---

|GAMMON LAKE RESOURCES INC.                       
|-------------------------------------------------
|                                                 
|MANAGEMENT DISCUSSION AND ANALYSIS               
|FOR THE FIVE MONTH PERIOD ENDED DECEMBER 31, 2005

March 15, 2006

This management discussion and analysis is made as of March
15, 2006, and should be read in conjunction with the consolidated financial
statements of Gammon Lake Resources Inc. ("the Company") for the five month
period ended December 31, 2005, including all accompanying notes to the
financial statements. The Company changed its year-end from July 31 to December
31 to make the reporting period of the Company consistent with other emerging
precious metal producing issuers.

The Company is a growth-oriented public gold and silver
mining exploration company listed on the Toronto Stock Exchange (TSX:GAM) and
the American Stock Exchange (AMEX:GRS). The Company has ongoing advanced stage
exploration and development at its Ocampo Project located in Chihuahua State,
Mexico. The Company is in production for 2006, and expects to realize a total
cash cost of $151.74 per ounce. The results of operations for 2006 will differ
from previous years as the Company realizes revenue from its operations at the
Ocampo Project, and becomes a mid-tier producer. The results of operations for
2005 reflect the Company's exploration and development activities at the Ocampo
Project, and therefore the financial results show no current sources of revenue
other than interest earned on cash and short-term money-market instruments, all
of which were derived from issuances of share capital and long-term debt.

Outlook

Statements in this section are subject to the risks and uncertainties
identified in the Forward-Looking Statements portion of this document.

The construction of the crushing facilities and heap leach
pad area continued, and the high grade line was operational early in January,
2006. The Company has been feeding approximately 6,000 tonnes of ore per day,
and completion of the low grade secondary crushing line has been completed as of
February 28, 2006. This will enable the Company to achieve its objective of
stacking 13,000 tonnes of ore per day on the heap leach pad. In the first year
of production, the Open Pit mine is expected to produce 136,735 ounces of gold,
and 3,979,826 ounces of silver, equating to 203,065 gold equivalent ounces.
Total first year commercial production at Ocampo, including underground
operations is expected to exceed 300,000 gold-equivalent ounces.

The Company has also successfully poured dore bars every week
since our initial pour on February 1, 2006, and the Company has been pleased
with the recoveries. The Company has commenced the procurement of the Mill
components, and expects the Mill to be fully constructed as defined in the
feasibility study prepared by Kappes, Cassidy and Associates in the second
quarter of 2006. The Mill will have capacity for 1,500 tonnes of ore per day.
The Company released an updated resource study in December, 2005, and increased
Proven and Probable reserves by 86%, and Measured and Indicated resources by
68%. Of significance was the increase in the mine life from 7 years to 13 years,
and a reduction in the Open Pit strip ratio from 5:1 to 3.2:1. The Company will
be able to assess the cost savings as we extract tonnes from the Open Pit Mine
over the coming months.

The Company announced a secured debt finance facility of
US$60 million with Scotia Capital in order to carry out the completion of the
project, and realize commercial production in the first quarter 2006. The
Company expects annual production in the first full year of operations of in
excess of 300,000 gold-equivalent ounces with a cash cost of $151.74 per ounce.

The Company is entirely unhedged for its future production enabling it to
fully participate in higher gold/silver prices.

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. 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

1

---



|GAMMON LAKE RESOURCES INC.                       
|-------------------------------------------------
|                                                 
|MANAGEMENT DISCUSSION AND ANALYSIS               
|FOR THE FIVE MONTH PERIOD ENDED DECEMBER 31, 2005

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 Summary of Significant Accounting Polices and
Note 2: Basis of Presentation), which differ in certain material respects from
accounting principles generally accepted in the United States of America (US
GAAP). Differences between GAAP and US GAAP applicable to the Company are
described in Note 16 to the consolidated financial statements for the five month
period ended December 31, 2005. The Company's reporting currency is in Canadian
dollars unless otherwise noted.

Certain information regarding the Company contained herein
may constitute forward-looking statements within the meaning of applicable
securities laws. 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 potential mineralization and reserves, including the impact of any
future exploration on reserve estimates; expectations regarding the timing and
extent of production at the Ocampo project; estimates regarding the future costs
related to exploration at Ocampo; the nature and availability of additional
funding sources; and future plans and objectives of Gammon Lake. 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; delays in the construction of the production shaft and or Mill at Ocampo; unexpected cost overruns in construction including increased labor or
material costs or technical construction challenges; 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 the Company's annual information form. The Company's forward-looking
statements are expressly qualified in their entirety by this cautionary
statement.

|2005 Highlights
|---------------

- 

2

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|GAMMON LAKE RESOURCES INC.                       
|-------------------------------------------------
|                                                 
|MANAGEMENT DISCUSSION AND ANALYSIS               
|FOR THE FIVE MONTH PERIOD ENDED DECEMBER 31, 2005

Further details on the history of the Company,
its mineral properties and the risk factors associated with respect to the
Company can be found under the Company's associated documents including its
Annual Information Form at www.sedar.com or
on the Company's website at www.gammonlake.com

Overall Performance

In the past year, the Company reached several of its
significant short-term and long-term goals and is well positioned to meet the
immediate objective of producing on average 270,000 ounces of gold-equivalent
ounces per annum commencing in 2006. Production out-put from the first
year of mining is expected to exceed 300,000 ounces gold-equivalent.

