---

|                                              
|----------------------------------------------
|                                              
|                                              
|MANAGEMENTS DISCUSSION AND ANALYSIS          
|                                              
|For the years ended December 31, 2016 and 2015
|                                              
|Dated March 9, 2017                           

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

This Managements Discussion & Analysis (MD&A) of
Tahoe Resources Inc. (Tahoe) and its subsidiaries (together referred to as the
Company) has been prepared to enable a reader to assess material changes in
financial condition and results of operations as at and for the years ended
December 31, 2016 and 2015. The following discussion of performance, financial
condition and future prospects should be read in conjunction with the audited
consolidated financial statements for the years ended December 31, 2016 and 2015
(consolidated financial statements), prepared in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board (IFRS). The information provided herein supplements, but does
not form part of, the consolidated financial statements and includes financial
and operational information from the Companys wholly owned subsidiaries. This
MD&A contains forward looking information that is subject to risk factors
set out in the cautionary note herein. This discussion also covers the three
months ended December 31, 2016 and 2015 (Q4 2016 and Q4 2015, respectively),
the twelve months ended December 31, 2016 and 2015 (2016 and 2015) and the
subsequent period up to the date of this MD&A. Dollar amounts are stated in
millions of United States dollars (USD), the Companys functional currency,
except where otherwise noted. Tabular amounts are presented in thousands of USD,
except where otherwise noted. Information for this MD&A is prepared as at
March 9, 2017.

BUSINESS OVERVIEW

Tahoe is a Canadian public company involved in mine operations
and mineral exploration and development. Tahoes common shares are listed on the
Toronto Stock Exchange (TSX) under the symbol THO and on the New York Stock
Exchange (NYSE) under the symbol TAHO. Tahoe is a reporting issuer in each
of the provinces and territories of Canada. Additional information relating to
the Company, including a copy of this MD&A, may be obtained or viewed from
the System for Electronic Document Analysis and Retrieval (SEDAR) at
www.sedar.com, on the Electronic Data Gathering, Analysis, and Retrieval
system (EDGAR) at www.sec.gov, and on the Companys website at
www.tahoeresources.com.

Tahoe was incorporated under the Business Corporations Act
(British Columbia) on November 10, 2009. The Companys principal business
activities are the exploration, development, operation and acquisition of
mineral properties for the mining of precious metals in the Americas. Currently,
the Companys business involves profitably operating the Escobal mine, a silver
mining operation located in southeastern Guatemala, the La Arena and Shahuindo
mines, gold mining operations located in northwestern Peru, and as a result of
the acquisition of Lake Shore Gold Corp. (Lake Shore Gold) on April 1, 2016,
the Bell Creek mine and mill and the Timmins West mine (together, the Timmins
mines), gold mining operations located in northeastern Ontario, Canada.
Additional business objectives include the expansion of gold production at the
Shahuindo and Bell Creek mines, the development of the Whitney Project and the
ongoing exploration programs in Peru and Canada.

All of the Companys operations are within the mining sector.
The Company produces silver, gold, lead and zinc from mines located in
Guatemala, Peru and Canada. Due to the geographic and political diversity of the
countries in which the Company operates, each operating segment is responsible
for achieving specified business results within a framework of corporate
policies and international standards. Regional management in each country
provides support to the operating segments, including but not limited to
financial, human resources, and exploration assistance. Each operating segment
has a budgeting process which it uses to measure the results of operation and
exploration activities. The Companys executive management reviews these results
to make decisions about resources to be allocated to each segment and assess the
performance of each. The corporate office in Reno, Nevada provides support to
the operations and exploration activities with respect to financial, legal,
technical and human resources. Operating the mines profitably will require that
the Company consistently meet production targets and effectively manage costs.

Financial and operational information provided in this MD&A
excludes the results of the Timmins mines prior to April 1, 2016, the date of
acquisition of Lake Shore Gold and the results from the La Arena and Shahuindo
mines prior to April 1, 2015, the date of acquisition of Rio Alto Mining Limited
(Rio Alto).

1

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

2016 HIGHLIGHTS

|2016
      ANNUAL CONSOLIDATED OPERATIONAL AND FINANCIAL
      INFORMATION(1)
|-----------------------------------------------------------------------------
|                                                                             
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             
|Q4
      2016 CONSOLIDATED OPERATIONAL AND FINANCIAL
      INFORMATION(1)    
|                                                                             
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                            

|ADDITIONAL
      CONSOLIDATED OPERATIONAL AND FINANCIAL INFORMATION
|-------------------------------------------------------------------

|                                                        |   | Q4 2016   |  |   | 2016      | (1)
|------------------------------------------------------- | - | --------- |  | - | --------- | ---
|Revenues(3)                                             | $ | 189,398   |  | $ | 784,503   |    
|Earnings from operations                                | $ | 31,466    |  | $ | 242,268   |    
|Cash and cash
      equivalents                         | $ | 163,368   |  | $ | 163,368   |    
|Cost of sales per silver/gold ounce
      sold(3)(4)    | $ | 11.75/900 |  | $ | 10.55/816 |    
|Costs per silver ounce
      produced(4)(5)             |   |           |  |   |           |    
|Total cash costs net of by-product credits              | $ | 6.48      |  | $ | 5.84      |    
|All-in sustaining costs net
      of by-product credits | $ | 9.76      |  | $ | 8.06      |    
|Costs per gold ounce
      produced(4)(5)               |   |           |  |   |           |    
|Total cash costs net of
      by-product credits        | $ | 594       |  | $ | 620       |    
|All-in sustaining costs net of by-product credits       | $ | 945       |  | $ | $ 943     |    

|(1) | Consolidated information includes operational and
      financial information from the Timmins mines beginning April 1, 2016, the
      date of acquisition of Lake Shore Gold.                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Commercial production at Shahuindo was declared on May 1,
      2016. The 385.1 thousand gold ounces produced for 2016 include 48.5
      thousand gold ounces produced in doré at Shahuindo. These ounces include
      pre-commercial production ounces produced (13.4 thousand gold ounces in
      doré produced in the period of January through April 2016,
      respectively).
|(3) | Pre-commercial production revenues at Shahuindo are
      considered pre-operating revenues and have been credited against
      construction capital through April 30, 2016. Consolidated revenues include
      eight months of sales from Shahuindo operations.                                                                                                                    
|(4) | Non-GAAP financial measures are described in the
      Non-GAAP Financial Measures section of this MD&A.                                                                                                                                                                                                                                                                            
|(5) | The calculation of total cash costs and all-in sustaining
      costs net of by-product credits per gold ounce produced exclude pre-
      commercial production costs incurred and ounces produced at the Shahuindo
      mine.                                                                                                                                                      

2

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

|BUSINESS
      COMBINATION WITH LAKE SHORE GOLD
|-----------------------------------------------

Terms of the business combination

On April 1, 2016 (the Acquisition Date), the Company
completed the previously announced acquisition of Lake Shore Gold pursuant to a
statutory plan of arrangement (the Arrangement).

The Arrangement was approved by shareholders of the Company and
the shareholders of Lake Shore Gold on March 31, 2016 and received final court
approval on April 1, 2016.

The Arrangement was completed pursuant to the terms of a
definitive arrangement agreement dated February 8, 2016 between the Company and
Lake Shore Gold (the Arrangement Agreement). Pursuant to the terms of the
Arrangement Agreement, Lake Shore Gold became a wholly-owned subsidiary of the
Company on April 1, 2016 and all of the issued and outstanding common shares of
Lake Shore Gold (each a Lake Shore Gold Share) were transferred to the Company
in consideration for the issuance by the Company of 0.1467 of a common share for
each Lake Shore Gold Share (each whole common share a Tahoe Share).

In connection with the closing of the Arrangement, the Company
issued an aggregate of 69,239,629 Tahoe Shares to the former shareholders of
Lake Shore Gold. The Company authorized the issuance of up to an additional
1,621,877 Tahoe Shares issuable upon the exercise of former stock options to
acquire Lake Shore Gold Shares. See also Convertible debentures section
below.

Total consideration paid was based on the April 1, 2016 opening
price of Tahoe Shares on the TSX of CAD$12.75 and a CAD to USD foreign exchange
rate of 0.7665, and is comprised of the following:

|                                                              |  | Shares          |  |   |               | 
|------------------------------------------------------------- |  | --------------- |  | - | ------------- | 
|                                                              |  | Issued/Issuable |  |   | Consideration | 
|Fair value estimate of the
      Tahoe share consideration    |  | 69,239,629      |  | $ | 676,670       | 
|Fair
      value estimate of the consideration for options(1) |  | 1,621,877       |  |   | 8,436         | 
|Total consideration                                           |  | 70,861,506      |  | $ | 685,106       | 

|(1) | The fair value of the options was determined using the
      Black-Scholes option pricing model. Where applicable, the inputs and
      ranges used in the measurement of the fair value (CAD) of the options were
      as follows:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Share price (CAD) at April 1, 2016     | $ | 12.75         | 
| | -------------------------------------- | - | ------------- | 
| | Exercise price (CAD)                   | $ | 2.79-25.97    | 
| | Expected volatility                    |   | 48.41%-62.60% | 
| | Expected life (years)                  |   | 0.04-4.67     | 
| | Expected dividend yield                |   | 2.46%         | 
| | Risk-free interest rate                |   | 0.54%-0.62%   | 
| | Fair value (CAD)                       | $ | 0.01-9.65     | 
| | April 1, 2016 CAD to USD exchange rate | $ | 0.77          | 
| | Fair value (USD)                       | $ | 0.01-7.40     | 

This acquisition has been accounted for as a business
combination with Tahoe as the acquirer. The allocation of the purchase price has
been finalized. Management determined the fair values of identifiable assets and
liabilities, measured the associated deferred income tax assets and liabilities,
and determined the value of goodwill.

3

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

The final allocation of the purchase price is as follows:

|                                                         |   | April 1, 2016 |  
|-------------------------------------------------------- | - | ------------- | -
|Cash and cash equivalents                                | $ | 70,187        |  
|Trade and other receivables                              |   | 4,930         |  
|Inventories                                              |   | 13,774        |  
|Other current and non-current assets                     |   | 3,876         |  
|Property, plant and equipment                            |   | 174,747       |  
|Mineral interests and exploration potential              |   | 615,939       |  
|Goodwill(1)                                              |   | 54,617        |  
|                                                         |   |               |  
|Accounts payable, accrued
      liabilities and other(2) |   | (45,246       | )
|Lease obligation                                         |   | (16,589       | )
|Reclamation provision                                    |   | (3,721        | )
|Convertible debentures                                   |   | (105,693      | )
|Deferred tax liability                                   |   | (81,715       | )
|Total net assets acquired                                | $ | 685,106       |  

|(1) | Goodwill of $54.6 million was recognized due to the
      deferred tax liability generated on the business combination and the
      consideration. The total amount of goodwill that is expected to be
      deductible for tax purposes is $nil.                                                                                                                                                                                                                                                     
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Accounts payable, accrued liabilities and other includes
      a liability of $2.1 million relating to Performance Share Units (PSUs)
      which were outstanding and not converted prior to the acquisition on April
      1, 2016. The PSUs were converted into 211,442 commons shares of the
      Company during 2016.                                                                                                                                                                          
|(3) | As a result of the finalization of the purchase price
      allocation, the fair value attributed to goodwill and the reclamation
      provision decreased by $75.3 million and $1.9 million respectively, while
      mineral interest and exploration potential and the deferred income tax
      liabilities increased by $102.9 million and $29.5 million, respectively,
      since June 30, 2016. These adjustments did not have a material impact on
      the Companys earnings for the year.

Lake Shore Golds principal mining properties are its 100%
owned Timmins mines located in northeastern Ontario, Canada.

The revenues and loss of Lake Shore Gold included in the
consolidated financial statements are $137.1 million and $23.3 million,
respectively for the period since acquisition. The loss includes the impact of
the $32.3 million non-cash loss recognized on the redemption of the convertible
debentures. Total transaction costs incurred relating to the acquisition and
included in general and administrative expenses for 2016 are $11.1 million.
Included in these transaction costs are 455,019 common shares of the Company
issued with a value of $5.3 million.

Had the acquisition occurred on January 1, 2016, the total
pro-forma consolidated revenues and consolidated earnings of the Company for
2016 would have been $831.9 million and $92.3 million, respectively.

The acquisition supports the Companys growth strategy by
adding high-quality assets which will increase the sustainable production level,
contribute to cash flow and diversify the Companys operations.

Convertible debentures

Lake Shore Gold had outstanding a class of 6.25% convertible
unsecured debentures (the Debentures), which were governed by an indenture
dated September 7, 2012, as supplemented effective April 1, 2016. On April 1,
2016, as a result of the completion of Tahoes acquisition of Lake Shore Gold,
Lake Shore Gold gave notice of its offer to purchase for Tahoe Shares all of its
outstanding Debentures at 100% of the principal amount plus accrued and unpaid
interest (the Change of Control Offer).

Concurrently with the Change of Control Offer, Lake Shore Gold
gave notice of its election to redeem the Debentures on May 16, 2016 at a price
equal to their principal amount plus accrued and unpaid interest. The Company
elected to satisfy its obligation to repay the principal amount of the
Debentures by issuing Tahoe Shares to the holders of the Debentures. The number
of Tahoe Shares to be issued was determined by dividing the aggregate principal
amount of the outstanding Debentures redeemed by 95% of the volume weighted
average trading price of Tahoe Shares on the TSX for the 20 trading days ended
on and including May 9, 2016.

4

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Debentureholders maintained the right to convert the Debentures
at any time prior to May 13, 2016 at a conversion price of CAD$9.5433 per Tahoe
Share, being a conversion rate of 104.7856 Tahoe Shares per $1,000 principal
amount of the Debentures. An aggregate of 10,611,411 Tahoe Shares were issued
pursuant to the exercise of conversion rights available to the debentureholders.
The Debentures remaining outstanding after the voluntary conversions were
redeemed by Lake Shore Gold on May 16, 2016 for an aggregate of 122,264 Tahoe
Shares, and the Debentures were delisted from trading on the TSX at the close of
business that day. As a result of the redemption of the remaining debentures
during 2016, the Company recognized a non-cash loss of $32.3 million reflecting
the appreciation of Tahoes share price between the closing price on April 1,
2016 and completion of the redemption on May 16, 2016. See the Selected
Consolidated Financial Results  Review of Consolidated Financial Results 2016
vs. 2015  Other expense  Loss on debenture section of this MD&A.

Further information about the Arrangement and Lake Shore Gold
can be found in the Management Information Circulars dated March 9, 2016 sent to
shareholders of each of the Company and Lake Shore Gold in advance of their
shareholder meetings, in the Arrangement Agreement, in the Companys news
release dated April 1, 2016, in the Companys business acquisition report dated
April 29, 2016, and in the Companys news release dated May 17, 2016, copies of
which have been filed under the Companys or Lake Shore Golds profile on SEDAR
at www.sedar.com.

|LA RAMADA SALE
      LEASEBACK AND CURRENCY SWAP
|------------------------------------------------

On August 3, 2016, the Company terminated the currency swap
associated with the La Ramada sale-leaseback in Peru for $1.9 million. On August
5, 2016, the Company terminated the lease for $11.0 million, including $0.2
million in termination fees and on the same date, the Company repurchased the La
Ramada substation under the terms of the lease agreement. During Q4 2016, the
Company recorded an expense of $3.2 million ($0.01 per share) related to the
sales tax receivable on this agreement.

|UPDATE ON LEGAL
      DECISION RELATING TO HEARING OF A 2013 ENVIRONMENTAL OPPOSITION
|-------------------------------------------------------------------------------------

On November 26, 2015, Guatemalas Constitutional Court (the
Court) upheld a lower courts decision against Guatemalas Ministry of Energy
and Mines (MEM) and instructed MEM to hear an opposition that MEM had
considered and rejected (without a hearing) in advance of issuing Escobals
exploitation license in 2013. The validity of the license was not a question
before the Court. In March 2016, an individual, represented by a local
anti-mining non-government organization requested the Court clarify its ruling
and issue an explicit statement invalidating the Escobal license. In May 2016,
the Court rejected that request. In September 2016, the Court of Appeal rejected
an identical request to suspend the license.

In June 2016, MEM began the process of hearing the opposition
pursuant to the Constitutional Courts order. The opposition added dated claims
of prospective environmental harm (no such harm has materialized) and inadequate
consultation. All involved parties have filed briefs in the matter, the hearing
of which has been indefinitely postponed on two occasions. Based on the legal
posture of the case, the lack of environmental damage after three years of
operations and the extensive consultation process that Minera San Rafael, S.A.
(MSR) followed prior to issuance of the license, the Company expects a
favorable ruling.

|CHANGE IN
      MANAGEMENT
|--------------------------

On August 9, 2016, the Company announced the following
management changes, effective August 16, 2016:

| | Ron Clayton became President and Chief Executive Officer
      and was appointed to the Companys Board of Directors. Kevin McArthur
      resumed his duties as Executive Chair and continues as a Director;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Elizabeth McGregor became Vice President and Chief
      Financial Officer and Mark Sadler moved to the position of Vice President,
      Project Development;                                               
| | Tom Fudge became Vice President, Operations and David
      Howe became Vice President Guatemala Operations and Managing Director,
      MSR;                                                                
| | Phil Dalke became Vice President, Peru
      Operations and Managing Director, Rio Alto SAC; and                                                                                                             
| | Peter van Alphen became Vice President and
      Managing Director, Timmins Operations.                                                                                                                      

For additional details, see the Companys press release dated
August 9, 2016 which is available on the Companys website and on SEDAR at
www.sedar.com.

5

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

|DIVIDEND
      REINVESTMENT PLAN
|--------------------------------

On August 11, 2016, the Company announced the introduction of a
dividend reinvestment plan (the DRIP). The DRIP provides eligible holders of
Tahoe common shares an opportunity to purchase additional common shares of the
Company without paying commissions or other service charges by reinvesting their
cash dividends. The DRIP allows shareholders to reinvest their cash dividends
into additional common shares issued from treasury at a 3% discount to the
Average Market Price (as defined in the DRIP). The DRIP is available for
enrollment and became effective for the dividend declared in October 2016.

Participation in the DRIP is optional and will not affect
shareholders cash dividends unless they elect to participate in the DRIP.
Participation in the DRIP is open to all registered and beneficial shareholders
in Canada, the United States and those other jurisdictions where participation
in the DRIP is not prohibited or restricted by applicable law. Dividends are
paid only when declared by Tahoes Board of Directors and the Company may, in
its discretion, change or eliminate the discount applicable to treasury
acquisitions, or direct that common shares be purchased through market
acquisitions at the prevailing market price, in which case no discount would
apply.

For additional details, see the Companys press release dated
August 11, 2016 which is available on the Companys website and on SEDAR at
www.sedar.com.

|LA CUCHILLA
|-----------

On November 22, 2016, the Company announced that a previously
reported protest involving approximately 25 people outside the Escobal mine in
Guatemala had reached a voluntary end. The protest related to the Companys La
Cuchilla home purchase program (the Program), which was introduced as a
humanitarian act to support the La Cuchilla community as well as the local
government. The end of the protest follows discussions between officials of MSR,
the Companys subsidiary in Guatemala, and the protesters, with the resulting
resolution involving no material changes to the terms of the Program. The
Company continues to offer assistance to the La Cuchilla community through the
Program.

For additional details, see the Companys press release dated
November 22, 2016 which is available on the Companys website and on SEDAR at
www.sedar.com.

RECENT DEVELOPMENTS

|APPOINTMENT TO
      BOARD OF DIRECTORS
|---------------------------------------

On January 3, 2017, the Company announced the appointment of
Chuck Jeannes to the Board of Directors, effective January 1, 2017.

For additional details, refer to the press release dated
January 3, 2017 available on SEDAR at www.sedar.com or on the Companys
website at www.tahoeresources.com.

|GARCIA ET AL.
      V. TAHOE
|----------------------------

On June 18, 2014, an action was commenced against the Company
in the Supreme Court of British Columbia. The lawsuit was filed by seven
Guatemalan plaintiffs who alleged that Tahoe was directly or vicariously liable
for battery and/or negligence regarding an incident that occurred at the Escobal
Mine on April 27, 2013. The plaintiffs seek compensatory and punitive damages.
On November 13, 2015, the Supreme Court of British Columbia issued a ruling
declining jurisdiction over the claims brought by the plaintiffs on the grounds
that Guatemala was the more appropriate forum to adjudicate plaintiffs claims.
The plaintiffs appealed this ruling to the Court of Appeal of British Columbia,
and on January 26, 2017, the Court of Appeal reversed the Supreme Courts
decision on the grounds that British Columbia was a more appropriate forum for
adjudication. While the ultimate result of this action is not expected to have a
material financial impact on the Company, it could have negative industry-wide
implications and as such, Tahoe intends to seek leave to appeal this decision to
the Supreme Court of Canada.

For additional details, refer to the press release dated
January 26, 2017 available on SEDAR at www.sedar.com or on the Companys
website at www.tahoeresources.com.

6

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

FUTURE DEVELOPMENTS

|TARGETS AND
      INITIATIVES
|-----------------------------

A key target for the Company is to grow gold production to over
a half million ounces per year in 2019 and to over 550,000 ounces in 2020. This
increased production will come primarily from two ongoing projects, the
expansion of the Shahuindo mine to a production capacity of 36,000 tonnes per
day (tpd) and the Bell Creek Shaft Project (the BC Shaft Project) at the
Bell Creek mine in Canada. Both projects are on track for completion by
mid-2018. The Company is also targeting growth in mineral reserves and/or
mineral resources at all of its operations, including growth of two to four
million ounces in gold mineral reserves and/or mineral resources in Canada by
2020.

|2017 OPERATIONS
      OUTLOOK
|-----------------------------

The Company provided guidance regarding expected 2017
production and unit costs in the new release dated January 5, 2017 available on
SEDAR at www.sedar.com or on the Companys website at
www.tahoeresources.com.

2017 guidance(1)(2)(3)(4)(5)

The Companys 2017 guidance for silver production is 18 to 21
million ounces and the unit costs expected are similar to the initial guidance
for 2016 issued at the beginning of last year. The Company improved its unit
cost guidance for silver in August 2016 largely as result of silver prices
averaging less than $16/oz during the first quarter which triggered the
suspension of voluntary royalty obligations on final concentrate settlements
made below $16/oz.

The Companys guidance for gold production in 2017 is 375 to
425 thousand ounces as higher anticipated production at the Shahuindo mine and
in Canada will offset a reduction in output at La Arena consistent with the
feasibility mine plan as La Arena reaches its last four years of planned
operation. Total cash costs and all-in sustaining costs per ounce of gold
produced in 2017 are estimated to be higher than in 2016. The increase largely
reflects a greater proportion of ounces coming from Shahuindo, where the Company
continues development and construction of infrastructure in support of achieving
production at the 36,000 tpd level by mid-2018.

As outlined below, capital expenditures in 2017 are expected to
increase from 2016, mainly reflecting peak investment levels for the expansion
of Shahuindo (impacting both sustaining and project capital expenditures) and
the Bell Creek Shaft Project (impacting project capital expenditures). Higher
unit costs per ounce of gold produced are expected, primarily as a result of the
increased proportion of production from Shahuindo, where expansion work will
continue throughout 2017, with expenditures related to further development of
leach pads, waste dumps and other infrastructure being included in sustaining
capital and therefore increasing all-in sustaining costs (AISC). Production at
Shahuindo in 2017 is expected to be weighted to the second half of the year,
with the commissioning of the first crushing and agglomeration circuit expected
during the third quarter. Production and unit costs for silver are similar to
the guidance initially released for 2016 in January of last year.

Capital requirements to achieve the Companys growth objectives
are expected to peak in 2017. Growth capital expenditures for the year are
estimated at $150 to $175 million, with Shahuindo accounting for approximately
half of the total, Bell Creek mine for approximately a third and the remainder
relating to a number of smaller projects in Canada. Most of the growth
expenditures at Shahuindo are associated with the construction of the crushing
and agglomeration plant and process plant expansion.

Sustaining capital expenditures in 2017 are targeted at $160 to
$175 million, higher than the 2016 actual spend of $118.4 million. Shahuindo
will account for approximately 30% of total sustaining capital expenditures in
2017 and the majority of the increase from the prior year. A significant
proportion of these expenditures relate to the continued construction of leach
pads, waste dumps, and other infrastructure in support of achieving the full
production rate of 36,000 tpd. Higher sustaining capital in Timmins relates to
the inclusion of a full year of results from the Canadian operations, which were
acquired on April 1, 2016. Sustaining capital at La Arena will be largely
unchanged from 2016, while an increase at Escobal reflects on-going development
efforts and equipment rebuilds as the fleet ages.

Exploration expenditures (excluding capitalized drilling) are
anticipated to grow from $14 million in 2016 to between $35 and $45 million in
2017, with the Company planning to complete drilling programs to both expand
Mineral Resources at existing operations and advance longer-term projects in
Canada and Peru.

