13,715           |   | $ | 19,031           |   | $ | 9,965            |   | $
|Net free cash
      flow(4)                                                                          | $ | 8,950            |  | $ | (4,588           | ) | $ | (6,922           | ) | $ | 3,917            |   | $ | (6,446           | ) | $
|Cash dividends
    declared                                                                          | $ | Nil              |  | $ | Nil              |   | $ | Nil              |   | $ | Nil              |   | $ | Nil              |   | $
|Total cash costs, per gold
      equivalent ounce(4)                                                 | $ | 445              |  | $ | 500              |   | $ | 453              |   | $ | 455              |   | $ | 413              |   | $
|Total cash costs, per gold
      ounce(4)                                                            | $ | 35               |  | $ | 191              |   | $ | 198              |   | $ | 221              |   | $ | 234              |   | $
|Average realized gold
      price(5)                                                                 | $ | 1,093            |  | $ | 971              |   | $ | 920              |   | $ | 903              |   | $ | 796              |   | $
|Average realized silver price(5)                                                                     | $ | 17.54            |  | $ | 15.15            |   | $ | 13.71            |   | $ | 12.63            |   | $ | 10.05            |   | $
|Gold equivalent ounces sold
      (55:1)(6)                                                          |   | 65,694           |  |   | 52,572           |   |   | 50,753           |   |   | 57,558           |   |   | 68,901           |   |  
|Gold equivalent ounces produced
      (55:1)(6)                                                      |   | 63,467           |  |   | 54,549           |   |   | 50,814           |   |   | 61,398           |   |   | 73,766           |   |  
|Total cash costs per gold
      equivalent ounce (55:1)(4)(6)                                        | $ | 423              |  | $ | 469              |   | $ | 420              |   | $ | 411              |   | $ | 364              |   | $

|(1) | Gold equivalent ounces include silver ounces produced
      and sold converted to a gold equivalent based on the ratio of the actual
      realized sales prices of the commodities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Silver ounce equal to one gold ounce.                                                                                                                                               
|(3) | Net loss per share on a diluted basis is the same as
      net loss per share on an undiluted basis in Q3 2008, Q2 2009 and Q3 2009
      as all factors were anti-dilutive.        
|(4) | See the Non-GAAP Measures section on page
    29.                                                                                                                                   
|(5) | Average realized prices are on a per ounce
      basis.                                                                                                                             
|(6) | Gold equivalent ounces include silver ounces produced
      and sold converted to a gold equivalent based on the Company's long-term
      gold equivalency ratio of 55:1.          
|(7) | See Amendment and Restatement on May 13, 2010 section on
      page 3 for further discussion of the restatement.                                                                    



| | 9
| | -

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


REVIEW OF FOURTH QUARTER FINANCIAL RESULTS


During the fourth quarter of 2009, the Company sold 38,249 gold ounces, 1,509,511 silver ounces, or 62,462 gold equivalent ounces, compared to sales of 41,004 gold ounces, 1,534,318 silver ounces, or 60,662 gold equivalent ounces in the same period
of the prior year. Fourth quarter revenues increased to $68.2 million compared to Q4 2008 revenues of $48.3 million. This $19.9 million increase in revenue was entirely due to the 37% and 75% increase in the realized prices of gold and
silver respectively, as sales of gold and silver ounces declined over Q4 2008.

Earnings before other items were $21.5 million in the fourth quarter of 2009, representing the best quarterly result in the Company's history. This achievement was a $16.4 million or 322% improvement over Q4 2008's earnings before
other items of $5.1 million and primarily resulted from the $19.9 million increase in revenue mentioned above, and a $2.0 million reduction in general and administration expense due to reduced share-based compensation costs in Q4 2009.

Consolidated net earnings were $13.7 million in the fourth
quarter of 2009, representing a $21.3 million or 61% decline over the Company's
consolidated net earnings of $35.0 million in the fourth quarter of 2008. The
primary reason for this decrease in earnings was the $21.8 million change in
foreign exchange gains and losses quarter-over-quarter. The weakening of the
Mexican peso in the fourth quarter of 2008 resulted in large foreign exchange
gains, primarily as a result of the Company's future income tax liabilities
which are denominated in this currency and then translated into US dollars at
the balance sheet date. In addition, the Company recognized a tax expense of
$5.6 million in the fourth quarter of 2009 versus a $10.3 million tax recovery
in the fourth quarter of 2008.

Total cash costs per gold equivalent ounce for the fourth quarter increased 8% to $445, compared to $413 per gold equivalent ounce in the same period in 2008. Using the Company's long-term silver-to-gold equivalency ratio of 55:1, cash
costs per gold equivalent ounce were $423 versus $364 in Q4 2008. Total cash costs were lower in the fourth quarter of the prior year primarily as a result of the $30 per gold equivalent ounce favourable reversal of mark-to-market
valuation adjustments for inventories that was recorded in that quarter.  The Company had recorded non-cash valuation adjustments to previously inventoried costs at the end of the third quarter when commodity prices fell in response to the global
economic crisis. A portion of these valuation adjustments were reversed at the end of the fourth quarter when the commodity prices improved.

The Company reported cash flow from operations during the fourth quarter of $31.6 million, an increase of $21.6 million, or 216%, over the same quarter of the prior year. This improvement in operating cash flow resulted from the increased
prices on sales of gold and silver that were realized during the quarter.



| | 10
| | --

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


|                                                              |   |           |   |   |           |  |   |           |  |   |         |  |   |        |   |  
|------------------------------------------------------------- | - | --------- | - | - | --------- |  | - | --------- |  | - | ------- |  | - | ------ | - | -
|                                                              |   |           |   |   |           |  |   |           |  |   |         |  |   |        |   |  
|RESULTS OF OPERATIONS                                         |   |           |   |   |           |  |   |           |  |   |         |  |   |        |   |  
|                                                              |   |           |   |   |           |  |   |           |  |   |         |  |   |        |   |  
|(in thousands, except ounces and total cash costs)            |   |           |   |   |           |  |   |           |  |   |         |  |   |        |   |  
|                                                              |   | OCAMPO    |   |   | EL CUBO   |  |   | CORPORATE | 
|THREE MONTHS ENDED DECEMBER 31                                |   | 2009      |   |   | 2008      |  |   | 2009      |  |   | 2008    |  |   | 2009   |   |  
|Gold ounces sold                                              |   | 29,463    |   |   | 31,671    |  |   | 8,786     |  |   | 9,333   |  |   | -      |   |  
|Silver ounces sold                                            |   | 1,125,069 |   |   | 1,083,571 |  |   | 384,442   |  |   | 450,747 |  |   | -      |   |  
|Gold equivalent ounces
      sold(1)                          |   | 47,539    |   |   | 45,546    |  |   | 14,923    |  |   | 15,116  |  |   | -      |   |  
|Gold ounces produced                                          |   | 27,932    |   |   | 33,877    |  |   | 8,897     |  |   | 9,891   |  |   | -      |   |  
|Silver ounces produced                                        |   | 1,068,731 |   |   | 1,176,427 |  |   | 396,367   |  |   | 473,466 |  |   | -      |   |  
|Gold equivalent ounces produced(1)                            |   | 45,167    |   |   | 48,922    |  |   | 15,240    |  |   | 15,967  |  |   | -      |   |  
|Revenue from mining operations                                | $ | 51,783    |   | $ | 36,511    |  | $ | 16,437    |  | $ | 11,751  |  |   | -      |   |  
|Production costs                                              | $ | 17,663    |   | $ | 17,062    |  | $ | 9,450     |  | $ | 7,459   |  |   | -      |   |  
|Refining costs                                                | $ | 569       |   | $ | 377       |  | $ | 139       |  | $ | 131     |  |   | -      |   |  
|Net earnings / (loss) before other items                      | $ | 22,254    |   | $ | 11,287    |  | $ | 3,635     |  | $ | 785     |  | $ | (4,346 | ) | $
|Total cash costs per gold equivalent
      ounce(2)           | $ | 384       |   | $ | 383       |  | $ | 643       |  | $ | 502     |  |   | -      |   |  
|Total cash costs per gold ounce(2)                            | $ | (51       | ) | $ | 207       |  | $ | 320       |  | $ | 328     |  |   | -      |   |  
|Gold equivalent ounces sold
      (55:1)(3)                   |   | 49,918    |   |   | 51,372    |  |   | 15,776    |  |   | 17,528  |  |   |        |   |  
|Gold equivalent ounces produced
      (55:1)(3)               |   | 47,363    |   |   | 55,267    |  |   | 16,104    |  |   | 18,499  |  |   |        |   |  
|Total cash costs per gold equivalent ounce
      (55:1)(2)(3) | $ | 366       |   | $ | 340       |  | $ | 608       |  | $ | 433     |  |   |        |   |  
|                                                              |   |           |   |   |           |  |   |           |  |   |         |  |   |        |   |  

|(1) | Gold equivalent ounces include silver ounces produced
      and sold converted to a gold equivalent based on the ratio of the actual
      realized sales prices of the commodities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | See the Non-GAAP Measures section on page
    29.                                                                                                                                   
|(3) | Gold equivalent ounces include silver ounces produced
      and sold converted to a gold equivalent, based on the Company's long-term
      gold equivalency ratio of 55:1.         

|(in thousands, except ounces
      and total cash costs)    |   |           |  |   |           |  |   |           |   |   |           |  |   |         |   |   |         |  
|----------------------------------------------------------- | - | --------- |  | - | --------- |  | - | --------- | - | - | --------- |  | - | ------- | - | - | ------- | -
|                                                            |   | OCAMPO    |  |   | EL CUBO   |  |   | CORPORATE |  
|YEAR ENDED DECEMBER 31                                      |   | 2009      |  |   | 2008      |  |   | 2009      |   |   | 2008      |  |   | 2009    |   |   | 2008    |  
|Gold ounces sold                                            |   | 105,818   |  |   | 112,682   |  |   | 27,185    |   |   | 37,964    |  |   | -       |   |   | -       |  
|Silver ounces sold                                          |   | 3,976,304 |  |   | 3,867,178 |  |   | 1,170,280 |   |   | 1,739,361 |  |   | -       |   |   | -       |  
|Gold equivalent ounces
      sold(1)                        |   | 166,071   |  |   | 177,404   |  |   | 44,782    |   |   | 67,624    |  |   | -       |   |   | -       |  
|Gold ounces produced                                        |   | 108,467   |  |   | 115,656   |  |   | 27,842    |   |   | 38,772    |  |   | -       |   |   | -       |  
|Silver ounces produced                                      |   | 3,982,175 |  |   | 3,995,725 |  |   | 1,183,339 |   |   | 1,783,149 |  |   | -       |   |   | -       |  
|Gold equivalent ounces
      produced(1)                    |   | 168,494   |  |   | 182,399   |  |   | 45,578    |   |   | 69,111    |  |   | -       |   |   | -       |  
|Revenue from mining
      operations                        | $ | 162,579   |  | $ | 154,313   |  | $ | 44,222    |   | $ | 58,209    |  |   | -       |   |   | -       |  
|Production costs                                            | $ | 66,988    |  | $ | 86,026    |  | $ | 29,516    |   | $ | 41,625    |  |   | -       |   |   | -       |  
|Refining costs                                              | $ | 2,232     |  | $ | 1,156     |  | $ | 623       |   | $ | 506       |  |   | -       |   |   | -       |  
|Net earnings / (loss) before other items                    | $ | 54,240    |  | $ | 31,881    |  | $ | (327      | ) | $ | 19        |  | $ | (26,479 | ) | $ | (19,016 | )
|Total cash costs per gold
      equivalent ounce(2)         | $ | 417       |  | $ | 491       |  | $ | 630       |   | $ | 623       |  |   | -       |   |   | -       |  
|Total cash costs per gold
      ounce(2)                    | $ | 95        |  | $ | 269       |  | $ | 390       |   | $ | 441       |  |   | -       |   |   | -       |  
|Gold equivalent ounces
      sold (55:1)(3)                 |   | 178,114   |  |   | 182,994   |  |   | 48,463    |   |   | 69,589    |  |   |         |   |   |         |  
|Gold equivalent
      ounces produced (55:1)(3)             |   | 180,871   |  |   | 188,306   |  |   | 49,357    |   |   | 71,193    |  |   |         |   |   |         |  
|Total
    cash costs per gold equivalent ounce (55:1)(2)(3) | $ | 389       |  | $ | 476       |  | $ | 582       |   | $ | 605       |  |   |         |   |   |         |  
|                                                            |   |           |  |   |           |  |   |           |   |   |           |  |   |         |   |   |         |  

|(1) | Gold equivalent ounces include silver ounces produced
      and sold converted to a gold equivalent based on the ratio of the actual
      realized sales prices of the commodities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | See the Non-GAAP Measures section on page
    29.                                                                                                                                   
|(3) | Gold equivalent ounces include silver ounces produced
      and sold converted to a gold equivalent, based on the Company's long-term
      gold equivalency ratio of 55:1.         



| | 11
| | --

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


OPERATIONAL REVIEW  OCAMPO MINE


The Ocampo mine, which was commissioned in January 2007, is located in the Sierra Madre Occidental, Chihuahua State, Mexico, and is currently one of the largest operating gold / silver mines in the state. The mine is comprised of both an open pit
and an underground mine, with milling and heap leach processing facilities.

During the year, the planned reinvestment and reorganization program in the underground operation facilitated a significant increase in production volume from 571 TPD in January 2009 to 1,434 TPD in December 2009; the latter exceeding
management's target of 1,200 TPD by 20%.  These productivity improvements increased the amount of underground ore in the mill feed, thereby also increasing the head grades being presented to the mill due to the increase in stoping ore.

During 2009, the Company also significantly expanded its mill processing facility.  Work on the Phase I and II mill expansions, which commenced during the fourth quarter of 2008, has increased mill capacity from the nameplate capacity of 1,500 TPD
during the first three quarters of 2008 to its current capacity of 2,900 TPD. Once the Phase III mill expansion is completed in the earlier part of Q2 2010, the capacity of the mill is expected to increase to 3,300 TPD.

On July 15, 2009 the Company gained access to 20 megawatts of grid power by connecting the mine to the national electrical grid, which is a more reliable and cost effective source of power than the diesel generators previously used resulting in cost
savings of approximately $20 per gold equivalent ounce over the last half of the year versus the first half of the year. The diesel generators have remained on site to serve as an emergency back-up source of power, and are capable of meeting
100% of the site's power requirements.