The Company has been in the construction phase
since January, 2005 for developing the Ocampo Mine and has achieved its
objective of production in the first quarter of 2006. The Company has been
working closely with Kappes, Cassidy & Associates (KCA) on the engineering,
procurement and construction management of the Mine. Ground breaking for the
construction of the Ocampo underground, open pit mines, and two surface
processing facilities began in early March, 2005. Through December 31, 2005, the
Company has achieved the following milestones:

- crushing facilities and primary overland
  conveyer completed and tested
- procurement and initial installation of mill
  components
- completion all major earthworks for the
  water dam, heap leach crushing facilities and overland conveyer
- completed phase one of the heap leach pads
  for the first 10-million tonnes of ore
- completed construction on seven support
  service buildings
- completed construction of eight staff
  hotels, including new kitchen and restaurant
- contractor's camp for 500 workers
- power generation and distribution facilities
  completed
- stope development ongoing in underground for
  production purposes

The Company has also been successful in
procuring all of the Underground and Open-Pit Equipment as outlined in the
bankable feasibility study for Phase One, and considers this a significant
achievement given world-wide shortages in mining equipment and parts. The
feasibility study prepared by KCA outlined expenditures of approximately US$44
million in 2005 and 2006, and the Company has procured all of its equipment for
approximately US$32 million.

The Company announced the completion of an
updated resource/reserve determination for the Ocampo Gold-Silver Mine in
December, 2005. As per the new study prepared by MINTEC, Inc. of Tucson,
Arizona, the Company has proven and probable reserves of 4,190,000 ounces of
gold equivalent, measured and indicated resources of 5,097,000 ounces of gold
equivalent, as well as an additional 5,687,000 ounces of gold equivalent in the
inferred category. This represents an 86% increase in proven and probable
reserves and a 68% increase in measured and indicated resources from those
developed from the 2004 Feasibility study. The current resource estimate is
built on 89,604-metres of drilling and surface sampling from the Open-Pit.

The current measured and indicated resources
for the Ocampo Gold-Silver Mine are 83,780,000 tonnes which is more than double
the feasibility study estimate. The increase to 5,097,000 gold equivalent ounces
from the 2004 feasibility study estimate of 3,030,000 gold equivalent ounces is,
in part, the result of the San Ramon/Suerte de Lucas (termed the PGR trend) ore
body discovery within the Open Pit area, additional resource development within
Conico and Plaza de Gallos ore bodies, and increased vein definition from the
Northeast resource area. The 2004-2005 drilling program resulted in the
conversion of much of the previous indicated and inferred resources to proven
and probable reserves, while additional inferred resources in the Open Pit area
are the direct result of extensive deeper drilling along the PGR strike length.

There were four separate new ore body/vein
discoveries of significance made by the drilling completed from June 2004 to
October 2005. Within the Open Pit area, the Diana structure west of the
Estrella-Conico ore body, the Suerte de Lucas and San Ramon structures, which
are believed to be the same mineral horizon, were extensively drilled and have
contributed substantially to the mining reserves for the Open Pit area.

3

---



|GAMMON LAKE RESOURCES INC.                       
|-------------------------------------------------
|                                                 
|MANAGEMENT DISCUSSION AND ANALYSIS               
|FOR THE FIVE MONTH PERIOD ENDED DECEMBER 31, 2005

The Las Animas-San Amado structure in the Northeast
Underground area was one of the four major veins slated for underground mining
in the KCA feasibility study. Subsequent mining and stope development within the
Las Animas structure has described a very high grade Clavo, or major ore zone,
with average grades greater than one ounce per tonne gold equivalent.
Development of the underground mine is progressing on schedule to meet the 1,500
tonnes per day production target before the Mill commences operation.

The Company completed a US$60,000,000 credit facility with
Scotia Capital for the start-up of the Ocampo Gold-Silver Mine in October, 2005.
The credit facility is secured and consists of a two year non-revolving facility
of U.S. $40,000,000 and a three year revolving facility of U.S. $20,000,000.
Interest is at prime plus 1.25%. As of December 31, 2005, the Company had drawn
U.S. $30,000,000, and had met all of the conditions precedent outlined in the
agreement.

|Ocampo Proven & Probable Reserves
|---------------------------------
|                                 
|Project Area                     
|                                 
|Northeast Area                   
|Open Pit Area High Grade         
|Open Pit Area Low Grade          
|                                 
|Total Ocampo                     
|Proven & Probable                

The above was calculated using a gold equivalent external cut
off grade of 3.0 g/t. Gold equivalent values are based on 60 grams of silver = 1
gram of gold, calculated on a gold price of US $450/oz and a silver price of US
7.50/oz. The qualified person responsible for all technical data reported in
this news release is Mr. Abdullah Arik, Senior Mining Consultant with MINTEC,
Inc.