7

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

2017 consolidated total cash costs and all-in sustaining
      cost per ounce(1)ranges are outlined in the following table:

|                                                           |   | Silver |  |  | Gold | 
|---------------------------------------------------------- | - | ------ |  |  | ---- | 
|Total cash costs per ounce net of by-product
      credits | $ | 7.00   |  |  | to   | 
|All-in sustaining costs per ounce                          | $ | 9.50   |  |  | to   | 

|(1) | See Cautionary Statement on Forward-Looking
      Information in this MD&A and Non-GAAP Financial Measures
      in the press release dated January 5, 2017 available at
      www.sedar.com.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The reconciliation which formed the basis for the ranges in the
2017 cash cost guidance is as follows:

|Total cash costs                                           |   | Silver  |   |   | Gold    | 
|---------------------------------------------------------- | - | ------- | - | - | ------- | 
|Production costs                                           | $ | 164,000 |   | $ | 290,000 | 
|Treatment and refining
      charges                       |   | 28,750  |   |   | -       | 
|Total cash costs before
      by-product credits(1)        | $ | 192,750 |   | $ | 290,000 | 
|Gold credit                                                |   | (12,750 | ) |   | -       | 
|Lead credit                                                |   | (13,300 | ) |   | -       | 
|Zinc credit                                                |   | (16,750 | ) |   | -       | 
|Total cash costs net of
      by-product credits           | $ | 149,950 |   | $ | 290,000 | 
|                                                           |   |         |   |   |         | 
|Silver ounces produced in
      concentrate (000s)        |   | 20,000  |   |   | -       | 
|Gold ounces produced in doré (000s)                       |   | -       |   |   | 400     | 
|Total cash costs per ounce
      before by-product credits | $ | 9.64    |   | $ | 725     | 
|Total cash costs per ounce net of by-product credits       | $ | 7.50    |   | $ | 725     | 

|(1) | Gold, lead and zinc by-product credits are calculated as
      follows:
|--- | -----------------------------------------------------------------------

SilverTotal Credit
    
    
    Credit per ounceGold Ounces
    $
    12,750
    
    $
    0.64Lead
      Tonnes
    $
    13,300
    
    $
    0.67Zinc Tonnes
    $
    16,750
    
    $
    0.84


|All-in sustaining costs                                              |   | Silver  |  |   | Gold    | 
|-------------------------------------------------------------------- | - | ------- |  | - | ------- | 
|Total cash costs net of
      by-product credits                     | $ | 149,950 |  | $ | 290,000 | 
|Sustaining
      capital                                             |   | 32,500  |  |   | 135,000 | 
|Exploration                                                          |   | 1,500   |  |   | 20,000  | 
|Reclamation
      cost accretion                                     |   | 200     |  |   | 2,000   | 
|General and
      administrative expenses                            |   | 15,750  |  |   | 33,000  | 
|All-in sustaining costs                                              | $ | 199,900 |  | $ | 480,000 | 
|                                                                     |   |         |  |   |         | 
|Silver ounces produced in concentrate (000s)                        |   | 20,000  |  |   | -       | 
|Gold ounces produced in doré
      (000s)                           |   | -       |  |   | 400     | 
|All-in sustaining costs per ounce produced net of by-product credits | $ | 10.00   |  | $ | 1,200   | 

|2017 guidance by mine
|---------------------

|                 |  |              |  |  |            |  |  |        |  |  |                 |  |  | All-in       |  |  |              |  |  |            |  |  |      |  |  |     |  |  |      |  |  |     | 
|---------------- |  | ------------ |  |  | ---------- |  |  | ------ |  |  | --------------- |  |  | ------------ |  |  | ------------ |  |  | ---------- |  |  | ---- |  |  | --- |  |  | ---- |  |  | --- | 
|                 |  | Production   |  |  |            |  |  |        |  |  | Sustaining      |  |  |              |  |  |              |  |  | Sustaining |  |  |      |  |  |     | 
|                 |  | (silver-moz; |  |  | Cash Costs |  |  | Costs  |  |  | Project Capital |  |  | Capital      |  |  | Exploration  | 
|                 |  | gold  koz)  |  |  | ($/oz)     |  |  | ($/oz) |  |  | ($ millions)    |  |  | ($ millions) |  |  | ($ millions) | 
|                 |  | Low          |  |  | High       |  |  | Low    |  |  | High            |  |  | Low          |  |  | High         |  |  | Low        |  |  | High |  |  | Low |  |  | High |  |  | Low | 
|Escobal (silver) |  | 18           |  |  | 21         |  |  | 7.00   |  |  | 8.00            |  |  | 9.50         |  |  | 10.50        |  |  | -          |  |  | -    |  |  | 35  |  |  | 38   |  |  | -   | 
|La Arena (gold)  |  | 145          |  |  | 155        |  |  | 750    |  |  | 800             |  |  | 1,000        |  |  | 1,100        |  |  | -          |  |  | -    |  |  | 25  |  |  | 27   |  |  | 6   | 
|Shahuindo (gold) |  | 65           |  |  | 85         |  |  | 750    |  |  | 800             |  |  | 1,600        |  |  | 1,700        |  |  | 75         |  |  | 90   |  |  | 50  |  |  | 55   |  |  | 12  | 
|Timmins (gold)   |  | 165          |  |  | 185        |  |  | 650    |  |  | 700             |  |  | 1,000        |  |  | 1,100        |  |  | 75         |  |  | 85   |  |  | 50  |  |  | 55   |  |  | 17  | 
|                 |  |              |  |  |            |  |  |        |  |  |                 |  |  |              |  |  |              |  |  |            |  |  |      |  |  |     |  |  |      |  |  |     | 
|Silver total(5)  |  | 18           |  |  | 21         |  |  | 7.00   |  |  | 8.00            |  |  | 9.50         |  |  | 10.50        |  |  | -          |  |  | -    |  |  | 35  |  |  | 38   |  |  | -   | 
|Gold total(2)    |  | 375          |  |  | 425        |  |  | 700    |  |  | 750             |  |  | 1,150        |  |  | 1,250        |  |  | 150        |  |  | 175  |  |  | 125 |  |  | 137  |  |  | 35  | 

|(1) | See Cautionary Statement on Forward-Looking
      Information in this MD&A and Non-GAAP Financial Measures
      in the press release dated January 5, 2017 available at
      www.sedar.com.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Gold production range of 375 to 425 thousand ounces
      includes gold ounces produced in concentrate from the Escobal
  mine.                                                                  
|(3) | Assumes payable by-product metal production: 10,190 ozs
      gold; 16,332 thousand lbs lead; 23,109 thousand lbs zinc.                                                                          
|(4) | All per ounce costs are based on silver ounces contained
      in concentrates (silver) and gold ounces in doré (gold).                                                                          
|(5) | Silver cost guidance assumes a 1% statutory royalty and a
      4.5% voluntary and private royalty on all silver sales above
  $16/oz.                                                           
|(6) | Numbers may not calculate due to
  rounding.                                                                                                                                                     

8

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

2017 cost guidance was calculated based on certain commodity
and currency assumptions.

The table below includes a sensitivity of the impact of a
change in these assumptions on total cash costs and AISC:

|                       |  |  | 2017 Guidance |  |  | Change (+/-) |  |  | Impact (+/-)     | 
|---------------------- |  |  | ------------- |  |  | ------------ |  |  | ---------------- | 
|Commodity assumptions  |  |  |               |  |  |              |  |  |                  | 
|Silver ($/oz)          |  |  | $ 17.50       |  |  | $ 1.00/oz    |  |  | N/A              | 
|Gold ($/oz)            |  |  | $ 1,250       |  |  | $ 100/oz     |  |  | $ 0.05/oz silver | 
|Lead ($/lb)            |  |  | $ 0.90        |  |  | 10%          |  |  | $ 0.10/oz silver | 
|Zinc ($/lb)            |  |  | $ 0.90        |  |  | 10%          |  |  | $ 0.10/oz silver | 
|Diesel (US$/gal)       |  |  | $ 2.00        |  |  | 10%          |  |  | $ 0.10/oz silver | 
|                       |  |  |               |  |  |              |  |  | $ 7/oz gold      | 
|Currency assumptions   |  |  |               |  |  |              |  |  |                  | 
|CAD/USD                |  |  | $ 1.25        |  |  | 1%           |  |  | $ 3/oz gold      | 
|Guatemalan quetzal/USD |  |  | 7.65          |  |  | 1%           |  |  | $ 0.02/oz silver | 
|Peruvian sol/USD       |  |  | 3.4           |  |  | 1%           |  |  | $ 2/oz gold      | 

|LONG-TERM
      OUTLOOK(1)(2)(3)(4)(5)(6)(7)(8)(9)
|--------------------------------------------------

A review of the crushing, size distribution, geotechnical and
material handling characteristics of ore at Shahuindo is nearing completion and
has produced results supporting the achievement of throughput and recovery rates
for agglomerated ores contained in the NI 43-101 compliant Technical Report on
the Shahuindo Mine, Cajabamba, Peru dated January 25, 2016 available on SEDAR
at www.sedar.com or on the Companys website at
www.tahoeresources.com. The review also identified opportunities to
slightly reduce capital expenditures and operating costs at the mine through
revisions to the crushing and agglomeration circuit. At the same time,
performance of run-of-mine operations has improved over the last several months.
Recent work shows the ultimate recovery achieved with crushing and agglomeration
could exceed the 80% utilized in the economic model in the technical report and
is consistent with at least four different sets of test work performed over
several years.

With the Company on track to complete both the expansion of
Shahuindo to 36,000 tpd and the BC Shaft Project by mid-2018, annual gold
production is expected to increase to over a half million ounces in 2019
including an increase to approximately 80,000 ounces annually at Bell Creek. At
that time, total cash costs and all-in sustaining costs per ounce of gold
produced are projected to improve, to ranges of $650 to $750 and $900 to $1,000,
respectively. The Company is targeting silver production and unit costs to
remain largely in line with 2017 levels over the next several years. Gold
production is expected to reach over 550,000 ounces in 2020.

Following the completion of the Companys key growth projects,
both growth and sustaining capital requirements will be reduced. By 2019,
sustaining capital expenditures are targeted at $100 to $125 million. The
reduction from sustaining capital expenditure levels outlined in the Companys
2017 guidance will mainly be in Peru, where sustaining capital in 2019 is
targeted at $25 to $35 million versus $70 to $80 million in 2017.

Assuming that the Company does not commence the development of
any new projects, growth capital expenditures in 2019 are anticipated to decline
to around $10 million. Exploration expenditures are likely to remain similar to
2017 guidance levels over the next two years as the Company works to advance its
growth projects and exploration targets and to increase gold mineral reserves
and/or mineral resources in Canada by two to four million ounces. Given that
exploration is largely success driven, future expenditure targets will be
developed following completion of 2017 drilling programs.

General and administrative expenses, including share-based
payments, are expected to stay relatively flat through 2019.

9

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

2018 and 2019
guidance(1)(2)(3)(4)(5)(6)(7)(8)(9)

|                                                                                  |   | 2018        |  |   | 2019        | 
|--------------------------------------------------------------------------------- | - | ----------- |  | - | ----------- | 
|Silver ounces produced in
      concentrate (millions)                            |   | 18-21       |  |   | 18-21       | 
|Gold ounces produced in doré (000s)                                              |   | 425-500     |  |   | 500-550     | 
|                                                                                  |   |             |  |   |             | 
|Total cash costs per ounce silver produced
      net of by-product credits        | $ | 7.50-8.50   |  | $ | 7.50-8.50   | 
|All-in sustaining costs per
      ounce silver produced net of by-product credits | $ | 10.00-11.00 |  | $ | 10.00-11.00 | 
|                                                                                  |   |             |  |   |             | 
|Total cash costs per ounce
      gold produced net of by-product credits          | $ | 650-750     |  | $ | 650-750     | 
|All-in sustaining costs per ounce gold
      produced net of by-product credits   | $ | 1,050-1,150 |  | $ | 900-1,000   | 
|                                                                                  |   |             |  |   |             | 
|General and administrative expenses
      ($millions)                             | $ | 45-55       |  | $ | 45-55       | 
|Exploration ($millions)                                                           | $ | 30-40       |  | $ | 30-40       | 
|Sustaining capital($millions)                                                     | $ | 140-160     |  | $ | 100-125     | 
|Project capital ($millions)                                                       | $ | 50-70       |  | $ | 0-10        | 

|(1) | See Cautionary Statement on Forward-Looking
      Information in this MD&A and Non-GAAP Financial Measures
      in the press release dated January 5, 2017 available at
      www.sedar.com.                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Assumes payable by-product metal production for 2018 of
      9,610 ozs gold; 14,011 thousand lbs lead; 19,900 thousand lbs zinc and for
      2019 of 11,810 ozs gold; 17,280 thousand lbs lead; 23,900 thousand lbs
      zinc.      
|(3) | Commodity and currency price assumptions used in the
      calculation of 2018 and 2019 guidance are the same as those used in the
      calculation of 2017 guidance. Refer to the 2017 Guidance by mine section
      of this MD&A.
|(4) | All per ounce costs are based on silver ounces contained
      in concentrates (silver) and gold ounces in doré (gold).                                                                                                                
|(5) | Guidance does not include inflation
adjustments.                                                                                                                                                                                       
|(6) | Gold production includes gold produced at
  Escobal.                                                                                                                                                                                   
|(7) | Silver cost guidance assumes a 1% statutory royalty and a
      4.5% voluntary and private royalty on all silver sales above
  $16/oz.                                                                                                 

The reconciliation which formed the basis for the ranges in the
2018 and 2019 cash cost guidance is as follows:

|                                                          |   | 2018    |   |   | 2019    | 
|--------------------------------------------------------- | - | ------- | - | - | ------- | 
|Total cash costs                                          |   | Silver  |   |   | Gold    | 
|Production costs                                          | $ | 165,000 |   | $ | 325,500 | 
|Treatment and refining
      charges                      |   | 32,600  |   |   | -       | 
|Total cash costs before
      by-product credits(1)       | $ | 197,600 |   | $ | 325,500 | 
|Gold credit                                               |   | (12,000 | ) |   | -       | 
|Lead credit                                               |   | (11,300 | ) |   | -       | 
|Zinc credit                                               |   | (14,300 | ) |   | -       | 
|Total cash costs net of
      by-product credits          | $ | 160,000 |   | $ | 325,500 | 
|                                                          |   |         |   |   |         | 
|Silver ounces produced in
      concentrate (000s)       |   | 20,000  |   |   | -       | 
|Gold ounces produced in doré (000s)                      |   | -       |   |   | 465     | 
|Total cash costs per ounce
      before by-productcredits | $ | 9.88    |   | $ | 700     | 
|Total cash costs per ounce net of by-product credits      | $ | 8.00    |   | $ | 700     | 

|(1) | Gold, lead and zinc by-product credits are calculated as
      follows:
|--- | -----------------------------------------------------------------------

| |             |   | Silver       | 
| | ----------- | - | ------------ | 
| |             |   | 2018         | 
| |             |   |              | 
| |             |   | Total Credit | 
| | Gold Ounces | $ | 12,000       | 
| | Lead Tonnes | $ | 11,300       | 
| | Zinc Tonnes | $ | 14,300       | 

|                                                                          |   | 2018    |  |   | 2019    | 
|------------------------------------------------------------------------- | - | ------- |  | - | ------- | 
|All-in sustaining costs                                                   |   | Silver  |  |   | Gold    | 
|Total cash costs net of
      by-product credits                          | $ | 160,000 |  | $ | 325,500 | 
|Sustaining
      capital                                                  |   | 32,500  |  |   | 117,500 | 
|Exploration                                                               |   | 1,500   |  |   | 33,500  | 
|Reclamation
      cost accretion                                          |   | 200     |  |   | 2,000   | 
|General and
      administrative expenses                                 |   | 15,750  |  |   | 33,000  | 
|All-in sustaining costs                                                   | $ | 210,000 |  | $ | 511,500 | 
|                                                                          |   |         |  |   |         | 
|Silver ounces produced in concentrate (000s)                             |   | 20,000  |  |   | -       | 
|Gold ounces produced in doré
      (000s)                                |   | -       |  |   | 465     | 
|All-in sustaining costs per ounce producednet of
      by-product credits | $ | 10.50   |  | $ | 1,100   | 

10

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

SELECTED CONSOLIDATED FINANCIAL RESULTS

Selected consolidated financial information from continuing
operations for the years ended December 31, 2016 and for the previous two years
is as follows:

|                                                                                   |   | 2016      | (1)(2) |   | 2015      | (1) |   | 2014    | (1)
|---------------------------------------------------------------------------------- | - | --------- | ------ | - | --------- | --- | - | ------- | ---
|Metal Sold                                                                         |   |           |        |   |           |     |   |         |    
|Silver
      (000s ozs)                                                           |   | 19,065    |        |   | 20,210    |     |   | 18,160  |    
|Gold (000s ozs)(8)                                                                |   | 358.2     |        |   | 183.7     |     |   | 8.4     |    
|Lead (000s
      t)                                                               |   | 9.0       |        |   | 9.8       |     |   | 9.1     |    
|Zinc (000s t)                                                                     |   | 12.3      |        |   | 13.3      |     |   | 10.7    |    
|Realized Price                                                                     |   |           |        |   |           |     |   |         |    
|Silver in concentrate (per oz)                                                     | $ | 17.57     |        | $ | 15.15     |     | $ | 18.13   |    
|Gold in
      doré (per oz)                                                        | $ | 1,245     |        | $ | 1,126     |     | $ | -       |    
|Lead (per t)                                                                       | $ | 1,886     |        | $ | 1,854     |     | $ | 2,053   |    
|Zinc (per
      t)                                                                 | $ | 2,268     |        | $ | 1,800     |     | $ | 2,220   |    
|LBMA/LME
      Price(3)                                                            |   |           |        |   |           |     |   |         |    
|Silver (per
      oz)                                                              | $ | 17.14     |        | $ | 15.68     |     | $ | 19.08   |    
|Gold (per oz)                                                                      | $ | 1,250     |        | $ | 1,160     |     | $ | 1,266   |    
|Lead (per
      t)                                                                 | $ | 1,872     |        | $ | 1,784     |     | $ | 2,096   |    
|Zinc (per t)                                                                       | $ | 2,095     |        | $ | 1,928     |     | $ | 2,164   |    
|Revenues                                                                           | $ | 784,503   |        | $ | 519,721   |     | $ | 350,265 |    
|Earnings (loss) from
      operations                                              | $ | 242,268   |        | $ | (79,552   | )   | $ | 123,272 |    
|Earnings (loss) attributable to common
      shareholders(9)                       | $ | 117,876   |        | $ | (71,911   | )   | $ | 90,790  |    
|Earnings (loss) per common
      share                                             |   |           |        |   |           |     |   |         |    
|Basic                                                                              | $ | 0.41      |        | $ | (0.35     | )   | $ | 0.62    |    
|Diluted                                                                            | $ | 0.41      |        | $ | (0.35     | )   | $ | 0.61    |    
|Adjusted earnings(4)                                                               | $ | 180,385   |        | $ | 98,910    |     | $ | 91,696  |    
|Adjusted earnings per
      common share(4)                                        |   |           |        |   |           |     |   |         |    
|Basic                                                                              | $ | 0.62      |        | $ | 0.48      |     | $ | 0.62    |    
|Diluted                                                                            | $ | 0.62      |        | $ | 0.48      |     | $ | 0.62    |    
|Dividends paid                                                                     | $ | 69,402    |        | $ | 49,717    |     | $ | 2,953   |    
|Cash flow provided by
      operating activities before changes in working capital | $ | 385,926   |        | $ | 226,332   |     | $ | 173,230 |    
|Cash flow provided by operating
      activities                                   | $ | 249,454   |        | $ | 166,744   |     | $ | 119,322 |    
|Cash and cash
      equivalents                                                    | $ | 163,368   |        | $ | 108,667   |     | $ | 80,356  |    
|Total assets                                                                       | $ | 3,071,253 |        | $ | 2,002,461 |     | $ | 975,628 |    
|Total non-current
      liabilities                                                | $ | 348,663   |        | $ | 187,550   |     | $ | 5,693   |    
|Costs per silver ounce produced                                                    |   |           |        |   |           |     |   |         |    
|Total cash costs net of
      by-product credits(4)(5)                             | $ | 5.84      |        | $ | 6.16      |     | $ | 6.37    |    
|All-in sustaining costs per silver ounce net
      of by-product credits(4)(7)     | $ | 8.06      |        | $ | 9.11      |     | $ | 9.15    |    
|Costs per gold ounce
      produced                                                |   |           |        |   |           |     |   |         |    
|Total cash costs net of by-product
      credits(4)                                | $ | 620       |        | $ | 551       |     | $ | -       |    
|All-in sustaining costs per gold ounce net of by-product
      credits(4)(6)       | $ | 943       |        | $ | 733       |     | $ | -       |    

|(1) | Comparative 2015 numbers exclude operational and
      financial information from the Timmins mines. Comparative numbers for 2014
      exclude operational and financial information from the Timmins mines, La
      Arena and Shahuindo.                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | 2016 numbers include operational and financial
      information from the Timmins mines beginning April 1, 2016, the date of
      acquisition of Lake Shore Gold and operational and financial information
      from Shahuindo beginning May 1, 2016, the commencement of commercial
      production.                                                                                                                                                                 
|(3) | London Bullion Market Association (LBMA)/London Metal
      Exchange (LME) average closing prices for each quarter
presented.                                                                                                                                                                                                                                                                                                                                            
|(4) | Refer to the Non-GAAP Financial Measures section
      of this MD&A.                                                                                                                                                                                                                                                                                                                                                                                                   
|(5) | Total cash costs net of by-product credits per silver
      ounce produced for 2015 include $7.2 million in royalty expense from 2014
      sales that settled in 2015 at the increased royalty rate of 10%. This
      resulted in a per ounce impact of $0.36 for 2015. This impact was offset
      during Q4 2015 as a result of a $16.2 million reversal of the increased
      10% royalty regime resulting in a positive impact of $0.80 per ounce for
      2015.
|(6) | All-in sustaining costs net of by-product credits per
      gold ounce produced for 2016 exclude the impact of $11.1 million in
      non-recurring transaction costs related to the acquisition of Lake
Shore Gold.                                                                                                                                                                                                                                                     

11

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

|(7)  | All-in sustaining costs net of by-product credits per
      silver ounce produced for 2015 exclude the impact of $7.2 million in non-
      recurring transaction costs related to the acquisition of Rio
  Alto.                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8)  | Commercial production at Shahuindo was declared on May 1,
      2016. Revenues presented are generated from the sale of gold ounces in
      doré beginning May 1, 2016. Pre-commercial production revenues at
      Shahuindo are considered pre- operating revenues and are credited against
      construction capital through April 30, 2016. Included in the 358.2
      thousand gold ounces sold for 2016 are 44.3 thousand gold ounces sold at
      Shahuindo which include four months of pre-commercial production ounces
      sold (7.6 thousand ounces of gold in doré sold in the period January
      through April 2016).
|(9)  | Earnings of $117.9 million for 2016 were impacted by the
      result of a change in enacted tax rates in Peru for $19.3 million, a
      non-cash loss on the redemption of the Lake Shore Gold debentures of $32.3
      million and non-recurring transaction costs of $11.1 million related to
      the acquisition of Lake Shore Gold. Refer to the Companys adjusted
      earnings described and calculated in the Non-GAAP Financial
      Measures section of this MD&A.                                                                                                                                                     
|(10) | Numbers may not calculate due to
  rounding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|REVIEW OF
      ANNUAL CONSOLIDATED FINANCIAL RESULTS
|-----------------------------------------------------

Basis of presentation

The annual results presented in this section and the quarterly
results presented in the subsequent section of this MD&A are prepared in
accordance with IFRS. The Companys significant accounting policies are outlined
within note 3 of the Companys consolidated financial statements for the years
ended December 31, 2016 and 2015.

Comparative 2015 year excludes data from the Timmins mines and
includes data from La Arena beginning April 1, 2015, the date of acquisition of
Rio Alto.

2016 vs. 2015

The Company generated earnings of $117.9 million for 2016
compared to a loss of $71.9 million for 2015. Earnings for 2016 were positively
impacted by the inclusion of results from the Timmins mines beginning April 1,
2016, the date of acquisition of Lake Shore Gold in addition to results from
Shahuindo beginning May 1, 2016, the date of declaration of commercial
production. These were offset by a non-cash $19.3 million deferred tax impact
related to a change in enacted tax rates in Peru, a non-cash loss on the
redemption of the Lake Shore Gold debentures of $32.3 million and non-recurring
transaction costs of $11.1 million related to the acquisition of Lake Shore
Gold. The loss in 2015 was due to the $153.4 million non-cash impairment taken
on the La Arena and Shahuindo mines partially offset by the inclusion of results
from the La Arena mine as a result of the acquisition of Rio Alto on April 1,
2015.

Refer to the Companys adjusted earnings described and
calculated in the Non-GAAP Financial Measures section of this
MD&A.

Revenues

During 2016, the Company sold in concentrate 19.0 million
silver ounces at an average realized price of $17.57 compared to 20.2 million
silver ounces at an average realized price of $15.15 during 2015. The Company
sold in concentrate 7.7 thousand gold ounces during 2016 compared to 9.8
thousand gold ounces during 2015. During 2016, the Company sold in concentrate
9.0 thousand tonnes of lead and 12.3 thousand tonnes of zinc at realized prices
of $1,886 and $2,268 per tonne, respectively, compared to 9.8 thousand tonnes of
lead and 13.3 thousand tonnes of zinc at realized prices of $1,854 and $1,800
per tonne, respectively, during 2015.

During 2016, the Company sold 350.5 thousand ounces of gold in
doré at an average realized price of $1,245 per ounce compared to 173.9 thousand
ounces of gold in doré at an average realized price of $1,126 per ounce during
2015.

Silver in concentrate sales decreased by approximately 6%
during 2016 compared to 2015. This decrease in quantity sold was offset by an
increase in realized silver metal prices of approximately 16%. Gold in doré
sales increased by 176.6 thousand ounces or 102% due to the inclusion of ounces
in doré sold from the Timmins mines beginning April 1, 2016, the date of
acquisition of Lake Shore Gold, in addition to a full year of sales from La
Arena and eight months of commercial production sales from Shahuindo during
2016. As a result, the Company generated revenues of $784.5 million, net of
treatment and refining charges for 2016, compared to $519.7 million in revenues
for 2015, an increase of approximately $264.8 million or 51%.

12

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

The Companys concentrate revenue and trade receivables include
provisionally priced metal sales which are marked to market at the end of each
reporting period based on the forward price for the quotational period
stipulated in the contract (or an approximation thereof). Provisionally priced
metal at December 31, 2016 includes 3.3 million silver ounces and 1.8 thousand
gold ounces at $15.95 and $1,151 per ounce, respectively, and 2.1 thousand and
2.5 thousand tonnes of lead and zinc at $1,983 and $2,619 per tonne,
respectively.

Operating costs

Production costs

Production costs, which comprise the
full cost of operations less royalties and depreciation and depletion, form a
component of total operating costs and were $332.7 million for 2016 compared to
$241.7 million for 2015. The increase is primarily due to the inclusion of
production costs relating to the Timmins mines, acquired in 2016 as well as a
full year of production costs from the La Arena mine and eight months of
production costs from the Shahuindo mine during 2016.

Royalties

During 2016, royalty expense was $22.9
million, comprised of $18.7 million in Guatemala and $4.2 million in Canada.
This compares to a royalty expense of $13.2 million in 2015 all related to
royalties in Guatemala. The $9.7 million increase reflects the addition of $4.2
million related to the acquisition of Lake Shore Gold and the timing of final
settlements and provisional pricing adjustments in Guatemala.

The royalty in Guatemala is levied on
net smelter returns for concentrate sales which include revenues from silver and
by-products (gold, lead and zinc). Revenues were $31.9 million higher in the
current year as a result of increased silver, gold, lead and zinc metals prices
which resulted in an increase to royalty expense over prior year. Under the
voluntary royalty agreements between the Company and municipal and federal
governments in Guatemala, finalized concentrate sales below $16/oz silver do not
trigger a payment obligation. During 2015, the Company realized greater
concentrate sales which finalized below $16/oz as compared to 2016.

Royalties paid in Peru are calculated
using a form of operating profit and are therefore accounted for as an income
tax.

Depreciation and depletion

During 2016, depreciation and depletion
was $124.7 million compared to $78.6 million in 2015. This increase is primarily
due to the inclusion of depletion and depreciation relating to the Timmins
mines, acquired in 2016 as well as a full year of depreciation and depletion
from the La Arena mine and eight months of depreciation and depletion from the
Shahuindo mine during 2016.

Other operating expenses

Exploration expenses

Exploration expenses were $14.4 million
for 2016 compared to $6.5 million in 2015. This $7.9 million increase is the
result of increased exploration expenditures of $6.8 million in Canada related
exploration activity since the date of the acquisition of Lake Shore Gold and
$2.0 million in Peru offset by a decrease in exploration expenditures of $0.9
million in Guatemala. The overall increase in exploration expense is in line
with the Companys focus on growth to expand resources at existing operations
and advance longer-term projects in Canada and Peru. Refer to the Future
Developments  Targets and Initiatives  2017 Operations Outlook and 
Long-term Outlook sections of this MD&A.

General and administrative
expenses

General and administrative expenses
were $47.5 million for 2016 compared to $39.3 million for 2015. This $8.2
million increase relates primarily to the inclusion of $11.1 million in
transaction costs relating to the acquisition of Lake Shore Gold (an increase of
$5.2 million when compared to the transaction costs recognized in 2015 related
to the acquisition of Rio Alto), an increase in professional and consulting fees
of $3.7 million and in share-based compensation of $1.2 million. These increases were
offset primarily by decreases in salaries and benefits of $1.5 million and $0.4
million in administrative and other expenses as a result of the Companys
comprehensive review of overheads and cost reduction measures announced in 2015.
The overall increase relates to the inclusion of general and administrative
expenses associated with the acquisition of Lake Shore Gold during 2016.