The Company also finalized the re-design of the heap leach facility in the third quarter, and began construction in the fourth quarter. This project, which will increase the available leach pad capacity to 14 million tonnes, will be completed in the
second quarter of 2010 at an anticipated total capital cost of $1.7 million. The heap leach pad re-design has allowed the mine to increase stacking rates to an average of 9,775 TPD in the fourth quarter, compared to an average of 4,976 TPD in
the first nine months of the year. The reduced stacking rates throughout most of 2009 largely resulted from a decision made in late 2008 to conserve space on the leach pad and defer a significant leach pad expansion beyond 2009. The increase in
higher grade underground production experienced in the fourth quarter has decreased the tonnes of open pit ore being sent to the mill processing facility and has potentially increased the amount of higher grade open pit tonnage being routed to the
heap leach facility. This will increase the overall head grades being placed for leaching and together with the engineered increase of stacking capacity, is expected to increase future heap leach metal production rates.



| | 12
| | --

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


|OCAMPO OPEN PIT MINE                               |  |                         |  |  |                         |  |  |                         |  |  |                         | 
|-------------------------------------------------- |  | ----------------------- |  |  | ----------------------- |  |  | ----------------------- |  |  | ----------------------- | 
|                                                   |  | QUARTER ENDED           |  |  | YEAR ENDED              | 
|                                                   |  | DECEMBER 31,
      2009 |  |  | DECEMBER 31,
      2008 |  |  | DECEMBER 31,
      2009 |  |  | DECEMBER 31,
      2008 | 
|Total tonnes mined                                 |  | 8,040,460               |  |  | 7,050,090               |  |  | 31,639,446              |  |  | 27,883,370              | 
|Total tonnes mined per day                         |  | 87,396                  |  |  | 76,631                  |  |  | 86,682                  |  |  | 76,184                  | 
|Tonnes of ore mined                                |  | 670,211                 |  |  | 987,540                 |  |  | 2,727,231               |  |  | 3,534,014               | 
|Capitalized stripping and other tonnes             |  | 6,357,614               |  |  | 6,062,636               |  |  | 22,910,561              |  |  | 24,606,807              | 
|Operating stripping ratio                          |  | 1.51                    |  |  | 4.15                    |  |  | 2.20                    |  |  | 6.89                    | 
|Average grade of gold(1)                           |  | 0.96                    |  |  | 1.09                    |  |  | 1.13                    |  |  | 0.96                    | 
|Average grade of silver(1)                         |  | 55                      |  |  | 47                      |  |  | 55                      |  |  | 38                      | 
|Average grade of gold equivalent(1)                |  | 1.85                    |  |  | 1.68                    |  |  | 1.96                    |  |  | 1.58                    | 
|Tonnes of mineralized waste                        |  | 501,681                 |  |  | 127,654                 |  |  | 1,692,736               |  |  | 127,654                 | 
|Average grade of gold(1)                           |  | 0.18                    |  |  | 0.22                    |  |  | 0.24                    |  |  | 0.22                    | 
|Average grade of silver(1)                         |  | 14                      |  |  | 6                       |  |  | 11                      |  |  | 6                       | 
|Average grade of gold equivalent(1)                |  | 0.40                    |  |  | 0.29                    |  |  | 0.41                    |  |  | 0.29                    | 
|Total tonnes ore mined and marginal
      material |  | 1,171,892               |  |  | 1,115,194               |  |  | 4,419,967               |  |  | 3,661,668               | 
|wasted                                             |  |                         |  |  |                         |  |  |                         |  |  |                         | 
|Average grade of gold(1)                           |  | 0.63                    |  |  | 0.99                    |  |  | 0.79                    |  |  | 0.93                    | 
|Average grade of silver(1)                         |  | 37                      |  |  | 42                      |  |  | 38                      |  |  | 37                      | 
|Average grade of gold equivalent(1)                |  | 1.23                    |  |  | 1.52                    |  |  | 1.36                    |  |  | 1.54                    | 
|Tonnes stockpiled ahead of the heap
      leach    |  | 12,008                  |  |  | 43,515                  |  |  | 12,008                  |  |  | 43,515                  | 
|Average grade of gold(1)                           |  | 0.55                    |  |  | 0.65                    |  |  | 0.55                    |  |  | 0.65                    | 
|Average grade of silver(1)                         |  | 44                      |  |  | 26                      |  |  | 44                      |  |  | 26                      | 
|Average grade of gold equivalent(1)                |  | 1.22                    |  |  | 0.98                    |  |  | 1.22                    |  |  | 0.98                    | 
|Low grade tonnes stockpiled                        |  | 20,020                  |  |  | 216,192                 |  |  | 20,020                  |  |  | 216,192                 | 
|Average grade of gold(1)                           |  | 0.27                    |  |  | 0.41                    |  |  | 0.27                    |  |  | 0.41                    | 
|Average grade of silver(1)                         |  | 27.00                   |  |  | 18                      |  |  | 27.00                   |  |  | 18                      | 
|Average grade of gold equivalent(1)                |  | 0.69                    |  |  | 0.63                    |  |  | 0.69                    |  |  | 0.63                    | 
|(1) Grams per tonne.                               |  |                         |  |  |                         |  |  |                         |  |  |                         | 

The Company mined 8,040,460 tonnes from the open pit in the
fourth quarter of 2009, a 14% increase over the fourth quarter of 2008. This
increase occurred despite 20% of the haulage fleet being parked during the
quarter, and a two-day unseasonal rainfall which impacted open pit production
for a period of 10 days during the month of October. The heavy rain resulted in
excessive water flooding the drill holes and lost hauling time due to poor
visibility. Annually, the Company mined 31,639,446 tonnes from the open pit, a
13% increase over the 27,883,370 tonnes mined during 2008.

Tonnes of ore mined from the open pit declined in the fourth
quarter of 2009 by 317,329, or 32%, from ore mined in the fourth quarter of 2008
largely as a result of an increased focus on stripping activities in the month
of December and the need to mine around historical voids in the Picacho pit.
Annual tonnes of ore mined from the open pit decreased by 806,783, or 23%, when
compared to 2008. This reduction in tonnes mined was budgeted by management and
reflects 1,692,736 tonnes of low grade material being wasted due to previous
capacity restrictions on the heap leach pad. Due to the additional capacity
resulting from the leach pad re-design, the mine has ceased wasting this
material, and as of the fourth quarter all material above 0.30 gold equivalent
grams per tonne is being placed on the heap leach pad.

The Company continued its stripping activities at the Picacho
pit, mining 4,367,280 tonnes during the fourth quarter versus 2,614,143 tonnes
the third quarter. Stripping activities at the Conico / Refugio pits declined
over the prior quarter with 1,370,031 tonnes being mined compared to 3,537,633
in the previous quarter. Excluding capitalized stripping and other capitalized
activity, mining from the open pit totaled approximately 1.7 million tonnes in
the fourth quarter and 8.7 million tonnes annually. The operating strip ratio
was reduced from 4.15:1 in Q4 2008 to 1.51:1 in Q4 2009, which is below the
remaining life of mine stripping ratio of less than 2.3:1.



| | 13
| | --

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


|                                          |                         |                         |                        
|----------------------------------------- | ----------------------- | ----------------------- | -----------------------
|                                          |                         |                         |                        
|OCAMPOUNDERGROUNDMINE                     |                         |                         |                        
|                                          | QUARTER ENDED           | YEAR ENDED             
|                                          | DECEMBER 31,
      2009 | DECEMBER 31,
      2008 | DECEMBER 31,
      2009
|Tonnes of ore mined                       | 102,973                 | 72,566                  | 263,151                
|Tonnes of ore mined per day               | 1,119                   | 789                     | 721                    
|Average grade of gold(1)                  | 2.44                    | 3.48                    | 2.61                   
|Average grade of silver(1)                | 162                     | 173                     | 154                    
|Average grade of gold
      equivalent(1) | 5.01                    | 5.68                    | 4.95                   
|Metres developed                          | 3,668                   | 3,269                   | 15,089                 
|(1) Grams per tonne.                      |                         |                         |                        

The Company mined 102,973 tonnes of underground ore in the
fourth quarter of 2009, an increase of 42% over the same period of the prior
year, despite the heavy rainfall that negatively impacted production for 5 days
during the month of October. The 2009 underground reinvestment and
reorganization program resulted in a significant increase in production volume
late in the year, with production in the month of December averaging 1,434 TPD.
This daily production rate represents a 20% increase over the targeted 1,200 TPD
rate, and a 180% increase over the average daily rate achieved in the first
three quarters of 2009. As of the end of the year, there were nine longhole
stopes and three cut and fill stopes in production, and an additional three
longhole stopes will be brought into production in the first quarter of 2010. As
of mid-March 2010, approximately 210,000 tonnes were developed and ready to be
drilled, and 25,000 tonnes were drilled and ready to blast.

The Company mined 263,151 tonnes of underground ore in 2009, a
decrease of 50,424 tonnes or 16% compared to 2008 production. The mine
reconfiguration from cut and fill stoping to longhole stoping negatively
impacted production throughout most of 2009 as a result of the significant
advanced development required to prepare the required number of longhole stopes
for production. In addition, the Company installed a ventilation raise in the
first quarter to ensure that sufficient fresh air was available for the planned
development, and completed work on an ore pass system which allows for more
efficient material handling and haulage. In the third quarter the Company took
over underground lateral development, thereby eliminating virtually all
contractors and improving productivity. These initiatives limited underground
production to 557 TPD in the first half of 2009 but resulted in a significant
increase in underground production by the fourth quarter, as mentioned above.

Additional highlights of the underground operation
include:

▬

16 headings are available for jumbo development and a further 24 active
  headings are available for jackleg development,

▬

Over 100 new miners have been recruited and trained,

▬

Over 2,900 metres of air and water pipes have been replaced,

▬

Specialized longhole blasting crews are progressing successfully and now
  conduct the vast majority of longhole blasting, ensuring that the longhole
  drillers are focused exclusively on drilling and blasting, and

▬

A total of 15,089 metres were developed during 2009 ensuring that
  sufficient stopes are available to maintain December's production rate going
  forward.



| | 14
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


|                                           |                         |                         |                        
|------------------------------------------ | ----------------------- | ----------------------- | -----------------------
|                                           |                         |                         |                        
|OCAMPO MILL CIRCUIT                        |                         |                         |                        
|                                           | QUARTER ENDED           | YEAR ENDED             
|                                           | DECEMBER 31,
      2009 | DECEMBER 31,
      2008 | DECEMBER 31,
      2009
|Tonnes from the underground                | 104,291                 | 78,455                  | 242,974                
|Average grade of gold
      processed(1)   | 2.44                    | 3.48                    | 2.59                   
|Average grade of silver
      processed(1) | 161                     | 172                     | 154                    
|Gold equivalent grade processed(1)         | 5.01                    | 5.68                    | 4.93                   
|Tonnes from the open pit                   | 151,918                 | 116,275                 | 725,335                
|Average grade of gold
      processed(1)   | 2.07                    | 3.41                    | 2.42                   
|Average grade of silver
      processed(1) | 102                     | 142                     | 108                    
|Gold equivalent grade processed(1)         | 3.73                    | 5.24                    | 4.04                   
|Total tonnes of ore processed              | 256,209                 | 194,730                 | 968,309                
|Total tonnes of ore processed per day      | 2,785                   | 2,117                   | 2,653                  
|Average grade of gold
      processed(1)   | 2.22                    | 3.44                    | 2.46                   
|Average grade of silver
      processed(1) | 127                     | 154                     | 120                    
|Gold equivalent grade processed(1)         | 4.25                    | 5.42                    | 4.27                   
|Gold ounces produced                       | 17,194                  | 20,385                  | 70,952                 
|Silver ounces produced                     | 771,301                 | 822,632                 | 2,834,314              
|Gold equivalent ounces produced            | 29,635                  | 30,906                  | 113,773                
|(1) Grams per tonne.                       |                         |                         |                        

The Ocampo mill circuit processed 256,209 tonnes during the
fourth quarter at an average rate of 2,785 TPD, which was an increase of 32%
over Q4 2008. This increase was achieved despite operational and engineering
issues encountered during the quarter that impacted production as follows:

Heavy rainfall in October caused production losses at the mill due to
  conveyors, screens and chutes becoming blocked by wet ore.

During the quarter, the Company determined that the required cyclone and
  pumping capacity of the Phase III mill expansion had been undersized. This
  limited the maximum daily capacity of the mill to 2,900 TPD, rather than the
  planned 3,300  3,400 TPD, and reduced silver recoveries. As a result, five
  correctly sized Krebb cyclones were ordered and two of the five cyclones were
  installed by the end of December with immediate positive benefits in both
  tonnage and silver recoveries. The remainder of the cyclones will be installed
  in late Q1 2010, with the larger pumps being installed in early Q2 2010.

On November 28, 2009, the Company detected a problem with the smaller,
  third mill. Upon disassembling the feed trommel, the Company discovered that
  the holding bolts had failed and the pinion drive was damaged. Repairs were
  completed in 20 days and the mill was restarted on December 15, 2009. The
  enhanced configuration of the mill circuit demonstrated its inherent
  flexibility as the two remaining mills continued to operate uninterrupted
  during the maintenance period, resulting in the mill facility processing over
  2,600 TPD during the repair period.

Annually, the Ocampo mill circuit processed 968,309 tonnes
during 2009 at an average rate of 2,653 TPD, which represents an increase of 847
TPD, or 47% over 2008. This increase was due to the completion of the Phase I
and II mill expansions in late 2008 and early 2009, as well as substantial
completion of the Phase III expansion.