Selected Annual Information

The following selected information has been extracted from the Company's
audited consolidated financial statements for the five month period ended
December 31, 2005.

|                                          | 5 months     | 12 months     | 12 months    
|----------------------------------------- | ------------ | ------------- | -------------
|                                          | ended        | ended         | ended        
|SELECTED ANNUAL INFORMATION               |              |               |              
|                                          | Dec 31, 2005 | July 31, 2005 | July 31, 2004
|                                          | $            | $             | $            
|Revenue                                   | 201,413      | 1,423,576     | 635,056      
|Net loss                                  | (11,607,510) | (19,375,595)  | (6,958,300)  
|Net loss per share, basic and diluted (1) | (0.16)       | (0.29)        | (0.13)       
|Cash dividends declared                   | Nil          | Nil           | Nil          
|Total Assets                              | 258,955,515  | 210,348,878   | 112,532,744  
|Total Long-Term Liabilities               | 21,479,954   | 8,795,038     | 9,304,400    

4

---



|GAMMON LAKE RESOURCES INC.                       
|-------------------------------------------------
|                                                 
|MANAGEMENT DISCUSSION AND ANALYSIS               
|FOR THE FIVE MONTH PERIOD ENDED DECEMBER 31, 2005

Summary of Quarterly Results

|SELECTED QUARTERLY                        | FOR THE QUARTER ENDED
|----------------------------------------- | ---------------------
|INFORMATION                               |                      
|                                          | Three months         
|                                          | ended                
|                                          | 31-Dec-05            
|                                          | $                    
|Revenue                                   | 86,894               
|Net loss                                  | (10,138,177)         
|Net loss per share, basic and diluted (1) | (0.14)               
|Cash dividends declared                   | Nil                  
|Total Assets                              | 258,955,515          
|Total Long-Term Liabilities               | 21,479,954           
|                                          |                      
|SELECTED QUARTERLY INFORMATION            | FOR THE QUARTER ENDED
|                                          | 31-Jan-05            
|For three months ended                    | $                    
|Revenue                                   | 392,702              
|Net loss                                  | (1,628,216)          
|Net loss per share, basic and diluted (1) | (0.03)               
|Cash dividends declared                   | Nil                  
|Total Assets                              | 209,461,210          
|Total Long-Term Liabilities               | 8,666,000            

(1)

During the three months ended December 31, 2005, the Company
earned revenues of $86,894. This represents a decrease from the previous quarter
due to lower cash balances, therefore lower cash to invest in the short-term.
The Company's net loss for the three months ended December 31, 2005 was
$10,138,177 (year ended July 31, 2005 - $3,569,729) and $0.14 per common share.
The Company's asset base increased to $258,955,515 (July 31, 2005 -
$210,348,878) due to the acquisition of additional assets, increased
expenditures on the mineral property, and the increase in receivables as it
relates to commodity taxes recoverable in Mexico. The Company's total long-term
debt increased to $46,415,409 (July 31, 2005 - $8,795,038) as the Company was
successful in securing a US$60 million debt financing facility through Scotia
Capital. As at December 31, 2005, the Company had met all of the conditions
precedent outlined in the agreement, and had drawn US$30,000,000.

During the five month period ended December 31, 2005,
$6,598,970 (year ended July 31, 2005 - $14,757,287) was recorded as contributed
surplus based on the fair value of employee and consultant's options and broker
warrants granted in the year. The corresponding amounts were recorded in
professional fees for consultants in the amount of $3,545,985 (year ended July
31, 2005 - $5,324,227), wages for employees in the amount of $3,068,423 (year
ended July 31, 2005 - $8,650,453), and share issue costs in the amount of
($15,438) due to the exercise of compensation warrants (year ended July 31, 2005
- $782,607).

Results of Operations

During the five month period ended December 31, 2005, the
Company earned revenue of $201,413 (year ended July 31, 2005 - $1,423,576), of
which $103,303 (year ended July 31, 2005- $1,199,016) was due to interest on
short-term investments, and $98,110 (year ended July 31, 2005 - $224,560) was
charged as Management Fees to Mexgold Resources Inc. to recover expenditures
related to professional fees, travel and general and administrative costs.

Amortization expense for the five month period ended December
31, 2005 was $603,245 (year ended July 31, 2005 - $537,540). On an annualized
basis amortization expense has increased significantly due to the purchase of
mining

5

---



|GAMMON LAKE RESOURCES INC.                       
|-------------------------------------------------
|                                                 
|MANAGEMENT DISCUSSION AND ANALYSIS               
|FOR THE FIVE MONTH PERIOD ENDED DECEMBER 31, 2005

equipment and facilities costs during the current period and
in the previous year. The equipment purchased consisted of heavy equipment,
processing equipment, and power facilities for the Open-Pit and Underground
operations. The Company also constructed new residences and cafeteria for
on-site staff.