13

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Impairment

As part of the Companys impairment
testing, management assessed all cash generating units (CGUs) for indicators
of impairment (or reversal of impairment previously taken) including the
allocated goodwill which is mandatorily tested on an annual basis. Discounted
cash flow models were prepared, where applicable, using long-term prices for
gold of $1,250/oz, silver of $17.50/oz and copper of $3.00/lb, discount rates
between 6.5% and 8.75% depending on the development stage of the operation or
project and currently enacted tax rates. In-situ values were used for the
impairment testing of exploration potential. Based on the results, for the year
ended December 31, 2016, management concluded that there was no impairment or
reversal of prior impairment for any of the CGUs.

During 2015, the Company recorded a
non-cash after-tax impairment charge of $153.4 million, comprising $69.0 million
and $84.4 million for La Arena and Shahuindo, respectively (non-cash pre-tax
impairment of $220.0 million, comprising $99.0 million and $121.0 million for La
Arena and Shahuindo, respectively). The non-cash impairment was a result of the
Companys annual asset impairment testing. Using a long-term gold price of
$1,200/oz and a discount rate of 7%, the non-cash impairment charge was
primarily driven by a decrease of approximately $100/oz in gold price from the
date of acquisition. Refer to the Cash Flow, Liquidity, Capital Resources
and Other Information - Asset Valuation section for additional details.

Other expense

Net foreign exchange loss

A foreign exchange loss of $0.4 million
was recognized during 2016 compared to a loss of $4.5 million during 2015. The
$4.1 million decrease in foreign exchange loss is the result of the depreciation
of foreign currencies against the USD including a decrease of $3.8 million
related to the Peruvian Nuevo Sol and $0.4 million related to the Guatemalan
Quetzal offset by an increase of $0.7 million as a result of the appreciation in
the Canadian dollar against the USD. The Company remains unhedged with respect
to foreign currency. Refer to the Cash flow, liquidity, capital resources
and other information  Liquidity, capital resources and financial risk
management  Financial risk management  Market risk  Foreign exchange
risk section of this MD&A.

Loss on debenture

As a result of the redemption of the
outstanding Lake Shore Gold debentures, the Company recognized a non-cash loss
of $32.3 million during 2016. This non-cash loss was attributable to the
appreciation of Tahoes share price between the date of acquisition on April 1,
2016 and the completion of the debenture redemption on May 16, 2016.

Tax expense

Income tax expense for 2016 was $90.9
million, representing an effective rate of 44%. The effective tax rate in 2016
was impacted by the non-cash loss on debenture conversion and transaction costs
related to the acquisition of Lake Shore Gold. In addition, income tax rates in
Peru which were previously on a gradual reduction from 28.0% to 26.0% over the
course of five years to 2019, were superseded in December 2016 with an increased
statutory rate to 29.5% effective January 1, 2017. The change in rates during
2016 resulted in a non-cash deferred tax expense of $19.3 million. Excluding the
impact of the change in tax rate in Peru, the effective rate is 34%.

Income tax recovery for 2015 was $16.3
million, representing an effective rate of negative 18%. The effective tax rate
in 2015 was impacted primarily by a non-cash impairment charge taken on the
Companys La Arena and Shahuindo operating segments and the transaction costs
related to the acquisition of Rio Alto.

14

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

SELECTED QUARTERLY CONSOLIDATED FINANCIAL RESULTS

Selected quarterly consolidated
financial information from continuing operations for the most recent eight
quarters is as follows:

|                                                                                         |   | Q4        |  |   | Q3        |  |   | Q2        |     |   | Q1        |     |   | Q4        |     |   | Q3        |     |   | Q2        |     |   | Q1      |       
|---------------------------------------------------------------------------------------- | - | --------- |  | - | --------- |  | - | --------- | --- | - | --------- | --- | - | --------- | --- | - | --------- | --- | - | --------- | --- | - | ------- | ------
|                                                                                         |   | 2016      |  |   | 2016      |  |   | 2016      | (8) |   | 2016      | (1) |   | 2015      | (1) |   | 2015      | (1) |   | 2015      | (1) |   | 2015    | (1)(2)
|Metal Sold                                                                               |   |           |  |   |           |  |   |           |     |   |           |     |   |           |     |   |           |     |   |           |     |   |         |       
|Silver (000s ozs)                                                                       |   | 4,496     |  |   | 4,800     |  |   | 5,212     |     |   | 4,563     |     |   | 6,244     |     |   | 5,492     |     |   | 3,840     |     |   | 4,640   |       
|Gold (000s ozs)                                                                         |   | 100.7     |  |   | 108.8     |  |   | 98.1      |     |   | 50.6      |     |   | 59.8      |     |   | 59.8      |     |   | 61.7      |     |   | 2.2     |       
|Lead (000s t)                                                                           |   | 2.3       |  |   | 1.9       |  |   | 2.4       |     |   | 2.4       |     |   | 3.4       |     |   | 2.6       |     |   | 1.6       |     |   | 2.2     |       
|Zinc (000s t)                                                                           |   | 2.8       |  |   | 2.7       |  |   | 3.5       |     |   | 3.3       |     |   | 4.5       |     |   | 2.8       |     |   | 2.5       |     |   | 3.5     |       
|Realized Price                                                                           |   |           |  |   |           |  |   |           |     |   |           |     |   |           |     |   |           |     |   |           |     |   |         |       
|Silver in
      concentrate (per oz)                                                     | $ | 14.45     |  | $ | 20.64     |  | $ | 18.95     |     | $ | 15.92     |     | $ | 14.10     |     | $ | 14.33     |     | $ | 15.29     |     | $ | 17.16   |       
|Gold in doré (per oz)                                                                    | $ | 1,197     |  | $ | 1,321     |  | $ | 1,255     |     | $ | 1,166     |     | $ | 1,089     |     | $ | 1,106     |     | $ | 1,182     |     | $ | -       |       
|Lead (per t)                                                                             | $ | 2,036     |  | $ | 2,204     |  | $ | 1,779     |     | $ | 1,590     |     | $ | 1,804     |     | $ | 1,764     |     | $ | 2,330     |     | $ | 1,763   |       
|Zinc (per t)                                                                             | $ | 2,872     |  | $ | 2,513     |  | $ | 2,237     |     | $ | 1,875     |     | $ | 1,549     |     | $ | 1,653     |     | $ | 2,127     |     | $ | 2,023   |       
|LBMA/LME
      Price(3)                                                                  |   |           |  |   |           |  |   |           |     |   |           |     |   |           |     |   |           |     |   |           |     |   |         |       
|Silver (per oz)                                                                          | $ | 17.19     |  | $ | 19.61     |  | $ | 16.78     |     | $ | 14.85     |     | $ | 14.77     |     | $ | 14.91     |     | $ | 16.41     |     | $ | 16.71   |       
|Gold (per oz)                                                                            | $ | 1,220     |  | $ | 1,335     |  | $ | 1,259     |     | $ | 1,181     |     | $ | 1,105     |     | $ | 1,124     |     | $ | 1,193     |     | $ | 1,219   |       
|Lead (per t)                                                                             | $ | 2,149     |  | $ | 1,873     |  | $ | 1,719     |     | $ | 1,744     |     | $ | 1,681     |     | $ | 1,712     |     | $ | 1,947     |     | $ | 1,807   |       
|Zinc (per t)                                                                             | $ | 2,517     |  | $ | 2,255     |  | $ | 1,918     |     | $ | 1,679     |     | $ | 1,612     |     | $ | 1,844     |     | $ | 2,195     |     | $ | 2,023   |       
|Revenues(8)                                                                              | $ | 189,398   |  | $ | 234,721   |  | $ | 228,251   |     | $ | 132,133   |     | $ | 154,891   |     | $ | 145,736   |     | $ | 133,812   |     | $ | 85,282  |       
|Earnings (loss) from
      operations                                                    | $ | 31,466    |  | $ | 99,425    |  | $ | 65,022    |     | $ | 46,355    |     | $ | (146,973  | )   | $ | 26,118    |     | $ | 2,615     |     | $ | 38,688  |       
|Earnings (loss)(9)                                                                       | $ | 315       |  | $ | 63,011    |  | $ | 16,742    |     | $ | 37,808    |     | $ | (107,717  | )   | $ | 13,255    |     | $ | (9,339    | )   | $ | 31,890  |       
|Earnings (loss) per
      common share                                                   |   |           |  |   |           |  |   |           |     |   |           |     |   |           |     |   |           |     |   |           |     |   |         |       
|Basic                                                                                    | $ | 0.00      |  | $ | 0.20      |  | $ | 0.05      |     | $ | 0.17      |     | $ | (0.47     | )   | $ | 0.06      |     | $ | (0.04     | )   | $ | 0.22    |       
|Diluted                                                                                  | $ | 0.00      |  | $ | 0.20      |  | $ | 0.05      |     | $ | 0.17      |     | $ | (0.47     | )   | $ | 0.06      |     | $ | (0.04     | )   | $ | 0.22    |       
|Adjusted earnings
      (loss)(4)                                                        | $ | 18,415    |  | $ | 65,657    |  | $ | 57,873    |     | $ | 35,489    |     | $ | 51,005    |     | $ | 18,410    |     | $ | (2,428    | )   | $ | 31,722  |       
|Adjusted earnings
      (loss) per Common Share(4)                                       |   |           |  |   |           |  |   |           |     |   |           |     |   |           |     |   |           |     |   |           |     |   |         |       
|Basic                                                                                    | $ | 0.06      |  | $ | 0.21      |  | $ | 0.19      |     | $ | 0.16      |     | $ | 0.22      |     | $ | 0.08      |     | $ | (0.01     | )   | $ | 0.21    |       
|Diluted                                                                                  | $ | 0.06      |  | $ | 0.21      |  | $ | 0.19      |     | $ | 0.16      |     | $ | 0.22      |     | $ | 0.08      |     | $ | (0.01     | )   | $ | 0.21    |       
|Dividends paid                                                                           | $ | 18,672    |  | $ | 18,654    |  | $ | 18,419    |     | $ | 13,657    |     | $ | 13,640    |     | $ | 13,627    |     | $ | 13,589    |     | $ | 8,862   |       
|Cash flow provided
      by operating activities before changes in working
      capital | $ | 74,669    |  | $ | 125,987   |  | $ | 115,951   |     | $ | 69,319    |     | $ | 96,786    |     | $ | 52,962    |     | $ | 28,027    |     | $ | 48,893  |       
|Cash flow provided by operating
      activities                                         | $ | 107,021   |  | $ | 78,679    |  | $ | 37,678    |     | $ | 25,293    |     | $ | 54,163    |     | $ | 52,690    |     | $ | 34,450    |     | $ | 25,774  |       
|Cash and cash
      equivalents                                                          | $ | 163,368   |  | $ | 142,426   |  | $ | 151,707   |     | $ | 90,790    |     | $ | 108,667   |     | $ | 110,553   |     | $ | 112,222   |     | $ | 85,951  |       
|Total assets                                                                             | $ | 3,071,253 |  | $ | 3,033,218 |  | $ | 2,981,740 |     | $ | 2,005,860 |     | $ | 2,002,461 |     | $ | 2,205,269 |     | $ | 2,176,837 |     | $ | 997,462 |       
|Total non-current
      liabilities                                                      | $ | 348,663   |  | $ | 276,180   |  | $ | 269,984   |     | $ | 194,679   |     | $ | 187,550   |     | $ | 255,626   |     | $ | 243,402   |     | $ | 5,331   |       
|Costs per silver/gold ounce
      produced                                               |   |           |  |   |           |  |   |           |     |   |           |     |   |           |     |   |           |     |   |           |     |   |         |       
|Total cash costs
      net of by-                                                        |   |           |  |   |           |  |   |           |     |   |           |     |   |           |     |   |           |     |   |           |     |   |         |       
|product                                                                                  |   | 6.48/     |  |   | 6.50/     |  |   | 6.07/     |     |   | 4.51/     |     |   | 2.23/     |     |   | 6.75/     |     |   | 9.27/     |     |   |         |       
|credits(4)(5)                                                                            | $ | 594       |  | $ | 625       |  | $ | 647       |     | $ | 638       |     | $ | 541       |     | $ | 548       |     | $ | 540       |     | $ | 7.10    |       
|All-in sustaining
      costs per ounce net of by-                                       |   |           |  |   |           |  |   |           |     |   |           |     |   |           |     |   |           |     |   |           |     |   |         |       
|product                                                                                  |   | 9.76/     |  |   | 8.68/     |  |   | 8.16/     |     |   | 5.97/     |     |   | 4.85/     |     |   | 9.72/     |     |   | 12.87/    |     |   |         |       
|credits(4)(6)(7)                                                                         | $ | 945       |  | $ | 974       |  | $ | 973       |     | $ | 825       |     | $ | 774       |     | $ | 729       |     | $ | 664       |     | $ | 9.78    |       

|(1) | Comparative Q1 2016 and prior quarter numbers exclude
      operational and financial information from the Timmins mines.                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Comparative Q1 2015 and prior quarter numbers exclude
      operational and financial information from the La Arena and Shahuindo
      mines.

15

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

|(3)  | London Bullion Market Association (LBMA)/London Metal
      Exchange (LME) average closing prices for each quarter
presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4)  | Non-GAAP financial measures are described in the
      Non-GAAP Financial Measures section of this MD&A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(5)  | Total cash costs net of by-product credits per silver
      ounce produced for Q2 2015 include $7.2 million in royalty expense from
      2014 sales that settled in 2015 at the increased royalty rate of 10%. This
      resulted in a negative per ounce impact of $1.60 per ounce. This impact
      was offset during Q4 2015 as a result of a $16.2 million reversal of the
      increased 10% royalty regime resulting in a positive impact of $2.94 per
      ounce.                                                                                                                                                           
|(6)  | All-in sustaining costs net of by-product credits per
      gold ounce produced for Q1 2016, Q2 2016 and Q3 2016 exclude the impact of
      $0.7 million, $10.3 million and $0.1 million, respectively, in transaction
      costs related to the acquisition of Lake Shore Gold.                                                                                                                                                                                                                                                                                                                                                      
|(7)  | All-in sustaining costs net of by-product credits per
      gold ounce produced for Q2 2015, Q3 2015 and Q4 2015 exclude the impact of
      $5.7 million, $0.2 million, and $1.3 million, respectively, in transaction
      costs related to the acquisition of Rio Alto.                                                                                                                                                                                                                                                                                                                                                             
|(8)  | Commercial production at Shahuindo was declared on May 1,
      2016. Revenues presented are generated from the sale of gold ounces in
      doré beginning May 1, 2016. Pre-commercial production revenues at
      Shahuindo are considered pre- operating revenues and are credited against
      construction capital through April 30, 2016. Included in the 98.1 thousand
      gold ounces sold during Q2 2016, are 22.1 thousand gold ounces at
      Shahuindo which include one month of pre-commercial production ounces
      produced and sold (5.3 thousand ounces of gold in doré sold in the month
      of April 2016).
|(9)  | Earnings of $0.3 million for Q4 2016 were negatively
      impacted by the change in enacted tax rates in Peru, resulting in a charge
      of approximately $19.3 million to deferred income tax expense. Refer to
      the Companys adjusted earnings described and calculated in the
      Non-GAAP Financial Measures section of this MD&A.                                                                                                                                                                                                                                                                                     
|(10) | Numbers may not calculate due to
  rounding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|REVIEW OF
      QUARTERLY CONSOLIDATED FINANCIAL RESULTS
|--------------------------------------------------------

Variances in results by quarter reflect overall corporate
activity and factors that do not necessarily recur each quarter, including
operating results, timing of concentrate and doré sales, fluctuations in the
amount of finished goods, construction costs, stock based compensation, royalty
payments, interest income on fluctuating cash balances, foreign exchange gains
(losses), changes in enacted income tax rates and exploration drill
programs.

Comparative Q4 2015 period excludes data from the Timmins
mines.

Q4 2016 vs. Q4 2015

The Company generated earnings of $0.3 million for Q4 2016
compared to a loss of $107.7 million for Q4 2015. The earnings for Q4 2016 were
negatively impacted by the $19.3 million non-cash deferred tax charge related to
a change in enacted tax rates in Peru offset by the inclusion of results from
the Timmins mines and the Shahuindo mine during Q4 2016. The loss for Q4 2015
was the result of the $153.4 million non-cash impairment taken on the La Arena
and Shahuindo mines offset by a royalty adjustment of ($16.2) million.

Refer to the Companys adjusted earnings described and
calculated in the Non-GAAP Financial Measures section of this
MD&A.

Revenues

During Q4 2016, the Company sold in concentrate 4.5 million
silver ounces at an average realized price of $14.45 compared to 6.2 million
silver ounces at an average realized price of $14.10 during Q4 2015. The
realized prices during both Q4 2016 and Q4 2015 were impacted by negative
pricing adjustments on the provisionally priced silver ounces (2.7 million
ounces at September 30, 2016 and 3.7 million ounces at September 30, 2015),
declining prices throughout the quarters and final settlements. The Company sold
in concentrate 1.8 thousand gold ounces compared to 3.4 thousand gold ounces
during Q4 2015. During Q4 2016, the Company sold in concentrate 2.3 thousand
tonnes of lead and 2.8 thousand tonnes of zinc at realized prices of $2,036 and
$2,872 per tonne, respectively, compared to 3.4 thousand tonnes of lead and 4.5
thousand tonnes of zinc at realized prices of $1,804 and $1,549 per tonne,
respectively, during Q4 2015.

During Q4 2016, the Company sold 98.9 thousand ounces of gold
in doré, at an average realized price of $1,197 per ounce compared to 56.4
thousand ounces of gold in doré at an average realized price of $1,089 per ounce
during Q4 2015. There were no ounces produced from Shahuindo during Q4 2015. The
acquisition of Lake Shore Gold occurred in 2016 and therefore there are no
production ounces from the Timmins mines in the comparative Q4 2015 period.

16

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Silver in concentrate sales decreased by 27% during Q4 2016
compared to Q4 2015. This decrease was partially offset by an increase in
realized silver metal prices of approximately 2%. The inclusion of doré sales
from the Timmins mines as well as commercial production revenues from Shahuindo,
resulted in total revenues of $189.4 million, net of treatment and refining
charges for Q4 2016, compared to $154.9 million in revenues for Q4 2015. This is
an increase in metal revenues of approximately $34.5 million or 22%.

Operating costs

Production costs

Production costs, which comprise the
full cost of operations less royalties, depreciation and depletion, form a
component of total operating costs and were $91.2 million for Q4 2016 compared
to $66.7 million during Q4 2015. The increase is primarily due to the inclusion
of production costs at the Timmins mines acquired in Q2 2016, in addition to
production costs at the Shahuindo mine which declared commercial production
during Q2 2016.

Royalties

During Q4 2016, royalty expense was
$7.8 million, comprised of $5.8 million in Guatemala and $2.0 million in Canada.
This compares to $(16.2) million in Q4 2015 which was the result of the reversal
of Guatemalan royalties previously accrued at a higher rate prior to the repeal
of the increased royalty regime. This increase also reflects the addition of
$2.0 million related to the acquisition of Lake Shore Gold and the timing of
settlements and provisional pricing adjustments in Guatemala.

The royalty in Guatemala is levied on
net smelter returns for our concentrate sales which include revenues from silver
and by-products (gold, lead and zinc). Under the voluntary royalty agreements
between the Company and municipal and federal governments in Guatemala,
finalized concentrate sales below $16/oz silver do not trigger a payment
obligation. During Q4 2016 there were no concentrate sales that finalized with a
price below the $16/oz silver threshold.

Royalties paid in Peru are calculated
using a form of operating profit and are therefore accounted for as an income
tax.

Depreciation and
depletion

During Q4 2016, depreciation and
depletion was $42.5 million compared to $23.1 million in Q4 2015. This increase
of $19.4 million is primarily due to the depletion and depreciation relating to
the Timmins mines, acquired in Q2 2016 as well as depreciation and depletion
from the Shahuindo mine during Q4 2016.

Other operating expenses

Exploration expenses

Exploration expenses were $6.9 million
for Q4 2016 compared to $0.6 million in Q4 2015. This $6.3 million increase is
the result of the inclusion of exploration expenditures in Canada of $3.7
million as a result of the acquisition of Lake Shore Gold combined with
increased expenses of $2.6 million in Peru. The overall increase in exploration
is in line with the Companys focus on growth to expand resources at existing
operations and advance longer-term projects in Canada and Peru. Refer to the
Future Developments  Targets and Initiatives  2017 Operations Outlook
and  Long-term Outlook sections of this MD&A.

General and administrative
expenses

General and administrative expenses
were $9.5 million for Q4 2016 compared to $7.7 million for Q4 2015. This $1.8
million increase relates primarily to salaries and benefits and share-based
compensation of $1.4 million as a result of the inclusion of the Timmins mines
and Shahuindo in addition to an increase in professional and consulting fees of
$0.8 million. These increases were offset by a decrease in administrative and
other expenses of $0.4 million as a result of the Companys comprehensive review
of overheads and cost reduction measures announced in 2015.

17

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Impairment

As part of the Companys impairment
testing, management assessed all cash generating units (CGUs) for indicators
of impairment (or reversal of impairment previously taken) including the
allocated goodwill which is mandatorily tested on an annual basis. Discounted
cash flow models were prepared, where applicable, using long-term prices for
gold of $1,250/oz, silver of $17.50/oz and copper of $3.00/lb, discount rates
between 6.5% and 8.75% depending on the development stage of the operation or
project and currently enacted tax rates. In-situ values were used for the
impairment testing of exploration potential. Based on the results, for the year
ended December 31, 2016, management concluded that there was no impairment or
reversal of prior impairment for any of the CGUs.

During 2015, the Company recorded a
non-cash after-tax impairment charge of $153.4 million, comprising $69.0 million
and $84.4 million for La Arena and Shahuindo, respectively (non-cash pre-tax
impairment of $220.0 million, comprising $99.0 million and $121.0 million for La
Arena and Shahuindo, respectively). Using a long-term gold price of $1,200/oz
and a discount rate of 7%, the non-cash impairment charge was primarily driven
by a decrease of approximately $100/oz in gold price from the date of
acquisition. Refer to the Cash Flow, Liquidity, Capital Resources and Other
Information  Asset Valuation section for additional details.

Other expense

Net foreign exchange loss

A foreign exchange loss of $0.6 million
was recognized during Q4 2016 compared to a loss of $4.2 million recognized
during Q4 2015. The $3.6 million decrease in foreign exchange loss is the result
of the depreciation of foreign currencies against the USD including a decrease
of $3.5 million related to the Canadian dollar and $0.4 million related to the
Guatemalan Quetzal offset by an increase of $0.3 million as a result of the
appreciation in the Peruvian Nuevo Sol against the USD. The Company remains
unhedged with respect to foreign currency. Refer to the Cash flow,
liquidity, capital resources and other information  Liquidity, capital
resources and financial risk management  Financial risk management  Market
risk  Foreign exchange risk section of this MD&A.

Tax expense

Income tax expense for Q4 2016 was
$30.2 million, representing an effective rate of 99%. The effective tax rate in
Q4 2016 was impacted by a change in enacted rates in Peru which were previously
on a gradual reduction from 28.0% to 26.0% over the course of five years to
2019. This rate reduction was superseded in December 2016 and replaced with an
increased statutory rate of 29.5% effective January 1, 2017. The change in rates
during Q4 2016 resulted in a non-cash deferred tax expense of $19.3 million.
Excluding the impact of the change in tax rate in Peru, the effective rate is
36%.

Income tax recovery for Q4 2015 was
$43.4 million, representing an effective rate of negative 29%. The effective tax
rate in 2015 was impacted primarily by a non-cash impairment charge taken on the
Companys La Arena and Shahuindo operating segments.

18

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Q4 2016 vs. Q3 2016

The Company generated earnings of $0.3 million for Q4 2016
compared to earnings of $63.0 million for Q3 2016. The earnings for Q4 2016 were
negatively impacted by a decrease in metal revenues related to a declining
metals price environment of $45.3 million, combined with a $19.3 million
non-cash deferred tax charge related to a change in enacted tax rates in
Peru.

Refer to the Companys adjusted earnings described and
calculated in the Non-GAAP Financial Measures section of this MD&A.

Revenues

During Q4 2016, the Company sold in concentrate 4.5 million
silver ounces at an average realized price of $14.45 compared to 4.8 million
silver ounces at an average realized price of $20.64 during Q3 2016. The
realized price during the quarter was impacted by negative pricing adjustments
on the 2.7 million provisionally priced silver ounces at September 30, 2016,
declining prices throughout the quarter and final settlements. The Company sold
in concentrate 1.8 thousand gold ounces compared to 1.8 thousand gold ounces
during Q3 2016. During Q4 2016, the Company sold in concentrate 2.3 thousand
tonnes of lead and 2.8 thousand tonnes of zinc at realized prices of $2,036 and
$2,872 per tonne, respectively, compared to 1.9 thousand tonnes of lead and 2.7
thousand tonnes of zinc at realized prices of $2,204 and $2,513 per tonne,
respectively, during Q3 2016.

During Q4 2016, the Company sold 98.9 thousand ounces of gold
in doré at an average realized price of $1,197 per ounce compared to 107.0
thousand ounces of gold in doré at an average realized price of $1,321 per ounce
during Q3 2016.

Both silver in concentrate and gold in doré sales decreased
during Q4 2016 when compared to Q3 2016 in combination with a decrease in
realized silver and gold metal prices. As a result, total revenues were $189.4
million, net of treatment and refining charges for Q4 2016, compared to $234.7
million in revenues for Q3 2016, a decrease in metal revenues of approximately
$45.3 million or 19%.

Operating costs

Production costs

Production costs, which comprise the
full cost of operations less royalties, depreciation and depletion, form a
component of total operating costs and were $91.2 million for Q4 2016 compared
to $90.3 million during Q3 2016.

Royalties

During Q4 2016, royalty expense was
$7.8 million, comprised of $5.8 million in Guatemala and $2.0 million in Canada.
This compares to $4.9 million in Q3 2016, comprised of $3.7 million in Guatemala
and $1.2 million in Canada. This increase of $2.9 million includes an increase
of $2.1 million in Guatemala due to the timing of settlements and provisional
pricing adjustments and $0.8 million in Canada.

The royalty in Guatemala is levied on
net smelter returns for our concentrate sales which include revenues from silver
and by-products (gold, lead and zinc). Under the voluntary royalty agreements
between the Company and municipal and federal governments in Guatemala,
finalized concentrate sales below $16/oz silver do not trigger a payment
obligation. During Q4 2016 there were no concentrate sales finalized below the
$16/oz silver threshold while a portion of concentrate sales during Q3 2016
finalized below the $16/oz.

Royalties in Canada are paid on
specific mining claims and the cost per ounce will vary based on the location of
the mining front.

Royalties paid in Peru are calculated
using a form of operating profit and are therefore accounted for as an income
tax.

19

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Depreciation and depletion

During Q4 2016, depreciation and
depletion was $42.5 million compared to $27.9 million in Q3 2016. This increase
of $14.6 million is the result of increased quantities of material extracted
from the Peru and Canada operations compared to Q3 2016 in addition to updates
to estimated lives and residual values applied prospectively as described in
note 3 of the Companys consolidated financial statements.