Mill grades decreased to 4.25 gold equivalent grams per tonne
in Q4 2009 from 5.42 in the same period in 2008. This decline was partially due
to increased open pit ore tonnes being sent to the mill for processing that were
lower grade than the open pit tonnes processed in Q4 2008. These tonnes were
lower in grade as a result of lowering the cut-off grade from 3.5 gold
equivalent grams per tonne to approximately 2.5 gold equivalent grams per tonne
to accommodate the additional daily milling capacity. In addition, although the
fourth quarter saw an increase in underground tonnes sent to the mill, a larger
percentage of the tonnes were from development activity which typically has much
higher dilution than stoping tonnage. Annually, mill grades declined from 5.72
gold equivalent grams per tonne in 2008 to 4.27 during 2009. This decline was
due to increased open pit tonnes being sent to the higher capacity mill for
processing. The level of open pit ore tonnes processed by the mill more than doubled in 2009 by reducing the
cut-off grade for open pit ore sent to the mill. In addition, annual gold
equivalent mill grades were significantly impacted by a more than 10% decline in
the gold equivalency rate in 2009 versus 2008. Grades are anticipated to improve
as the stoping tonnage from the underground mine increases in the coming
quarters.



| | 15
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS




|OCAMPOCRUSHING& HEAPLEACHCIRCUIT                       |                         |                         |                         |                        
|------------------------------------------------------ | ----------------------- | ----------------------- | ----------------------- | -----------------------
|                                                       | QUARTER ENDED           | YEAR ENDED             
|                                                       | DECEMBER 31,
      2009 | DECEMBER 31,
      2008 | DECEMBER 31,
      2009 | DECEMBER 31,
      2008
|Open pit ore tonnes placed on the heap
      leach pad | 897,908                 | 741,560                 | 2,237,516               | 3,080,771              
|Underground ore tonnes placed on heap
      leach pad  | 1,433                   | -                       | 21,519                  | -                      
|Total tonnes of ore processed                          | 899,341                 | 741,560                 | 2,259,035               | 3,080,771              
|Total tonnes of ore processed per day                  | 9,775                   | 8,060                   | 6,189                   | 8,417                  
|Average grade of gold
      processed(1)               | 0.58                    | 0.91                    | 0.66                    | 0.76                   
|Average grade of silver
      processed(1)             | 33                      | 41                      | 33                      | 30                     
|Gold equivalent grade processed(1)                     | 1.11                    | 1.43                    | 1.17                    | 1.25                   
|Gold ounces produced                                   | 10,738                  | 13,492                  | 37,515                  | 49,977                 
|Silver ounces produced                                 | 297,430                 | 353,796                 | 1,147,861               | 1,337,575              
|Gold equivalent ounces produced                        | 15,532                  | 18,016                  | 54,721                  | 72,438                 
|(1) Grams per tonne.                                   |                         |                         |                         |                        

During the fourth quarter of 2009, the Company placed 899,341
tonnes on the heap leach pad, for an average stacking rate of 9,775 TPD and a
21% increase over Q4 2008 daily processing rates. The Company finalized the new
stacking design at the end of the third quarter and began to increase daily
stacking tonnages as a result. The new design is expected to improve the
available heap leach capacity by 10 million tonnes to 14 million tonnes.
Quarterly tonnes processed were affected by the unseasonal rainfall experienced
in October, which resulted in lost production due to reduced crusher and
conveyor availability, leaching solution dilution and pH imbalance. Quarterly
gold equivalent ounce production of 15,532 was lower than the 18,016 ounces
produced in Q4 2008 due to the heavy rainfall which caused excess water on the
heap leach pad and reduced cyanide and pH levels. In addition, the increase in
open pit ore being routed to the mill mentioned previously and the processing of
the low grade ore stockpiles during the fourth quarter has resulted in lower
grades being placed on the leach pad.

The Company placed 2,259,035 tonnes on the heap leach pad
during 2009, representing an 821,736 tonne or 27% decline over the tonnage
placed during 2008. This resulted from a decision made late in the prior year to
reduce 2009 stacking levels to conserve space on the leach pad and defer a
significant leach pad expansion beyond 2009. In addition, downtime experienced
during the year to implement the new stacking design and a new overland conveyor
also resulted in lower tonnes placed. Annual gold equivalent ounce production
was 54,721 during 2009 which was a 24% decline from gold equivalent ounce
production during 2008. This was due to the reduced average stacking rate of
4,976 TPD during the first 9 months of 2009, lower grades, and a more than 10%
decline in the gold equivalency ratio. The increased stacking rates experienced
during the fourth quarter, combined with improved head grades as more open pit
tonnes are routed to the heap leach facility for processing, should result in
improved production going forward into 2010.

As of the end of the year, the Company had 32,028 tonnes of
ore, grading 0.89 gold equivalent grams per tonne, stockpiled ahead of the heap
leach compared to 259,707 tonnes of ore at 0.69 gold equivalent grams per tonne
at the end of 2008. This reduction in the stockpile occurred during the fourth
quarter of 2009 when stacking rates were increased as a result of the
re-optimization of the heap leach facility design.

OCAMPOCASHCOSTS

Using the Company's long-term silver-to-gold equivalency ratio
of 55:1, cash costs per gold equivalent ounce were $366 in the fourth quarter of
2009, representing an 8% increase over cash costs of $340 per gold equivalent
ounce in the fourth quarter of 2008. Total cash costs were lower in the fourth
quarter of the prior year primarily as a result of the $40 per gold equivalent
ounce favorable reversal of inventory write-downs that was recorded in that
quarter. In Q4 2009, cash costs were reduced as a result of the favorable
devaluation of the Mexican peso, access to full grid power and the elimination
of many contracted services. Using the realized gold equivalent ratio of 62:1,
fourth quarter cash costs were largely consistent with the fourth quarter of
2008, at $384 per gold equivalent ounce compared to $383 per gold equivalent
ounce.



| | 16
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


Annually, using the Company's long-term equivalency ratio of 55:1, cash costs per gold equivalent ounce were $389 in 2009 compared to $476 in 2008, representing an 18% improvement and the first time the mine achieved an annual cash cost
result below $400 per gold equivalent ounce. This favorable change was a result of productivity improvements and cost saving measures implemented at the mine site, as well as a weaker Mexican peso in 2009. Using the realized gold equivalency
ratio of 66:1, 2009 cash costs at Ocampo were $417 per gold equivalent ounce, a 15% improvement over the $491 per gold equivalent ounce result in 2008.

OCAMPOEXPLORATION

In 2009 the Company undertook an aggressive exploration program at the Ocampo mine for expenditures of $12.7 million. This included a substantial drill program that consisted of 166 reverse circulation holes totaling 31,028 metres, and 442
diamond drill holes totaling 84,465 metres, for a total of 115,493 metres in 608 holes. This program was focused on:

Infill drilling of pit reserves to increase confidence;

Drilling of pit resources; and

New grass roots discovery drilling in numerous locations throughout the property.

The 2009 Ocampo drill program was divided into 42,675 metres of in-mine underground drilling, 43,018 metres of in-mine surface drilling, and 29,800 metres of brownfields surface drilling.  The total of 115,493 metres represents 94% of the planned
123,000 metre drilling program and resulted in increasing the drill meterage in the district by 43%, such that Ocampo's total drill database since inception of the project in 1997 includes 2,199 drill holes or 386,200 metres of drilling. The
2009 surface drilling program was largely completed as planned with a few exceptions due to logistical constraints related to active mining. Only limited in-pit drilling is planned for the open pits in 2010, allowing the new year's exploration
programs to focus on underground vein expansions and brownfields discoveries. The primary goals of the underground core drilling were to extend known vein resources in the Northeast Underground Mine, both along strike and downward below existing ore
shoots, and to delineate resources in the Santa Eduviges vein directly under the operating pits. The primary goals of the surface in-mine drilling were to increase reserve confidence and to drill pit resources within the existing resource pit
limits, and to further define inferred material below and outside the existing resource pits.

The detailed discussion below outlines the Company's exploration activities during the fourth quarter of 2009. For a detailed discussion of the first nine months of exploration, please refer to the Company's interim Management's
Discussion and Analysis, at  www.sedar.com or on the Company's website at  www.gammongold.com

In the fourth quarter of the year, drilling and exploration work included:

In-mine reserve-resource exploration underground core drilling in the Northeast Underground Mine and in the Santa Eduviges vein (directly under the open pits); and

Non-mine brownfields surface core and reverse circulation drilling on numerous exploration targets, and extensive geologic and geochemical surveys.

Although no surface drilling was completed during the fourth quarter, geologic data and assay results from the in-pit drilling completed earlier in the year were used to update geologic sections, plans, and three-dimensional ore solids for use in
the resource and reserve estimations at December 31, 2009.

Underground drilling will continue into the coming year on extending known vein resources in the Northeast Underground Mine and delineating resources in Santa Eduviges, as many veins and new targets remain to be drilled.  This ongoing program is
normal in-mine exploration and development that is to be expected in an underground mine. A major review and update of the Northeast Underground Mine vein ore solids was also completed in the fourth quarter, as well as a three dimensional model of
the Santa Eduviges Vein, for use in the resource and reserve estimations at December 31, 2009.



| | 17
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


Underground drilling during the quarter was focused in three
areas: Santa Eduviges, Belen and Jesus Maria. Of the 51 holes drilled during the
quarter, 22 cut significant intercepts for a success ratio of 43%. Notable
composited intercepts are shown in the table below:

|         |                |       |       |        |            |              | GOLD EQUIVALENT
|-------- | -------------- | ----- | ----- | ------ | ---------- | ------------ | ---------------
|HOLE     | VEIN           | FROM  | TO    | LENGTH | GOLD (G/T) | SILVER (G/T) | (G/T)(55:1)    
|OU-00650 | BELEN          | 108.8 | 110.5 | 1.7    | 0.57       | 209          | 4.37           
|OU-00719 | BELEN          | 138.5 | 149.3 | 10.8   | 6.50       | 803          | 21.11          
|OU-00717 | BELEN          | 164.3 | 167.9 | 3.6    | 19.50      | 138          | 22.03          
|OU-00661 | BELEN          | 102.5 | 105.0 | 2.5    | 2.01       | 175          | 5.20           
|OU-00657 | BELEN          | 130.4 | 132.0 | 1.6    | 9.67       | 375          | 16.48          
|OU-00632 | JESUS MARIA    | 327.0 | 329.7 | 2.7    | 3.19       | 430          | 11.01          
|OU-00674 | SANTA EDUVIGES | 108.0 | 117.5 | 9.5    | 1.30       | 77           | 2.73           
|OU-00673 | SANTA EDUVIGES | 102.6 | 104.3 | 1.7    | 2.80       | 254          | 7.41           
|OU-00675 | SANTA EDUVIGES | 96.4  | 103.4 | 7.0    | 1.40       | 128          | 3.70           

Note: This exploration information has been reviewed by
Qualified Person, Mr. Ramon Luna. All sample analyses were performed by either
the Ocampo Mine Laboratory, or Chemex Laboratories, based in Vancouver, British
Columbia using standard fire assay procedures and an ICP finish. True widths
have not been calculated.

Highlights of the underground drilling completed during the
quarter include:

A program in the historic Belen mine area, along the southern extension of
  the San Jose vein and approximately 600 metres north of its intersection with
  the PGR trend, has defined an additional 91 metres of ore-grade vein over 40
  metres of elevation, below historic workings and beyond existing
  infrastructure on the 1,540 and 1,580 metre levels. This approximately 1.4
  kilometre structure has continued to demonstrate its promise where tested
  along strike and at depth.

Drilling in the Jesus Maria area during the quarter sought to define this
  vein and the parallel San Fernando vein along strike to the north of and below
  current workings. Hole OU-00656 intercepted three narrow but well mineralized
  structures of between 0.5 and 0.6 metres in width, and ranging in grade from
  4.00 to 7.92 gold equivalent grams per tonne. Two of the intercepts are
  clearly Jesus Maria and San Fernando and the third may be a splay of the San
  Fernando vein.

Hole OU-00632 returned low grade results for Jesus Maria and San Fernando
  intercepts but returned a composited intercept on the parallel Briseida vein
  of 2.7 metres at 11.01 gold equivalent grams per tonne. Thus far this drilling
  program has produced encouraging results over 172 metres of strike length
  beyond and 30 metres below the extents of existing development.

Drilling completed during the quarter in Santa Eduviges yielded
  significant intercepts in 11 of the 32 holes completed, with an average
  thickness and intercept grade of 1.1 metres at 5.12 gold equivalent grams per
  tonne. Ore grade material appears consistent and continuous over 300 metres of
  strike length and 260 metres vertically to the east of the access drift and
  drilling has been targeting an inferred clavo plunging to the southwest. As
  a result of the success of the drilling program, the Company made the decision
  to commence the underground development of this deposit late in the first
  quarter of 2010. It is anticipated that production from this second
  underground mine should commence in the latter part of 2010.

Exploration drifting on the Northeast Underground 1,611 metre level
  progressed 144 metres along the two exploration / haulage drifts (Aventurero
  and San Amado) designed to drill untested portions of known veins projected
  from surface bust never tested underground. Drifting on the Santa Eduviges
  mine totalled 270 metres for the fourth quarter.

During 2009, the non-mine brownfields exploration drilling
program at Ocampo identified one potentially open pit-mineable deposit at Las
Molinas, identified some potential underground-mineable grades on the San Amado
Vein, and discovered a new target ore zone at Santa Librada. In addition, the
program has shown that there is anomalous mineralization extending at least 150
metres from the southeast end of the presently planned Picacho open pit. The
Company's 2009 drilling program included 27,000 metres of brownfields surface
drilling, of which 110%, or 29,800 metres was completed during 2009.



| | 18
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


The metres drilled
      for the year, per target, is outlined below:

|                            |       |         
|--------------------------- | ----- | --------
|TARGET                      | HOLES | METRES  
|PICACHO SOUTHEAST EXTENSION | 14    | 2,643.8 
|ALTAGRACIA                  | 21    | 5,294.8 
|LAS MOLINAS                 | 33    | 6,960.8 
|SAN AMADO                   | 34    | 10,408.1
|BELEN                       | 7     | 1,521.8 
|SANTA INES                  | 4     | 974.7   
|SANTA LIBRADA               | 9     | 1,555.9 
|LA ROSITA                   | 2     | 440.1   
|                            |       |         

The fourth quarter brownfields exploration drilling program at
Ocampo was focused on infill drilling the Las Molinas deposit that was
discovered earlier in the year, step-out and in-fill drilling on the San Amado
and La Leona vein system, drilling southeast of the Picacho Pit in an area where
there appears to be possibilities to extend the pit, drilling on a new discovery
called the Santa Librada which is south of existing mines, and two drill holes
on a new vein target to the northwest of the mine complex called La Rosita.
During the quarter the Company completed 52 drill holes or 12,813 metres of
surface drilling.



| | 19
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


|Significantly anomalous drill
      intercept results encountered in Q4 2009 are listed on the following
      table:
|---------------------------------------------------------------------------------------------------------------------
|                                                                                                                     
|HOLE                                                                                                                 
|OG-809                                                                                                               
|OG-809                                                                                                               
|OG-811                                                                                                               
|OG-814                                                                                                               
|OG-815                                                                                                               
|OG-815                                                                                                               
|OG-815                                                                                                               
|OG-817                                                                                                               
|OG-817                                                                                                               
|OG-818                                                                                                               
|OG-821                                                                                                               
|OG-821                                                                                                               
|OG-824                                                                                                               
|OG-829                                                                                                               
|OG-840                                                                                                               
|OG-841                                                                                                               
|OG-831                                                                                                               
|OG-831                                                                                                               
|OG-808                                                                                                               
|OG-808                                                                                                               
|OG-812                                                                                                               
|OG-812                                                                                                               
|OG-825                                                                                                               
|OG-827                                                                                                               
|OG-834                                                                                                               
|OG-835                                                                                                               
|OG-835                                                                                                               
|OG-835                                                                                                               
|OG-853                                                                                                               
|                                                                                                                     

Note: This exploration information has been reviewed by
Qualified Person, Mr. Ramon Luna. All sample analyses were performed by Chemex
Laboratories, based in Vancouver, British Columbia using standard fire assay
procedures with an ICP finish. True widths have not been calculated.