General and administrative expenses during the five month
period ended December 31, 2005 were $1,757,414 (year ended July 31, 2005
$2,593,683). Professional fees during the five month period ended December 31,
2005 were $6,624,734 (year ended July 31, 2005 - $7,105,542). General and
administrative and professional fees have increased due to the general support
for the Company's activities, as well as promotional and shareholder relations
costs related to the operation of a public company. Included in professional
fees for the five month period ended December 31, 2005 is a non-cash charge of
$3,843,985 (year ended July 31, 2005 - $5,324,227) related to the fair value of
options issued to consultants during the period. A corresponding amount has been
credited to contributed surplus.

During the five month period ended December 31, 2005 the
Company incurred expenses of $3,830,958 (year ended July 31, 2005 - $9,651,178)
for wages and benefits. In the five month period ended December 31, 2005 wages
and benefits includes a non-cash charge of $2,770,423 (year ended July 31, 2005
- $8,650,453) related to the fair value of options issued to employees and
directors during the period. A corresponding amount has been credited to
contributed surplus. General increases during the five month period end,
excluding the options, are due to the additional staffing in the finance and
administrative departments, and increased travel costs.

Foreign exchange gains of $672,525 (year ended July 31, 2005
- $312,172) earned during the five month period ended December 31, 2005 were due
to long-term debt denominated in U.S. dollars and the translation of the
Company's operations from Mexican pesos to Canadian dollars. The Company will
continue to experience these foreign currency exchange fluctuations given its
U.S. dollar denominated debt and Mexican operations. To minimize the exposure to
foreign currency fluctuations, the Company holds all surplus funds in Canadian
dollars.

The Company's carrying value of its investment of 10.9
million shares in Mexgold Resources Inc. was increased by $210,000 to a carrying
value of $10,632,000 due to its equity share of gains for the five month period
ended December 31, 2005. The market value of the investment on December 31, 2005
was $53,192,000 based on the TSX Venture Exchange closing price of $4.88 per
share for Mexgold Resources Inc. on December 30, 2005.

The net loss for the five month period ended December 31,
2005 was $11,607,510 (year ended July 31, 2005 - $19,375,595) and $0.16 per
common share (year ended July 31, 2005 - $0.29 per common share). The losses
before foreign exchange gains, and equity share of loss reflects the expenses of
supporting the Company's ongoing and expanded exploration, development and
construction activities on the Ocampo Project, and the recognition of the fair
value of the options granted to directors, employees and consultants.

Ocampo Gold-Silver Project

During the five month period ended December 31, 2005, the
Company continued its development of the Ocampo property with expenditures of
$34,195,955 (year ended July 31, 2005 $35,956,248) as part of the overall
project construction, its drill program and underground ramp and tunnel
development project. The overall project construction activity increased
substantially in the last quarter of 2005 in order to achieve the Company's
objective of being in production in the first quarter of 2006. The majority of
the expenditures related to completing the crushing facility were incurred in
the last quarter of 2005, and continued into the first quarter of 2006. The
Company expects the remaining expenditures on the project for 2006 to be for
finalizing the low-grade line at the crushing facilities, mill construction and
finishing the shaft.

The Company announced the completion of an updated
resource/reserve determination for the Ocampo Gold-Silver Mine in December,
2005. As per the new study prepared by MINTEC, Inc. of Tucson, Arizona, the
Company has proven and probable reserves of 4,190,000 ounces of gold equivalent,
measured and indicated resources of 5,097,000 ounces of gold equivalent, as well
as an additional 5,687,000 ounces of gold equivalent in the inferred category.
This represented an 86% increase in proven and probably reserves and a 68%
increase in measured and indicated resources from those developed from the 2004
Feasibility study. The current resource estimate is built on 89,604-

6

---



|GAMMON LAKE RESOURCES INC.                       
|-------------------------------------------------
|                                                 
|MANAGEMENT DISCUSSION AND ANALYSIS               
|FOR THE FIVE MONTH PERIOD ENDED DECEMBER 31, 2005

metres of drilling and surface sampling from the Open-Pit. The results of
this study are discussed in "Overall Performance".