Other operating expenses

Exploration expenses

Exploration expenses were $6.9 million
for Q4 2016 compared to $4.7 million in Q3 2016. This increase of $2.2 million
is a result of increases in exploration expenditures of $1.3 million and $1.0
million in Canada and Peru, respectively offset by a decrease in exploration in
Guatemala of $0.1 million. The overall increase in exploration is in line with
the Companys focus on growth to expand resources at existing operations and
advance longer-term projects in Canada and Peru. Refer to the Future
Developments  Targets and Initiatives  2017 Operations Outlook and 
Long-term Outlook sections of this MD&A.

General and administrative
expenses

General and administrative expenses
were $9.5 million for Q4 2016 compared to $7.5 million for Q3 2016. This $2.0
million increase relates primarily $0.4 million in share-based compensation and
$1.9 million in administrative and other expenses. These increases were offset
by a decrease of $0.3 million in professional and consulting fees.

Other expense

Net foreign exchange loss

A foreign exchange loss of $0.6 million
was recognized during Q4 2016 compared to a loss of $3.3 million recognized
during Q3 2016. The variation in foreign exchange compared to the prior period
is the result of a strengthening of the Peruvian sol against the US dollar
during the quarter offset by a weakening of the Canadian dollar against the US
dollar. The Company remains unhedged with respect to foreign currency. Refer to
the Cash flow, liquidity, capital resources and other information 
Liquidity, capital resources and financial risk management  Financial risk
management  Market risk  Foreign exchange risk section of this MD&A.

Tax expense

Income tax expense for Q4 2016 was
$30.2 million, representing an effective rate of 99%. Income tax expense for Q3
2016 was $31.9 million, representing an effective rate of 34%. The effective tax
rate in Q4 2016 was impacted by a change in enacted rates in Peru which were
previously on a gradual reduction from 28.0% to 26.0% over the course of five
years to 2019. This rate reduction was superseded in December 2016 and replaced
with an increased statutory rate of 29.5% effective January 1, 2017. The change
in rates during Q4 2016 resulted in a non-cash deferred tax expense of $19.3
million. Excluding the impact of the change in tax rate in Peru, the effective
rate is 36%.

20

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

SELECTED SEGMENTED OPERATIONAL RESULTS

|2016 AND
      2015(4)(6)
|-------------------------

Selected quarterly segmented operational information from
continuing operations for 2016 and 2015 is as follows:

|                                         |   | 2016/2015 | 
|---------------------------------------- | - | --------- | 
|                                         |   |           | 
|                                         |   | Escobal   | 
|                                         |   |           | 
|Revenues                                 | $ | 355,812   | 
|                                         | $ | 323,916   | 
|Silver produced(000s
      ozs)         |   | 21,189    | 
|                                         |   | 20,402    | 
|Gold produced(000s
      ozs)           |   | 10.7      | 
|                                         |   | 11.7      | 
|Silver sold(000s
      ozs)             |   | 18,996    | 
|                                         |   | 20,190    | 
|Gold sold(000s ozs)                     |   | 7.7       | 
|                                         |   | 9.8       | 
|Average realized
      price(1) (per oz) |   |           | 
|Silver                                   | $ | 17.57     | 
|                                         | $ | 15.15     | 
|Gold                                     | $ | -         | 
|                                         | $ | -         | 
|Costs per ounce
      produced(2)(3)     |   |           | 
|Total
      cash costs net of            | $ | 5.84      | 
|by-product credits                       | $ | 6.16      | 
|All-in
      sustaining costs net        | $ | 8.06      | 
|of by-product credits                    | $ | 9.11      | 

|(1) | Comparative London Bullion Market Association
      (LBMA)/London Metal Exchange (LME) average closing prices per ounce of
      silver and gold were $17.14 and $1,250 for 2016 and $15.68 and $1,160 for
      2015, respectively. The realized price is for silver sold in concentrate
      and the realized price is for gold sold in doré.                                                                                                                                                                                                                                       
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Non-GAAP financial measures are described in the
      Non-GAAP Financial Measures section of this MD&A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(3) | Total cash cost per silver ounce produced at the Escobal
      mine and total cash cost per gold ounce produced at the La Arena,
      Shahuindo and Timmins mines, are net of by-product credits. For a
      reconciliation to cash costs before by-product credits, refer to the
      Non-GAAP Financial Measures section of this MD&A.                                                                                                                                                                                                                                          
|(4) | Comparative 2015 numbers exclude operational and
      financial information from the Timmins mines and Shahuindo and include
      operational and financial information from La Arena beginning April 1,
      2015, the date of acquisition of Rio Alto.                                                                                                                                                                                                                                                                                                                            
|(5) | Commercial production at Shahuindo was declared on May 1,
      2016. Revenues presented are generated from the sale of gold ounces in
      doré beginning May 1, 2016. Pre-commercial production revenues at
      Shahuindo were considered pre- operating revenues and 44.3 thousand gold
      ounces sold at Shahuindo for 2016 as presented include four months of pre-
      commercial production ounces produced and sold (13.4 thousand gold ounces
      in doré produced and 7.6 thousand ounces of gold in doré sold for the
      period of January through April 2016).
|(6) | Numbers may not calculate due to
  rounding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

21

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

|Q4 2016 AND Q4
      2015(4)(5)(7)
|----------------------------------

Selected quarterly segmented operational information from
continuing operations for Q4 2016 and Q4 2015 is as follows:

|                                         |   | Q4 2016/Q4
      2015 | 
|---------------------------------------- | - | --------------------- | 
|                                         |   |                       | 
|                                         |   | Escobal               | 
|                                         |   |                       | 
|Revenues                                 | $ | 70,527                | 
|                                         | $ | 93,450                | 
|Silver produced(000s
      ozs)         |   | 4,802                 | 
|                                         |   | 5,515                 | 
|Gold produced(000s
      ozs)           |   | 2.4                   | 
|                                         |   | 3.4                   | 
|Silver sold(000s
      ozs)             |   | 4,468                 | 
|                                         |   | 6,236                 | 
|Gold sold(ozs)                           |   | 1.8                   | 
|                                         |   | 3.4                   | 
|Average realized
      price(1) (per oz) |   |                       | 
|Silver                                   | $ | 14.45                 | 
|                                         | $ | 14.10                 | 
|Gold                                     | $ | -                     | 
|                                         | $ | -                     | 
|Costs per ounce
      produced(2)(3)(6)  |   |                       | 
|Total
      cash costs net of            | $ | 6.48                  | 
|by-product credits                       | $ | 2.23                  | 
|All-in
      sustaining costs net        | $ | 9.76                  | 
|of by-product credits                    | $ | 4.85                  | 

|(1) | Comparative London Bullion Market Association
      (LBMA)/London Metal Exchange (LME) average closing prices per ounce of
      silver and gold were $17.19 and $1,220, respectively for Q4 2016 and
      $14.77 and $1,105, respectively for Q4 2015. The realized price is for
      silver sold in concentrate and the realized price is for gold sold in
      doré.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Non-GAAP financial measures are described in the
      Non-GAAP Financial Measures section of this MD&A.                                                                                                                                                                                                                                                                
|(3) | Total cash cost per silver ounce produced at the Escobal
      mine and total cash cost per gold ounce produced at the La Arena,
      Shahuindo and Timmins mines, are net of by-product credits. For a
      reconciliation to cash costs before by-product credits, refer to the
      Non-GAAP Financial Measures section of this MD&A.                             
|(4) | Comparative Q4 2015 numbers exclude operational and
      financial information from the Timmins mines.                                                                                                                                                                                                                                                                   
|(5) | Comparative Q4 2015 numbers exclude operational and
      financial information from Shahuindo as commercial production was declared
      on May 1, 2016. Pre-commercial production revenues at Shahuindo were
      considered pre-operating revenues and were credited against construction
      capital through April 30, 2016.                                      
|(6) | All-in sustaining costs per ounce of silver net of
      by-product credits for Q4 2015 (Escobal) exclude the impact of $1.3
      million in transaction costs related to the acquisition of Rio
  Alto.                                                                                                                                                                 
|(7) | Numbers may not calculate due to
  rounding.                                                                                                                                                                                                                                                                                                                              

22

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

|MINE
      OPERATIONS
|---------------------

Escobal mine

|                                                                  |   | Q4 2016 | (5) |   | Q4 2015 | (5) |   | 2016   | (5) |   | 2015   | (5)
|----------------------------------------------------------------- | - | ------- | --- | - | ------- | --- | - | ------ | --- | - | ------ | ---
|                                                                  |   |         |     |   |         |     |   |        |     |   |        |    
|Tonnes Milled(000s)                                              |   | 396     |     |   | 374     |     |   | 1,594  |     |   | 1,508  |    
|Average Tonnes Milled(tpd)                                        |   | 4,299   |     |   | 4,065   |     |   | 4,356  |     |   | 4,133  |    
|Average Metal Grades                                              |   |         |     |   |         |     |   |        |     |   |        |    
|Silver
      (g/t)                                                |   | 434     |     |   | 522     |     |   | 477    |     |   | 487    |    
|Gold (g/t)                                                        |   | 0.32    |     |   | 0.44    |     |   | 0.35   |     |   | 0.39   |    
|Lead                                                              |   | 0.73%   |     |   | 0.94%   |     |   | 0.72%  |     |   | 0.77%  |    
|Zinc                                                              |   | 1.18%   |     |   | 1.54%   |     |   | 1.19%  |     |   | 1.27%  |    
|Average Metal Recovery(1)                                         |   |         |     |   |         |     |   |        |     |   |        |    
|Silver                                                            |   | 87%     |     |   | 88%     |     |   | 87%    |     |   | 86%    |    
|Gold                                                              |   | 59%     |     |   | 64%     |     |   | 60%    |     |   | 63%    |    
|Lead                                                              |   | 87%     |     |   | 88%     |     |   | 87%    |     |   | 88%    |    
|Zinc                                                              |   | 80%     |     |   | 77%     |     |   | 79%    |     |   | 77%    |    
|Recovered
      Metal(2)                                          |   |         |     |   |         |     |   |        |     |   |        |    
|Silver
      Ounces (000s)                                       |   | 4,802   |     |   | 5,515   |     |   | 21,189 |     |   | 20,402 |    
|Gold Ounces(000s)                                                |   | 2.4     |     |   | 3.4     |     |   | 10.7   |     |   | 11.7   |    
|Lead Tonnes
      (000s)                                         |   | 2.5     |     |   | 3.1     |     |   | 10.0   |     |   | 10.2   |    
|Zinc Tonnes (000s)                                               |   | 3.7     |     |   | 4.4     |     |   | 15.0   |     |   | 14.8   |    
|Costs Per Ounce Silver
      Produced(3)(4)                       |   |         |     |   |         |     |   |        |     |   |        |    
|Total
      cash costs per ounce before by-product credits        | $ | 9.42    |     | $ | 5.26    |     | $ | 8.44   |     | $ | 8.75   |    
|Total
      cash costs per ounce net of by-product credits        | $ | 6.48    |     | $ | 2.23    |     | $ | 5.84   |     | $ | 6.16   |    
|Total
      production costs per ounce net of by-product credits  | $ | 9.17    |     | $ | 4.38    |     | $ | 8.35   |     | $ | 8.49   |    
|All-in
      sustaining costs per ounce net of by-product credits | $ | 9.76    |     | $ | 4.85    |     | $ | 8.06   |     | $ | 9.11   |    
|Capital Expenditures                                              | $ | 10,888  |     | $ | 8,820   |     | $ | 30,077 |     |   | 34,728 |    
|Sustaining Capital                                                | $ | 10,295  |     | $ | 8,853   |     | $ | 27,030 |     | $ | 29,685 |    
|Non-Sustaining Capital                                            | $ | 593     |     | $ | (33     | )   | $ | 3,047  |     | $ | 5,043  |    

|(1) | Percent silver and gold recovered into lead and zinc
      concentrates; percent lead recovered into lead concentrate; percent zinc
      recovered into zinc concentrate.                                                        
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Silver and gold contained in lead and zinc concentrates;
      lead contained in lead concentrate; zinc contained in zinc
    concentrate.                                                                                        
|(3) | Non-GAAP financial measures are described in the
      Non-GAAP Financial Measures section of this MD&A in addition to a
      reconciliation to cash costs before by-product credits.                                          
|(4) | All-in sustaining costs per ounce net of by-product
      credits exclude the impact of $1.3 million and $7.2 million for Q4 2015
      and 2015, respectively, in transaction costs related to the acquisition of
      Rio Alto.
|(5) | Numbers may not calculate due to
  rounding.                                                                                                                                                                                      

The Escobal mine is located in the Department of Santa Rosa of
southeast Guatemala, about 40kms east-southeast of Guatemala City. Operations
are exploiting the intermediate sulfidation silver-gold-lead-zinc mineralization
by underground longhole stoping methods at a rate of approximately 4500 tpd.
Processing by differential flotation produces precious metal rich lead
concentrates and zinc concentrates for sale to international smelters. Proven
and Probable Mineral Reserves at the Escobal mine as of January 1, 2017 totaled
23.7 million tonnes at an average silver grade of 351 g/t containing 267.5
million ounces of silver, with significant quantities of gold and base metals.

During Q4 2016, 5.6 thousand dry metric tonnes (dmt) of lead
concentrate and 6.4 thousand dmt of zinc concentrate containing approximately
4.5 million payable ounces of silver were shipped to third party smelters
compared to 8.4 thousand dmt of lead concentrate and 9.9 thousand dmt of zinc
concentrate containing approximately 6.4 million payable ounces of silver
shipped during Q4 2015. During 2016, 22.1 thousand dmt of lead concentrate and
26.8 thousand dmt of zinc concentrate containing approximately 19.2 million
payable ounces of silver were shipped to third party smelters compared to 25.1
thousand dmt of lead concentrate and 29.7 thousand dmt of zinc concentrate
containing approximately 20.4 million payable ounces of silver shipped during
2015.

23

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Q4 2016 concentrate sales generated $70.5 million in revenues
at mine operating costs of $52.5 million resulting in mine operating earnings of
$18.0 million. Concentrate sales for Q4 2015 generated $93.4 million in revenues
at operating costs of $29.5 million resulting in mine operating earnings of
$63.9 million. 2016 concentrate sales generated $355.8 million in revenues at
mine operating costs of $200.5 million resulting in mine operating earnings of
$155.3 million. Concentrate sales for 2015 generated $323.9 million in revenues
at operating costs of $190.9 million resulting in mine operating earnings of
$133.0 million.

Total cash costs net of by-product credits for Q4 2016 were
$6.48 per ounce compared to $2.23 per ounce for Q4 2015, an increase of $4.25
per ounce or 191%. The increase is primarily the result of the impact of the
royalty reduction in Q4 2015. All-in sustaining costs for Q4 2016 were $9.76 per
ounce, an increase of $4.91 per ounce, or 101%, compared with $4.85 per ounce in
Q4 2015 primarily driven by the impact of the royalty reduction in Q4 2015.
Total cash costs net of by-product credits for 2016 were $5.84 per ounce
compared to $6.16 per ounce for 2015, a decrease of $0.32 per ounce or 5%. The
decrease is primarily the due a decrease in treatment and refining charges of
approximately $2.4 million and a higher lead by-product credit of approximately
$3.9 million. All-in sustaining costs for 2016 were $8.06 per ounce, a decrease
of $1.05 per ounce, or 12%, compared with $9.11 per ounce in 2015 primarily
driven by decreases in general and administrative expenses of $10.3 million and
sustaining capital of approximately $3.4 million and an increase in silver
ounces produced in concentrate.

Total cash costs net of by-product credits and all-in
sustaining costs per ounce calculations are described in the Non-GAAP Financial
Measures section of this MD&A.

Underground development and production

During Q4 2016 and 2016, the Escobal mine delivered
approximately 0.4 million and 1.6 million tonnes of ore to the surface, the
majority of which was mined from primary and secondary transverse longhole
stopes on multiple production sublevels in the Escobal Central Zone. Production
continued in the East Zone with approximately 27.2 thousand tonnes of ore
delivered to the surface during Q4 2016.

Underground ramp, sublevel and stope development continued to
advance in support of the life-of-mine production schedule, with 1,770 and 8,135
metres of development completed in Q4 2016 and 2016, respectively. There were
25,844 metres of longhole production drilling in Q4 2016 and 115,093 metres
during 2016.

Mill performance

Mill throughput averaged 4,299 and 4,356 tpd during Q4 2016 and
2016, respectively. The mill processed a total of 0.4 million and 1.6 million
tonnes with an average silver recovery of 87% and 87% during Q4 2016 and 2016,
respectively. Concentrate production totaled 2,516 and 9,969 tonnes of lead
concentrate and 3,740 and 14,975 tonnes of zinc concentrate containing 4.8
million and 21.2 million ounces of silver during Q4 2016 and 2016, respectively.

Capital projects

The emergency escape raise from the 1480 level to the 1455
level was completed in Q4 2016. Preparations began for the installation of the
next escape raise from the 1390 level to the 1365 level, expected to be
completed in Q1 2017.

Drilling commenced in Q4 2016 on the first of a series of
underground dewatering wells collared from the 1190 sublevel. These wells are
designed to dewater the Central Zone between the 1190 and 1090 levels in advance
of primary ramp development.

In preparation for handling water produced from the underground
dewatering well field, the new principal clean water pump station was tested
during December 2016 in preparation for final commissioning. The principal dirty
water pump station, constructed to handle the increased water flows expected to
be encountered as development below the 1190 level begins in 2017, is awaiting
the arrival of the pumps and is expected to be commissioned in Q2 2017.

24

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

La Arena mine

|                                                                  |   | Q4 2016 | (5) |   | Q4 2015 | (5) |   | 2016   | (5) |   | 2015   | (3)(5)
|----------------------------------------------------------------- | - | ------- | --- | - | ------- | --- | - | ------ | --- | - | ------ | ------
|                                                                  |   |         |     |   |         |     |   |        |     |   |        |       
|Tonnes Ore Mined(000s)                                           |   | 4,264   |     |   | 2,965   |     |   | 15,669 |     |   | 9,345  |       
|Strip Ratio                                                       |   | 1.73    |     |   | 2.00    |     |   | 2.07   |     |   | 1.85   |       
|Tonnes Placed on
      Pads(1)(000s)                             |   | 4,479   |     |   | 2,970   |     |   | 15,331 |     |   | 9,679  |       
|Average Gold Grade(g/t)                                           |   | 0.47    |     |   | 0.58    |     |   | 0.49   |     |   | 0.61   |       
|Gold Ounces Placed on Pads(000s)                                 |   | 68.2    |     |   | 47.8    |     |   | 241.0  |     |   | 162.1  |       
|Gold Ounces Produced in Doré(000s)                               |   | 58.4    |     |   | 56.4    |     |   | 204.4  |     |   | 174.1  |       
|Costs Per Ounce Gold
      Produced(2)                            |   |         |     |   |         |     |   |        |     |   |        |       
|Total
      cash costs per ounce before by-product credits        | $ | 518     |     | $ | 543     |     | $ | 598    |     | $ | 553    |       
|Total
      cash costs per ounce net of by-product credits        | $ | 516     |     | $ | 541     |     | $ | 596    |     | $ | 551    |       
|Total
      production costs per ounce net of by-product credits  | $ | 684     |     | $ | 743     |     | $ | 732    |     | $ | 731    |       
|All-in
      sustaining costs per ounce net of by-product credits | $ | 786     |     | $ | 774     |     | $ | 837    |     | $ | 733    |       
|Capital Expenditures                                              | $ | 13,685  |     | $ | 11,613  |     | $ | 35,633 |     | $ | 27,656 |       
|Sustaining Capital                                                | $ | 13,560  |     | $ | 11,859  |     | $ | 35,272 |     | $ | 25,892 |       
|Non-Sustaining Capital(4)                                         | $ | 125     |     | $ | (246    | )   | $ | 361    |     | $ | 1,764  |       

|(1) | Tonnes placed on pads include tonnes of ore mined and
      tonnes from stockpile.                                                                                                                                                                   
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Non-GAAP financial measures are described in the
      Non-GAAP Financial Measures section of this MD&A. For a
      reconciliation to cash costs before by-product credits, refer to the
      Non-GAAP Financial Measures section of this MD&A.
|(3) | 2015 includes results from La Arena beginning April 1,
      2015, the date of acquisition of Rio Alto.                                                                                                                                              
|(4) | Non-sustaining capital excludes non-sustaining capital
      related to the La Arena Phase II Sulfide Project.                                                                                                                                       
|(5) | Numbers may not calculate due to
  rounding.                                                                                                                                                                                                         

The La Arena gold mine is located in the Huamachuco District of
northern Peru, 480kms north-northwest of Lima. Operations are currently
exploiting high sulfidation epithermal oxide gold mineralization hosted in
brecciated sandstone within the Chimu Formation by open pit methods using
conventional drill/blast, load and haul methods. Ore is truck-dumped onto leach
pads with no crushing or agglomeration required prior to leaching. Metal
recovery is by carbon-in-column absorption-desorption-refining processes which
produce a gold-rich doré for sale to international refineries. Proven and
Probable oxide Mineral Reserves at the La Arena mine as of January 1, 2017
totaled 54.1 million tonnes at an average gold grade of 0.41 g/t containing 715
thousand ounces of gold.

Q4 2016 gold sales generated $62.6 million in revenues at mine
operating costs of $36.1 million resulting in mine operating earnings of $26.5
million. Q4 2015 gold sales generated $61.4 million in revenues at mine
operating costs of $44.0 million resulting in mine operating earnings of $17.4
million.

2016 gold sales generated $244.4 million in revenues at mine
operating costs of $143.0 million resulting in mine operating earnings of $101.4
million. 2015 gold sales generated $195.8 million in revenues at mine operating
costs of $142.6 million resulting in mine operating earnings of $53.2 million.

Total cash costs net of by-product credits for Q4 2016 were
$516 per ounce, a decrease of $25 per ounce, or 5%, compared with $541 per ounce
for Q4 2015. All-in sustaining costs for Q4 2016 were $786 per ounce, an
increase of $12 per ounce, or 2%, compared with $774 per ounce for Q4 2015. The
decrease in total cash costs net of byproduct credits is the result of increased
tonnes mined and placed on pads resulting in higher production and lower overall
costs per ounce. The increase in all-in sustaining costs per ounce is primarily
the result of an increase in sustaining capital during Q4 2016 when compared to
Q4 2015. Non-GAAP costs per ounce calculations are described in the Non-GAAP
Financial Measures section of this MD&A.

Total cash costs net of by-product credits for 2016 were $596
per ounce, an increase of $45 per ounce, or 8%, compared with $551 per ounce for
2015. All-in sustaining costs for 2016 were $837 per ounce, an increase of $104
per ounce, or 14%, compared with $733 per ounce for 2015. The increase in total
cash costs net of by-product credits is the result of increased tonnes mined and
placed on pads at lower average gold grades in line with the mine plan. The
increase in all-in sustaining costs is primarily the result of an increase in
sustaining capital and general and administrative expenses during 2016 when compared to 2015.
Non-GAAP costs per ounce calculations are described in the Non-GAAP Financial
Measures section of this MD&A.

25

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Pit development and production

Production from the Calaorco pit in Q4 2016 totaled 4.3 million
  tonnes of ore at an average strip ratio of 1.73. A total of 4.5 million tonnes
  at an average gold grade of 0.47 g/t containing 68.2 thousand gold ounces were
  placed on the leach pads, including 0.2 million tonnes of crushed ore (over
  liner) from the stockpile. During 2016, production from the Calaorco pit totaled
  15.7 million tonnes of ore at an average strip ratio of 2.07. A total of 15.3
  million tonnes at an average gold grade of 0.49 g/t containing 241.0 gold ounces
were placed on the leach pads, with the remainder on the ore stockpile.

Ore and waste continue to be mined from the third and fourth
phases of the Calaorco pit, with pit phase 3 nearing completion.

Absorption, desorption and refining process plant

The absorption, desorption and refining process plant performed
well over the period with an average of 11.7 hectares under irrigation
throughout Q4 2016. Pregnant solution collected in the pregnant leach solution
pond was pumped to the absorption circuit at an average rate of 1,194 cubic
metres per hour. Drought conditions experienced in areas of north-central Peru
have not impacted operations at La Arena.

The La Arena plant produced 58.4 thousand and 204.4 thousand
ounces of gold in doré during Q4 2016 and 2016, respectively. Gold recovery
continues to be approximately 86%.

Capital projects

Capital projects during Q4 2016 included planned extensions to
leach pad phase 4A3 and waste dump phases 3B and 4B. Land purchasing program
continues with focus on the remaining properties within the project boundaries.
Initial earthwork began in the new leach pad expansion 4B.

26

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Shahuindo mine

|                                                                  |   | Q4 2016 | (5) |   | Q4 2015 | (4)(5) |   | 2016   | (4)(5) |   | 2015 | (4)(5)
|----------------------------------------------------------------- | - | ------- | --- | - | ------- | ------ | - | ------ | ------ | - | ---- | ------
|                                                                  |   |         |     |   |         |        |   |        |        |   |      |       
|Tonnes Ore Mined(000s)                                           |   | 1,522   |     |   | -       |        |   | 5,531  |        |   | -    |       
|Strip Ratio                                                       |   | 0.79    |     |   | -       |        |   | 0.66   |        |   | -    |       
|Tonnes Placed on
      Pads(1)(000s)                             |   | 722     |     |   | -       |        |   | 3,153  |        |   | -    |       
|Average Gold Grade(g/t)                                           |   | 0.89    |     |   | -       |        |   | 0.87   |        |   | -    |       
|Gold Ounces Placed on
      Pads(3)(4)(000s)                     |   | 20.6    |     |   | -       |        |   | 88.2   |        |   | -    |       
|Gold Ounces Produced in
      Doré(3)(4)(000s)                   |   | 13.8    |     |   | -       |        |   | 48.5   |        |   | -    |       
|Costs Per Ounce Gold
      Produced(2)(4)                         |   |         |     |   |         |        |   |        |        |   |      |       
|Total
      cash costs per ounce before by-product credits        | $ | 1,014   |     | $ | -       |        | $ | 796    |        | $ | -    |       
|Total
      cash costs per ounce net of by- product credits       | $ | 989     |     | $ | -       |        | $ | 775    |        | $ | -    |       
|Total
      production costs per ounce net of by-product credits  | $ | 1,392   |     | $ | -       |        | $ | 1,061  |        | $ | -    |       
|All-in
      sustaining costs per ounce net of by-product credits | $ | 1,513   |     | $ | -       |        | $ | 1,162  |        | $ | -    |       
|Capital Expenditures                                              | $ | 11,467  |     | $ | -       |        | $ | 63,893 |        | $ | -    |       
|Sustaining Capital                                                | $ | 2,307   |     | $ | -       |        | $ | 10,956 |        | $ | -    |       
|Non-Sustaining Capital                                            | $ | 9,160   |     | $ | -       |        | $ | 52,937 |        | $ | -    |       

|(1) | Tonnes placed on pads include tonnes of ore mined and
      tonnes from stockpile.                                                                                                                                                                                                                                                                                                                                                                   
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Non-GAAP financial measures are described in the
      Non-GAAP Financial Measures section of this MD&A. For a
      reconciliation to cash costs before by-product credits, refer to the
      Non-GAAP Financial Measures section of this MD&A.                                                                                                                                                                                                
|(3) | Commercial production at Shahuindo was declared on May 1,
      2016. The 88.2 thousand gold ounces placed on pads and the 48.5 thousand
      gold ounces produced in doré at Shahuindo for 2016 include pre-commercial
      production ounces placed on pads and produced in doré (34.1 thousand gold
      ounces placed on pads and 13.4 thousand gold ounces in doré produced in
      the period of January through April 2016, respectively).
|(4) | 2016 costs per ounce gold produced are calculated based
      on the eight months of operational results after the declaration of
      commercial production on May 1, 2016.                                                                                                                                                                                                                                                                        
|(5) | Numbers may not calculate due to
  rounding.                                                                                                                                                                                                                                                                                                                                                                                                         

The Shahuindo mine is located in the province of Cajabamba of
northern Peru, approximately 510kms north-northwest of Lima and 30kms north of
the Companys La Arena mine. Operations are exploiting an
intermediate-sulfidation sediment-hosted epithermal gold deposit by open pit
methods using conventional drill/blast, load and haul methods. Ore is currently
truck-dumped onto leach pads with plans to implement crushing and agglomeration
of the ore prior to leaching in Q4 2017. The mine is currently operating at a
rate of 10,000 tonnes of ore per day and scheduled to increase to 36,000 tonnes
of ore per day in 2019 (see also Future Developments  2017 guidance
section in this MD&A and Capital Projects below). The Company
declared commercial production at Shahuindo in May 2016. Proven and Probable
oxide Mineral Reserves at the Shahuindo mine as of January 1, 2017 totaled 110.3
million tonnes at an average gold grade of 0.52 g/t containing 1.9 million
ounces of gold.