Highlights of the brownfields surface drilling completed during
the quarter include:

At Las Molinas, the Company completed 16 holes for 3,492 metres in the
  fourth quarter, bringing the total for 2009 to 33 drill holes or 6,961 metres.
  This project lies just north of the mill site and one kilometre north of the
  present open pits. The work confirmed the existence of a complex system of
  mineralized anastomosing veinlets in a geometry that shows potential to
  develop a small open pit. All but 2 of the 33 holes completed and assayed
  during 2009 showed some anomalous gold and silver. This drilling completed a
  pattern of approximately 50 by 50 metre drill spacing across the mineralized
  zone over a strike of 300 metres. This drilling was sufficient to construct
  three-dimensional ore solids. Some of this mineralization is open to the
  southeast and at depth where the Company plans to
explore for continuations of this mineralization in the underground mine in 2010. The mineralogy and character of the mineralization is typical of that being mined in the present open pits, consisting of irregularly distributed narrow veinlets and
hydrothermal breccias.



| | 20
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


▬

Another six holes were completed at the Picacho Southeast target area during the quarter bringing the 2009 total to 14 holes for 2,644 metres, eight of which showed anomalous gold-silver values. These drill intercepts show that the mineralization is
significant albeit somewhat discontinuous in nature, a style typical of the open pit deposits at Ocampo. This work showed that the second parallel zone to the north of the PGR structure is locally mineralized. A three-dimensional model was created
for this mineralization for resource estimation.

During the quarter, the Company completed another 19 core holes for 6,506 metres on the San Amado and La Leona vein system on the northeast extreme of the district, bringing the annual total to 34 holes or 10,408 metres. This work has discovered
some very high grades locally, and also has shown that this is not one single vein, but rather a system of anastomosing veins and vein splits. Portions of the San Amado were sectioned and three-dimensional ore solids were created to model the
orebody. The mineralization appears to have high gold / low silver values near surface, a low grade interval between 1,750 and 1,650 metres elevation, and then very high grade gold and silver values below that. Further exploration will be done from
underground on the San Amado in 2010, and some further surface drilling is planned on the sub-parallel La Leona vein in 2010.

A new discovery of mineralization was made by drilling the Santa Librada exploration target in the southern portion of the property, about one kilometre south of the existing open pits. This target consists of a northwest-striking fault/vein system
at the contact of the El Salto formation and the Ocampo Andesite and Santa Eduviges formation, a geologic setting similar to the operating open pits. The best drill results to date include a 7.0 metre intercept grading 1.67 gold grams per tonne and
112 silver grams per tonne, for 3.70 gold equivalent grams per tonne, and provide clear encouragement to follow up with further drilling in 2010.

No further drilling was completed at Altagracia during the quarter. A program of detailed geologic mapping and three-dimensional interpretation was completed that will lead to a more focused drill campaign in 2010.

The Company completed two drill holes for 440 metres at the La Rosita target area which is northwest of the heap leach facility. This target has veining sub-parallel to the Aventurero vein system in the underground mine, and had shown anomalous gold
values on surface. At the end of the quarter, assays for this drilling had not been received.

During the quarter, the Company continued to expand the geologic mapping and geochemical surveys over the entire property position. Careful geologic mapping is the most direct and cost-efficient exploration method in the Ocampo district and
therefore the Company continues to emphasize this part of the program. A spectrographic clay mineralogy study on the northern Cerro Colorado target area found encouraging patterns, and a model has been developed for second-order covered targets
based on this work.



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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


OPERATIONAL REVIEW  EL CUBO MINE


The El Cubo mine is located in the village of El Cubo in the
state of Guanajuato, Mexico, a world class mining district with over 400 years
of production history. The mine is comprised of the original El Cubo underground
mine which is owned by the Company, and the Las Torres Complex which is leased
from Compania Minera Las Torres, S.A. de C.V. (Las Torres).

On September 4, 2009, the Company renegotiated an extension of
its mining lease agreement with Las Torres for an additional three year period.
Pursuant to the agreement, the Company re-acquired the right to explore, develop
and mine the Las Torres Gold-Silver property located in Guanajuato State,
Mexico. In addition, the agreement provides the Company access to the processing
capacity of the Las Torres mill.

|ELCUBOUNDERGROUND ANDMILLINGOPERATIONS     |                         |                         |                         |                        
|------------------------------------------ | ----------------------- | ----------------------- | ----------------------- | -----------------------
|                                           | QUARTER ENDED           | YEAR ENDED             
|                                           | DECEMBER 31,
      2009 | DECEMBER 31,
      2008 | DECEMBER 31,
      2009 | DECEMBER 31,
      2008
|Tonnes of ore mined                        | 168,358                 | 158,974                 | 506,248                 | 648,373                
|Tonnes of ore mined per day                | 1,830                   | 1,728                   | 1,387                   | 1,771                  
|Total tonnes of ore processed              | 165,648                 | 160,719                 | 505,388                 | 658,105                
|Total tonnes of ore processed per day      | 1,801                   | 1,746                   | 1,385                   | 1,798                  
|Average grade of gold
      processed(1)   | 1.86                    | 2.11                    | 1.92                    | 1.98                   
|Average grade of silver
      processed(1) | 84                      | 103                     | 83                      | 94                     
|Gold equivalent grade processed(1)         | 3.20                    | 3.41                    | 3.18                    | 3.59                   
|Gold ounces produced                       | 8,897                   | 9,891                   | 27,842                  | 38,772                 
|Silver ounces produced                     | 396,367                 | 473,466                 | 1,183,339               | 1,783,148              
|Gold equivalent ounces produced            | 15,240                  | 15,966                  | 45,578                  | 69,111                 
|(1) Grams per tonne                        |                         |                         |                         |                        

The Company mined 168,358 tonnes of ore, or 1,830 TPD, during
the fourth quarter of 2009, compared to 158,974, or 1,728 TPD during the same
period last year, representing an increase of 6%. This production increase was
primarily attributable to the adoption of a new seven day continuous work
schedule and the implementation of a production bonus plan during the fourth
quarter that resulted in improved productivity.

Annually, the Company mined 506,248 tonnes of ore, representing
a 142,125 tonne or 22% reduction compared to production in 2008. This production
shortfall largely resulted from a seven week union strike which commenced in
late April. Following the end of the strike in mid-June, the mine gradually
ramped up to normal levels in the following months. This production shortfall
was partially offset by efficiencies gained during the second half of the year
due to the seven day continuous work schedule that was adopted by the union as
part of the strike settlement. As a result, El Cubo's fourth quarter daily
mining rate of 1,830 TPD was an improvement over the rates achieved earlier in
2009. Gold equivalent grades declined in 2009 versus 2008 as a result of
lowering the cut-off grade for material sent to the mill for processing.

ELCUBOCASHCOSTS

Using the Company's long-term equivalency ratio of 55:1, cash
costs per gold equivalent ounce were $608 in the fourth quarter of 2009,
representing a 40% increase over $433 per gold equivalent ounce in the fourth
quarter of 2008. This increase was due to the processing of lower grade ore
during 2009 which resulted in reduced production and gold equivalent ounces
sold. In addition, El Cubo incurred higher cash costs in Q4 2009 as a result of
the continued production ramp-up that followed the end of the union strike and
the higher processing costs required under the new agreement with Las Torres.
Using the realized gold equivalency ratio of 62:1, cash costs per gold
equivalent ounce at El Cubo during the fourth quarter of 2009 were $643 per gold
equivalent ounce, compared to $502 in the same period last year.

Annually, using
the Company's long-term equivalency ratio of 55:1, cash costs per gold
equivalent ounce were $582 in 2009 compared to $605 in 2008, representing a 4%
improvement in 2009. Cash costs per gold equivalent ounce decreased during 2009
due to the impact of the favourable foreign exchange rate on peso-denominated
costs, offset by the impact of the union strike on the mine's operations and the
processing of lower grade ore during 2009 versus 2008. Using the realized gold
equivalency ratio of 66:1, cash costs per gold equivalent ounce at El Cubo were
$630 in 2009, compared to the 2008 cash cost result of $623.



| | 22
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS




ELCUBOEXPLORATION

Over the past year, the Company has renewed its efforts in the
El Cubo mine and Guanajuato district. In the third quarter, the Company
initiated drilling on one of sixteen new exploration target areas, and then
accelerated drilling substantially in the fourth quarter of 2009, with the
majority of the 11,650 metres of drilling completed during the year being
completed in Q4. At the end of the fourth quarter there were three surface core
rigs running, and two rigs drilling underground. During 2009, the Company spent
$0.5 million on El Cubo exploration drilling for both brownfield and in-mine
prospects.

The detailed discussion below outlines the Company's
exploration activities during the fourth quarter of 2009. For a detailed
discussion of the first nine months of exploration, please refer to the
Company's interim Management's Discussion and Analysis, at  www.sedar.com or on the Company's website at

www.gammongold.com.

Underground drilling in the fourth quarter was directed at the
San Alberto vein in the Apollo portion of the mine and at the La Loca Vein in
the Dolores part of the mine. Surface drilling was directed to the Dolores
Southeast and Capulin targets in the Southcentral portion of the El Cubo
properties, and to the San Cosme vein in the Fenix target area. Assay results
have been received from Dolores Southeast and Capulin but are still pending from
the Fenix target.

The Capulin fault was previously considered a post-mineral
fault, but the Company's work has now shown this to be a mineralized fault
structure with wide zones of alteration and mineralization. Work completed to
date at Dolores Southeast and Capulin shows the mineralization on both the
Dolores and Capulin structures increasing towards the intersection of the two
veins, and 200 metres from the intersection values decreasing to below cut-off
grades. The intersection area has anomalously wide zones of mineralization.

The best results from fourth quarter drilling at the Dolores
Southeast and Capulin targets are shown on the following table:

|      |            |       |       |        |            |              | GOLD EQUIVALENT
|----- | ---------- | ----- | ----- | ------ | ---------- | ------------ | ---------------
|HOLE  | VEIN       | FROM  | TO    | LENGTH | GOLD (G/T) | SILVER (G/T) | (G/T)(55:1)    
|C-494 | DOLORES SE | 197.9 | 199.1 | 1.2    | 1.17       | 209          | 4.97           
|C-498 | DOLORES SE | 258.8 | 259.8 | 1.0    | 0.70       | 87           | 2.28           
|C-485 | CAPULIN    | 191.7 | 196.1 | 4.4    | 0.84       | 17           | 1.15           
|C-485 | CAPULIN    | 226.9 | 227.4 | 0.5    | 0.63       | 926          | 17.47          
|C-490 | CAPULIN    | 206.4 | 207.3 | 0.9    | 1.80       | 134          | 4.23           
|C-503 | CAPULIN    | 106.7 | 108.2 | 1.5    | 10.50      | 6            | 10.60          
|      |            |       |       |        |            |              |                

Note: This exploration information has been reviewed by
Qualified Person, Mr. Glenn Clarke. All samples were performed by either the El
Cubo Mine Laboratory or by SGS Laboratories in Durango, Mexico, using standard
fire assay procedures.

GUADALUPE YCALVOEXPLORATIONPROJECT

During the third quarter, the Company registered an additional
36,025 hectares of exploration property to the northwest of the Guadalupe y
Calvo San Luis claim, increasing the Company's land position to approximately
54,853 hectares. The Company began reconnaissance-style fieldwork on this claim
during the fourth quarter.

Fieldwork completed during the third quarter identified a large
zone of weak stockwork quartz veining in a granodiorite that has locally
anomalous gold and silver in the northwest portion of the Guadalupe y Calvo
property. During the fourth quarter, the Company completed a soil geochemical
survey over this zone and identified a 100 by 700 metre gold geochemical anomaly
that will be scheduled for drilling in 2010. Also, metallurgical samples
composited from the Rosario vein were collected in the fourth quarter and
submitted for heap leach testing, in preparation for a preliminary economic
assessment study to be started in 2010. During 2009, the Company spent $1.0
million on Guadalupe y Calvo brownfields exploration.



| | 23
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


|                                 |   |                   |  |   |                   |  |   |                   | 
|-------------------------------- | - | ----------------- |  | - | ----------------- |  | - | ----------------- | 
|                                 |   |                   |  |   |                   |  |   |                   | 
|CONSOLIDATED
      EXPENSES      |   |                   |  |   |                   |  |   |                   | 
|                                 |   |                   |  |   |                   |  |   |                   | 
|(in
      thousands)             |   |                   |  |   |                   |  |   |                   | 
|                                 |   | YEAR ENDED        |  |   | YEAR ENDED        |  |   | YEAR ENDED        | 
|                                 |   | DECEMBER 31, 2009 |  |   | DECEMBER 31, 2008 |  |   | DECEMBER 31, 2007 | 
|General and administrative       | $ | 37,054            |  | $ | 29,945            |  | $ | 24,156            | 
|Amortization
      and depletion | $ | 42,954            |  | $ | 40,380            |  | $ | 43,392            | 

General and administrative costs include expenses related to
the overall management of the business which are not part of direct mine
operating costs. These costs are generally incurred at the corporate offices
located in Canada and Mexico, but also include share-based compensation costs
for key employees at all locations. General and administrative costs increased
by $7.1 million when compared to 2008 primarily due to the $8.4 million in
severance and stock-based compensation costs associated with the retirement of
the President and Chairman, which is partially offset by insignificant declines
in general and administrative expenses relating to travel costs, insurance,
filing fees and other.

Amortization and depletion, which primarily relates to mining
activities, increased by 6% to $43.0 million for the year, compared to $40.4
million for 2008. The expense was slightly higher in 2009 when compared to 2008
primarily due to the additional amortization recorded on capital additions,
capital upgrades made to the mill and heap leach processing facilities, and
facilities constructed in order to connect Ocampo to the electrical grid, offset
by reductions in the units of production. During the second quarter of 2008 the
Company reviewed the appropriateness of the estimated useful lives of the mines,
which was based on proven and probable reserves, and determined that based on
the characteristics of the current reserves and resources at Ocampo and El Cubo,
the estimated useful life is more accurately reflected by proven and probable
reserves and the portion of mineralization currently in resources that is
expected to be classified as reserves. This change in estimate was applied
prospectively effective April 1, 2008 and had the impact of reducing
amortization and depletion in 2008 by approximately $4.6 million.

|CONSOLIDATED
      OTHER INCOME / (EXPENSE) |   |                   |   |   |                   |   |   |                   |  
|------------------------------------------- | - | ----------------- | - | - | ----------------- | - | - | ----------------- | -
|                                            |   |                   |   |   |                   |   |   |                   |  
|(in
      thousands)                        |   |                   |   |   |                   |   |   |                   |  
|                                            |   | YEAR ENDED        |   |   | YEAR ENDED        |   |   | YEAR ENDED        |  
|                                            |   | DECEMBER 31, 2009 |   |   | DECEMBER 31, 2008 |   |   | DECEMBER 31, 2007 |  
|                                            |   | (AS RESTATED(1))  |   |   | (AS RESTATED(1))  |   |   | (AS RESTATED(1))  |  
|Interest on long-term debt                  | $ | (3,314            | ) | $ | (1,936            | ) | $ | (3,897            | )
|Foreign exchange (loss) / gain              | $ | (4,896            | ) | $ | 17,600            |   | $ | (2,691            | )
|Interest and
      other income             | $ | 633               |   | $ | 410               |   | $ | 772               |  

(1)

Interest on long-term debt increased by $1.4 million to $3.3
million in 2009 from $1.9 million in 2008 as a result of the increased interest
rate charged on the Company's credit facility during the first 10 months of the
year. When the credit facility was renegotiated during November 2008, applicable
interest rates under the renewed facility were higher than the previous
facility, which was a reflection of the financial distress in the debt markets
at that time. In addition, the related transaction fees were amortized into
expense in 2009 which led to an increase in interest expense during the year.