The Company's deferred mineral property expenditures during the five month
period ended December 31, 2005 and year ended July 31, 2005 are as follows:

|Schedule of deferred mineral property
    expenditures |   | 31-Dec-05   |   | 31-July-05 
|------------------------------------------------------ | - | ----------- | - | -----------
|                                                       |   |             |   |            
|Mineral property, beginning balance                    | $ | 115,997,985 | $ | 80,041,737 
|                                                       |   |             |   |            
|Total additions                                        |   | 34,195,955  |   | 35,956,248 
|                                                       |   |             |   |            
|Mineral property, ending balance                       | $ | 150,193,940 | $ | 115,997,985

Liquidity

The Company was able to secure debt financing in order to
assist with the project costs and working capital expenses of the Ocampo Mine in
October, 2005. The Company's position is to repay the debt facility over the
next two to three years resulting in a current portion of long term debt. The
Company's projected cash flow in third and fourth quarter 2006 are expected to
be sufficient in order to realize its current and long term debts and
obligations, and working capital requirements. The Company will assess over the
coming months as it begins to realize revenue whether the debt facility was
adequate enough to finance the remaining costs associated with the project at Ocampo. The Company has also been aggressively pursuing its value-added tax
claims with the Mexican government, and expects this to assist with its monthly
general working capital obligations. The Company's balance of cash and cash
equivalents as at December 31, 2005 was $6,701,543 (July 31, 2005 -
$35,400,349). The Company maintains surplus funds not required for current
exploration in Canadian funds. Investments are held in commercial paper discount
notes with terms of less than 60 days. The Company has long-term debt
denominated in US dollars and some of the Company's receivables and payables are
denominated in Mexican Pesos and US dollars.

A summary of the Company's capital project commitments for the Ocampo Mine
projected from January 1, 2006 to June, 2006 are as follows:

|(Cdn$ millions)                          |             |         
|---------------------------------------- | ----------- | --------
|                                         |             | Current 
|                                         | Project     |         
|                                         |             | 2006 (F)
|                                         |             |         
|Projected capital expenditures remaining | Ocampo Mine | 48      
|Available financing:                     |             |         
|Scotia Capital                           |             | (35)    
|Projected revenue less total cash costs  |             | (4)     
|Proceeds from exercise of options        |             | (9)     
|Net                                      |             | 0       
|(F) = Forecast, net of value added tax   |             |         

Current liabilities increased to $10,552,274 (as at year
ended July 31, 2005 - $3,609,306). This financial position reflects the
significant operational and construction activities during the five month period
ended December 31, 2005 on the Ocampo Project, which entails a higher level of
cash requirements.

Details of the Company's operating, financing and investing
activities and long term debt agreement are provided below. Other than as
discussed herein, the Company is not aware of any trends, demands, commitments,
events or uncertainties that may result in the Company's liquidity or capital
resources either materially increasing or decreasing at present or in the
foreseeable future. Material increases or decreases in the Company's liquidity
and capital

7

---



|GAMMON LAKE RESOURCES INC.                       
|-------------------------------------------------
|                                                 
|MANAGEMENT DISCUSSION AND ANALYSIS               
|FOR THE FIVE MONTH PERIOD ENDED DECEMBER 31, 2005

resources will be substantially determined by the success or
failure of the Company's exploration, development and construction programs on
its mineral properties and its ability to obtain equity or other sources of
financing. With the completion of the debt facility with Scotia Capital of
US$60,000,000 in October, 2005, the Company is assessing whether it has an
adequate liquidity base with which to support its general operations,
exploration, development and construction activities on the Ocampo Project.
Should the Company determine that it does not have adequate funding to complete
the construction of the Mill facilities, the Company believes that it could find
other sources of financing through additional debt, convertible debt, or equity.

Operating

Operating activities during the five month period ended
December 31, 2005 consumed cash of $3,993,150 (year ended July 31, 2005 -
$8,975,284). The increase is due to increased operational needs of the Company
as it expands its mine management and administrative capacity to support the
growth in the exploration, development and construction operations and
activities.

Financing

Financing activities during the five month period ended
December 31, 2005 totaled gross proceeds of $41,938,629 (year ended July 31,
2005 - $106,205,810). In October 2005, the Company completed a debt financing
facility with Scotia Capital Inc. for US$60,000,000. As at December 31, 2005,
the Company had met all of the conditions precedent under the facility, and had
drawn US$30,000,000 (Cdn$34,977,000). In January 2005, the Company completed a
private placement, where BMO Nesbitt Burns Inc. acted as lead agent in a
syndicate with RBC Dominion Securities Inc. and First Associates Investments
Inc. A total of 15,715,000 Special Warrants were issued at Cdn$7.00 per Special
Warrant for gross proceeds of $110,005,000. The funds have been used to finance
the construction, development and operations of the Ocampo Gold-Silver Mine. The
Company also received $9,836,838 from the exercise of options of which
$2,725,000 was receivable at year end.

As of December 31, 2005, the Company had 8,587,000 (year
ended July 31, 2005 - 9,283,500) in-the-money exercisable options for a total
value of $38,942,340 (year ended July 31, 2005 - $33,843,770) with expiry dates
in the years 2006 to 2010 based on the exercise price of the options. The
Company had 756,176 (year ended July 31, 2005 - 762,376) compensation warrants
outstanding for a total value of $4,171,859 (Year ended July 31, 2005 -
$4,215,259) based on the exercise price of the warrants, with expiry dates in
the year 2006. As of December 31, 2005, the Company had 76,370,224 common shares
outstanding.