Q4 2016 gold sales generated $16.1 million in revenues at mine
operating costs of $18.9 million resulting in a mine operating loss of $2.8
million. Reflected in the quarterly loss is a non-recurring adjustment of $3.5
million related to the refinement of the financial inventory model.

2016 gold sales generated $47.2 million in revenues at mine
operating costs of $35.1 million resulting in a mine operating earnings of $12.0
million. Reflected in the 2016 earnings is a non-recurring adjustment of $3.5
million related to the refinement of the financial inventory model.

Total cash costs net of by-product credits for Q4 2016 were
$989 per ounce and all-in sustaining costs were $1,513 for the same period.
Costs were impacted as a result of the continued ramp-up period, the
aforementioned adjustment as well as ongoing sustaining capital projects in the
quarter. These costs are expected to decrease upon commissioning of Phase 1 of
the crushing and agglomeration circuit. Non-GAAP costs per ounce calculations
are described in the Non-GAAP Financial Measures section of this MD&A.

Total cash costs net of by-product credits for 2016 were $775
per ounce and all-in sustaining costs were $1,162 for the same period. Costs
were impacted as a result of the continued ramp-up period, the aforementioned
adjustment as well as ongoing sustaining capital projects
during the year. These costs are expected to decrease upon commissioning of
Phase 1 of the crushing and agglomeration circuit. Non-GAAP costs per ounce
calculations are described in the Non-GAAP Financial Measures section of this
MD&A.

27

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Pit development and production

Production from the Shahuindo pit in Q4 2016 totaled 1.5
  million tonnes of ore at an average strip ratio of 0.79. A total of 0.7 million
  tonnes at an average gold grade of 0.89 g/t containing 20.6 thousand gold ounces
  were placed on the leach pads during Q4 2016. During 2016, production from the
  Shahuindo pit totaled 5.5 million tonnes of ore at an average strip ratio of
  0.66. A total of 3.2 million tonnes at an average gold grade of 0.87 g/t
  containing 88.2 thousand gold ounces were placed on the leach pads during 2016.

Mining has been developed in phase 1 of the initial pit with
two excavators and fifteen 30-tonne dump trucks and reached an average mining
rate of 30,000 tpd in Q4 2016. The fine-grained siltstone is being blended with
coarser-grained sandstone as it is placed on the leach pads to improve leaching
permeability until the initial crushing and agglomeration circuit is operational
in Q4 2017.

Absorption, desorption and refining process plant

The Shahuindo plant produced 13.8 thousand and 48.5 thousand
ounces of gold in doré during Q4 2016 and 2016, respectively.

The availability of processing water remains at the top of the
operations priorities. During December 2016, the leaching area returned to
planned levels as the rainy season began. A more aggressive leaching campaign is
being conducted with the expectation of reducing the inventory generated during
the dry season. Construction of the second leach pad, Pad 2A, has been completed
and will significantly increase the ore leaching capacity of the operation.
Initial loading of Pad 2A is anticipated in March 2017.

Capital projects

The construction of the major storm events pond (the MSE
pond) was advanced to 85% by the end of Q4 2016. The pond is planned for
completion in early 2017 and the application for operational permits started.
The MSE pond will also increase water storage capacity and will collect
rainwater to be used during the dry season. The solution canal connecting the
current PLS and the MSE pond has progressed together with the construction of
the pond.

The construction of the base platform and preparation of the
foundation for the South dump has advanced on schedule. The South dump will be
ready for use by the first quarter of 2017 and it has sufficient capacity to
accommodate the waste rock during the following 18 months of operations.

Engineering for the initial crushing and agglomeration circuit
is complete; equipment fabrication and procurement is nearing completion. The
mine began receiving initial equipment deliveries in Q4 2016. Commissioning of
the circuit is expected to commence in Q3 2017. The Company expects to complete
the permitting process and begin construction of the initial crushing and
agglomeration plant in Q1 2017. Of the $80 million total project budget for the
crushing and agglomeration circuit, approximately $14.5 million has been spent
to December 31, 2016. Of the remaining amount, the Company has $30.9 million in
commitments with the balance expected to be spent in 2017 and 2018.

28

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Additional discussion

In mid-2016, the Company announced a management change in Peru
that focused on adding more leadership and expertise in processing heap leach
ores that require crushing and agglomeration. Operational changes in stacking,
irrigation and solution flow rates for current run-of-mine leaching operations
implemented by the new team have been highly successful in improving the
solution-to-ore ratio and recovery rates and at the same time have confirmed
that crushing and agglomerating the ore will achieve a higher NPV and return on
investment than run-of-mine processing. Internal and external testing
consistently indicates that a minimum of 80% recovery is achievable for
agglomerated ore. The Companys new project director in Peru who has significant
experience in agglomeration and conveyor systems working alongside highly
regarded consultants have been reviewing and optimizing crushing, size
distribution, geotechnical and materials handling characteristics of the
Shahuindo ores. The results from this work strongly support the findings for
throughput and recovery contained in the pre-feasibility study published in
January 2016. In addition, the Company is now confident that the expected
changes to the crushing and agglomeration circuit are likely to result in
slightly lower capital and operating costs compared to the pre-feasibility
estimate. Commissioning and operation of the Phase I crushing and agglomeration
circuit in the second half of 2017 is expected to provide the basis for
estimating and confirmation of the cost savings anticipated as a result of this
optimization program. The Company anticipates finalizing the purchase order for
Phase II crushing and agglomeration equipment by mid-year 2017 with installation
complete and commissioning underway by mid-year 2018. The project is expected to
reach the full 36,000 tpd production rate and estimated 80% recovery in the
second half of 2018, in line with the pre-feasibility study.

29

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Timmins mines

|                                                                  |   | Q4 2016 | (4) |   | Q4 2015 | (3)(4) |   | 2016   | (3)(4) |   | 2015 | (3)(4)
|----------------------------------------------------------------- | - | ------- | --- | - | ------- | ------ | - | ------ | ------ | - | ---- | ------
|                                                                  |   |         |     |   |         |        |   |        |        |   |      |       
|Tonnes Ore Mined(000s)                                           |   | 334     |     |   | -       |        |   | 941    |        |   | -    |       
|Tonnes Ore Milled(000s)                                          |   | 335     |     |   | -       |        |   | 938    |        |   | -    |       
|Average Tonnes Milled(tpd)                                        |   | 3,643   |     |   | -       |        |   | 3,410  |        |   | -    |       
|Average Gold Grade(g/t)                                           |   | 4.38    |     |   | -       |        |   | 4.19   |        |   | -    |       
|Average Gold Recovery                                             |   | 96%     |     |   | -       |        |   | 96%    |        |   | -    |       
|Gold Ounces Recovered(000s)                                      |   | 45.3    |     |   | -       |        |   | 121.6  |        |   | -    |       
|Costs Per Ounce Gold
      Produced(1)                            |   |         |     |   |         |        |   |        |        |   |      |       
|Total
      cash costs per ounce before by-product credits        | $ | 576     |     | $ | -       |        | $ | 617    |        | $ | -    |       
|Total
      cash costs per ounce net of by-product credits        | $ | 575     |     | $ | -       |        | $ | 615    |        | $ | -    |       
|Total
      production costs per ounce net of by-product credits  | $ | 890     |     | $ | -       |        | $ | 892    |        | $ | -    |       
|All-in
      sustaining costs per ounce net of by-product credits | $ | 976     |     | $ | -       |        | $ | 1,057  |        | $ | -    |       
|Capital Expenditures(2)                                           | $ | 25,005  |     | $ | -       |        | $ | 81,772 |        | $ | -    |       
|Sustaining Capital                                                | $ | 15,714  |     | $ | -       |        | $ | 45,123 |        | $ | -    |       
|Non-Sustaining Capital                                            | $ | 9,291   |     | $ | -       |        | $ | 36,649 |        | $ | -    |       

|(1) | Non-GAAP financial measures are described in the
      Non-GAAP Financial Measures section of this MD&A which also includes
      reconciliation to cash costs before by-product credits.       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Capital expenditures for 2016 in the Timmins mines
      segment includes the acquired 2% net smelter return (NSR) royalty
      related to production at the Bell Creek mine of $13.7 million. 
|(3) | 2016 includes results from the Timmins mines beginning
      April 1, 2016, the date of acquisition of Lake Shore Gold. Results prior
      to the acquisition date of April 1, 2016 are excluded.
|(4) | Numbers may not calculate due to
  rounding.                                                                                                                                                      

Timmins mines consist of two mining operations: Bell Creek and
Timmins West, both of which feed the Bell Creek Mill.

Q4 2016 gold sales generated $40.2 million in revenues at mine
operating costs of $34.0 million resulting in mine operating earnings of $6.2
million.

2016 gold sales generated $137.1 million in revenues at mine
operating costs of $101.7 million resulting in mine operating earnings of $35.4
million.

Total cash costs net of by-product credits for Q4 2016 were
$575 per ounce. All-in sustaining costs for the Q4 2016 were $976 per ounce
which were impacted by on-going capitalized ramp and sub-level development
advancements. Non-GAAP costs per ounce calculations are described in the
Non-GAAP Financial Measures section of this MD&A.

Total cash costs net of by-product credits for 2016 were $615
per ounce. All-in sustaining costs for the 2016 were $1,057 per ounce which were
impacted by on-going capitalized ramp and sub-level development advancements.
Non-GAAP costs per ounce calculations are described in the Non-GAAP Financial
Measures section of this MD&A.

Bell Creek

The Bell Creek mine is located in Hoyle Township, Ontario,
Canada, approximately 20kms northeast of the town of Timmins. Operations are
exploiting steeply-dipping shear-hosted sulfide gold mineralization by
underground longhole mining methods at a rate of approximately 900 tonnes of ore
per day. Ore is processed at the Bell Creek mill. Proven and Probable Mineral
Reserves at the Bell Creek mine as of January 1, 2017 totaled 1.8 million tonnes
at an average gold grade of 4.4 g/t containing 245 thousand ounces of gold.

30

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Underground development and
production

Underground ramp and sublevel
development continues to advance in support of the life-of-mine production
schedule, with 2,984 and 7,424 metres of development completed in Q4 2016 and
2016, respectively. Infill and definition drilling at the Bell Creek mine
totaled 5,931 metres in Q4 2016. A total of 33,936 metres of infill and
definition drilling to better define Mineral Resources at Bell Creek have been
completed during 2016.

During Q4 2016, the Bell Creek mine
delivered 0.1 million tonnes of ore to surface, mined from longitudinal longhole
stopes on multiple production sublevels. During 2016, the Bell Creek mine
delivered 0.2 million tonnes of ore to surface.

Capital projects

Lateral development for the BC Shaft
Project on the first two of five horizons was completed during Q4 2016. Vertical
development for the pilot hole from 535m level up towards the 300m level via
mechanized raise climbing method was completed in the quarter. Engineering and
procurement is progressing well with all permanent material available on
schedule. Site infrastructure work has also begun to prepare for the civil works
around the new hoisting plant and electrical substation footprint. Of the $80
million total budget for the BC Shaft Project, approximately $10.1 million has
been spent to December 31, 2016. Of the remaining amount, the Company has $9.3
million in commitments with the balance expected to be spent in 2017 and 2018.

Impact Benefits Agreement

During Q4 2016, the Company entered
into an Impact Benefits Agreement (IBA) relating to the Companys Bell Creek
mine and surrounding properties with the Mattagami, Wahgoshig, Matachewan and
Flying Post First Nation communities in the Timmins area of Northern Ontario.
The IBA establishes a framework for continued consultation relating to the
Companys existing and future operations in and around Timmins, and provides
long-term financial benefits to the four First Nation communities as well as
opportunities in such areas as new business ventures, employment, environmental
sustainability training and education.

Timmins West

The Timmins West mine property is located in Bristol, Thorneloe
and Carscallen Townships, Ontario, Canada, approximately 19kms west of the town
of Timmins. The Timmins West mine is comprised of the Timmins deposit, Thunder
Creek deposit, and the 144 Gap deposit. Operations are exploiting zones of
steeply-dipping sulfide gold mineralization occurring within or along favorable
lithostructural occurrences associated with regional shear zones at a rate of
approximately 2600 tpd by longhole stoping methods. Ore is trucked to the Bell
Creek mill for processing. Proven and Probable Mineral Reserves at the Timmins
West mine as of January 1, 2017 totaled 2.0 million tonnes at an average gold
grade of 3.69 g/t containing 233 thousand ounces of gold.

Underground development and
production

Underground ramp and sublevel
development continues to advance in support of the life-of-mine production
schedule, with 2,912 and 8,449 metres of development completed in Q4 2016 and
2016, respectively. Progress was made on the infrastructure development at 144
Gap and included ramp, raise and lateral development to access the resource.
Underground infill and definition drilling completed at the Timmins West mine in
Q4 2016 to improve resource/reserve definition totaled 17,089 metres. A total of
68,573 metres of infill and definition drilling at the Timmins West mine have
been completed during 2016.

During Q4 2016, the Timmins West mine
delivered approximately 0.2 million tonnes of ore to surface, mined primarily
from longitudinal and transverse longhole stopes on multiple production
sublevels from the Timmins West, Thunder Creek and 144 Gap deposits. During
2016, the Timmins West mine delivered 0.7 million tonnes of ore to surface.

31

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Bell Creek Mill

The Bell Creek mill processes ore from both the Timmins West
mine and the Bell Creek mine. Ore is processed by single-stage crushing and
single stage grinding, with a portion of the gold recovered by gravity methods,
followed by pre-oxidation and cyanidation with carbon-in-leach and
carbon-in-pulp recovery.

Mill operations averaged 3,643 tpd in Q4 2016. The mill
processed a total of 0.3 million tonnes with an average gold recovery of 96%.
Production in Q4 2016 totaled 45.3 thousand recovered gold ounces at an average
head grade of 4.38 grams per tonne.

During 2016, the mill averaged 3,410 tpd and processed 0.9
million tonnes of ore at an average grade of 4.19 grams per tonne and an average
recovery of 96%, for a total of 121.6 thousand recovered gold ounces.

Construction of the Phase 4 North tailings facility expansion
at the Bell Creek Mill was completed and placed into operation in Q4 2016.

|PROJECTS
|--------

The Company has assembled a projects team and has begun the
initial evaluation of high-priority exploration/development projects with the
main projects being the La Arena copper-gold sulfide project in Peru and the
Fenn-Gib gold project in Canada.

La Arena Phase II Sulfide Project

The La Arena Phase II Sulfide Project (the La Arena Sulfides)
is a large-tonnage copper-gold porphyry deposit located in close proximity to
the currently producing oxide gold deposit at the La Arena mine in Peru.
Modeling of the La Arena porphyry was completed and incorporated into a three
dimensional geologic model in 2016 which formed the basis for a new Mineral
Resource estimate and internal project scoping study. In addition, the Company
plans to complete a new drill program in 2017, to add further definition to the
deposit and to obtain samples for metallurgical test work aimed at improving
projected gold recoveries. Further studies may follow as the Company continues
to evaluate the project. The results of the internal scoping study are positive
and the Company has commissioned a NI 43-101 Preliminary Economic Assessment
(PEA) to be completed by M3 Engineering and Technology of Tucson Arizona. The
study is expected to be completed in Q3 2017 and could form the basis for
further advancement and studies of the project.

Fenn-Gib

Fenn-Gib is an open-pit project located approximately 70kms
east of the Companys Bell Creek mine in Northern Ontario. Current resources at
Fenn-Gib include 40.8 million tonnes at an average grade of 0.99 grams per tonne
gold for 1.3 million ounces in the Indicated category and 24.5 million tonnes at
an average grade of 0.95 grams per tonne for 0.8 million ounces in the Inferred
category.

Work recently began to design exploration and scoping studies
to be carried out to complete a Preliminary Economic Assessment (PEA) in 2017.
This is expected to include 31,500 metres of definition drilling and 25,000
metres of district exploration drilling as well as engineering, metallurgical
and environmental studies, consultation with First Nations and mine planning.

|EXPLORATION
|-----------

The Company reported 2016 exploration drill program results in
its press release dated January 9, 2017 available at www.sedar.com or on
the Companys website at www.tahoeresources.com. Highlights of the 2016
exploration drill program include:

| | Extensions laterally and vertically from the Central and
      East Zones into the previously-undrilled Gap Zone target at Escobal in
      Guatemala.                  
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Identification of new zones of near-pit, sandstone-hosted
      oxide mineralization at Shahuindo in Peru, which is expected to support
      future pit expansions; and

32

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

| | Significant extensions of mineralization in the 144
      Trend, deep Timmins West, Bell Creek, Vogel, Whitney and Gold River zones
      in the Timmins district in Canada.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Additional exploration details by country are as follows:

Guatemala

All identified Mineral Resources for the Escobal project are
located on the Escobal exploitation concession. Combined with the Juan Bosco
exploration concession, these two concessions comprise the Escobal project
area.

Exploration continued in Guatemala with four underground drill
holes for 2,282 metres completed in Q4 2016. Exploration drilling totaled 11
holes for 9,920 metres during 2016. Throughout 2016 exploration drilling
concentrated on testing the deep Gap zone between the East and Central Escobal
zones. Mineralization in the project area is defined over a 3,000 metre strike
length and 2,000 metre vertical range.

Guatemala exploration expenditures totaled $0.3 million and
$1.0 million during Q4 2016 and 2016, respectively.

Peru

During 2016 exploration activity in Peru included first-pass
drilling at the El Alizar target near the La Arena mine and extensional drilling
on a number of satellite targets at the Shahuindo project. In addition,
early-staged exploration was carried out on high priority regional targets
surrounding the La Arena and Shahuindo resource areas.

Following receipt of permits at El Alizar, drilling from April
to June concentrated on the northwest portion of the project area. Additional
permits were received and drilling shifted in early Q3 2016 to the southeast
portion of the project area until program completion in mid-November. A total of
seven holes for 1,635 metres were completed during Q4 2016. El Alizar drilling
during 2016 totaled 25 holes for 5,889 metres. Drilling confirmed narrow,
restricted zones of mineralization that were not found to be economic.

Exploration at Shahuindo focused on step-out drilling to define
the margins of the current resource and identify new zones peripheral to the
current pit. A total of 40 holes for 6,664 metres were completed during Q4 2016
(115 holes for 17,703 metres during 2016) on peripheral targets that include the
San Lorenzo and Choloque zones north of the Shahuindo starter pit, the El Sauce
zone southeast of the pit and the San Jose zone on the extreme northwest margin
of the Shahuindo resource.

The San Lorenzo zone is now defined by 62 drill holes along a
northeast trending structural trend that extends 350 metres north of the current
Shahuindo pit. A similar north-trending zone of mineralization occurs 400 metres
east of San Lorenzo along the Choloque fault which is currently defined by five
drill holes over a 250 metre strike length. Mineralization in the El Sauce zone
southeast of the current Shahuindo pit is now defined by 22 drill holes over a
275 metre northwest-southeast strike length, 80 metre width and 50 metre depth
of oxidation. Drilling in the San Jose zone in the extreme northwest margin of
the Shahuindo resource has identified a series of mineralized lenses parallel
and within 100 to 200 metres north and south of the main northwest trending
Shahuindo anticlinal trend. Mineralization in all of the target areas is
predominately sandstone host rocks of the Farratt formation on the limbs of the
San Jose anticline that may influence a push back of the current Shahuindo pit.

Reconnaissance work has been carried out in areas north and
northwest of Shahuindo to identify additional early-stage district targets.
Trenching in the Tabacos, Alisos and Azules zones 1.2 to 1.5kms north of
Shahuindo exposed wide zones of mineralization within oxidized sandstone host
rocks. Drilling at these early-stage exploration targets, as well as at the La
Chilca area northwest of Shahuindo, is planned in 2017 as permits are received.

Peru exploration expenditures totaled $2.9 million and $6.6
million for Q4 2016 and 2016, respectively.

Canada

In Canada a total of 28,774 metres of exploration drilling were
completed throughout the Timmins district during Q4 2016. Exploration since the
April 1, 2016 acquisition of Lake Shore Gold through the end of Q4 2016 totaled
66,800 metres of drilling. The exploration drilling totals are in addition to
the 19,902 metres and 101,927 metres of deposit infill and definition drilling
complete in Q4 2016 and 2016, respectively. This exploration is part of the
Companys long-term strategy to grow gold mineral reserves and/or mineral
resources by two to four million ounces in Canada. Refer to the Future
Developments - Targets and Initiatives section in this MD&A.

33

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Timmins West Complex

Drilling at the Timmins West Complex focused on definition of
  resources at the 144 Gap Deposit and extensional drilling at Timmins Mine Deep,
144 Trend and Gold River Trend.

Exploration of the Timmins Deposit during Q4 2016 consisted of
three underground drill holes (562 metres) and one surface hole (1,869 metres)
to test the down plunge extension of the Timmins Deposit Fold Nose (TDFN). For
2016, exploration of the Timmins Deposit consisted of four underground drill
holes (1,358 metres) and one surface hole (2,249 metres). Results to date from
the underground drilling have proven the extension of mineralization along the
fold nose approximately 150 metres below the current resource limit.

A deep master drill hole commenced from surface in September
2016 with the objective of intersecting the TDFN structure approximately 400
metres below the current resource limit and was completed in early February
2017. Results to date from this drilling have extended the fold nose structure
to at least the 1,800 metre level (350 metres below current resource).
Observations from the drill core indicate rock types, alteration and structure
similar to higher levels of the mine with local gold mineralization. Sampling
and assaying of the hole are still in progress. Planning is underway to complete
up to three or four daughter (wedge) holes to test up and down dip along the
target structure, with the first hole now in progress.

144 Trend

Exploration drilling in the 144 Gap area tested both near-mine
expansion targets and potential new discoveries. A total of 11,043 metres of
capital infill drilling and 657 metres of extensional drilling were completed
from the 144 underground drill platform during Q4 2016 (53,089 and 4,269 metres
of infill and extensional drilling, respectively during 2016). Specific
exploration targets included stratigraphic contacts and structural features
between the 144 Gap and Gap SW Zones, and potential new zones at the Thunder
Creek Stock target areas.

Capitalized underground and surface drilling at the 144 Gap
deposit was designed to support detailed mine planning. The most recent drilling
defined the resource at seven to 15 metre drill spacing with results generally
in line with the previous resource estimate for the deposit. Refinement of the
resource model is now in progress with an initial reserve estimate expected
during the first half of 2017.

Drilling along the general 144 Trend targeted the 144 South
Zone located approximately 1.6kms southwest of the 144 Gap Deposit. Drilling at
144 South included 6 surface exploration holes and 2 wedge cuts for 6,312 metres
for Q4 2016 (14,067 metres during 2016) succeeded in extending mineralization
along a syenite porphyry approximately 65 metres to the east and to depth, and
50 to 150 metres to the west from where previously recognized. Mineralization is
now defined over a 300 metre strike length and 700 metre vertical window along a
distinct southwest trending, north-westerly dipping corridor which remains open
to depth and at least 1.5kms along strike to the southwest.

Bell Creek Complex

Exploration in Q4 2016 at the Bell Creek Complex included 26
underground holes for 8,375 metres (25,800 metres during 2016) and two surface
holes with three 3 wedge cuts for 3,520 metres (4,430 metres during 2016).
Underground drilling focused on two main areas including the NA/NA2 Zones, the
two largest resource blocks at the Bell Creek mine, and the HW6 Zone, a new
structure discovered in late 2015 near the west limit of the mine. Drilling
successfully extended the NA/NA2 Zones a minimum of 30 metres to the east and to
depth. Drilling of the HW6 Zone extended mineralization a minimum of 60 metres
down dip that remains open to depth.

Surface drilling during Q4 2016 at the Bell Creek Complex
focused on extending resources to depth at the Schumacher and Vogel properties
east of the Bell Creek mine. The program identified mineralization approximately
250 metres below the current Vogel resource and 1.0 kilometre east of the Bell
Creek 760 Level. The deep Vogel extension remains open to the east and to depth
and will be the focus of additional drilling in 2017.

34

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Whitney project

The Whitney project is currently a joint venture for which the
Company is the operator. Located adjacent to the Bell Creek Complex, the Whitney
project covers approximately 8.9km 2 of highly prospective
exploration property and has the potential to add significant new resources to
the Companys portfolio. Recent work by the Company includes drilling and
environmental studies which could be used to support future resource updates.

Exploration at Whitney evaluated both shallow open-pit and
deeper underground targets during 2016. Near-surface drilling earlier in the
year focused on areas surrounding the upper Hallnor mine and C zones in the east
portion of the property to confirm and delineate previously recognized
mineralization amenable to open-pit extraction. Near surface mineralization is
now defined over a 1,250 metre strike length with an updated resource estimate
and open pit optimization study currently underway.

Drilling during Q4 2016 focused on testing deep targets below
the 1,000 metre level west of the historic Hallnor Mine workings with 20 holes
and five wedge cuts for 7,581 metres completed during the Q4 2016 (36,827m
during 2016). Deep drilling succeeded in extending mineralization 140 metres
west and 200 metres down dip from the previous limits of the #19 and #20 veins,
which were partially mined between the 1,200 and 1,500 metre levels of the
Hallnor mine.

Drilling of the C zone focused on potential open-pit or shallow
underground targets along a 200 metre zone immediately west of the Hallnor open
pit. A number of intercepts within 150 metres from surface show mineralization
related to a shallow northward dipping structure that remains open at depth.

Further to the Companys July 5, 2016 announcement regarding a
proposed transaction to increase its ownership in the Whitney project to 100%,
negotiations for a definitive agreement remain ongoing although the original
Letter of Intent expired on December 31, 2016. Any transaction will be subject
to the execution of a definitive agreement and to the approval by the Companys
Board of Directors.