Foreign exchange losses increased by $22.5 million, from a
gain of $17.6 million in 2008 to a loss of $4.9 million in 2009, as a result of
the translation of net monetary liabilities in the Company's Canadian and
Mexican operations to US dollars. The weakened Mexican peso in the fourth
quarter of 2008 resulted in large foreign exchange gains, primarily as a result
of the Company's future income tax liabilities which are denominated in this
currency and then translated into US dollars at each balance sheet date. The
Company will continue to experience unrealized foreign currency gains or losses;
primarily as a result of fluctuations between the US dollar and the Mexican
peso.

The Company earned interest on short-term investments and other
income of $0.6 million during 2009, compared to $0.4 million in 2008.



| | 24
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


CONSOLIDATED INCOME TAX EXPENSE / (RECOVERY)


During the year ended December 31, 2009, the Company incurred
current tax expense of $5.0 million and future income tax expense of $6.6
million, versus current tax expense of $1.0 million and a future tax recovery of
$10.7 million in 2008. The year-over-year difference relates to the large
recovery recognized in the prior year due to the ability to utilize future
income tax assets in the Company's Mexican subsidiaries. In 2009, no similar
recovery amounts were recorded. In addition, there was a large movement in
foreign exchange gains and losses during the year which resulted in a
significant change in the Company's valuation allowance yearover-year. These
reasons, combined with significantly higher earnings before other items,
resulted in a higher provision for income taxes in 2009. The Company pays the
Single Rate Tax to the extent that it exceeds its income tax otherwise
determined pursuant to the pre-existing income tax system in each taxation year.
During the year ended December 31, 2009, the Company was subject to the Single
Rate Tax.

|FINANCIAL CONDITION         |                   |                  
|--------------------------- | ----------------- | -----------------
|                            |                   |                  
|(in thousands)              |                   |                  
|                            | AS AT             | AS AT            
|                            | DECEMBER 31, 2009 | DECEMBER 31, 2008
|                            | (AS RESTATED(1))  | (AS RESTATED(1)) 
|Current assets              | $220,121          | $80,854          
|                            |                   |                  
|Long-term assets            | 744,247           | 715,709          
|Total assets                | $964,368          | $796,563         
|Total current liabilities   | $42,180           | $62,154          
|                            |                   |                  
|Total long-term liabilities | 129,851           | 88,152           
|Total liabilities           | $172,031          | $150,306         
|Shareholders' equity        | $792,337          | $646,257         

(1) See Amendment and Restatement on May 13, 2010
section on page 3 for further discussion of the restatement. KEY ECONOMIC TRENDS


The Company's performance is largely dependent on the prices of
gold and silver. The prices of these commodities directly affect the Company's
profitability and cash flow. The price of gold and silver is subject to volatile
price movements during short periods of time and is affected by numerous
factors, such as the strength of the US dollar, supply and demand, interest
rates, and inflation rates, all of which are beyond the Company's control.
During 2009, the price of gold experienced volatility, averaging $972 per ounce,
with daily spot price closings between $810 and $1,212 per ounce. The price of
silver also experienced significant volatility during 2009, averaging $14.67 per
ounce, and closing between $10.51 and $19.18 per ounce. The major influences on
gold during the year were the continuing strong investment demand in both
physical gold bars and gold linked instruments, producer de-hedging, the global
financial crisis, and declining supply from central banks. The Company generally
does not hedge the price of gold and silver, but may acquire short-term
derivative instruments from time to time to limit exposure to price
fluctuations.

At the Company's mine sites, a significant portion of the
operating costs and capital expenditures are denominated in Mexican pesos.
Therefore, fluctuations in the peso versus the US dollar can significantly
impact the Company's costs. The Mexican peso weakened significantly late in 2008
in the wake of the global financial crisis, and continued to devalue in the
first quarter of 2009, averaging over 14 Mexican pesos to 1 US dollar for the
quarter. The peso strengthened marginally throughout the remainder of the year,
but did not return to the value experienced prior to the financial crisis. The
Company periodically mitigates against the risk of foreign exchange rate
movements through the use of foreign currency derivatives.



| | 25
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


LIQUIDITY AND CAPITAL RESOURCES


The Company's balance of cash and cash equivalents as at
December 31, 2009 was $129.0 million, a significant increase from the balance as
at the end of 2008 of $3.3 million. Factors that can impact the Company's
liquidity are monitored regularly and include the market prices of gold and
silver, production levels, operating cash costs, capital costs and exploration
expenditures and currencies.

|CASHFLOW                                           |   |                   |   |   |                   |   |   |                   |  
|-------------------------------------------------- | - | ----------------- | - | - | ----------------- | - | - | ----------------- | -
|(in
      thousands)                               |   |                   |   |   |                   |   |   |                   |  
|                                                   |   | YEAR ENDED        |   |   | YEAR ENDED        |   |   | YEAR ENDED        |  
|                                                   |   | DECEMBER 31, 2009 |   |   | DECEMBER 31, 2008 |   |   | DECEMBER 31, 2007 |  
|Cash flow from / (used in) operating activities    | $ | 78,218            |   | $ | 55,933            |   | $ | (34,192           | )
|Cash flow used in investing activities             |   | (77,462           | ) |   | (66,376           | ) |   | (73,487           | )
|Cash flow
      from financing activities          |   | 124,963           |   |   | 9,992             |   |   | 107,314           |  
|Increase / (decrease) in cash and cash equivalents |   | 125,719           |   |   | (451              | ) |   | (365              | )
|Cash and
      cash equivalents, beginning of year |   | 3,258             |   |   | 3,709             |   |   | 4,074             |  
|Cash and
      cash equivalents, end of year       | $ | 128,977           |   | $ | 3,258             |   | $ | 3,709             |  

Operating activities contributed $78.2 million during 2009
compared to 2008, when operating activities generated cash flows of $55.9
million. This improvement of $22.3 million, or 40%, resulted from increased cash
flows from earnings, due to stronger metal prices and realized cost efficiency
initiatives.

Investing activities for the year ended December 31, 2009 used
cash of $77.5 million as a result of expenditures on mining interests and
property, plant and equipment, which compared to $66.4 million in 2008. Current
year expenditures were largely related to the connection to the Mexican national
electrical grid, various mill and heap leach upgrades, as well as significant
underground development and capitalized stripping activity at the Ocampo mine.
As of December 31, 2009, the Company had committed to purchase $0.9 million in
property, plant and equipment that will be delivered throughout the first half
of 2010.

Financing activities for 2009 contributed cash of $125.0
million compared to 2008, when financing activities contributed $10.0 million.
The significant cash flow from financing activities in 2009 resulted from the
net proceeds received in the fourth quarter on the issuance of 12.9 million
common shares, of $108.1 million.

CREDITFACILITY

During the majority of 2009, the Company had access to a $50
million credit facility with the Bank of Nova Scotia that was comprised of a $30
million non-revolving term credit facility and a $20 million revolving term
credit facility. The non-revolving facility was repayable in instalments ending
on December 31, 2009, while the revolving facility matured on November 27, 2009.
On November 5, 2009, the terms of the Company's credit facility were revised and
extended for a further 24 months. The revised agreement provided for a $30
million revolving facility, and does not require principal repayments other than
a one-time payment at maturity equal to the drawn loan balance at that point in
time. In addition, the facility included an option to increase the facility to
$50 million with a second lender under similar terms and conditions, provided
that the Bank of Nova Scotia's exposure did not exceed $30 million. On December
31, 2009 the Company signed an agreement with Société Générale to increase the
total revolving credit facility to $50 million, split equally between the two
lenders. At the end of 2009, the Company had drawn $26.4 million under the
revolving facility, and had issued a $1 million letter of credit against the
facility, leaving a total of $22.6 million available for future funding.

LIQUIDITYOUTLOOK

Improving the Company's liquidity position was a key focus in
2009, and as a result, the Company has seen a significant improvement in its
liquidity position since the end of 2008. Material increases or decreases in the
Company's liquidity and capital resources will be substantially determined by
the success or failure of the Company's operations, exploration, development and
construction programs, its ability to obtain equity or other sources of
financing, and the price of gold and silver.

Liquidity risk is the risk that the Company will encounter
difficulties in meeting obligations associated with its financial liabilities
and other contractual obligations. The Company's strategy for managing liquidity
is based on achieving positive cash flows from operations to internally fund
operating and capital requirements. Due to the current economic environment and
fluctuating commodity prices, the



| | 26
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


Company is highly focused on preserving cash and identifying
sources of cash inflows. In an effort to preserve cash, the Company reduced
capital expenditures and operating costs in 2009, where appropriate.

The Company monitors and manages liquidity risk by preparing
regular periodic cash flow forecasts, seeking flexibility in financing
arrangements, and expects to continue to build and maintain a cash reserve in
2010. The following achievements contributed to the strong cash balance of $129
million at December 31, 2009 and increased financial flexibility going forward:

Completion of the $108.1 million equity financing in the fourth quarter of
  2009;

Renegotiation of the Company's $50 million credit facility, such that no
  principal payments are required until 2011;

Continued implementation of cost reduction initiatives, including employee
  and contractor reductions at the Ocampo and El Cubo mines, renegotiation of
  key supplier contracts, and more rigorous cost management;

Negotiation of the sale of certain pieces of equipment and subsequently leasing
them back; and

Actively managing the Company's working capital by ensuring sufficient
  cash is available to support management objectives, while continuing to meet
  obligations.

Net free cash flow for 2009 was $1.4 million in a year in which
the Company continued significant investment in mineral properties and property,
plant and equipment. The Company is forecasting an increase in net free cash
flow for 2010, to be achieved through positive operating cash flows. The extent
of cash flows generated from operations will vary depending on the prices of
gold and silver, fluctuations in the Mexican peso, and total production.

The Company has total commitments relating to future capital
expenditures of $6.3 million as at March 25, 2010.

The Company always attempts to target the best sources of
funding to supplement operating cash flows and finance the Company's
development, while optimizing the Company's capital structure through the
appropriate mix of capital. The operational improvements underway at Ocampo,
combined with the solid contributions from El Cubo, are expected to continue
strengthening the Company's balance sheet and liquidity position. In today's
metal price environment, the Company anticipates that funding from existing cash
reserves, operating cash flows and the in-place credit facility should be
sufficient to fund the Company's anticipated working capital requirements,
planned capital expenditures and growth plans in 2010.

|CONTRACTUAL OBLIGATIONS                                                                                       |   |        |  |   |                  |  |   |             |  |   |             |  |   |             |  |   |                            | 
|------------------------------------------------------------------------------------------------------------- | - | ------ |  | - | ---------------- |  | - | ----------- |  | - | ----------- |  | - | ----------- |  | - | -------------------------- | 
|                                                                                                              |   |        |  |   |                  |  |   |             |  |   |             |  |   |             |  |   |                            | 
|A summary of the
      Company's contractual obligations at December 31, 2009 is summarized as
      follows: |   |        |  |   |                  |  |  
|                                                                                                              |   |        |  |   |                  |  |   |             |  |   |             |  |   |             |  |   |                            | 
|(in thousands)                                                                                                |   |        |  |   |                  |  |   |             |  |   |             |  |   |             |  |   |                            | 
|                                                                                                              |   | TOTAL  |  |   | LESS THAN 1 YEAR |  |   | 1  3 YEARS |  |   | 3  4 YEARS |  |   | 4  5 YEARS |  |   | GREATER
      THAN 5 YEARS | 
|Payables and accruals                                                                                         | $ | 37,019 |  | $ | 37,019           |  | $ | -           |  | $ | -           |  | $ | -           |  | $ | -                          | 
|Long-term debt                                                                                                |   | 26,428 |  |   | 48               |  |   | 26,380      |  |   | -           |  |   | -           |  |   | -                          | 
|Interest on long-term debt                                                                                    |   | 76     |  |   | 76               |  |   | -           |  |   | -           |  |   | -           |  |   | -                          | 
|Capital leases                                                                                                |   | 13,001 |  |   | 5,236            |  |   | 7,765       |  |   | -           |  |   | -           |  |   | -                          | 
|Long-term obligation                                                                                          |   | 5,343  |  |   | 763              |  |   | 1,527       |  |   | 763         |  |   | 763         |  |   | 1,527                      | 
|Employee future benefits                                                                                      |   | 1,877  |  |   | 87               |  |   | 193         |  |   | 141         |  |   | 173         |  |   | 1,283                      | 
|Future purchase commitments                                                                                   |   | 945    |  |   | 945              |  |   | -           |  |   | -           |  |   | -           |  |   | -                          | 
|Total                                                                                                         | $ | 84,689 |  | $ | 44,174           |  | $ | 35,865      |  | $ | 904         |  | $ | 936         |  | $ | 2,810                      | 



| | 27
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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


OUTSTANDING SHARE DATA


The Company's share capital was comprised of the following as
at December 31, 2009:

|                                                                                                                                                                                                               | DECEMBER 31, 2009 | DECEMBER 31, 2008
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | -----------------
|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 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 paid-in value    
|Issued:                                                                                                                                                                                                        |                   |                  
|Common shares                                                                                                                                                                                                  | 137,357,552       | 120,040,768      

At March 30, 2010, the Company had common shares outstanding of
138,405,601.

OFF-BALANCE SHEET ARRANGEMENTS


The Company does not have any
off-balance sheet arrangements.

FINANCIAL INSTRUMENTS AND HEDGING


The Company seeks to manage its exposure to fluctuations in
commodity prices, interest rates and foreign exchange rates by entering into
derivative financial instrument contracts. The Company's exposure with respect
to commodity prices, interest rates and foreign exchange is described under the
section entitled Risks and Uncertainties below.