Investing

Investing activities during the five month period ended
December 31, 2005 totaled $66,644,285 (year ended July 31, 2005 - $74,851,117).
Investing activities during the five month period ended December 31, 2005
primarily relate to three major areas. First, expenditures of $34,195,955 (year
ended July 31, 2005 - $37,217,764) were made on the Ocampo Project. The
expenditures relate to the purchase of equipment and consumables, the large
amount of land clearing and excavation work required to construct the major
components of the project as defined in the feasibility study, contract mining
fees related to the development of the underground, and ongoing drilling and
assaying completed in order to finalize the updated resource and reserve
calculation released in December, 2005. Second, expenditures of $31,691,802
(year ended July 31, 2005 - $37,788,354) were invested in capital assets related
to Open Pit and Underground mobile equipment. Significant expenditures related
to the construction of the crushing facilities, power plant related to the
Ocampo Project, and deposits on capital equipment for the Open-Pit and
Underground operations. Third, advances of $396,528 (year ended July 31, 2005 -
155,001) were made to related companies.

Long term debt agreement

A summary of the Company's financial commitments under its long term debt
agreement with Soyopa are as follows:

|Year                           |              
|------------------------------ | -------------
|On or before November 23, 2006 | US$ 3,500,000
|On or before November 23, 2007 | US$ 3,500,000

In the event that the Company has commenced production of
gold and/or silver from the mining title acquired prior to November 23, 2006,
the Company is required to pay Soyopa the principal amount of US $1,000,000,
annually,

8

---



|GAMMON LAKE RESOURCES INC.                       
|-------------------------------------------------
|                                                 
|MANAGEMENT DISCUSSION AND ANALYSIS               
|FOR THE FIVE MONTH PERIOD ENDED DECEMBER 31, 2005

commencing on the first anniversary of the start of
production which will reduce the remaining amount due. In the event the Company
sells or transfers title to the concessions to a third party, the US $7,000,000
or the principal amount remaining, becomes due. The long term debt is secured by
a first charge over certain mineral properties, and is non-interest bearing.

In October, 2005 the Company secured a credit facility with
Scotia Capital Inc. The facility is secured and consists of a two-year revolving
facility of U.S.$40,000,000, and a three-year revolving facility of
U.S.$20,000,000. Interest is payable at prime rate plus 1.25% or in the case of
US dollar advances, LIBOR + 2.25%. The Company has met all of the conditions
precedent under the facility, and as at December 31, 2005 had drawn
U.S.$30,000,000 (Cdn$34,977,000). A summary of the Company's financial
commitments under its long term debt agreement with Scotia Capital Inc. are as
follows:

|Year |            
|---- | -----------
|2006 | $19,995,185
|2007 | $14,981,815

The Company intends to fund these obligations from a
combination of working capital, debt and/or equity financing and cash on hand.

Capital Lease Obligations

The Company was successful in securing a capital lease with
Caterpillar Financial Mexico. The capital lease obligation including principal
and interest is $2,961,933. The current portion of the lease including interest
is $816,793. The Company has also secured lease financing for computer hardware
and software. Details are provided in Note 6 to the audited consolidated
financial statements for the five month period ended December 31, 2005.

Contractual Obligations

A summary of the Company's contractual obligations is summarized as follows:

|Contractual Obligations     | Total       | <1 year     | 1-3 years  
|--------------------------- | ----------- | ----------- | -----------
|Long term debt              | $43,328,439 | $24,075,835 | $19,252,604
|Interest on long term debt  | $759,657    | $506,438    | $253,219   
|Capital leases              | $2,810,844  | $859,620    | $1,951,224 
|Future purchase commitments | $2,710,071  | $2,710,071  | $Nil       

Commitments and Contingencies

A summary of the future commitments contained in the Company's option and
joint venture agreements as at December 31, 2005 are set out in the following
table:

|Agreement                            | Consideration    | Terms                                                            
|------------------------------------ | ---------------- | -----------------------------------------------------------------
|                                     |                  |                                                                  
|Compania Minera Global, S.A. de C.V. | US$ 1,000,000    | Upon sale of the Ocampo property to a third party                
|                                     |                  |                                                                  
|                                     | 8% of net profit | US$ 2,000,000 less any net profit royalty
    payments is due and
|Compania Minera Brenda, S.A. de C.V. | up to a maximum  | payable upon the sale of the
    Ocampo project to a third party1
|                                     | US$ 2,000,000    |                                                                  
|                                     |                  |                                                                  
|                                     |                  | Upon a minimum proven reserve of 2 million ounces
    of gold    
|Compania Minera Brenda, S.A. de C.V. | US$ 250,000      | and gold-equivalent1                                             