Juby

Juby is a large near-surface deposit located in the Shining
Tree Area of Northern Ontario, near the town of Gowganda, 100kms south of
Timmins. Current Mineral Resources include 26.6 million tonnes at an average
grade of 1.28 grams per tonne for 1.1 million ounces in the Indicated Mineral
Resource category and 96.2 million tonnes at an average grade of 0.94 grams per
tonne for 2.9 million ounces in the Inferred Mineral Resource category.

Preparations are underway for an exploration program designed
to validate and expand the current resources in 2017. Initial data compilation,
exploration planning and refinement of the current resource model will be
carried out throughout the winter with field mapping and sampling and 10,000
metres of diamond drilling planned later in 2017.

Gold River

The Gold River Trend East and West deposits are located
approximately four kilometres south of the Timmins West mine and contain an
Indicated Mineral Resource of 117.4 thousand ounces of gold (0.7 million tonnes
at an average gold grade of 5.29 g/t) and an Inferred Mineral Resource of
1,027.8 thousand ounces of gold (5.3 million tonnes at an average gold grade of
6.06 g/t). Recent drilling (12 holes for 10,864 metres) has identified
extensions of mineralization along strike and down dip of the east-west trending
East and West deposits.

Surface drilling along the Gold River Trend, located four
kilometres south of the Timmins West Mine included four holes and three wedge
cuts (5,757 metres for Q4 2016 and 13,085 metres during 2016) focused on testing
depth extensions of the West and East deposits. At Gold River West drilling
extended mineralization 250 metres below the current resource and 150 metres
west of previously reported intercepts. At Gold River East recent drilling
intersected mineralization 300 metres below the current resource limit.

Expensed exploration expenditures in Canada amounted to $3.7
million and $6.8 million for Q4 2016 and 2016, respectively.

35

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

RISK FACTORS

Tahoes ability to generate revenues and achieve a return on
shareholders investment must be considered in light of, among other things, the
risks of doing business in foreign countries, the sustainability of operations
and the dependence on operating mines and the risks associated with the various
development projects. This document should be read in conjunction with Tahoes
2016 Annual Information Form (AIF) which includes a risk factor discussion
under the heading Description of Our Business  Risk Factors Relating to Our
Business and   Risk Factors Relating to Our Shares. Tahoes AIF is available
at www.sedar.com.

|COUNTRY RISKS
      RELATED TO OPERATIONS
|-----------------------------------------

The Companys operations are subject to political, economic,
social and geographic risks. Mineral exploration and mining activities may be
affected in varying degrees by government regulations relating to the mining
industry, judicial activity or political change or instability. Operations may
also be affected in varying degrees by government regulations and laws with
respect to restrictions on production, permitting, real property, price
controls, export controls, taxes, royalties, expropriation of property,
environmental legislation and mine safety. Additional adverse effects could
result from local protests impeding access to the Companys properties through
roadblocks or other public protests or attacks against the Companys assets or
personnel.

Guatemala suffered an armed conflict for 36 years, which was
finally resolved through a peace agreement reached with the countrys internal
revolutionary movement in 1996. The last political crisis in Guatemala occurred
in 1983 and constitutional government was not restored until 1985. In the past
two decades, Guatemala has made progress in restructuring its political
institutions and establishing democratic processes, however the country still
suffers from social problems, including, but not limited to, a high crime rate,
political corruption, malnutrition, poverty and uncertain land tenure. These
issues could adversely affect the Companys operations at the Escobal mine. In
addition, local opposition to development projects often occurs. Opposition in
the form of roadblocks, public protests or other means, by members of local
communities, anti-mining NGOs, unemployed people and unions can occur on local,
national and provincial routes. Renewed political unrest, changing government
attitudes towards mining, or a political crisis could adversely affect the
Companys business and results of operations. The status of Guatemala as a
developing country may make it more difficult for the Company to retain licenses
and obtain required financing for projects.

After a decade of political instability and one of its worst
economic crisis in history, Peru has experienced relative political stability
and economic growth since the mid-1990s as a result of the restructuring of
Peruvian institutions to create a free-market economy. Political tension,
poverty, unemployment and social conflict still occur and may result in an
adverse effect on the Companys business and operations. In addition, illegal
mining occurs in some regions of Peru, including in regions where the Company
operates. Historically, unregulated mining operations have adversely impacted
the environment, health and safety, human rights, security and the
socio-economic fabric of the nearby communities. The Company is working to
eliminate illegal mining and legitimize artisanal and informal mining on its
concessions by utilizing government-sanctioned mitigation programs. However,
illegal mining may still occur resulting in an adverse effect on the Companys
business and operations.

|MATTERS RELATED
      TO ABORIGINAL RIGHTS IN CANADA
|----------------------------------------------------

The Companys Canadian mines, mineral properties and related
mineral interests are located on and beneath lands that are or may be subject to
claims of constitutionally protected aboriginal rights, aboriginal title and
treaty rights. Canadian courts have set out certain tests that governments must
adhere to in any permitting decisions that may affect asserted or established
aboriginal rights and aboriginal title as well as treaty rights. This includes
requirements for aboriginal consultation and, if appropriate, accommodation in
respect of claimed but unproven aboriginal rights and title. It also includes
requirements that must be met in order to justify any infringement of treaty
rights, established aboriginal rights or aboriginal title (if proven and
aboriginal consent has not been obtained). The Company does not have any mines
or mineral properties in Canada in areas where aboriginal title has been proven
to date.

The duties of consultation, accommodation and, where
applicable, justification for infringement of aboriginal rights, aboriginal
title and treaty rights apply to the federal and provincial governments, not to
private companies. Canadian courts however, have held that governments can
delegate certain procedural aspects of the duty to consult to private parties. Further, these governmental duties
could affect the Company's interests in various indirect ways, including
potential legal challenges to governmental permits that have been issued,
challenges or delays in securing permits and approvals in future, the imposition
of terms and conditions to address aboriginal interests and claims to lands or
mineral interests.

36

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

In order to mitigate these risks, and in order to build
constructive relations in the communities within which it operates, the Company
is committed to working constructively with regulators and aboriginal
communities to assist governments in fulfilling their duties to aboriginal
peoples in respect of the Companys Canadian mines and mineral properties. The
Company is also committed to direct, bilateral engagements with aboriginal
groups to explore opportunities for positive relations and mutual benefit. To
this end, the Company is party to exploration and Impact and Benefits Agreements
with local First Nations in respect of the Timmins mines that provide for
education and training of First Nations members, employment opportunities,
environmental care, and collaborative business opportunities. The Company has
entered into an Impact and Benefits Agreement with five First Nations in respect
of the Bell Creek mine, effective September 30, 2016.

|RISKS RELATED
      TO THE LAKE SHORE GOLD ACQUISITION
|------------------------------------------------------

The anticipated benefits from the Lake Shore Gold acquisition
will depend in part on whether Tahoe and Lake Shore Golds operations can be
integrated in an efficient and effective manner. The integration of the two
companies will present challenges to management, including the integration of
systems and personnel of the two companies, implementing uniform standards,
controls, procedures and policies, as applicable, including the integration of
Lake Shore Golds disclosure controls and procedures and internal control over
financial reporting with the Companys existing procedures and controls, and
special risks, including possible unanticipated liabilities, unanticipated
costs, and the loss of key employees.

|RISKS RELATED
      TO INFORMATION SYSTEMS SECURITY
|---------------------------------------------------

Attacks on the Company's information technology (IT) systems
(or on systems of key third parties on which the Company relies), failure or
non-availability of a key IT system or Industrial control system (ICS") whether
intentional or not, could result in disruptions to the Companys operations,
personal injury, property damage or financial or reputational risks. As the
cyber threat landscape is ever changing, the Companys primary focus includes:
evaluating risk-prioritized controls, policies and procedures to protect against
known and emerging threats; tools to provide automated monitoring and alerting;
and disaster and backup recovery systems to restore systems and return to normal
operations. The Company has implemented and tested system controls and
infrastructure for disaster recovery for primary IT systems.

The Company's risk and exposure under these circumstances
cannot be fully mitigated in consideration of, among other things, the evolving
nature of these threats. As a result, cyber security and the continued
development and enhancement of controls, processes and practices designed to
protect systems, computers, software, networks, and data from attack or
disclosure, damage or unauthorized access remain a priority. As cyber threats
continue to emerge, the Company may be required to expend additional resources
to continue to modify, enhance or refine protective measures and/or investigate
and remediate any security vulnerabilities and processes.

NON-GAAP FINANCIAL MEASURES

|NON-GAAP
      FINANCIAL MEASURES
|---------------------------------

The Company has included certain non-GAAP financial measures
throughout this document which include total cash costs, total production costs,
all-in sustaining costs per silver and per gold ounce (all-in sustaining
costs), adjusted earnings and adjusted earnings per share. These measures are
not defined under IFRS and should not be considered in isolation. The Companys
Escobal mine produces primarily silver in concentrates with other metals (gold,
lead and zinc), produced simultaneously in the mining process, the value of
which represents a small percentage of the Companys revenue and is therefore
considered by-product. The Companys La Arena, Shahuindo and Timmins mines
produce primarily gold with other metals (primarily silver), produced
simultaneously in the mining process, the value of which represents a small
percentage of the Companys revenue and is therefore considered by-product.
The Company believes these measures will provide investors and analysts with
useful information about the Companys underlying earnings, cash costs of
operations, the impact of by-product credits on the Companys cost structure and
its ability to generate cash flow, as well as providing a meaningful comparison to other mining companies. Accordingly, these
measures are intended to provide additional information and should not be
substituted for GAAP measures.

37

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

These non-GAAP financial measures may be calculated differently
by other companies depending on the underlying accounting principles and
policies applied.

During Q4 2016, the Company began reporting total operating
  costs (cost of sales) per ounce. The Company believes that this metric is
  important in assessing the performance of each of the Companys sold metals and
  as a meaningful GAAP-based comparison to other mining companies. Total operating
  costs (cost of sales) per ounce sold is calculated by dividing total the
  operating costs by gold ounces sold. Total operating costs (cost of sales)
  includes production costs, depreciation and depletion and royalties. The
  reconciliation of total operating costs (cost of sales) to total cash costs is
  included in the total cash cost and total production cost tables below.
  Comparative periods have been updated to reflect current period presentation.
  There is no impact to current or prior period disclosed numbers due to the
inclusion of this new metric.

For each operating segment of the Company, the following tables
provide reconciliations of: 1) consolidated earnings to consolidated adjusted
earnings; 2) total operating costs (cost of sales) to total cash costs; and 3)
total production costs, total cash costs and all-in sustaining costs to the
consolidated financial statements for the years ended December 31, 2016 and
2015.

Consolidated adjusted earnings (loss) and consolidated
adjusted earnings (loss) per share(1)(2)

The Company has adopted the reporting of consolidated adjusted
earnings (loss) (adjusted earnings (loss)) and consolidated adjusted earnings
(loss) per share (adjusted earnings (loss) per share) as a non-GAAP measure of
a precious metals mining companys operating performance. This measure has no
standardized meaning and the Companys presentation of adjusted measures are not
meant to be substituted for GAAP measures of consolidated earnings (loss) or
consolidated earnings (loss) per share and should be read in conjunction with
such GAAP measures. Adjusted earnings (loss) and adjusted earnings (loss) per
share are calculated as earnings (loss) excluding i) non-cash impairment losses
and reversals on mineral interests and other assets, ii) unrealized foreign
exchange gains or losses related to the revaluation of deferred income tax
assets and liabilities on non-monetary items, iii) unrealized foreign exchange
gains or losses related to other items, iv) unrealized gains or losses on
derivatives, v) non-recurring provisions, vi) gains or losses on sale of assets
and vii) any other non-recurring adjustments and the related tax impact of these
adjustments calculated at the statutory effective rate for the same jurisdiction
as the adjustment. Non-recurring adjustments from unusual events or
circumstances are reviewed periodically based on materiality and the nature of
the event or circumstance.

The Company calculates adjusted earnings (loss) and adjusted
earnings (loss) per share on a consolidated basis.

|                                                            |   | Q4 2016 |   |   | Q4 2015  |   |   | 2016    |   |   | 2015    |  
|----------------------------------------------------------- | - | ------- | - | - | -------- | - | - | ------- | - | - | ------- | -
|Earnings
      (loss)(1)(2)                                 | $ | 315     |   | $ | (107,717 | ) | $ | 117,876 |   | $ | (71,911 | )
|Impairment,
      net of tax                                |   | -       |   |   | 153,362  |   |   | -       |   |   | 153,362 |  
|Unrealized foreign exchange loss                            |   | (1,284  | ) |   | 4,150    |   |   | 539     |   |   | 4,530   |  
|Acquisition
      costs                                     |   | 49      |   |   | 871      |   |   | 11,134  |   |   | 11,719  |  
|Deferred tax(3)                                             |   | 19,335  |   |   | -        |   |   | 19,335  |   |   | -       |  
|Loss on
      conversion of debentures                      |   | -       |   |   | -        |   |   | 32,304  |   |   | -       |  
|Loss (gain) on
      derivative instruments (currency swap) |   | -       |   |   | 339      |   |   | (803    | ) |   | 1,210   |  
|Adjusted earnings                                           | $ | 18,415  |   | $ | 51,005   |   | $ | 180,385 |   | $ | 98,910  |  
|                                                            |   |         |   |   |          |   |   |         |   |   |         |  
|Weighted average common shares
      outstanding            |   |         |   |   |          |   |   |         |   |   |         |  
|Basic (000s)                                               |   | 311,653 |   |   | 227,620  |   |   | 289,727 |   |   | 207,811 |  
|Diluted
      (000s)                                       |   | 311,786 |   |   | 227,764  |   |   | 289,988 |   |   | 207,811 |  
|Adjusted earnings per
      share                           |   |         |   |   |          |   |   |         |   |   |         |  
|Basic                                                       | $ | 0.06    |   | $ | 0.22     |   | $ | 0.62    |   | $ | 0.48    |  
|Diluted                                                     | $ | 0.06    |   | $ | 0.22     |   | $ | 0.62    |   | $ | 0.48    |  

|(1) | Results of the Timmins mines prior to the date of
      acquisition of Lake Shore Gold on April 1, 2016 are excluded.  
|--- | -----------------------------------------------------------------------------------------------------------------------
|(2) | Results of La Arena and Shahuindo prior to the date of
      acquisition of Rio Alto on April 1, 2015 are excluded.    
|(3) | Adjustment to reflect the impact of a non-cash deferred
      tax charge resulting from a change in enacted rates
Peru.

38

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Total cash costs and total production costs

The Company reports total cash costs and total production costs
on a silver ounce and a gold ounce produced basis for the Escobal mine and the
La Arena, Shahuindo and Timmins mines, respectively. The Company follows the
recommendation of the cost standard as endorsed by the Silver Institute (the
Institute) for the reporting of cash costs (silver) and the generally accepted
standard of reporting cash costs (gold) by precious metal mining companies. The
Institute is a nonprofit international association with membership from across
the silver industry. The Institute serves as the industrys voice in increasing
public understanding of the many uses and values of silver. This remains the
generally accepted standard for reporting cash costs of production by precious
metal mining companies. Total cash costs and total production costs are divided
by the number of silver ounces contained in concentrate or gold ounces recovered
from the leach pads to calculate per ounce figures. When deriving the production
costs associated with an ounce of silver or gold, the Company deducts by-product
credits from sales which are incidental to producing silver and gold.

Total cash costs (silver)

Total cash costs and total
production costs per ounce of produced silver, net of by-product credits

| | Total cash costs and total production
      costs                         |   | Q4 2016 |   |   | Q4 2015 | (1) |   | 2016    |   |   | 2015    |  
| | ------------------------------------------------------------------------- | - | ------- | - | - | ------- | --- | - | ------- | - | - | ------- | -
| | Total operating costs (cost
      of sales)(2)                            | $ | 52,524  |   | $ | 29,531  |     | $ | 200,497 |   | $ | 190,944 |  
| | Depreciation and depletion                                                |   | (12,903 | ) |   | (11,876 | )   |   | (53,204 | ) |   | (47,594 | )
| | Change in product inventory                                               |   | (2,558  | ) |   | (63     | )   |   | (1,139  | ) |   | 243     |  
| | Treatment and refining
      charges                                      |   | 8,173   |   |   | 11,438  |     |   | 32,600  |   |   | 34,968  |  
| | Total cash costs before
      by-product credits(3)                       | $ | 45,236  |   | $ | 29,030  |     | $ | 178,754 |   | $ | 178,561 |  
| | Gold credit                                                               |   | (1,910  | ) |   | (3,508  | )   |   | (10,213 | ) |   | (10,873 | )
| | Lead credit                                                               |   | (7,554  | ) |   | (6,209  | )   |   | (22,019 | ) |   | (18,115 | )
| | Zinc credit                                                               |   | (4,657  | ) |   | (7,035  | )   |   | (22,693 | ) |   | (23,938 | )
| | Total cash costs net of
      by-product credits                          | $ | 31,115  |   | $ | 12,278  |     | $ | 123,829 |   | $ | 125,635 |  
| | Depreciation and depletion                                                |   | 12,903  |   |   | 11,876  |     |   | 53,204  |   |   | 47,594  |  
| | Total production costs net
      of by-product credits                    | $ | 44,018  |   | $ | 24,154  |     | $ | 177,033 |   | $ | 173,229 |  
| |                                                                           |   |         |   |   |         |     |   |         |   |   |         |  
| | Silver ounces sold in
      concentrate (000s)                           |   | 4,470   |   |   | 6,236   |     |   | 18,996  |   |   | 20,190  |  
| | Silver ounces produced in concentrate (000s)                             |   | 4,801   |   |   | 5,515   |     |   | 21,189  |   |   | 20,402  |  
| |                                                                           |   |         |   |   |         |     |   |         |   |   |         |  
| | Total operating costs (cost of sales) per
      ounce sold                | $ | 11.75   |   | $ | 4.74    |     | $ | 10.55   |   | $ | 9.46    |  
| | Total cash costs per ounce
      produced before by-product credits       | $ | 9.42    |   | $ | 5.26    |     | $ | 8.44    |   | $ | 8.75    |  
| | Total cash costs per ounce produced net
      of by-product credits       | $ | 6.48    |   | $ | 2.23    |     | $ | 5.84    |   | $ | 6.16    |  
| | Total production costs per ounce produced net of
      by-product credits | $ | 9.17    |   | $ | 4.38    |     | $ | 8.35    |   | $ | 8.49    |  

| | (1) | Due to the judicial invalidation of the 10% royalty
      regime, a reversal of royalties previously accrued was recognized during
      Q4 2015.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Total operating costs (cost of sales) includes production
      costs, depreciation and depletion and royalties.                                 
| | (3) | Gold, lead and zinc by-product credits are calculated as
      follows:                                                                          

| |             | Q4 2016  | Q4 2015
| | ----------- | -------- | -------
| |             |          | Unit   
| |             | Quantity | Price  
| | Gold Ounces | 1,820    | $1,050 
| | Lead Tonnes | 2,288    | $3,303 
| | Zinc Tonnes | 2,840    | $1,640 

| |             | 2016     | 2015  
| | ----------- | -------- | ------
| |             |          | Unit  
| |             | Quantity | Price 
| | Gold Ounces | 7,676    | $1,330
| | Lead Tonnes | 8,993    | $2,448
| | Zinc Tonnes | 12,345   | $1,838

39

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Total cash costs (gold)

Total cash costs and total production costs per ounce of
produced gold, net of by-product credits

|                                                                          |   | **Q4
      2016**(7) |  
|------------------------------------------------------------------------- | - | -------------------- | -
|                                                                          |   | La Arena             |  
|Total operating costs (cost
      of sales)(5)                            | $ | 36,083               |  
|Depreciation and depletion                                                |   | (9,732               | )
|Change in product inventory(3)                                            |   | 2,951                |  
|Smelting and refining charges                                             |   | 810                  |  
|Total cash costs before
      by-product credits                          | $ | 30,112               |  
|Silver credit(6)                                                          |   | (100                 | )
|Total cash costs net of
      by-product credits                          | $ | 30,012               |  
|Depreciation and depletion                                                |   | 9,732                |  
|Total production cost net
      of by-product credits                     | $ | 39,744               |  
|                                                                          |   |                      |  
|Gold ounces sold (000s)                                                  |   | 53.0                 |  
|Gold ounces produced(4)(000s)                                            |   | 58.1                 |  
|                                                                          |   |                      |  
|Total operating costs (cost of sales)
      per ounce sold                | $ | 680                  |  
|Total cash costs per ounce
      produced before by-product credits       | $ | 518                  |  
|Total cash costs per ounce produced net
      of by-product credits       | $ | 516                  |  
|Total production costs per ounce produced net of
      by-product credits | $ | 684                  |  

|                                                                          |   | **2016**(1)(7) |  
|------------------------------------------------------------------------- | - | -------------- | -
|                                                                          |   | La Arena       |  
|Total operating costs (cost
      of sales)(5)                            | $ | 143,008        |  
|Depreciation
      and depletion                                          |   | (27,779        | )
|Change
      in product inventory(3)                                      |   | 4,994          |  
|Smelting
      and refining charges                                       |   | 1,814          |  
|Total cash costs before
      by-product credits                          | $ | 122,037        |  
|Silver
      credit(6)                                                    |   | (385           | )
|Total cash costs net of
      by-product credits                          | $ | 121,652        |  
|Depreciation and depletion                                                |   | 27,779         |  
|Total production cost net
      of by-product credits                     | $ | 149,431        |  
|                                                                          |   |                |  
|Gold ounces sold (000s)                                                  |   | 198.6          |  
|Gold ounces produced(4)(000s)                                            |   | 204.1          |  
|                                                                          |   |                |  
|Total operating costs (cost of sales)
      per ounce sold                | $ | 720            |  
|Total cash costs per ounce
      produced before by-product credits       | $ | 598            |  
|Total cash costs per ounce produced net
      of by-product credits       | $ | 596            |  
|Total production costs per ounce produced net of
      by-product credits | $ | 732            |  

|(1) | 2016 figures include data from the Timmins mines
      beginning April 1, 2016, the date of acquisition of Lake Shore
  Gold.                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | 2016 figures include data from Shahuindo beginning May 1,
      2016, the commencement date of commercial production.                                                                                                                                                                                                                                                                     
|(3) | Change in product inventory at Shahuindo for Q4 2016 and
      2016 includes costs related to gold produced in doré, but not sold as at
      December 31, 2016. Costs associated with the build-up of stockpile during
      the commissioning phase which remain work in process inventory at December
      31, 2016 have been excluded from the inventory movements in the
    period.
|(4) | Gold ounces produced at La Arena and Shahuindo are gold
      ounces produced in doré.                                                                                                                                                                                                                                                                                                    
|(5) | Total operating costs (cost of sales) includes production
      costs, depreciation and depletion and royalties.                                                                                                                                                                                                                                                                          
|(6) | Consolidated silver by-product credits are calculated as
      follows:                                                                                                                                                                                                                                                                                                                   

40

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

| |               |  | Q4 2016  |  |   | 2016  | 
| | ------------- |  | -------- |  | - | ----- | 
| |               |  |          |  |   | Unit  | 
| |               |  | Quantity |  |   | Price | 
| | Silver Ounces |  | 26,310   |  | $ | 20.18 | 

|(7) | Numbers in table may not calculate due to
  rounding.
|--- | -----------------------------------------------------

|                                                                         |   | Q4
      2015(1)(2)(3)(8)(9) |  
|------------------------------------------------------------------------ | - | ---------------------------- | -
|                                                                         |   | La Arena                     |  
|Total operating costs (cost
      of sales)(4)                           | $ | 43,956                       |  
|Depreciation and depletion                                               |   | (11,419                      | )
|Change in product inventory                                              |   | (2,002                       | )
|Smelting and refining charges                                            |   | 68                           |  
|Total cash costs before
      by-product credits                         | $ | 30,603                       |  
|Silver credit(7)                                                         |   | (117                         | )
|Total cash costs net of
      by-product credits                         | $ | 30,486                       |  
|Depreciation and depletion                                               |   | 11,419                       |  
|Total production cost net
      of by-productcredits                     | $ | 41,905                       |  
|                                                                         |   |                              |  
|Gold ounces sold (000s)                                                 |   | 56.4                         |  
|Gold ounces produced(6)(000s)                                           |   | 56.4                         |  
|                                                                         |   |                              |  
|Total operating costs (cost of sales) perounce sold                      | $ | 780                          |  
|Total cash costs per ounce
      produced beforeby-product credits       | $ | 543                          |  
|Total cash costs per ounce produced net ofby-product credits             | $ | 541                          |  
|Total production costs per ounce producednet of
      by-product credits | $ | 743                          |  

|                                                                         |   | 2015(1)(2)(3)(8)(9) |  
|------------------------------------------------------------------------ | - | ------------------- | -
|                                                                         |   | La Arena            |  
|Total operating costs (cost
      of sales)(4)(5)                        | $ | 130,531             |  
|Depreciation and depletion                                               |   | (31,277             | )
|Change in product inventory                                              |   | (3,425              | )
|Smelting and refining charges                                            |   | 408                 |  
|Total cash costs before
      by-product credits                         | $ | 96,237              |  
|Silver credit(7)                                                         |   | (298                | )
|Total cash costs net of
      by-product credits                         | $ | 95,939              |  
|Depreciation and depletion                                               |   | 31,277              |  
|Total production cost net
      of by-productcredits                     | $ | 127,216             |  
|                                                                         |   |                     |  
|Gold ounces sold (000s)                                                 |   | 173.9               |  
|Gold ounces produced(6)(000s)                                           |   | 174.1               |  
|                                                                         |   |                     |  
|Total operating costs (cost of sales) perounce sold                      | $ | 753                 |  
|Total cash costs per ounce
      produced beforeby-product credits       | $ | 553                 |  
|Total cash costs per ounce produced net ofby-product credits             | $ | 551                 |  
|Total production costs per ounce producednet of
      by-product credits | $ | 731                 |  

|(1) | Q4 2015 and 2015 comparative figures exclude data from
      the Timmins mines.                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | 2015 figures include data from the La Arena mine
      beginning April 1, 2015, the date of acquisition of Rio Alto.                                          
|(3) | Q4 2015 and 2015 comparative figures exclude data from
      the Shahuindo mine as commercial production was declared May 1,
    2016.                        
|(4) | Total operating costs (cost of sales) includes production
      costs, depreciation and depletion, royalties and smelting and refining
      charges.         
|(5) | Production costs included in total operating costs
      exclude the non-cash fair value adjustment related to the acquisition of
  Rio Alto of $11.7 million.

41

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

|(6) | Gold ounces produced at La Arena are gold ounces produced
      in doré.
|--- | ------------------------------------------------------------------------
|(7) | Silver by-product credits are calculated as
    follows:                

| |               |  | Q4 2015  |  |   | 2015  | 
| | ------------- |  | -------- |  | - | ----- | 
| |               |  |          |  |   | Unit  | 
| |               |  | Quantity |  |   | Price | 
| | Silver Ounces |  | 7,016    |  | $ | 16.68 | 

|(8) | Table has been updated to reflect current period
      presentation with no impact to the cash costs previously
  presented.
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(9) | Numbers in table may not calculate due to
  rounding.                                                                       

All-in sustaining costs

The Company has also adopted the reporting of all-in sustaining
costs as a non-GAAP measure of a precious metals mining companys ability to
generate cash flow from operations. This measure has no standardized meaning and
the Company has utilized an adapted version of the guidance released by the
World Gold Council (WGC), the market development organization for the gold
industry. The WGC is not a regulatory industry organization and does not have
the authority to develop accounting standards or disclosure requirements.