During 2009, the Company entered into and exercised option
contracts to hedge against the risk of an increase in the value of the Mexican
peso versus the United States dollar. The Company had the right to purchase
Mexican pesos amounting to $6,000 USD at a strike price of 14 pesos to 1 US
dollar. These currency hedges have been accounted for as cash flow hedges of
salary and benefit costs denominated in Mexican pesos and settled at various
dates between July 1, 2009 and December 31, 2009. Upon exercise of the options,
the cumulative gain or loss within accumulated other comprehensive income was
reclassified to inventory to be recognized in income at the same time as the
related production cost. Options exercised during 2009 resulted in an increase
in inventories of $34.

TRANSACTIONS WITH RELATED PARTIES


The Company paid or has payable the following amounts to
directors for services other than in their capacity as directors, and companies
controlled by or related to directors:

|(in
      thousands)                   |   |                   |  |   |                   |  |   |                   | 
|-------------------------------------- | - | ----------------- |  | - | ----------------- |  | - | ----------------- | 
|                                       |   | YEAR ENDED        |  |   | YEAR ENDED        |  |   | YEAR ENDED        | 
|                                       |   | DECEMBER 31, 2009 |  |   | DECEMBER 31, 2008 |  |   | DECEMBER 31, 2007 | 
|Production costs  labour(1)           | $ | 25,797            |  | $ | 33,762            |  | $ | 31,147            | 
|Mining interests  labour(1)           | $ | 4,876             |  | $ | 1,167             |  | $ | 2,437             | 
|Production costs  mine consumables(2) | $ | 11,255            |  | $ | 14,655            |  | $ | 2,033             | 
|Capital
      assets(3)                |   | -                 |  | $ | 94                |  | $ | 25                | 

|(1) | The Company paid a third party company owned by the
      brother of Mr. Fred George, a former director of the Company, for the
      provision of workers in Mexico at cost plus 8-10%. Effective October 1,
      2009 the related contracts were re-negotiated, and as a result workers
      will now be provided at cost plus 6-8%.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 28
| | --

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS




|(2) | The Company paid two third party companies owned by the father of Mr. Canek Rangel, a former director of the Company, for the provision of lime, lubricant and fuel. The Company is confident the cost of lubricant and fuel are at
fair market value as the prices of these consumables are regulated in Mexico. The Company believes the cost of lime was also at fair market value.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                       
|(3) | The Company paid Mr. Canek Rangel or a third party company owned by the father of Mr. Rangel, a former director of the Company, for the provision and construction of production and support facilities, and mineral properties. The
Company believes these costs were at fair market value.                                                                                          

In September 2009, the Company announced the retirement of Mr. Fred George, as President and Chairman, and the resignation of Mr. Canek Rangel, a director of the Company. As a result, effective the date of their departure from the Company, these
individuals will no longer be considered related parties and the above transactions will not be considered related party transactions.

No director, senior officer, principal holder of securities or any associate or affiliate thereof of the Company has any interest, directly or indirectly, in material transactions with the Company or any of its direct or indirect wholly-owned
subsidiaries, other than the above-noted transactions, which were in the normal course of operations.

The Company has a Stock Option Plan for directors, officers, employees and consultants of the Company and its subsidiaries. The purpose of the plan is to encourage ownership of the Company's common shares by the persons who are primarily
responsible for the management and profitable growth of the Company's business, to provide additional incentive for superior performance, and to attract and retain valued personnel. For the purposes of the plan, a consultant is defined as an
individual that is engaged by the Company, under a written contract, to provide services on an ongoing basis and may spend a significant amount of time on the Company's business and affairs. The definition of consultant also includes an
individual whose services are engaged through a corporation.

NON-GAAP MEASURES


TOTALCASHCOST PEROUNCECALCULATION

Total cash costs per ounce is a non-GAAP performance measure that Management uses to better assess the Company's performance for the current period and its expected performance in the future. The Company believes that, in addition to
conventional measures prepared in accordance with GAAP, certain investors use this measure to evaluate the Company's performance and cash generating capabilities. Total cash costs per ounce does not have any standardized meaning prescribed by GAAP, and should not be considered in isolation of or as a substitute for performance measures prepared in accordance with GAAP. This measure is not necessarily indicative of operating profit or cash flow from operations as determined under GAAP.
Other companies may calculate these measures differently. Total cash costs per ounce is calculated by dividing all of the costs absorbed into inventory, excluding amortization and depletion, by applicable ounces sold.



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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


|                                                                                                         |   |                         |   |   |                         |   |   |                         |   |   |                         |  
|-------------------------------------------------------------------------------------------------------- | - | ----------------------- | - | - | ----------------------- | - | - | ----------------------- | - | - | ----------------------- | -
|The following provides a
      reconciliation of total cash costs per ounce to the financial statements:
|                                                                                                         |   |                         |   |   |                         |   |   |                         |   |  
|(in thousands, except ounces,
      cash costs and silver prices)                                        |   |                         |   |   |                         |   |   |                         |   |  
|                                                                                                         |   | QUARTER ENDED           |   |   | YEAR ENDED              |  
|                                                                                                         |   | DECEMBER 31,
      2009 |   |   | DECEMBER 31,
      2008 |   |   | DECEMBER 31,
      2009 |   |   | DECEMBER 31,
      2008 |  
|Production costs per financial
      statements                                                          | $ | 27,113                  |   | $ | 24,521                  |   | $ | 96,504                  |   | $ | 127,651                 |  
|Refining costs per financial statements                                                                  |   | 708                     |   |   | 508                     |   |   | 2,855                   |   |   | 1,662                   |  
|Less: Costs incurred during union strike                                                                 |   | -                       |   |   | -                       |   |   | (1,905                  | ) |   | -                       |  
|Total cash costs                                                                                         | $ | 27,821                  |   | $ | 25,029                  |   | $ | 97,454                  |   | $ | 129,313                 |  
|Divided by gold equivalent ounces sold(1)                                                                |   | 62,462                  |   |   | 60,662                  |   |   | 210,853                 |   |   | 245,028                 |  
|Total cash cost per gold equivalent ounce                                                                | $ | 445                     |   | $ | 413                     |   | $ | 462                     |   | $ | 528                     |  
|Total cash costs (per above)                                                                             | $ | 27,821                  |   | $ | 25,029                  |   | $ | 97,454                  |   | $ | 129,313                 |  
|Less: Silver revenue (see below)                                                                         |   | (26,477                 | ) |   | (15,420                 | ) |   | (76,767                 | ) |   | (82,192                 | )
|                                                                                                         | $ | 1,344                   |   | $ | 9,609                   |   | $ | 20,687                  |   | $ | 47,121                  |  
|Divided by gold ounces sold                                                                              |   | 38,249                  |   |   | 41,004                  |   |   | 133,003                 |   |   | 150,646                 |  
|Total cash cost per gold ounce(2)                                                                        | $ | 35                      |   | $ | 234                     |   | $ | 156                     |   | $ | 313                     |  
|Average realized silver price                                                                            | $ | 17.54                   |   | $ | 10.05                   |   | $ | 14.91                   |   | $ | 14.66                   |  
|Multiplied by silver ounces sold                                                                         |   | 1,509,511               |   |   | 1,534,318               |   |   | 5,146,584               |   |   | 5,606,539               |  
|Silver revenue                                                                                           | $ | 26,477                  |   | $ | 15,420                  |   | $ | 76,767                  |   | $ | 82,192                  |  

|(1) | Gold equivalent ounces include silver ounces produced
      and sold converted to a gold equivalent based on the ratio of the actual
      realized sales prices of the commodities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The calculation of total cash cost per gold ounce
      includes the by-product silver sales revenue.                                                                               

NETFREECASHFLOW

Net free cash flow represents an indication of the Company's
continuing capacity to generate discretionary cash flow from operations,
comprising cash flows from operating activities net of total capital
expenditures. It does not necessarily represent the cash flow in the period
available for Management to use at its discretion, which may be affected by
other sources and non-discretionary uses of cash. Net free cash flow is intended
to provide additional information, does not have any standardized meaning
prescribed by GAAP and should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with GAAP. Other companies
may calculate this measure differently. The following is a reconciliation of net
free cash flow to the financial statements:

|(in
thousands)                                       |  |   |                   |   |   |                   |   |   |                   |   |   |                   |  
|---------------------------------------------------- |  | - | ----------------- | - | - | ----------------- | - | - | ----------------- | - | - | ----------------- | -
|                                                     |  |   | QUARTER ENDED     |   |   | YEAR ENDED        |  
|                                                     |  |   | DECEMBER 31, 2009 |   |   | DECEMBER 31, 2008 |   |   | DECEMBER 31, 2009 |   |   | DECEMBER 31, 2008 |  
|                                                     |  |   |                   |   |   |                   |   |   |                   |   |   |                   |  
|Cash flows from / (used in)
    operating activities |  | $ | 31,597            |   | $ | 9,965             |   | $ | 78,218            |   | $ | 55,933            |  
|                                                     |  |   |                   |   |   |                   |   |   |                   |   |   |                   |  
|Less: Capital expenditures                           |  |   | (22,647           | ) |   | (16,411           | ) |   | (76,861           | ) |   | (66,841           | )
|Net free cash flow                                   |  | $ | 8,950             |   | $ | (6,446            | ) | $ | 1,357             |   | $ | (10,908           | )





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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


RISKS AND UNCERTAINTIES


The Company's business contains significant risk due to the nature of mining, exploration, and development activities. Certain risk factors listed below are related to the mining industry in general, while others are specific to the Company.
Included in the risk factors below are details on how management seeks to mitigate these risks wherever possible.  For additional discussion of these and other risk factors, please refer to the Company's Annual Information Form which is
available on the Company's website at  www.gammongold.com or on SEDAR at  www.sedar.com.

NATURE OFMINERALEXPLORATION ANDMINING

Because mines have limited lives based on proven and probable mineral reserves, the Company will be required to continually replace and expand its mineral reserves as its mines produce gold. The Company's ability to maintain or increase its
annual production of gold and silver in the future will be dependent in significant part on its ability to identify and acquire additional commercially viable mineral properties, bring new mines into production, and to expand mineral reserves at
existing mines.

Mineral resource exploration and development is a highly speculative business, characterized by a number of significant risks including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits but
also from finding mineral deposits that, though present, are insufficient in quantity and quality to return a profit from production. There can be no assurance that the Company will successfully acquire additional mineral rights. While the discovery
of additional ore-bearing structures may result in substantial rewards, few properties which are explored are ultimately developed into producing mines. Major expenses may be required to establish reserves by drilling and to construct mining and
processing facilities at a particular site.  It is impossible to ensure that the current exploration and development programs of the Company will result in profitable commercial mining operations. The profitability of the Company's operations
will be, in part, directly related to the cost and success of its exploration and development programs which may be affected by a number of factors.

Mining is inherently dangerous and subject to conditions or events beyond the Company's control, which could have a material adverse effect on the Company's business. Mining involves various types of risks and hazards, including, but not
limited to, environmental hazards; industrial accidents; metallurgical and other processing problems; unusual or unexpected rock formations; structural cave-ins or slides; seismic activity; flooding; fires; periodic interruptions due to inclement or
hazardous weather conditions; variations in grade, deposit size, density and other geological problems; mechanical equipment performance problems; unavailability of materials and equipment; labour force disruptions; unanticipated or significant
changes in the costs of supplies; and unanticipated transportation costs. Where considered practical to do so, the Company maintains insurance against risks in the operation of its business in amounts which it believes to be reasonable. Such
insurance, however, contains exclusions and limitations on coverage. The Company may suffer a material adverse effect on its business if it incurs losses related to any significant events that are not covered by its insurance policies.

RESERVEESTIMATES

Mineral resource and reserve figures are based upon estimates made by Company personnel and independent geologists. These estimates are imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling
analysis, which may prove to be unreliable. There can be no assurance that these estimates will be accurate; that reserves, resources or other mineralization figures will be accurate; or that this mineralization could be mined or processed
profitably.  Mineralization estimates for the Company's properties may require adjustments or downward revisions based upon further exploration or development work or actual production experience. In addition, the grade of ore ultimately mined,
if any, may differ from that indicated by drilling results. There can be no assurance that minerals recovered in small scale tests will be duplicated in large scale tests under on-site conditions or in-production scale. The reserve and resource
estimates have been determined and valued based on assumed future prices, cut-off grades and operating costs that may prove to be inaccurate. Extended declines in market prices for gold and silver may render portions of the Company's
mineralization uneconomic and result in reduced reported mineralization. Any material reductions in estimates of mineralization, or of the Company's ability to extract this mineralization, could have a material adverse effect on the
Company's results of operations or financial condition.

EFFECTIVE INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company is required to maintain effective internal
control over financial reporting under the Sarbanes-Oxley Act of 2002 and
related regulations. Any material weakness in internal control over financial
reporting that needs to be addressed, disclosure of management's assessment of
our internal control over financial reporting, or disclosure of the public
accounting firm's report on internal control over financial reporting that
reports a material weakness in internal control over financial reporting may
reduce the price of the Company's common shares. In connection with the audit of
the consolidated financial statements for the year ended December 31, 2009, the
Company and its independent registered public accounting firm identified a
deficiency in internal control over financial reporting that was a "material
weakness" as defined by standards established by the Public Company Accounting
Oversight Board. The deficiency resulted in the correction of future income tax
liability balances that arose on a business acquisition during the 2006 fiscal
year. The Company has restated its consolidated financial statements for the
years ended December 31, 2008 and 2009 to correct the accounting treatment for
this item. However, there can be no assurance that the Company's remediation of
internal control over financial reporting relating to the identified material
weakness will re-establish the effectiveness of internal control over financial
reporting or that the Company will not be subject to material weaknesses in the
future.

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

In May 2010, the Company restated its consolidated financial
statements and other financial information for the years ended December 31, 2008
and 2009 with respect to future income tax liability balances that arose on a
business acquisition during the 2006 fiscal year. In August 2009, the Company
restated its consolidated financial statements and other financial information
for the year ended December 31, 2008 with respect to the foreign currency
translation of certain balances into United States dollars and the reversal of
previously recorded net realizable value adjustments on inventory balances. The
restatement of prior financial statements may expose the Company to risks
associated with litigation, regulatory proceedings and government enforcement
actions, including the risk that the SEC may disagree with the manner in which
the Company has accounted for and reported the financial impact.

FOREIGNOPERATIONS

All of the Company's property interests are located in Mexico, and are subject to Mexican federal and state laws and regulations. As a result, the Company's mining investments are subject to the risks normally associated with the conduct
of business in foreign countries. The Company believes the present attitude of the governments of Mexico and of the States of Chihuahua and Guanajuato (where the Company's projects are located) to foreign investment and mining to be favourable;
however, any variation from the current regulatory, economic and political climate could have an adverse effect on the affairs of the Company.