Commitments and Contingencies

A summary of the future commitments contained in the Company's option and
joint venture agreements as at December 31, 2005 are set out in the following
table:

|Agreement                            | Consideration    | Terms                                                            
|------------------------------------ | ---------------- | -----------------------------------------------------------------
|                                     |                  |                                                                  
|Compania Minera Global, S.A. de C.V. | US$ 1,000,000    | Upon sale of the Ocampo property to a third party                
|                                     |                  |                                                                  
|                                     | 8% of net profit | US$ 2,000,000 less any net profit royalty
    payments is due and
|Compania Minera Brenda, S.A. de C.V. | up to a maximum  | payable upon the sale of the
    Ocampo project to a third party1
|                                     | US$ 2,000,000    |                                                                  
|                                     |                  |                                                                  
|                                     |                  | Upon a minimum proven reserve of 2 million ounces
    of gold    
|Compania Minera Brenda, S.A. de C.V. | US$ 250,000      | and gold-equivalent1                                             

1

9

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|GAMMON LAKE RESOURCES INC.                       
|-------------------------------------------------
|                                                 
|MANAGEMENT DISCUSSION AND ANALYSIS               
|FOR THE FIVE MONTH PERIOD ENDED DECEMBER 31, 2005

The Company had a joint venture agreement with Fuerte Mayo
respecting the Ocampo property under which the Company has a 100% interest in 17
mining titles in Mexico. Under the terms of the agreement, a balance of US
$211,526 was due to Fuerte Mayo upon the sale of the property. During the five
month period ended December 31, 2005, Fuerte Mayo forgave the US $211,526 due
upon the sale of the property with the result that no further obligations exist
pursuant to this agreement.

During the period, the Company placed deposits on several
pieces of equipment for the Open-Pit and Underground operations (See Note 3 to
the Consolidated Financial Statements). The Company's future commitments on the
equipment amount to $2,710,071, and are payable upon shipment and or delivery of
the items as outlined in the purchase contracts.

The Company intends to fund these obligations from a
combination of debt and/or equity financing and cash on hand. Should the Company
not have adequate funding to complete these payments, the Project would be
delayed until such funding is available.

The discovery, development and acquisition of mineral
properties are in many instances unpredictable events and require significant
expenditures prior to achieving commercial production. Future precious metal
prices, the success of exploration programs and other property transactions can
have a significant impact on capital requirements. There are no known deposits
of commercial minerals on any of the mineral exploration properties of the
Company and any activities of the Company thereon will constitute exploratory
searches for minerals. In the event that unanticipated business opportunities or
expenditures arise prior to such time, the Company may require additional
financing. The Company will also require additional financing to satisfy the
cash payment obligations of its property purchase agreements. If funding is
required for any of these reasons, or if a commercial body of ore in addition to
those identified in the technical report of Kappes, Cassidy & Associates is
confirmed on any of the Company's properties and the Company requires additional
financing to initiate development of such body, it may fund its capital
requirements by arranging further equity financing, issuing long term debt,
arranging joint ventures with other companies or through a combination of the
above. Accordingly, the ability of the Company to continue exploration and
development of its property interests will be dependent upon its ability to
raise significant additional financing. There is no assurance that adequate
financing will be available to the Company or that the terms of such financing
will be favourable. Should the Company not be able to obtain such financing, its
properties may be lost entirely.

Off-Balance Sheet Arrangements

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

Transactions with Related Parties

The Company paid the following amounts to directors and companies controlled
by or related to directors:

|                                                                        | Five months
    ended |             | Year ended
|----------------------------------------------------------------------- | --------------------- | ----------- | ----------
|                                                                        |                       | 31-Dec-2005 |           
|                                                                        |                       |             |           
|Management fees                                                         | $                     | 150,737     | $         
|Mineral property exploration expenditures                               |                       | 4,831,617   |           
|                                                                        | $                     | 4,982,354   | $         
|                                                                        |                       |             |           
|The Company has charged the following amounts
    to related companies: |                       |             |           
|                                                                        |                       |             |           
|Professional fees                                                       |                       | 17,390      |           
|Travel                                                                  |                       | 45,522      |           
|General & Administrative                                                |                       | 35,198      |           
|                                                                        | $                     | 98,110      | $         

10

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|GAMMON LAKE RESOURCES INC.                       
|-------------------------------------------------
|                                                 
|MANAGEMENT DISCUSSION AND ANALYSIS               
|FOR THE FIVE MONTH PERIOD ENDED DECEMBER 31, 2005

The amounts owing from related parties are recorded as a receivable in due
from related companies on the balance sheet. Related party transactions for
management, professional fees and mineral property exploration are recorded at
fair market value.

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.

Commencing in 2004, the Company has retained mineral
exploration and mining contracting services through a Company owned by a related
party of a director of the Company. For the five month period ended December 31,
2005 these non-arm's length mineral exploration expenditures totalled $4,831,617
(year ended July 31, 2005 - $4,392,431). These expenditures are recorded at fair
value calculated at cost plus 10%. The Company believes that this arrangement
gives the Company better quality and control for mineral exploration and mining
contracting services than it could otherwise receive through third party
independent contractors.