All-in sustaining costs include total cash costs incurred at
the Companys mining operations, sustaining capital expenditures, corporate
administrative expense, exploration and evaluations costs, and reclamation and
closure accretion. The Company believes that this non-GAAP measure represents
the total costs of producing silver and gold from its operations, and provides
additional information of the Companys operational performance and ability to
generate cash flows to support future capital investments and to sustain future
production.

All-in sustaining costs (silver)

Total all-in sustaining costs per
ounce of produced silver, net of by-product credits(2)

|                                                                           |   | Q4 2016 |  |   | Q4 2015 |  |   | 2016    |  |   | 2015    | 
|-------------------------------------------------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- | 
|Total cash costs net of
      by-product credits                           | $ | 31,115  |  | $ | 12,278  |  | $ | 123,829 |  | $ | 125,635 | 
|Sustaining
      capital(1)                                                |   | 10,295  |  |   | 8,853   |  |   | 27,030  |  |   | 29,685  | 
|Exploration                                                                |   | 281     |  |   | 415     |  |   | 1,002   |  |   | 1,864   | 
|Reclamation
      cost accretion                                           |   | 57      |  |   | 48      |  |   | 198     |  |   | 195     | 
|General and
      administrative expenses                                  |   | 5,129   |  |   | 5,136   |  |   | 18,655  |  |   | 28,531  | 
|All-in sustaining costs                                                    | $ | 46,877  |  | $ | 26,730  |  | $ | 170,714 |  | $ | 185,910 | 
|                                                                           |   |         |  |   |         |  |   |         |  |   |         | 
|Silver ounces produced in concentrate (000s)                              |   | 4,801   |  |   | 5,515   |  |   | 21,189  |  |   | 20,402  | 
|                                                                           |   |         |  |   |         |  |   |         |  |   |         | 
|All-in sustaining costs per ounce produced net of
      by-product credits | $ | 9.76    |  | $ | 4.85    |  | $ | 8.06    |  | $ | 9.11    | 

|(1) | Sustaining capital includes underground development and
      surface sustaining capital expenditures.
|--- | ------------------------------------------------------------------------------------------------------
|(2) | Numbers in table may not calculate due to
  rounding.                                                 

All-in sustaining costs (gold)

Total all-in sustaining costs per ounce of produced gold,
net of by-product credits

|                                                                           |   | **Q4
      2016**(4) | 
|-------------------------------------------------------------------------- | - | -------------------- | 
|                                                                           |   | La Arena             | 
|Total cash costs net of
      by-product credits                           | $ | 30,012               | 
|Sustaining capital                                                         |   | 13,560               | 
|Exploration                                                                |   | 568                  | 
|Reclamation cost
      accretion                                           |   | 308                  | 
|General and administrative
      expenses(3)                               |   | 1,268                | 
|All-in sustaining costs                                                    | $ | 45,716               | 
|                                                                           |   |                      | 
|Gold ounces produced (000s)                                               |   | 58.1                 | 
|                                                                           |   |                      | 
|All-in sustaining costs per ounce produced net of
      by-product credits | $ | 786                  | 

42

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

|                                                                           |   | **2016**(1)(2)(4) | 
|-------------------------------------------------------------------------- | - | ----------------- | 
|                                                                           |   | La Arena          | 
|Total cash costs net of
      by-product credits                           | $ | 121,652           | 
|Sustaining capital                                                         |   | 35,272            | 
|Exploration                                                                |   | 1,664             | 
|Reclamation cost
      accretion                                           |   | 1,266             | 
|General and administrative
      expenses(3)                               |   | 11,024            | 
|All-in sustaining costs                                                    | $ | 170,878           | 
|                                                                           |   |                   | 
|Gold ounces produced (000s)                                               |   | 204.1             | 
|                                                                           |   |                   | 
|All-in sustaining costs per ounce produced net of
      by-product credits | $ | 837               | 

|(1) | 2016 figures include data from the Timmins mines
      beginning April 1, 2016, the date of acquisition of Lake Shore
  Gold.                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | 2016 figures include data from Shahuindo beginning May 1,
      2016, the commencement date of commercial production.                                  
|(3) | General and administrative expenses at Shahuindo include
      a year-to-date adjustment to assign certain costs to production and other
      expense.
|(4) | Numbers in table may not calculate due to
  rounding.                                                                                                  

|                                                                           |   | Q4
      2015(1)(2)(3)(4) |  
|-------------------------------------------------------------------------- | - | ------------------------- | -
|                                                                           |   | La Arena                  |  
|Total cash costs net of
      by-product credits                           | $ | 30,486                    |  
|Sustaining capital                                                         |   | 11,859                    |  
|Exploration                                                                |   | (106                      | )
|Reclamation cost
      accretion                                           |   | 243                       |  
|General and administrative
      expenses                                  |   | 1,154                     |  
|All-in sustaining costs                                                    |   | 43,636                    |  
|                                                                           |   |                           |  
|Gold ounces produced in doré (000s)                                       |   | 56.4                      |  
|                                                                           |   |                           |  
|All-in sustaining costs per ounce produced net of by-product
      credits | $ | 774                       |  

|                                                                           |   | 2015(1)(2)(3)(4) | 
|-------------------------------------------------------------------------- | - | ---------------- | 
|                                                                           |   | La Arena         | 
|Total cash costs net of
      by-product credits                           | $ | 95,939           | 
|Sustaining capital                                                         |   | 25,892           | 
|Exploration                                                                |   | 1,403            | 
|Reclamation cost
      accretion                                           |   | 811              | 
|General and administrative
      expenses                                  |   | 3,481            | 
|All-in sustaining costs                                                    |   | 127,526          | 
|                                                                           |   |                  | 
|Gold ounces produced in doré (000s)                                       |   | 174.1            | 
|                                                                           |   |                  | 
|All-in sustaining costs per ounce produced net of by-product
      credits | $ | 733              | 

|(1) | Q4 2015 and 2015 comparative figures exclude data from
      the Timmins mines.                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|(2) | 2015 figures include data from the La Arena mine
      beginning April 1, 2015, the date of acquisition of Rio Alto.                  
|(3) | Q4 2015 and 2015 comparative figures exclude data from
      the Shahuindo mine as commercial production was declared May 1,
    2016.
|(4) | Numbers in table may not calculate due to
  rounding.                                                                                 

43

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

CASH FLOW, LIQUIDITY, CAPITAL RESOURCES AND OTHER INFORMATION

|CASH FLOW
|---------

Q4 2016 vs. Q4 2015

Cash provided by operating activities before changes in working
capital was $74.7 million for Q4 2016, compared to $96.8 million for Q4 2015.
This $22.1 million decrease is primarily due to a decrease in sales of
approximately 1.8 million ounces of silver in concentrate. Net cash provided by
operating activities totaled $107.0 million for Q4 2016, compared to $54.2
million for Q4 2015. This increase is primarily due to the addition of
production from the Timmins mines acquired on April 1, 2016, in addition to
production from Shahuindo which reached commercial production during Q2 2016.

Investing activities consisted of additions to property, plant,
and equipment of $64.4 million during Q4 2016, compared to $44.5 million during
Q4 2015. Investment activities included on-going leach pad and waste dump
construction at La Arena and Shahuindo, equipment procurement and personnel
engagement for the initiation of the BC Shaft Project, tailings impoundment
expansion at Bell Creek, resource infill and stope definition drilling at the
Timmins mines, ongoing development at Escobal, and various infrastructure
construction including the crushing and agglomeration circuit at Shahuindo and
general improvements at all of the Companys operations.

Financing activities resulted in a cash outflow of $20.2
million during Q4 2016 compared to a cash outflow of $16.0 million during Q4
2015. The Q4 2016 outflow was primarily due to the $16.3 million cash payment of
dividends, a $0.1 million payment of financing fees, $3.1 million in payments on
the finance leases and $0.8 million in other financing activities. These
outflows were partially offset by $0.2 million in proceeds from the issuance of
common shares on exercise of share options. The Q4 2015 cash outflow was
primarily due to the $13.6 million cash payment of dividends, $1.5 million in
payments on the finance leases and $2.0 million in interest and financing fees
paid which were offset by $1.1 million in proceeds from the issuance of common
shares on exercise of share options.

2016 vs. 2015

Cash provided by operating activities before changes in working
capital was $385.9 million for 2016, compared to $226.3 million for 2015. Net
cash provided by operating activities totaled $249.5 million for 2016, compared
to $166.7 million for 2015. These increases are primarily due to a full year of
production from La Arena, eight months of production at Shahuindo which reached
commercial production in Q2 2016 and nine months of production from the Timmins
mines acquired on April 1, 2016.

Investing activities consisted of additions to property, plant,
and equipment of $190.9 million during 2016, compared to $122.0 million during
2015. Investment activities included on-going leach pad and waste dump
construction at La Arena and Shahuindo, mine construction, including plant, pit,
pad and other various construction activities at Shahuindo prior to declaration
of commercial production on May 1, 2016, development and construction of the BC
Shaft Project, tailings impoundment expansion at Bell Creek, resource infill and
stope definition drilling at the Timmins mines, ongoing development at Escobal,
and various infrastructure construction including the crushing and agglomeration
circuit at Shahuindo and improvements at all of the Companys operations. These
2016 additions were offset by $70.2 million in cash acquired through the Lake
Shore Gold acquisition.

Financing activities resulted in a cash outflow of $72.9
million during 2016 compared to an outflow of $81.8 million during 2015. The
2016 outflow was primarily due to the $67.0 million cash payment of dividends, a
$3.4 million payment of interest and financing fees and $22.3 million in
payments on the finance leases (including $10.8 million related to the
retirement of the sale-leaseback lease obligation). These outflows were
partially offset by $19.8 million in proceeds from the issuance of common shares
on exercise of share options. The 2015 outflow was primarily due to the
repayment of the loan facility of $50.0 million in addition to $49.7 million
relating to the cash payment of dividends, $4.8 million in payments on the
finance leases and $5.0 million in interest and financing fees paid which were
offset by $27.7 million in proceeds from the issuance of common shares on the
exercise of stock options.

44

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

|LIQUIDITY,
      CAPITAL RESOURCES AND FINANCIAL RISK MANAGEMENT
|----------------------------------------------------------------

The Companys cash and cash equivalents balance at December 31,
2016 was $163.4 million compared to $108.7 million at December 31, 2015.

The Company had working capital of $209.0 million and
non-current liabilities of $348.7 million at December 31, 2016 of which $236.2
million relates to non-cash deferred tax liabilities. This compares to working
capital of $77.3 million at December 31, 2015 and non-current liabilities of
$187.6 million of which $134.6 million relates to non-cash deferred tax
liabilities. The $131.7 million change in working capital position was primarily
due to the refinancing of the $35 million debt, a $54.7 million increase in cash
and cash equivalents combined with a $21.4 million increase in the concentrate
sales accounts receivable and an increase in inventories of $56.5 million
primarily as a result of the buildup of product inventories. These were
partially offset by increases in accounts payable and accrued liabilities and
the current portion of lease obligation of $29.4 million and $2.5 million,
respectively. The changes in working capital noted above reflect the impact of
the inclusion of Lake Shore Gold during 2016.

It is the opinion of management, based on the Companys current
liquidity position, continued steady state operations and sale of concentrate
and doré production, that the Companys liquid assets will be sufficient to
discharge liabilities, and to continue funding operations. The Company may
consider alternative financing arrangements to meet its strategic needs and
currently has a $150 million undrawn revolving credit facility in place to
further mitigate liquidity risk. Refer to the Debt Facilities section
of this MD&A for further information.

The Companys capital consists of the following:

|                          |   | December 31, |   |   | December 31, |  
|------------------------- | - | ------------ | - | - | ------------ | -
|                          |   | 2016         |   |   | 2015         |  
|Equity                    | $ | 2,572,154    |   | $ | 1,664,031    |  
|Debt                      |   | 35,000       |   |   | 35,000       |  
|Lease obligations         |   | 15,946       |   |   | 13,862       |  
|                          |   | 2,623,100    |   |   | 1,712,893    |  
|Cash and cash equivalents |   | (163,368     | ) |   | (108,667     | )
|Restricted
      cash     |   | (4,672       | ) |   | (2,500       | )
|                          | $ | 2,455,060    |   | $ | 1,601,726    |  

The Companys strategy is to maintain a strong capital base so
as to maintain investor, creditor and market confidence and to support future
development of the business. The Company seeks to maintain a balance between the
higher returns that might be possible with higher levels of borrowing and the
advantages and security afforded by a sound capital position. The capital
structure of the Company consists of common equity, comprising share capital and
reserves net of accumulated deficit, and debt, which includes the credit
facility and finance leases.

The Companys overall capital management strategy remains
unchanged from the year ended December 31, 2015.

Dividends declared and paid during Q4 2016 and 2016 totaled
$18.7 million and $69.4 million, respectively (Q4 2015 and 2015: $13.6 million
and $49.7 million, respectively). Dividends paid in 2016 consist of cash and
non-cash payments in the form of common shares of the Company through the
dividend reinvestment plan. For Q4 2016 and 2016, cash payments were $16.3
million and $67.0 million, respectively, and non-cash payments were $2.4 million
and $2.4 million, respectively for a total issuance of 256,747 common shares of
the Company.

Financial risk management

The Company has exposure to certain risks resulting from its
use of financial instruments. These risks include credit risk, liquidity risk
and market risk.

45

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Credit Risk

Credit risk is the risk that the counterparty to a financial
instrument will cause a loss for the Company by failing to meet its obligations.
Credit risk for the Company is primarily related to trade and other receivables,
sales tax receivable and cash and cash equivalents.

The Company manages the credit risk associated with trade and
other receivables by selling to organizations with strong credit ratings and/or
by requiring substantial provisional pricing at the date of shipping its
products. The history of defaults by these organizations to other entities has
been negligible and the Company considers its risk in trade receivables to be
negligible as well.

Receivables other than trade receivables are primarily sales
tax receivables from the governments of Guatemala, Peru and Canada. The Company
has a history of consistent collection of the sales tax receivables and
therefore considers its risk to be negligible.

The Company manages the credit risk associated with cash and
cash equivalents by investing these funds with highly rated financial
institutions and as such, the Company deems the credit risk on cash and cash
equivalents to be low.

Liquidity Risk

Liquidity risk is the risk that the Company will encounter
difficulty in meeting the obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. The Companys
approach to managing liquidity is to ensure, to the extent possible, that it
will always have sufficient liquidity to meet its liabilities when due, under
both normal and stressed conditions, without incurring unacceptable losses or
risking damage to the Companys reputation. To further mitigate this risk, the
Company has the Revolving Facility in place in the amount of $150 million.

Refer to the Commitments and Contingencies section of
this MD&A for details on the Companys significant undiscounted commitments
at December 31, 2016.

Market Risk

The market risk of the Company is composed of three main risks:
foreign exchange risk, interest rate risk, and price risk.

Foreign Exchange Risk

The Company is exposed to foreign
exchange or currency risk on balances that are denominated in a currency other
than the USD. These include cash and cash equivalents, sales tax receivables,
accounts payable and accrued liabilities, finance leases and taxes payable.

To minimize currency risk,
substantially all of the Companys cash is denominated in USD and is kept in
highly liquid instruments such as commercial paper and time deposits.

Cash and cash equivalents held in
foreign currencies, denominated in USD, are as follows:

| |                    |   | December 31, 2016 |  |   | December 31, 2015 | 
| | ------------------ | - | ----------------- |  | - | ----------------- | 
| | Guatemalan quetzal | $ | 564               |  | $ | 777               | 
| | Peruvian sol       |   | 3,579             |  |   | 2,185             | 
| | Canadian dollar    |   | 20,386            |  |   | 2,650             | 
| | Other              |   | 82                |  |   | 87                | 
| |                    | $ | 24,611            |  | $ | 5,699             | 

Exchange rate fluctuations may also
affect the costs that the Company incurs in its operations. While most of the
Companys goods and services are contracted in USD, there is a portion
contracted in other currencies (CAD, Guatemalan quetzals and Peruvian soles).
The appreciation of these currencies against the USD can increase the production costs the Company incurs while the
depreciation of these currencies against the USD can decrease the production
costs the Company incurs.

46

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

In addition, the Company is exposed to
currency risk through non-monetary assets and liabilities of subsidiaries whose
taxable profit or tax loss are denominated in foreign currencies. Changes in
exchange rates give rise to temporary differences resulting in a deferred tax
liability or asset with the resulting deferred tax charged or credited to income
tax expense. At December 31, 2016, the Company had $236.2 million of deferred
income tax liabilities, which arose primarily from the acquisitions of Rio Alto
in 2015 and Lake Shore Gold in 2016. Based on the Companys foreign exchange
exposure on deferred tax liabilities at December 31, 2016, a 10% appreciation or
depreciation in foreign exchange rates against the USD would have resulted in an
approximate $17.1 million increase or decrease in the Companys earnings.

The Company recognized a foreign
exchange loss of $435 at December 31, 2016 (December 31, 2015: $4.5 million).
Based on the Companys net exposure on monetary assets at December 31, 2016, a
10% appreciation or depreciation in foreign exchange rates against the USD would
have resulted in an approximate $3.8 million increase or decrease in the
Companys earnings.

At December 31, 2016, the Company has
determined the exposure to currency risk to be at an acceptable level.

Interest Rate Risk

Interest rate risk is the risk that the
Companys future cash flows and fair values will fluctuate as a result of
changes in market interest rates. At December 31, 2016, the Companys
interest-bearing financial instruments are related to cash and cash equivalents,
the Facility, the Revolving Facility and finance leases. The weighted average
interest rate paid by the Company during the year ended December 31, 2016
related to debt facilities was 2.95% (year ended December 31, 2015: 6.29%) . No
amounts were drawn on the Revolving Facility and therefore only standby fees
were applicable for the year ended December 31, 2016.

At December 31, 2016, the Company has
determined the interest rate risk to be low and that a 10% increase or decrease
in market interest rates would result in a nominal increase or decrease to the
Companys earnings.

Price Risk

Price risk is the risk that the fair
value of the Companys financial instruments will fluctuate due to changes in
market prices.

The Company has determined that price
risk due to fluctuations in metals prices is at an acceptable level and has not
entered into any hedging contracts.

The costs associated with production,
development, construction and exploration activities of the Company are also
subject to price risk as it relates to certain consumables including diesel fuel
and power. The Company deems its exposure to price risk related to fuel prices
to be at an acceptable level and has not entered into any hedging contracts.

At December 31, 2016, the Company has
determined overall exposure to price risk to be at an acceptable level.

|DEBT
      FACILITIES
|---------------------

Loan

As part of the acquisition of Rio Alto on April 1, 2015, the
Company acquired a $35 million loan (the Loan). The funds were used by Rio
Alto for general working capital purposes. As security for the Loan, Rio Alto
granted a charge over the shares of its subsidiary Empresa de Energia Yamobamba
S.A.C. and the rights of collection of future cash flows derived from metal
sales at the La Arena mine.

47

---

|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

The Loan had an original one-year term, maturing June 16, 2015
bearing interest at 30-day LIBOR plus 2.60% . Upon maturity, the Loan was
extended an additional nine months to March 16, 2016 and was further amended to
reflect a maturity date of April 16, 2016. All other terms remained per the
original contract.

On April 8, 2016, the Loan was repaid in full using the
proceeds of the Facility.

Credit facility

On April 8, 2016, the Company signed a credit agreement with an
international bank for a credit facility (the Facility) for an aggregate
amount of $35 million. The Facility bears interest at LIBOR plus 2.25% on the
portion drawn. The LIBOR rate was reset on January 11, 2017. The Facility has a
two-year term, maturing April 9, 2018.

On April 8, 2016, proceeds from the Facility were used to repay
the Loan which was acquired as part of the acquisition of Rio Alto on April 1,
2015.

Revolving credit facility

On August 10, 2015, the Company signed a credit agreement with
a syndicate of international banks for a revolving credit facility (the
Revolving Facility) for an aggregate amount of $150 million. Based on certain
financial ratios, the Revolving Facility bears interest on the portion drawn, on
a sliding scale of LIBOR plus between 2.25% to 3.25% or a base rate plus 1.25%
to 2.25% which is based on the Companys consolidated net leverage ratio.

Standby fees for the undrawn portion of the Revolving Facility
are also on a similar sliding scale basis of between 0.56% and 0.81% and were
$0.2 million and $0.8 million for Q4 2016 and 2016, respectively (Q4 2015 and
2015: $0.2 million and $0.3 million, respectively). The term for the Revolving
Facility is three years and proceeds may be used for general corporate purposes.
As at the date of this MD&A, the Company had not drawn on the Revolving
Facility.

The Company is currently in compliance with all covenants
associated with the Revolving Facility and the Facility.

|LEASE
      OBLIGATIONS
|-----------------------

As part of the acquisition of Rio Alto on April 1, 2015, the
Company acquired a lease obligation in the form of a sale-leaseback agreement
entered into on January 29, 2015 for the La Ramada substation (La Ramada) in
Peru. La Ramada was sold for $20.7 million in exchange for cash and a deferred
gain on sale of $0.6 million was recognized and is being amortized over the term
of the sale-leaseback. Subsequent to the sale of La Ramada but on the same date,
a leaseback transaction was entered into in the amount of $20.7 million for a
term of three years with quarterly instalments of interest and principal at an
effective interest rate of 6.95% and $1.2 million in principal on the lease was
immediately repaid. On April 1, 2015, the lease obligation had a fair value of
$19.3 million. The agreement is a finance lease and a corresponding asset has
been recognized within mineral interests.

On August 5, 2016, the lease obligation was retired for a total
of $11.0 million. Refer to the Highlights  La Ramada Sale-Leaseback
section of this MD&A.

As part of the acquisition of Lake Shore Gold on April 1, 2016,
the Company acquired finance lease obligations related to equipment and
vehicles, expiring between 2016 and 2018 with interest rates between 0.9% and
6.85% . The Company has the option to purchase the equipment and vehicles leased
at the end of the terms of the leases, for a nominal amount. The Companys
obligations under the finance leases are secured by the lessors title to the
leased assets. The fair values of the finance lease liabilities approximate
their carrying amount.

In addition to the finance leases acquired as part of the
acquisition of Lake Shore Gold, the Company also acquired a finance lease
obligation in the form of a sale-leaseback transaction whereby the Company sold
certain mobile equipment for CAD$7.3 million and leased them back for a period
of 36 months. The sale-leaseback bore interest at 3.7% and was paid through 12
quarterly instalments of principal and interest with the final payment having
been paid on October 1, 2016. Upon final payment, the Company elected the option
to purchase all the equipment for CAD$1.3 million.

48

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

At December 31, 2016, the Company had total lease obligations
of $15.9 million (December 31, 2015: $13.9 million).

|COMMITMENTS AND
      CONTINGENCIES
|-----------------------------------

The Companys significant undiscounted commitments at December
31, 2016 are as follows:

|                                               |   |         |  |   |           |  |   |          |  |   | December 31, |  |   | December 31, | 
|---------------------------------------------- | - | ------- |  | - | --------- |  | - | -------- |  | - | ------------ |  | - | ------------ | 
|                                               |   |         |  |   |           |  |   |          |  |   | 2016         |  |   | 2015         | 
|                                               |   | 1 year  |  |   | 2-5 years |  |   | 5+ years |  |   | Total        |  |   | Total        | 
|Accounts payable and accrued
      liabilities | $ | 129,170 |  | $ | -         |  | $ | -        |  | $ | 129,170      |  | $ | 99,748       | 
|Debt                                           |   | -       |  |   | 35,000    |  |   | -        |  |   | 35,000       |  |   | 35,000       | 
|Income tax payable                             |   | 10,733  |  |   | -         |  |   | -        |  |   | 10,733       |  |   | 9,981        | 
|Lease and contractual agreements               |   | 8,696   |  |   | 7,250     |  |   | -        |  |   | 15,946       |  |   | 9,477        | 
|Commitments(1)                                 |   | 116,684 |  |   | 6,797     |  |   | -        |  |   | 123,481      |  |   | 85,230       | 
|Other non-current liabilities                  |   | -       |  |   | 24,917    |  |   | -        |  |   | 24,917       |  |   | 5,674        | 
|Reclamation provision                          |   | -       |  |   | 1,039     |  |   | 98,234   |  |   | 99,273       |  |   | 69,401       | 
|                                               | $ | 265,283 |  | $ | 75,003    |  | $ | 98,234   |  | $ | 438,520      |  | $ | 314,511      | 

|(1) | Commitments to purchase equipment, services, materials
      and supplies.
|--- | --------------------------------------------------------------------------

|OFF-BALANCE
      SHEET ARRANGEMENTS
|------------------------------------

The Company currently has no off-balance sheet arrangements.

|USE OF
      FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
|----------------------------------------------------------------

The principal financial instruments currently affecting the
Companys financial condition are cash and cash equivalents, restricted cash,
trade and other receivables (including provisionally priced accounts
receivable), other financial assets, accounts payable and accrued liabilities,
debt and finance leases. The Companys exposure to credit risk on its foreign
currency and United States currency deposits is limited by maintaining such cash
and term deposits with major Canadian banks and banks in the United States that
have strong credit ratings. A minimal amount of cash is held by banks in
Switzerland, Barbados, Guatemala and Peru to fund the immediate needs of
subsidiaries in those locations. To minimize risk, the Companys funds are kept
in highly liquid instruments and on deposit with stable institutions and are
redeemable on demand.

Currency Swap

Concurrent with the sale-leaseback agreement discussed in the
Cash Flow, Liquidity, Capital Resources and Other Information - Lease
Obligation section of this MD&A, a cross-currency swap (the Currency
Swap) was entered into in the amount of $23.6 million at a fixed exchange rate
of 2.96 Peruvian soles to one USD with quarterly instalments of principal and
interest over a 3-year term. The changes in the fair value of the Currency Swap
are recognized in the statement of operations as an unrealized gain or loss. On
August 3, 2016, concurrent with the retirement of the La Ramada lease
obligation, the currency swap was discharged for a total cost of $1.9 million.
Refer to the Highlights  La Ramada Sale-Leaseback section of this
MD&A.

|RELATED PARTIES
|---------------

Related party transactions

During the year ended December 31, 2016, the Companys related
parties included its subsidiaries, key management personnel, and Directors.

49

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Key management personnel compensation

Key management are those personnel having the authority and
responsibility for planning, directing, and controlling the Company. In addition
to their salaries, key management personnel, including the Board of Directors,
Officers and senior management, receive bonuses and also participate in the
Companys Share Plan.

Key management personnel compensation included in general
administrative expenses is as follows:

|                                      |   | 2016   |  |   | 2015   | 
|------------------------------------- | - | ------ |  | - | ------ | 
|Short-term employee
      benefits(1) | $ | 8,870  |  | $ | 10,397 | 
|Share-based payments                  |   | 5,948  |  |   | 5,473  | 
|                                      | $ | 14,818 |  | $ | 15,870 | 

|(1) | Short-term employee benefits include salaries, bonuses
      and other annual employee benefits paid during the
year.
|--- | ---------------------------------------------------------------------------------------------------------------------

|RECLAMATION AND
      CLOSURE
|-----------------------------

The Company has an obligation to reclaim its properties. The
Company recognizes the present value of liabilities for reclamation and closure
costs in the period in which they are incurred. A corresponding increase in the
carrying amount of the related assets is recorded and amortized over the life of
the asset.