The risks of conducting business in a foreign country may include, among others, labour disputes, invalidation of governmental orders and permits, corruption, uncertain political and economic environments, sovereign risk, war (including in
neighbouring states), civil disturbances and terrorist actions, arbitrary changes in laws or policies of particular countries, the failure of foreign parties to honour contractual relations, corruption, foreign taxation, delays in obtaining or the
inability to obtain necessary governmental permits, opposition to mining from environmental or other non-governmental organizations, limitations on foreign ownership, limitations on the repatriation of earnings, limitations on gold exports,
instability due to economic under-development, inadequate infrastructure and increased financing costs. In addition, the enforcement by the Company of its legal rights to exploit its properties may not be recognized by the government of Mexico or by
its court system. These risks may limit or disrupt the Company's operations, restrict the movement of funds or result in the deprivation of contractual rights or the taking of property by nationalization or expropriation without fair
compensation.

ENVIRONMENTALLAWS ANDREGULATIONS

The Company's exploration and production activities in Mexico are subject to regulation by governmental agencies under various environmental laws. These laws address emissions into the air, discharges into water, management of waste, management
of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations. Environmental legislation in many countries is evolving and the trend has been towards stricter
standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and increasing responsibility for companies and their officers, directors and employees. Compliance with
environmental laws and regulations may require significant capital outlays on behalf of the Company and may cause material changes or delays in the Company's intended activities. There can be no assurance that future changes in environmental
regulations will not adversely affect the Company's business.

PROPERTYRIGHTS,PERMITS ANDLICENSING

The Company's current and anticipated future operations, including further exploration, development activities and expansion or commencement of production on the Company's properties, require certain permits and licenses from various
levels of governmental authorities. The Company may also be required to obtain certain property rights to access, or use, certain of its properties in order to proceed to development. There can be no assurance that all licenses, permits or property
rights required for the expansion and construction of mining facilities and the conduct of mining operations will be obtainable on reasonable terms or in a timely manner, or at all, that such terms may not be adversely changed, that required
extension will be granted, or that the issuance of such licenses, permits or property rights will not be challenged by third parties. Delays in obtaining or a failure to obtain such licenses, permits or property rights or extension thereto;
challenges to the issuance of such licenses, permits or property rights, whether successful or unsuccessful; changes to the terms of such licenses, permits or property rights; or a failure to comply with the terms of any such licenses, permits or
property rights obtained; could have a material adverse impact on the Company.



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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


UNCERTAINTY OF TITLE

The Company cannot guarantee that title to its properties will not be challenged. Title insurance is generally not available for mineral properties and the Company's ability to ensure that it has obtained secure claim to individual mineral
properties or mining concessions may be severely constrained. The Company's mineral properties may be subject to prior unregistered agreements, transfers or claims, and title may be affected by, among other things, undetected defects. A
successful challenge to the precise area and location of these claims could result in the Company being unable to operate on its properties as permitted or being unable to enforce its rights with respect to its properties.

COMMODITY PRICE RISK

The profitability of the Company's gold 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 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. The price of gold and silver has
fluctuated widely and future serious price declines could cause continued commercial production to be
impractical. Depending on the price of gold and silver, cash flow from mining operations may not be sufficient to cover costs of production and capital expenditures. If, as a result of a decline in gold and silver prices, revenues from metal sales
were to fall below operating costs, production may be discontinued.

INTERESTRATERISK

The Company is exposed to interest rate risk on its variable rate debt. At December 31, 2009, the Company had $26.38 million of variable rate debt which carries an interest rate of LIBOR plus 4.00% for LIBOR loans.  This margin may change
depending on the Company's leverage ratio during the period, between a range of 3.75% and 4.25% for LIBOR loans. For prime rate and base rate Canada loans, the applicable margin ranges between 2.75% to 3.25% which also depends on the
Company's leverage ratio during the period. The Company has not entered into any agreements to hedge against unfavourable changes in interest rates, but may actively manage its exposure to interest rate risk in the future.

FOREIGNCURRENCYEXCHANGERATERISK

All metal sales revenues for the Company are denominated in US dollars. The Company is primarily exposed to currency fluctuations relative to the US dollar on expenditures that are denominated in Canadian dollars and Mexican pesos, such as payments
for labour, operating supplies and property, plant and equipment. 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. The Company manages its exposure to currency fluctuations in the manner described in the Financial Instruments and Hedging section on page 28.

CREDITRISK

Credit risk relates to accounts receivable and other contracts, and arises from the possibility that any counterparty to an instrument fails to perform. The Company only transacts with highly-rated counterparties and a limit on contingent exposure
has been established for each counterparty based on the counterparty's credit rating.

HEDGINGACTIVITIES

The Company may from time to time employ hedge (or derivative) products in respect of commodities, interest rates and/or currencies. Hedge (or derivative) products are generally used to manage the risks associated with, among other things, changes
in commodity prices and foreign currency exchange rates. During 2009, the Company entered into foreign currency option contracts to manage foreign currency exchange rate risk, as described in the Financial Instruments and Hedging section on page
28.

The use of derivative instruments involves certain inherent risk including credit risk, market risk and liquidity risk. For derivatives, credit risk is created when the fair value is positive. When the fair value of a derivative is negative, no
credit risk is assumed. The Company mitigates credit risk by entering into derivatives with high quality counterparties, limiting the amount of exposure to each counterparty, and monitoring the financial condition of the counterparties. For hedging
activities, market risk is the risk that the fair value of a derivative might be adversely affected by a change in underlying commodity prices or currency exchange rates, and that this in turn affects the Company's financial condition. The
Company manages market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. The Company generally mitigates liquidity risk by spreading out the maturity or its derivatives over time.



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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS




|CHANGES IN ACCOUNTING POLICIES
|------------------------------

(i) Section 3862, Financial Instruments  Disclosures

The Company adopted the amended Section 3862, Financial Instruments  Disclosures, which includes additional disclosure requirements regarding fair value measurements for financial instruments and liquidity risk. These amendments require a
three level hierarchy that reflects the significance of the inputs used in making the fair value measurements, and were effective for fiscal years ending after September 30, 2009. These disclosures are included within Note 16 of the annual
consolidated financial statements.

(ii) EIC-174, Mining Exploration Costs

Effective March 27, 2009, the Company adopted EIC 174, Mining Exploration Costs.  This abstract provides additional guidance on determining when exploration costs related to mining properties can be capitalized as well as clarification on impairment
indicators for exploration costs that have previously been capitalized. This abstract did not have any effect on the Company's financial results.

(iii)Section 3064, Goodwill and Intangible Assets

Effective January 1, 2009, the Company adopted Section 3064, Goodwill and Intangible Assets, which replaced existing Section 3062, Goodwill and Other Intangible Assets. This new section establishes standards for the recognition of internally
developed intangible assets. The standards for the recognition and impairment testing of goodwill are carried forward unchanged. This new standard did not have any effect on the Company's financial results.

(iv)EIC-173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities

Effective January 1, 2009, the Company adopted EIC-173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. This abstract requires that credit risk be taken into account in determining the fair value of financial
instruments and financial liabilities, including derivative instruments. This new standard did not have any effect on the Company's financial results.

INTERNATIONAL FINANCIAL REPORTING STANDARDS


In 2006, the Canadian Accounting Standards Board ("AcSB") published a new strategic plan that significantly affects financial reporting requirements for Canadian companies. In February 2008, the AcSB announced that 2011 is the changeover date for
publicly accountable enterprises to use International Financial Reporting Standards (IFRS). As a result, the Company will report under IFRS for interim and annual periods beginning on or after January 1, 2011, and will restate the
comparative information reported by the Company for 2010. The adoption of IFRS requires that the Company make certain accounting policy choices that may materially impact the Company's financial position and results of operations. The Company
will strive to make policy choices that are compliant with IFRS but that result in the most relevant and reliable information for its stakeholders.

The Company has developed a three phase changeover plan to adopt IFRS by 2011 as follows:



▬

Phase 1  Scope and Plan: This first phase involves the development of an initial project plan and structure, the identification of differences between IFRS and existing Canadian GAAP, and an assessment of their applicability and the expected
impact on the Company. This phase was completed in the fourth quarter of 2008.



▬

Phase 2  Design and Build: The second phase includes the detailed review, documentation and selection of accounting policy choices relating to each IFRS standard. This phase also includes assessing the impact of the conversion on business
activities, including the effect on information technology and data systems, income tax, internal controls over financial reporting, and disclosure controls. In this phase, accounting policies will be finalized, first-time adoption exemptions and
exceptions will be considered, and draft financial statements and note disclosures will be prepared.



▬

Phase 3  Implement and Review: The final phase involves the actual
implementation of IFRS standards. This phase will involve the finalization of
IFRS conversion impacts, approval and implementation of accounting policies, implementation and
testing of new processes, systems and controls, and the execution of detailed training where required.



Throughout 2009, the Company continued to manage the transition to IFRS through the completion of activities and deliverables to support key areas of impact as follows:

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS






▬

The Company established governance practices surrounding the project, including the formation of a project steering committee consisting of internal IFRS project personnel, senior management, and external advisors.



▬

The Company has made significant progress with respect to the second phase of the IFRS project, and has completed or begun the detailed documentation for those IFRS standards that were evaluated as having a high or moderate potential to result in a
significant accounting change. The Company has also begun documenting those IFRS standards that were evaluated as having low potential to result in a significant accounting change. These standards are expected to be completed by the end of the
second quarter of 2010.



▬

For those
standards where a possible accounting change has been identified, the Company
has begun to collect the necessary data required to quantify the impact of these
changes.



▬

The Company has evaluated the potential impact of IFRS on its information systems, and any changes identified are currently being implemented.

▬

The Company has begun to develop an IFRS-compliant financial statement format and draft note disclosures.

Project status updates and the conclusions reached regarding any completed
standards have been presented to the Audit Committee and the Company's external
auditors.

The IFRS project team continues to monitor new and proposed standards and to revisit any preliminary conclusions reached, where necessary.

At the current stage of its IFRS project, the Company cannot reasonably determine the full impact that adopting IFRS will have on its financial position and future results. The Company is on target to meet the timelines essential to completing the
changeover to IFRS.

EXPECTEDAREAS OFSIGNIFICANCE

The Company has identified the areas noted below as those having the most potential for a significant impact on the financial position and result of operations. These areas do not represent a complete list of expected changes and may be subject to
change as the Company progresses through the second phase of its project.

(i)International Accounting Standard 16  Property, Plant and Equipment (IAS 16)

This standard requires that each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item be depreciated separately.  While the requirements of Canadian GAAP are similar as written,
this IFRS will require that the Company retain more detailed accounting records with respect to its property, plant and equipment. The Company is currently in the process of identifying the significant components of its property, plant and equipment
at its two mine sites, determining the useful lives of those significant components, and where the lives are different from that of the overall asset, quantifying the impact of this accounting change. In addition, changes to the Company's
information system are currently being made to accommodate the more detailed record-keeping.

(ii)International Financial Reporting Standard 1, First-Time Adoption of International Financial Reporting Standards (IFRS 1)

This standard requires that an entity apply all standards effective at the end of its first reporting period retrospectively, and provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions in
certain areas. The Company is currently analyzing the various exemptions available and will elect those determined to be most appropriate. The IFRS 1 exemptions that are the most significant to the Company are as follows:

Property, Plant and Equipment

Adoption of IFRS without the use of this exemption would require the Company to restate all property, plant and equipment balances from the date of acquisition until the transition date to IFRS of January 1, 2010. The applicable IFRS 1 election
allows the Company to report property, plant and equipment in its opening balance sheet on the transition date at a deemed cost instead of actual cost. This deemed cost will most likely be determined by a fair value measure at the date of
transition. The exemption can be applied on an asset-by-asset basis. The Company is currently evaluating this exemption.

Business Combinations

IFRS 1 permits entities to apply IFRS 3, Business Combinations, prospectively to business combinations occurring on or after the transition date of January 1, 2010. As a result, the Company would restate any 2010 business combinations which were
reported under Canadian GAAP, for comparative reporting in 2011. Alternatively, the Company would be required to restate all business combinations prior to the transition date in addition to those occurring in 2010. The Company expects to elect the
business combinations exemption and adopt IFRS 3 prospectively.  The election of this exemption does not preclude the Company from the requirement to assess the assets and liabilities acquired in business combinations prior to transition in
determining the opening balance sheet under IFRS.



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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


Employee Benefits

The adoption of IFRS without the use of the employee benefits IFRS 1 exemption would require that the Company recalculate all actuarial gains and losses from the inception of each defined benefit plan in accordance with IFRS until the transition
date. The IFRS 1 election allows the Company to recognize all cumulative actuarial gains and losses in retained earnings at the date of transition to IFRS and to apply any changes prospectively from that date. The Company is currently evaluating
this exemption.

Foreign Exchange

The Company has cumulative translation adjustment balances relating to its conversion from a Canadian dollar functional currency to a US dollar functional currency in 2007. On transition to IFRS, all cumulative translation gains or losses can be
reclassified to retained earnings at the Company's election. The Company expects to elect this exemption.

(iii)Extractive Activities Project

The International Accounting Standards Board currently has an Extractive Activities project underway to develop accounting standards for extractive activities. A working draft of the discussion paper has been released with the official discussion
paper scheduled for release in the first quarter of 2010. Any changes to IFRS as a result of the project will not be effective until after the Company implements IFRS in 2011. Therefore, the Company's accounting policies specific to mining and
related activities may be impacted once final IFRS are released on this topic, subsequent to IFRS adoption. The Company's IFRS project team will closely monitor any developments in this project.

INTERNALCONTROL OVERFINANCIALREPORTING ANDDISCLOSURECONTROLS ANDPROCEDURES

As part of the assessment of each IFRS in phase two of the Company's project, internal controls over financial reporting and disclosure controls and procedures are considered. For example, any changes in accounting policies could result in
additional controls or procedures being required to address the reporting of the Company's first time adoption and on-going reporting requirements.

As a result of the adoption of IAS 16, Property, Plant and Equipment, certain controls and procedures will need to be put in place to ensure the accurate componentization and amortization of the Company's property, plant and equipment.
However, at this time the Company has not identified any significant changes in internal control that will be required as a result of the implementation of IFRS. The certifying officers plan to complete the design, and initially evaluate the
effectiveness of any key controls implemented as a result of IFRS in the fourth quarter of 2010, to prepare for certification under IFRS in 2011.

The Company will also ensure that key stakeholders are informed about the anticipated effects of the IFRS transition.

FINANCIALREPORTINGEXPERTISE

The Company has identified an IFRS Project Team, comprised of senior finance staff and senior management. The majority of these individuals have attended external IFRS training specific to the mining industry. Any required training for finance and
operational staff will be delivered in the second half of 2010, and will be specific to the impact of IFRS on daily responsibilities of these individuals.