During the five month period ended December 31, 2005, the Company paid
$98,110 (year ended July 31, 2005 - $278,440) in management fees as part of the
Company's compensation package for key officers and consultants. During the five
month period ended December 31, 2005 Gammon charged a management fee to Mexgold
Resources Inc. to recover expenditures related to professional fees, travel, and
general and administrative expenses.

Directors and officers of the Company are entitled to hold
management incentive stock options. For this purpose, the Company has a Stock
Option Plan for directors, officers, employees and consultants of the Company
and its subsidiaries. The purpose of the Stock Option 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,
as well as provide additional incentive for superior performance by such persons
and attract and retain valued personnel. The plan provides that eligible persons thereunder include any director, senior officer, consultant or employee of the
Company. 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
spends 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 personal holding company. See also "Results of Operations".

Critical Accounting Estimates

Management is required to make estimates and assumptions in
the preparation of financial statements in conformity with generally accepted
accounting principles. A description of the Company's significant accounting
policies can be found in note 2 of the Company's consolidated financial
statements. Key accounting estimates for the Company include mineral and mining
interests and property, plant and equipment and future income taxes.

Mineral properties

Mineral properties are the sum of the Company's mineral
claims acquisitions and related exploration and development expenditures, which
are capitalized until the property is producing, abandoned, impaired in value or
placed for sale. Costs are transferred to mining properties once a property is
placed into commercial production. The Company's recoverability of its recorded
value of its mineral property and associated deferred exploration expenses is
based on current market conditions for minerals, underlying mineral resources
associated with the properties and future costs may be required for ultimate
realization through mining operations or by sale. The Company is in an industry
that is dependent on a number of factors including environmental, legal and
political risks, the existence of economically recoverable reserves, the ability
of the Company to obtain necessary financing to complete the development, and
future profitable production or the proceeds of disposition thereof.

Future income taxes

Future income tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities and on
unclaimed tax losses carried forward and are measured using the tax rates that

11

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|GAMMON LAKE RESOURCES INC.                       
|-------------------------------------------------
|                                                 
|MANAGEMENT DISCUSSION AND ANALYSIS               
|FOR THE FIVE MONTH PERIOD ENDED DECEMBER 31, 2005

will be in effect when the differences are expected to
reverse or when unclaimed tax losses are expected to be utilized. A valuation
allowance is recognized to the extent that the recoverability of future income
tax assets is not considered more likely than not. The Company's future income
tax liability arises from the excess accounting value over the tax value of its
mineral property in Mexico, as certain transactions of the Company have no tax
basis in Mexico. The Company deducts available Canadian and Mexican loss carry
forwards and share issue costs, but provides for a valuation allowance of the
Canadian loss carry forwards and share issue costs as it is considered more
likely than not that the future income tax asset related to these losses will
not be realized.

Changes in Accounting Policies Including Initial Adoption

The Company adopted the recommendations of CICA Handbook
Section 3870, Stock-based Compensation and Other Stock-based Payments for
employees and non-employees. This Section establishes standards for the
recognition, measurement and disclosure of stock-based compensation and other
stock-based payments made in exchange for goods and services. These
recommendations require that compensation for all awards made to employees and
non-employees be measured and recorded in the financial statements at fair
value. The Company's stock option plan is described in Note 10 in the
consolidated financial statements. Effective August 1, 2004, Gammon Lake adopted
the new Canadian Institute of Chartered Accountants (CICA) standards for Asset
Retirement Obligations (CICA 3110). In accordance with CICA 3110, asset
retirement obligations are recognized when incurred and recorded as liabilities
at fair value and the corresponding increase to the asset is depreciated over
the life of the asset. The Company is the beneficial owner of the land it
explores and develops, and has paid all duties and claims required by the
government agency responsible for the conservation of natural resources. The
Company has not incurred any current asset retirement obligations.

Financial Instruments and Other Instruments

The Company's functional currency is Canadian dollars. The Company does not
currently use any derivative products to manage or mitigate any foreign exchange
exposure.

Disclosure Controls

The Company's Chief Executive Officer and Chief Financial
Officer are responsible for establishing and maintaining the Company's
disclosure controls and procedures, including adherence to the Disclosure Policy
adopted by the Company. They are assisted in this responsibility by a member of
the Audit Committee who serves as an independent director of the Company. All
three individuals sit on the Company's Disclosure Policy Committee ("DPC"). The
Disclosure Policy requires all staff to keep the DPC fully apprised of all
material information affecting the Company so that they may evaluate and discuss
this information and determine the appropriateness and timing for public
release. Access to such material information by the DPC is facilitated by the
small size of the Company's senior management and the location of all senior
management staff in one corporate office.

The Chief Executive Officer and Chief Financial Officer,
after evaluating the effectiveness of the Company's disclosure controls and
procedures as of December 31, 2005, have concluded that the Company's disclosure
controls and procedures were adequate and effective to ensure that material
information relating to the Company and its subsidiaries would have been known
to them.

Non-GAAP Measures

Cash cost data is intended to provide additional information and should not
be considered in isolation or as a substitute for measures of performance
prepared in accordance with GAAP.

12

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