In determining the discount rate to be used in the calculation
of the present value of the future reclamation obligations, the Company combines
risk and inflation rates specific to the country in which the reclamation will
take place.

At December 31, 2016, the Company has estimated the present
value of the future reclamation obligation arising from its activities to be
$64.2 million (December 31, 2015: $39.5 million).

At December 31, 2016, the Company had letters of credit
(LOCs) outstanding in the amount of $12.3 million and $2.4 million as partial
guarantees of the La Arena and Shahuindo closure obligations as required by MEM.
The LOCs were valid for one year with a renewal date of January 8, 2017. On
January 13, 2017 the Company posted renewed LOCs under the same terms and
totaling $12.5 million and $5.0 million for La Arena and Shahuindo,
respectively.

At December 31, 2016, the Company had a bond outstanding in the
amount of $5.7 million as partial guarantee of the Timmins mines closure
obligations as required by the Ministry of Northern Development and Mines.

|ASSET VALUATION
|---------------

The Company assesses indicators of impairment on a quarterly
basis for all CGUs and tests those CGUs for which indicators exist. Goodwill is
tested at least annually or when there are indicators of impairment. The purpose
of the impairment testing is to determine if the recoverable amount (fair value
less costs of disposal (FVLCD)) of a CGU is greater than its carrying
value.

The Company identified six CGUs which were assessed for
indicators of impairment: Escobal, La Arena oxides, La Arena Sulfides,
Shahuindo, Timmins Mines and the Timmins Exploration Potential. Discounted cash
flow models were prepared, where applicable, using long-term prices for gold of
$1,250/oz, silver of $17.50/oz and copper of $3.00/lb (2015: $1,200/oz, silver
price - $18.75/oz and copper price $3.00/lb), discount rates between 6.5% and
8.75% (2015: 7.00%) depending on the development stage of the operation or
project and currently enacted tax rates. In-situ values were used for the
impairment testing of exploration potential. Based on the results, for the year
ended December 31, 2016, management concluded that there was no impairment or
reversal of prior impairment for any of the CGUs (2015: $99.0 million and $121.0
million non-cash pre-tax impairment on La Arena and Shahuindo, respectively).

There have been no events or changes in circumstances that
would indicate either an impairment or the reversal of impairments previously
taken of the Companys assets during the period subsequent to December 31, 2016.

50

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

|OUTSTANDING
      SHARE DATA
|----------------------------

As at March 8, 2017, the Company had 311,736,296 issued and
outstanding common shares, 3,002,643 issued and outstanding options and 463,000
issued and outstanding deferred share awards.

|DIVIDENDS
|---------

The Company declared and paid dividends of $18.7 million and
$69.4 during Q4 2016 and 2016, respectively (Q4 2015 and 2015: $13.6 million and
$49.7 million, respectively), including $2.4 million and $2.4 million in
share-based dividends, respectively. This increase in dividend payments over Q4
2015 and 2015 primarily relates to the additional shares outstanding as a result
of the acquisition of Lake Shore Gold on April 1, 2016. The Company declared and
paid dividends totaling $12.4 million during January and February 2017 (January
and February 2016: $9.1 million) and declared and made payable dividends of
$0.02 per share for the month of March 2017.

As a result of shareholder enrolment in the Dividend
Reinvestment Plan effective October 2016, $2.4 million was reinvested for a
total issuance of 256,747 common shares of the Company during Q4 2016. For the
months of January and February 2017, $2.5 million was reinvested for a total
issuance of 290,846 common shares of the Company.

|CHANGES IN
      ACCOUNTING POLICIES AND STANDARDS
|--------------------------------------------------

Application of new and revised accounting standards
effective January 1, 2016

The Company has evaluated the new and revised IFRS standards
and has also expanded accounting policies as a result of the acquisition of Lake
Shore Gold and has determined that there is no material impact on the
consolidated financial statements upon adoption. These accounting standards are
disclosed in note 4a) of the consolidated financial statements.

Future accounting standards and
interpretations

A number of new IFRS standards, and amendments to standards and
interpretations, are not yet effective for 2016, and have not been applied in
preparing the consolidated financial statements. The Company is currently
evaluating the impact that future accounting standards and interpretations may
have on its consolidated financial statements. Details of these standards and
interpretations are disclosed in note 4b) of the consolidated financial
statements.

|CRITICAL
      ACCOUNTING ESTIMATES
|-----------------------------------

Critical accounting estimates used in the preparation of the
consolidated financial statements include the Companys determination of:
functional currency; forward market prices for quotational periods used in
revenue recognition of provisional priced concentrate sales; asset carrying
values, impairment charges of long-lived assets; Mineral Resources; the
valuation of share-based payments; and amounts accrued for reclamation
obligations. The estimates of non-cash compensation expenses involve
considerable judgment and are, or could be, affected by significant factors that
are out of the Companys control. Actual results could differ from those
estimates.

Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized in the period in which
the estimates are revised and in future periods affected.

Judgments

Commercial Production

In order to declare commercial production, a mine must be able
to operate at levels intended by management. Prior to commercial production
costs incurred are capitalized as part of the cost of placing the asset into
service and proceeds from the sale of concentrates and doré are offset against
the costs capitalized. Subsequent to the declaration of commercial production
depletion of the costs incurred begins. Management considers several criteria in
determining when a mine is operating at levels intended, and is therefore in
commercial production.

51

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Functional Currency

The functional currency for each of the Company and its
subsidiaries is the currency of the primary economic environment in which the
entity operates. The Company has determined that for each subsidiary the
functional currency is the United States dollar. When determining the functional
currency certain judgments may be involved to assess the primary economic
environment in which the entity operates. If there is a change in events or
conditions which determined the primary economic environment, the Company
re-evaluates the functional currency for each of the subsidiary impacted.

Economic recoverability and probability of future economic
benefits of exploration, evaluation and development costs.

The Company makes determinations whether development and
related costs incurred which have been capitalized are economically recoverable.
Management uses several criteria in its assessments of economic recoverability
and probability of future economic benefits including geological and
metallurgical information, economic assessments and existing permits for the
life of mine plan. The estimates contained within these criteria could change
over time which could affect the economic recoverability of capitalized costs.

Estimates

Revenue recognition

As is customary in the industry, revenue on provisionally
priced concentrate sales is recognized based on relevant forward market prices.
At each reporting period, provisionally priced concentrate sales are marked to
market based on the estimated forward price for the quotational period
stipulated in the contract. The adjustment to provisionally priced metal sold is
included in concentrate revenue.

Estimated material in the mineral reserves

The figures for mineral reserves and mineral resources are
determined in accordance with National Instrument 43-101 Standards of Disclosure
for Mineral Projects (NI 43-101), issued by the Canadian Securities
Administrators. NI 43-101 articulates the standards of disclosure for mineral
projects including rules relating to the determination of mineral reserves and
mineral resources. Management assesses the estimated mineral reserves and
mineral resources used in the calculation of depletion at least annually, or
whenever facts and circumstances warrant that an assessment should be made.
Changes to estimates of mineral reserves and mineral resources and depletable
costs including changes resulting from revisions to the Company's mine plans and
changes in metal price forecasts can result in a change in future depletion
rates.

Where commercial production has commenced but proven and
probable reserves have yet to be established, the carrying amounts of the
Companys depletable mineral interests are depleted based on the mineable
portion of measured and indicated resources.

Determination of Useful Lives

Plant and equipment other than mineral interests are
depreciated using the straight-line method based on the specific assets useful
life. Should the actual useful life of the plant or equipment vary from the
initial estimation, future depreciation charges may change. Should the
componentization of these like assets change, depreciation charges may vary
materially in the future.

Impairment charges

At the end of each reporting period, the Company assesses
whether any indication of impairment exists. Where an indicator of impairment
exists, an impairment analysis is performed. The impairment analysis requires
the use of estimates and assumptions including amongst others, long-term
commodity prices, discount rates, length of mine life, future production levels,
future operating costs, future capital expenditures and tax positions taken. The
estimates and assumptions are subject to risk and uncertainty; hence, there is
the possibility that changes in circumstances will alter these projections,
which may impact the recoverable amount of the individual assets or CGUs. In
such circumstances, some or all of the carrying value of the assets or CGUs may
be further impaired or the impairment charge reduced with the impact recorded in the
consolidated statements of operations and comprehensive income (loss).

52

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Reclamation provision and site closure costs

The Companys accounting policy for the recognition of accrued
  site closure costs requires significant estimates and assumptions such as the
  requirements of the relevant environmental, legal and regulatory framework, the
  magnitude of possible disturbance and the timing, extent and costs of required
  closure and rehabilitation activity. Changes to these estimates and assumptions
  may result in future actual expenditures differing from the amounts currently
  provided for. The decommissioning liability is periodically reviewed and updated
prospectively based on the available facts and circumstances.

Income taxes

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 deferred
income tax assets and liabilities recorded in the financial statements. Changes
in deferred 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 deferred 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 deferred tax liabilities, and tax planning
initiatives. Levels of future taxable income are affected by, among other
things, the market price for saleable metals, production costs, interest rates
and foreign currency exchange rates.

Valuation of inventory

All inventory is valued at the lower of average cost or net
realizable value. Management is required to make various estimates and
assumptions to determine the value of stockpiled ore, concentrate inventories,
ore stacked on leach pads and ore in process. The estimates and assumptions
include surveyed quantities of stockpiled ore, in-process volumes, contained
metal content, recoverable metal content, costs to recover saleable metals,
payable metal values once processed and the corresponding metals prices. Changes
in these estimates can result in changes to the carrying amounts of inventories
and mine operating costs of future periods.

Deferred stripping costs

Stripping costs incurred during the production phase of a
mineral property that relate to reserves and resources that will be mined in a
future period are capitalized. The Company makes estimates of the stripping
activity over the life of the component of reserves and resources which will be
made accessible. Changes in estimated strip ratios can result in a change to the
future capitalization of stripping costs incurred.

Share-based compensation

The Company makes certain estimates and assumptions when
calculating the fair values of share-based compensation granted. The significant
estimations and assumptions include expected volatility, expected life, expected
dividend yield and expected risk-free rate of return. Changes in these
assumptions may result in a material change to the expense recorded for the
issuance of share-based compensation.

Business combinations

The information necessary to measure the fair values as at the
acquisition date of assets acquired and liabilities assumed requires management
to make certain judgments and estimates about future events, including but not
limited to:

| | Estimates of mineral reserves, mineral
      resources and exploration potential acquired;
|- | ------------------------------------------------------------------------------------------
| | Future operating costs and capital
      expenditures;                                    
| | Discount rates to determine fair value of
      assets acquired; and                      
| | Future metal prices and long-term foreign
      exchange rates.                           

53

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Changes to the preliminary measurements of assets and
liabilities acquired may be retrospectively adjusted when new information is
obtained until the final measurements are determined within one year of the
acquisition date.

Contingencies

Due to the size, complexity and nature of the Companys
operations, various legal and tax matters arise in the ordinary course of
business. The Company accrues for such items when a liability is both probable
and the amount can be reasonably estimated.

There are no matters at December 31, 2016 that are expected to
have a material effect on the consolidated financial statements of the Company.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS
OVER FINANCIAL REPORTING

|DISCLOSURE
      CONTROLS AND PROCEDURES
|----------------------------------------

The Companys management, including the President and Chief
Executive Officer (CEO) and the Vice-President and Chief Financial Officer
(CFO), is responsible for the design of disclosure controls and procedures and
internal controls over financial reporting (ICFR). Having assessed the
effectiveness of the Companys disclosure controls and procedures, the CEO and
CFO believe that the disclosure controls and procedures are effective at a
reasonable assurance level as at March 9, 2017.

|INTERNAL
      CONTROLS OVER FINANCIAL REPORTING
|------------------------------------------------

The Companys management is responsible for establishing and
maintaining an adequate system of internal controls, including ICFR. To design
and evaluate its ICFR, the Company used the Internal Control  Integrated
Framework (2013) published by the Committee of Sponsoring Organizations of the
Treadway Commission (the 2013 COSO Framework).

The Companys ICFR include policies and procedures that: (1)
pertain to the maintenance of records and accurately and fairly reflect, in
reasonable detail, the transactions related to acquisition, maintenance and
disposition of its assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with IFRS, and receipts are recorded and expenditures are incurred
only in accordance with authorization of its management and directors; and (3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of assets that could have a
material effect on its financial statements.

The Company has designed its internal risk management and
control systems to provide reasonable (but not absolute) assurance to ensure
compliance with regulatory matters and to safeguard reliability of the financial
reporting and its disclosures.

As at December 31, 2016, the Companys design of ICFR included
the controls, policies and procedures of Rio Alto, acquired on April 1, 2015.

In accordance with National Instrument 52-109 and Rule 13a-15as
interpreted by the U.S. Securities and Exchange Commission, the design of ICFR
excludes the controls, policies and procedures of Lake Shore Gold on the basis
that not more than 365 days has passed since the acquisition date of April 1,
2016 (comparative period ending December 31, 2015 excluded the controls,
policies and procedures of Rio Alto on the basis that not more than 365 days had
passed since the acquisition date of April 1, 2015).

Management assessed the effectiveness of the Companys ICFR as
at December 31, 2016, based on the criteria set forth in the 2013 COSO Framework
and concluded that, other than the limitation described above, the Companys
ICFR was effective and provided reasonable assurance that financial information
was recorded, processed, summarized and reported in a timely manner as at
December 31, 2016.

54

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

|CAUTIONARY NOTE
      REGARDING INTERNAL CONTROLS
|-------------------------------------------------

The Companys management, including the CEO and the CFO,
believe that any disclosure controls and procedures or internal controls and
procedures, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, they cannot provide absolute assurance that all control issues and
instances of fraud, if any, within the Company have been prevented or detected.
These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by unauthorized
override of the control. The design of any system of control is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Accordingly, because of the inherent
limitations in a cost effective control system, misstatements due to error or
fraud may occur and may not be detected.

TECHNICAL INFORMATION

Charles Muerhoff, Vice President Technical Services and
Qualified Person as defined in National Instrument 43-101 has reviewed and
approved the scientific and technical information contained in this MD&A.

The basis of the Mineral Resource and Mineral Reserve estimates
for the Escobal mine is from Escobal Mine Guatemala NI 43-101 Feasibility
Study dated November 5, 2014. Mineral Resources at January 1, 2017 are
reported using a silver-equivalent cut-off grade of 130 g/t using metal prices
of $22/oz silver, $1,325/oz gold, $1.00/lb lead and $0.95/lb zinc. Mineral
Reserves at January 1, 2017 are reported using a cut-off grade calculated from
the net smelter return value minus production costs using metal prices of $20/oz
silver, $1,300/oz gold, $1.00/lb lead and $1.25/lb zinc. Mineral Resources and
Mineral Reserves reported at January 1, 2017 were calculated by subtracting mine
depletion volumes from the Mineral Resource and Mineral Reserve estimates stated
in the aforementioned technical report.

The basis of the Mineral Resource and Mineral Reserve estimates
for the La Arena mine is from La Arena Project, Peru Technical Report (NI
43-101) dated February 27, 2015. Oxide Mineral Resources at January 1, 2017
are reported at a gold cut-off grade of 0.10 g/t within a $1,400/oz gold pit
shell. Sulfide Mineral Resources are reported at a copper cut-off grade of 0.12%
within a $3.50/lb copper and $1,400/oz gold pit shell. Oxide Mineral Reserves
are reported using gold cut-off grades of 0.15 g/t for planned 2017 production
and 0.10 g/t for planned post-2017 production within a pit designed from a
$1,200/oz gold pit shell. Sulfide Mineral Reserves are reported at a copper
cut-off grade of 0.12% within a pit designed from a $3.00/lb copper and
$1,200/oz gold pit shell. Oxide Mineral Resources and Mineral Reserves reported
at January 1, 2017 were calculated by applying the mine topographic surface at
January 1, 2017 to an updated Mineral Resource estimate effective July 1, 2016.
Sulfide Mineral Resources and Mineral Reserves remain unchanged as reported in
the aforementioned technical report.

The basis of the Mineral Resource and Mineral Reserve estimates
for the Shahuindo mine is from Technical Report on the Shahuindo Mine,
Cajabamba, Peru dated January 25, 2016. Oxide Mineral Resources at January
1, 2017 are reported at a gold cut-off grade of 0.15 g/t within a $1,400/oz gold
pit shell. Sulfide Mineral Resources are reported at a gold cut-off grade of 0.5
g/t. Oxide Mineral Reserves at January 1, 2017 are reported at gold cut-off
grades of 0.25 g/t for planned 2017 and 2018 production and 0.18 g/t for planned
post-2018 production within a pit designed from a $1,200/oz gold pit shell.
Oxide Mineral Resources and Mineral Reserves at January 1, 2017 were calculated
by applying the mine topographic surface at January 1, 2017 to an updated
Mineral Resource estimate effective July 1, 2016. Sulfide Mineral Resources
remain unchanged as reported in the aforementioned technical report.

The basis of the Mineral Resource and Mineral Reserve estimates
for the Timmins West mine is from 43-101 Technical Report, Updated Mineral
Reserve Estimate for Timmins West Mine and Initial Resource Estimate for the 144
Gap Deposit, Timmins, Ontario, Canada dated February 29, 2016. Mineral
Resources at January 1, 2017 are reported at a gold cut-off grade of 1.5 g/t.
Mineral Reserves at January 1, 2017 are reported using a gold cut-off grade of
2.0 g/t and a gold price of $1,250/oz. Mineral Resources and Mineral Reserves at
January 1, 2017 calculated by subtracting June through October 2016 mine
depletion volumes and November through December 2016 forecasted production from
an updated Mineral Resource estimate effective June 1, 2016.

55

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

The basis of the Mineral Resource and Mineral Reserve estimates
for the Bell Creek mine is from NI 43-101 Technical Report, Updated Mineral
Reserve Estimate for Bell Creek Mine, Hoyle Township, Timmins, Ontario,
Canada dated March 27, 2015. Mineral Resources at January 1, 2017 are
reported at a gold cut-off grade of 2.2 g/t. Mineral Reserves at January 1, 2017
are reported using a gold cut-off grade of 2.2 g/t and a gold price of
$1,250/oz. Mineral Resources and Mineral Reserves at January 1, 2017 calculated
by subtracting June through October 2016 mine depletion volumes and November
through December 2016 forecasted production from an updated Mineral Resource
estimate effective June 1, 2016.

The Mineral Resource estimate for the Fenn-Gib project is from
Fenn-Gib Resource Estimate Technical Report, Timmins Canada dated November 17,
2011 for Lake Shore Gold Corp. The effective date of the Mineral Resource
estimate is November 17, 2011. Indicated Mineral Resources reported used a gold
cut-off grade of 0.5 g/t within an optimized $1,190/oz gold pit shell. Inferred
Mineral Resources within an optimized $1,190/oz gold pit shell reported used a
gold cut-off grade of 0.5 g/t; Inferred Mineral Resources outside of the
optimized pit shell reported used a gold cut-off grade of 1.5 g/t.

The Mineral Resource estimate for the Juby project is from
Technical Report on the Updated Mineral Resource Estimate for the Juby Gold
Project, Tyrrell Township, Shining Tree Area, Ontario dated February 24, 2014.
The effective date of the Mineral Resource estimate is February 24, 2014.
Mineral Resources reported used a gold cutoff grade of 0.4 g/t.

The Mineral Resource estimate for the Gold River project is
from Technical Report on the Update of Mineral Resource Estimate for the Gold
River Property, Thorneloe Township, Timmins, Ontario, Canada dated April 5, 2012
with an effective date of January 17, 2012. Resources reported used a gold
cut-off grade of 2.0g/t and gold price of $1,200/oz.

Technical terms used in this MD&A but not otherwise defined
herein are as described in the Companys AIF.

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This MD&A contains forward-looking information within the
meaning of applicable Canadian securities legislation, and forward-looking
statements within the meaning of the United States Private Securities
Litigation Reform Act of 1995 (collectively referred to as forward-looking
statements). All statements, other than statements of historical fact, are
forward-looking statements. The words "believe", "expect", "anticipate",
"contemplate", "target", "plan", "intend", "continue", "budget", "estimate",
"may", "will", "schedule" and similar expressions or statements identify
forward-looking statements. Forward-looking statements include, but are not
limited to, statements related to the following: the 2017, 2018 and 2019
operations outlook and production guidance, including estimates related to gold
and silver Mineral Reserves and Mineral Resources (including growing Mineral
Reserves and/or Mineral Resources in Canada by two to four million ounces by
2020), production (including growing gold production to over half a million
ounces in 2019 and to over 550,000 in 2020 through expansion of the Shahuindo
mine to a capacity of 36,000 tpd by mid-2018 and through completion of the BC
Shaft Project by mid-2018), total cash cost per ounce, all-in sustaining cost
per ounce, capital expenditures, corporate general and administration expenses
and exploration expenses; the expected working capital requirements, the
sufficiency of capital resources and the possibility of considering alternative
financing arrangements to meet strategic needs; the expected depreciation and
depletion rates; exploration and review of prospective mineral acquisitions;
changes in Guatemalan, Peruvian and Canadian mining laws and regulations;
changes to the tax dividend rates in Guatemala, Peru and Canada; the timing and
results of court proceedings; the anticipated timing of updated Mineral Resource
and Mineral Reserve estimates; the anticipated timing of completion of the PEA
for the La Arena Sulfides and Fenn-Gib projects; the timing of completion of the
BC Shaft Project; the cost and timing of sustaining capital projects; the
expectation of meeting production targets; the timing of the receipt of permits
at Shahuindo; the availability and sufficiency of power and water for
operations; the timing and cost of the design, procurement, and construction of
the crushing and agglomeration circuit at Shahuindo, including the expected
timeline for achieving 80% recovery for agglomerated ore; the timing for
completion of the MSE pond and South dump at Shahuindo; the expectation that
changes to the crushing and agglomeration circuit will result in slightly lower
capital and operating costs at Shahuindo; and the expected commissioning of the
dirty water pump station at Escobal in Q2 2017.

Forward-looking statements are based on the reasonable
assumptions, estimates, analyses and opinions of management made in light of its
experience and its perception of trends, current conditions and expected
developments, as well as other factors that management believes to be relevant
and reasonable in the circumstances at the date that such statements are made, but
which may prove to be incorrect. Management believes that the assumptions and
expectations reflected in such forward-looking statements are reasonable.
Assumptions have been made regarding, among other things: the Companys
performance and ability to implement operational improvements at the Escobal, La
Arena, Shahuindo and Timmins mines; the Companys ability to carry on
exploration and development activities, including land acquisition and
construction; the timely receipt of permits and other approvals; the successful
outcomes of consultations with First Nations; the price of silver, gold and
other metals; prices for key mining supplies, including labor costs and
consumables, remaining consistent with the Companys current expectations;
production meeting expectations and being consistent with estimates; plant,
equipment and processes operating as anticipated; there being no material
variations in the current tax and regulatory environment; the Companys ability
to operate in a safe, efficient and effective manner; the exchange rates among
the Canadian dollar, Guatemalan quetzal, Peruvian sol and the USD remaining
consistent with current levels; and the Companys ability to obtain financing as
and when required and on reasonable terms. Readers are cautioned that the
foregoing list is not exhaustive of all factors and assumptions which may have
been used.

56

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

Forward-looking statements are subject to known and unknown
risks, uncertainties and other factors that may cause actual results to be
materially different from those expressed or implied by such forward-looking
statements. Such risks, uncertainties and other factors include but are not
limited to: the fluctuation of the price of silver, gold and other metals;
changes in national and local government legislation, taxation and controls or
regulations; social unrest, and political or economic instability in the
jurisdictions in which the Company operates; the availability of additional
funding as and when required; the speculative nature of mineral exploration and
development; the timing and ability to maintain and, where necessary, obtain
necessary permits and licenses; the uncertainty in the estimation of Mineral
Resources and Mineral Reserves; the uncertainty in geologic, hydrological,
metallurgical and geotechnical studies and opinions; infrastructure risks,
including access to water and power; drought and other environmental conditions
outside the Companys control; the impact of inflation; changes in the
administration of governmental regulation, policies and practices; environmental
risks and hazards; insurance and uninsured risks; land title risks; risks
associated with illegal mining activities by unauthorized individuals on the
Companys mining or exploration properties; risks associated with competition;
risks associated with currency fluctuations; contractor, labor and employment
risks; dependence on key management personnel and executives; the timing and
possible outcome of pending or threatened litigation; the risk of unanticipated
litigation; risks associated with cyber security; risks associated with the
repatriation of earnings; risks associated with negative operating cash flow;
risks associated with the Companys hedging policies; risks associated with
dilution; and risks associated with effecting service of process and enforcing
judgments. For a further discussion of risks relevant to the Company, see the
Companys AIF under the heading Description of Our Business  Risk
Factors, available on SEDAR at www.sedar.com.

Although management has attempted to identify important factors
  that could cause actual results to differ materially from those contained in
  forward-looking statements, there may be other factors that cause results not to
  be as anticipated, estimated or intended. There is no assurance that
  forward-looking statements will prove to be accurate, as actual results and
  future events could differ materially from those anticipated in such
  forward-looking statements. Accordingly, readers should not place undue reliance
  on forward-looking statements. The Company does not undertake to update any
  forward-looking statements, except as, and to the extent required by, applicable
  securities laws. For a more detailed discussion of risks and uncertainties
  affecting the Company, see the most recent AIF and other regulatory filings with
  the Canadian Securities Administrators, which are available on SEDAR under the
Companys issuer profile at www.sedar.com.

57

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|                                                                                                      | Managements Discussion and Analysis
|----------------------------------------------------------------------------------------------------- | ------------------------------------
|For the Years Ended December 31, 2016
      and 2015                                                 
|(tabular amounts expressed in thousands
      of United States dollars, except where otherwise noted)

NOTICE TO READERS IN THE UNITED STATES

Canadian standards, including those under National Instrument
43-101 Standards of Disclosure for Mineral Projects, differ significantly from
the requirements of the Securities and Exchange Commission of the United States
(SEC), and Mineral Resource and Mineral Reserve information contained or
incorporated by reference in the MD&A may not be comparable to similar
information disclosed by U.S. companies. Under U.S. standards, mineralization
may not be classified as a reserve unless the determination has been made that
the mineralization could be economically and legally produced or extracted at
the time the reserve determination is made. The SECs disclosure standards
normally do not permit the inclusion in documents filed with the SEC of
information concerning measured mineral resources, indicated mineral
resources or inferred mineral resources or other descriptions of the amount
of mineralization in mineral deposits that do not constitute reserves by U.S.
standards. U.S. investors should also understand that inferred mineral
resources have a great amount of uncertainty as to their existence and 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,
estimated inferred mineral resources may not form the basis of feasibility or
pre-feasibility studies except in rare cases. Investors are cautioned not to
assume that all or any part of an inferred mineral resource exists or is
economically or legally mineable. Disclosure of contained ounces in a mineral
resource estimate is permitted disclosure under Canadian regulations; however,
the SEC normally only permits issuers to report mineralization that does not
constitute reserves by SEC standards as in place tonnage and grade without
reference to unit measures. The requirements for identification of reserves
are also not the same as those of the SEC, and reserves reported by the Company
may not qualify as reserves under SEC standards. Accordingly, information
concerning mineral deposits set forth herein may not be comparable with
information made public by companies that report in accordance with U.S.
standards.

58

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