The Company has held an IFRS information session with the Company's Audit Committee of the Board of Directors. During this session, management and external advisors provided the members with the Company's project plan, and presented the
expected areas of significance. The Audit Committee receives quarterly updates on the status of the project and reviews the conclusions reached on various standards, as they are completed.

SUBSEQUENT EVENTS


On March 16, 2010, the Ontario Superior Court of Justice certified the proposed class action commenced by Ed J. McKenna in 2008 in respect of investors who purchased securities through underwriters in Canada under the Company's April 2007
prospectus. Certification is a procedural step in the litigation and no determination has been made of the merits of the claim.  Management continues to be of the opinion that the claim is without merit, and that a strong defence exists against the
claim. The Company will continue to defend the claim, although no assurances can be given with respect to the outcome of any proceedings.

On March 23, 2010, the Company announced that it had entered into purchase option agreements on a group of properties called the Mezquite Project in Zacatecas State, Mexico. The option agreements include a series of option payments that total
$1.4 million over a three year period.



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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS




CRITICAL ACCOUNTING POLICIES AND ESTIMATES


The preparation of the Company's consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
The following is a list of the accounting policies that the Company believes are critical, due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being
reported:

(i) Ore inventories

Finished goods, work-in-process, heap leach ore and stockpile ore are valued at the lower of the average cost or net realizable value (NRV). NRV is the difference between the estimated future realizable gold price based on prevailing and long-term
prices, less estimated costs to complete production into a saleable form. The assumptions used in the valuation of work-in-process inventories include estimates of gold contained in the ore stacked on leach pads, assumptions of the amount of gold
stacked that is expected to be recovered from the leach pads, the amount of gold in mill circuits and in stockpiles, and an assumption of the gold price expected to be realized when the gold is recovered. Write-downs of ore in stockpiles, ore on leach pads, in-process and finished metal inventories resulting from NRV impairments are reported as a component of current period costs. The primary factors that influence the need to record
write-downs include prevailing and long-term gold prices and prevailing costs for production inputs such as labour, fuel and energy, materials and supplies, as well as realized ore grades and actual production levels. When the circumstances that
previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of the write-down or a portion thereof is
reversed so that the new carrying amount is the lower of the cost and the revised net realizable value. The reversal is limited to the amount of the original write-down for inventory still on hand.

Ore on leach pads is ore that is placed on pads where it is saturated with a chemical solution that dissolves the gold contained in the ore. Costs are attributed to the leach pads based on current mining costs, including applicable depletion and
amortization relating to mining operations, incurred up to the point of placing the ore on the pad. Costs are removed from the leach pad based on the average cost per recoverable ounce of gold on the leach pad as the gold is recovered. Estimates of
recoverable gold on the leach pads are calculated from the quantities of ore placed on the pads, the grade of ore placed on the leach pads and an estimated percentage of recovery. Timing and ultimate recovery of gold contained on leach pads can vary
significantly from the estimates. The quantities of recoverable gold placed on the leach pads are reconciled to the quantities of gold actually recovered (metallurgical balancing), by comparing the grades of ore placed on the leach pads to actual
ounces recovered. The nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and the engineering estimates are refined based on
actual results over time. The ultimate recovery of gold from a pad will not be known until the leaching process is completed.

The allocation of costs to ore in stockpiles, ore on leach pads and in-process inventories and the determination of NRV involve the use of estimates. There is a high degree of judgment in estimating future costs, future production levels, proven and
probable mineral reserve estimates, gold and silver prices, and the ultimate estimated recovery for ore on leach pads. There can be no assurance that actual results will not differ significantly from estimates used in the determination of the
carrying value of inventories.

(ii)Mineral reserves and resources used to measure depletion and amortization

The Company records depletion and amortization expense based on the estimated useful economic lives of long-lived assets. Property, plant and equipment are amortized on a straight-line basis over their estimated useful lives. Mining interests are
amortized using the units of production method over proven and probable reserves of the mine and the portion of mineralization expected to be classified as reserves. Changes in reserve and resources estimates are generally calculated at the end of
each year and cause amortization expense to increase or decrease prospectively. 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. Changes in data and/or assumptions could cause reserve and resources estimates to substantially change from period to period. Actual production could differ from expected based on reserves
and resources, and an adverse change in gold prices could make a reserve or resource uneconomic to mine. Variations could also occur in actual ore grades and gold and silver recovery rates from estimates.  A key trend that could reasonably impact
reserves and resources estimates is rising market mineral prices, because the mineral price assumption is closely related to the trailing three-year average market price. As this assumption rises, this could result in an upward revision to reserves
and resources estimates as material not previously classified as a reserve or resource becomes economic at higher gold prices.



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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


(iii) Goodwill and long-lived assets

Goodwill is not amortized and is assessed for impairment at the reporting unit level on at least an annual basis. Any potential goodwill impairment is identified by comparing the fair value of a reporting unit to its carrying value. If the fair
value of the reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value of the reporting unit exceeds its fair value, a potential goodwill impairment has been identified and must be quantified by
comparing the estimated fair value of the reporting unit's goodwill to its carrying value. Any goodwill impairment will result in a reduction in the carrying value of goodwill on the consolidated balance sheet and in the recognition of a
non-cash impairment charge in operating income.

The Company periodically assesses the recoverability of long-lived assets when there are indications of potential impairment. In performing these analyses, the Company considers such factors as current results, trends and future prospects, current
market value and other economic factors. A substantial change in estimated undiscounted future cash flows for these assets could materially change their estimated fair values, possibly resulting in additional impairment.

The Company's goodwill relates exclusively to the acquisition of the El Cubo mine and the Guadalupe y Calvo exploration property. The annual goodwill impairment test included a long-term gold price ranging between $1,050 and $850 per
ounce, a long-term silver price ranging between $16 and $13.20 per ounce, and a nominal discount rate of 7.9%. Upon completion of this test, there was no impairment to
goodwill identified.  While the Company believes that the approach used to calculate the estimated fair value of the El Cubo reporting segment is appropriate, the Company also recognizes that the timing and future value of additions to proven and
probable reserves, forecasted operating costs, and forecasted metal prices may change significantly from current expectations.

(iv)Post-employment and post-retirement benefits

Certain estimates and assumptions are used in actuarially determining the Company's defined pension and employee future benefit obligations. Significant assumptions used to calculate the pension and employee future benefit obligations are the
discount rate and long-term compensation rate. These assumptions depend on various underlying factors such as economic conditions, investment performance, employee demographics and mortality rates.  These assumptions may change in the future and may
result in material changes in the pension and employee benefit plans expense.

(v)Future income taxes and valuation allowances

The Company is periodically required to estimate the tax basis of assets and liabilities. Where applicable tax laws and regulations are either unclear or subject to varying interpretations, it is possible that changes in these estimates could occur
that materially affect the amounts of future income tax assets and liabilities recorded in the financial statements. Changes in future tax assets and liabilities generally have a direct impact on earnings in the period of changes.

Each period, the Company evaluates the likelihood of whether some portion or all of each future tax asset will not be realized. This evaluation is based on historic and future expected levels of taxable income, the pattern and timing of reversals of
taxable temporary timing differences that give rise to future tax liabilities, 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. If it is determined that it is more likely than not (a likelihood of more than 50%) that all or some portion of a future tax asset will not be realized, a valuation allowance is
recorded.  Changes in valuation allowances are recorded as a component of income tax expense or recovery for each period.

(vi)Asset retirement obligations

Asset retirement obligations (AROs) arise from the acquisition, development, construction and normal operation of mining property, plant and equipment, due to government controls and regulations that protect the environment and public
safety on the closure and reclamation of mining properties. The Company records the fair value of an ARO in the financial statements when it is incurred, and capitalizes this amount as an increase in the carrying amount of the related asset. The
fair values of AROs are measured by discounting the expected cash flows using a discount factor that reflects the credit-adjusted risk-free rate of interest. The Company prepares estimates of the timing and amounts of expected cash flows when an ARO
is incurred, which are updated to reflect changes in facts and circumstances. In the future, changes in regulations, laws or enforcement could adversely affect operations; and any instances of non-compliance with laws or regulations that result in
fines or injunctions or delays in projects, or any unforeseen environmental contamination at, or related to, the mining properties could result in significant costs.

The principal factors that can cause expected cash flows 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 an ARO is inherently more subjective. Significant judgments and estimates are made when estimating the fair value of AROs.  Expected cash
flows relating to AROs could occur over periods up to 9 years and the assessment of the extent of environmental remediation work is highly subjective. Considering all of these factors that go into the determination of an ARO, the fair value of AROs
can materially change over time.



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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS




CONTROLS AND PROCEDURES


(i) Evaluation of Disclosure Controls and Procedures (as restated)

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in annual filings, interim filings or other reports filed or submitted under provincial and territorial securities legislation or
reports filed or submitted under the U.S. Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the applicable time periods, and that such information is accumulated and communicated to management, including the
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. As of December 31, 2009 an evaluation was carried out, under the supervision of and with the participation of management,
including the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of disclosure controls and procedures as defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934 and in National Instrument 52-109 under the Canadian Securities Administrators Rules and Policies. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as at December 31, 2009.

In connection with the restatement of the December 31, 2009
financial statements, management, with the participation of the Chief Executive
Officer and the Chief Financial Officer, has re-evaluated the effectiveness of
disclosure controls and procedures and internal controls over financial
reporting. Based on the reassessment, the Chief Executive Officer and Chief
Financial Officer have concluded that as of December 31, 2009, because the
Company had a material weakness in internal controls over financial reporting,
as described below, disclosure controls and procedures were not effective.

(ii) Management's Report on Internal Control Over Financial Reporting
(as restated)

Management, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(e) under the U.S. Securities
Exchange Act of 1934 and in National Instrument 52-109 under the Canadian Securities Administrators Rules and Policies. Management is furthermore responsible for the evaluation of the effectiveness of internal control over financial reporting for
the year ended December 31, 2009. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with Canadian generally accepted accounting principles and reconciled to US GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

As of December 31, 2009, management evaluated the effectiveness of the Company's internal control over financial reporting. In making this evaluation, management used the criteria set forth in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on Gammon's management assessment, management concluded that the Company's design and operating effectiveness of internal control over financial reporting
was effective as at December 31, 2009.  No material weaknesses were identified by management during this evaluation.

Based upon its assessment, management concluded that, as of
December 31, 2009, the Company's internal control over financial reporting was
effective. However, during the preparation of the March 31, 2010 interim
financial statements the Company determined that a restatement of its previously
issued financial statements was necessary. As a result of the financial
statement restatement, the Company reassessed its internal control over
financial reporting and determined that a material weakness existed at December
31, 2009 and as a result, internal control over financial reporting was not
effective. A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the Company's annual or
interim financial statements will not be prevented or detected on a timely
basis.

The Company did not maintain effective controls over the
foreign currency translation of future income taxes arising on the acquisition
of an entity in a foreign jurisdiction. Specifically, upon the acquisition of
Mexgold Resources Inc. on August 8, 2006, the Company did not identify future
income taxes as a foreign currency liability and as a result the balance was not
appropriately translated into Mexican pesos. As of December 31, 2006 the Company
identified a material weakness related to insufficient accounting personnel to
appropriately review and approve non-routine and complex transactions which may
have contributed to the incorrect initial recording of the future income tax
liability.

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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS


This control deficiency resulted in the restatement of the
consolidated financial statements for the years ended December 31, 2009 and
2008.

As a result of the aforementioned material weakness as of
December 31, 2009, management has revised its previously reported assessment of
the effectiveness of internal control over financial reporting and have
concluded that, as of December 31, 2009, the Company's internal control over
financial reporting was not effective.

(iii) Remediation of Material Weakness in Internal Control
over Financial Reporting

Management has engaged in, and continues to engage in,
efforts to address the material weakness in internal control over financial
reporting identified above, by performing a thorough review of the Company's
recognition of future income tax liabilities arising on business acquisitions in
accordance with GAAP. Management will also amend procedures related to business
acquisitions to include procedures to consider and record assets and liabilities
acquired in the appropriate currency.

(iv) Change in Internal Control over Financial Reporting

There have been no significant changes in internal controls
over financial reporting during the three months ended December 31, 2009 that
could have materially affected or are reasonably likely to materially affect the
Company's internal controls over financial reporting.

CAUTIONARY NOTE TO U.S. INVESTORS


Cautionary Note to U.S. Investors concerning estimates of Measured and Indicated Resources:We advise U.S. investors that while such terms are recognized and permitted under Canadian regulations, the U.S. Securities and Exchange Commission
does not recognize them. The term resources does not equate to the term reserves, and U.S. investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into
reserves.

Cautionary Note to U.S. Investors concerning estimates of Inferred Resources:  We advise U.S. investors that while such term is recognized and permitted under Canadian regulations, the U.S. Securities and Exchange Commission does not
recognize it. "Inferred resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be
upgraded to a higher category. Under Canadian rules estimates of inferred mineral resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an inferred resource
exists, or is economically or legally mineable.

The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles (GAAP) (see Note
3: Summary of Significant Accounting Policies to the
financial statements), which differ in certain material respects from accounting principles generally accepted in the United States of America (U.S. GAAP). Differences between GAAP and U.S. GAAP that are applicable to the Company are
described in the Company's 40-F/A form filed with the U.S. Securities and Exchange Commission, which is available at  www.edgar.com.  The Company's reporting currency is in United States dollars unless
otherwise noted.



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2009ANNUAL
MANAGEMENT'S DISCUSSION AND ANALYSIS




CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


Certain information regarding the Company contained herein may constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking statements are subject to a variety of risks and uncertainties which could cause
actual events or results to differ from those reflected in the forward-looking statements. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from
those described in forward looking statements.  Specific reference is made to "Risk Factors" in the Company's Annual Information Form and 40-F/A Report. Forward-looking statements may include estimates, plans, expectations, opinions, forecasts,
projections, guidance or other statements that are not statements of fact including, without limitation, statements regarding future gold and silver production and cash costs per ounce; potential mineralization and reserves, including the impact of
any future exploration on reserve estimates; expectations regarding the timing and extent of production at the Company's projects; future cash flows; estimates regarding the future costs related to exploration at the Company's projects;
the nature and availability of additional funding sources; and future plans and objectives of the Company. In some cases, you can identify forward-looking statements by the use of words such as may, will, should, could, expect, plan, intend,
anticipate, believe, estimate, predict, potential or continue or the negative or other variations of these words, or other comparable words or phrases. Although the Company believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations include, among others, risks related to
international operations, including political turmoil and limited local infrastructure to support large scale mining operations; the actual results of current exploration activities; conclusions of economic evaluations and changes in project
parameters as plans continue to be refined; and fluctuations in future prices of gold and silver. These factors are set out in more detail in the Company's Annual Information Form. The Company's forward-looking statements are expressly
qualified in their entirety by this cautionary statement.



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